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This week’s episode covers debarment, defense spending, and FCA news, and is hosted by partners Peter Eyre and David Robbins. Crowell & Moring’s “Fastest 5 Minutes” is a biweekly podcast that provides a brief summary of significant government contracts legal and regulatory developments that no government contracts lawyer or executive should be without.

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As published in LAW360, here:  http://www.law360.com/articles/511084/a-false-sense-of-security-from-less-suspension-debarment

A False Sense Of Security From Less Suspension, Debarment

We are heading for a period of decreased suspension and debarment activity. I don’t mean the exclusions of individuals after mandatory disclosures, immigration violations or following news stories. Those will continue. I mean agency-developed, field-referred cases that evolve through partnerships with law enforcement or inspectors general. Those are about to fall off a cliff, temporarily.

Those cases are hard. They take time to develop and generally months or (more often) years has lapsed between case initiation and presentation to the suspending and debarring official. Actions working their way through the System for Award Management now generally began a couple of years ago. The last year or so the government has been hyper-focused on budgeting and execution, shutting down and starting back up, that agency core missions and vital program execution has been front and center. Fraud allegations and referrals to debarring officials, less so.

The natural result of this dynamic will be fewer cases of substance referred to suspending and debarring officials for a short period of time. (And my former colleagues still in the government will likely react with frustration when Congress, in an oversight capacity, takes aim once again at the suspension and debarment mission for declining numbers when budget instability is the major contributing factor to the decline in numbers.)

So what does this mean for contractors? It is time to take stock of internal ethics and compliance efforts, as well as business execution strategies to position these companies against complacency. The business risks facing contractors are tremendous. In a “lowest price technically acceptable” contracting world, with shrinking demand for contracted work, pressures to cut corners increase dramatically. And the coming lack of substantive suspensions and debarments will give the impression that the risks of cutting corners have decreased. Nothing can be farther from the truth.

There is a federal budget in place now for the first time in a long while. This certainty allows the government’s procurement fraud apparatus to fire back up and generate new cases — cases that will not be seen by a debarring official for months or years, but new cases nonetheless. It is too easy in a period of seeming lack of suspension and debarment activity for contractors to grow less vigilant. And advisers to contractors do not appear to be pushing back on this trend.

Following the media, and the practitioner opinions expressed in publications like Law360 and elsewhere, it seems that those advising the contractor community are focusing in the wrong place. There are far too many articles on how corporate affiliates can be excluded from contracting and the technical aspects of severing those affiliations following the Agility Defense & Government Services Inc. decisions and not nearly enough focus on proactive prevention and internal controls for contractors.

As an industry, let’s not become too comforted by a false sense of security. Internal controls still matter. Ethical business operations are never more important than in a time of heightened margin pressure. The vast majority of contractors are ethical and try to do the right thing. But that focus cannot slip. The government is watching. It may be a few years before they come knocking, but they are watching.

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Substantive suspensions and debarments from government contracting will decline the next two years. Stay tuned. Working on an article/opinion piece explaining why and what the dip does (and does not) mean.