ALM Properties, Inc.
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The New Hit List
Don't look now, but the number of federal contractors hit with suspensions and debarments just hit an all-time high. According to the annual report of the Interagency Suspension and Debarment Committee (ISDC), which coordinates federal agencies' actions against contractors, in the last fiscal year 928 suspensions, 2,398 debarments, and 2,512 other proposals for debarment were reported.
While debarments generally don't exceed three years, some 15 agencies imposed longer ones "where circumstances warranted," said the report, which was released last September. Among them, the Departments of Agriculture and of Housing and Urban Development issued permanent or indefinite debarments.
This was the context that spurred a webcast in May designed to examine the trend. It was moderated by Joseph West, cochair of Gibson, Dunn & Crutcher's government and commercial contracts practice, who cited unprecedented pressure on agencies to suspend and debar government contractors, and congressional proposals that would institute sweeping changes in suspension and debarment and reduce agency flexibility.
West invited three panelists to discuss this "hostility" in the regulatory environment. "Well, I'm not feeling particularly hostile," quipped Noel Woodward, associate general counsel for procurement integrity at the Defense Logistics Agency.
Woodward tried to assure the audience that suspensions are not punitive in nature, but "are meant to ensure that we protect the government's business interests." Suspension and debarment officers like herself try to convince Congress to keep flexibility in the process, said Woodward, who also serves on the ISDC. "We do not want automatic suspensions and debarments, because it's a death knell for many companies," she added.
Brian Baldrate is potentially on the receiving end of the "hostility." A senior counsel at defense contractor Raytheon Company in Washington, D.C., Baldrate said his company has about 75,000 employees, and the emergence of a rogue employee is always a scary prospect. "Companies currently can be held responsible and can be liable for acts of their employees," Baldrate said. "You can go in once and say it was a rogue employee. But then six months later, if you have a similar problem occur, they are going to be less understanding of that." So the real challenge, he explained, is to come up with a compliance program and monitoring system to prevent that type of misconduct from recurring.
The final panelist, Michael Diamant, said that best practices are converging no matter what the sanctioning agency. A partner at Gibson who focuses on white-collar criminal defense, Diamant also stressed that compliance violations create a sort of three-dimensional chess game for lawyers and their clients. "There could be civil exposure, criminal law exposure, suspension, and debarment exposure," he said.
He advised that corporations first decide what their priorities are and which agency they do the most business with, and then approach that agency: "You need to map out where your exposures are, and who you go to first." He stressed that any deal could affect business relationships with other agencies.
West noted that even the U.S. Department of Justice has recognized that companies can't completely eliminate the possibility of fraud, especially when there can be a rogue employee. He then asked if an agency like the Central Intelligence Agency "ever came out of left field" and vetoed a debarment.
Woodward conceded that it has happened, though not necessarily with the CIA. She noted that some companies are historically linked to an agency, such as The Boeing Company and the U.S. Air Force, "and we'll defer to that agency." She also observed that a company can sometimes resolve a problem by entering into an administrative agreement. Some 16 federal agencies entered into 46 such agreements last fiscal year, according to the ISDC report.
Such agreements are solely within the discretion of the agency. They create an incentive for a company to improve its ethical culture and business process to avoid debarment. And they usually require the company to implement enhanced internal compliance practices and ethics programs. An agreement can also require an independent third-party monitor or insist on the removal of individuals associated with a violation, the ISDC report says.
Finally, West asked whether some companies are "too big to debar." The panelists rejected the concept as a myth. Raytheon's Baldrate insisted that the prospect of debarment isn't taken lightly. "Our biggest customers are U.S. government agencies," he said. "Even actions short of debarment could still have significant consequences—such as suspension, or a decreased view of our company's integrity. We don't want that."