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It was 86 degrees and sunny in Sarasota on March 31, but Richard Bednar might as well have still been in overcast Washington. The Crowell & Moring senior counsel was at the National Defense Industrial Association’s annual educational conference, but he couldn’t seem to get away from his phone. Bednar’s client IBM had been suspended from seeking federal contracts by the Environmental Protection Agency for alleged bidding violations. The move rattled contractors and lawyers for the industry, including James McCullough of Fried, Frank, Harris, Shriver & Jacobson. “This just fell out of the sky,” says McCullough, head of the firm’s government contracts practice. But it wasn’t just that the suspension was a surprise: The company’s trouble was also a jolting reminder of what might be in store for others if a souring atmosphere for contractors in Washington results in more investigations or legislation stiffening penalties for scofflaws. After contractor problems in Iraq and the Gulf Coast (after Hurricane Katrina), “the reputations of a few really bad apples … have really permeated the contractor community,” says Olga Grkavac, executive vice president of the Information Technology Association of America, which represents IBM and a host of other federal contractors in Washington. Details about the allegations against IBM are scarce. An EPA agreement with IBM alludes to “adequate evidence” that the computer company improperly obtained bidding information that it used in a contract protest. According to Michael Golden of the Government Accountability Office, the protest involved an $84 million finance management system contract. The allegations sparked probes from the EPA’s inspector general and the U.S. Attorney’s Office for the Eastern District of Virginia. But regardless of the company’s possible wrongdoing, many attorneys handling government contract work say it’s hard to justify the EPA’s approach of suspending the company without any prior notification. The concern, says McDermott Will & Emery partner Stephen Ryan, is that the government would “suspend a company without engaging in discussions with them to find out where their side of the story might be and give them an opportunity to withdraw their bid themselves.” It’s almost unheard of for a major company to face suspension without being notified it is in jeopardy, says Rand Allen, chairman of Wiley Rein’s government contracts practice: “At a minimum, a company’s got some sense that something’s going on at a level of seriousness that would generate this.” PLAN B The EPA suspension on March 27 meant IBM contract bids governmentwide had to be discarded, and it wasn’t just IBM’s headache. In the following days, McCullough took calls from clients hurriedly throwing together contingency plans on bids that involved IBM in case the $1.3-billion-a-year government vendor would be knocked out of the game for a while. IBM’s legal team had the biggest scramble, of course. The EPA’s debarring officer, Robert Meunier, recalls rushed deal-making from Bednar, Crowell partner W. Stanfield Johnson, and several other Crowell attorneys specializing in contract protest matters. Ty Cobb, head of Hogan & Hartson’s white-collar criminal practice, also represented IBM. IBM’s message was clear, Meunier says: It wanted to get off the Excluded Parties List more than it wanted to argue over the allegations. IBM and its attorneys all either declined comment or did not return messages. On April 3, IBM’s assistant general counsel Richard Kaplan signed an interim agreement lifting the suspension. According to the agreement, IBM will withdraw its protest, cooperate with investigators, suspend five employees, and pay associated legal fees. Despite those concessions, IBM’s position isn’t wholly secure. Should new misconduct come to light — or IBM’s cooperation be less than complete — Meunier warns, “I still have all my options to re-suspend if I need to.” IBM declined comment. The lingering feeling among contractors is that the EPA’s abrupt move knee-capped any chance IBM had to offer up a defense. “Once [post-suspension] discussions were held, I can appreciate that IBM said, �Even if we’re right, it’s not worth it,’” says Alan Chvotkin, senior vice president and counsel of the Professional Services Association, which lobbies on behalf of the contracting industry. But Meunier says IBM’s treatment was by the book. After being approached by investigators for EPA’s inspector general on March 20, he says, immediate action was the only way to prevent IBM from potentially winning back the contract it allegedly cheated on, though he declined to state the specific allegations. He claims the evidence was strong enough that IBM attorneys didn’t spend much time fighting it. “I’ve seen hundreds of agreements where they neither admit nor deny,” Meunier says. “My only comment is that you won’t find that in this agreement.” FUTURE JITTERS Even if IBM’s troubles are limited to one specific bidding problem with one mid-sized agency — the Departments of Defense and Veterans Affairs, for example, each account for a far larger percentage of contract work than the EPA — the jitters among contractors aren’t likely to be going away soon. “People were wondering was there sufficient due process, and are all firms going to be treated this way in the future,” Grkavac of the ITAA says. Some government watchdogs, however, say that the system could stand more rigor. Scott Amey, general counsel of the nonpartisan Project on Government Oversight, believes Congress’ attitude toward contracting is “at a tipping point.” POGO keeps a database on contractor misconduct, and while large contractors like IBM often rack up multiple investigations and settlements in a year, they’re rarely held fully accountable. “It makes the system toothless if you’re unable to use the suspension and debarment process against large contractors,” he says. A number of bills have been proposed in the current Congress that would tighten inspection and potential punishments for wayward contractors. Most prominent is Rep. Carolyn Maloney’s (D-N.Y.) Contractors and Federal Spending Accountability Act. The bill would create a centralized database to track repeat contracting offenders. But the bill’s stipulation that companies face steep sanctions for having multiple procurement violations in a three-year period is facing opposition. Rep. Tom Davis (R-Va.) believes it puts punishing companies ahead of the government’s best interests. No matter what laws are passed, however, the suspension or debarment of a contracting giant shakes up the industry. Meunier, a 30-year government veteran, suggests the surprise is unwarranted. “Every day we do this to small contractors,” he says, “and no one bats an eyelash.”
Jeff Horwitz can be contacted at [email protected].

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