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GAO Releases Report on Suspension and Debarment of DOD Contractors

28 September 2012
On September 19, the U.S. Government Accountability Office released a report that sheds some light on DOD’s current practices with respect to suspension and debarment.  Suspension and Debarment: DOD has active referral processes but action needed to promote transparency, GAO Report to the Committee on Armed Services, U.S. Senate, September 2012, GAO-12-932 (“Report”). The Report examines how DOD components (U.S. Army, U.S. Air Force, U.S. Navy, U.S. Marine Corps, and the Defense Logistics Agency (“DLA”)) make suspension and debarment decisions and reviewed:
GAO Releases Report on Suspension and Debarment of DOD Contractors

• DOD contractors listed in the Federal Procurement Data System – Next Generation (“FPDS-NG”) with three or more contracts terminated for default;

• Data from the Excluded Parties List System (“EPLS”) regarding suspended and debarred contractors; and

• A random sample of 75 case files from 2009 to 2011.

GAO defined an “action” as a suspension, proposed debarment, or debarment. There were 3,443 actions by the DOD components across Fiscal Years (“FY”) 2009 through 2011.

GAO noted that “[e]ach DOD component is required to monitor from inception all significant investigations of fraud and corruption related to procurement activities affecting the component.” (Report, 6). Acquisition integrity offices (GAO’s term for DOD components that develop cases for agency suspension/debarment officials), received and developed leads from many sources, including:

• Defense Criminal Investigative Organizations (“DCIOs”);

• DOD component contracting officers, program officials, and attorneys;

• Contractor or subcontractor mandatory disclosures;

• Defense Contract Audit Agency (“DCAA”);

• Defense Contract Management Agency (“DCMA”);

• Inspector General Offices, including Hotline tips;

• Whistleblowers and Qui Tam lawsuits;

• Federal Bureau of Investigation referrals;

• Bid protest cases;

• Quality deficiency reports;

• Armed Services Board of Contract Appeals; and

• News articles.

However, the largest sources of referrals – by a large margin—came from contractor self-reporting, 240 in FY 20011, and “hotline” reports, 20,402 in FY 2011.

In 2011, DOD submitted a report to Congress on contracting fraud (Department of Defense, Report on Contracting Fraud, D-315854E, October 2011) that identified contractors that had been convicted of fraudulent actions, entered into settlement agreements, or had civil judgments against them. GAO reviewed the cases listed in the 2011 DOD report and found that DOD had reviewed these same contractors for possible suspension and debarment or other action. Out of the 148 cases listed in the 2011 DOD report for 2008 through 2010, 48 contractors received contract funding after criminal convictions, settlement agreements, or civil judgment. All 48 contractors had been reviewed by the acquisition integrity offices and were not in a suspended or debarred status when they received new contract funding. This approach, however, shed no light the criteria used by DOD for identifying criminal convictions and civil judgments that do not relate to contract fraud but that nevertheless might support debarment based on lack of business integrity.

GAO found that SDOs typically do examine a contractor’s history of performance, including terminations for default by the government because of the contractor’s actual or anticipated failure to perform under the contract, when deciding on possible suspension or debarment. GAO found 126 contractors in the FPDS-NG that had three or more contracts terminated for default across the government from FY 2006 to FY 2011. Out of these 126 contractors, GAO took a random sample of 62 contractors across all four DOD components. Out of that sample, GAO found that 74 percent had received or were undergoing review for possible suspension or debarment, and around 20 percent (13 companies) were already suspended or debarred.

The Report also sheds some light on DOD policies and practices with respect to the length of suspensions/debarment. FAR Subpart 9.4 generally recommends that suspension periods not exceed 18 months unless legal proceedings have started. Out of the suspensions from FY 2009 to FY 2011, GAO found that 180 contractors had suspension periods ranging from 12 to 36 months, with 138 contractors suspended for a period greater than 18 months—with many suspensions lasting considerably longer.

FAR Subpart 9.4 also recommends that debarment periods generally should not exceed 3 years, but also gives SDOs discretion to extend the period. GAO found that it was a common practice by SDOs in the case of criminal convictions of contractors to add 3 years of debarment to the sentence that an individual receives (so, a criminal sentence of 4 years likely would result in a 7 year debarment).

Finally, GAO noted that in some circumstances DOD components may grant “compelling reason determinations” that allow contractors that are suspended, proposed for debarment, or debarred, to receive new contracts. Such determinations must be justified in writing and notice of the determination submitted to the General Services Administration (“GSA”) to remain available for public inspection. GAO found that DOD had used this flexibility in 14 cases from FY 2009 through 2011, but has not been submitting notices of determinations to GSA, as required by the DOD Authorization Act of 1982 (Pub. L. No. 97-86, § 914 (1981)), and recommended that the DOD components comply with this requirement in the future to promote transparency.

Michael J. Scheimer, an Associate in Hogan Lovells' Government Contracts Practice, contributed to this post.

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