The threat of a suspension or debarment by a federal procurement agency has long been a federal contractor's worst nightmare because of the risk of exclusion from the federal marketplace, reputational damage and other potential adverse consequences.  Suspensions and debarments bar a contractor from receiving any new contracts (and virtually all new orders under existing contracts) on a government-wide basis during the period of the suspension (typically up to a year and a half) or debarment (generally up to three years).  The purpose of suspension and debarment is not to punish contractors but to protect the United States from the future actions of a non-responsible contractor, i.e., a company or person that lacks the requisite honesty and integrity to conduct business with the government.  Until recently, the federal government recognized that suspensions and debarments should be taken on a discretionary basis.  Only when a suspension and debarment official, after some level of due process, had determined that such action was necessary to protect the government would an agency impose suspension or debarment.

In the past several months, however, congressional actions and proposals have signified a strong interest in drastically changing course by instituting "automatic" suspensions and debarments in a wide variety of circumstances.  By both instituting and proposing such automatic suspension/debarment actions, Congress is stripping federal agencies of their long-recognized discretion in a uniquely discretionary area (i.e., the question of contractor responsibility) and depriving contractors, subcontractors and their personnel of fundamental due process protections.  These due process protections have proven important and necessary to the effective and fair imposition of suspension and debarment because of both the potential for mistake by an agency and the complexity of assessing contractor responsibility.

Specifically, in the Consolidated Appropriations Act of 2012 (Pub. L. 112-74) the president signed into law a prohibition on certain agencies against using federally appropriated funds "to enter into a contract...[with] any corporation that was convicted of a felony criminal violation under any Federal law within the preceding 24 months" (emphasis added).  This prohibition applies where the awarding agency is aware of the conviction unless "the agency has considered suspension or debarment...and made a determination that this further action is not necessary to protect the interests of the Government."  To implement this new prohibition, in January 2012, the Department of Defense (“DoD”) Director of Defense Procurement and Acquisition Policy issued a new certification requirement that, whenever any agency uses 2012 appropriated funds, each offeror on a DoD contract must identify whether it has been convicted of any "felony criminal violation under Federal law within the preceding 24 months."  Thus, this provision in the Appropriations Act makes contractor ineligibility virtually automatic where a subject conviction has occurred.  As those experienced in dealing with agency suspension and debarment officials (“SDOs”) know, obtaining prompt determination from an SDO may be problematic; therefore, the offending contractor most likely will remain ineligible for new awards for a considerable time.

Even more recently, in early March, Senators McCaskill and Webb introduced legislation entitled the Comprehensive Contingency Contracting Reform Act of 2012. Section 113 therein would provide for automatic suspension of a contractor in several situations including when the federal government alleges fraud against a contractor in a civil or criminal proceeding related to a federal contract.  Under this proposal, the automatic suspension would apply whether the alleged acts were committed by the contractor or by an employee, affiliate or subsidiary of the contractor.  On a positive note, in mid-April testimony before Congress, this proposed legislation was roundly criticized by representatives of DoD, the Department of State and the U.S. Agency for International Development as unnecessary and overly intrusive on the exercise of agency discretion.  In a public symposium last week, a former administrator of the Office of Federal Procurement Policy likewise criticized the proposal.  Similarly, industry associations, such as the Professional Services Council, have energized opposition to this particularly far-reaching mandate.

While the fate of this most recent proposed legislation is uncertain, the message from Congress is clear—federal agencies need to both expedite and increase suspensions and debarments in a wide variety of circumstances.  Contractors (and subcontractors) should expect federal agency officials to be substantially more aggressive in invoking their ultimate protections—suspensions and debarments.  To avoid that fate, government contractors and subcontractors must be proactive in developing (1) adequate internal controls, (2) demonstrable compliance programs, and (3) adequate procedures for making mandatory disclosures as required by federal law.  Moreover, even the most responsible contractors must be attuned to the potential for mistaken agency imposition of suspension and debarment stemming from automatic, rather than discretionary, government action.

© 2012 Perkins Coie LLP