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The Hammer of Debarment and Shield of Compliance

Humans developed shields to protect from weapons. By analogy, strong compliance may mitigate or protect from various enforcement tools in the arsenal of the U.S. Government. Since at least the Civil War, the U.S. Government has been utilizing criminal penalties, civil liabilities, and administrative and contractual remedies to deter and punish procurement misconduct. Recently, the various Federal Agencies have been utilizing suspension and debarment as its tool of choice to exclude contractors, who are deemed not presently responsible, from doing business with the U.S. Government.

Our experience shows that by having an active compliance program, many contractors are likely to avoid suspension and debarment even when there is some evidence of misconduct. This is because contractors with strong internal checks and controls are more likely to discover the misconduct early and take appropriate actions quicker, before the misconduct becomes so serious as to question their present responsibility.

The number of suspensions and debarments for businesses and individuals has more than doubled between 2009 and 2013, and this trend will most likely continue. According to the 2014 GAO Report, the number of government-wide suspensions and debarments increased from 1,836 in 2009 to 4,812 in 2013. The Interagency Suspension and Debarment Committee reports that in 2014, the number of debarments reached 1,929, exceeding the previous record of 1,696 in 2013. The GAO Reports points out that many agencies are getting better at debarment and suspension actions. This means that contractors and their legal teams must get better at compliance.

Causes of Debarment

The Federal Acquisition Regulation, Part 9.402 requires the U.S. Government to only conduct business with responsible businesses. Businesses that engage in activities listed below may be considered not responsible and be excluded from conducting business with the U.S. Government. (FAR Part 4-6-2). This is not the entire list!

Conviction or civil judgment for commission of fraud.
Violating antitrust statutes.
Embezzlement, theft, forgery, bribery, tax evasion.
Violating federal criminal laws.
Receiving stolen property.
Intentionally using “Made in America” or similar inscription on items sold or shipped to US/outlying areas when not made in either.
Commission of any other offense indicating a lack of business integrity or honesty that directly affects the present responsibility of a Government contractor, or subcontractor.
Willful failure to perform one or more contracts, history of failure to perform or unsatisfactory performance.
Violating the Drug Free Workplace laws.
Committing unfair labor trade practice.
Violating federal criminal laws involving fraud, bribery, conflict of interest, or gratuity violations.
Violations of the civil False Claims Act.
Failing to make mandatory disclosures.
The Shield of Compliance.

Strong compliance starts with annual training on procurement integrity and new developments. This alerts all employees working in the government procurement sector of potential conflict of interest issues, likely areas of procurement misconduct, source selection information violations, and new restrictions on post-employment of federal employees, among others. Next, hotlines and other means of allowing employees to quickly report potential misconduct are critical. Finally, active involvement of compliance officers, legal teams during investigations, and prompt cooperation with the U.S. Government pursuant to the Mandatory Disclosure Rule are just as important.