The Interagency Suspension and Debarment Committee (ISDC) recently released its annual report to Congress regarding suspension and debarment across the federal government in FY 2019. The report serves as a yearly reminder that while selling to the federal government – the largest purchaser of goods and services in the world – may present tremendous opportunities, it is not without risk or obligation. As Justice Holmes stated in Rock Island, Arkansas & Louisiana R.R. Co. v. United States, 254 U.S. 141, 143 (1920), people “must turn square corners when they deal with the Government.” Those that don’t may lose access to the federal marketplace altogether, a loss that can prove fatal to companies that are heavily reliant on government contracts or grants.
Overview of ISDC Report
The ISDC report, which is available here, shows that while the total number of actions nearly doubled over the last decade, the number of proposed debarments and debarments continues its steady decline that began in FY 2014. While this might suggest that agencies are utilizing this administrative tool less frequently, a closer analysis of the report shows that is not the case.
In fact, the number of referrals to suspending and debarring officials (SDOs), as well as the number of suspensions, increased significantly from FY 2018 to FY 2019: referrals were up from 2,441 to 2,806 and suspensions increased from 480 to 722, due in large part to increased activity by the Air Force, the EPA, and the Department of Labor. This uptick is likely the result of a multi-year effort to educate contracting officials about the importance of referring contractors to SDOs when their conduct indicates either serious poor performance or a lack of business honesty or integrity such that excluding them from the federal marketplace to protect the government from potential harm might be appropriate.
The numbers reflect another multi-year trend. Although the suspension and debarment rules at Subpart 9.4 of the Federal Acquisition Regulation (FAR) do not provide for a show cause process, SDOs have increasingly utilized “pre-notice” letters to better understand the circumstances that led the government to question a contractor’s present responsibility. This process allows contractors to demonstrate they are responsible prior to the drastic impact of issuing a notice of suspension or proposed debarment, which, under the contract rules, both result in immediate ineligibility for award of new federal awards, among other impacts.
While the number of these letters actually declined from FY 2018 to FY 2019, dropping from 197 to 139, the report notes that in FY 2019 15 different agencies issued 139 pre-notice letters. The ISDC also states that the agencies that reported using these letters differed from FY 2018, “showing greater implementation of this tool Governmentwide.” Given that this process enables the government and contractors to resolve questions about present responsibility without resorting to exclusion, SDOs are to be commended for the continued use of this tool.
Takeaways for Government Contractors
Because suspension and debarment both result in the cessation of new federal awards and can have myriad negative collateral consequences, the ISDC report should remind contractors of the importance of ensuring compliance programs are up to date, that company leadership is committed to operating with the highest ethical standards (and regularly communicating that commitment to employees), and that contractors are prepared on short notice to demonstrate that they are presently responsible. Waiting until you receive a show-cause notice, a notice of suspension or a notice of a proposed debarment may be too late.
If you have any questions about government contractors’ compliance obligations or the suspension and debarment process, please contact Richard Arnholt, a member in our government contracts practice who regularly advises clients faced with suspension or debarment.