On July 31, 2018, the Interagency Suspension and Debarment Committee delivered its annual report to Congress on the status of the suspension and debarment system. The report shows a continued high level of activity relative to the last decade and serves as a reminder that exclusion from the federal marketplace continues to be a risk for contractors that do not “cut square corners” with the government.

Decline in Suspensions May Indicate an Increase of Proactive Communication Between Contractors and Officials

The FY2017 report shows a modest decrease in the number of suspensions, proposed debarments, and debarments from the last fiscal year, a trend that has continued since the high-water mark set in FY2014. But it also notes that the number of exclusions in FY2017, over 3,000, are almost double those reported when the Committee first began formally tracking the data in FY2009, approximately 1,800.

The decline in the total number of suspensions, debarments, and proposed debarments should not be viewed as an indication that suspension and debarment officials (SDOs) across the government are not vigilant or that they are not taking appropriate action when unethical individuals or contractors pose a threat to the public interest. Rather, it is likely that growing proactive engagement by contractors with SDOs even in the absence of lapses has decreased the need to suspend or debar contractors when problems do occur by ensuring that SDOs understand those companies’ commitment to ethics and compliance and that appropriate remedial actions are taken promptly where there is cause to question whether a company should be permitted to continue contracting with the government.

Threat of Exclusion Motivates Contractors to be “Responsible”

To the extent the goal of the suspension and debarment process is a more ethical government marketplace, this shows that the suspension and debarment system may be working. The fact that the government has demonstrated a willingness to exclude companies seems to have caused contractors, large and small, to renew their focus on their over-arching obligation to “conduct themselves with the highest degree of integrity and honesty” when dealing with the government, demonstrating to the government that they are, to the use the term in the suspension and debarment regulations at FAR Subpart 9.4, “responsible” contractors. In this respect, suspension and debarment has been and continues to be, a transformative tool even for those companies not at risk of exclusion.

Using the possibility of exclusion to push this transformation benefits both the government, in that it can continue buying goods and services from suppliers that are more trustworthy, and contractors, who are not put out of business when an inevitable ethical or compliance lapse occurs. This trend seems to be reflected in the FY2017 data, which shows an uptick in the number of actions taken prior to suspension or debarment. These “pre-notice letters,” sometimes in the form of show cause notices or simply requests for more information about particular causes of concern, are issued to contractors or individuals prior to a formal exclusion. Inviting contractors to engage with SDOs prior to suspension or proposed debarment is a positive additional step, as it provides an opportunity for contractors to swiftly remediate the problem that led to the SDO’s concern or to correct any misunderstanding if one exists. Where a company receives such an invitation, a prompt and fulsome response is almost always advisable, as delaying resolution of the problem may leave the SDO no option but to suspend the company.

Contractors Should Mitigate Risk of Suspension and Debarment and Remain Compliant

Overall, the FY2017 report shows the need for government contractors to actively consider suspension and debarment in their analysis of risks unique to the government marketplace. Given the fact that exclusion can pose an existential risk to contractors, appropriate mitigation of that risk through both an ongoing commitment to ethics and compliance is advisable. Contractors may also want to consider proactive engagement with the relevant SDO.

Should you have any questions about the suspension and debarment process or about steps your company can take now to reduce the risk of exclusion, please contact Richard Arnholt at rarnholt@bassberry.com.