Insights

On April 18, 2022, the Interagency Suspension and Debarment Committee (ISDC) issued its annual report to Congress on federal suspension and debarment activities for Fiscal Year (FY) 2020. During FY 2020, the ISDC continued to focus on promoting the fundamental fairness of the suspension and debarment process, increasing transparency and consistency, enhancing suspension and debarment practices and alternatives, and encouraging more effective compliance and ethics programs by government contractors and nonprocurement participants. The ISDC also formed a subcommittee to provide recommendations and assistance to the Federal Acquisition Regulatory (FAR) Counsel drafting team to better align suspension and debarment procedures in the FAR with the Nonprocurement Common Rule (NCR).

The annual Interagency Suspension and Debarment Committee (ISDC) recently issued its annual report to Congress. The report, found here, contains details describing improvements to the federal suspension and debarment process and a summary of each agency’s suspension and debarment activities in Fiscal Year 2019. Throughout FY2019, the ISDC pursued a strengthened understanding and awareness of suspension and debarment activities across the federal acquisition and financial assistance communities, and continued to focus on modernizing/streamlining lead agency coordination. Otherwise, while the total numbers of referrals and suspensions increased in FY2019 compared to FY2018, proposed debarments and debarments continued to decline. In addition, the ISDC notes that from FY2018 to FY2019 agencies better utilized pre-notice letters to notify individuals or entities that the Suspension and Debarment Official (SDO) was considering SDO action, allowing the recipient an opportunity to respond before formal SDO action.

On November 25, 2019, the Alliance For Fair and Equitable Contracting Today, Inc. (AFFECT) sued the Metropolitan Transportation Authority (MTA) in the Southern District of New York to enjoin and declare unconstitutional a new contractor debarment regime implemented by the New York legislature and the MTA on November 6, 2019. This new debarment regime—upon which there was no opportunity for public comment—requires, among other things, the MTA to automatically debar a contractor that fails to complete a project by a contractual deadline or claims costs in excess of a project budget, without providing the MTA discretion to even consider mitigating facts or circumstances that might impact project deadlines or budgets. This applies both prospectively to new contracts and retroactively to all contracts already in existence, including those entered into before April 2019, when the New York legislature passed the new Debarment Statute requiring the implementation of this regime. The regime also applies to a targeted contractor’s (1) “parent(s), subsidiaries and affiliates”; (2) “directors, officers, principals, managerial employees and any person or entity with a 10% or more interest in a contractor”; and (3) “any joint venture (including its individual members) and any other form of partnership (including its individual members) that includes a contractor or a contractor’s parent(s), subsidiaries, or affiliates of a contractor.” AFFECT’s lawsuit alleges this regime violates the U.S. Constitution’s Contract Clause, Supremacy Clause, Dormant Commerce Clause, procedural and substantive Due Process requirements, and the First Amendment. If not successfully enjoined, this may encourage the New York State Legislature to enact similar laws and require other state agencies to establish similar debarment regimes, and may even motivate other states to do the same.

On April 2, the Department of Labor (DOL) announced a new pilot program for discretionary suspensions and debarments in an effort to decrease DOL’s processing time of these actions “from months to days.” As part of the program, DOL’s Office of Inspector General (OIG) will include in its referrals to the Office of the Assistant Secretary for Administration and Management (OASAM) information based on indictments or convictions, with the hope that such information will allow OASAM to process these actions more quickly. Because of the unique nature of DOL debarments – which are largely imposed as a collateral consequence of labor violations – the pilot program increases risk to government contractors under scrutiny by DOL and its components/programs. This development emphasizes the importance of hiring counsel with capabilities to address the full spectrum of risks, including a proactive approach to suspension and debarment defense. 

The FAR Council published a final rule on September 30 that, effective immediately, adopts an interim rule that requires any corporation responding to a federal solicitation to represent whether it has (1) any unpaid federal tax liability that has been assessed and is not being appealed or paid in a timely manner or (2) a felony conviction under any federal law within the preceding 24 months. As further explained here, any affirmative disclosure would create an automatic bar against contract award, unless the agency’s suspension and debarment official has considered the matter and determined that further action is not necessary to protect the government’s interests.

The suspension and debarment remedies are not meant to punish contractors for past misdeeds, yet information about past exclusions is stored indefinitely on the SAM.gov website, and this information is increasingly causing collateral consequences outside the government marketplace. In an article published in Bloomberg BNA, C&M attorneys discuss the evolution of the excluded parties list and explore how a contractor might challenge the exclusion archives as a violation of a contractor’s constitutional liberty interests.

On January 13, the Court of Federal Claims in Shell Oil Co. v. U.S. held (1) the government was not liable for CERCLA environmental cleanup costs under the "Taxes" clause in certain World War II-era contracts; and (2) even if the "Taxes" clause had provided for indemnification, any indemnification rights were not preserved after contract termination. The "Taxes" clause and the absence of a reservation of rights to pursue indemnification in Shell is in contrast with the explicit "hold harmless" clauses in the facilities contracts cases in which the contractor reserved its rights to pursue indemnification (Ford and DuPont) and indemnification clauses authorized under Public Law 85-804, which contain explicit post-contract termination provisions.

In Agility Def. and Gov't Servs. (June 26), an Alabama District Court rejected the government's assertion that an agency's suspension of a government contractor is beyond judicial review and overturned the suspensions because they had exceeded 18 months, in violation of FAR 9.407-4(b). The two plaintiffs were suspended in November 2009 based on their affiliation with an indicted contractor, Public Warehousing Company, and, although the initial suspension of the affiliates was proper, the agency could not extend the suspensions of the affiliates beyond 18 months because legal proceedings had not been initiated against the affiliates themselves.

On November 15, 2011, the head of OMB, Jacob Lew, issued a memorandum requiring the heads of executive departments and agencies to increase management attention on suspension and debarment, consistent with the policies and procedures in the FAR. On the heels of the OMB memorandum, the U.S. Senate's Committee on Homeland Security and Governmental Affairs convened hearings on November 16 on "Weeding Out Bad Contractors," which featured testimony from, among others, Daniel Gordon, the Administrator for Federal Procurement Policy; David Sims, the Chair of the ISDC; and Steven Shaw, the Air Force’s debarment and suspension official.

In OSG Product Tankers, LLC v. U.S. (June 30, 2008), the Court of Federal Claims held that a CO could disqualify a contractor as not "presently responsible" due to lack of integrity because the contractor's parent had pled guilty to a number of felonies, despite an agency settlement agreement with the parent ruling out the parent's debarment as long as it complied with its plea agreement. According to the court, the debarment settlement involving the parent did not estop the CO's independent non-responsibility decision regarding the subsidiary, even though the lack of integrity finding was based on the actions of the parent.