Government Agencies Increasingly Using Alternatives to Formal Suspension and Debarment

In Short

The Situation: The Interagency Suspension and Debarment Committee ("ISDC") recently issued its annual report on government suspension and debarment activity to Congress for fiscal year 2018.

The Result: The report shows a steady decline in suspensions, proposed debarments, and debarments over the last several years, but generally shows an increase in the use of pre-notice letters.

The Outcome: The government continues to look for solutions to improve the effectiveness of federal suspension and debarment as a tool for determining responsibility. 

Now in its tenth year of tracking and reporting federal government suspension and debarment activity, ISDC recently released its fiscal year 2018 report to Congress. The report shows no drastic changes, but suggests that the government is increasingly looking for alternatives to formal suspension and debarment proceedings. The report also discusses several new developments that could affect the issues the government considers in making suspension and debarment decisions.

Key Statistics

Suspensions, proposed debarments, and referrals have declined steadily over the last several years. Despite the overall trend toward fewer suspension and debarment actions, several agencies continue to lead the pack in formal suspension and debarment proceedings. The U.S. Army, U.S. Navy, Department of Homeland Security, Department of Housing and Urban Development, Department of Transportation, Environmental Protection Agency, and General Services Administration were the most active in issuing suspensions, proposed debarments, and debarments.

Perhaps contributing to the overall decline in suspensions and debarments, the report suggests that agencies are more frequently using pre-notice letters as an alternative, or a precursor, to formal suspension and debarment proceedings. The government uses pre-notice letters as a discretionary tool to inform contractors that the agency debarment program is reviewing a matter for potential action by the suspension and debarment official ("SDO") and to allow the recipient to respond prior to formal SDO action. Putting aside a small drop in 2010 and a large increase in 2015, pre-notice letters have increased steadily since ISDC began tracking suspension and debarment activity in 2009.

However, not all agencies rely upon pre-notice letters equally. Despite being some of the most active agencies in terms of suspensions, proposed suspensions, and debarments, the Air Force, Defense Logistics Agency, Department of Housing and Urban Development, and Department of Transportation issued very few pre-notice letters. The data suggests that these agencies favor formal suspension and debarment proceedings.

New Developments

The report also discusses several new developments. ISDC announced that it is exploring a potential regulatory change that would eliminate, or at least minimize, the differences between procurement and nonprocurement suspension and debarment. Though the regulations are similar and both have government-wide effect, differences remain between the procurement and nonprocurement suspension and debarment regulations. For example, the nonprocurement regulations identify additional mitigating and aggravating factors that may influence an SDO's decision to debar an individual or entity. These factors include, among others, actual or potential harm from the wrongdoing, frequency or duration of the wrongdoing, and the extent to which one planned, initiated, or carried out the wrongdoing. The change contemplated by ISDC would adopt these more detailed factors for procurement actions, giving SDOs additional information to consider when deciding whether to debar.

The report also indicates that cybersecurity compliance continues to be an important issue for government regulators. ISDC announced that it has formalized new subcommittees to address specific government needs, including a new cybersecurity subcommittee. This subcommittee will be dedicated to "tracking and reporting cybersecurity contractor compliance issues and developments." Though the report does not provide details on the subcommittee, it signals that the government continues to view cybersecurity compliance as a critical issue. Just a few months ago, a contractor settled a False Claims Act suit related to cybersecurity noncompliance, marking the first time a cybersecurity-related qui tam resulted in a settlement or judgment. The government is now exploring the role of cybersecurity compliance in determining whether to suspend or debar contractors.

SBA Audit Report

Though the lower number of suspension and debarment actions may appear encouraging for contractors, the decline should not be taken as evidence that the government is backing off from invoking suspension and debarment. Some of the decline may be a result of failures and inefficiencies in the current suspension and debarment system. The U.S. Small Business Administration ("SBA") Office of Inspector General ("OIG") identified several such failures and inefficiencies in an audit report issued just weeks before ISDC released its report.

The OIG audit found that SBA lacks "sufficient controls over its suspension and debarment process…." Among other failures, OIG noted that SBA: (i) did not always ensure that verification of eligibility occurred; (ii) did not update the System for Award Management in a timely fashion; (iii) delayed in taking action in response to referrals; and (iv) lacked sufficient documentation for its decisions. In the cases analyzed by the OIG, 15 referrals remained pending for an average of 620 days, and one referral remained pending after 1,568 days. The audit also acknowledged that the agency's failure to document its decisions could cause SBA to "be exposed to legal actions by entities who believe they are arbitrarily suspended and debarred."

In response to the audit, SBA agreed to several remedial measures. SBA will revise and finalize internal suspension and debarment policies, improve its tracking system, and dedicate additional resources to handling referrals. The audit notes, however, that OIG intends to work with SBA to reach an agreement on additional measures, since SBA's planned changes addressed only part of the audit report recommendations.

Three Key Takeaways 

  1. Know your agency. Each agency enforces suspension and debarment a bit differently. Some agencies use pre-notice letters more frequently, while others tend to pursue formal suspension and debarment more often.
  2. Be patient and document relevant facts and remedial measures taken related to actions that could result in suspension or debarment proceedings. The government sometimes does not resolve suspension and debarment actions until years after a referral is made, which may be even longer after the underlying circumstances occurred.
  3. Contractors must take cybersecurity regulations seriously. Increased government attention and the creation of a new ISDC subcommittee suggests that noncompliance with cybersecurity regulations may result in not only substantial monetary liability, but also suspension or debarment. 
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