Discussing debarment

The government has many arrows in its compliance enforcement quiver, but few are as lethal as debarment.

Often called the "death penalty" for a government contractor, a debarment essentially is an order to exclude a company from government contracting for a specific — and potentially quite lengthy — period of time.

The term was previously mentioned only in hushed tones among defense industry insiders. But recent events have brought it out of the closet and into the nation's living rooms. Anyone who has heard of Arthur Andersen, MCI — formerly WorldCom Inc. — or Sprint probably has at least a passing familiarity with the term.

For federal contractors, however, something more than a passing familiarity is necessary.

A federal agency invokes a debarment in order to preclude irresponsible contractors from continuing to contract with the government.

A debarment, in theory at least, is not designed to punish a contractor for past actions. Rather, it is designed to protect the government's interests by excluding contractors that demonstrate a lack of responsibility.

This distinction notwithstanding, the events that trigger a debarment, not surprisingly, are past actions. For example, a company can be debarred for the commission of fraud in connection with a public contract or subcontract, or for a serious violation of the terms of a government contract or subcontract.

Regardless of the rationale, its effect can be devastating. A debarment prohibits federal agencies from soliciting offers from, awarding contracts to or permitting subcontracting with debarred contractors. New orders under a pre- existing General Services Administration's multiple-award schedule contract may continue to be placed, however.

Additionally, in many cases, a debarment can have the collateral effect of preventing a company from contracting with state governments as well. Imagine having to explain that one to your vice president of state and local sales — or worse, your chief executive officer.

Savvy contractors will take steps to implement risk-mitigation plans well in advance of any problems. Such plans should include the following six elements:

* Maintain effective standards of conduct and an effective internal control system.

* Take disciplinary action against individuals responsible for wrongdoing.

* Implement remedial measures following the discovery of wrongdoing.

* Review internal control procedures regularly and revise as necessary.

* Implement an ethics training program.

* Develop an internal program that illustrates management's commitment to compliance.

Although these rules may not be able to shield a contractor from the government's debarment arrow in all circumstances, when implemented prudently and conscientiously, they may be able to deflect that arrow from the heart.

Aronie is a partner in the government contracts group of Sheppard Mullin Richter & Hampton LLP in Washington, D.C. He can be reached at jaronie@smrh.com.

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