IBM case: A question of due process

Suspending contractor

The Federal Acquisition Regulation spells out the steps debarring officials must follow to suspend or debar a contractor, but it also offers them some flexibility for expediency’s sake.

Agency officials can set up a fair decision-making process that is “as informal as is practicable,” the FAR states. However, they must consider:

1. What inferences can be drawn from the known information to assess its credibility.

2. What standards of conduct does the contractor maintain.

3. Whether the company has implemented internal controls, ethics programs or other needed measures to prevent a recurrence of the
misbehavior.

4. Whether the company has been cooperative with agency officials.

5. Whether the company’s management understands and recognizes the severity of the misconduct.

Source: Federal Acquisition Regulation

When the Environmental Protection Agency, acting with apparently no warning, suspended IBM from federal contracting March 27, everyone went on alert. The federal procurement community was stunned by the abruptness of the action, the potential disruption to agencies dependent on IBM and the notice that the suspension was “indefinite” in duration.

EPA lifted the suspension eight days later, but the question of how it came to pass in the first place lingered. Now, EPA’s debarment official has an answer: It happened because the system worked as intended.

“Nothing is broken,” said Robert Meunier, EPA’s debarring official and chairman of the Interagency Suspension and Debarment Committee. Shrugging off calls for reform of the system from some quarters, Meunier said no changes are necessary.

However, the case involving EPA and IBM had some unusual circumstances,  making it different from most suspension or debarment considerations. IBM was under investigation and a criminal indictment was possible.

Much of the secrecy that preceded the suspension was necessary because EPA had to follow a Justice Department requirement, Meunier said in an interview April 10. “If you multiply the number of people who get just the heads-up, you create hundreds of locations where inadvertent leakages could occur,” he said.

Most suspension and debarment cases come after indictments, allowing debarring officials to notify the contractor by certified mail and alert officials at other agencies.

Suspensions are temporary, and debarments are for a set time period.

The Federal Acquisition Regulation sets clear procedures regarding suspensions and debarments. Agencies can suspend companies for fraud, federal antitrust statutes, embezzlement or offenses that show a lack of business integrity. Before adding a contractor to the Excluded Parties List, agency debarring officials should consider any mitigating factors, the company’s internal control systems and its cooperation with the government.

The officials also should consider whether the company has taken appropriate disciplinary action to correct the problems at hand, the FAR states.

When agencies suspend companies, the companies often agree to conditions to have the suspension lifted, said Rand Allen, partner at firm Wiley Rein and chairman of its government contracts practice. “This is a death sentence for contractors.” 

IBM was no exception. EPA suspended the company because several IBM employees allegedly obtained and used source selection information to their advantage to win a financial management modernization contract. EPA awarded the contract to CGI Federal in 2007, but IBM filed a protest with the Government Accountability Office. On April 10, EPA confirmed its original award of the $83 million contract to CGI Federal, the company said.

In an interim agreement between EPA and IBM signed April 3, the company said it immediately launched an internal investigation into the allegations of wrongdoing and promptly met with EPA officials.

The FAR establishes due process to preserve the transparency and fairness for both sides. Those rights ensure that the government’s interests are protected and that the seriousness of the contractor’s actions warrants suspension or debarment, Paul Denett, administrator for the Office of Federal Procurement Policy, said in congressional testimony in 2007.

“A decision against a contractor is not a punishment for nonresponsibility but a means to protect the government,” Denett said in the testimony.

A suspension prohibits contractors from receiving new work from the government, while not canceling or terminating current contracts. A suspension wouldn’t necessarily shut down an agency’s projects because current work would continue.

However, if an agency needed to place a new order or buy a pro uct from the suspended company, an agency head would need to justify the decision by showing a compelling reason to buy from the suspended company, the FAR states.

Meunier said establishing a government organization or agency to oversee the suspension and debarring officers so that everyone is notified would not work. It would merely create a backlog, he said. The process would be “uniformly slower, uniformly bureaucratic and uniformly external to the agencies trying to protect the interests closest to them.”

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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