The U.S Government has debarred more than 123,000 entities (individuals and firms) from doing business with the government as of the end of May. (GSA, 2014) Debarment is often a sanction for serious ethics and compliance violations.

Those 123,000 entities are currently unable to pursue a share of the hundreds of billions of dollars in U.S. federal contracts made available each year ($460 billion for fiscal year 2013). This represents a significant source of income for many small and large businesses, income that is lost for as long as a business remains on the list of debarred companies, assuming it can remain solvent for the duration.

What actions lead to debarment? In general, a business may be disbarred for a criminal offense, a serious failure to perform a government contract (whether intentional or negligent), or any other cause the debarring official determines to be so serious or compelling as to effect the responsibility of the contractor to be trusted with government contracts. (Shaw, 2009) The Federal Acquisition Regulation (FAR) offers a more detailed explanation in section 9.406-2.

Are there mitigating factors? The FAR, in section 9.406-1, states that debarring officials should consider the business’s remedial actions, if any, or other mitigating factors. The FAR identifies ten factors, including the following three:

— Whether the contractor had effective standards of conduct and internal control systems in place at the time of the activity that constitutes cause for debarment or had adopted such procedures prior to any Government investigation of the activity cited as a cause for debarment.

— Whether the contractor has instituted or agreed to institute new or revised review and control procedures and ethics training programs.

— Whether the contractor’s management recognizes and understands the seriousness of the misconduct giving rise to the cause for debarment and has implemented programs to prevent recurrence.

These three mitigating factors highlight the importance ethics and compliance programs, ethics training efforts, and a management culture that recognizes the importance of ethics and compliance, and takes responsibility for missteps.

Businesses that either find themselves on the verge of debarment or that have already been debarred will find the road back paved with ethics and compliance requirements, such as the need to improve ethics and compliance policies and procedures, strengthen an ethics hotline, and roll out ethics training.

In a recent example, in December the Small Business Administration blocked a well- known federal contractor from receiving new contracts, the first step toward debarment. A month later, they lifted the ban when the company’s CEO agreed to give up operating control for at least 30 days, and the company agreed to create an ethics and compliance program. The CEO was able to resume control in May, after he acknowledged the errors and agreed to undergo ethics and compliance training. Unfortunately, in that short time the company lost almost half of its workforce and the remaining employees may be taking pay cuts. (Aitoro, 2014)

Businesses pay a high price when faced with debarment. The amount of time and money they will spend to address these problems after the fact is likely much higher than if they had put the right programs into place from the beginning.

Ethical Advocate can assist government contractors put the right programs in place. Please contact us for more information.

References:

Aitoro, Jill. “MicroTech CEO prepares to return to a much smaller company after fraud allegations,” FedBiz, April 2, 2014.

Federal Acquisition Regulation (FAR.) http://www.acquisition.gov/far/

Shaw, Steven A. “Government Tools to Encourage Ethical Conduct of Their Contractors”, NATO Conference on Building Integrity, February 27, 2009. http://www.safgc.hq.af.mil/shared/media/document/AFD-110314-025.pdf

U.S. General Services Administration (GSA). “System for Award Management (SAM) Exclusions List”, available to registered users via https://www.sam.gov. Retrieved May 24, 2014.