As published in LAW360: 2014 Cases That May Change Suspension, Debarment Practice, written by David Robbins and Laura Baker
January 5, 2015
Law360, New York (December 17, 2014, 10:06 AM ET) —
We are finishing a fascinating year in suspension and debarment practice that has the potential to change the way contractors and the government interact when problems arise.
A year ago, the government found itself with a “public relations problem” with its suspension and debarment practice. Perhaps reacting to the proposed SUSPEND Act legislation that could substantially alter suspension and debarment practice, many government suspension and debarment practitioners (including several suspending and debarring officials) engaged in a robust public discussion about the nature of their practice, including in meetings sponsored by the American Bar Associationwith agendas like the recent “Why I Learned to Stop Worrying and Love the SDO [suspending and debarring official].”
During these sessions, government representatives described in depth their practices in bringing and deciding suspension and debarment cases while the private bar explained their sometimes significant concerns with the process. While the suspension and debarment decisions across the government have not quite caught up to the public pronouncements of those speaking for the community, the discussions have been robust.
Although rising numbers of suspensions and debarments and ongoing litigation concerning the ability to suspend corporate affiliates received attention in 2014, the most interesting and perhaps lasting developments affecting suspension and debarment practice arose in bid protest decisions.
In these cases, the Court of Federal Claims and the U.S. Government Accountability Officeruled that the government did not go far enough to seek out the facts concerning fraud and misconduct. The Court of Federal Claims faulted the Navy suspending and debarring official for not seeking out information available elsewhere in the U.S. Department of the Navy before suspending a contractor. The GAO faulted the U.S. Department of Homeland Security for not seeking out additional information concerning allegations of fraud and misconduct before making a contract-specific Federal Acquisition Regulation responsibility decision.
This Expert Analysis piece will discuss the decisions, their implications for the suspension and debarment regime, and what it means for stakeholders such as contractors and government suspension and debarment practitioners.
Inchcape Shipping Services Holdings Ltd. Injunction
On Jan. 2, 2014, in a bid protest action, the U.S. Court of Federal Claims granted temporary injunctive relief to Inchcape Shipping Services Holdings Ltd., from the Department of the Navy’s suspension pursuant to FAR Subpart 9.407.
This decision was unique in several respects. First, the Court of Federal Claims seemed to reach outside of its bid protest silo to prevent the continuation of a suspension, which is a separate administrative action from a contract award. Second, the relief was exceedingly temporary, lasting until the court could rule on certain motions. The decision was also so novel that substantial debate erupted within the suspension and debarment community (and the government contracting community more broadly) concerning its precedential value. Notwithstanding the uncertainty, the decision itself made waves for the clarity and the directness of its criticism of the government’s processes.
The facts contained in the decision are few. A 2008 internal audit at Inchcape discovered a number of government overpayments. The audit was “informally” disclosed to the government at some point between 2008 and 2011. In November 2012, Inchcape formally produced the audit pursuant to a court order. More than a year after that court order, the Department of the Navy suspended Inchcape “on the basis of the disclosures contained in the audit report.” The Navy “found that Inchcape had failed to reconcile accounts properly and had failed to disclose its findings of overpayment from the audit report.”
The Court of Federal Claims applied the traditional four-prong test to decide if temporary relief was appropriate. Under “likelihood of success on the merits” the court called forward the government’s responsibilities suspension cases. Specifically, the court quoted Federal Acquisition Regulation 9.407-1(b)(1) that
[i]n assessing the adequacy of the evidence, agencies should consider how much information is available, how credible it is given the circumstances, whether or not important allegations are corroborated, and what inferences can reasonably be drawn as a result. This assessment should include an examination of basic documents such as contracts, inspection reports, and correspondence.
The court had “significant concerns” as to whether the suspension was based on “adequate evidence” required by the FAR. The fact that the suspension rested on only two documents — the contract in question and the 2008 audit — concerned the court because “a myriad of additional, potentially relevant documents relating to both account reconciliation and disclosures of overbilling were in the Navy’s possession at the time of the suspension, but were not considered.” The court considered these documents “available” because they existed somewhere within the Department of the Navy, and faulted the SDO for not “condut[ing] any meaningful investigation of the matter, despite having had time to do so.”
The court also strongly doubted there was any “immediate need” to suspend Inchcape because immediacy as a concept did not comport with the one year delay between formal disclosure of the audit report and Inchcape’s suspension. (Note the absence of any discussion of how swiftly the suspension occurred after the Navy SDO received the audit report.) The decision also took aim at a standard phrase in suspension documents that the SDO “find[s] that protection of the Government’s business interests required the immediate suspension” of Inchcape, calling the finding “conclusory” and with “questionable support in the record.”
In short, the suspension package was incomplete and did not explain how 2008 overbilling resulted in concern in 2013 rising to the level of an exclusion from contracting. As the court noted, “[t]here is no explanation in the record as to why this matter became an emergency in November 2013” and that lack of explanation made the suspension seem punitive instead of prophylactic. The court then easily found that Inchcape was in danger of suffering irreparable harm because of the size and scope of Inchcape’s pending bids and summarily dispensed with the balance of hardships in Inchcape’s favor, and decided the public interest was not harmed by temporarily relief.
Dramatic though it was, for most of the year the Inchcape decision stood alone likely as an anomaly to be cited by respondents in suspension and debarment submissions but subject to endless questions and future litigation concerning whether the court had jurisdiction to enjoin a debarment in this manner. But another case late in the year changed that. In October, a GAO protest picked up the same themes in a decision with a stronger probability of affecting suspension and debarment decisions.
FCi Federal Inc. Protest
The GAO’s October decision in FCi Federal had many of the same criticisms as Inchcape, but was structured in a way that makes future impact on suspension and debarment decisions more likely. FCi Federal Inc. protested a Department of Homeland Security award, and specifically the FAR 9.1 contract-specific responsibility decision, contending that “allegations of fraud against [awardee] USIS PSD’s parent corporation should have raised questions about whether the awardee was a responsible contractor.”
Generally, the GAO does not second-guess agency affirmative determinations of present responsibility. However, as in FCi Federal, the GAO will review a challenge to a present responsibility determination under FAR 9.1 where the protester presents specific evidence that the contracting officer may have ignored information that, by its nature, would be expected to have a strong bearing on whether the awardee should be found responsible.
The GAO sustained FCi Federal’s protest, finding inadequate the contracting officer’s affirmative determination of responsibility under FAR 9.1. What makes this bid protest case interesting to the suspension and debarment community is that case law (and myriad secondary sources) already link aspects of the FAR 9.1 contract specific responsibility decisions with the analysis required for a FAR 9.4 suspension or debarment decision. Stated differently, a bridge exists that may permit FCi Federal to apply to suspensions and debarments.
The procurement decision in FCi Federal involved two “essentially equal” offers with a $17.5 million spread between the awardee and FCi. As required, the contracting officer made an affirmative determination of present responsibility and documented her decision in a one-page form where she found ‘the awardee’s record of integrity and business ethics … “satisfactory.”’ However, during the life of the procurement, the awardee’s parent company faced a qui tam lawsuit and, subsequently, a False Claims Act case filed by theU.S. Department of Justice.
According to the DOJ’s complaint, as included in the GAO’s decision, “USIS management devised an executed a scheme to deliberately circumvent contractually required quality reviews of completed background investigations in order to increase the company’s revenues and profits … . USIS engaged in the practice of dumping in order to meet budgeted goals and, therefore, increase its revenues and profits … . USIS Senior Management was fully aware of and, in fact, directed the dumping practices.”
Relevant to the bid protest, the contracting officer did not read the complaint. She neither requested nor received information from the offeror or its parent company regarding the allegations. She did not discuss the allegations with anyone at her agency or the Office of Personnel Management. Nor did she discuss the issues with the cognizant suspension and debarment officials.
Indeed, “the contracting officer testified that her only source of information regarding the allegations of fraud, other than media reports, was [general] information provided by agency counsel.” The contracting officer relied on media reports and general discussions, rather than specific inquiry and failed to consider material in the acquisition file that contradicted her understanding of key facts such as the degree of interrelatedness the offeror and its parent company facing fraud counts.
Other interesting aspects of the FCi Federal Inc., decision include the GAO finding that:
a company’s record of integrity and business ethics is not task specific. That is, the alleged commission of fraud while performing one type of service is not irrelevant to the company’s integrity and ethics in the performance of different services, even where the agency feels it may be in a better position to catch any potential future fraud more quickly due to the level of agency supervision of contractor employees.
This has long been a tenet of suspension and debarment practice. But where SDOs often state that they are not investigative organizations, the GAO faulted the contracting officer in FCi Federal because she “failed to obtain and consider” numerous categories of information and thus did not make a reasonable responsibility decision. And that failure, among other things, caused the GAO to recommend the agency make a new responsibility determination.
That is worth repeating. The GAO recommended an agency redo its FAR 9.1 responsibility determination in part because the contracting officer did not investigate enough and obtain enough information outside of her contract file to make a proper responsibility decision. This is significant because case law already links concepts of FAR 9.1 responsibility decisions with FAR 9.4 suspension and debarment appeals decisions. FCi Federal moves the suspension and debarment case law closer to an express requirement to seek out relevant information within or available to a federal agency prior to a suspension or debarment decision.
The Inchcape and FCi Federal decisions impact (potentially significantly) several stakeholders. At a minimum, government acquisition personnel, SDOs and staff, and contractors and grant recipients may be affected.
Implications for Government Acquisition Personnel
The impact on government acquisition staff is, perhaps, the least complicated. Inchcape suggests that pending fraud allegations, even if unproven, must be examined and subject to more rigorous analysis before acquisitions are made. And that analysis must be documented in the contract file. Short of allegations filed in court, facts that may lead to risk of fraud or conflicts of interest may also deserve a closer look. The question is: How far will the need to conduct independent analysis extend?
For example, where a senior government official has prior employment ties to, and perhaps lingering long-term incentive financial interest in, a particular offeror, could government acquisition professionals will be under more pressure to assess whether a standard recusal is sufficient protection against a conflict of interest or if the senior official’s staff has incentive to choose the conflicted company anyway to please the senior official? Where that analysis in the past had been simply a check-the-box recusal analysis, conducting meaningful diligence may require a more fulsome analysis of the organizational structure and risks to the procurement system.
Implications for Government Suspension and Debarment Practitioners
The impact on government suspension and debarment practitioners is a bit more complicated. For offices with nonstatutory (i.e., discretionary) suspension and debarment responsibilities, these decisions reinforce the need for SDOs to reach out through their agencies (and perhaps across the government) to locate as much relevant information as possible for a particular exclusion decision.
U.S. Department of Defense organizations have a central coordinating authority, pursuant to Department of Defense Instruction 7050.05 to accomplish that information-gathering. Inchcape and FCi Federal underscore the importance of robust information gathering by these organizations. And the decisions risk changing the dynamic often expressed by certain SDOs that they are not investigative organizations responsible for anything more than making decisions on the records before them. The message from Inchcape and FCi Federal is that some inquiry is needed, whether or not the SDOs’ offices are staffed for it or whether agency processes are robust enough to support the inquiry. Given the staffing and process challenges faced by SDO offices, these decisions likely also lead to an increase in Show Cause Letters and other communications short of suspensions or debarments.
Implications for Contractors and Grant Recipients
The impact of Inchcape and FCi Federal on contractors and grant recipients is interesting. Before these decisions, the reality of federal suspension and debarment practice was that staffing shortages and higher investigative and acquisition/grant-making priorities placed downward pressure on numbers of referrals and independently generated (e.g., not following a disclosure or a qui tam complaint) suspension and debarment actions.
The public pronouncements of SDOs that encouraged robust proactive communication with their offices was as much a reflection of the need to be seen as active in the face of pressure from the Hill and others as it was evidence of a changing mindset among the SDOs. There remained a reasonable chance that, where conduct was not clearly illegal or subject to disclosure, the government would not learn of it or would not communicate sufficiently internally to cause an SDO to take interest. For better or worse, recognizing this dynamic a number of contractors make business decisions not to proactively disclose conduct to the SDO in the absence of a legal obligation to do so.
Inchcape and FCi Federal impact that analysis. With contracting officers no longer able to make rote FAR 9.1 responsibility determinations and SDO offices on notice that more inquiry into misconduct is needed, two additional arguments in favor of proactive disclosure emerge.
First, proactive disclosure lets contractors and grant recipients control the narrative. Stating the obvious, federal agents, auditors and other government personnel do not have an obligation to obtain and explain the contractor or awardee’s side of any story before generating reports of misconduct. Those reports are often one-sided and, especially with increased government diligence, can lead to adverse outcomes if not countered. Proactive disclosure can transmit facts and context that may not otherwise be available to the government. As an example, in this past year alone, this practitioner has used proactive disclosures effectively to affect investigation, prosecution and debarment risk.
Second, if the impact of these cases is more inquiry across government silos, then the traditional boundaries between acquisition information and exclusion information may blur over time. Where acquisition professionals may be more accustomed to handling problems contractually, SDO offices are inclined to use other, more dramatic tools to remedy misconduct. This increases the risk that one-sided information not countered by a proactive contractor explanation will lead to an adverse outcome.
In an interesting year for suspension and debarment, two bid protest cases have the potential to change the interactions between contractors (and grant recipients) and SDOs. Each decision adds reasons to proactively disclose problems to the SDO. There is an art to doing so that seeds the record, effectively protects the company, and does not unknowingly walk the company into a suspension or proposed debarment. These proactive disclosures deserve substantial consideration in 2015 and beyond.
—By David Robbins and Laura Baker, Shulman Rogers Gandal Pordy & Ecker PA
David Robbins chairs Shulman Rogers’ government contracts and grants practice in the firm’s Potomac, Maryland, office. Laura Baker is an attorney in the firm’s Potomac office and previously spent seven years with the U.S. Department of Justice.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
 Temporary Restraining Order, Inchcape Services Holdings Ltd., et al. v. United States, No. 13-953 (Fed.Cl. Jan. 2, 2014) ECF No. 31.
 Id. at 1.
 Id. at 1-2.
 Id. at 5.
 Id. at 4.
 Id. at 4-5.
 FCi Federal, Inc., B-408558.4, .5, .6, 2014 WL 5374675 (Comp. Gen. Oct. 20, 2014).
 See, e.g., Hickey v. Chadick, 649 F. Supp. 2d 770, 774-75 (S.D. Ohio 2009); Kirkpatrick v. White, 351 F. Supp. 2d 1261, 1282 n. 27 (N.D. Ala. 2004) (directly referencing FAR 9.1 criteria in a footnote explaining the responsibility concepts considered in a FAR 9.4 inquiry).
 FCi Federal, 2014 WL 5374675 at *4.
 Id. at *3
 Id. at *4.
 Id. at *9.
 Id. at *10.
 See n. 18, supra.