In December 2023, the Interagency Suspension and Debarment Committee (ISDC) delivered to Congress its report on the status of discretionary suspension and debarment under the federal contracts and grants regimes, in accordance with a standing requirement under Public Law No. 110-417. The latest report describes the federal government’s progress in improving the suspension and debarment process and provides a summary of the suspension and debarment-related activities for each member agency during fiscal years (FYs) 2021 and 2022.
Introduction
The December 2023 report tracks trends in federal exclusion actions, and offers helpful insights into how debarring officials approach their work. The report may have been most notable, though, for what it did not include – any reference to the proposed rule which would fold together the federal contracts and grants debarment regimes in a major reform. That proposed rule was released in January 2023, and will be addressed in a February 27, 2023 webinar through GW Law School’s Government Procurement Law Program.
Click here for information on the free GW Law webinar on “Reshaping Federal Procurement” — the proposed federal rule
Highlights from the December 2023 report are discussed below. One thing worth noting from the report is that the ISDC stresses the use of alternative remedies to debarment, for example through administrative agreements, remedial compliance measures and third-party monitoring. The U.S. officials’ understanding that exclusion is part of a larger risk management effort in procurement, through compliance and other measures – an approach emphasized in the Organisation for Economic Co-operation and Development (OECD)’s 2021 recommendation on debarment (see commentary by Jessica Tillipman) and a June 2023 OECD report – is also noteworthy, because it sets the U.S. system apart from other systems that treat exclusion as a means of punishment, not risk management.
The U.S. debarment system is explicitly not a system for punishment (see Federal Acquisition Regulation 9.402), and this approach grounded in risk management (as the ISDC report shows) allows private parties and government officials to work in parallel, in efforts to manage risks in their respective spheres.
Exclusion’s Focus: Performance and Reputational Risks
Statement of Mission — Performance and Reputational Risks: The ISDC report starts with a statement of mission which helps resolve a longstanding debate – what is the purpose of debarment (and contractor or grantee qualification more broadly)? The ISDC reports states plainly that the mission of the U.S. debarment regime is to “protect the Government’s business interests from potential harm posed by individuals or entities whose conduct constitute cause for exclusion, such as poor performance or a lack of business honesty or integrity” – to address, in other words, performance and reputational risks to the government.
ISDC Contributed to OECD Recommendation: The ISDC contributed to the OECD recommendation (noted above) that governments approach debarment and compliance as risk-management measures. The ISDC report noted this “OECD recommendation reflects a shift in the international paradigm from debarment as punishment to a remedy that incentivizes andmpromotes effectively addressing business risks.” As part of that shift, the ISDC report said, enabling “companies that demonstrate their commitment for effective compliance and ethics programs to remain award eligible expands competition, potentially reduces Government costs, and protects jobs for innocent workers.” ISDC Report, at 6.
The Statistics
Exclusions Up Slightly: Many stakeholders – including members of Congress – tend to focus on the sheer numbers of suspensions and debarments as a measure of the system’s success. The ISDC report notes that “[r]eferrals and all categories of exclusion declined in FY 2021, the first full year of the COVID pandemic, due in part to its impact on court proceedings and investigations, but then rebounded in FY 2022.” From the report:
The ISDC report noted that there had been a slight uptick in referrals of potential cases to debarring officials – though still at a rate far reduced from what it was several years before:
While the data are still somewhat mixed, the ISDC report suggested that there had been a significant increase in alternative approaches to debarment, such as administrative agreements and pre-notice letters (discussed further below). The ISDC report said that the rise in alternatives to exclusion “may account for the corresponding Governmentwide decrease in referrals, suspensions, proposed debarments, and debarments, as compared to the prior year.” Id. at 11.
The ISDC data showed that the Defense Department had the largest share of exclusion actions in FY 2021, followed by the Department of Homeland Security.
Alternatives to Debarment – On the Rise
While the ISDC report acknowledged that the number of exclusion actions has generally been declining over time, the report emphasized that the shift may be occurring because agencies are using alternatives to debarment, as part of a more comprehensive approach to risk management.
Increasing Reliance on Administrative Agreements: “Governmentwide, agencies entered some of the highest number of alternative administrative actions to date, which more than doubled the preceding highest total . . . . [T]he recent data demonstrates a slightly different group of agencies utilizing alternatives to the suspension and debarment remedies in lieu of immediate and/or continued imposition of an exclusion . . . . [A]gencies continued use remained at historically high levels, notwithstanding that alternative remedies such as administrative agreements, voluntary exclusions, and pre-notice letters require significant additional time and resources.” ISDC Report at 10.
Alternative remedies allow business to continue and agencies to mitigate risk: “[A]lternatives [to debarment] enabled parties to remain viable despite ongoing economic challenges, while properly addressing business risks and promoting the competition and retention of jobs for Americans, particularly in light of the economic recovery during and emerging from the COVID-19 pandemic.” Id. at 11.
Early engagements help drive increase in alternative agreements: “[T]he increased proactive outreach to agency SDOs and suspension and debarment programs by potential participants and respondents further correlates with historically significant post-notice engagements. Such increased engagements with respondents, which correlates with an unprecedented volume of negotiated agreements, reflects SDOs’ focus on assessing business risks, especially during a time when many were facing additional economic challenges posed by a global pandemic. The ebb of exclusions and flow of heightened interactions, in part, reflects agency consideration of the circumstances and consideration of alternatives to exclusion for these unique times . . . .” Id. at 11.
Increase in “proactive engagements”: “Entities and individuals proactively contacted or self-disclosed matters to a greater number of agencies . . . . The ISDC continued to engage in outreach with stakeholders internal and external to the Government. As a result of the ISDC’s past and ongoing efforts, individuals and entities have continued to proactively reach out to SDOs to provide information relating to their present responsibility, particularly, when an entity has identified possible misconduct within its operations. Such activity makes possible even earlier consideration of present responsibility factors by agency SDOs and allows both sides to focus on corrective measures taken by an entity or individual to address any misconduct and concerns, along with efforts to improve internal controls, enhance compliance programs, and promote a culture of ethics and accountability.” Id. at 12.
Agency “Pre-Notice” Letters Up By Over Half: “Pre-notice letters, which include SDO show cause letters, letters of concern, requests for information, and similar types of communication, are used to inform an individual or entity that the agency’s suspension and debarment program is reviewing matters for potential suspension or debarment action. These letters identify assertion(s) of misconduct or a history of poor performance and give the recipient(s) an opportunity to respond and implement corrective action(s) prior to formal SDO action. Responses to these letters help agencies better assess the risk to the Government’s programs and determine what measures are necessary to protect the Government’s interest(s) without immediately imposing an exclusion action. Use of pre-notice letters increased by 56% . . . .” Id. at 12.
Administrative Agreements Surged – These Risk-Management Measures Often Depend on Compliance and Monitoring: “Also known as administrative compliance agreements, this remedy typically requires the implementation of several provisions to improve the ethical culture and corporate governance processes of a respondent, often with the use of qualified, independent third-party monitors paid by the respondent. The terms of administrative agreements are tailored to the nature of the issues giving rise to an agency’s suspension or debarment action or concerns. . . . Administrative agreements also may arise at different points in the process, whether as the result of proactive, pre-notice engagements or in resolution of and following the issuance of an exclusion notice. Therefore, the viability of an administrative agreement as the appropriate outcome of a matter will always be a case-specific determination . . . . This tool can be effective in situations where award eligibility would further the Government’s interests, such as increasing competition for procurement opportunities. Administrative agreements provide that certain verifiable actions are taken in a prescribed timeframe to mitigate business risks, such as the implementation of enhanced internal corporate governance practices and procedures and/or the use of independent third-party monitors. Where appropriate . . . an administrative agreement can provide an outcome beneficial to all parties while ensuring protection for the Government. In FYs 2021-22, administrative agreements were among the most used alternatives to suspension and debarment actions and reached an unprecedented record in FY 2021.” Id. at 12-13.
ISDC Questions and Answers: Important Insights for Practitioners
Questions and answers from the ISDC (p. 21 of the report) addressed key issues in handling a debarment – early engagement, presentations by key managers, how to handle parallel criminal proceedings, working with other officials (beyond the SDO), and respondents’ responsibility to present remedial suggestions.
Question: “May potential respondents proactively contact suspension and debarment (S&D) program officials prior to an indictment or conviction?” Answer:“Yes. Proactive efforts may be taken early to notify S&D program officials of corrective actions being taken by the party to address business risks. Such steps may potentially mitigate or negate the necessity for a suspension or debarment. Before arriving at any debarment decision, the debarring official will consider factors such as timely self-reporting that may be one of the indicators of present responsibility. . . .”
Question: “Will a guilty plea automatically result in a discretionary debarment action?” Answer: “Not necessarily. Although a conviction for certain offenses may constitute cause for a discretionary debarment action, other factors, such as acceptance of responsibility and corrective actions, are mitigating factors that a suspending and debarring official (SDO) may consider in support of demonstrating present responsibility. Suspension and debarment proceedings are parallel proceedings to criminal proceedings. . . .”
Question: “Is it generally beneficial if the SDO hears directly from respondents?” Answer: “Acceptance of responsibility and understanding and appreciation of the seriousness of the cause(s) for suspension or proposed debarment may, among other factors, be effectively conveyed directly by business leadership, senior management, and/or the affected individual. Their counsel and/or representative(s) are usually present and participate when the individual and/or senior management are conveying matters directly. High-level officials reflect the tone at the top of an organization. Inclusion of individuals who are responsible for the implementation of corrective actions may enhance presentations.”
Question: “Is the SDO the only individual at a Federal agency with whom respondents can initiate discussions about suspension and debarment-related remedies?” Answer: “Generally no, but it depends on the structure of the agency’s debarment program. The Interagency Suspension and Debarment Committee (ISDC) provides information . . . on the points of contact (POCs) for Federal SDOs. These officials often make preliminary assessments and recommendations to the SDO, including any potential actions in lieu of suspension and debarment. To ensure that the administrative record relied upon by the SDO is clear, contacting these POCs also enables respondents to provide additional information that POCs anticipate the SDO would want addressed before a presentation of matters in opposition or a meeting.”
Question: “Can a debarment extend beyond a period of three years [and can it be shortened]?” Answer: Generally, debarment should not exceed three years but, depending on the circumstances, a debarment may be shorter or longer than three years, based on the seriousness of the cause and mitigating and other factors, as applicable. In addition, reconsideration may be requested when additional mitigating measures have been taken by the respondent(s) to address the cause(s) for which debarment was imposed.”
Question: “Is it the SDO’s role to outline or identify corrective actions needed to be taken by respondents?” Answer: “No. Respondents are best situated to know their operations and conduct and what they need to do to address risk(s) created by their conduct. Respondents, both individuals and entities, need to identify, propose, or present corrective actions already taken and those pending to address business risks to demonstrate present responsibility. Once cause for debarment is established, it is the respondent’s burden to demonstrate to the SDO that it is presently responsible and that suspension or debarment is not necessary.”
Question: “Can respondents concurrently negotiate Federal discretionary suspensions or debarments when negotiating criminal plea agreements or civil settlements?” Answer: “Discretionary S&D . . . authority is exercised by Federal agency SDOs to protect Federal agency programmatic and business interests. Administrative parallel proceedings are those in which an SDO for the lead agency may enter into a separate agreement to concurrently resolve such discretionary suspension and debarment administrative matters. Respondents should contact the relevant suspension and debarment office(s) . . . .”
Editor’s note: This piece was prepared as a study guide for the GW Law School Spring 2024 special course on debarment taught by John Pachter, Maria Swaby and Christopher Yukins.