Two recent developments in Albany suggest that New York is poised to kick its debarment activity into a higher gear. First, Governor Andrew Cuomo issued an executive order pointedly reminding state entities of their authority to debar non-responsible contractors and directing all state entities to ensure that contractors remain “responsible” throughout the term of their contracts. Second, the New York legislature recently enacted a bill to reform the Metropolitan Transportation Authority (MTA), which included far-reaching provisions that allow MTA to debar any contractor that exceeds 10% of the contract cost or time for a construction project. Together, these developments indicate a move towards greater scrutiny of contractor performance, and they highlight the significant consequences of not meeting compliance and performance obligations.

Contractor Responsibility Under Executive Order 192

Earlier this year, Governor Cuomo issued Executive Order (EO) 192, “Executive Order Imposing Continuing Vendor Integrity Requirements in State Contracts,” which directs New York state entities to take additional steps to ensure that responsibility of state contractors. The Order’s preamble declares that “it is imperative that the State conduct business only with responsible entities” and that non-responsible contractors may be “debar[red] or deem[ed] ineligible for future bidding.” Significantly, however, the Order also states that “the State’s attention to vendor responsibility should not end with the contract award process,” and that agencies must ensure that contractors “remain responsible throughout the term of the contracts.”

This latter point suggests a potentially change in New York’s contractor oversight process. Traditionally, responsibility determinations made by New York state agencies — commonly referred to as “FLIP” reviews — evaluate a contractor’s Financial ability, Legal authority to conduct business in the state, Integrity, and Past performance. The New York State Procurement Guidelines recognize that pursuant to state statutes, agencies are required to determine whether an offeror is responsible prior to awarding a contract. But state statutes are not clear on what happens post-award, and the Guidelines only “recommend” that contracts include language obligating the contractor to maintain its responsibility. Now that EO 192 specifically directs agencies to ensure that contractors remain responsible “throughout the term of the contract,” the number of non-responsibility findings — and accompanying debarment actions — almost certainly will increase.

EO 192 also requires state entities to rely on a determination made by any other state entity in ascertaining the responsibility, ineligibility, or debarment of a contractor. The EO defines “state entity” broadly to encompass all agencies over which the Governor has executive authority or appoints a certain number of board members. This appears to be another policy shift. A 1989 executive order issued by Governor Andrew Cuomo’s father, Mario Cuomo, required agencies to exchange information but encouraged each agency to make its own responsibility determination on a case-by-case basis.

Debarment Under Annual Budget Bill

Separately, the New York legislature enacted a FY 2020 budget bill which includes major reforms at the MTA. One of those reforms requires the MTA to establish regulations for a debarment process that would prohibit contractors from bidding on future contracts for five years. The law permits the MTA to create new regulations imposing debarment in situations when a contractor exceeds the cost or time permitted under a contract by 10%, an extraordinarily low threshold for an action as consequential as a five-year debarment.

And of perhaps even greater concern to the contracting community, the law even provides for debarment where claimed costs exceeding 10% of the contract are subsequently deemed invalid through the contractual dispute resolution process. This provision would seem to penalize contractors simply for having pursued a cost claim that ultimately did not succeed, even if the claim was filed in good faith. Given the severity of the penalty and the potential chilling effect on cost claims, contractors would be wise to closely monitor the MTA’s promulgation of regulations implementing this law.

Key Takeaways

Taken together, these two developments are a clear indication that New York state contractors face the prospect of both greater regulatory scrutiny and the possibility of more significant consequences for any compliance or performance misstep. As always, contractors should remain vigilant to ensure their personnel satisfy compliance and performance obligations, and it may be wise to refresh existing training programs to ensure that they are complete and current.

But contractors also need to be prepared to respond to any agency that seeks to deem them non-responsible or otherwise ineligible to participate in public procurements. Fortunately, the Executive Order and the budget bill contemplate that a contractor would have an opportunity to engage with any State agency that might seek to debar it, including by participating in an underlying investigatory process and by contesting a finding of non-responsibility. It is critical that contractors facing debarment seize upon these opportunities and develop a comprehensive strategy for preserving their ability to do business with the State.

 

Print:
EmailTweetLikeLinkedIn
Photo of Michael Wagner Michael Wagner

Mike Wagner helps government contractors navigate high-stakes enforcement matters and complex regulatory regimes.

Combining deep regulatory knowledge with extensive investigations experience, Mr. Wagner works closely with contractors across a range of industries to achieve the efficient resolution of regulatory enforcement actions and government…

Mike Wagner helps government contractors navigate high-stakes enforcement matters and complex regulatory regimes.

Combining deep regulatory knowledge with extensive investigations experience, Mr. Wagner works closely with contractors across a range of industries to achieve the efficient resolution of regulatory enforcement actions and government investigations, including False Claims Act cases. He has particular expertise representing individuals and companies in suspension and debarment proceedings, and he has successfully resolved numerous such matters at both the agency and district court level. He also routinely conducts internal investigations of potential compliance issues and advises clients on voluntary and mandatory disclosures to federal agencies.

In his contract disputes and advisory work, Mr. Wagner helps government contractors resolve complex issues arising at all stages of the public procurement process. As lead counsel, he has successfully litigated disputes at the Armed Services Board of Contract Appeals, and he regularly assists contractors in preparing and pursuing contract claims. In his counseling practice, Mr. Wagner advises clients on best practices for managing a host of compliance obligations, including domestic sourcing requirements under the Buy American Act and Trade Agreements Act, safeguarding and reporting requirements under cybersecurity regulations, and pricing obligations under the GSA Schedules program. And he routinely assists contractors in navigating issues and disputes that arise during negotiations over teaming agreements and subcontracts.