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.

 

Tags: debarment, Executive Order 192, MTA, New York Public Procurement, S. 1509
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Photo of Michael Wagner Michael Wagner

Mike Wagner represents companies and individuals in complex compliance and enforcement matters arising in the public procurement context. Combining deep regulatory expertise and extensive investigations experience, Mike helps government contractors navigate detailed procurement rules and achieve the efficient resolution of government investigations and…

Mike Wagner represents companies and individuals in complex compliance and enforcement matters arising in the public procurement context. Combining deep regulatory expertise and extensive investigations experience, Mike helps government contractors navigate detailed procurement rules and achieve the efficient resolution of government investigations and enforcement actions.

Mike regularly represents contractors in federal and state compliance and enforcement matters relating to a range of procurement laws and regulations. He has particular experience handling investigations and litigation brought under the civil False Claims Act, and he routinely counsels government contractors on mandatory and voluntary disclosure considerations under the FAR, DFARS, and related regulatory regimes. He also represents contractors in high-stakes suspension and debarment matters at the federal and state levels, and he has served as Co-Chair of the ABA Suspension & Debarment Committee and is principal editor of the American Bar Association’s Practitioner’s Guide to Suspension & Debarment (4th ed.) (2018).

Mike also has extensive experience representing companies pursuing and negotiating grants, cooperative agreements, and Other Transaction Authority agreements (OTAs). In this regard, he has particular familiarity with the semiconductor and clean energy industries, and he has devoted substantial time in recent years to advising clients on strategic considerations for pursuing opportunities under the CHIPS Act, Inflation Reduction Act, and Bipartisan Infrastructure Law.

In his counseling practice, Mike regularly advises government contractors and suppliers on best practices for managing the rapidly-evolving array of cybersecurity and supply chain security rules and requirements. In particular, he helps companies assess and navigate domestic preference and country-of-origin requirements under the Buy American Act (BAA), Trade Agreements Act (TAA), Berry Amendment, and DOD Specialty Metals regulation. He also assists clients in managing product and information security considerations related to overseas manufacture and development of Information and Communication Technologies & Services (ICTS).

Mike serves on Covington’s Hiring Committee and is Co-Chair of the firm’s Summer Associate Program. He is a frequent writer and speaker on issues relating to procurement fraud and contractor responsibility, and he has served as an adjunct professor at the George Washington University Law School.

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