The government has released its long-awaited annual report on federal suspension and debarment activities, and the data reflect a number of trends and developments that should be of keen interest to federal contractors and grantees.  The report, which is published by the Interagency Suspension and Debarment Committee (“ISDC”), shows that suspension and debarment remain potent tools that are used frequently across the executive branch, even if the total number of exclusion actions dipped slightly from the previous year.  But more importantly, the report also demonstrates that federal agencies are adopting increasingly sophisticated approaches to managing suspension and debarment actions, a trend that presents both opportunities and potential pitfalls for the contracting community.  Below we highlight the five biggest takeaways from this year’s ISDC report.

1. Overall activity is slightly down from recent years, but still substantial.

Total suspension and debarment activity decreased slightly in FY18 from recent years, although the pace of activity still remains high.  According to the ISDC report, federal agencies initiated a total of 3,256 suspension and debarment-related actions in FY18 (480 suspensions, 1,334 debarments, and 1,542 proposed debarments), a decrease of approximately 11 percent from the 3,640 actions initiated government-wide in FY17.  Still, the report notes that the FY18 data reflects “nearly double the activity reported in FY 2009,” the first year in which government-wide suspension and debarment data was reported.

On an individual agency level, certain agencies that have traditionally been active in the suspension and debarment space once again reported the highest total number of actions in FY18.  The Departments of the Army, Navy, Homeland Security, and Housing and Urban Development each reported over 300 total exclusion actions.  Other agencies reporting a notable change in suspension and debarment activity in 2018 include the Department of Transportation (203 total actions, up from 76 in FY17), the General Services Administration (250 total actions, up from 163 in FY17), and the Department of Veterans’ Affairs (26 total actions, down from 90 in FY17).

2. Agencies are making increasing use of less impactful alternatives to traditional suspension and debarment.

The ISDC’s FY18 report also reflects a growing trend of agencies utilizing alternatives to traditional suspension and debarment tools.  The most notable (and commendable) illustration of this trend is the steady increase in use of pre-notice letters (show-cause letters or “requests for information”), which permit agencies to investigate potential present responsibility concerns without triggering the immediate (and often-devastating) consequences of a  suspension or debarment.  The appropriate use of pre-notice letters has long been encouraged by industry and the ISDC alike, and this year’s total of 197 pre-notice letters issued government-wide is the second highest ever in a single year.

As might be expected, many of the more active suspension and debarment agencies, including the Army, Navy, DHS, EPA, and GSA, routinely issued show cause letters in FY18.  But while show-cause letters are becoming increasingly common in the aggregate, the frequency of their use among individual agencies still varies widely.  On one hand, DHS issued 41 pre-notice letters in FY18, a dramatic increase over a total of just 3 in FY17.  On the other hand, the Defense Logistics Agency issued only one pre-notice letter despite initiating over 150 suspension and debarment actions.

Another increasingly common alternative to suspension or debarment is the negotiation of a bilateral administrative agreement.  In FY18, federal agencies entered into 61 administrative agreements, a slight decrease from FY17 but still a substantial increase from FY09, when only 35 administrative agreements were utilized by five agencies.  But again, the prevalence of administrative agreements varies significantly across agencies.  For the second year running, the EPA and DOT entered into the most administrative agreements.  Meanwhile, DHS entered into just one administrative agreement despite initiating more than 300 exclusions.

3. Contractors are increasingly taking proactive steps to mitigate suspension and debarment risks.

Significantly, the ISDC’s FY18 report also observes that government contractors continue to proactively engage with Suspending and Debarring Officials (SDOs) to address potential present responsibility matters, particularly when a company discovers possible misconduct within its operations.  The report identifies at least 40 “instances of proactive engagement initiated by potential respondents” in 2018.  The report further notes that such early and affirmative outreach by a contractor is appreciated by SDOs and often is productive for both parties:  “This activity makes possible even earlier consideration of present responsibility factors by agency SDOs; it allows both sides to focus on corrective measures taken by the company to address the misconduct, along with efforts by the company to improve internal controls, enhance compliance programs, and to promote a culture of ethics.”

4. Cybersecurity matters for present responsibility reviews.

As every contractor knows, cybersecurity concerns have been the driving force behind an array of regulatory developments in the past five years.  More recently, we have seen a corresponding increase in enforcement activity in this area, and cyber-related suspension and debarment actions – as well as a proliferation of cyber-focused legislative enactments with debarment-like effects – have followed suit.  It therefore should come as no surprise that this year’s annual report reveals that the ISDC has established a new subcommittee dedicated exclusively to “tracking and reporting cybersecurity contractor compliance issues and developments.”  Although it remains to be seen whether and how this new subcommittee will effect suspension and debarment activity going forward, the mere existence of the subcommittee should erase any question about the relevance of cybersecurity issues to the present responsibility analysis.

5. The wait may soon be over for a unified suspension & debarment rule—or maybe not.

Finally, this year’s report suggests that a unified suspension and debarment rule for both procurement and nonprocurement transactions may soon be within reach.  For years, contractors and legal practitioners have been frustrated and confused by the parallel and not-entirely-consistent regulatory regimes that govern suspension and debarment in the procurement and nonprocurement contexts.  Various proposals have been advanced, with increasing specificity, to bring the two regimes into alignment, but the promise of a unified rule has thus far gone unrealized.

However, this year’s ISDC report makes clear that the government is continuing to “explore the development of a consistent set of procedures for both procurement and nonprocurement suspensions and debarments.”  The report correctly note that the adoption of such a unified rule would “reduce procedural inconsistency,” a particularly worthy goal given the dramatic consequences of suspension and debarment actions.  Of course, the inconsistencies between the procurement and nonprocurement debarment regulations is not a new issue and so it remains to be seen whether and when a unified rule actually will be issued—and what such a rule would entail.

Conclusion

In broad terms, the trends and observations discernable in the ISDC’s FY18 report are significant for at least three reasons.  First, the report offers further evidence of the increasing maturation of suspension and debarment programs across the federal government:  overall levels of activity remain high, and although the number of traditional suspension and debarment actions dipped slightly, there is a corresponding increase in the willingness of agencies to utilize alternative tools to protect the government’s interests.

Second, the report also serves as a reminder to industry that a present responsibility review is not simply a straight-line path to an inevitable conclusion.  Sophisticated contractors will understand that the suspension and debarment process can play out in a variety of ways—some of which are more favorable to industry than others—and that successfully navigating this process requires a clear understanding of the range of options and approaches available to contractors.

Third, the ISDC’s creation of a cybersecurity subcommittee signals that the ever-increasing array of cybersecurity rules and regulations is now a part of the present responsibility analysis.  The government’s willingness to debar contractors who fall short of cybersecurity obligations reinforces the truth that when it comes to cyber compliance, the government means business.

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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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Photo of Frederic Levy Frederic Levy

Fred Levy is senior counsel in the firm’s Government Contracts and White Collar Defense and Investigations Practice Groups. He is a leading suspension and debarment lawyer, focusing his practice on the resolution of complex compliance and ethics issues. He has successfully represented numerous…

Fred Levy is senior counsel in the firm’s Government Contracts and White Collar Defense and Investigations Practice Groups. He is a leading suspension and debarment lawyer, focusing his practice on the resolution of complex compliance and ethics issues. He has successfully represented numerous high-profile corporations and individuals under investigation by the government in civil and criminal matters, including False Claims Act cases, and in suspension and debarment proceedings to ensure their continued eligibility to participate in federal programs. He has also conducted numerous internal investigations on behalf of corporate clients and advises corporations on voluntary or mandatory disclosures to federal agencies. Fred regularly counsels clients on government contract performance issues, claims and terminations, and litigates matters before the boards of contract appeals and in the Federal Circuit.

Related to his work involving program fraud, Fred counsels clients in the area of contractor “responsibility.” He is involved in the development and implementation of contractor ethics and compliance programs that meet the standards of the Federal Acquisition Regulation, Federal Sentencing Guidelines, and Sarbanes-Oxley, and he regularly conducts ethics and compliance training.

Fred is a principal editor of Guide to the Mandatory Disclosure Rule, and of The Practitioner’s Guide to Suspension and Debarment, 4th Edition. He is a vice-chair of the Debarment and Suspension Committee of the ABA Public Contract Law Section, and a former co-chair of that committee and of the Procurement Fraud Committee. He is a graduate of Columbia College and Columbia Law School.

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Photo of Evan R. Sherwood Evan R. Sherwood

Evan Sherwood counsels federal contractors on Contract Disputes Act (CDA) claims, the cost accounting standards (CAS), cost allowability, requests for equitable adjustment (REAs), contract terminations for convenience/default, and related audits, litigations, and investigations. He also advises on contract compliance and formation issues, including TINA/defective pricing…

Evan Sherwood counsels federal contractors on Contract Disputes Act (CDA) claims, the cost accounting standards (CAS), cost allowability, requests for equitable adjustment (REAs), contract terminations for convenience/default, and related audits, litigations, and investigations. He also advises on contract compliance and formation issues, including TINA/defective pricing, data rights, mandatory disclosure rules, ethics, conflicts of interest, teaming arrangements, and other transaction agreements (OTAs). He has litigated matters before the Court of Federal Claims, the Armed Services Board of Contract Appeals, the Government Accountability Office, and the Federal District Courts.

In his work for defense and civilian agency contractors, Evan:

  • Prepares CDA claims and REAs;
  • Litigates matters involving CAS compliance, cost accounting practice changes, and cost allowability under the FAR and grant rules;
  • Defends contractors during audits and investigations involving the Defense Contract Audit Agency (DCAA), Defense Contract Management Agency (DCMA), and the Office of the Inspector General (OIG);
  • Advises on constructive changes, work delays, defective specifications, stop-work orders, government-furnished property, CPARS, warranty matters, data rights, and quality controls;
  • Counsels on disputes between primes and subcontractors, including teaming disputes; and
  • Conducts internal investigations and defends clients in federal investigations involving whistleblower allegations and retaliation claims.

Evan is a Vice Chair of the ABA Public Contract Law Section’s Contract Claims & Disputes Resolution Committee. He routinely writes and speaks about legal issues in federal contracting.

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