Senators Warren and Luján Urged USDOJ To Use Dormant Powers to Suspend & Debar Corporate “Criminals” From Federal Contracts

U.S. Senators Elizabeth Warren (D-MA) and Ben Ray Luján (D-NM) sent an unusually strongly worded letter to top U.S. Department of Justice (DOJ) officials urging them to use the Department’s authority to ban from government contracting those corporations which fail to comply with government contracting laws. The letter began with these aggressive words:

Addressed to Attorney General (AG) Merrick Garland and Deputy AG Lisa O. Monaco, the letter expressed the legislators’ concern about the DOJ’s “inability or unwillingness to use its authority to suspend or debar corporate criminals from the government contracting process.” The lawmakers asserted that the Department could debar entities for a wide range of transgressions, even when the alleged wrongdoing falls outside a company’s federal contracting activities.

Senator Warren repeated her concern in a joint press release with Senator Lujan: “We cannot allow these corporate entities to continue to engage in criminal misconduct and get by with a mere slap on the wrist,” she said. “The Department of Justice can and should expand its use of these suspension and debarment authorities to protect the use of government resources and discourage recidivism by big business.”

“No one is above the law. Corporate criminals must be held accountable, and it’s critical that the Justice Department utilizes its authority to ensure that no one can abuse public trust,” said Senator Luján via the press release.

DOJ authority to debar federal contractors derived from FAR regulations

The agencies in the FAR Council—the Department of Defense (DoD), the Government Services Administration (GSA), and the National Aeronautical and Space Administration (NASA)—are the federal agencies most heavily involved in entering into contracts to procure goods and services for the federal government. The Federal Acquisition Regulation (FAR) is the principal set of rules in the Federal Acquisition Regulations System, which governs the acquisition process through which the federal government purchases goods and services.

According to the Senators’ letter, the (FAR) “permits an agency to debar an entity if it is convicted of or receives a civil judgment for “’any…offense indicating a lack of business integrity or business honesty’” (citing 48 C.F.R. 9.406-2(a)). Moreover, an agency can debar an entity based only on a “preponderance of the evidence” for “any other cause of so serious or compelling a nature that it affects the present responsibility of the contractor or subcontractor” (48 C.F.R. 9.406-2(b)). The lawmakers further noted that “[b]efore or while a debarment is being considered, agencies can suspend a contractor if there is “’adequate evidence’” that suspension is necessary to protect the government’s interests” (48 C.F.R. 9.407-1(b)(1)).

Settlement agreements are not enough to stop egregious offenders, the Senators asserted, citing three companies as examples

The six-page letter included three examples of companies that allegedly engaged in egregious fraud against the government but were not suspended or debarred. All three companies reached settlement agreements with the federal government to resolve the respective allegations of illegal conduct. But the Senators’ argued that the DOJ should “use all the tools at its disposal and expand its use of the suspension and debarment authority.”

The DOJ’s authority to debar any government contractor that has committed a covered violation is broad, the lawmakers pointed out, “as long as the Department follows proper referral and debarment procedures.” While the agency has historically viewed debarment as an alternative to prosecution, “a stronger debarment regime would deter bad actors from engaging in unethical future conduct. Indeed, precisely because debarment is meant to be protective and not punitive, debarment and prosecution should be complementary efforts.”

“The Department has a duty to go beyond just its prosecutorial activities to protect the government and its citizens from bad actors with a history of misconduct,” the Senators stated. “Debarment is a powerful and underutilized tool to do so.”

The Senators offered four recommendations as to how the DOJ should expand its use of debarment 

The legislators listed four recommendations for the Justice Department. First, the Senators advised that the DOJ use its debarment authority for corporate entities and not just individuals. Agencies have a wide latitude to link contracting companies to the malfeasance of any of their employees—including top company executives—as long as the misconduct “occurred in connection with the individual’s performance of duties for or on behalf of the contractor, or with the contractor’s knowledge, approval, or acquiescence” (48 C.F.R. 9.406-5(1)). Yet, the DOJ has historically pursued debarment almost exclusively against individuals, not firms. Many cases demonstrate, however, that corporate wrongdoing is the product of extensive schemes, systematic lack of oversight, or corporate negligence, the lawmakers noted. Thus, the company as a whole, rather than a specific employee, poses a risk to the government’s business interests, they asserted.

Second, the Justice Department should use debarment government-wide, the Senators urged. In the past, the DOJ has “viewed debarment as the responsibility of the contracting agency, to be used only in cases where the debarring agency was itself the victim of the corporate misbehavior,” the legislators pointed out. But Department’s authority to suspend and debar entities “extends across any and all lines of government business—not just its own contractors.” Therefore, the DOJ should “adopt policies that call for Department prosecutors and staff to systematically refer corporate misconduct to the Department’s debarring officials for review in all appropriate cases.”

Third, the Senators recommended that the DOJ broadly consider debarments for all corporate misbehavior. The full breadth of corporate transgressions should subject a company to potential debarment, the lawmakers said, including: “tax evasion, bribery, unsatisfactory performance, and other harmful conduct—particularly health, safety, and environmental misconduct.” Furthermore, the Department should not limit pursuing suspension or debarment actions “only against companies that have committed wrongdoing in their dealings with the government,” the Senators said. Corporate misconduct in any context—whether the government was harmed or not—should inform whether the company has the business integrity the government expects of its contractors and subcontractors,” the legislators wrote.

The Senators’ fourth recommendation was that the DOJ  should exercise its suspension authority. Suspension and debarment are distinct tools, they noted. “In many cases, a suspension may be appropriate while an investigation is pending even when a final debarment action may not yet be justified,” they maintained. Suspension can be imposed “on the basis of “’adequate evidence’” even as a fuller investigation or legal proceeding is still underway,” the lawmakers added.

Previous attempts at similar “Blacklisting” efforts ultimately failed

Although not mentioned in the Senators’ letter, their concerns and recommended actions harken back to previous attempts by the Obama and Clinton Administrations to suspend and/or debar contractors for alleged misconduct. In July 2014, President Obama signed Executive Oder 13673, “Fair Pay & Safe Workplaces” (aka “The Blacklisting Rule”). Among other things, it required that, for procurement contracts for goods and services, where the estimated value of the supplies acquired and services required exceeds $500,000, a prospective contractor or subcontractor must report any administrative merits determination, arbitral award or decision, or civil judgment rendered against it within the preceding 3-year period for violations of 15 federal labor and employment laws or equivalent state laws.

E.O. 13673 directed the DOL and the FAR Council to issue regulations and guidance to implement the new requirements. The E.O. and its implementing regulations would have required contracting officers to review a contractor’s labor/employment law violations to assess the contractor’s record of compliance during the pre-award “responsibility” determination and when making post-award decisions such as whether to exercise contract options.

Eventually, the Obama Rule died in April 2017 after President Trump took office. (See, WIR: “Trump Signs into Law the Congressional Resolution to Kill Obama’s Dreaded “Blacklisting Rule”)

The Clinton Administration published a somewhat similar, but broader, FAR Council Final Rule of “contractor responsibility” regulations in its waning days. That Rule would have not only barred companies with poor labor and employment law compliance records (as determined by federal contracting officers) from federal government contracts, but it would have required prospective federal contractors to have a satisfactory record of compliance with tax, environmental, anti-trust, and consumer protection laws as well. However, following the political and legal joust between the Democrats and Republications in the 2000 election year, the Clinton Administration’s final rule was initially suspended, and ultimately revoked, by the successor (George W.) Bush Administration.

The rationale behind both the Clinton and Obama Administrations’ actions was to prevent the award of government contracts to companies with poor track records of compliance with federal laws. Debarments, their proponents reasoned, would save costs and increase the efficiency of the federal procurement process. Still, both employer advocacy groups and legal counsel bitterly criticized the efforts of both Administrations. Some opponents argued that unions, plaintiffs, and various interest groups would seek to exploit the federal government’s debarment authority to demand concessions or settlements from contractors, and, as a result, would also cause unwarranted delays in the procurement process. Another major concern was an infringement of the due process rights of prospective contractors. (See, WIR for

Thursday, August 25, 2016: “USDOL Publishes Fair Pay and Safe Workplaces Final Guidance and Acknowledges DirectEmployers’ Comments.”)

For more background on the Obama Administration’s – ultimately unimplemented – “Blacklisting Rule” and a related pending recent development, see WIR: “USDA Seeks To Criminalize Federal Contractor Non-Compliance With Federal Labor Laws.”

THIS COLUMN IS MEANT TO ASSIST IN A GENERAL UNDERSTANDING OF THE CURRENT LAW AND PRACTICE RELATING TO OFCCP. IT IS NOT TO BE REGARDED AS LEGAL ADVICE. COMPANIES OR INDIVIDUALS WITH PARTICULAR QUESTIONS SHOULD SEEK ADVICE OF COUNSEL.