What You Need to Know About Suspension & Debarment October 21, 2018 Dominique L. Casimir

Often Referred to As the Death Penalty, and For Good Reason No new contracts, task orders, options, or subcontracts Existing contracts subject to termination Effective throughout executive branch agencies Applies to the entire company, not just to a culpable division Can extend to affiliates even if they have no connection to the cause Can apply to individuals and to corporations Significant reputational harm Fact of exclusion is public (SAM.gov database), including the cause Contracting partners, employers will be wary of you Future disclosures required Individual’s misconduct can be imputed to corporation, and vice-versa

Purpose of Suspension and Debarment To protect the Government From Business Risk Forward-looking protective remedies to help ensure the Government only contracts with entities that are presently responsible. Present responsibility generally refers to business ethics, integrity, honesty, and competence. May Not Be Used to Punish a Contractor or Individual for Prior Misconduct Feels punitive for the contractor/individual and may result in collateral consequences that feel punitive Suspension and Debarment are Discretionary Individualized assessment; not generally an area for application of precedent; Consider recidivism, credibility, investment in ethics & compliance, internal controls, corporate culture

Common Misconceptions The contractor that has already settled with another agency and paid its fine won’t be suspended or debarred. The contractor is too big and important to be suspended or debarred. The government will not suspend or debar individuals. The government will take a targeted approach, and not suspend or debar affiliates. A respondent will get notice and an opportunity to respond before being suspended or proposed for debarment. A subcontractor or lower-tier vendor cannot be suspended or debarred. If several years have gone by since the potential cause for suspension or debarment, then suspension and debarment will not be imposed.

Suspension: Purpose and Standard Precautionary and Discretionary Protects government pending completion of an investigation or legal proceedings Existence of cause does not require imposition of suspension Temporary: If legal proceedings not concluded within 12 months, suspension should be lifted unless 6-month extension requested by Asst. Attorney General. Requires “adequate evidence,” and a determination that “immediate action is necessary to protect the Government’s interest.” FAR 9.407-1(b)(1). To decide whether to suspend, the SDO will examine basic documents including contracts, inspection reports, and correspondence; will consider the information available, how credible it is, whether allegations are corroborated, and what inferences can reasonably be drawn as a result. SDO may, but is not required, to consider remedial measures or mitigating factors – these are not necessarily determinative of present responsibility.

Debarment: Purpose and Standard Applies where the SDO has determined that the contractor or individual is not presently responsible, such that debarment is necessary to protect the Government’s interests. In an action based upon a conviction or civil judgment, or where there are no material facts in dispute, the SDO decides based on the administrative record, including submission from the contractor. In an action not based on a conviction or civil judgment, SDO decides based on a preponderance of the evidence standard. Disqualification from government contracting for a specified period, usually 3-years, but can be longer if circumstances warrant. Discretionary: existence of cause does not require exclusion. Before imposing debarment, SDO should consider the seriousness of the contractor’s acts or omissions and any remedial measures or mitigating factors.

Causes for Suspension (FAR 9.407-2) and Debarment (9.406-2) Fraud in connection with obtaining or performing public contract/subcontract Indictment for ay of these causes constitutes adequate evidence for suspension Violation of federal/state antitrust laws relating to submission of offers Embezzlement, theft, forgery, bribery, falsification/destruction of records, making false statements, tax evasion, violating federal criminal tax laws, or receiving stolen property Violation of Drug Free Workplace rules and intentional/untruthful Made in America labeling Unfair trade practice and delinquent taxes over $3K Knowing failure by principal of contractor to comply with mandatory disclosure obligations Beware of the Broad Catch All Provisions: “Commission of any other offense indicating a lack of business integrity or business honesty that seriously and directly affects the present responsibility of a contractor.” Suspension can also be based upon adequate evidence of any other cause “of so serious or compelling a nature that it affects the present responsibility of a Government contractor or subcontractor.”

The Timing of Suspension and Debarment is Not Always Predictable

Possible Resolutions to Suspension/Debarment Actions If an SDO receives a referral, the possible outcomes are: Declination Show Cause Notice or Request for Information Exclusion Suspension Proposed Debarment or Debarment Administrative Agreement in lieu of an Exclusion

Process if Suspended or Proposed for Debarment Upon receipt of a Notice of Suspension or a Notice of Proposed Debarment, respondent has 30 days to submit information and argument to show that the exclusion is unnecessary to protect the Government’s interest. Request the Administrative Record If suspension is NOT based on a conviction or civil judgment, AND your submission raises genuine issue of material facts, respondent will be offered a hearing. If suspended based on indictment, no requirement for prior notice. Can request an informal meeting with SDO If SDO issues a “show cause” notice: Request any records supporting the show cause notice Written submission to demonstrate present responsibility Consider requesting a meeting with the SDO Avoid aggressive, combative, indignant tone; avoid raising further suspicion

How to Demonstrate Present Responsibility Look to the Mitigating Factors in the FAR, to demonstrate, as applicable: You had effective standards of conduct and internal control systems in place at the time of the activity at issue, or you adopted such procedures prior to any Government investigation of the issue. You brought the activity at issue to the Government’s attention in a timely manner. You have fully investigated and made the results of that investigation available to the Government. You have cooperated with Government agencies during the investigation and any court or administrative action You have paid or agreed to pay all criminal, civil, and administrative liability for the improper activity, including any investigative or administrative costs incurred by the Government or agreed to make full restitution.

How to Demonstrate Present Responsibility (con’t) You have taken appropriate disciplinary action against the responsible individuals. You have implemented or agreed to implement remedial measures, including any identified by the Government. You have instituted or agreed to institute new or revised review and control procedures and ethics training programs. You have had adequate time to eliminate the circumstances within the organization that led to the cause for the exclusion. Management recognizes and understands the seriousness of the misconduct giving rise to the cause for the exclusion and has implemented programs to prevent recurrence.

Keys to a Successful Meeting with the SDO Context: Given the size and sophistication of your organization, what level of investment in ethics and compliance programs is reasonable? Attendance: Who is the right person from your organization to meet with the SDO? Representation: What is the role of counsel at the meeting? Tone: Recognize what side of the table you’re on and modulate appropriately. SDO has discretion and SDO judgments are seldom reversed. Engagement: Make an active presentation, don’t show up just to take questions.

Keys to a Successful Meeting with the SDO, con’t. Assurances: Without over-promising, what can you do to show the SDO that exclusion is not necessary to protect the Government? Expectations: SDO is there to listen; will not make a decision on your case at the meeting. Follow Up: SDO will want to know that you took his/her suggestions seriously.

Proactive Engagement with SDO Opportunity to tell your story before the SDO gets a referral or reads about it in the media Supports view that you are “presently responsible” and are not a risk to the Government’s business interests Be prepared to provide timely updates and respond to requests for information But, make a materiality assessment first – avoid reporting minor compliance issues to the SDO

Don’t Let Suspension and Debarment Come as a Surprise

Dominique Casimir Arnold & Porter 601 Massachusetts Avenue, NW Contact Information Dominique Casimir Arnold & Porter 601 Massachusetts Avenue, NW Washington, D.C. 20001 (202) 942-5494 Dominique.Casimir@arnoldporter.com