FAR Council Proposes Revisions to FAR Part 9’s Suspension and Debarment Regulations

In the world of government contracting, few words can evoke a sense of dread and uncertainty like “suspension” and “debarment.”  Long known as the death knell of government contracting, an exclusion from the federal procurement system may have lasting impacts that can affect virtually every aspect of a contractor’s business, including its reputation, financial health, market share, and long-term stability. Given the importance of this topic, it’s critical to stay up to date on changes to the regulations that govern federal suspension and debarment. 

The FAR Council states that the primary purpose of the revisions outlined in the January 9 Proposed Rule is to more closely align the FAR with the Nonprocurement Common Rule (NCR), which governs suspension and debarment where a grant, cooperative agreement, assistance contract, loan, or loan guarantee is involved.  By harmonizing these regulations, the FAR Council hopes to facilitate transparency and consistency and provide contractors with “a better understanding of how the two systems’ procedures relate to each other.”  (Many who do business with the Government would undoubtedly prefer to do away with the two-system structure entirely, but that is a topic for another day.)  

The Proposed Rule—which has been years in the making—contains few surprises for those already familiar with the NCR’s procedural requirements and definitions.  However, contractors that only hold FAR-based contracts may not be well versed in the NCR and will want to take note of some of the more significant proposed changes.  Below, we offer some overarching observations about the revisions generally, as well as targeted comments on specific changes that may warrant a closer look and, perhaps, submission of comments, which are being accepted through March 11.

• General Approach: Modernization and Uniformity (With One Notable Exception).  Several of the FAR Council’s proposed revisions reflect efforts to modernize the regulations (e.g., describing “new flexibilities” such as allowing contractors to present information to Suspending and Debarring Officials (SDOs) via telephone or internet and authorizing SDOs to issue notices by mail, fax, email, or certified mail).  Others are intended to codify and define existing, common practices (e.g., Administrative Agreements and pre-notice letters) that are not substantively addressed in the current regulations.  These are helpful changes that will better align the FAR with the realities of modern practices.

As noted, the overarching goal is to create uniformity.  Ensuring that FAR Part 9 closely tracks the NCR will help increase transparency and eliminate confusion (at least until the next NCR revision).  But the FAR Council is declining to make one particular change: it will retain the immediate exclusionary effect of a notice of proposed debarment.  Under the NCR, unlike the FAR, a party is not automatically excluded when it receives such a notice.  The FAR Council perceives a need to preserve this distinction and to “protect the Government’s interest and taxpayer’s money” by continuing to impose immediate exclusions when procurements are involved.  The Proposed Rule justifies this different treatment by indicating that “contracts are more likely than nonprocurement transactions . . . to require immediate exclusion when something goes wrong.”  Industry may be interested in offering comments on this finding.  At any rate, pre-notice letters—which do not have an exclusionary effect and can be sent prior to a notice of proposed debarment—will still be an option for SDOs (and, under the Proposed Rule, will now be expressly defined in the FAR).

• Voluntary Exclusions.  The Proposed Rule would amend the FAR to introduce the concept of a “voluntary exclusion” (which already exists in the NCR).  As the term suggests, this procedure would allow a contractor to agree to voluntarily exclude itself from federal procurement (for a time) as part of a settlement with the cognizant SDO.  This change certainly will not be unwelcome in the contracting community, and the FAR Council’s intent to afford a contractor some ability to control the narrative around its exclusion is laudable.  Nevertheless, we do not expect that a “voluntary exclusion” will have much of an effect on the overall impact of an exclusion.  The Proposed Rule makes clear that, notwithstanding the elective nature of a voluntary exclusion, the contractor’s status as an excluded party will still be posted on SAM, and the exclusion will still have governmentwide effect—just like an involuntary suspension or debarment.  And any exclusion, voluntary or otherwise, will inevitably raise eyebrows and questions about what led to it.  Again, despite these realities, we expect industry will appreciate having the chance to at least somewhat improve the optics around an exclusion.
• Specific Aggravating Factors.  A less welcome revision is the FAR Council’s proposal to add the NCR’s specific aggravating factors where FAR Part 9 currently only references mitigating factors for an SDO to consider in deciding whether to debar or suspend a contractor.  As part of this change, for instance, a contractor’s “pattern or prior history of wrongdoing,” along with the frequency and/or duration of any such incidents and the associated harm, may be considered.  The contractor’s involvement in planning, initiating, or carrying out the wrongdoing, the relevant individuals’ positions, the pervasiveness of the wrongdoing, whether the principals “tolerated” the offense, and other factors will also be relevant.  Though SDOs have (at least arguably) always had the discretion to consider factors such as these, the Proposed Rule makes it explicit, and the existence of an enumerated list of aggravating factors may increase the likelihood that an SDO will identify one or more of them as applicable to the contractor.
• Required Response to a Notice of Proposed Debarment or a Notice of Suspension.  For the prudent contractor, whether to respond to a notice of suspension or proposed debarment has never been a close question: the contractor will want to take every opportunity to present evidence opposing its exclusion and presenting itself in the best possible light.  Under the Proposed Rule, however, responding to such notices will no longer be optional.  The FAR Council proposes to require that contractors must respond with (1) any specific facts that contradict the statements contained in the notice of suspension or proposed debarment (including information about any remedial measures, mitigating factors, or aggravating factors); (2) a list of all existing, proposed, or prior exclusions and similar actions taken by federal, state, and local agencies; (3) identification of all criminal and civil proceedings not included in the notice that “grew out of” the facts relevant to the cause(s) described in the notice; and (4) a list of all the contractor’s affiliates.  The Proposed Rule provides that failure to provide this information may result in additional criminal, civil, or administrative action against the contractor. 

Note that the Proposed Rule describes these mandatory requirements separately from the existing (and retained) option to provide “information and argument in opposition to the [suspension or] proposed debarment” within 30 days of receipt of the notice.  As a result, it’s not clear whether the same 30-day response period applies to the mandatory items as well (although this seems likely).  This could be an easy ambiguity for the FAR Council to remedy in the Final Rule.

• Definitions.  The Proposed Rule makes a few noteworthy changes to the regulations’ definitions section.  In addition to adding definitions of “Administrative Agreement,” “voluntary exclusion,” and “pre-notice letter” (described above), the FAR Council proposes to revise the FAR’s definition of a “civil judgment.”  Presently, the regulations define the term simply as “a judgment or finding of a civil offense by any court of competent jurisdiction.”  The new definition will expand on this, capturing not just a court’s “judgments” or “findings” but any “disposition of a civil action . . . whether by verdict, decision, settlement, stipulation, other disposition that creates a civil liability for the complained of wrongful acts, or a final determination of liability under the Program Fraud Civil Remedies Act of 1986.”  Under this new definition, it seems that even a settlement under which a contractor denies liability but agrees to pay damages or a penalty could constitute a “civil judgment” subjecting the contractor to potential debarment if it otherwise meets the criteria in FAR 9.406-2(a).

Though this change would appear on its face to reflect an extension of the SDO’s reach (based on the a reasonable reading of the existing definition), it is important to note that the FAR has long included a “catch-all” provision designed to permit an SDO to initiate a suspension or debarment for virtually any cause affecting present responsibility.  See FAR 9.406-2(c) (identifying as a cause for debarment “any other cause of so serious or compelling a nature that it affects the present responsibility of the contractor or subcontractor”).  That said, where a proposed debarment is based on something other than a conviction or civil judgment, the FAR requires that the cause for debarment must be established by a preponderance of the evidence.  And in such cases—unlike with convictions and civil judgments—contractors are afforded greater procedural rights if their initial submission raises a genuine dispute of material fact.  Some industry representatives and practitioners may feel that SDOs should be required to establish a cause for debarment by a preponderance of the evidence (and provide a contractor with increased rights) where, for example, a contractor settles and pays a penalty or damages but denies liability.  In such cases, a contractor may have any number of good business reasons for wanting to settle the case against it—at least arguably, this should not preclude the contractor from establishing a genuine dispute of material fact and benefiting from additional SDO fact-finding proceedings.

For these reasons, we expect the broadened definition of “civil judgment” to be a focus of industry comment.

Finally, the Proposed Rule applies the NCR’s definition of “conviction” to FAR Part 9 (the term currently is only defined in FAR 2.101).  This new definition is “a judgment or any other determination of guilt of a criminal offense by any court of competent jurisdiction, whether entered upon a verdict or plea, including a plea of nolo contendre . . . or any other resolution that is the functional equivalent of a judgment establishing a criminal offense by a court of competent jurisdiction, including probation before judgment and deferred prosecution.”  Importantly, “[a] disposition without the participation of the court is the functional equivalent of a judgment only if it includes an admission of guilt.”

Authored by Christine Reynolds, Michael Mason, and Lauren Colantonio.