FAR Council Proposes Updates to Suspension and Debarment Procedures for Procurement Transactions
Last month, the Federal Acquisition Regulatory (FAR) Council published a proposed rule that would update the FAR's suspension and debarment procedures.
The proposed rule seeks to more closely align two suspension and debarment regulatory systems — the FAR-based system that applies to procurement contracts and the Nonprocurement Common Rule (NCR) that applies to grants, cooperative agreements, and assistance contracts. The FAR Council recognized that the systems are "designed toward the same end, follow the same general principles, and use essentially the same basic action notice and decision-making process," and determined that addressing the differences between the rules would "enhance transparency and consistency within the Government's suspension and debarment procedures." To achieve this alignment, the FAR Council proposed definitional and procedural changes, as well as additional factors for debarment decisions and revisions to certain suspension provisions — all based on recommendations of the Interagency Suspension and Debarment Committee.
Notably, the FAR Council opted against addressing one significant difference between the procurement and nonprocurement systems. Specifically, a notice of proposed debarment under the FAR will still have the effect of immediately excluding the contractor, even though it does not have that effect in the NCR.
This Advisory explores the proposed revisions to the procurement-related suspension and debarment regulations in the FAR and discusses industry implications.
The FAR Council first sought to address certain definitional differences between the FAR and the NCR by introducing several new definitions and updating others. These changes recognize existing practices by suspension and debarment officials (SDOs) in addition to expanding the scope of evidence that agencies may use to consider suspension or debarment.
Administrative Agreement. While the FAR references the use of administrative agreements, and SDOs commonly use administrative agreements as an alternative to formal exclusion, the FAR does not currently define the term. The proposed rule closes this gap by defining "administrative agreement" as "an agreement between an agency suspending and debarring official and the contractor used to resolve a suspension or debarment proceeding, or a potential suspension or debarment proceeding." In this context, the FAR Council explained that administrative agreements often require actions by the contractor to address responsibility concerns, such as enhanced internal corporate governance practices, independent third-party monitors, and voluntary exclusion from certain procurement or nonprocurement transactions for a period.
Civil Judgment. The proposed rule also expands the existing FAR definition of "civil judgment," which can serve as the basis for a suspension or debarment, to align it with the NCR definition. The current definition only captures “a judgment or finding of civil offense.” The proposed rule defines civil judgment as “disposition of a civil action ... whether by verdict, decision, settlement, stipulation, or other disposition that creates a civil liability.” Thus, under the proposed rule, an agency may suspend or debar a contractor based on a civil settlement, regardless of whether the contractor admits guilt.
At present, an agency can debar a contractor on that basis if the SDO deems it a "cause of so serious or compelling a nature that it affects the present responsibility of the contractor" — a catch-all provision that follows a more particularized set of potential grounds for debarment. But the FAR requires the SDO to establish a cause for debarment "by a preponderance of evidence," when not based on a conviction or civil judgment. In such instances, the FAR may also afford the contractor with additional procedural rights. The FAR Council's proposed expansion of the "civil judgment" definition would permit the SDO to bypass these safeguards in the event of a settlement, even in those instances where the contractor makes no admission of guilt. Settlements of this nature are often motivated by legitimate business considerations, not wrongdoing. Thus, industry should consider submitting comments to the FAR Council that advocate for leaving intact the existing safeguards in the event of a civil settlement, at least in those instances where the contractor denies liability therein.
Conviction. The proposed rule contemplates two major changes to the FAR definition of conviction, which can prompt a suspension or debarment. First, the proposed definition broadens the coverage from simple judgment of guilt to “any other resolution that is the functional equivalent of a judgment” such as probation and deferred prosecution. The FAR Council clarified that disposition without court participation is the functional equivalent of a judgment "only if it includes an admission of guilt." The FAR Council also explained the rationale for this revised definition, as derived from the NCR — "fact-finding proceedings should not be necessary when there is sufficient evidentiary basis that the contractor was responsible for the misconduct for purposes of a proposed debarment." Second, the proposed rule would relocate the clause defining the term from FAR 2.101 to FAR 9.403, so the expanded definition of “conviction” would not apply to the entirety of the FAR, but cover only the suspension and debarment procedures.
Pre-Notice Letter. Although the FAR does not presently recognize pre-notice letters as a suspension or debarment procedure, SDOs have widely used them in lieu of issuing a notice of proposed suspension or debarment in the first instance. Thus, the proposed rule defines "pre-notice letter" as "a written correspondence issued to a potential respondent in a suspension or debarment matter, which does not immediately result in an exclusion or ineligibility." By defining the procedure, the proposed rule acknowledges the pre-notice letter as a tool that affords SDOs flexibility with which to engage in preliminary discussions with contractors. The proposed rule, however, stresses that the pre-notice letter is not mandatory, and it exists only to empower SDOs to handle actions “as informally as practicable [and] consistent with principles of fundamental fairness.”
Voluntary Exclusion. The proposed rule sets out a new FAR definition, derived from the NCR, for "voluntary exclusion" as "a contractor's written agreement to be excluded for a period under the terms of a settlement between the contractor and the suspending and debarring official of one or more agencies," noting that a voluntary exclusion "must have a Governmentwide effect." The FAR Council elaborates on why a voluntary exclusion may appeal to a contractor and its various constituencies as compared with involuntary exclusion through suspension or debarment, but makes clear that a contractor that is voluntarily excluded will be placed on the excluded parties list in the System for Award Management (SAM) just the same.
The FAR Council also proposed numerous revisions to the FAR suspension and debarment procedures. These revisions include facilitating communication between the government and contractors, contemplating available steps like the pre-notice letter and imposing government database registration requirements — all in furtherance of increased flexibility.
Methods of Communication. To support informal engagement and account for emergency situations such as COVID-19, the proposed rule would allow contractors and their representatives to present matters to the SDO by phone or internet, rather than requiring in-person presentations. SDOs, in turn, would be permitted to issue a notice of proposed debarment or suspension by methods other than certified mail; the proposed rule allows the use of mail, fax, and email for notice.
Notice Requirements. The proposed rule also specifies to whom the SDO must send the notice of proposed debarment. For purposes of administrative proceedings, the notice must be sent to the contractor or its identified counsel, and for service of process, the notice must be sent to the contractor or its agent.
Deadline for Debarment Decision. The proposed rule modifies the deadline by which the SDO must make a debarment decision for actions based on a conviction or civil judgment, or in which there is no genuine dispute over material facts. The FAR currently requires a debarment decision to be made within 30 working days after the SDO receives information and argument from the contractor. The proposed rule changes that time to 45 calendar days after the official record is closed. This change reduces chance of confusion caused by varying definitions of working days in different countries, including in light of national or religious holidays.
Pre-Notice Letters. As noted above, the FAR Council also proposed to confirm the SDO's ability to issue a pre-notice letter. Agencies have widely used requests for information and other pre-notice methods to better assess circumstances surrounding contractor actions that might result in exclusion via suspension or debarment. The proposed rule acknowledges the practice and expressly affords this optionality to SDOs in engaging with the contractors.
Government Database Registration. The proposed rule revises the FAR to address the registration of administrative agreements and voluntary exclusions on federal acquisition databases. Under the proposed rule, the SDO must register on the Federal Awardee Performance Integrity Information System all administrative agreements entered into for the purpose of resolving a suspension or debarment action or as a preliminary procedure preceding a potential suspension or debarment. Likewise, the SDO must enter all voluntary exclusions into the SAM database. These government database registrations will establish a public record of previously informal and relatively discreet alternatives to suspension or debarment.
Additional Factors for Debarment
In addition to the broader definitional and procedural changes, the proposed rule addresses a key FAR provision regarding debarment decisions. The FAR currently lists 10 factors that the SDO should consider upon reaching a debarment decision. With the proposed rule, the FAR Council would add seven more for consideration by the SDO. Borrowing from the NCR, the proposed rule would also empower the SDO to consider "aggravating" factors. The additional aggravating or mitigating factors contemplated by the proposed rule include:
- The contractor’s pattern or history of wrongdoing, including frequency, duration, harmful impact, or the wrongdoing
- The contractor’s planning, initiation, or execution of the misconduct
- The pervasiveness of the wrongdoing in the contractor’s organization
- Whether the contractor’s principals tolerated the offense
- The contractor’s exclusion from federal, state, or local government contracts or assistance
- The contractor’s administrative agreement with a federal, state, or local government
- Other factors appropriate to the circumstances of a particular case
According to the FAR Council, these new factors further improve consistency between the procurement and nonprocurement systems in addition to providing "more guidance and increased options for the [SDO] to consider when making present responsibility determinations." And as a practical matter, these factors further refine the roadmap for contractors — whether they are proactively protecting against responsibility concerns or responding to such concerns in the context of a potential suspension or debarment.
Revisions to Suspension Provisions
The FAR Council also proposed to revise certain aspects of the FAR suspension provisions. The proposed rule affords the SDO wide discretion to suspend a contractor when immediate action is necessary to protect government’s interest. With this broader suspension power, the FAR Council would allow the SDO to consider an indictment or other official findings by federal, state, or local entities on factual or legal matters.
The proposed rule also expands the list of parties that can provide advice to the agency on pending or contemplated legal proceedings. In addition to the Department of Justice, the proposed rule would allow a U.S. Attorney’s Office, state attorney general’s office, or a state or local prosecutor’s office to also consult the agency in making suspension decisions. Further, the proposed rule would allow not only the U.S. Assistant Attorney General but also the U.S. Attorney General’s Office, a U.S. attorney, or another responsible prosecuting official to request a six-month extension of suspension when legal proceedings have not been initiated within 12 months after the date of suspension notice.
Unchanged Exclusionary Effect of Proposed Debarment Notice
Although the proposed rule seeks to bring the FAR into alignment with many of the NCR’s suspension and debarment procedures, the FAR Council opted to continue deviating from the NCR as it relates to the exclusionary effect of a notice of proposed debarment. Nonprocurement rules do not require the immediate exclusion of a grantee or beneficiary after the SDO issues a notice. Under the FAR, a notice of proposed debarment has the effect of immediately excluding the contractor. The proposed rule will not change this.
On this point, the FAR Council explained that the immediate exclusionary effect is retained "in part in recognition of the necessity to continue to protect the Government's interests and taxpayer's money by minimizing business risk where procurements are involved." The FAR Council distinguished nonprocurement transactions, such as grants or cooperative agreements, which focus instead on overall program goals and objectives or public purposes and economic stimulation. Because "contracts are more likely than nonprocurement transactions … to require immediate exclusion when something goes wrong," the FAR Council reinforced the SDO's continued discretion to opt for immediate exclusion, but it also recognized the use of a pre-notice letter as a way for the SDO to raise responsibility concerns with a contractor without this effect.
The proposed rule, as issued by the FAR Council, streamlines the suspension and debarment procedures by aligning certain aspects of the FAR-based system for procurement with the NCR-based system for nonprocurement, in an effort to achieve enhanced transparency and consistency. The result would involve regulatory recognition of formerly informal practices, in addition to more flexibility in the way that the government and contractors engage. It remains to be seen which of the FAR Council's proposed changes are ultimately adopted. The FAR Council has requested comments on or before March 11.
© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.