Last week we discussed the FY2014 Interagency Suspension and Debarment Committee Report released in April, and discussed how the data in that report is compiled. This week we are breaking down the numbers in the report. FY 2014 saw an increase in overall numbers of suspensions, proposed debarments, and debarments. There was 5,179 total actions in FY 2014, up from 4,842 in FY 2013, an increase of approximately 7%. Primarily there was an increase in actions from civilian agencies, which indicates that civilian agencies are starting to build more active programs. More active programs means that the trend of increased activity should continue. The civilian agencies with the largest jump in actions were: Departments of Housing and Urban Development (24%) and Treasury (90%). Additionally, in the Department of Defense, the Navy also had a 29% increase in actions. Based on this report, it seems likely that the Department of Defense will continue at the same level and we will continue to see moderate increases in the civilian agencies.
It’s the time of year again to obsess over numbers that are mostly irrelevant. On April 1, the Interagency Suspension and Debarment Committee released its FY2014 report releasing the number of exclusion actions government-wide that agencies initiated. These numbers include suspensions, proposed debarments, and debarments as well as administrative agreements. It’s important to understand how these numbers are compiled before discussing the numbers themselves.
First, if, for example, Suzy Smith and Bobby Smith own Smith Contractors and all three are proposed for debarment for the same misconduct, those are counted as three actions within the ISDC report’s numbers despite only one act of misconduct. The ISDC itself admits that it “does not consider the overall number of suspension and debarments to be a metric of success.” Because most of the actions behind these numbers are unpublished, it is impossible to tell how many actual instances of misconduct the SDOs reviewed this year. Why do we care about instances of misconduct compared with overall numbers? If one debarment covers fifty individuals in a single case, that single case counts as fifty actions, and it looks like there is far more activity in that agency over the year than there actually is. Continue Reading
In the previous post, the World Bank’s system for debarment was discussed. This post discusses the collateral impacts of a World Bank debarment in the context of the World Bank’s debarment of Alstom SA.
What did the World Bank debarment of Alstom mean in the broader context of international procurement? Are there potential collateral consequences for companies and for governments as a result of the World Bank’s actions?
The African Development Bank Group, the Inter-American Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, and the World Bank have a cross-debarment agreement such that if one bank debars a company or individual, that company or individual is also debarred from pursuing contracts with the other two banks. Therefore, the World Bank’s debarment of Alstom also applied to the other development banks.
Currently, the United States does not automatically recognize a World Bank debarment and exclude contractors on that account. A Suspension and Debarment Official could, however, still review the causes for the World Bank’s debarment and make an independent determination that debarment is appropriate for the United States Government. A company with circumstances similar to Alstom’s could see itself being simultaneously debarred from the World Bank and United States Federal contracting.
The European Union’s new procurement directives update the current exclusion regime at the member state level to require contractors to self-certify as part of every procurement that there have been no convictions for a company or individual officers of a company for integrity related offenses. In the Alstom Zambia case, there was no criminal conviction; therefore, a company with similar circumstances would be free to continue to win and perform government contracts.
The current Canadian regime also limits exclusions to convictions or discharges for integrity offenses. Therefore, the debarment consequences would be very similar to those within the European Union.
As the international suspension and debarment regime grows and continues to become more sophisticated, contractors need to be ever more aware that the consequences of corruption and fraud can have impacts beyond the state where the corruption occurs. Additionally, it is not just the actions of the legal system such as convictions that can have significant consequences on a business but suspensions and debarments as well. With the harmonization of debarment regimes, the consequences of one debarment by one government could eventually become an automatic debarment in another. While this is not currently the case, the European Union’s new procurement directives and the Canadian debarment system demonstrate the potential avenues that an automatic cross-debarment could take. If a company is convicted for corruption, even outside of the respective state’s borders, the company is still automatically debarred from government procurement activities for a period of time. The development banks cross-debarment agreement demonstrates a similar automatic exclusion between governments for debarment actions is practicable and possible.
On February 25, 2015, the World Bank lifted its debarment of Alstom SA. The company had been debarred after it was discovered it had made improper payments for consultant services to an entity controlled by a former senior government official on a World Bank-finance project in Zambia in 2002. The terms of the debarment required Alstom subsidiaries, Alstom Hydro France and Alstom Network Schweiz AG, to pay $9.5 million in restitution and prohibited these entities from bidding on World Bank contracts for up to three years. If these subsidiaries complied with the terms of the agreement with the World Bank, they would be eligible to compete for contracts again in 21 months. 24 months later, following Alstom’s fulfillment of the terms of the agreement, the World Bank lifted its debarment.
While the World Bank does not have the long history of a developed suspension and debarment regime similar to that of the United States, the World Bank has been progressively more aggressive in this area. Part I of this blog post discusses the World Bank’s system for suspensions and debarments. Part II discusses the collateral consequences of a World Bank debarment.
What is the World Bank’s debarment process?
In many ways, the World Bank’s debarment process is similar to the United States’ system. There are three structural levels to the World Bank’s system: the Integrity Vice President (“INT”), the Evaluation Officer, and the Sanctions Board. The Integrity Vice President refers matters to the Evaluation Officer. The Evaluation Officer makes a determination regarding the adequacy of the matter for a sanction under the World Bank’s rules. The Sanctions Board reviews the case if a contractor decides to appeal the Evaluation Officer’s determination. Continue Reading
This month I wanted share an article I recently found on the OECD Foreign Bribery Report, written by Richard Bistrong. Mr. Bistrong is a former international sales executive who himself was convicted of bribery and debarred, and Mr. Bistrong spent 14 ½ months in prison. Prior to his conviction, Mr. Bistrong acted as a government witness and participated in covert cooperation to uncover Foreign Corrupt Practices Act and other export violations.
Of the 427 cases used by the OECD (Organisation for Economic Co-operation and Development) as a data set, only two cases resulted in debarment, one of which was Mr. Bistrong. From Mr. Bistrong’s perspective, a debarred person, debarment is both a fair and appropriate measure. As such he questions why it is not used more frequently. Mr. Bistrong cites to Professor Brandon Garrett of the University of Virginia, who argues prosecutors and regulators want to avoid debarring companies as they are effectively death penalties for the company. Mr. Bistrong argues more of these cases should end in debarment as it is a valuable tool for governments. The OECD report itself encourages countries to debar entities and individuals that have bribed foreign public officials.
So why does it appear this tool has been used so infrequently? There are several potential reasons. First, prosecution for foreign bribery and debarment itself has experienced a resurgence of popularity in the last decade. The OECD report demonstrates a spike in foreign bribery between 2007 and 2013 with a peak in 2011. Debarment in the United States has existed in some form since the Civil War, but the current form was established in the late 1980s. Other countries have recently developed models for a debarment regime or updated their existing models. The timeframe the OECD used (1999-2014) captured the rise in debarment popularity. Even given that change in conditions, two is still a low number.
Last month, the U.S. Court of Federal Claims denied a post-award bid protest of a contract set aside by the National Geospatial-Intelligence Agency (NGA) for AbilityOne Program contractors. The court found the government correctly considered the impact of the award on the incumbent contractor, an Alaska Native Corporation (ANC), and correctly considered the awardee (an AbilityOne contractor) “qualified” to perform the contract. The court’s decision is an interesting case on the limits of an Alaska Native Corporation’s rights under the Alaska Native Claims Settlement Act, and on the amount of labor required to be performed by AbilityOne program contractors. The Ability One program (discussed in more detail in a prior post) assists nonprofits that employ persons with severe disabilities (PWSD) to be awarded contracts by the Committee for Purchase from People who are Blind or Severely Disabled (CFP), after referral by agencies such as the NGA.
AWARDEE MET LABOR REQUIREMENTS TO PARTICIPATE IN ABILITYONE PROGRAM
The incumbent contractor, Akima Intra-Data, an ANC, protested on the basis that ServiceSource was not a “qualified” AbilityOne contractor under The Javits-Wagner-O’Day (JWOD) Act because blind or severely disabled employees would not perform 75% of the contract’s labor. The court denied this protest argument, disagreeing with protestor’s interpretation of the JWOD Act. The court held the AbilityOne program’s calculation of the 75% direct labor ratio is based on all of the AbilityOne contractor’s work, rather than mandating a 75% minimum for each contract. The court concluded that “CFP’s reliance on all of ServiceSource’s agency-wide work to find that they were ‘qualified’ and thus eligible to participate in the AbilityOne program was consistent with the statute and was not in violation of the law or any CFP regulation.”
ALASKA NATIVE CORPORATION WAS NOT ENTITLED TO SPECIAL CONSIDERATION UNDER ALASKA NATIVE CLAIMS SETTLMENT ACT
The incumbent contractor, Akima Intra-Data, an ANC, argued that NGA did not give enough consideration to the fact that the award would take away a major revenue source from an ANC. Akima Intra-Data further argued the Alaska Native Claims Settlement Act entitled them to receive “the maximum practicable opportunity to participate in performing contracts awarded by Federal agencies,” and that the award to ServiceSource violated the Alaska Native Claims Settlement Act. The court disagreed, holding as follows: “The JWOD Act does not include or reference any other statutory preference provisions. Indeed, the AbilityOne Program is itself a program designed to provide a preference in the circumstances specified by the JWOD for the benefit of PWSD. Further, the court is not aware of any requirement that CFP must omit from the procurement list contracts where the incumbent enjoys an economically-disadvantaged status by virtue of the Alaska Native Claims Settlement Act.”
Back in September 2014, NASA awarded contracts to Boeing and SpaceX to provide Commercial Crew Transportation Capability (aka space shuttle services) to transport astronauts to/from the International Space Station by 2017. Subsequently, Sierra Nevada, who submitted a proposal but was not awarded a contract, filed a protest at GAO challenging the awards to Boeing and SpaceX. This week GAO announced that it had denied Sierra Nevada’s protest.
Although GAO has not yet publicly released a formal decision on the protest, it did issue a press release providing some insight on the reasons why NASA selected Boieng and SpaceX over Sierra Nevada, and why Sierra Nevada’s protest has been denied:
In making its selection decision, NASA concluded that the proposals submitted by Boeing and SpaceX represented the best value to the government. Specifically, NASA recognized Boeing’s higher price [$3.01 billion], but also considered Boeing’s proposal to be the strongest of all three proposals in terms of technical approach, management approach, and past performance, and to offer the crew transportation system with most utility and highest value to the government. NASA also recognized several favorable features in the Sierra Nevada and SpaceX proposals, but ultimately concluded that SpaceX’s lower price [$1.75 billion] made it a better value than the proposal submitted by Sierra Nevada [$2.55 billion].
GAO disagreed with Sierra Nevada’s arguments about NASA’s evaluation, and found no undue emphasis on NASA’s consideration of each offeror’s proposed schedule, and likelihood to achieve crew transportation system certification not later than 2017. GAO also noted that, contrary to Sierra Nevada’s assertions, the RFP clearly advised offerors that their proposals would be evaluated against the goal of certification by the end of 2017.
Sierra Nevada also argued that NASA conducted an inadequate review of the realism of SpaceX’s price and overall financial resources, conducted a flawed and disparate evaluation of proposals under the mission suitability evaluation factor, and improperly evaluated the relevance of offerors’ past performance. Based on our review of the issues, we concluded that these arguments were not supported by the evaluation record or by the terms of the solicitation.
A redacted copy of GAO’s decision will likely be made public in the next few weeks.
Interestingly, this is not the first clash at GAO precipitated by NASA’s retirement of its space shuttles and privatization of the space program. As discussed in an earlier post, in 2013 and 2014 GAO issued protest decisions concerning Blue Origin’s challenge to a lease awarded to SpaceX for NASA’s historic Launch Complex 39a at the Kennedy Space Center.
The Veteran’s Administration (VA) administers the “Veterans First” Service-Disabled-Veteran-Owned Small Business (SDVOSB) and Veteran-Owned Small Business (VOSB) verification program. The VA’s program requires companies to apply for verification through the VA’s Center for Verification and Evaluation (CVE) and to re-certify every two years. The CVE’s verification process is challenging and requires applicants to produce extensive documentation. Nevertheless, verification is worth the effort, as it allows the SDVOSB and VOSB to participate in VA’s “Veteran’s First Contracting Program” contract set asides and sole source contracts.
According to the VA, the following are the top three reasons for denial of certification in the 4th Quarter of FY2014:
- Veteran does not demonstrate full-time devotion to business (38 CFR 74.4(c)(3)). “One or more veterans or service-disabled veteran owners who manage the applicant or participant must devote full-time to the business during the normal working hours of firms in the same or similar line of business. Work in a wholly-owned subsidiary of the applicant or participant may be considered to meet the requirement of full-time devotion. This applies only to a subsidiary owned by the VOSB itself, and not to firms in which the veteran has a mere ownership interest.”
- Veteran does not control decision-making and/or serve as managing member of LLC (38 CFR 74.4(e)). “In the case of a limited liability company, one or more veterans or service-disabled veterans must serve as management members, with control over all decisions of the limited liability company.”
- Non-veteran receives highest salary (38 CFR 74.4(g)(3)). “With the exception of a spouse or personal caregiver who represents a severely disabled veteran owner, no such non-veteran or immediate family member may … [r]eceive compensation from the applicant or participant in any form as directors, officers or employees, including dividends, that exceeds the compensation to be received by the highest officer (usually chief executive officer or president).”
These represent just the top 3 reasons why the VA denies applications for verification and recertification of program participants. Applicants and participants recertifying also are denied for reasons such as: unconditional ownership, undue influence, control of decision-making, managerial experience/critical license, 51% majority ownership, and day-to-day management and administration of operations issues.
The National Industrial Recovery Act, part of the New Deal policies in 1934, allowed businesses employing individuals with disabilities to pay less than minimum wage to their disabled workers. This “sub-minimum” wage policy was buttressed by the 1938 Fair Labor Standards Act which allows employers to apply for Section 14(c) certificates to pay their employees with disabilities less than the prevailing wage if their disability impacts their productivity. So, if a disabled worker’s productivity is reported to produce 50% of the productivity of a nondisabled worker doing the same kind of work, the disabled worker can be legally compensated with 50% of the prevailing wage. As of 2011, approximately 420,000 people with disabilities are employed under Section 14(c) of the Fair Labor Standards Act.
In a slightly different category is the AbilityOne program. The Javitz-Wagner-O’Day Act of 1971 (41 U.S.C. §§ 46-48) requires federal agencies to purchase certain supplies and services from non-profit agencies with a minimum of 75% of the total agency work hours being performed by individuals with disabilities. Today, the program is administered by the Committee for Purchase from People Who are Blind or Severely Disabled, an independent federal agency, and is called AbilityOne. FAR Subpart 8.7 prescribes the policies and procedures for purchasing from AbilityOne sources to satisfy procurement needs. A significant minority of employees with disabilities are employed through AbilityOne and under a 14(c) certificate, making AbilityOne a more ethically attractive option in terms of hiring practices. In fact, the average wage of workers in the AbilityOne program in FY2013 was $13.03 per hour.
On December 12, 2014, Congress passed the National Defense Authorization Act (NDAA) for Fiscal Year 2015. The $585 billion bill funds the Pentagon’s activities in FY 2015. Within this massive bill, there are number of items of interest to government contractors, including:
- Design Build Contracting. Section 814 gives contracting officers more authority to increase the number of offerors for Design-Build contracts. Current law requires design-build solicitations to be a two-phase procurement. The solicitation states the maximum number of offerors permitted to submit proposals for the second phase of the procurement. The limit on offerors is currently five, “unless the agency determines with respect to an individual solicitation that a specified number greater than 5 is in the Government’s interest and is consistent with the purposes and objectives of the two-phase selection process.” 10 U.S.C. § 2305a(d). Section 814 allows a written determination by a contracting officer that a number greater than five is in the Government’s best interest under the two phase procurement. Approval of this contracting officer determination is by “the head of the contracting activity, delegable to a level no lower than the senior contracting official within the contracting activity.” This approval at a much lower level should lead to more opportunities for design-build contractors.
- No Reverse Auctions. Section 824 bans the use of reverse auctions for the procurement of design-build construction unless specifically authorized in another law. This provision was supported by the Association of General Contractors of America. Construction contracts were viewed as being unsuitable for reverse auctions due to having many variables as to budget and owner needs compared to commodities manufactured with little or no variability.
- Service Contracting Spending Cap. Section 813 extends the caps on dollars spent on contract services by the military. Service contracts may only be awarded up to the amounts in the FY 2010 NDAA. Moreover, the 10-percent-per-fiscal-year reductions in spending for contracts that are “inherently governmental” functions continue. Contractors can continue expect fierce competition for services contracts based on Section 813’s continuation of the spending cap.