Ethics and Compliance: Suspension and Debarment Trends

Justin A. Chiarodo

November 13, 2014

#3286785

Justin A. Chiarodo

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Partner at Dickstein Shapiro LLP, Washington, DC

Over ten years representing companies in government contracts litigation, compliance, and regulatory matters, including internal investigations, mandatory disclosures, suspension and debarment matters, bid protests, and the defense of False Claims Act cases

Graduate of Virginia Tech and the University of Virginia School of Lawwww.linkedin.com/in/justinachiarodotwitter.com/JustinAChiarodo

The Procurement/Enforcement Landscape

• Federal procurement spending down– $460 billion in FY 2013 (11% drop - biggest in a decade)

– Down from $550 billion in FY 2009

– Small business procurement dollars down ($83 billion in FY 2013), but reported percentages up

– Declines attributed to sequestration, drawdowns abroad, and strategic sourcing (bulk purchasing, etc.)

• But Government enforcement up…– $3.8 billion in 2013 False Claims Act recoveries (2nd highest ever)

– $14 billion in 2013 reported recoveries by Federal Inspectors General

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Suspension and Debarment: A Snapshot

• Big rise in suspensions and debarments

• Interagency Suspension and Debarment Committee (ISDC) Report:– More referrals: 3,700 in FY 2012 up to 3,942 in FY 2013

– More suspension and debarments: 4,639 in FY 2012 to 4,842 in FY 2013

• Some perspective: – 2009: 1,862 suspensions and debarments

– A 260% increase through 2013

– ISDC says “not a numbers game”

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Suspension and Debarment: The Basics

• To protect the Government; not punish

• Key authorities: FAR Subpart 9.4 (Federal executive agency procurements), Nonprocurement Common Rule (2 CFR Part 180) (grants, cooperative agreements, etc.)

• Why? fraud, false statements, theft, bribery, “any other offense indicating a lack of business integrity”

• How long? – Suspension: “temporary exclusion” (i.e., weeks to months)

– Debarment: reasonable set period, based on cause (i.e., years)

• Effect? Government-wide exclusion: the “death sentence”– Normally can continue current contracts

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How Did We Get Here?

• More attention from Congress, Executive Agencies, and the media

• GAO reviews in 2011 and 2014 (GAO-11-739, GAO-14-513)

• Common characteristics of “successful programs”– Dedicated Staff

– Detailed Policies and Procedures

– Active Referral Process

• Six programs cited for improvement in 2011, including FEMA.

• The results: 19 actions in 2009 to 271 in 2013 (14-fold increase); FEMA from 0 to 52 actions.

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The DHS Program - Then

• 2010 DHS OIG report (OIG-10-50)

• FY 2004-2008 – 10 debarment cases and 1 suspension case

• Findings:– Reluctance to debar poorly performing contractors

– Officials saw debarment as “too punitive”

– 23 T for D’s not properly reviewed for referral

– Inaccurate performance tracking (CPARS, PPIRS)

• Two recommendations:– Develop and implement policies for referral of poor performers

– Better reporting of poor performers

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The DHS Program - Now

• Uses full suite of actions and infrastructure:– Polices & Procedures (department-wide)

– Case Management

– Use of show cause, admin agreements, and voluntary exclusions

• Referrals – 784 last two years (top civilian agency, and 3rd among all federal agencies)

• Sources: COs, Whistleblowers, Outside Sources, and the OIG

• Show Cause/Pre-Notice Letters – 11 in last 2 years

• Administrative Agreements – 2 in last 2 years

• Suspensions and Debarments– 276 (2012); 313 (2013)

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Big Trends

• Better staffed and trained SD offices

• Use of non-traditional procedures:– Requests for information regarding responsibility

– Show cause letters

– “Terminations with conditions”

• Hot areas: small business program compliance, failures to report misconduct, problematic contractor performance, individual debarments

• Numbers tell a story – 260% increase in five years

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Some Tips

• Strong compliance program grounded in corporate values (tailored to size of business)

• Corporate values and ethics program should be transparent and accessible

• “Buy-in” from senior leadership

• Be prepared to engage the SDO (investigations, fraud litigation); they may be expecting you

• Preparation and cooperation, not litigation

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Questions?

• Justin A. Chiarodo | PartnerDICKSTEINSHAPIROLLP1825 Eye Street NW | Washington, DC 20006Tel (202) 420-2706 | Fax (202) 420-2201chiarodoj@dicksteinshapiro.com

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