Misconduct Unrelated to Federal Contracts Could Lead to Suspension or Debarment

Article excerpt

If companies are subject to debarment on a "general basis" for all perceived misconduct in all areas of activities--government or non-government--the question arises: What limits, if any, are there on the government's interpretation of a cause for suspension or debarment?

Front-page stories on Enron, Arthur Andersen and WorldCom should make evident that failure to fully integrate corporate compliance throughout the company could prove fatal to government business.

The federal government is required to award contracts only to responsible contractors. Corporate misconduct brought to an agency's attention may trigger review by a suspension and debarment official to determine whether a lack of business integrity or an inability to satisfactorily perform government contracts exists. Any agency may initiate suspension and debarment proceedings against contractors. The General Services Administration maintains the centralized "excluded parties listing system."

The intended purpose of suspension and debarment proceedings is to consider a company's "present responsibility" to do business with the government, and, theoretically, not to punish a contractor. As a result, the suspension and debarment official traditionally limited examinations to a company's record as a government contractor. Suspension or debarment based on unrelated conduct was rare because there appeared to be less of a logical connection to suspending or debarring a company from federal work where a contractor performed well, but ran afoul of legal problems in other, unrelated areas.

With the collapse of Enron and the involvement of Arthur Andersen, its outside auditor, the Office of Management and Budget asked GSA to initiate suspension and debarment proceedings, although no government contracting impact could be cited. GSA suspended Enron and debarred Arthur Andersen. Enron had not been a major government contractor, but Arthur Andersen had a well-established government contracts division with a sterling record as a contractor. Nonetheless, GSA debarred Arthur Andersen based on conviction of offences unrelated to any government contracts. This was one of many legal blows leading to the dissolution of Andersen.

More recently, GSA initiated proceedings to debar WorldCom Inc., which was accused of corporate fraud not directly related to the performance of government contracts. The company's government contracting divisions or personnel were not implicated, and the company had not been indicted by the government. However, GSA took action based on, inter alia, information provided by GSA's Office of Inspection General and the "Thornburgh Report" that had been prepared for the WorldCom board of directors.

The integrity of government contracting was not at risk in either the Enron, the Arthur Andersen suspension and debarments nor with respect to WorldCom. As a policy matter, while the government is always obligated to protect the integrity of contracting, the suspension and debarment official role in purely commercial or securities matters has been less clear. …

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