Debarment and Contractor Responsibility

The Government requires the contractors it does business with to conduct themselves in a manner it deems to be the highest degree of integrity and honesty. These Standards of Conduct1 are pervasive and obligate contractors to avoid fraudulent and unethical conduct, and even the appearance of impropriety in the federal procurement process. If a contractor violates one or more standards of conduct the Government may impose civil and administrative, and even criminal sanctions. One such administrative sanction is suspension and debarment2 from contracting with the Government. Debarment prohibits contractors from doing business with any Executive Agency. A period of debarment may run for three (3) years, but could be extended for a longer period.

One result of the debarment of a contractor is that the contractor is deemed non-responsible for award of a contract. Suspension may precede debarment, but the impact of either action is to preclude the contractor from doing business with federal agencies on a Government wide-basis. When a contractor is debarred, it will be considered non-responsible.3 The acquisition regulations state that a contractor that is suspended or debarred is guilty of a grave violation of Government approved “ethics” and must be denied the award of a contract.4 In order to preserve the integrity of the procurement system, the Government will not award a contract to a contractor that is suspended or debarred.

Does this policy apply solely to the contractor competing for a contract, or does it also include a contractor’s affiliates, such as a parent company?

This question was decided in the United States Court of Federal Claims, (“COFC” or the “Court”) in the appeal of OSG Product Transfers, LLC. (“OSG”) v United States of America, No. 07-561C issued on June 30, 2008. The Military Sealift Command solicited bids for the long-term charter of two (2) T-5 petroleum tankers for Defense Energy Support Center. The Government received six bids, three of which were technically acceptable. The OSG bid was the lowest price acceptable bid. However, the ultimate parent of OSG fivelevels above,  Overseas Shipholding Group had been proposed for, but not actually, debarred. The Contracting Officer decided that the proposed debarment of the parent was sufficient to find OSG not responsible and awarded the contract to competitor USS Product Carriers. The Court had to decide if an agency decision not to debar a parent company for admitted legal violations precludes a Contractor Officer (“CO”) from disqualifying the subsidiary that has no legal violations from obtaining a contract because it is non-responsible. The CO must make the responsibility determination.5 Only responsible bidders who are capable of performing the work may be awarded a contract. Among the qualities a bidder or contractor must have in order to be determined responsible is a record of integrity and business ethics.6 A contractor must clearly demonstrate that it is presently responsible, and if it is unable to do so, the CO must determine the contractor as non-responsible.7 Moreover, the CO must satisfy herself that a contractor has the capability to meet the delivery schedule and other requirements of the contract.8 The Court confirmed that “a contracting officer may reject a contractors showing of responsibility as insufficient. The amount of information needed to satisfy the contracting officer that a bidder is responsible is also a matter of discretion.”

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The court stated that “a contracting officer is the point person for any Government contract.” FAR requires procurement officers to rule on present responsibility before making a contract award. A decision by a separate Government agency for a different purpose should not bind the contracting officer or limit her decision. The COFC approved the CO’s “unusually” thorough and determined effort to insure her responsibility determination was fair and reasonable. She was conscientious and persistent in performing the duties required of her…. The Government…performed admirably in handling the procurement.”

The COFC distinguished debarment as excluding “the contractor from all Executive Agency” contracts, whereas non-responsibility” excludes the contractor from a specific contract with a single Executive Agency.”

Product Tankers is a fifth level subsidiary of the parent OSG, and a separate legal entity. The Court agreed that “debarment affects a contractors affiliate only if the debarring official names the affiliate in the action. Affiliates must have been involved in or affected by the contractors wrongdoing to be named in the debarment.” Product Tankers was not named in the debarment action. The Court pointed out that without OSG’s corporate history and financial backing and support, Product Tankers could not have submitted a responsive and responsible bid.

The COFC concluded that “procurement officials are obligated by law to make their own responsibility determinations. This contracting officer was not bound by rulings made by other agencies unrelated to plaintiff’s responsibility as a bidder.” The COFC also stated that the CO “conducted a thorough investigation, received input from multiple sources, and based her decision on the facts before her.” Finally the Court approvingly saw “no problems with her factual conclusion; they were fully substantiated by the record.”

The moral of the story is never be suspended or disbarred. Be sure to comply with all laws and regulations. Separation by affiliation is not sufficient to overcome a debarment whether proposed or actual. From this case, you can see that a proposed or actual debarment of a parent can have an impact on a subsidiary at any level, and vice versa. In turn, this action can result in a finding of non-responsibility, and prevent award of a contract.

Tom Petruska
Contract Unlimited Incorporated

The foregoing is not legal advice or a legal opinion.  See your attorney for legal advice.

Footnotes:

1. 48 C.F.R. 3.0

2. 48 C.F.R. 9.4

3. 48 C.F.R. 9.104

4. 48 C.F.R. 9.104-2

5. 48 C.F.R. 9.103 (b)

6. 48 C.F.R. 9.104-1

7. 48 C.F.R. 9.103 (b)

8. 48 C.F.R. 9.105-1 (a)

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