Category / Suspension and Debarment

by dietrichknauth

BP Contracting Ban Reinforces Debarment Misconceptions

Dietrich Knauth, Law360 – March 31, 2014

The unusual timing of BP PLC’s recently resolved suspension from federal contracting has left many experts scratching their heads, with some concerned that the government’s handling of the contracting ban could reinforce misconceptions that suspension and debarment should be used to punish companies rather than, first and foremost, to protect the government.

BP was suspended from competing for contracts or oil drilling leases 16 months ago, when the oil giant pled guilty to felony misconduct in a $4.5 billion settlement related to the Deepwater Horizon explosion and oil spill, which killed 11 people and released an estimated 4.2 million barrels into the water four years ago. The company sued the U.S. Environmental Protection Agency over the suspension in August, arguing that the EPA’s action ignored “the overwhelming evidence and record of BP’s present responsibility as a government contractor” and that the timing of the suspension was both arbitrary and punitive.

Suspension is intended to protect the government from unscrupulous or risky contractors, not to punish companies for previous wrongs — so the suspension of BP two years after the spill seemed strange to some, even within the government’s suspension and debarment community.

That BP was suspended when it was convicted, rather than when it was indicted or when the EPA had enough evidence to make a reasonable business decision, could reinforce the perception among some members of Congress and public interest groups that suspension is a punitive measure, according to Jessica Tillipman, assistant dean of government contracts law at George Washington University law school. It could also validate contractors’ fears about political debarment, she said.

“If you Google BP and its suspension, the word ‘punishment’ is all over the Internet,” Tillipman said. “BP just seems to be a lightning rod for strong feelings in the industry and for a parade of the ill-informed.”

If BP had been suspended earlier, which would have been more consistent with the normal practice of suspension and debarment, both the contracting industry and BP’s most vocal critics would likely have been happier, Tillipman said. Public Citizen slammed the EPA’s decision to lift the suspension after 16 months as premature, saying it “lets a corporate felon and repeat offender off the hook for its crimes against people and the environment.”

“It made it seem like they went to jail for a day,” Tillipman said. “[Suspension and debarment are] a fundamentally misunderstood regime by the media, by many members of Congress and a lot of public interest groups, who see it as punishment.”

On the other hand, the BP suspension is a reminder that even large, important contractors can’t avoid suspension for egregious conduct, according to Charles Tiefer, a University of Baltimore law professor. Before the suspension, BP was the largest supplier of fuel to the U.S. Department of Defense, with about $2 billion in annual contracts, and the DOD, through the Defense Logistics Agency, not only cut off the opportunity for new contracts as required during the suspension, but it also canceled existing contracts for regular fuel purchases, Tiefer said.

“Looking at the suspension as a whole, it has been an impressive success in government agency coordinated effort,” Tiefer said. “The Defense Department, which here principally means the Defense Logistics Agency, deferred to EPA about the seriousness of BP’s problems, and BP was never able to manipulate its ‘customer’ in the Defense Department to free it from EPA’s tough but legitimate scrutiny.”

Tiefer said the suspension would have started earlier in an ideal world but said he didn’t think it lasted too long or was needlessly punitive. Not only was the government wary of compromising its ongoing criminal case against BP with potential litigation over a suspension, but the late date and length of the suspension also gave government regulators more time to ensure that BP’s reforms in the wake of the spill were more than just symbolic gestures, he said.

“I couldn’t disagree more with those who wanted BP to get away early from the suspension,” Tiefer said. “First of all, the harm in the Gulf from BP’s spill was on a scale that just had never been seen before from a government contractor. The government legitimately took time not just to create some mechanisms on paper for ethics monitoring but to see BP go beyond a willingness to talk the talk and actually demonstrate it would walk the walk.”

Jay Devecchio, a partner at Jenner & Block LLP, said that he couldn’t fault the EPA for taking the time to sort through the facts and reach the right decision.

“I would have been more concerned it the EPA had suspended BP immediately after the spill,” DeVecchio said. “That would have suggested more of a punitive or PR reaction rather than a measured consideration of the facts. One certainly wouldn’t want SDOs to suspend contractors — particularly large, multifaceted companies — based upon isolated mistakes, accidents or localized errors in judgment. If that were the standard, no one would be in government business.”

The timing of the EPA’s decision to lift the suspension also raised questions, since the administrative agreement that ended the suspension didn’t contain any particularly tough or unusual provisions and essentially mirrored the additional monitoring and auditing agreements that BP had included in its guilty plea.

With the new provisions in place, BP will be able to seek new leases in the Gulf of Mexico. The EPA has called the Deepwater Horizon incident the largest environmental disaster in U.S. history.

BP’s active litigation against its suspension may have influenced the timing — courts have shown themselves willing to closely examine suspension and debarment decisions as in a recent case involving Inchcape Shipping, which, like BP, involved “stale facts” by the time the suspension was eventually carried out by the Navy, Tillipman said.

While some in the legal community had hoped that the EPA lawsuit could set clearer guidelines for agencies’ ability to suspend companies long after the facts underpinning the suspension are laid out, the administrative agreement takes that possibility off the table and leaves some uncertainty about how much precedential weight the BP suspension will carry.

“I have a hard time understanding why a suspension was issued here given the timing (as opposed to a proposed debarment), but I don’t think there is broader meaning of this action beyond EPA,” said David Robbins, a former Air Force debarment attorney who now heads the government contracts group at Shulman Rogers Gandal Pordy & Ecker PA.

While Tiefer said that the length of the suspension sent a message that the EPA would not let companies get away with extreme environmental violations, Robbins cautioned that suspensions should follow the rules and not be used politically.

“I’m sorry to say I don’t agree that suspensions are tools to show tough enforcement,” Robbins said.

Because of the unusual nature of the case, it may be hard for contractors to draw many lessons from the lengthy and late suspension, unless the EPA is handling their case, according to Robbins.

“Contractors should be vigilant, especially when the EPA is their debarring agency, and do all they can to mitigate risk of debarments, from enhanced ethics and compliance programs to early and voluntary reporting and engagement with the government,” Robbins said. “Early disclosure and cooperation, in many cases, goes a long way.”

Published by Law360

by dietrichknauth

3 Key Contractor Suspension Cases To Watch

By Dietrich Knauth

Law360, New York (November 6, 2013, 9:22 PM EST) — Agency decisions to suspend a company from federal contracting are rarely litigated in court, but three cases from 2013 have the chance to shape policy in areas like the treatment of contractor affiliates, the timing of a suspension and the due process rights of suspended contractors.

Suspension and debarment — suspension’s longer-term counterpart — are intended to protect the government from dealing with risky or unscrupulous businesses. But attorneys say that some recent government decisions have blurred the line between protection and punishment and raised questions about how far the government can legally go in cutting ties with disfavored companies.

“I know all the players on the government side personally, and I know their intentions are good,” David Robbins said, who heads the government contracts group at Shulman Rogers Gandal Pordy & Ecker PA and was a top U.S. Air Force suspension and debarment attorney until Nov. 1. “The challenge, however, is knowing where the edges are in what is appropriate. At least in some cases, judicial guidance could help the system.”

Here are three cases that could impact contractors in future suspension and debarment disputes:

BP Exploration & Production Co. Inc. et al. v. McCarthy et al., U.S. District Court for the Southern District of Texas.

BP PLC, along with a host of its affiliates, was suspended from government contracts in November 2012, after pleading guilty to felony misconduct and reaching a $4.5 billion settlement related to the Deepwater Horizon oil spill. BP sued the U.S. Environmental Protection Agency over the suspension in August, arguing that the EPA’s action ignored “the overwhelming evidence and record of BP’s present responsibility as a government contractor” and that the timing of the suspension was both arbitrary and punitive.

The decision to suspend BP more than two years after the spill shows some of the difficulties the government faces when balancing the need to protect itself from unethical contractors, with the need to give accused companies time to explain and address deficiencies.

Suspension is intended to protect the government from unscrupulous contractors, not to punish companies — so the timing of BP’s suspension seemed strange to some, even within the government’s suspension and debarment community, according to Robbins.

“Frankly, its probably very good for the community to have this discussion about when should these actions be kicked off, to ensure that they’re not used to punish,” Robbins said. “The EPA case, I understand there’s some tension about the timing of this, and I think it’s healthy to have the courts take a look at this.”

Agility Defense & Government Services Inc. et al. v. U.S. Department of Defense et al., U.S. Court of Appeals for the 11th Circuit.

The 11th Circuit is poised to rule on ambiguous regulations for suspending contractors that are affiliated with indicted companies, in a case that challenges the government’s effort to keep a suspension alive beyond an 18-month limit written into the Federal Acquisition Regulation.

An Alabama federal judge had lifted the suspensions of two U.S.-based affiliates of Kuwait-based Agility Public Warehousing Co. KSC, which is accused of providing false invoices defrauding the U.S. military on food supply contracts worth $8.5 billion. The U.S. could suspend the companies from receiving contracts as a protective measure, the judge found, but couldn’t keep them suspended for nearly three years without attempting to prove any wrongdoing beyond their affiliation with Agility.

The appeal could clear up an ambiguity in the FAR’s language on suspending affiliates of a company suspected of wrongdoing. The FAR rule clearly allows agencies to suspend affiliates of a suspect contractor for up to 18 months before legal proceedings are initiated, but it is less clear about whether affiliates can remain suspended once legal proceedings have been brought only against the parent company.

“The DLA case is a fascinating question about how long you can continue to have a suspension in effect,” Robbins said. “There’s some room for clarification in the regulatory language.”

In its appeal, the government argues that it needs to maintain the suspensions to prevent prime contractors from shifting business to their affiliates to avoid the consequences of suspension from government contracting. Contracting experts are divided on the lower court ruling, with some supporting the government’s position and others saying it raises serious questions about contractors’ due process rights.

The attorney overseeing Agility’s defenses, Richard Marmaro of Skadden Arps Slate Meagher & Flom LLP, said that Agility’s 128 affiliates have been suspended for too long — even longer than the three-year debarment period typical for companies that have been convicted of wrongdoing.

The affiliates in this case, and other affiliates that aren’t actively litigating their suspensions, have never even been accused of complicity with their parent company’s alleged misconduct, Marmaro said. The DLA and outside critics who say Agility could shift business to its affiliates to get around its suspension have no evidence to back up their allegations, he added.

“The affiliates are not alleged to have done anything wrong. Nor is there any allegations that the affiliates were involved in any way in the charges in the indictment against [Agility],” Marmaro said.

The 11th Circuit has a chance to set an important precedent that will protect innocent affiliates of indicted companies from being suspended for more than 18 months without any evidence being presented against them, Marmaro said.

“The purpose of the 18-month period is to give the government time to determine whether a contractor is responsible,” Marmaro said. “If, during that time period, the government’s investigation shows that the affiliate is complicit with the parent’s alleged misconduct, then the government must initiate legal proceedings against the affiliate in order to maintain the suspension.”

The DLA has lifted the suspensions of two affiliates, but those companies were forced to essentially sever all ties to the company, Marmaro said. And another affiliate, Gulf Catering Company for General Trade and Contracting WLL, has launched a separate lawsuit in Georgia federal court to challenge its suspension.

MG Altus Apache Co. v. U.S., U.S. Court of Federal Claims.

A case decided in May could impact contractors that believe suspensions or debarments violate their rights to due process.

In MG Altus Apache Co. v. U.S., the U.S. Court of Federal Claims rejected a contractor’s challenge to a secret vendor vetting blacklist that effectively debarred a trucking contractor in Afghanistan without its knowledge. The contractor, unaware it had been placed on a vendor vetting blacklist, wasted time and money submitting contract bids that had no chance of success, and eventually sued, arguing that the U.S. Army had violated its due process rights by secretly debarring it.

Agencies are not generally allowed to use de facto debarments, like the secret vendor blacklist, to get around the rules regarding notice and due process, according to Todd Canni, an attorney at McKenna Long & Aldridge LLP and a former Air Force suspension and debarment attorney.

The court found the Army had used a de facto debarment against MG Altus Apache but had been justified in doing so because of national security concerns. According to Canni, this finding risks encouraging other contracting personnel to use similar “blacklists,” rather than formally referring matters to their agency suspension and debarment official.

Steven Shaw, a senior of counsel at Covington & Burling LLP and a former debarment official for the Air Force, says secret blacklists not only are unfair to contractors, but also raise the risk that the government will continue to do business with unethical companies. A formal debarment or suspension excludes the company from contracting with any federal agency, but secret lists create a risk that the company will continue to get contracts if the blacklisting agency doesn’t share its information within the government.

“This concept of secret lists is something that always bothered me at the Air Force,” Shaw said. “If you keep it quiet, you are protecting one agency on one program, and meanwhile you’re allowing the entire federal government to be at risk of contracting with this particular company. It’s a huge disservice to the government and the taxpayers.”

The Army said it couldn’t tell MG Altus Apache about the blacklisting because its evidence was classified, but that doesn’t mean the debarment decision must be classified too, Shaw says.

“The evidence itself can be classified, but you can design the administrative record in such as way as to support a suspension or debarment on a classified program. … It’s cumbersome, but you can do it,” he said.

by dietrichknauth

BP Suspension Shows No Contractor Is Too Big To Debar

By Dietrich Knauth

Law360, New York (November 28, 2012, 10:15 PM EST) — The U.S. government’s decision Wednesday to suspend BP PLC, the U.S. military’s largest fuel supplier, in the wake of a criminal settlement over the Deepwater Horizon oil spill sends a message that even companies that perform vital roles for the government are never “too big to debar,” experts say.

Following BP’s record-setting $4.5 billion criminal settlement over Deepwater-related violations, the U.S. Environmental Protection Agency on Wednesday suspended BP from receiving any new government contracts, including military supply deals and drilling leases with the U.S. Department of the Interior.

The decision came as a surprise to many, who believed the company would escape suspension or debarment, based on the government’s reluctance to cut off relationships with its most important suppliers, as well as BP’s own statements after the Nov. 15 settlement.

“There’s some tension between the government’s desire to continue dealing with BP and the government’s capacity to impose a tough suspension,” said Charles Tiefer, a professor of government contracts law at the University of Baltimore and a former member of the congressional Commission on Wartime Contracting.

The government rarely suspends or debars large contractors, and several government watchdogs applauded the move as crucial to protect taxpayers from the risks of dealing with a company whose business integrity is dubious. While suspensions of important contractors rarely last long, they can jolt a company into making dramatic business reforms.

BP’s suspension sends a message that even big contractors will be held accountable if their business practices put taxpayers at risk, according to Scott Amey, general counsel for the nonprofit Project on Government Oversight.

“You can count on probably one hand the number of large contractors that have been suspended or debarred, and a lot of those instances it was only for a matter of days,” Amey said. “I would imagine that BP is doing everything it can do to convince the government that it is a responsible contractor.”

BP said Wednesday it had submitted more than 100 pages of documents to the EPA, highlighting a shake-up of its leadership and business structure and new deepwater drilling policies that exceed current regulatory requirements.

But the agency’s decision to suspend BP less than two weeks after the criminal settlement could indicate it is preparing to force BP to undertake more serious reforms than the company had planned, according to Tiefer.

If the EPA weren’t insisting on extensive reforms, BP would have acquiesced quickly to avoid the “black mark” of a suspension, which can count against the company during contract competitions even after it is lifted, Tiefer said.

“BP would like to argue that it has solved its problems and fixed its systems and by now it should be let off without even a short suspension,” Tiefer said. “But it appears that … the untold billions of dollars in environmental damage that BP did to the Gulf can’t be dealt with through a short period of suspension.”

Tyson Slocum, director of the energy program at the nonprofit Public Citizen, called for the suspension to last for the full five years of probation BP agreed to in its settlement with the U.S. Department of Justice.

He urged the U.S. Department of Defense, which purchased $1.4 billion in fuel from BP in 2011, not to undermine the suspension by seeking a waiver that would let it continue purchasing fuel under new contracts or task orders.

The suspension won’t affect BP’s existing government contracts, including $1.3 billion in new contracts announced Sept. 20. BP says it received more than 50 new drilling leases in the Gulf in the time between the oil spill and the suspension, in addition to billions of dollars in defense contracts.

But according to Defense Logistics Agency spokeswoman Michelle McCaskill, BP’s suspension may cause the agency — which purchases most of the petroleum the DOD uses — to look to other sources for fuel.

The decision to suspend BP more than two years after the spill shows some of the difficulties the government faces when balancing the need to protect itself from unethical contractors with the need to give accused companies time to explain and address deficiencies.

Suspension is intended to protect the government from unscrupulous contractors, not to punish companies — so the timing of BP’s suspension seems strange, according to Amey.

“This is not supposed to be penalty, so it’s odd that the EPA finally acted now,” Amey said.

But in BP’s case, the government had more pressing concerns than an immediate suspension, including overseeing cleanup efforts and pursuing a serious criminal case, Tiefer said.

“There are cases, but this is not one of them, where the need to stop dealing with a contractor is so great that an earlier indictment occurs and then suspension occurs,” Tiefer said. “It’s important that BP is not a wartime contractor in, say Afghanistan — there’s no danger to the troops in the field from a delayed suspension of BP.”

Amey said he’ll be watching to see if BP is able to lift the suspension as quickly as other major contractors have in the past. It would be “a little concerning,” he said, if the EPA quickly lifted the suspension, given it announced the move after about two years of supposed corporate reforms.

BP, for its part, said it expected negotiations with the EPA would go smoothly and it would receive a draft administrative agreement lifting the suspension “soon.”

The company’s criminal plea agreement should help its case. BP said the DOJ has agreed to “advise any appropriate suspension or debarment authority that in the department’s view, BP has accepted criminal responsibility for its conduct relating to the Deepwater Horizon blowout, explosion, oil spill and response.”

Published by Law360