The Boeing suspension: has increased consolidation tied the Department of Defense’s hands?
Introduction
For the federal government to continue to do business with a private company that has a documented record of defrauding the government and abusing taxpayer money is unconscionable.
–Congressman Bob Barr (R-GA), 23 August 2001
Perhaps the greatest threat to a government contractor following the discovery of an employee’s bad act or omission is the possibility of the company’s suspension or debarment. The prospect of being barred from future work or the rescission of current contracts is a serious one. When a contractor is suspended or debarred, society often perceives the contractor as corrupt and the consequence as punishment. But suspension and debarment are not imposed for purposes of punishment. Instead, they are administrative remedies that permit agencies to exclude contractors from federal procurements and nonprocurement programs when necessary to protect the government’s interest and to ensure compliance with statutory goals. (2) The goal is to maintain the integrity of the procurement system, to spend taxpayers’ dollars wisely, and to ensure that contractors act properly.
To these ends, the Federal Acquisition Regulation (FAR) requires contracting officers to make an affirmative determination of responsibility before any federal purchase or award. (3) Responsibility spans a number of factors including the contractor’s record of performance, integrity, and business ethics. (4) Suspension and debarment decisions are merely “the final straw in the examination of responsibility issues,” (5) and focus on whether the contractor acted responsibly and whether it is presently responsible. (6) Such decisions frequently require an agency debarring official to examine such factors as contractor integrity and honesty; the quality and reliability of the items supplied; the risk of harm to the soldier or citizen; the impact of exclusion from future procurements; and other contract-performance related issues. Debarring officials must also determine whether the conduct of a contractor’s employee or subcontractor should be imputed to the contractor. Finally, even if a contractor is suspended or debarred, those exclusions may be waived when compelling reasons exist, such as a lack of alternate sources, meeting urgent needs, or national defense requirements.
(7) In July 2003, the Air Force (AF) suspended three of Boeing’s Integrated Defense System business units (8) and three of its former employees. (9) The suspensions were based on an AF investigation which concluded that Boeing committed serious violations of the law. (10) According to a Department of Justice (DOJ) press release issued in connection with its criminal case: (1) Boeing possessed an extraordinary amount of rival Lockheed Martin Corporation’s (Lockheed Martin) proprietary data during the 1998 Evolved Expendable Launch Vehicle (EELV) (11) competition; (2) the data was capable of providing great insight into Lockheed Martin’s cost and pricing; and (3) Boeing failed to disclose to the AF the full extent of the data in its possession for approximately four years. (12)
The Boeing suspension sent a message throughout the procurement community that large defense contractors are not immune from suspension or debarment; previously, interest groups had argued that such companies, were in practice, immune. (13) When Boeing’s suspension was twice lifted to allow it to receive awards, (14) interest groups then argued that such action seriously eroded any deterrent effect of the AF’s suspension. (15) This conclusion is understandable but it is mistaken. The drastic consolidation of the defense industry over the last decade makes it difficult, but not impossible, to impose a suspension or debarment on mega-defense contractors, like Boeing, Lockheed Martin, or Raytheon. (16) When considering such action, agencies must consider not only the traditional mitigating factors, (17) but also the harsh reality that the exclusion may ultimately be waived, by necessity, if there are no other viable sources.
Continued consolidation of the defense industry poses difficult problems for suspension and debarment officials. This article sets forth the basis and procedural requirements for imposing a suspension or debarment, and the factual basis for the AF’s suspension of Boeing. Next, this article examines the problem of using the traditional suspension and debarment remedies to exclude large defense contractors, and then discusses a new approach for crafting remedies aimed at developing alternative sources, when agencies foresee continued business dealings with mega-defense contractors.
Suspension and Debarment
Background
Overview of Procurement Regulations
Federal Acquisition Regulation 9.103 requires contracting officers to make a determination of responsibility before making any purchase or award. (18) Some of the standards listed for consideration are unique to the needs of a particular procurement, such as having the necessary production equipment or meeting a required delivery schedule. (19) Other standards apply to all contracts like having “a satisfactory record of integrity and business ethics.” (20) When a contracting officer determines that a contractor is “nonresponsible” that determination applies only to that particular award. (21) In such cases, the contractor is free to compete for other awards.