[Federal Register Volume 60, Number 49 (Tuesday, March 14, 1995)]
[Notices]
[Pages 13692-13697]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6183]



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Notices
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains documents other than rules 
or proposed rules that are applicable to the public. Notices of hearings 
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Federal Register / Vol. 60, No. 49 / Tuesday, March 14, 1995 / 
Notices
[[Page 13692]]

ADMINISTRATIVE CONFERENCE OF THE UNITED STATES


Adoption of Recommendations

AGENCY: Administrative Conference of the United States.

ACTION: Notice.

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SUMMARY: The Administrative Conference of the United States (ACUS) 
adopted two recommendations at its Fifty-First Plenary Session. The 
recommendations concern the application and modification of Exemption 8 
of the Freedom of Information Act, and procedures governing debarment 
and suspension from federal programs.

FOR FURTHER INFORMATION CONTACT: Nancy G. Miller, 202-254-7020.

SUPPLEMENTARY INFORMATION: The Administrative Conference of the United 
States was established by the Administrative Conference Act, 5 U.S.C. 
591-596. The Conference studies the efficiency, adequacy, and fairness 
of the administrative procedures used by federal agencies in carrying 
out administrative programs, and makes recommendations for improvements 
to the agencies, collectively or individually, and to the President, 
Congress, and the Judicial Conference of the United States (5 U.S.C. 
594(1)). At its Fifty-First Plenary Session, held January 19, 1995, the 
Assembly of the Administrative Conference of the United States adopted 
two recommendations.
    Recommendation 95-1, ``Application and Modification of Exemption 8 
of the Freedom of Information Act,'' suggests some changes in the scope 
of coverage of that exemption. Exemption 8 protects from disclosure 
certain documents relating to examination and supervision of banks by 
federal agencies. The Recommendation proposes that Exemption 8 be 
retained for examination reports of open banks, and modified for 
examination reports for closed banks that have failed. Operating and 
condition reports should be disclosed insofar as they contain or are 
based on publicly available information. The Conference also makes 
several suggestions to bank regulatory agencies on their administration 
of Exemption 8.
    Recommendation 95-2, ``Debarment and Suspension from Federal 
Programs,'' addresses issues relating to debarments and suspensions 
from federal procurement and nonprocurement programs. It recommends 
that debarment from procurement programs have the effect of debarment 
from nonprocurement programs, and vice versa. It recommends that 
independent factfinders preside over hearings on disputed material 
facts. It makes suggestions on improvements in the procedures governing 
debarments and suspensions, and it recommends that Congress refrain 
from legislating mandatory debarments.
    The full texts of the recommendation are set out in the Appendix 
below. The recommendations will be transmitted to the affected agencies 
and to appropriate committees of the United States Congress. The 
Administrative Conference has advisory powers only, and the decision on 
whether to implement the recommendations must be made by the affected 
agencies or by Congress.
    Recommendations and statements of the Administrative Conference are 
published in full text in the Federal Register. In past years 
Conference recommendations and statements of continuing interest were 
also published in full text in the Code of Federal Regulations (1 CFR 
Parts 305 and 310). Budget constraints have required a suspension of 
this practice in 1994. However, a complete listing of past 
recommendations and statements is published in the Code of Federal 
Regulations. Copies of all past Conference recommendations and 
statements, and the research reports on which they are based, may be 
obtained from the Office of the Chairman of the Administrative 
Conference. Requests for single copies of such documents will be filled 
without charge to the extent that supplies on hand permit (see 1 CFR 
304.2).
    The transcript of the Plenary Session is available for public 
inspection at the Conference's offices at Suite 500, 2120 L Street, NW, 
Washington, DC.

    Dated: March 7, 1995.
Jeffrey S. Lubbers,
Research Director.

Appendix--Recommendations of the Administrative Conference of the 
United States

    The following recommendations were adopted by the Assembly of the 
Administrative Conference on Thursday, January 19, 1995.

Recommendation 95-1, Application and Modification of Exemption 8 of The 
Freedom of Information Act

Background

    The Freedom of Information Act (FOIA), 5 U.S.C. Sec. 552, 
generally mandates public access to records in the possession or 
control of federal agencies, whether the records are generated by 
the agency or obtained by it from other sources. The Act contains 
nine exemptions, each of which authorizes but does not require the 
agency to protect from disclosure certain types of information. 
Exemption 8 permits agencies responsible for the regulation or 
supervision of financial institutions to protect from disclosure 
matters contained in or related to examination, operating, or 
condition reports prepared by, on behalf of, or for the use of the 
agency.
    Exemption 8 provides an unusual level of protection to banks and 
bank regulatory agencies.<SUP>1 Except for Exemption 9, dealing with 
geological and geophysical information, no other FOIA exemption is 
industry- or agency-specific. In light of the change in the 
regulatory environment of financial institutions since the passage 
of the FOIA in 1966, the Conference has reviewed whether this broad 
exemption continues to be justified. The upheaval faced by financial 
institutions in the last decade and the number of such institutions 
that have failed makes availability of information relating to the 
regulation of that segment of the economy of particular interest. A 
substantial amount of taxpayer money has been spent to alleviate 
problems relating to financial institutions.

    \1\The use of the term ``bank'' herein is intended to refer to 
all financial institutions whose information is subject to Exemption 
8. Likewise, the term ``bank regulatory agency'' refers to any 
agency responsible for the regulation or supervision of financial 
institutions.
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    Exemption 8 covers a wide range of documents, primarily 
operating reports, condition reports, and examination reports of 
financial institutions. Operating and condition reports are largely 
public financial statements submitted by the bank to the agency, 
although they also may include some nonpublic information. 
Examination reports are the written statements prepared by the 
[[Page 13693]] agency's examiners evaluating the bank's operations 
and practices, but they are not audit reports. Examination reports 
include, among other things, information about an institution's 
portfolio of loans, the strength of its management, and areas that 
may need corrective action to improve its safety, soundness, and 
compliance with law. While bank regulatory agencies encourage 
examiners to make their reports candid, careful, and complete, the 
reports often include preliminary analysis and commentary. The 
examination report (known in some agencies as the ``open'' portion) 
is made available to the bank, on the condition that it not be 
disclosed outside the bank. The agencies retain the supporting 
information for the report (which in some agencies is known as the 
``closed'' portion). Most agencies also include in the examination 
report and disclose to the bank what is known as a CAMEL rating: a 
composite summary in numerical form of key components of the 
examination--Capital, Asset quality, Management, Earnings, and 
Liquidity. There are also ratings for each factor in the closed 
portion.

Justification for Scope of Exemption 8

    The Administrative Conference has always endorsed the FOIA 
concept of disclosure of government records<SUP>2 while recognizing 
the need to balance competing concerns.<SUP>3 Thus, it concludes 
that, while the basic protection of confidential and sensitive data 
relating to open banks should continue, where documents or 
information in agencies' possession are already public or relate to 
an institution no longer operating, the public interest in 
disclosure outweighs the potential harm from such disclosure.

    \2\See ACUS Recommendation 71-2, ``Principles and Guidelines for 
Implementation of the Freedom of Information Act.'' See also 
Presidential Memorandum for Heads of Departments and Agencies, The 
Freedom of Information Act (Oct. 4, 1993) (Policy statement on the 
use of the FOIA encouraging agencies to disclose agency records in 
the absence of any clear harm); Attorney General's Memorandum for 
Heads of Departments and Agencies, The Freedom of Information Act 
(Oct. 4, 1993).
    \3\See ACUS Recommendation 82-1, ``Exemption (b)(4) of the 
Freedom of Information Act,'' Recommendation 83-4, ``The Use of the 
Freedom of Information Act for Discovery Purposes.''
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    Exemption 8's protection of operating, condition and examination 
reports is generally seen as serving three primary purposes: (1) It 
protects banks--including both the examined bank and those that have 
relationships with it--from substantial harm that might be caused by 
disclosure of information and opinion about their condition; (2) It 
facilitates the free exchange of information between bank personnel 
and examiners and encourages bank examiners to be candid, and as 
necessary, immediately responsive, in their assessments of a bank's 
financial position and operation; and (3) It protects the privacy of 
bank customers (e.g., depositors and borrowers).
    Bank regulators and the institutions they regulate and/or 
supervise have generally asserted the need to protect both the 
candor of examination reports and the nonadversarial nature of the 
relationship between examiners and financial institution officials. 
In particular, they have expressed concern that disclosure of 
sensitive adverse information--especially preliminary data, 
information, and conclusions--could reduce the candor of the 
examiners' comments and analysis, and inhibit bank officials from 
offering open access to their records and from being frank and open 
in their discussions with the examiners. Examination reports, they 
point out, are intended to draw the attention of bank management to 
actual and potential problems as quickly as possible.
    The exemption is also aimed at protecting the stability of 
financial institutions by preventing the inappropriate disclosure of 
information relating to the soundness of the institution, as 
reflected in examination reports and in operating and condition 
reports. The expressed concern is to avoid ``runs on the bank,'' as 
well as other adverse impacts--e.g., short-term liquidity problems, 
volatility in cost of funds, reduced access to credit or to 
depositors. Nondisclosure is further justified on grounds that 
harmful overreactions based on incomplete data are likely to 
outweigh any public benefits. Financial institutions are also by 
their nature interrelated, in the sense that an adverse impact on 
one may have broad and possibly severe adverse implications for 
others. Moreover, the need for disclosure is diminished insofar as 
the public already receives, as a result of various banking and 
securities law requirements, a substantial amount of detailed, 
comparable information about banks.
    Finally, there is a critical interest in protecting the privacy 
of those doing business with a financial institution. Examiners 
evaluate samples of loans. Information that might permit 
identification of the borrowers and other customers, as well as 
information about their financial situation and soundness, may 
appear in examination reports. There seems little doubt that 
information that might identify customers generally should be exempt 
from disclosure.<SUP>4

    \4\Protection of a customer's privacy interest may require 
redaction of more than a customer's name; other characteristics of 
the loan might reveal customer identifications.
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Proper Scope of Exemption 8

    Because of these considerations, the Conference believes that 
Exemption 8's provisions should be retained for ``matters that are 
contained in or related to examination * * * reports'' pertaining to 
open banks. The continued protection of examination reports of open 
institutions seems appropriate under the current regulatory regime.
    Congress should, however, limit the exemption's coverage with 
respect to information in operating and condition reports that is 
publicly available. Almost all of the information contained in 
operating and condition reports (i.e., quarterly statements of 
income and expenses, assets and liabilities) is currently in the 
public domain. As a result, bank regulatory agencies generally do 
release such information even though it may literally fit within 
Exemption 8. There is, therefore, no reason to retain this portion 
of the exemption insofar as it permits nondisclosure of publicly 
available data.
    The more difficult question is whether the protection of other 
information covered by Exemption 8 continues to be warranted. 
Although the Conference concludes that examination reports with 
respect to open institutions should remain protected, it believes 
that examination reports (including all CAMEL ratings) of closed 
institutions that have failed should not be exempt from disclosure. 
(Closed institutions that did not fail would be treated like open 
institutions for this purpose.<SUP>5)

    \5\The Conference does not seek to define when a closed bank 
would be deemed to have failed. As discussed below, among the bases 
for recommending that information about closed failed banks be 
available under FOIA are the role of government oversight and 
impacts on taxpayers.
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    The deposit insurance program gives the public (and the 
taxpayers) a particular interest in knowing what caused a bank to 
fail and whether regulatory oversight was adequate or 
effective.<SUP>6 Release of examination report information is 
unlikely to cause any harm to the institution itself once it is 
closed; nor is there any ongoing relationship between the examiner 
and the bank officials that would be jeopardized by disclosure. The 
examiners' concern about protecting candor is sharply reduced for 
banks that are closed.<SUP>7 Further, the disclosure of such 
information pertaining to closed banks would, of course, continue to 
be subject to other FOIA exemptions.<SUP>8

    \6\While Congress has mandated reports by the agency's Inspector 
General for certain bank failures after July 1, 1993 (see Federal 
Deposit Insurance Corporation Improvement Act of 1991, 12 
U.S.C.Sec. 1831o(k)), disclosure of the underlying data, if 
requested, may provide a useful validation or check on such reports.
    \7\Despite recent history, the vast majority of all financial 
institutions do not fail. This recommendation, therefore, addresses 
only the disclosure on request of examination reports of a narrow 
group of banks where the justification for release of the data is 
especially compelling.
    \8\Among the potentially relevant exemptions are Exemptions 4 
(confidential commercial or financial information), 5 (agency 
predecisional documents), 6 (personal privacy), and 7 (investigative 
reports).
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    Nonetheless, to further ensure that disclosure will not cause 
undue harm, the Conference recommends that certain limitations be 
placed on disclosure of examination reports of closed banks that 
have failed. Disclosure concerning a failed bank that could 
reasonably be expected to impair the solvency of an open bank or 
efforts to sell the failed institution or its assets should be 
delayed. Similarly, disclosure should be delayed where it could 
reasonably be expected to interfere with an ongoing civil or 
criminal investigation. Information relating to specific loans or 
other information that would identify customers could be redacted. 
Moreover, in cases where either the Federal Deposit Insurance 
Corporation or the Resolution Trust Corporation is involved in 
responding to the bank's failure, other bank regulatory agencies 
should consult with them before releasing examination reports.
    Separately, the Conference also proposes that Congress consider 
whether Exemption 8 [[Page 13694]] should continue to apply to 
situations where examination or other reports of financial 
institutions are prepared by agencies having no authority to 
regulate or otherwise supervise those institutions.<SUP>9 Especially 
where the financial institutions do not accept deposits from the 
public and there is no applicable deposit insurance, Congress should 
review whether the policies underlying the Exemption apply.

    \9\See, e.g., Public Citizen v. Farm Credit Administration, 938 
F.2d 290 (D.C. Cir. 1991) (Reports of FCA regarding the National 
Consumer Co-op Bank covered by Exemption 8).
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    If Congress believes that additional information relating to 
financial institutions would improve accountability and oversight or 
provide for a better-informed marketplace, the Conference recommends 
that Congress consider using the approach taken in the Community 
Reinvestment Act, where specific, focused, published reports have 
been required.<SUP>10

    \10\The Community Reinvestment Act, 12 U.S.C. Sec. 2906, 
requires reports concerning credit made available by banks in low 
and moderate income areas. See also the Federal Deposit Insurance 
Corporation Improvement Act of 1991, which requires reports by the 
agency's Inspector General for each bank failure after July 1, 1993.
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Administration of Exemption 8

    There are a number of actions bank regulatory agencies can take 
under their current authority to improve implementation of Exemption 
8. Several bank regulatory agencies have already implemented many of 
them, and the Conference recommends their consideration by all. As a 
first step, agencies that regulate or supervise financial 
institutions should ensure that information that is otherwise 
publicly available is not treated as exempt under the FOIA. For 
example, as noted, operating and condition reports contain 
information that appears largely to be publicly available from other 
sources. To the extent that this and other information currently 
withheld under Exemption 8 is otherwise available and can be 
separated from sensitive data, agencies should release such 
information. Agencies should also continue to review their data 
collection forms and information-gathering documents and design them 
so that confidential information is collected separately and can be 
easily segregated from information that could be disclosed.
    Several bank regulatory agencies now participate in an 
interagency FOIA group. The Conference lauds this effort, and 
encourages all bank regulatory agencies to coordinate their 
application of the exemption and its scope, in order to ensure that 
similar documents are treated similarly. In doing so, agencies 
should keep in mind the FOIA's intent to allow the public to know 
what agencies are doing to the greatest extent possible. Agencies 
generally should presume, for example, that if one agency releases a 
particular type of document, such documents should be released by 
all other agencies if requested. Agencies also should avoid 
routinely exempting documents that are ``related to'' examination 
reports without carefully evaluating whether the information could 
be disclosed. Even though an examination report itself may be 
nondisclosable, not all portions of all documents related to it are 
necessarily also nondisclosable.
    Bank regulatory agencies should also consider using the 
ombudsmen recently mandated by statute<SUP>11 to inquire into 
citizen concerns about handling FOIA requests and to recommend 
solutions or possible systemic improvements. The Conference has 
previously stated that use of alternative means of dispute 
resolution should be explored in resolving FOIA disputes<SUP>12

    \11\The Office of the Comptroller of the Currency has an 
ombudsman, whose current responsibilities include involvement in 
banks' challenges to their CAMEL ratings. Recently enacted Pub. L. 
No. 103-325 requires each federal banking agency to appoint an 
ombudsman to deal with complaints from the public about regulatory 
activities.
    \12\Administrative Conference Statement 12, 1 CFR 310.12 (1993). 
It has also recommended the use of ombudsmen more generally in 
federal agencies. Administrative Conference Recommendation 90-2, 
``The Ombudsman in Federal Agencies,'' 1 CFR 305.90-2 (1993).
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    Agencies generally have the discretion to release requested 
information even if it is otherwise exempt under the FOIA. Pending 
Congressional action on the recommendations to modify Exemption 8, 
the bank regulatory agencies should implement the recommendations 
independently and, in any case, they should experiment with the 
release of examination reports for large failed banks. This would 
provide information to the public about the banks for which the 
largest amounts of money (and potentially, public funds) are at 
stake, and would provide an opportunity for determining whether such 
release has any significant untoward effects.

Recommendation

    I. As applied to open financial institutions and closed 
financial institutions that have not failed, the provisions of 
Exemption 8 of the Freedom of Information Act should be retained for 
``matters that are contained in or related to examination * * * 
reports.'' The Conference concludes that bank regulatory agencies 
should continue to have discretion to withhold such examination 
reports, because, among other reasons, (a) disclosure of material 
relating to supervision and regulation of open financial 
institutions might have an adverse impact on the supervisory and 
regulatory process and on the banks themselves,<SUP>13 (b) such 
disclosure also might have an adverse economic impact on other 
banks, due to the unique interrelationship of such institutions, and 
(c) a substantial amount of related information is already otherwise 
available.

    \13\The use of the term ``bank'' herein is intended to refer to 
all financial institutions whose information is subject to Exemption 
8. Likewise, the term ``bank regulatory agency'' refers to any 
agency responsible for the regulation or supervision of financial 
institutions.
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    II. A. In order to ensure that information about banks is not 
unreasonably withheld, Congress should limit the exception to 
disclosure in Exemption 8 as follows:
    1. As applied to closed institutions that have failed, 
examination reports and CAMEL ratings should not be exempt from 
disclosure, except that disclosure should be delayed where it could 
reasonably be expected to (a) impair the solvency of an open bank or 
an agency's efforts to sell the closed bank or its assets, or (b) 
interfere with an ongoing civil or criminal investigation. Records 
identifying specific loans or customers could be redacted,<SUP>14 
and prior consultation with other agencies with jurisdiction over 
such a closed bank should be required.

    \14\This recommendation does not seek to alter the applicability 
of other FOIA exemptions or of notice requirements such as those set 
out in Executive Order 12600 (relating to predisclosure notification 
for confidential commercial information).
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    2. As applied to all financial institutions, operating and 
condition reports should not be exempt from disclosure insofar as 
they contain or are based on publicly-available information.
    B. Congress should also consider whether Exemption 8 should 
continue to apply to examination or other reports of financial 
institutions prepared by agencies having no authority to regulate or 
otherwise supervise those institutions, especially where the 
financial institutions do not accept deposits from the public.
    III. To the extent that Congress determines that additional 
information relating to the regulation or examination of financial 
institutions should be publicly available to enhance accountability 
and oversight, it should provide for preparation of special public 
reports and analyses, or for other mechanisms specifically designed 
to provide the necessary information to the public on a systematic 
basis.<SUP>15

    \15\For an illustration of such a report, see the Community 
Reinvestment Act, 12 U.S.C. Sec. 2906 (reporting on supply of credit 
by banks in low and moderate income areas).
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    IV. Agencies with supervisory or regulatory responsibilities 
relating to financial institutions should continue to review ways to 
improve their administration of the Freedom of Information Act.
    A. Bank regulatory agencies should implement the following 
practices:
    1. Information subject to Exemption 8 should be withheld only 
insofar as necessary to protect the efficacy of the examination 
process and the privacy of sensitive data and to avoid adverse 
economic impacts on other banks. Agencies should not withhold 
information on the basis that it is ``related to'' operating, 
condition or examination reports unless they determine that 
nondisclosure is properly justified.
    2. Information that is already publicly available should not be 
treated as exempt from disclosure. For example, agencies should 
continue, in response to FOIA requests, to release operating and 
condition information submitted by financial institutions that is 
publicly available.
    3. To facilitate the disclosure of releasable information, 
agencies should, to the extent feasible, design data-collection 
forms or other information-gathering mechanisms in order to separate 
disclosable and nondisclosable information.
    4. Agencies authorized to rely on Exemption 8 should continue to 
develop a coordinated approach for releasing 
[[Page 13695]] information, so that the public receives uniform 
treatment for similar data or types of documents.
    5. Agencies should consider using their ombudsmen to inquire 
into citizen concerns about handling of FOIA requests and to 
recommend solutions or possible systemic improvements.<SUP>16

    \16\See Pub. L. No. 103-325, which requires each federal banking 
agency to appoint an ombudsman. See Administrative Conference 
Recommendation 90-2, ``The Ombudsman in Federal Agencies,'' 1 CFR 
305.90-2 (1993).
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    B. In light of their discretion to release even otherwise exempt 
information in response to requests under the FOIA, bank regulatory 
agencies should implement the recommendations set forth in Part 
II(A). In any case, agencies should, on an experimental basis, 
immediately make the disclosures recommended therein with respect to 
large failed financial institutions.

Recommendation 95-2, Debarment and Suspension from Federal Programs

Introduction

    The federal government is very big business in its purchases of 
products and services and in its provision of grants, loans, 
subsidies, and other types of economic assistance. Many private 
companies--small, medium, and large--rely to a significant degree on 
their business with the government for economic survival. In this 
recommendation, the Administrative Conference of the United States 
addresses several significant issues that arise when federal 
agencies act to protect the public fisc by suspending or debarring 
individuals and companies who allegedly are not responsible enough 
to continue to do business with the government.
    The Administrative Conference of the United States has 
considered the topic of debarment and suspension from federal 
programs several times in the last 35 years. The 1961-62 temporary 
Administrative Conference issued a series of influential 
recommendations on the procedural structure of debarment and 
suspension of federal contractors. A 1975 study done for the 
Conference found that those recommendations remained sound. Since 
then, there has been substantial activity in the debarment and 
suspension area, as the Federal Acquisition Regulation (FAR) and 
other regulatory programs have been promulgated to authorize such 
actions both in the procurement and nonprocurement arenas, and 
Congress has authorized debarment and suspensions in a variety of 
contexts.
    The Conference's recent study focused on the regulatory programs 
involving procurement debarment coordinated by the Federal 
Acquisition Regulation Council (FAR Council)<SUP>1 and promulgated 
in the FAR,<SUP>2 and a comparable (but not identical) effort 
involving nonprocurement debarment coordinated separately by OMB 
(known as the ``Common Rule'').<SUP>3 The two debarment and 
suspension programs have similar structures, but they are not 
identical, and not completely complementary.

    \1\The FAR Council includes representatives of the Office of 
Federal Procurement Policy in OMB, the General Services 
Administration, NASA, and the Department of Defense.
    \2\48 CFR Sec. 9.400 et seq.
    \3\53 Fed. Reg. 19,204 (1988).
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    Debarment refers to an action to preclude individuals and 
entities from receiving future contracts or other benefits such as 
loans or grants for a designated period of time. A suspension is a 
similar action on a temporary basis. They are intended to ensure 
that government ``does business,'' in both its contracts and its 
nonprocurement assistance programs, only with individuals and 
entities that are ``presently responsible.''
    The Department of Defense alone debarred or suspended 1,157 
persons and businesses in 1994. Across the federal government, 
almost 6,000 entities were debarred or suspended the same year.

A. Procurement

    The regulations set forth in the FAR provide that each agency 
should promulgate its own regulations consistent with the FAR 
provisions. The FAR provides that an agency may suspend a contractor 
on an immediate, temporary basis prior to a hearing, based on 
``adequate evidence'' of a variety of actions relating to a lack of 
contractor integrity. A proposed debarment, for which there is no 
minimum evidentiary threshold set out in the FAR, also has the 
effect of immediately precluding the award of additional federal 
contracts. Contractors have the opportunity to present information 
and argument in opposition to a suspension or proposed debarment. In 
cases where there is a disputed issue of material fact, a contractor 
is entitled to an informal factfinding hearing where the contractor 
may appear with counsel, submit documentary evidence, and present 
and confront witnesses. The regulations do not specify the type of 
hearing officer. The regulations do contain a list of mitigating 
factors the debarring official (who is usually also the suspending 
official) should consider in deciding whether to debar or suspend. 
Most debarments involve contractors that have been indicted or 
convicted; relatively few involve disputed issues of material fact 
that would warrant a hearing.<SUP>4

    \4\For example, 96 percent of the Air Force's debarments and 
suspensions are based on indictments and convictions. Neither the 
Army, Air Force, Defense Logistics Agency, nor the Navy has had 
fact-based hearings in any debarment or suspension cases in the last 
5 years.
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    Contractor suspensions and debarments have government-wide 
effect; i.e., no executive branch agency may enter into a contract 
with a debarred or suspended contractor. The General Services 
Administration administers a list of debarred and suspended 
contractors.

B. Nonprocurement

    The nonprocurement debarment and suspension process is based on 
Executive Order 12549, issued in 1986. OMB led an effort for uniform 
regulations (the Common Rule), and at least 36 agencies have issued 
such a rule. The regulatory framework differs slightly from the 
procurement debarment system. The procedures are basically similar, 
with suspended persons entitled to appear in person or submit 
written argument and information after the suspension is effective, 
and a further informal hearing available in cases with disputed 
issues of material fact. Unlike in the procurement context, however, 
a proposed debarment does not have immediate effect. Nor do the 
nonprocurement regulations contain a list of factors the debarring 
official should consider in connection with the decision whether to 
debar or suspend.
    As in the procurement context, nonprocurement debarments and 
suspensions have executive branch-wide effect and the GSA publishes 
a list of those debarred or suspended. However, those debarred or 
suspended under one (e.g., the nonprocurement) system are not now 
debarred from the other; i.e., there is no reciprocal effect.
* * * * *
    Debarments and suspensions under both regulatory programs 
generally may not exceed 3 years. They may be terminated on a 
showing that, among other things, there has been a bona fide change 
in ownership or management, or that the causes on which the 
debarment was based have been eliminated.

Discussion

    Although the nonprocurement and procurement debarment programs 
appear generally to be functioning fairly well, the Conference does 
recommend some changes to make the process more efficient and more 
fair.

A. Reciprocal Effect

    As noted, the procurement and nonprocurement systems, while each 
having government-wide effect, do not have reciprocal effect. 
Legislation<SUP>5 and an executive order<SUP>6 have mandated that 
this problem be resolved, and the Conference underscores the 
importance of making the appropriate regulatory modifications 
promptly to ensure that debarment or suspension under one system 
leads to debarment or suspension under both. The Conference also 
believes that the existing provisions allowing agency heads to waive 
the applicability of a government-wide debarment or suspension for 
their agency should be retained.<SUP>7

    \5\The Federal Acquisition Streamlining Act, Pub. L. No. 103-355 
(1994).
    \6\Executive Order 12689, issued in 1989.
    \7\Waiver and exception procedures are currently found in the 
FAR at 48 CFR 9.406-1(c), 9.407-1(d), and in the Common Rule at 
X.215.
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B. Debarring Officials and Hearing Officers

    Neither regulatory framework specifies criteria for appointing 
the debarring official. Some agencies have written specifications 
identifying the type of official who is to perform this function, as 
well as the official who is to serve as a hearing officer in the 
relatively few cases where informal hearings on disputed issues of 
fact are held. However, there is no uniformity among the agencies 
that have established these criteria. For example, at the Department 
of Housing and Urban Development, where hearings are relatively 
frequent, administrative law judges [[Page 13696]] (ALJs) or board 
of contract appeals (BCA) judges serve in effect as debarring 
officials, while also presiding over the hearings. At the Department 
of the Air Force, the debarring official is the Assistant General 
Counsel for Contractor Responsibility, and a military trial judge 
presides over any factfinding proceedings. The Environmental 
Protection Agency's debarring official is the director of its Office 
of Grants and Debarment, but the agency uses hearing officers who do 
not have the institutional independence of an ALJ, BCA judge, or 
military judge. Few agencies expressly require either the debarring 
official or the hearing officer to have any specific level of 
institutional independence.
    The informal nature of the adjudication, as well as the process 
for a prehearing suspension, have been consistently upheld by the 
courts as providing due process. Courts have occasionally discussed 
the need to ensure some measure of independence on the part of 
adjudicators.<SUP>8 Neither the FAR nor the Common Rule explicitly 
addresses the issue. Given the informal character of debarment and 
suspension determinations, as well as the ``business'' protection 
basis for such decisions, the strict separation of functions and 
total avoidance of ex parte contacts that would apply in more formal 
contexts may not be needed. However, it is important that the 
debarring official be sufficiently independent to protect due 
process. It is, for example, good practice that the debarring 
official not be supervised by nor directly supervise the 
investigators or advocates who are developing the cases. It is also 
good practice for debarring officials generally to ensure that all 
information that serves as the basis for decision appears in the 
administrative record, and that it is made available to the 
respondent in contested cases.

    \8\In Girard v. Klopfenstein, 930 F.2d 738 (9th Cir. 1991), the 
court suggested the need for a separation of the prosecutorial and 
decisionmaking functions in a debarment case, but did not explicitly 
decide the issue.
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    When there is a hearing to resolve disputed issues of material 
fact in a suspension or debarment case, a greater degree of 
independence ought to be required on the part of the hearing 
officer. The Administrative Conference has recently taken the 
position that cases involving ``imposition of sanctions with 
substantial economic effect'' should be heard by administrative law 
judges.<SUP>9 Debarments and suspensions clearly can have 
substantial economic effect. Depending on the type of entity and the 
nature of its business, a debarment from federal contracts or other 
benefits may bankrupt a company. Therefore, while a full APA formal 
hearing is not constitutionally required in debarment and suspension 
cases, even where there are disputed issues of fact, use of a truly 
independent hearing officer is consistent with notions, and 
appearances, of fairness. In some statutory debarment programs, 
Congress has required that post-debarment hearings be presided over 
by ALJs.<SUP>10 ALJs clearly have the requisite independence. 
Administrative judges from boards of contract appeals and military 
judges have similar independence. They are experienced in providing 
hearings that ensure that the respondent has the proper opportunity 
to present a case. Using only such independent judges for 
factfinding hearings would also ensure uniformity among agencies; 
since a debarment has government-wide effect, the nature of a fact-
finding hearing should not depend on the particular agency taking 
the action. The Conference therefore recommends that, where there 
are disputed issues of material fact in debarment or suspension 
cases, the agency assign an ALJ, BCA judge, or military judge to 
preside over the hearing. If an agency wishes to use some other 
hearing officer, it should ensure that such officer is guaranteed 
independence comparable to that of an ALJ.<SUP>11 Agencies should 
also provide in their rules whether the judge would issue (a) 
findings of fact that would be certified to the debarring official; 
(b) a recommended decision to the debarring official; or (c) an 
initial decision, subject to any appropriate further appeal within 
the agency.<SUP>12

    \9\See Recommendation 92-7, ``The Federal Administrative 
Judiciary,'' at A(1)(c).
    \10\See 42 U.S.C. Sec. 1320a-7(exclusion of health care 
providers from Medicare program participation).
    \11\See 5 U.S.C. Sec. 554(d)(2).
    \12\Regarding the need to clearly set forth the appeals 
procedure, see Darby v. Cisneros, 113 S.Ct. 2539 (1993)(in absence 
of agency regulations governing agency appeal, respondents could 
proceed directly to court).
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C. The FAR and Common Rule

    As discussed above, the two sets of procedures, for procurement 
and for nonprocurement debarment and suspension, are not identical. 
Some of the variations relate to the differing natures of the 
programs they address. On other issues, uniformity might serve to 
eliminate confusion, especially in light of the government-wide 
effect and (hopefully soon-to-be) reciprocal impact. At a minimum, 
there are several issues that the Conference recommends be addressed 
in each set of rules.
    Both nonprocurement and procurement debarments and suspensions 
are discretionary. The procurement regulations include a list of 
mitigating factors the debarring official should consider in 
determining whether to debar or suspend.<SUP>13 No such list exists 
in the nonprocurement context, and neither program has a list of 
aggravating factors. The Conference recommends that a list of 
mitigating and aggravating factors be included in the regulations 
for both programs. These lists should be considered by debarring 
officials both in determining whether to impose a debarment or 
suspension, and in determining the period of debarment.<SUP>14 The 
Conference takes no position on whether any such list should 
represent an exclusive list of factors to be considered, but does 
recommend that each agency make clear its intention with respect to 
exclusivity. The Conference also notes that both aggravating and 
mitigating circumstances should focus on issues relating to the 
respondent's ``present responsibility'' to avoid any appearance that 
the debarment is intended as punishment.

    \13\The procurement debarment rule indicates that the debarring 
official ``should consider'' the mitigating factors in determining 
whether to debar. The suspension rule provides that the suspending 
official ``may, but is not required to consider'' mitigating factors 
in determining whether to suspend. The Conference recommends that 
the ``should consider'' language be used in both debarment and 
suspension cases.
    \14\The Administrative Conference has recommended standards for 
mitigating statutory money penalty amounts imposed administratively. 
See Recommendation 79-3, ``Agency Assessment and Mitigation of Civil 
Money Penalties.''
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    As noted, each type of debarment is effective across the 
executive branch. There will thus be cases where a particular entity 
does business with multiple agencies. The Conference recommends that 
a procedure be developed by which agencies can efficiently and 
routinely coordinate with each other and determine which agency will 
serve as the lead agency on behalf of the government in taking 
debarment and/or suspension action. This would avoid multiple 
actions with inconsistent results. It may also ensure that the 
agency with the greatest interest will handle the case. The 
Conference is aware that agencies considering actions relating to 
the same respondent do confer informally in many cases, but believes 
that a more uniform, regularized process for agencies to determine a 
lead agency in particular cases would be preferable.
    As also noted, suspensions become effective immediately. The 
suspended respondent may, after the fact, submit written comment and 
information to the debarring official opposing the continuation of 
the suspension. In some cases, the lack of advance notice is 
necessary to allow an agency to protect the integrity of its 
contracting or nonprocurement program. In other cases, however, it 
may be appropriate to provide advance notice to the potential 
respondent that a suspension or proposed debarment may be 
forthcoming. In fact, some agencies do send what are in essence 
``show cause'' letters in certain situations. In cases where the 
interests of the government would not be substantially adversely 
affected by providing advance notice of a suspension of proposed 
debarment, the Conference encourages agencies to provide such 
notice.
    Given that debarments and suspensions have a government-wide 
effect and may soon also apply to both procurement and 
nonprocurement programs, it is especially important that respondents 
be given notice at the earliest opportunity of these potential 
impacts.
    Suspensions require a finding of ``adequate evidence'' as a 
threshold for their issuance. Proposed debarments, which in the 
procurement context have a similar preclusive effect, have no such 
threshold. (An ultimate decision to debar must be based on the 
preponderance of evidence, however.) Given their immediate effect, a 
minimum evidentiary threshold for procurement proposals to debar 
would also be appropriate. The Conference recommends that proposals 
to debar in the procurement context require ``adequate evidence of 
cause to debar.''
    The Administrative Conference also recommends that all agencies 
within the ``executive branch'' (broadly construed to include 
``independent'' agencies) should implement the ``Common Rule'' and 
those portions of the FAR that address suspension and debarment. 
[[Page 13697]] 

D. Statutory Debarments

    The procurement and nonprocurement debarment and suspension 
programs are based in regulation and/or executive order. There are 
also many statutorily-based debarment schemes, some of which also 
involve procurement and nonprocurement programs. In many of these 
statutory programs, Congress has restricted agencies' discretion 
whether to debar, or to determine the length of a debarment.<SUP>15 
Congress has increasingly opted to require agencies to debar or 
suspend in particular situations. Debarment and suspension are not 
intended to be punitive remedies, but rather are premised on the 
need to protect the integrity of government programs. The Conference 
believes that Congress should ordinarily allow agencies to retain 
the discretion to determine (1) whether debarments or suspensions 
are appropriate in individual cases, and (2) the appropriate length 
of such debarments. Moreover, Congress should review existing 
statutory schemes that mandate debarment and/or particular terms of 
debarment, and determine whether they should be continued. The 
primary basis for recommending that agency discretion not be limited 
with respect to most debarment and suspension determinations is the 
need to retain flexibility to meet the needs of the government and 
the public. The Conference believes that agency officials generally 
would be in a better position than Congress to determine appropriate 
remedial sanctions in individual cases that serve both to protect 
the fisc and meet program needs.<SUP>16

    \15\For example, DHHS is required to exclude from 
participation in the Medicare and Medicaid programs for 5 years any 
health care provider who is convicted of a crime related to the 
provision of services under those programs, or of patient abuse. 42 
U.S.C. Sec. 1320a-7(a).
    \16\This recommendation should not be read to discourage 
Congress from providing guidelines for agencies to consider in 
exercising their discretion.
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    The co-existence of the regulatory debarment programs that are 
the focus of this recommendation with a broad variety of statutory 
debarment programs creates a number of issues that relate to the 
interactions between them. The Conference may in the future study 
these issues, which include conflicts that arise from inconsistent 
procedural requirements and questions about whether all statutory 
programs are intended to have government-wide effect.

Recommendation

    I. Entities coordinating the Federal Acquisition Regulation 
(FAR) and the Common Rule for nonprocurement debarment, and 
individual agencies in their procurement and nonprocurement 
debarment and suspension regulations, should promptly ensure that 
the applicable regulations provide that suspensions or debarments 
from either federal procurement activities or federal nonprocurement 
activities have the effect of suspension or debarment from both, 
subject to waiver and exception procedures.<SUP>17

    \17\Waiver and exception procedures are currently found in the 
FAR at 48 CFR 9.406-1(c), 9.407-1(d), and in the Common Rule at 
X.215.
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    II. Entities coordinating the FAR and the Common Rule, and 
individual agencies in their regulations, should ensure that:
    A. cases involving disputed issues of material fact are referred 
to administrative law judges, military judges, administrative judges 
of boards of contract appeals, or other hearing officers who are 
guaranteed similar levels of independence<SUP>18 for hearing and for 
preparation of (1) findings of fact certified to the debarring 
official; (2) a recommended decision to the debarring official; or 
(3) an initial decision, subject to any appropriate appeal within 
the agency.

    \18\See 5 U.S.C. Sec. 554(d)(2).
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    B. debarring officials in each agency should:
    1. Be senior agency officials;
    2. Be guaranteed sufficient independence to provide due process; 
and
    3. In cases where the agency action is disputed, ensure that any 
information on which a decision to debar or suspend is based appears 
in the record of the decision.
    III. Entities coordinating the FAR and the Common Rule, and 
individual agencies in their regulations, should provide that each 
regulatory scheme for suspension and debarment includes:
    A. A list of mitigating and aggravating factors that an agency 
should consider in determining (1) whether to debar or suspend and 
(2) the term for any debarment;
    B. A process for determining a single agency to act as the lead 
agency on behalf of the government in pursuing and handling a case 
against a person or entity that has transactions with multiple 
agencies;
    C. (With respect to procurement debarment only) a minimum 
evidentiary threshold of at least ``adequate evidence of a cause to 
debar'' to issue a notice of proposed debarment;
    D. A requirement that all respondents be given notice of the 
potential government-wide impact of a suspension or debarment, as 
well as the applicability of any such action to both procurement and 
nonprocurement programs; and
    E. Encouragement for the use of ``show cause'' letters in 
appropriate cases.
    IV. All federal agencies in the executive branch (broadly 
construed to include ``independent'' agencies) should implement the 
``Common rule'' and FAR rules on suspension and debarment.
    V. Congress should ordinarily refrain from limiting agencies 
discretion by mandating suspensions, debarments, or fixed periods of 
suspension or debarment. Congress should also review existing laws 
that mandate suspensions, debarments, and fixed periods, to 
determine whether to amend the provisions to permit agency 
discretion to make such determinations.
[FR Doc. 95-6183 Filed 3-13-95; 8:45 am]
BILLING CODE 6110-01-P