Suspension and Debarment: DOD Has Active Referral Processes, but Action Needed to Promote Transparency
Published: 2012-09-19T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: DOD spends more than any other federal agency on contracts for goods and services and must be able to protect itself from irresponsible contractors. Once a case of misconductsuch as fraudis identified, DOD can use suspensions and debarments to prevent irresponsible contractors from receiving new contracts. As requested, GAO determined (1) the extent to which DOD has processes for identifying and referring cases of contractor misconduct for possible suspension or debarment, and (2) how DOD makes suspension and debarment decisions once cases have been referred for potential action. GAOs review focused on four DOD componentsthe Departments of the Air Force, Army, Navy (including the U.S. Marine Corps), and Defense Logistics Agencywhich together took a total of 3,443 suspension and debarment actions during fiscal years 2009 through 2011, accounting for nearly 100 percent of all such actions in DOD. GAO reviewed DOD and component regulations, procedures, and policies; reviewed case files; analyzed information from federal databases; and interviewed DOD and component officials.
section_title: What GAO Found
paragraphs: The four Department of Defense (DOD) components GAO examined have active processes for referring identified cases of contractor misconduct for appropriate action, including suspension or debarment. The components identify numerous cases of actual or alleged contractor misconduct each year from various internal and external sources. The figure below shows the process for identifying and referring cases to the suspension and debarment official for consideration.
DOD received hundreds of leads on contractor misconduct from sources such as lawsuits against contractors or contractor disclosures in fiscal years 2009 through 2011, although it is not possible to know the full extent of potential leads. Some cases are referred to suspension and debarment officials for their consideration or to other agencies for further action. GAOs analysis of selected cases shows that DOD follows its procedures for identifying and referring cases involving contractor misconduct or poor performance for possible suspension and debarment.
Once a case is referred, DOD generally makes suspension and debarment decisions in accordance with the discretion provided by the Federal Acquisition Regulation (FAR). GAO found in reviewing 75 case files that DOD generally maintained adequate records, informed the contractor of the cause and rationale for its decisions, and provided notice of the action to the contractor as required by the FAR. Given the discretion provided by the FAR, suspension and debarment periods vary based on the circumstances of the case, as do the reasons for removing contractors from the suspension and debarment list. For example, the FAR provides that the period of debarment generally should not exceed 3 years, but notes that the debarment period must be for a period commensurate with the seriousness of the cause. GAO found that nearly half the contractors DOD debarred during fiscal years 2009 through 2011 had debarment periods that exceeded 3 years.
The FAR prohibits all agencies from doing business with suspended or debarred contractors unless there is a compelling reason for doing so. The four DOD components made 14 compelling reason determinations during fiscal years 2009 through 2011. In none of these cases, however, did the components provide notice of their compelling reason determinations to the General Services Administration (GSA), as required by statute and regulation, until GAO raised this as an issue. Component officials said they were uncertain why these determinations which can promote transparency to the public were not forwarded to GSA.
section_title: What GAO Recommends
paragraphs: GAO recommends that DOD ensure that DOD components are aware of and comply with the requirement to notify GSA when awarding contracts to suspended or debarred contractors based on compelling reason determinations. DOD concurred with this recommendation.

section_title: Letter
paragraphs: In fiscal year 2011, the Department of Defense (DOD) had the federal  government’s largest procurement budget, totaling over $375 billion. The  department’s ability to protect itself from irresponsible contractors is,  therefore, essential. A 2011 DOD report identified contractors that had (1)  been convicted, (2) entered into settlement agreements, or (3) had civil  judgments rendered against them based on charges of fraud related to  DOD contracts; some of these contractors subsequently had received  contract funding from DOD. This finding raised questions about DOD’s  efforts to address contractor misconduct. Suspensions and debarments  are tools that DOD and other agencies can use to protect federal dollars  from going to irresponsible contractors. A suspension is a temporary  disqualification of a contractor from government contracting pending the  completion of an investigation and any ensuing legal proceedings. A  debarment is an exclusion of a contractor from government contracting  for a specified period. These actions may be based on various types of  misconduct.
You requested that we review the use of suspensions and debarments by  DOD to protect the government from irresponsible contractors.  Specifically, we determined (1) the extent to which DOD has processes  for identifying and referring cases of contractor misconduct for possible  suspension or debarment, and (2) how DOD components make  suspension and debarment decisions once cases have been referred for  potential action.
To determine the extent to which DOD has processes for identifying and  referring cases of contractor misconduct for possible suspension and  debarment, we reviewed the Federal Acquisition Regulation (FAR),  specifically Subpart 9.4 which details causes, period, scope, and  procedures for suspension and debarment, as well as regulations,  procedures, and policies on suspension and debarment for the  Department of the Navy (DON) (including the U.S. Marine Corps),  Departments of the Air Force, and Army, and the Defense Logistics  Agency (DLA). These DOD components accounted for almost all DOD  suspensions and debarments for fiscal years 2007 through 2011. We  performed additional analysis to determine if DOD components consider  suspension and debarment for contractors with a history of poor  performance. Specifically, we identified contractors listed in Federal  Procurement Data System—Next Generation (FPDS-NG) with three or  more contracts terminated for an actual or anticipated failure to perform  contractual obligations that involved at least one of the four DOD  components listed above. To determine how DOD components make  suspension and debarment decisions and gain insight into DOD’s  processes, decision making, and adherence to regulations, we  interviewed suspension and debarment, acquisition, and criminal  investigative officials. We also analyzed data from FPDS-NG and the  Excluded Parties List System (EPLS) regarding suspended and debarred  contractors.
We augmented this work with a detailed review of 75 case files we  selected from the total universe of suspension, proposed debarment, and  debarment actions for contractors during fiscal years 2009 through 2011  reported by the four DOD components in EPLS. An action in EPLS may  be related to numerous other EPLS actions. For example, multiple  individuals may be associated with a debarred contractor or the  contractor may be listed under different names—all of which are recorded  as separate actions in EPLS. In addition, each listed contractor or  individual can have a suspension, proposed debarment, or debarment, all  of which are listed as separate actions. There were 3,443 such actions by  all four DOD components during fiscal years 2009 through 2011, as  shown in table 1.
For the purpose of this review, we identified contractors (listed as “firms”  in EPLS) with an initial action during fiscal years 2009 through 2011. We  combined the current and archived actions for contractors, and eliminated  duplicates. We defined a contractor as an entity having a unique Data  Universal Numbering System (DUNS) number or a debar identifier. This  resulted in a total of 915 contractors. From this total, we selected a  stratified random sample of 75 contractors within the four DOD  components for a detailed case file review. We obtained and examined  case files for the 75 contractors to determine the source of the action,  verify DOD’s compliance with federal and defense regulations, and  analyze the reasoning for suspension or debarment periods. We also  analyzed compelling reason determinations, which allow agencies to  award a contract to a suspended or debarred contractor under special  circumstances.
We assessed the reliability of EPLS data by performing electronic testing,  reviewing system documentation, and relying on a recent assessment of   We determined  the reliability of EPLS data in a prior GAO engagement. that the data we used, from both EPLS and FPDS-NG, were sufficiently  reliable for the purpose of this review.
GAO, Suspension and Debarment: Some Agency Programs Need Greater Attention and  Governmentwide Oversight Could Be Improved, GAO-11-739 (Washington, D.C.: Aug. 31,  2011).
We conducted this performance audit from September 2011 to  September 2012 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives. For more  information on our scope and methodology, see appendix I.
subsections: section_title: Background
paragraphs: Under the FAR, a responsible prospective contractor is one that meets  the standards set forth in section 9.104, which include adequate financial  resources to perform the contract, a satisfactory performance record, and  a satisfactory record of integrity and business ethics. Agencies have  many different tools at their disposal to protect the government’s  interests. For example, civil and criminal penalties may be imposed for  contracting fraud and other violations. Suspension and debarment are not  a punishment but instead support the policy that agencies shall only  solicit offers from, award contracts to, and consent to subcontracts with  responsible contractors. The decision to suspend or debar a contractor  also represents a significant step in a process that identifies, refers, and  takes action in some cases to ban contractors from receiving future  government contracts.
A suspension is a temporary disqualification of a contractor from  government contracting. A proposed debarment occurs when a debarring  official issues a notice of proposed debarment, and lasts until the  debarring official makes the decision on whether or not to debar for a  specified period. A debarment is an exclusion of a contractor from  government contracting for a specified period after debarment  procedures—which begin with a notice of proposed debarment—have  been followed. Depending on the contractor and circumstances, a  contractor could go through one or all of these stages. Suspension,  proposed debarment, or debarment generally excludes a contractor from  receiving new federal contracts or grants, or from working for another  contractor when the government must consent to the subcontract.  Alternatively, a contractor may enter into an administrative agreement  with an agency instead of being suspended or debarred. Administrative  agreements generally require that a contractor meets certain agency- imposed requirements in order to not be suspended or debarred and  remain eligible for new contracts.
The FAR identifies specific causes for which a contractor may be  suspended or debarred. These include fraud relating to obtaining,  performing, or attempting to obtain a public contract or subcontract,  violation of antitrust statutes relating to submission of offers,  embezzlement, theft, forgery, bribery, falsification or destruction of  records, federal tax delinquency, and many other reasons. Suspension  and debarment have different standards of evidence necessary to support  the official’s decision; for example, a conviction or civil judgment of certain  offenses may lead to a debarment while an official can suspend a  contractor upon adequate evidence of the same offenses. The FAR also  permits an agency to suspend or debar individuals or companies that are  affiliated with another individual or contractor that has been suspended or  debarred. None of these causes provide for automatic suspension or  debarment. Rather, the suspension and debarment official (SDO) within  each agency has the authority to decide that it is in the government’s  interests to suspend or debar a contractor on a case-by-case basis. The  suspension or debarment covers the entire executive branch of the  federal government. Individual agencies may still contract with a  suspended or debarred contractor if they have documented in writing that  a compelling reason to do so exists. In addition, DOD is required by law  to submit notice of its compelling reason determinations to the General  Services Administration (GSA), which maintains these notices for public  inspection.
We and the DOD Inspector General (DODIG) have previously reported on  DOD’s ability to protect the government’s interests through its suspension  and debarment programs. Specifically, in August 2011 we reported on the  suspension and debarment programs of ten federal agencies including  two DOD components, DLA and DON. We found these DOD components  had active suspension and debarment programs and were among the  four agencies governmentwide that had the most suspension and  debarment cases. Also, in July 2011, the DODIG reported that the Army,  DON, Air Force, and DLA had generally effective suspension and  debarment processes and made recommendations on how to further  strengthen them. DOD has since taken actions to address the DODIG  recommendations, including updating its guidance to provide specific  information on referrals of contract-related matters to the appropriate  officials for further investigation and appropriate action.
section_title: DOD Components Have Active Processes to Refer Identified Cases of Contractor Misconduct for Appropriate Action
paragraphs: All four DOD components we examined—the Air Force, Army, DLA, and  DON—use multiple sources to identify numerous cases of actual or  alleged contractor misconduct and follow their procedures to refer them  for appropriate action, including possible suspension and debarment.  Such cases are referred within DOD to SDOs and to other agencies,  including the Department of Justice (Justice), for further action depending  on the remedy or action being pursued. Our analysis of selected cases  confirmed that DOD follows its procedures for identifying and referring  cases involving contractor misconduct or poor performance.
subsections: section_title: DOD Identifies Contractor Misconduct Using Various Sources
paragraphs: DOD components have various sources for identifying contractor  misconduct and investigate numerous leads each year that result in a  variety of actions, including suspensions and debarments. Each DOD  component is required to monitor from inception all significant  investigations of fraud and corruption related to procurement activities  affecting the component. Within the Air Force, the Deputy General  Counsel for Contractor Responsibility is responsible for identifying and  investigating contractor misconduct to determine the appropriate remedy  or action. Within the Army this responsibility is centralized within the  Procurement Fraud Branch of the Contract and Fiscal Law Division of the  Army Legal Services Agency. At DON, the responsibility is centralized  under the Acquisition Integrity Office, a component of the DON Office of  General Counsel. DLA has decentralized this responsibility among the  local counsels at each buying activity who forward referrals to the office of  DLA’s SDO for consideration. These organizations, which we refer to  generally as acquisition integrity offices, are the focal points for  coordinating the suspension and debarment process and are tasked with  receiving and developing leads from many sources. These sources  include
Defense Criminal Investigative Organizations (DCIO);
DOD component contracting officers, program officials, and attorneys;
Contractor or subcontractor mandatory disclosures;
Defense Contract Audit Agency;
Defense Contract Management Agency;
Inspector General Offices, including Hotline tips;
Whistleblowers and Qui Tam lawsuits;
Federal Bureau of Investigation referrals;
Bid protest cases;
Quality deficiency reports;
Armed Services Board of Contract Appeals; and
News articles.
For some of these sources of information, data were readily available  showing the overall level of activity, which is shown in table 2 below.  These and other sources generate leads that can be used to identify  potential instances of contractor misconduct, although it is not possible to  assess to what extent leads are being missed.
These leads can result in suspension and debarment cases. For  example, when contractors are convicted of criminal violations, such as  fraud related to government contracts, this provides a basis for  debarment. A contractor may be suspended upon the determination that  there is adequate evidence of such a violation. In cases not based on a  conviction or civil judgment, for example, a contractor’s failure to make  certain disclosures to the government, agencies can suspend a contractor  upon adequate evidence or debar a contractor based upon a  preponderance of evidence.
For the 2011 DOD report on contracting fraud, the DODIG reviewed the  DCIOs’ methodology and processes used in accounting for and reporting  actions associated with major procurement fraud investigations. The  DODIG review found that the DCIOs have a reliable methodology and  processes to report fraud cases.
section_title: DOD Components Have Procedures and Practices to Refer Cases of Contractor Misconduct for Suspension and Debarment
paragraphs: DOD’s guidance instructs components to develop procedures for the  coordination of criminal, civil, contractual, and administrative remedies to  address contractor fraud and corruption. This guidance outlines the roles  of different components and investigative groups and how they are to  coordinate their efforts. DOD components have developed these  procedures and also have guidance on the process for evaluating  contractor misconduct.
Under these procedures, DCIOs regularly coordinate their efforts and  refer investigation information to Justice and to other DOD components.  For example, the DODIG reported that during fiscal years 2009 through  2011, DCIO investigations and subsequent referrals to Justice resulted in  over 1,000 indictments and over 800 convictions. Within DOD  components, DCIOs gather and share information on investigations with  their respective acquisition integrity offices. Each of them maintains  databases that track leads and contain detailed information on  investigations. Such information is also tracked in a shared, integrated  system that contains basic case information. DCIO officials also  collaborate informally, via telephone or e-mail, if they need to share  additional information. DOD officials stated that staff on a particular case  may include DCIO investigators who specialize in procurement fraud.  Within DLA, DCIS agents are embedded on the fraud team in each of the  buying activities we examined. The DON also has a Naval Criminal  Investigative Service agent embedded with the acquisition integrity office.  In the other DOD components, DCIO agents are involved on an ad hoc  basis and may be asked by the acquisition integrity offices to gather  additional information on their behalf for specific cases.
Acquisition integrity offices in each component monitor and ensure the  coordination of criminal, civil, administrative, and contractual remedies for  each significant investigation of fraud or corruption related to contracting.  They are also tasked with preparing training materials on fraud and  corruption that are shared at procurement-related training events. These  offices build cases in consultation with the SDOs for their consideration.  (The SDOs are supported by full-time staff as shown in appendix II.) For  example, the DON Acquisition Integrity Office monitors and ensures  coordination of all acquisition integrity matters. DLA is structured slightly  differently than the other three DOD components. The attorneys from  DLA’s general counsel office work alongside contracting officers at each  buying activity. According to DLA officials, this proximity lends itself to  having informal discussions as issues come up on individual contracts or  with contractors. The attorneys at each buying activity manage  administrative remedies in consultation with contracting officers and  involve SDOs while a case is being developed to help inform them of the  facts. Officials stated that SDOs are knowledgeable of findings before a  case file is referred to them for a decision and that a case handed to an  SDO is rarely rejected since they have already been briefed and involved  in its development.
section_title: Analysis of Contractor Misconduct Cases Shows That DOD Follows Its Identification and Referral Processes
paragraphs: DOD follows its procedures for identifying and referring cases involving  contractor misconduct or poor performance, based on our analysis of
A random sample of 75 contractors suspended, proposed for  debarment, or debarred during fiscal years 2009 through 2011;
The 48 contractors identified in the 2011 DOD contracting fraud report  as having received contract funding after criminal convictions,  settlement agreements, or civil judgments; and
A random sample of 62 contractors that had three or more contracts  terminated for default.
DOD’s use of numerous sources was evident in our sample of 75  contractors suspended, proposed for debarment, or debarred during fiscal  years 2009 through 2011. For example, we found actions that were  initiated by DCIOs, the Defense Contract Management Agency,  contractors, or one of DLA’s Product Test Centers. Specifically, the 75  actions included 26 that were identified from DCIOs and other  investigations, 18 based on poor performance, 22 from indictments, and 9  based on convictions. Also, the 75 cases we examined demonstrated  ongoing referral of cases of contractor misconduct between the DCIOs,  acquisition integrity offices, and the SDOs, and, where applicable, field  activities, to determine the appropriate remedy, including suspension and  debarment.
In the 2011 DOD contracting fraud report, DOD identified contractors  convicted of fraudulent actions and those that entered into settlement  agreements or had civil judgments rendered against them over a 10-year  period. The report also provided the dollar amounts, if any, DOD  obligated to these contractors subsequent to these actions. We found that  DOD generally had reviewed these contractors for possible suspension  and debarment or other action. Of the 148 cases listed in DOD’s report  for 2008 through 2010, 48 contractors received contract funding after  criminal convictions, settlement agreements, or civil judgments. All 48  contractors had been reviewed by the acquisition integrity offices and  were not in a suspended or debarred status when they received new  contract funding. Specifically, in
Ten cases, contractors were initially suspended or debarred, but in
Four cases, administrative agreements were implemented
Six cases, the contractor’s debarment periods ended prior to
Eighteen cases, the government entered into settlement agreements  to resolve allegations in lieu of suspension or debarment;
Five cases, the employees or subsidiaries were suspended or  debarred but the companies were not; the companies were assessed  civil penalties;
Four cases, an agency other than DOD was responsible for taking the
Eleven cases, DOD decided not to take action based on its  investigation.
The FAR provides the SDO with discretion to debar a contractor for  violating the terms of a government contract or subcontract, including  cases where a contractor has had a history of poor performance on one  or more contracts. One method DOD uses to identify such contractors is  by examining terminations for default on government contracts. A  termination for default is the exercise of the government’s right to  completely or partially terminate a contract because of the contractor’s  actual or anticipated failure to perform its contractual obligations. We  found that in many cases, DOD components reviewed contractors that  have had contracts terminated for default for possible suspension and  debarment. During fiscal years 2006 through 2011, we found that 126  contractors had three or more contracts terminated for default  governmentwide. We randomly selected a total of 62 of these contractors  from the four DOD components to determine if DOD had reviewed their  performance to consider additional administrative action, as appropriate.  According to DOD officials, 46 of the 62 contractors—74 percent—were  reviewed or were undergoing review for possible suspension or  debarment, with 13 already suspended or debarred. DOD officials stated  that contracting officers should review contractors’ terminations for default  for possible suspension or debarment. They noted that not all such  terminations warrant further action by DOD.
section_title: DOD Follows the FAR in Taking Suspension and Debarment Actions, but Is Not Notifying GSA about Compelling Reason Determinations
paragraphs: Once a case of contractor misconduct is referred to the SDO, DOD  components follow the FAR in taking action. SDOs make decisions on a  case-by-case basis, in accordance with the discretion provided by the  FAR. As such, suspension and debarment periods vary based on the  circumstances of the case, as do the reasons for removing contractors  from the EPLS. In addition, while DOD rarely uses compelling reason  determinations to contract with suspended or debarred contractors, it has  not been complying with legal requirements to share that information with  GSA when it does so.
subsections: section_title: DOD Suspension and Debarment Decisions Made in Accordance with the FAR
paragraphs: The FAR allows DOD components to use their discretion in deciding  whether to suspend or debar a contractor. SDO’s within each DOD  component make case-by-case determinations based on criteria specified  in the FAR. We found that DOD components generally follow FAR  requirements in taking suspension and debarment actions. The 75 case  files we reviewed provided insight into the reasoning, evidence, and the  final determination or remedy involving each contractor, as shown in  figure 2 below.
Companies are informed of suspension or debarment actions when they  receive a notice that informs them that the SDO is either suspending  them or proposing them for debarment. The notice sent to a contractor  being suspended or proposed for debarment immediately renders the  contractor ineligible for contracting and lays out the rationale and facts for  why the SDO has made this determination. The notice provides the  contractor 30 days to provide information and argument in opposition to  the SDO decision. If a contractor responds to the initial letter and submits  additional evidence to oppose the suspension or proposed debarment,  the SDO weighs the additional information provided by the contractor  against the evidence already available to determine: (1) whether the  suspension should remain in place, or be modified or terminated; (2)  whether the proposed debarment should be finalized, modified, or  terminated; or (3) if another tool could be utilized to resolve the  suspension or debarment proceeding, such as an administrative  agreement. In some cases, even after a decision has been finalized, a  contractor may request a reconsideration of the period or extent of  debarment by presenting information such as new evidence or the  reversal of a conviction.
We found that required notices were in all 75 case files. This  demonstrated that DOD components had provided the contractors with  information on the suspension and debarment process and the  appropriate FAR citation to the cause for which they were being  suspended or debarred. In addition, DOD provided contractors with the  opportunity to submit information in opposition to the suspension or  debarment. Other information in the case files included indictments and  convictions, law enforcement evidence, email evidence, reports  demonstrating contractor ownership, and final decision memoranda by  the SDO, where applicable. The case files generally matched dates that  were listed in the EPLS system.
section_title: Suspension and Debarment Periods Vary Based on Specific Case Circumstances
paragraphs: The FAR requires that the period of suspension should be temporary  pending the completion of an investigation and any ensuing legal  proceedings and generally not exceed 12 months unless legal proceeding  are initiated. If legal proceedings are not initiated, an Assistant Attorney  General at Justice may request an extension of up to 6 months or the  agency shall terminate the suspension. If legal proceedings have been  initiated within 18 months, the suspension may continue. Of the 915 DOD  suspensions, proposed debarments, and debarments from fiscal years  2009 through 2011, there were 410 contractors that had been suspended  or were currently suspended at the time of our review. Of these  contractors, 180 had suspension periods ranging from 12 to 36 months  with 138 greater than 18 months. We did not determine if legal  proceedings had been initiated for all 180 contractors. However, our  sample of 75 contractors included 18 contractors that had suspension  periods longer than 12 months and all these had been indicted or were  affiliated with a contractor that have been indicted. For example, 9  contractors had been suspended because of their affiliation with a  contractor that had been indicted and because of pending legal  proceedings, the suspension periods had exceeded 24 months.
The FAR also provides that a debarment period should be commensurate  with the seriousness of the cause and generally should not exceed 3  years, but provides the SDO with discretion to extend that period if it is  necessary to protect the government’s interest. Of the 915 DOD  suspensions, proposed debarments, and debarments from fiscal years  2009 through 2011, 426 were debarments. Of these, 211 (almost 50  percent) were for a period of more than 3 years. Given the unique nature  of each case, the reasons among the different components varied. Table  3 shows the percentage of debarments that exceeded 3 years and the  circumstances cited by the SDO in selected cases to justify a longer  period. In general, however, officials told us that it is a common practice  in the case of criminal convictions to add 3 years to the sentence an  individual receives. Thus, a criminal sentence of 4 years would result in a  7-year debarment. One SDO explained that the intent is to give  contractors a period of time to re-establish present responsibility through  training and experience after their incarceration period has ended. FAR  and DOD guidance do not specifically identify this or any other factors in  determining when to extend the debarment period beyond 3 years outside  of the discretion the SDO has to protect the government’s interest.
Terminating suspensions and debarments allows contractors to be  removed from EPLS and become eligible for federal contracting again.  There are various ways a termination can occur.
The FAR provides the SDO broad discretion to reduce the length of or  terminate a suspension or debarment upon the contractor’s request when  supported by documentation for reasons such as newly discovered  evidence. Removal from EPLS can result from the suspension and  debarment procedures described in the FAR that allow contractors 30  days to submit information or argument in opposition. At the conclusion of  these procedures, the SDO may remove the contractor from EPLS. Our  sample of 75 contractors included 31 contractors that submitted evidence  in opposition and of these, 12 had their suspension or proposed  debarment terminated. For example, the SDO terminated a proposed  debarment when the contractor provided evidence that it was not affiliated  with a company that had been debarred. In another example, the SDO  and integrity office had numerous meetings with the contractor and its  counsel that eventually led to a termination of the debarment.  Additionally, our sample of 75 contractors also included 4 other instances  in which the SDO terminated the suspension for the following reasons: (1)  the indictment was dismissed, (2) change in ownership and management,  (3) the SDO believed that future misconduct was unlikely, or (4) the SDO  terminated the suspension because the lack of an indictment.
A contractor may also be allowed to enter into an administrative  agreement with the government to resolve a suspension or debarment  proceeding. Such agreements were used in a total of 30 cases during  fiscal years 2009 through 2011. (See table 4 below.)
These agreements are usually approved after the contractor has already  been suspended or proposed for debarment. Once the agreement is  signed, the suspension or proposed debarment is terminated and the  contractor is removed from EPLS. But the contractor must comply with  the agreement, which may require using an ethics program, hotline, or  independent monitors. Of the 30 administrative agreements used by DOD  over the last 3 years, Air Force and Army had the most, with 12 and 11  respectively. DLA officials told us that administrative agreements are not  often used because many of DLA’s contractors are small businesses and  it is difficult to get a contractor to show that it can improve its ethics  programs if the owner is closely tied to the company and is the one  involved in the wrongdoing. Air Force officials stated that they view  administrative agreements as an effective tool to get the contractor to  improve its practices and have successfully used them in lieu of  debarment, even for some small businesses.
Among DOD’s 30 administrative agreements, 12 were with small  businesses. The majority of agreements contained certain requirements  contractors must comply with to be removed from EPLS and were for a  length of 3 years. For example, an Army administrative agreement  required a contractor to submit a report on a quarterly basis on the  contractor’s implementation of the Integrity and Values Program laid out  in the agreement. Also, some required that management of the  contractors be changed. Most of the administrative agreements required  the contractors to adopt, implement, and maintain a self-governance  program that included a business ethics and compliance program that  applied to all employees. A majority of the contractors who entered into  administrative agreements were originally suspended or proposed for  debarment.
In debarment cases, a contractor’s removal from EPLS is automatic when  the fixed debarment period ends. The contractor is not required to show  that changes have been made to ensure that the reason(s) that the  contractor was debarred would not be repeated.
section_title: DOD Has Not Complied with Requirement to Submit Compelling Reason Determinations to GSA
paragraphs: Contractors that are suspended, proposed for debarment, or debarred are  excluded from receiving new contracts, and agencies may not solicit  offers from, award contracts to, or consent to subcontracts with these  contractors, unless the agency designee determines on a contract-by- contract basis that there is a compelling reason for such action. The  authority to grant compelling reason determinations varies in DOD  components. While the FAR provides the agency head with the authority,  in most cases it allows for the responsibility to be delegated. For example,  in the Air Force, the Assistant Secretary of the Air Force for  Acquisition/Contracting makes this determination, but in the Army, the  SDO has the authority. DOD components made 14 compelling reason  determinations during fiscal years 2009 through 2011. (See table 5.)
One example of a compelling reason determination involved a debarred  subcontractor that provided 75 percent of specific material to the Army,  including water purification equipment, air conditioning materials,  electrical materials and repair items, and generators in Iraq and  Afghanistan. Based upon the immediate operational need for the  materials, insufficient time to mobilize another subcontractor to supply the  items and the impact on the life, safety, and security of personnel, the  SDO granted the request and made a compelling reason determination.
The DOD Authorization Act of 1982 requires that any compelling reason  determination by DOD be justified in writing, and notice of the  determination be submitted to GSA, to be kept on file for public  inspection. However, according to GSA officials, DOD had not  submitted any notices of these determinations. DOD officials stated that  they were uncertain why these determinations had not been forwarded to  GSA. Based on our recent inquiry, DOD officials stated that they are now  forwarding these determinations to GSA and provided us with supporting  documentation.
section_title: Conclusion
paragraphs: In accordance with policies and procedures, DOD components are  actively pursuing leads of contractor misconduct from numerous sources,  collaborating across the agency and within each component, and  generally adhering to the FAR in carrying out their responsibilities. While  suspension and debarment decisions vary among the cases, these are  made within the discretion provided by the FAR. Our review of sample  cases identified sufficient documentation to demonstrate general  compliance with its processes. But DOD has not been complying with a  requirement to provide written notice to GSA when it decides there is a  compelling reason to award a contract to a suspended or debarred entity.  The availability of the notification of compelling reason determinations is  important for transparency to the public not only on the quantity of these  determinations but also to demonstrate that compelling reason  determinations are carefully considered and used only when necessary.
section_title: Recommendation for Executive Action
paragraphs: We recommend that the Secretary of Defense direct the Under Secretary  of Defense for Acquisition, Technology, and Logistics to ensure that each  DOD component is aware of and complies with the requirement to notify  the GSA of determinations that a compelling reason exists to do business  with a suspended or debarred contractor.
section_title: Agency Comments
paragraphs: We provided a draft of this report to DOD. DOD provided written  comments, which are reproduced in appendix III. DOD also provided  technical comments, which we incorporated as appropriate. In its written  comments, DOD stated that it concurred with our recommendation and  stated it will prepare a memorandum to its acquisition community  referencing appropriate agency guidance.
We are sending copies of this report to the Secretary of Defense, the  Under Secretary of Defense for Acquisition, Technology, and Logistics,  the Administrator of General Services, the Director of the Office of  Management and Budget, and other interested parties. This report will  also be available at no charge on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or woodsw@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: To determine the extent the Department of Defense (DOD) has  processes for identifying and referring cases of possible suspension and  debarment and how DOD components make suspension and debarment  decisions, we reviewed the Federal Acquisition Regulation (FAR), as well  as regulations, procedures, processes, and policies as they pertain to  suspension and debarment for the Department of the Navy (DON)  (including the U.S. Marine Corps), Departments of the Air Force, and  Army, and the Defense Logistics Agency (DLA). These components  account for 4,876 of 4,884 (99.8 percent) of DOD suspensions and  debarments for fiscal years 2007 through 2011. We also interviewed the  Suspension and Debarment Official, acquisition officials, and Defense  Criminal Investigative Organization officials in each component.
We also analyzed data for fiscal years 2009 through 2011 from the  Excluded Parties List System (EPLS) regarding suspended and debarred  contractors. We identified the total universe of suspension, proposed  debarment, and debarment actions for fiscal years 2009 through 2011 by  the four DOD components by downloading the EPLS data from EPLS  public website. EPLS actions may be related to numerous actions. For  example, multiple individuals may be associated with an excluded firm  and firms and individuals may be listed under different names—all of  which are recorded as separate actions in EPLS. In addition, each listed  firm or individual can have a suspension, proposed debarment, and  debarment, which are also listed as separate actions. For the purpose of  this review, we identified firms with an initial action for fiscal years 2009  through 2011. We combined the current and archived exclusions for  firms, eliminated duplicates from each file, and counted only the first  action. We defined contractors as having a unique Data Universal  Numbering System (DUNS) number or a debar identifier. This resulted in  915 contractors. (See table 6, which shows the number of actions entered  in EPLS and corresponding number of contractors during the same  period.)
For the purpose of selecting a sample of suspension, proposed  debarment, and debarment actions and to ensure that our sample  included actions from each component which also included a mix of  contractors having different exclusion lengths, we stratified the population  of contractors into 16 categories. These categories included the DOD  component that issued the exclusion, the length of the contractor’s  suspension and proposed debarments, and the length of the contractor’s  total exclusion period. The population is described in table 7 below.
For further analysis we selected a stratified random sample of 75  contractors. In selecting our sample, we chose the sample size in each of  the 16 strata using a three step process:  1. We first identified the minimum sample size in each stratum needed for  a nongeneralizable sample of contractors. We used the following criteria  to determine the minimum sample size for each category:
A minimum of 10 contractors from each DOD component
A minimum of 5 contractors within each DOD component with  exclusion length of 3 years or less.
A minimum of 5 contractors within each DOD component with  exclusion length of more than 3 years.
A minimum of 6 contractors within each DOD component with a  suspension/ proposed debarment period of more than 1 year.  2. We then calculated the sample size necessary for a control test so that  an upper bound of the 95 percent confidence interval would not exceed 5  percent if the controls were effective for all selected contractors (0  percent error rate) and proportionally allocated the sample size to the 16  category.  3. To determine the final sample size, we chose the larger of the two  sample sizes for each stratum. The resulting sample size was 75  contractors. The sample design is given in table 8 below.
We assessed the reliability of EPLS data by performing electronic testing,  reviewing system documentation, and relying on a recent assessment of  the reliability of EPLS data in a prior GAO engagement. We determined  that the data were sufficiently reliable for the purpose of this review.
From the Federal Procurement Data System—Next Generation we  identified contractors with three or more terminations for default with one  of the four DOD components to determine if these contractors were  considered for possible suspension or debarment. We selected a  stratified random sample of 68 contractors. The sample design is given in  table 9 below. We placed these 68 contractors into three strata and first  selected all contractors that were issued a termination for default by the  Air Force or had been suspended or debarred with certainty. We  expected that the proportion of contractors that were reviewed for  suspension and debarment as a result of a termination for default will be  100 percent for the first group and 0 percent for the other two groups. We  calculated the sample size in group 3 so that the 95 percent confidence  interval would not exceed 10 percent if none of the selected contractors  had been reviewed for suspension and debarment as a result of a  termination for default. In addition, the sample size in the third group  would allow for overall estimates (all three groups combined) with a  margin of error less than plus or minus 10 percentage points, if the  expected results are close to the observed results of the sample. Since a  selected contractor may have one or more terminations for default from  multiple DOD components (Air Force, Army, DON, or DLA), we collected  information from each component that issued the contractor a termination  for default.
We also analyzed the four components administrative agreements, as  well as their compelling reason determinations that allow agencies to  award a contract to a suspended or debarred contractor for the period of  fiscal years 2009 through 2011.
We also reviewed the following regulations and guidance:
FAR Subpart 9.4—Debarment, Suspension, and Ineligibility.
Department of Defense Federal Acquisition Regulation Supplement  Subpart 209.4—Debarment, Suspension, and Ineligibility.
Army Federal Acquisition Regulation Supplement Subpart 5109.4— Debarment, Suspension, and Ineligibility.
Air Force Federal Acquisition Regulation Supplement Subpart  5309.4—Debarment, Suspension, and Ineligibility.
Defense Logistics Acquisition Directive Subpart 9.4—Debarment,  Suspension, and Ineligibility.
Navy Marine Corps Acquisition Regulation Supplement Subpart  5209.4—Debarment, Suspension, and Ineligibility.
Air Force Instruction 51-1101 addresses overall responsibility for  managing the Air Force Procurement Fraud Remedies Program.
Army Regulation 27-40 Chapter 8 addresses remedies in  procurement fraud and corruption. The policies, procedures, and  responsibilities for reporting and resolving allegations of procurement  fraud or irregularities within the Army. It implements DOD Directive  7050.5.
Secretary of the Navy Instruction 5430.92B is the DON policy, to set  forth responsibilities of DON officials, personnel and the Acquisition  Integrity Office including management, direction and coordination of  responsibilities of auditing, inspection, and investigative components.
DLA’s Business Integrity Program Handbook provides guidance and  reference material for DLA’s Office of General Counsel attorneys in  ensuring that DLA deals only with responsible contractors. This  handbook also provides Primary Level Field Activities with advice in  ensuring overall business integrity within the procurement process,  both inside and outside government.
DOD Report to Congress on Contracting Fraud, October 2011.
Department of Defense Inspector General report issued July 14,  2011, titled “Additional Actions Can Further Improve the DOD  Suspension and Debarment Process.”
We conducted this performance audit from September 2011 to  September 2012 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.
section_title: Appendix II: DOD Components’ Suspension and Debarment Programs and Staff
paragraphs: Appendix II: DOD Components’ Suspension  and Debarment Programs and Staff The Air Force’s suspension and debarment program is co-located with the Department’s  Procurement Fraud Remedies program in the office of the Deputy General Counsel. All  attorneys are cross-trained in suspension, debarment, procurement fraud remedies, and  ethics. One full-time lawyer focuses primarily on suspensions and debarments and one  focuses primarily on coordinating all procurement fraud remedies (criminal, civil,  administrative, and contractual). The office is run by a full-time suspension and  debarment official (SDO).
Staff  Full-time: 2 attorneys.  3 staff support  (interns, 1 dual- hatted as paralegal)
The Army’s suspension and debarment program is located in the Procurement Fraud  Branch, which falls within the U.S. Army Legal Services Agency and is part of the Army’s  fraud prevention/contracting integrity program. There are three SDOs in the Army, one  for Army-wide cases based in Arlington, Virginia and 2 for overseas installations (Korea  and Germany). Staff responsibilities include processing referrals from DOD and Army  offices of Inspector General, the Army’s field activity offices, Justice, and law  enforcement organizations, as well as assisting in coordination of remedies with Justice  and coordinating lead agency determinations with other federal agencies.
DLA’s suspension and debarment program is administered by DLA’s Office of General  Counsel. This activity is part of the agency’s larger business integrity program.  Suspension and debarment staff responsibilities include processing referrals from the  agency’s primary field activity offices, working with law enforcement, Assistant United  States Attorneys, and Justice, and coordinating lead agency determinations with other  federal agencies.
The DON’s suspension and debarment program is part of the Acquisition Integrity Office  within the Office of General Counsel. This office carries out the DON’s suspension and  debarment activities as part of a larger fraud prevention program. The staff from this  office is responsible to develop and process suspension and debarment cases, working  with Justice regarding qui tams and criminal actions, ensuring coordination of all potential  procurement fraud remedies (criminal, civil, administrative, and contractual), and  providing annual training on procurement fraud issues.
Full-time: 14  attorneys, 3 staff support  Within the DON, all the acquisition fraud attorneys are centralized within the Acquisition Integrity  Office, whereas the other components have fraud attorneys located in the field working with  investigators.
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, John Neumann, Assistant  Director; James Ashley; Patrick Breiding; Richard Brown; Russ Reiter;  Roxanna Sun; Robert Swierczek; Keo Vongvanith; and Alyssa Weir made  key contributions to this report.