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

Letter

Background

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.

DOD Components Have Active Processes to Refer Identified Cases of Contractor Misconduct for Appropriate Action

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.

DOD Identifies Contractor Misconduct Using Various Sources

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.

DOD Components Have Procedures and Practices to Refer Cases of Contractor Misconduct for Suspension and Debarment

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.

Analysis of Contractor Misconduct Cases Shows That DOD Follows Its Identification and Referral Processes

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.

DOD Follows the FAR in Taking Suspension and Debarment Actions, but Is Not Notifying GSA about Compelling Reason Determinations

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.

DOD Suspension and Debarment Decisions Made in Accordance with the FAR

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.

Suspension and Debarment Periods Vary Based on Specific Case Circumstances

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.

DOD Has Not Complied with Requirement to Submit Compelling Reason Determinations to GSA

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.

Conclusion

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.

Recommendation for Executive Action

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.

Agency Comments

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.

Appendix I: Scope and Methodology

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.

Appendix II: DOD Components’ Suspension and Debarment Programs and Staff

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.

Appendix III: Comments from the Department of Defense

Appendix IV: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

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.