oversight

Suspension and Debarment: DOD Has Active Referral Processes, but Action Needed to Promote Transparency

Published by the Government Accountability Office on 2012-09-19.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States Government Accountability Office

GAO              Report to the Committee on Armed
                 Services, U.S. Senate



September 2012
                 SUSPENSION AND
                 DEBARMENT
                 DOD Has Active
                 Referral Processes,
                 but Action Needed to
                 Promote
                 Transparency




GAO-12-932
                                                September 2012

                                                SUSPENSION AND DEBARMENT
                                                DOD Has Active Referral Processes, but Action
                                                Needed to Promote Transparency
Highlights of GAO-12-932, a report to the
Committee on Armed Services, U.S. Senate




Why GAO Did This Study                          What GAO Found
DOD spends more than any other                  The four Department of Defense (DOD) components GAO examined have active
federal agency on contracts for goods           processes for referring identified cases of contractor misconduct for appropriate
and services and must be able to                action, including suspension or debarment. The components identify numerous
protect itself from irresponsible               cases of actual or alleged contractor misconduct each year from various internal
contractors. Once a case of                     and external sources. The figure below shows the process for identifying and
misconduct—such as fraud—is                     referring cases to the suspension and debarment official for consideration.
identified, DOD can use suspensions
and debarments to prevent                       Suspension and Debarment Identification and Referral Process
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                DOD received hundreds of leads on contractor misconduct from sources such as
components—the Departments of the               lawsuits against contractors or contractor disclosures in fiscal years 2009 through
Air Force, Army, Navy (including the            2011, although it is not possible to know the full extent of potential leads. Some
U.S. Marine Corps), and Defense                 cases are referred to suspension and debarment officials for their consideration
Logistics Agency—which together took
                                                or to other agencies for further action. GAO’s analysis of selected cases shows
a total of 3,443 suspension and
                                                that DOD follows its procedures for identifying and referring cases involving
debarment actions during fiscal years
2009 through 2011, accounting for
                                                contractor misconduct or poor performance for possible suspension and
nearly 100 percent of all such actions          debarment.
in DOD. GAO reviewed DOD and                    Once a case is referred, DOD generally makes suspension and debarment
component regulations, procedures,              decisions in accordance with the discretion provided by the Federal Acquisition
and policies; reviewed case files;              Regulation (FAR). GAO found in reviewing 75 case files that DOD generally
analyzed information from federal               maintained adequate records, informed the contractor of the cause and rationale
databases; and interviewed DOD and              for its decisions, and provided notice of the action to the contractor as required
component officials.
                                                by the FAR. Given the discretion provided by the FAR, suspension and
What GAO Recommends                             debarment periods vary based on the circumstances of the case, as do the
                                                reasons for removing contractors from the suspension and debarment list. For
GAO recommends that DOD ensure                  example, the FAR provides that the period of debarment generally should not
that DOD components are aware of                exceed 3 years, but notes that the debarment period must be for a period
and comply with the requirement to              commensurate with the seriousness of the cause. GAO found that nearly half the
notify GSA when awarding contracts to           contractors DOD debarred during fiscal years 2009 through 2011 had debarment
suspended or debarred contractors
                                                periods that exceeded 3 years.
based on compelling reason
determinations. DOD concurred with              The FAR prohibits all agencies from doing business with suspended or debarred
this recommendation.                            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
View GAO-12-932. For more information,          Administration (GSA), as required by statute and regulation, until GAO raised this
contact William T. Woods at (202) 512-4841 or   as an issue. Component officials said they were uncertain why these
woodsw@gao.gov.                                 determinations which can promote transparency to the public were not forwarded
                                                to GSA.
                                                                                           United States Government Accountability Office
Contents


Letter                                                                                  1
               Background                                                               4
               DOD Components Have Active Processes to Refer Identified Cases
                 of Contractor Misconduct for Appropriate Action                        6
               DOD Follows the FAR in Taking Suspension and Debarment
                 Actions, but Is Not Notifying GSA about Compelling Reason
                 Determinations                                                        11
               Conclusion                                                              18
               Recommendation for Executive Action                                     18
               Agency Comments                                                         19

Appendix I     Scope and Methodology                                                   20



Appendix II    DOD Components’ Suspension and Debarment Programs and Staff             26



Appendix III   Comments from the Department of Defense                                 27



Appendix IV    GAO Contact and Staff Acknowledgments                                   29



Tables
               Table 1: DOD Components Suspension, Proposed Debarment, and
                        Debarment Actions, Fiscal Years 2009 through 2011               3
               Table 2: Selected Sources of Information Used to Identify
                        Contractor Misconduct, Fiscal Years 2009 through 2011           8
               Table 3: DOD Debarments Exceeding 3 Years, Fiscal Years 2009
                        through 2011                                                   14
               Table 4: Administrative Agreements for DOD Components, Fiscal
                        Years 2009 through 2011                                        16
               Table 5: DOD Compelling Reason Determinations, Fiscal Years
                        2009 through 2011                                              17
               Table 6: The Four Components Actions Reported in EPLS and
                        Firms (Contractors), Fiscal Years 2009 through 2011            21
               Table 7: Description of the Population of Contractors with a
                        Suspension, Proposed Debarment, and Debarment Issued



               Page i                                  GAO-12-932 Suspension and Debarment
                   by the Air Force, Army, DLA, and DON, Fiscal Years 2009
                   through 2011                                                                     22
          Table 8: Description of the Stratified Random Sample from the
                   Population of Contractors With a Suspension, Proposed
                   Debarment, or Debarment by the Air Force, Army, DLA, or
                   Navy, Fiscal Years 2009 through 2011                                             23
          Table 9: Description of the Random Sample of Contractors With
                   Three or More Terminations for Default Issued by the Air
                   Force, Army, Navy, or DLA, Fiscal Years 2006 through
                   2011                                                                             24


Figures
          Figure 1: Process for Identifying and Referring Potential
                   Contractor Misconduct for Possible Suspension or
                   Debarment                                                                        4
          Figure 2: Evidence of Selected FAR Requirements in 75 Contractor
                   Case Files                                                                       12


          Abbreviations

          DCIO              Defense Criminal Investigative Office
          DCIS              Defense Criminal Investigative Service
          DLA               Defense Logistics Agency
          DOD               Department of Defense
          DODIG             Department of Defense Inspector General
          DUNS              Data Universal Numbering System
          EPLS              Excluded Parties List System
          FAR               Federal Acquisition Regulation
          FPDS-NG           Federal Procurement Data System – Next Generation
          GSA               General Services Administration
          SDO               Suspension and Debarment Official



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          Page ii                                            GAO-12-932 Suspension and Debarment
United States Government Accountability Office
Washington, DC 20548




                                   September 19, 2012

                                   The Honorable Carl Levin
                                   Chairman
                                   The Honorable John McCain
                                   Ranking Member
                                   Committee on Armed Services
                                   United States Senate

                                   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. 1 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



                                   1
                                    Suspensions and debarments also exclude a contractor from government-approved
                                   subcontracting.




                                   Page 1                                         GAO-12-932 Suspension and Debarment
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. 2

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.




2
 EPLS is a publicly available electronic database containing the list of all parties
suspended, proposed for debarment, debarred, declared ineligible, or excluded or
disqualified by agencies. It was recently combined with other data systems and the
suspension and debarment information can now be found in the System for Award
Management.




Page 2                                              GAO-12-932 Suspension and Debarment
Table 1: DOD Components Suspension, Proposed Debarment, and Debarment
Actions, Fiscal Years 2009 through 2011

                                          Total actions Total contractors with an initial
    Component                        during this period        action during this period
    Department of the Air Force                    800                                 197
    Department of the Army                         953                                 268
    Defense Logistics Agency                     1,168                                 341
    Department of the Navy                         522                                 109
    Total                                        3,443                                 915
Source: GAO analysis of EPLS data.



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. 3 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
the reliability of EPLS data in a prior GAO engagement. 4 We determined
that the data we used, from both EPLS and FPDS-NG, were sufficiently
reliable for the purpose of this review.




3
 A DUNS number is a proprietary means of identifying business. The DUNS number is
used as the federal government’s contractor identification code. A debar identifier is a
unique identification number assigned to a contractor and action(s) entered into EPLS.
4
 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).




Page 3                                              GAO-12-932 Suspension and Debarment
             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.


             Under the FAR, a responsible prospective contractor is one that meets
Background   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.

             Figure 1: Process for Identifying and Referring Potential Contractor Misconduct for
             Possible Suspension or Debarment




             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



             Page 4                                         GAO-12-932 Suspension and Debarment
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


Page 5                                      GAO-12-932 Suspension and Debarment
                            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. 5 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. 6 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.


                            All four DOD components we examined—the Air Force, Army, DLA, and
DOD Components              DON—use multiple sources to identify numerous cases of actual or
Have Active                 alleged contractor misconduct and follow their procedures to refer them
                            for appropriate action, including possible suspension and debarment.
Processes to Refer          Such cases are referred within DOD to SDOs and to other agencies,
Identified Cases of         including the Department of Justice (Justice), for further action depending
                            on the remedy or action being pursued. Our analysis of selected cases
Contractor                  confirmed that DOD follows its procedures for identifying and referring
Misconduct for              cases involving contractor misconduct or poor performance.
Appropriate Action

DOD Identifies Contractor   DOD components have various sources for identifying contractor
Misconduct Using Various    misconduct and investigate numerous leads each year that result in a
Sources                     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



                            5
                             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).
                            Department of Defense Inspector General, Additional Actions Can Further Improve the
                            6

                            DOD Suspension and Debarment Process, D-2011-083 (Arlington, Va.: July 14, 2011).




                            Page 6                                          GAO-12-932 Suspension and Debarment
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); 7
•   DOD component contracting officers, program officials, and attorneys;
•   Contractor or subcontractor mandatory disclosures; 8
•   Defense Contract Audit Agency;
•   Defense Contract Management Agency;
•   Inspector General Offices, including Hotline tips;
•   Whistleblowers and Qui Tam lawsuits; 9
•   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.




7
 DCIOs include the U.S. Army Criminal Investigation Command, the Naval Criminal
Investigative Service, the U.S. Air Force Office of Special Investigations, and the Defense
Criminal Investigative Service (DCIS) which resides within DODIG and provides
investigative capabilities to those DOD components that do not have their own DCIO.
8
 Since 2008, it has been mandatory for all federal government contractors to report fraud
and significant overpayments in connection with their government contracts to the federal
government. Failure to do so is a cause for suspension or debarment.
9
 Under the False Claim Act’s qui tam provisions, a person with evidence of fraud, also
known as a relator, is authorized to file a case in federal court and sue, on behalf of the
government, persons engaged in the fraud and to share in any money the government
may recover. The Department of Justice has the responsibility to decide on behalf of the
government whether to join the whistleblower in prosecuting these cases.




Page 7                                               GAO-12-932 Suspension and Debarment
                            Table 2: Selected Sources of Information Used to Identify Contractor Misconduct,
                            Fiscal Years 2009 through 2011

                                Source of information                                            2009           2010          2011
                                Department of Justice qui tam lawsuits                              52             56            46
                                Contractor self reporting                                           81           203           240
                                Hotline contactsa                                              13,750        16,981         20,402
                            Source: GAO analysis and presentation of DODIG statistics.
                            a
                             Hotline numbers include all reported actions, not only those actions involving contractors. In addition
                            to contractor misconduct, the Defense Hotline provides a vehicle for military service members, DOD
                            civilians, contractor employees, and the public to report fraud, waste, mismanagement, abuse of
                            authority, threats to homeland security and leaks of classified information.


                            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. 10


DOD Components Have         DOD’s guidance instructs components to develop procedures for the
Procedures and Practices    coordination of criminal, civil, contractual, and administrative remedies to
to Refer Cases of           address contractor fraud and corruption. This guidance outlines the roles
                            of different components and investigative groups and how they are to
Contractor Misconduct for   coordinate their efforts. DOD components have developed these
Suspension and              procedures and also have guidance on the process for evaluating
Debarment                   contractor misconduct.




                             Department of Defense, Report to Congress on Contracting Fraud, D-315854E
                            10

                            (Arlington, Va.: October 2011).




                            Page 8                                                       GAO-12-932 Suspension and Debarment
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.




Page 9                                     GAO-12-932 Suspension and Debarment
Analysis of Contractor        DOD follows its procedures for identifying and referring cases involving
Misconduct Cases Shows        contractor misconduct or poor performance, based on our analysis of
That DOD Follows Its
                              •   A random sample of 75 contractors suspended, proposed for
Identification and Referral       debarment, or debarred during fiscal years 2009 through 2011;
Processes                     •   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
                                      afterwards; and in
                                  •   Six cases, the contractor’s debarment periods ended prior to
                                      receiving contract funding;
                              •   Eighteen cases, the government entered into settlement agreements
                                  to resolve allegations in lieu of suspension or debarment;


                              Page 10                                   GAO-12-932 Suspension and 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
                           action; and in
                       •   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.


                       Once a case of contractor misconduct is referred to the SDO, DOD
DOD Follows the FAR    components follow the FAR in taking action. SDOs make decisions on a
in Taking Suspension   case-by-case basis, in accordance with the discretion provided by the
                       FAR. As such, suspension and debarment periods vary based on the
and Debarment          circumstances of the case, as do the reasons for removing contractors
Actions, but Is Not    from the EPLS. In addition, while DOD rarely uses compelling reason
Notifying GSA about    determinations to contract with suspended or debarred contractors, it has
                       not been complying with legal requirements to share that information with
Compelling Reason      GSA when it does so.
Determinations



                       Page 11                                    GAO-12-932 Suspension and Debarment
DOD Suspension and        The FAR allows DOD components to use their discretion in deciding
Debarment Decisions       whether to suspend or debar a contractor. SDO’s within each DOD
Made in Accordance with   component make case-by-case determinations based on criteria specified
                          in the FAR. We found that DOD components generally follow FAR
the 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.

                          Figure 2: Evidence of Selected FAR Requirements in 75 Contractor Case Files




                          a
                          At the time of our review, final decisions were still pending in some cases.


                          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



                          Page 12                                                   GAO-12-932 Suspension and Debarment
                         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           The FAR requires that the period of suspension should be temporary
Debarment Periods Vary   pending the completion of an investigation and any ensuing legal
Based on Specific Case   proceedings and generally not exceed 12 months unless legal proceeding
                         are initiated. If legal proceedings are not initiated, an Assistant Attorney
Circumstances            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


                         Page 13                                    GAO-12-932 Suspension and Debarment
                                        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.

Table 3: DOD Debarments Exceeding 3 Years, Fiscal Years 2009 through 2011

                        Percentage of
                          debarments     Selected cases exceeding 3 years in our sample, their length, and the reason(s) cited
Component           exceeding 3 years    for a longer debarment period
Department of Air                 61     6-year debarment: The owner of a company was initially suspended based on an indictment
Force                                    for 39 counts of making false statements, perjury to a grand jury, destruction of evidence and
                                         conflicts of interest. The conviction of the owner and the egregious nature of the conduct led
                                         the suspension and debarment official (SDO) to the conclusion that a longer period of
                                         debarment was necessary for this company and the owner.
Department of the                 59     15-year debarment: A company failed to perform on one contract and the contract was
Army                                     terminated for cause. The owner of the company harassed and threatened physical harm
                                         against Army personnel and property and was debarred because of misconduct of a serious
                                         and compelling nature. The company was then debarred for the same period.
                                         9-year debarment: The company was debarred because of its business relations with an
                                         Army contracting official who was convicted of fraud and sentenced to 41 months
                                         confinement. The SDO concluded in the final debarment decision that given the experience
                                         the individual had as a contracting official in the government, it was reasonable to expect the
                                         individual to conduct business with the government again and necessary to protect the
                                         government for a longer period in order to allow the individual the opportunity to demonstrate
                                         they were once again responsible.
Defense Logistics                 35     10-year debarment: The SDO became aware of seriously improper misconduct with the
Agency                                   company at the time that it had been proposed for debarment for a failure to perform on one
                                         or more contracts. The additional misconduct involved unauthorized product substitution on
                                         critical parts of helicopters that the SDO found so serious as to justify a longer debarment
                                         period for this contractor as well as additional contractors and individuals who were involved.
                                         10-year debarment: An individual who was already debarred was using another company to
                                         try to continue to do business with the government during the debarment period. The
                                         company that was being used was debarred along with the individual as a result of trying to
                                         subvert the original debarment.




                                        Page 14                                            GAO-12-932 Suspension and Debarment
                        Percentage of
                          debarments      Selected cases exceeding 3 years in our sample, their length, and the reason(s) cited
Component           exceeding 3 years     for a longer debarment period
Department of the                 63      12-year debarment: An owner of a company was convicted of fraud and sentenced to 63
Navy                                      months in prison, 2 years probation, and fines. As a subcontractor on a government contract
                                          this company was involved in attempted fraud by failing to meet requirements on Navy
                                          aircraft and helicopter inspections and repairs. The SDO noted their egregious, unsafe,
                                          selfish, and dishonest actions that indicated a lack of business integrity that was so serious
                                          to the safety of personnel and the integrity of the government procurement process that a
                                          longer debarment was warranted.
                                          8-year debarment: The owner and his company were suspended and then debarred. The
                                          owner, while suspended for an indictment involving fraud and identify theft, tried to obtain
                                          additional government contracts. After charges were dropped, the SDO terminated the initial
                                          suspension. However, because of the misrepresentation to contracting officials about the
                                          company’s suspended status, the SDO proposed the owner and the company for debarment.
                                          The SDO decided that a longer debarment period was necessary to protect the government
                                          from doing business with this company for its unethical and dishonest practices.
                                        Source: GAO analysis of EPLS data and DOD suspension and debarment case files.

                                        Note: The debarment period represents the entire exclusion period, including time the contractor may
                                        have spent in a period of suspension and/or proposed debarment, where applicable.


Reasons and Processes                   Terminating suspensions and debarments allows contractors to be
Vary for Removing                       removed from EPLS and become eligible for federal contracting again.
Contractors from                        There are various ways a termination can occur.
Suspension and                          The FAR provides the SDO broad discretion to reduce the length of or
Debarment List                          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.




                                        Page 15                                                               GAO-12-932 Suspension and Debarment
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.)

Table 4: Administrative Agreements for DOD Components, Fiscal Years 2009
through 2011

 Component                                 FY 2009        FY 2010      FY 2011
 Department of the Air Force                     1              9            2
 Department of the Army                          2              6            3
 Department of the Navy                          6              1            0
 Defense Logistics Agency                        0              0            0
 Total                                           9             16            5
Source: GAO analysis of DOD data.

Note: FY = fiscal year.


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



Page 16                                     GAO-12-932 Suspension and Debarment
                           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       Contractors that are suspended, proposed for debarment, or debarred are
with Requirement to        excluded from receiving new contracts, and agencies may not solicit
Submit Compelling Reason   offers from, award contracts to, or consent to subcontracts with these
                           contractors, unless the agency designee determines on a contract-by-
Determinations to GSA      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.)

                           Table 5: DOD Compelling Reason Determinations, Fiscal Years 2009 through 2011

                                                                                                      Number of compelling
                               Components               Office delegated approval authority           reason determinations
                               Department of the        Assistant Secretary of the Air Force for                               0
                               Air Force                Acquisition/Contracting
                               Department of the        Suspension and Debarment Official                                      7
                               Army
                               Defense Logistics        Special Assistant for Contracting Integrity                            7
                               Agency                   (Suspension and Debarment Official)a
                               Department of the        Assistant Secretary for the Navy                                       0
                               Navy                     Research, Development & Acquisition
                           Source: DOD and GAO presentation.
                           a
                            DLA officials stated that the Director of DLA retains the authority to approve compelling reason
                           determinations.


                           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,



                           Page 17                                                    GAO-12-932 Suspension and Debarment
                     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. 11 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.


                     In accordance with policies and procedures, DOD components are
Conclusion           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.


                     We recommend that the Secretary of Defense direct the Under Secretary
Recommendation for   of Defense for Acquisition, Technology, and Logistics to ensure that each
Executive Action     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.



                      Pub. L. No. 97-86, § 914 (1981) (codified as amended at 10 U.S.C. § 2393).
                     11




                     Page 18                                          GAO-12-932 Suspension and Debarment
                  We provided a draft of this report to DOD. DOD provided written
Agency Comments   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.




                  William T. Woods, Director
                  Acquisition and Sourcing Management




                  Page 19                                   GAO-12-932 Suspension and Debarment
Appendix I: Scope and Methodology
             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. 1 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. 2 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




             1
              EPLS is a publicly available electronic database containing the list of all parties
             suspended, proposed for debarment, debarred, declared ineligible, or excluded or
             disqualified by agencies. It was recently combined with other data systems and the
             suspension and debarment information can now be found in the System for Award
             Management.
             2
              EPLS entries are classified as (1) Individual—A person; (2) Firm (contractor)—A
             company or organization; (3) Entity—A person, organization, or thing capable of bearing
             legal rights and responsibilities; and (4) Vessel—A mode of transportation capable of
             transport by water.




             Page 20                                             GAO-12-932 Suspension and Debarment
Appendix I: Scope and Methodology




Numbering System (DUNS) number or a debar identifier. 3 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.)

Table 6: The Four Components Actions Reported in EPLS and Firms (Contractors),
Fiscal Years 2009 through 2011

                                                            Total Firms (contractors)
                                       Total EPLS actions with an initial action during
    Component                           during this period                  this period
    Department of the Air Force                         800                             197
    Department of the Army                              953                             268
    Defense Logistics Agency                          1,168                             341
    Department of the Navy                              522                             109
    Total                                             3,443                             915
Source: GAO analysis of EPLS data.



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. 4 The population is described in table 7 below.




3
 A DUNS number is a proprietary means of identifying business entities The DUNS
number is used as the federal government’s contractor identification code. A debar
identifier is a unique identification number assigned to a contractor and actions(s) entered
into EPLS.
4
 We classified contractors with indefinite suspension/proposed debarment length into the
more than 1 year category. We classified contractors with indefinite exclusion periods into
the more than 3 years category. We classified contractors who were not suspended or
proposed for debarment prior to debarment (69 contractors) in the 1 year or less category.




Page 21                                             GAO-12-932 Suspension and Debarment
                                        Appendix I: Scope and Methodology




Table 7: Description of the Population of Contractors with a Suspension, Proposed Debarment, and Debarment Issued by the
Air Force, Army, DLA, and DON, Fiscal Years 2009 through 2011

Suspension /
proposed                                Department of                 Department of   Defense Logistics   Department of
debarment length     Total length        the Air Force                    the Army             Agency         the Navy       Total
1 year or less       3 years or                           91                   112                 166                44       413
                     less
                     More than 3                          17                    47                  60                23       147
                     years
More than 1 year     3 years or                           13                     5                   4                25        47
                     less
                     More than 3                          76                   104                 111                17       308
                     years
Total                                                   197                    268                 341               109       915
                                        Source: GAO analysis of EPLS data.



                                        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. 5 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.




                                        5
                                         We originally planned to conduct a detailed review of a nongeneralizable subsample of
                                        40 contractors, but instead conducted the detailed analysis on all 75 selected contractors.




                                        Page 22                                               GAO-12-932 Suspension and Debarment
                                         Appendix I: Scope and Methodology




                                         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.

Table 8: Description of the Stratified Random Sample from the Population of Contractors With a Suspension, Proposed
Debarment, or Debarment by the Air Force, Army, DLA, or Navy, Fiscal Years 2009 through 2011

                                                                                    Debarment length sample size
                                                                              Less than or equal    More than 3
Component                        Suspension / proposed debarment length               to 3 years          years       Total
Department of the Air Force      Less than or equal to 1 year                                 6                2         8
                                 More than 1 year                                             3                5         8
Department of the Army           Less than or equal to 1 year                                 8                4        12
                                 More than 1 year                                             3                7        10
Defense Logistics Agency         Less than or equal to 1 year                                11                4        15
                                 More than 1 year                                             3                8        11
Department of the Navy           Less than or equal to 1 year                                 3                2         5
                                 More than 1 year                                             3                3         6
Total                                                                                        40               35        75
                                         Source: GAO analysis of EPLS data.



                                         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



                                         Page 23                                       GAO-12-932 Suspension and Debarment
Appendix I: Scope and Methodology




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.

Table 9: Description of the Random Sample of Contractors With Three or More
Terminations for Default Issued by the Air Force, Army, Navy, or DLA, Fiscal Years
2006 through 2011

                                                                                Population      Sample
    Strata description                                                                size        size
    1. Contractors with at least one termination for default                           28            28
    issued by the Department of the Air Force
    2. Contractors suspended or debarred without a                                     10            10
    Department of Air Force termination
    3. Contractors with terminations for default issued by the                         88            30
    Departments of the Army, and the Navy, and the Defense
    Logistics Agency that did not have a termination of default
    issued by the Department of the Air Force
    Total                                                                             126           68a
Source: GAO analysis of Federal Procurement Data System—Next Generation data.
a
Total sample size is 62, due to miscoding, omission, and no information.


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.




Page 24                                                              GAO-12-932 Suspension and Debarment
Appendix I: Scope and Methodology




•   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.




Page 25                                    GAO-12-932 Suspension and Debarment
Appendix II: DOD Components’ Suspension
                                           Appendix II: DOD Components’ Suspension
                                           and Debarment Programs and Staff



and Debarment Programs and Staff


DOD component       Description                                                                                           Staff
Department of the   The Air Force’s suspension and debarment program is co-located with the Department’s                  Full-time: 2 attorneys.
Air Force           Procurement Fraud Remedies program in the office of the Deputy General Counsel. All                   3 staff support
                    attorneys are cross-trained in suspension, debarment, procurement fraud remedies, and                 (interns, 1 dual-
                    ethics. One full-time lawyer focuses primarily on suspensions and debarments and one                  hatted as paralegal)
                    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).
Department of the   The Army’s suspension and debarment program is located in the Procurement Fraud          Full-time: 5 attorneys,
Army                Branch, which falls within the U.S. Army Legal Services Agency and is part of the Army’s 1 paralegal
                    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.
Defense Logistics   DLA’s suspension and debarment program is administered by DLA’s Office of General                     Full-time: 3 attorneys
Agency (DLA)        Counsel. This activity is part of the agency’s larger business integrity program.                     Part-time: 1 paralegal
                    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.
Department of the   The DON’s suspension and debarment program is part of the Acquisition Integrity Office Full-time: 14
Navy (DON)          within the Office of General Counsel. This office carries out the DON’s suspension and       attorneys,a
                    debarment activities as part of a larger fraud prevention program. The staff from this       3 staff support
                    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.
                                           Source: Department of Defense component data.
                                           a
                                            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.




                                           Page 26                                                     GAO-12-932 Suspension and Debarment
Appendix III: Comments from the
              Appendix III: Comments from the Department
              of Defense



Department of Defense




              Page 27                                      GAO-12-932 Suspension and Debarment
                Appendix III: Comments from the Department
                of Defense




Now on p. 18.




                Page 28                                      GAO-12-932 Suspension and Debarment
Appendix IV: GAO Contact and Staff
                  Appendix IV: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  William T. Woods, (202) 512-4841 or woodsw@gao.gov
GAO Contact
                  In addition to the contact named above, John Neumann, Assistant
Staff             Director; James Ashley; Patrick Breiding; Richard Brown; Russ Reiter;
Acknowledgments   Roxanna Sun; Robert Swierczek; Keo Vongvanith; and Alyssa Weir made
                  key contributions to this report.




(121018)
                  Page 29                                GAO-12-932 Suspension and Debarment
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