Large contractors tough to ban from federal business, watchdog says

Banning large contractors from doing business with the government because of misconduct can be more burdensome for agencies than contractors, according to a watchdog group.

The government rarely bans large contractors such as Boeing Co., currently under investigation for alleged civil and criminal offenses committed during federal transactions, said Seth Morris, a researcher at the Project on Government Oversight (POGO), a nonprofit watchdog group based in Washington. Agencies rely heavily on large contractors for certain types of products and services, and these contractors have the financial resources to dissuade agencies from suspending or debarring them from federal work.

"The government has its hands tied when it comes to [suspending or debarring] the larger defense companies," Morris said. Mergers have created a situation where Boeing, for example, is one of a few big defense contractors, he explained.

From 1990 to early 2002, Boeing racked up 36 allegations of misconduct ranging from procurement fraud to Equal Employment Opportunity violations, and paid about $358 million in fines and settlements, according to POGO. But the government did not exclude Boeing from bidding on future contracts.

If an agency suspends or debars a contractor from future government contracts, the action also affects the contractor's potential business with all other agencies, under an executive order signed by President George H. W. Bush in 1989. When contractors are suspended or debarred, they are automatically placed on the General Services Administration's list of groups prohibited from future business transactions with the government. Government contracting officials must consult the list before awarding contracts.

The Federal Acquisition Regulation outlines three general categories of misbehavior that could result in excluding a contractor from government work, said Steven Shaw, deputy general counsel for contractor responsibility at the Air Force. These are: evidence of a crime related to business integrity, either willful or unintentional failure to meet standards outlined in a contract and any other "serious or compelling" misconduct.

Suspension is temporary, while debarment is for a "reasonable period," according to the FAR. Contractors can be suspended for up to 18 months or until the end of litigation, while a debarment usually does not exceed three years. Contractors can be debarred for activities such as fraud, embezzlement and forgery.

According to the Air Force's Shaw, the debarment procedures themselves do not make it any more difficult for agencies to place large contractors on excluded lists. Debarring or suspending a large contractor arguably would impact agencies more, he said. But if the contractor is the sole provider of a particular product, the FAR allows agencies to continue buying from a company on the excluded list, he explained.

The Justice Department is currently investigating claims that Boeing stole proprietary information from competitor Lockheed Martin Corp. and used the information in 1998 to bid for and win an Air Force rocket-making contract. A spokesman for the U.S. attorney's office in Los Angeles, which is running the investigation, declined to comment on the case.

Boeing is cooperating fully with the investigation, which the company learned of in March, according to spokesman Dan Beck.

The Air Force has initiated a separate "administrative" investigation into whether Boeing has violated any terms of its $162.3 million contract, said agency spokeswoman Maj. Angela Billings. If the investigations turn up proof of civil or criminal offenses, the Air Force could debar or suspend Boeing.

In a May 2002 report, POGO found that from 1990 to the beginning of 2002, the government's 43 biggest contractors, including General Electric and Lockheed Martin Corp., paid about $3.4 billion in fines, restitution and settlements for breaking the law or engaging in unethical conduct.

But as of early 2002, only one of the 43 large contractors was penalized for misconduct. The General Electric Aircraft Division was suspended for five days for using funds from the U.S. Foreign Military Aid Program to finance the sale of F-16 engines to Israel. In March 2002, the General Services Administration suspended Enron, not one of the 43 contractors POGO studied, from government contracts for a year.

The POGO report recommended several steps the government could take to do a better job of holding contractors responsible for misdeeds. So far, one of the suggestions has been implemented, Morris said. The General Services Administration has archived historical data on contractors that have been suspended or debarred.

Previously, GSA kept a list of contractors currently barred from entering agreements with federal agencies, but procurement officers had no place to research previous disciplinary actions against contractors.

GSA's archives will help agencies avoid hiring contractors with records of repeated debarments or suspensions, Morris said. But GSA's records of contractor misconduct are still not always complete or user-friendly, according to an aide to Rep. Carolyn Maloney, D-N.Y.

Maloney addressed the problem by proposing an amendment to the 2003 Services Acquisition Reform Act (H.R. 1837). The amendment, which the House Government Reform Committee defeated by a vote of 22 to 18, would have required the government to establish a centralized database with information dating back five years on any court or administrative proceedings brought against government contractors, and any resulting suspensions or debarments.

Even though the committee voted down Maloney's amendment, she will continue her push for a database that the layperson can access and understand, according to one of her aides. Her staff plans to meet with GSA soon to discuss how existing lists of barred contractors can be upgraded.

GSA has recently made several enhancements to the excluded parties list, according to agency spokeswoman Mary Alice Johnson. For example, agency officials can enter information into the database directly, rather than submitting it to GSA for processing.

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