GSA suspends Enron and Andersen from new business

The General Services Administration Friday temporarily suspended Enron Corp. and the auditing firm Arthur Andersen from doing future business with the federal government.

GSA suspended Enron for one year from receiving government contracts, while Andersen's suspension lasts for the duration of its criminal indictment. The agency announced its decision a day after federal prosecutors indicted Andersen for alleged obstruction of justice, including shredding documents related to the Enron investigation.

Enron and Andersen officials have engaged in activities that "seriously impact their suitability to receive government contracts," according to a GSA statement. "A contractor that does not have adequate internal controls cannot provide such assurances to the government, and should not receive government contracts."

The suspension applies only to future government business and does not affect existing contracts between agencies and the two companies. Ten agencies, including GSA and the Justice Department, had almost $60 million in contracts with one or both of the companies as of the third quarter of fiscal 2001.

The government can suspend or debar contractors for misconduct and mismanagement. Suspension is temporary, while debarment is for "a reasonable period," according to the Federal Acquisition Regulation. Contractors can be debarred for activities such as fraud, embezzlement and forgery.

Existing contracts are not automatically terminated if a suspension or proposed debarment notice is issued. Contractors that receive a federal notice of suspension or proposed debarment can defend themselves in writing or in person within 30 days.

In January, the Office of Management and Budget directed GSA to review 106 existing contracts with Enron and Andersen and, if necessary, begin suspension or debarment proceedings against the two companies.

"GSA is continuing the review of Andersen and Enron officials to determine whether their business practices meet the standards required to do business with the government in the future," Raymond J. McKenna, GSA's general counsel, said Friday. "At this time, it is inappropriate to comment further about this continuing review."

The General Accounting Office released new rules in January designed to make sure auditors who review federal agencies do not perform management functions or make management decisions. The rules expressly prohibit auditing organizations from providing bookkeeping, recordkeeping and payroll services, although auditors can continue to provide routine advice and answer technical questions.

In December, the Bush administration overturned a controversial Clinton-era regulation requiring government contractors to meet strict ethical standards. The repealed regulations required government contracting officers to review a firm's compliance with labor, employment, tax, environmental and antitrust laws before awarding a federal contract.

The business community had argued that the regulation would lead to a "blacklist" of companies banned from government contracts, even if the companies resolved concerns over labor, environmental and other issues. They also argued that the rules were unnecessary since the FAR already includes a provision on contractor ethics. The existing provision in the FAR still requires contracting officers to determine whether a potential contractor is "responsible," but it does not force officers to research the legal practices of companies.