Introduction

The United States spends hundreds of billions of dollars annually on government contracts, grants, and other forms of federal assistance. Although most entities that receive these awards are good business partners, the government must protect itself from those that lack integrity. One of the ways the government does this is by imposing suspension or debarment, which renders an entity broadly ineligible to receive federal awards for a specified period.

The suspension and debarment regulations at Federal Acquisition Regulation (“FAR”) Subpart 9.4 (which apply to procurement contracts) and at 2 C.F.R. Part 180, known as the Nonprocurement Common Rule (“NCR”) (which apply to nonprocurement transactions such as grants) have remained relatively unchanged for many years. But change may be on the horizon, as the FAR Council recently issued a proposed rule that aims to better harmonize the two regulatory regimes. The period for public comment closes on March 11, 2024—one week from today. Rulemaking is infrequent in this area, so the final rule will be highly anticipated.

What We’re Watching

The Effect of a Notice of Proposed Debarment. Before the government can impose a final debarment, a respondent must be provided notice and an opportunity to respond. One way that a Suspending and Debarring Official (“SDO”) can meet this requirement is by issuing a Notice of Proposed Debarment. And it matters hugely whether the SDO does so under the FAR or the NCR (even though debarments imposed under either rule have reciprocal effect). A Notice of Proposed Debarment issued under the FAR has an immediate exclusionary effect akin to a suspension, whereas a notice of proposed debarment issued under the Nonprocurement Common Rule has no immediate exclusionary effect. The regulations never explained why this longstanding difference exists, making this rulemaking particularly noteworthy. For years, practitioners have wondered if and how the FAR Council would harmonize the effect of Notices of Proposed Debarment under these rules.

Interestingly, the FAR Council seeks to retain this difference, explaining that “contracts are more likely than nonprocurement transactions, such as Federal financial assistance, to require immediate exclusion when something goes wrong” because contractors are hired to “perform an exact contractual requirement,” while grantees and recipients of other federal assistance “are typically required to meet overall program goals and objectives.” The FAR Council also pointed to recurring language in the Appropriations Act, which has since 2012 prohibited the use of federal funds to enter into a contract with any corporation convicted of a felony criminal violation within the preceding 24 months, unless a Federal agency has considered suspension or debarment of the corporation and has made a determination that further action is not necessary to protect the interests of the Government. But, because SDOs applying the FAR already can suspend a contractor, with immediate effect, it is unclear why SDOs also need to be able to immediately exclude a contractor by issuing a Notice of Proposed Debarment. Public comments will likely demonstrate a range of opinions about the FAR Council’s approach and rationale.

Method of Service. Currently, the FAR requires the SDO to provide notice to a contractor by certified mail, return receipt requested, whereas the NCR allows the SDO the flexibility to provide notice by e-mail or by certified mail or its equivalent. The FAR Council proposes to amend the FAR to allow SDOs to provide notice by regular mail, facsimile, or e-mail. While this change may help contractors receive more immediate notice if all goes well in the notification process, this change in the rules could lead to scenarios where the contractor does not receive the notice. Accordingly, the proposed rule would allow a respondent who can show it did not receive the SDO’s notice to ask for reinstatement or a shorter term of debarment. If the final rule allows an SDO to serve notice through non-trackable means such as regular mail and even regular e-mail, there could be an increased number of disputes, such as cases where a respondent asserts non-receipt of notice and yet the SDO imposed a final debarment.

Aggravating Factors. The proposed rule would introduce seven new “aggravating factors,” imported from the NCR, for SDOs to weigh when considering debarment. These include:

• Any pattern, prior history or frequency of wrongdoing, and extent of the harm;
• The kind of positions held by the those involved;
• The pervasiveness of the wrongdoing within the organization;
• Whether the contractor’s principals tolerated the offense;
• Whether the contractor is or has been similarly excluded by other authorities based on conduct similar to a cause for debarment in the FAR;
• Whether the contractor has entered into an administrative agreement with other authorities based on conduct similar a cause for debarment in the FAR;
• Any other factors appropriate to the circumstances of a particular case

While these changes seemingly reflect a willingness to consider a wide range of factors, it remains true that the mitigating and aggravating factors in the FAR are more readily applicable to organizational respondents than to individuals, even though most respondents in debarment actions are individuals.

Other Noteworthy Procedural Changes

The proposed rule also would amend various aspects of the FAR, such as:

• Allowing respondents to present matters in opposition via videoconference, instead of requiring in-person presentations. This helps to provide respondents with greater access.
• Clarifying the requirement to post administrative agreements in the Federal Awardee Performance and Integrity Information System (“FAPIIS”) (now on SAM.gov), regardless of whether the agreement resolves a “proceeding” or a “potential debarment or suspension action” (as when the contractor comes forward voluntarily, and proceedings do not begin prior to the resolution by administrative agreement).

Conclusion

Those seeking to offer comments should do so soon.