Tags: Fraud | Fight | US | Suppliers

Fraud Fight Has U.S. Seeking to Ban Record Number of Suppliers

Tuesday, 27 Dec 2011 06:38 AM

 

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The Obama administration, under pressure from Congress to weed out government suppliers for ethics violations or poor performance, has proposed to ban almost as many contractors this year as President George W. Bush did in his entire second term.

Federal agencies have proposed blocking 1,006 companies and individuals from contracting so far this year, as well as asking a judge to ban a unit of food-processing giant Cargill Inc. of Minneapolis, in a process known as debarment. That is 16 percent more than the 868 contractors that U.S. agencies proposed to block in all of 2010, and only 70 fewer than the 1,076 contractors that U.S. agencies sought to debar under Bush from 2005 to 2008, according to data provided by the General Services Administration.

U.S. agencies are under pressure after a series of congressional hearings and reports from inspectors general and the Government Accountability Office faulted procurement officials for failing to keep unqualified or ineligible vendors out of the $500 billion-a-year federal market.

“We are starting to see the pendulum swing to more contractor accountability, but government needs to do a lot more to ensure it only works with responsible contractors and thereby protects the public,” said Scott Amey, general counsel for the Project on Government Oversight, a nonprofit watchdog group.

Potential Record

The proposed debarments appear to be the most since at least 1997, the earliest year comparable data was available, and may be a record, said Meredith Whitehead, a project manager with the General Services Administration, which oversees the online database used to track contractors barred from winning government work.

Federal spending on contracts for goods and services has more than doubled since 2000, to $534 billion in the fiscal year ended Sept. 30, 2010 from $213 billion in the fiscal year ended Sept. 30, 2000.

Some contractor advocates say the government may be too aggressive in pursuing debarment in some cases, since even proposing a company for debarment means it won’t be able to win new contracts until the situation is resolved.

“The use of suspensions and debarments is getting increasingly hostile,” said Stan Soloway, president of the Professional Services Council, a trade association of government contractors based in Arlington, Virginia.

Moira Mack, a White House Office of Management and Budget spokeswoman, said the agency provides due process to all contractors facing suspension or debarment.

“For too long, the government failed to use suspension and debarment, even in the face of egregious conduct by contractors,” Mack said in an e-mailed statement. “That’s why this administration has been pushing for tougher oversight of contractors, and we’ve seen results.”

Reasons to Debar

Contractors can be proposed for debarment for poor performance as well as a variety of ethical issues, including overbilling or falsely claiming a company is owned by a disabled veteran in order to win special awards. In some cases, debarment is automatic, such as when a contractor is convicted of violating the Clean Air Act or Clean Water Act. Debarment typically lasts three years.

Last month, the U.S. Department of Labor said it will ask a judge to debar Cargill Meat Solutions, a Wichita, Kansas-based subsidiary of Cargill, after the company refused to agree to a settlement of allegations it discriminated against female job applicants seeking entry-level production jobs and favored Asians and Pacific Islanders over other applicants.

The government’s allegations are unfounded, Mike Martin, a Cargill spokesman, said in an e-mailed statement.

‘Devastating Impact’

After a company has been proposed for debarment, it can take a year or more before a final decision is made, said Robert Burton, a former acting administrator of the Office of Federal Procurement Policy during the Bush administration who is now a partner at Venable LLP in Washington.

“It can be a very long process, meanwhile the impact on you as a contractor is the same as if you’ve been found to have committed the wrongdoing,” Burton said in a phone interview. “It can have a devastating impact on a company, especially a small business that may be out of business by the time the proceeding is completed.”

A hasty decision by the U.S. Department of Veterans Affairs led to four men and two companies being at least temporarily blocked from government work this year, and as many as 80 people losing their jobs, Mark Leach, an attorney for the debarred parties, argued before a Kentucky federal judge in U.S. District court proceedings this September.

Construction Company Debarred

The VA debarred Roy Browning and his Kentucky construction company KDV Inc., saying Browning’s prior experience as a hairdresser and automobile service manager made it unlikely he had the skills to control the daily operations of the company, a requirement to win the special contracts for disabled veteran businesses the company had received. Browning sued and his name has been removed from the debarred list, pending a hearing by the VA.

The Small Business Administration has expanded its efforts to ban contractors by looking across agencies for companies that misrepresent their size or ownership status to win work reserved for small vendors or companies owned by disadvantaged groups, said John Klein, the agency’s acting director for government contracting and associate general counsel for procurement law.

Protect Legitimate Businesses

Agency staff previously focused on suspending and debarring vendors that misrepresented their size or ownership status only on contracts with the SBA itself, said Klein.

“The mission is to make sure that legitimate small businesses benefit from our program,” Klein said.

Including decisions made outside of federal agencies, debarments so far this year total 2,139, an 11 percent increase from 1,935 in 2010. That’s short of the 6,098 companies and individuals debarred in 2004, the most active year for debarments during President George W. Bush’s administration.

Those figures include debarments stemming from court decisions and those triggered automatically by violations of certain laws, as well as those initiated by government agencies through proposals to ban vendors.

“I’m glad our efforts are gaining traction, but we still have work to do and I plan to keep up the fight,” Senator Claire McCaskill, a Missouri Democrat, who has argued for agencies to make greater use of debarment powers, said in an e- mailed statement.

Suspensions Increase

The number of contractors suspended from winning work has also surged, to 1,044 so far this year, up 40 percent from last year’s 747 and the most of any year since at least 2000, according to the GSA data. Suspensions are typically for short periods and can be initiated with less evidence than proposed debarments because they are designed to protect the government while investigations are occurring.

The financial impact of even short-term blacklisting from federal work can be “devastating” for contractors, Soloway, with the contractors’ trade group, said.

“It’s important to be tough, but it’s also important to be fair,” Soloway said in an interview. “These days the toughness is there, and the fairness isn’t sometimes.”

A unit of Agility, the Kuwaiti storage and logistics provider, filed a lawsuit in federal court in Alabama this week saying a decision to suspend the company from winning contracts after its indictment was “capricious.” A subsidiary, Agility Defense & Government Services, primarily operates in Madison, Alabama, according to the lawsuit.

The Defense Logistics Agency, an arm of the U.S. Department of Defense, suspended DGS 10 days after Agility was indicted in November 2009 for allegedly defrauding the government. Agility, formerly known in Kuwait as Public Warehousing Co., pleaded not guilty in August to the allegations in federal court in Atlanta.

DGS has denied wrongdoing and says its business has “collapsed” since the indictment of Agility and its workforce has shrunk to fewer than 50 employees from about 1,200.

© Copyright 2014 Bloomberg News. All rights reserved.

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