United States: Lose Your Clearance, Lose Your Contract, Lose Your Company

One of the most valuable commodities held by a federal government contractor is its employees holding active personnel security clearances. Greater contracting opportunities across the federal government have only served to increase the value of these cleared employees by keeping companies competitive for government projects where access to classified information is necessary to perform tasks or services essential to the fulfillment of the contract. In many cases, the inability of specific contractor employees to obtain or maintain their security clearances can result in either the loss of lucrative contract opportunities or a default of an awarded contract, both of which have the potential to bring about the downfall of a government contractor.

The Department of Defense ("DoD") Industrial Security Regulations provide that the loss of a personnel security clearance by an owner, officer, director, partner, regent, trustee, or executive member of a company that has a Facility Security Clearance ("FCL") may necessitate the revocation or suspension of the FCL, which is required for any company having access to classified information, and the loss of any contracts dealing with classified information. Whether a company is involved in one government contract or one hundred government contracts, the loss of government contract revenue can dry up a company’s reserves and force it to suspend operations. This article is designed to provide contractors and their employees with practical guidance on the security clearance process, including ways to avoid the loss of a clearance, and what to do in the event that a contractor employee’s security clearance is called into question.

Classified information is typically divided into one of three categories: (1) confidential, where the unauthorized disclosure of such information could reasonably be expected to cause damage to the national security; (2) secret, where the unauthorized disclosure could reasonably be expected to cause serious damage to the national security; and (3) top secret, where the unauthorized disclosure could reasonably be expected to cause grave damage to the national security. A security clearance vests the holder with government-licensed access to a specific level of classified information on a need-to-know basis.

The federal government may seek to deny or divest an individual of a security clearance if it finds that it is "consistent with the interests of national security" to do so. Such a determination requires that the government consider several factors, including: (1) the employee’s allegiance to the United States; (2) foreign influence upon a clearance applicant; (3) preference for a foreign country over the United States; (4) criminal, compulsive, or addictive sexual behavior; (5) untrustworthy personal conduct; (6) financial considerations; (7) alcohol consumption; (8) drug involvement; (9) emotional, mental, or personality disorders; (10) criminal conduct; (11) security violations; (12) conflicting outside activities; and (13) misuse of information technology systems.

The most common causes for a contractor employee to be denied a security clearance, or to lose an existing clearance, are financial misconduct, such as severe indebtedness, and personal behavior evidencing a lack of trustworthiness, such as deception in documents submitted to the government. Therefore, it is crucial for those seeking an initial security clearance, or those seeking to upgrade their clearance status, to be completely honest and forthcoming in their applications. Any belief on the part of an applicant that the government will never find out about that "one incident" is both short-sighted and erroneous. Although the government routinely grants security clearances to individuals who have made mistakes in the past, it rarely grants clearances to individuals who have tried to omit or conceal those mistakes.

Applicants should be aware that the government will verify the information contained on their applications through an in-depth investigation of federal databases, including those maintained by the military, the Federal Bureau of Investigation ("FBI"), and the Internal Revenue Service ("IRS"). The government will conduct a credit check, and will contact local law enforcement agencies where the applicant has lived and worked. Investigators will verify the educational information provided, including attendance at a particular institution, and any degrees the applicant may have earned. Investigators will review the applicant’s employment records and will interview workplace references including former supervisors and co-workers. In addition, the government may seek personal references from people who were listed by the applicant, as well as those who were not listed, such as neighbors and former acquaintances. The government may investigate an applicant’s spouse or cohabitant, and may conduct interviews with a former spouse. Investigators will canvass the applicant’s neighborhood and verify the applicant’s residence. In certain instances, depending on the type of clearance for which the applicant is applying and the information contained on the application, the government may interview the applicant to collect data and to resolve background or application inconsistencies. An applicant should expect questions about his or her use of alcohol and/or illegal drugs, travel to foreign countries, and association with foreign nationals, including family members. An applicant should be prepared to wait approximately one year for a clearance to be granted, according to a recent Report by the Government Accountability Office ("GAO"), because of the large backlog of applicants. However, an applicant seeking a higher level of clearance, or an applicant with a questionable background, should expect a longer wait.

A number of large defense contractors have discovered that prevention is the best medicine when it comes to obtaining and maintaining the security clearances of their employees. However, in light of recruiting costs and the dependence of many small-to-medium government contractors on key personnel, these contractors have an even greater interest in providing resources to help prevent a security clearance revocation before it happens. Some proactive steps that federal government contractors should implement include the following:

• Create a personnel security clearance manager position within the company’s compliance department to deal strictly with issues of personnel security clearances;

• Ensure that the personnel security manager is not in a position of authority over the contractor employees, but has sufficient executive authority to act independently within her job responsibilities;

• Ensure that all discussions with the personnel manager are held as strictly confidential, so as to encourage disclosure;

• Conduct pre-investigation interviews with contractor employees to impress on employees the importance of complete disclosure, and to assist the contractor employees in developing mitigating circumstances, as necessary;

• Conduct education sessions with contractor employees to ensure that they understand the security clearance application process and the types of contacts and activities that may lead to revocation;

• Conduct periodic interviews with contractor employees to determine if any actions or contacts by the contractor employees may lead to investigation or revocation, and assist the employees in any necessary rehabilitation or mitigation efforts, as well as any necessary disclosures to the federal government;

• Require that contractor employees discuss any foreign travel (for business or personal reasons) or any change in marital or family status prior to undertaking the travel or change, so that the potential repercussions on the contractor employees’ security clearances may be assessed;

• Have debt counseling and financial management resources available to contractor employees, so that any financial mismanagement by employees may be resolved before arriving at the point where it threatens the revocation of a security clearance; and

• Implement an open-door policy to encourage contractor employees to discuss any new actions or contacts that may affect their security clearance at any time, so that the contractor employee and the personnel security manager may act immediately to remedy the situation.

In summary, by taking proactive steps to shepherd their employees through the process of applying for a security clearance, federal government contractors can go a long way toward protecting their investment in their employees, securing their contract assets, and ensuring the long-term viability of their business.

If the federal government denies or seeks to revoke a contractor employee’s security clearance, certain safeguards are in place to provide that employee with an opportunity to defend his or her ability to maintain a security clearance. The Defense Office of Hearings and Appeals ("DOHA") handles all cases in which adverse information has been found suggesting that it may not be consistent with the national interest to grant or continue a security clearance for access to classified information. DOHA personnel security specialists will review the adverse information, and will make an initial determination, taking into account certain specified mitigating and disqualifying factors. For example, if concerns were raised relating to an applicant’s financial misconduct, mitigating factors would include that the behavior was not recent, that it was an isolated incident, or that the applicant has received counseling for the problem. 

Disqualifying factors would include a history of not meeting financial obligations, an inability to satisfy debts, or deceptive or illegal financial practices evidencing embezzlement, check fraud, income tax evasion, or other intentional financial breaches of trust. If concerns were raised relating to an applicant’s emotional stability, mitigating factors would include recent opinions from qualified medical health professionals that the applicant’s prior emotional disorder has been brought under control, that the prior emotional disorder was a temporary condition brought on by a traumatic event, or that there is no indication of a current problem. Disqualifying factors would include recent opinions from qualified medical health professionals that the applicant has a condition indicating a defect in judgment, reliability, or stability, that the individual has failed to follow appropriate medical advice relating to treatment of a condition, or that there is a pattern of high-risk, irresponsible, or aggressive behavior.

If the DOHA personnel security specialist finds that granting or continuing a security clearance for a given applicant is not consistent with the national interest, DOHA must issue a Statement of Reasons ("SOR") explaining why that clearance should be denied or revoked. The government has the initial burden of proving any controverted facts alleged in the SOR. If the government meets this burden, the burden of persuasion then shifts to the applicant to present any evidence that refutes or mitigates that evidence. Once the SOR has been issued, the contractor employee then has 30 days to respond to the SOR by admitting or denying each separate allegation. The contractor is also given an opportunity to review the administrative file upon which the SOR is based. If the contractor employee wishes, he or she will be granted a hearing before a DOHA Administrative Judge who will decide the case. Although DOHA procedures are drafted so that parties may present any mitigating evidence without a hearing, DOHA statistics indicate that contractor employees who choose to forego a hearing are nearly four times less likely to succeed than are contractor employees who request a hearing. 

During this trial-type hearing, the contractor employee can present written evidence or call witnesses for consideration by the Administrative Judge. The role of an Administrative Judge within DOHA security clearance review matters is to develop an accurate and complete record, to rule on questions of evidence and procedure, to consider all relevant and material evidence, to apply pertinent mitigating and aggravating factors, to make findings of fact, to draw conclusions, and to arrive at a final decision on the ultimate issue. Once the hearing is complete, the DOHA Administrative Judge will issue a written decision including findings of fact and conclusions of law based on the record evidence, written security suitability criteria, and case law. The standard of review applied by the DOHA Administrative Judge is that granting or denying the clearance is "clearly consistent with the interests of national security."

During the initial DOHA process summarized above, it is extremely important that the contractor employee work with counsel experienced in handling such matters. Counsel is essential in crafting an initial response to a security clearance challenge, gathering proper documentation in support of the security clearance, representing the contractor employee in a DOHA hearing, and preparing witnesses for questioning at such a hearing. While contractor employees who are unsuccessful at the hearing stage may always appeal their determinations to the DOHA Appeal Board, the scope of the Appeal Board’s review is extremely narrow, and the Appeal Board will presume, unless the contractor employee can demonstrate otherwise, that the Administrative Judge did not make errors in making her determination, that she was fair and impartial, and that she considered all the relevant record evidence. Unless a contractor employee’s rights and objections have been preserved by competent counsel throughout the hearing stage, a contractor employee is unlikely to succeed on appeal barring extreme circumstances.

It is important for federal government contractors to recognize that their investment in their employees should still be protected, even if an employee’s personnel security clearance is subject to revocation. A recent review of DOHA’s hearing statistics indicates that more than 40 percent of all contractor employees are successful in challenging a security clearance revocation at the hearing stage alone. Given the relatively good odds of success, federal government contractors should make competent counsel available to employees facing revocation, so as to maintain their investment in their employees with active security clearances.

In summary, because of the significant bottom-line consequences that the loss of security clearances by key employees may have on federal government contractors, businesses should have procedures in place to proactively assist their employees in obtaining and maintaining their security clearances, and should work with competent counsel to assist their contractor employees in arguing their cases before DOHA. In the current government contracting environment, federal government contractors compete heavily for employees with active security clearances. Having invested so much in their labor pool, federal contractors have a strong interest in preserving that significant investment by insuring that their employees have the necessary tools to obtain and maintain their personnel security clearances. After all, their business may very well be on the line. 

This article is presented for informational purposes only and is not intended to constitute legal advice.