United States: State Of Suspension/Debarment: FY2016 Statistics And The Impact On Small Businesses

Last Updated: November 8 2016
Article by David B. Robbins, Peter J. Eyre and Angela B. Styles

Changes in suspension and debarment data reported by the government can provide the American public with substantially more insight into the types of entities (and individuals) excluded through suspensions, proposed debarments, and debarments, including that the overwhelming majority of excluded companies are small businesses. These changes likely show that more than 90 percent of the businesses excluded by the Department of Defense in Fiscal Year 2016 were small businesses. In this blog post we discuss the current counting method used by the government, and present a revised counting method using recently completed Fiscal Year 2016 exclusion statistics to understand the current state of the government's suspension and debarment system in a more nuanced way.

Current Counting Method

The statistics reported by the Interagency Suspension and Debarment Committee (ISDC) in the annual ISDC Report cover only total numbers of suspensions, total proposed debarments, and total debarments. This presentation could easily confuse readers because the aggregated data conceivably "triple counts" exclusions in a given year. For example, a single individual or company may be suspended, proposed for debarment, and debarred in a given year and the ISDC Report would count that as three (3) separate actions.

While the current counting mechanism used by the ISDC measures how active each agency has been in terms of total numbers of each type of exclusion issued, it does not provide the American public with additional information about the subjects of exclusions or the nature of the exclusions (i.e., fact based or following judicial actions). Nor does the presentation of data necessarily offer support for some of the conclusions that the ISDC draws in its report; for example, that the "plateauing of the number of suspension and debarment actions . . . may, at least in part, be indicative of programs become established throughout the Executive Branch and transitioning from start up into effective programs." (Fiscal Year 2015 ISDC Report at p. 1) This conclusion may well be consistent with the data, but it is not intuitively obvious to the reader based on the data in the report and has a counterargument that a mature program would develop more internal referrals causing numbers to rise over time rather than fall.

Another possible conclusion to be drawn from the suspension and debarment data is that the overall state of ethics and compliance in the government contracts marketplace has improved and that suspensions and debarments are less necessary than in years past. Instead, show cause letters and other pre-exclusion interaction can take the place of suspensions and debarments.

History of the ISDC's Counting Method

The government is not limited to counting suspensions and debarments in the way it does now. Section 873 of Public Law 110-417, the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009, requires only that the ISDC report annually to Congress concerning:

1) the progress and efforts to improve the suspension and debarment system;

2) member agencies' active participation in the ISDC's work; and,

3) a summary of each agency's activities and accomplishments in the Government-wide debarment system.

However, at approximately the same time as the ISDC began its reporting with consolidated Fiscal Year 2009 and Fiscal Year 2010 data, the government-wide suspension and debarment system was the subject of critical GAO and Inspector General reports focused in part on the need for the government to suspend and debar contractors more frequently. Perhaps in reaction to these reports, ISDC reporting focused on the sheer numbers of suspension and debarment activity. But even the ISDC itself has noted in recent years that pure numbers of suspension and debarment activity are not "metric[s] of success" (Consolidated Fiscal Year 2012 and 2013 ISDC Report at p. 13, with the language repeated in the Fiscal Year 2014 ISDC Report at p. 2 and the Fiscal Year 2015 ISDC Report at p. 1)

More Information is Available, For Those Willing to Dig for It

By searching the System for Award Management (SAM) for exclusions that began within a single fiscal year, exporting the data into Excel, and sorting by agency, SAM users can focus on individual companies and/or individuals excluded by government agencies. Stated differently, a company or individual suspended, proposed for debarment, and debarred in a fiscal year would appear as a single exclusion using this search instead of three exclusions on an ISDC Report.

Using this revised counting method (and based on our analysis), Fiscal Year 2016 data show the following statistics.

2016 System for Award Management Exclusion Data

Agency Total Exclusions Firms Individuals Special Entities
Agriculture 13 5 7 1
AID 37 2 20 15
Commerce 15 3 11 1
DoD – Air Force 102 13 71 18
DoD – Army 611 64 477 70
DoD – DLA 66 26 40 0
DoD – Navy 801 39 725 * 37
Education 72 0 71 1
Energy 19 6 13 0
EPA 179 51 107 21
GSA 117 27 70 20
Interior 49 14 33 2
NASA 6 1 5 0
NSF 37 10 22 5
SBA 42 8 26 8
State 49 13 28 8
VA 14 2 12 0
TOTALS 2229 284 1738 207

* Note: Navy enters many spellings per name, and excluded 141 unique names in FY16.

Although the Fiscal Year 2016 ISDC Report has not yet issued, comparing our counting method's total 2,229 exclusions to the Fiscal Year 2015 ISDC Report's total of 4,987 provides shows the differences in this reporting method compared with ISDC Reporting.

For purposes of clarity, generally, "[f]irms" refer to companies with unique identifiers such as DUNS numbers. "Firms" are not always companies engaged in the government contracting business, but they at least maintain the unique business identifying numbers that would permit their entry into government contracting. "Special Entities" are companies that are not found to have DUNS numbers or other unique identifiers. Because these unique identifiers are generally a prerequisite to registering to transact business with the government, "Special Entities" should not be considered traditional government contractors.

A weakness in the SAM data is the lack of information concerning which "Firms" are small businesses and which are large businesses. We analyzed the data for a subset of the agencies listed above, and cross-referenced the U.S.-based "Firms" excluded by the more historically active agencies with primarily discretionary debarment authority – the Defense Logistics Agency, the Department of the Navy, the General Services Administration, the Department of the Air Force, and the Department of the Army – against the SAM certifications of the Firms as well as publicly available information concerning company size using business intelligence sources like Manta.com to determine which companies were small and which were large. These were our findings.

TOTAL SMALL LARGE UNKNOWN % SMALL OF KNOWN
Dept. of the Army 47 42 1 4 97.67%
Dept. of the Navy 33 23 1 9 95.83%
Defense Logistics Agency 16 15 1 93.75%
Dept. of the Air Force 11 9 1 1 90.00%
General Services Admin. 27 21 4 2 84.00%

The analysis shows the substantial impact of suspension and debarment on small businesses. For a system that is designed for the purposes of protection of the government's business interests and not for punishment, and where "government contractors must be afforded a meaningful opportunity to overcome a blemished past, to ensure that an agency will impose debarment only in order to protect the government's proprietary interest and not for purpose of punishment" (Silverman v. U.S. Dep't of Def., 817 F. Supp. 846, 849 (S.D. Cal. 1993)), this impact on small business is concerning.

Facing the might of the federal government is a daunting and costly experience for small businesses and an unfortunate reality is many companies fail after being suspended or debarred, causing lost jobs and economic harm. And individuals who are suspended or debarred face a lifetime of economic stigmatization in the publicly available SAM archives, making future job prospects more challenging.

What Should Contractors, and Especially Small Businesses, Do to Mitigate Suspension and Debarment Risk?

Large businesses continue to have the resources to address a suspension or proposed debarment, and have learned the importance of previewing and dealing with ethics and compliance issues with Suspending and Debarring Officials proactively. It is reasonable to infer from the Fiscal Year 2016 suspension and debarment data that these sorts of proactive engagements with Suspending and Debarring Officials help prevent debarment actions.

Small businesses should be aware that, for these proactive Suspending and Debarring Official outreach efforts to succeed, foundational policies, procedures, and training should be in place and be effective. Small businesses also should consider maintaining a meaningful compliance function. This does not necessarily require extensive overhead, but should at a minimum be visible within the company, survey the company's internal controls periodically, and recommend updates as needed. While it is possible to convince a Suspending and Debarring Official to forego exclusion in the absence of these items, doing so is more difficult, more costly, and more disruptive to the business.

Conclusion

By its own admission, the ISDC's counting and reporting practices do not provide "metric[s] of success" for the governmentwide suspension and debarment system. And the ISDC has the freedom to report different metrics if it chooses. As shown herein, different counting and reporting rules may provide more insightful analysis and greater transparency into the suspension and debarment activities of federal agencies, and detail the substantially larger impact of suspension and debarment on individuals and small businesses. Regardless of whether the ISDC changes its counting methods, large businesses are well-served to continue proactive engagement with Suspending and Debarring Officials, and small businesses must remember the smaller margin for error in their operations and devote sufficient resources to ethics and compliance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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