Proposed FAR Rule Would Add “Aggravating Factors” for Suspension and Debarment, Among Other Changes to Debarment Procedures

           The FAR Council issued a proposed rule earlier this week that would amend the FAR to “improve consistency between the procurement and nonprocurement procedures on suspension and debarment, based on the recommendations of the Interagency Suspension and Debarment Committee.” 89 Fed. Reg. 1,043 (Jan. 9, 2024). The proposed rule would incorporate features of the suspension and debarment procedures for grants and other federal assistance, including aggravating factors that suspending and debarring officials (SDOs) should consider that may weigh in favor of debarment. Comments on the proposed rule are due March 5, 2024.

           The procurement procedures for suspension and debarment are in FAR subpart 9.4. The nonprocurement procedures that apply to grants, cooperative agreements, and other federal assistance awards, are set forth in the Nonprocurement Common Rule (NCR) at 2 C.F.R. Part 180. As with other Uniform Guidance requirements, agencies must issue their own implementing regulations consistent with the NCR. Suspensions and debarments have reciprocal effect, so exclusion in connection with either type of instrument extends to both procurement and nonprocurement transactions. The proposed rule would revise the FAR to bring the two systems “into closer alignment where appropriate” and thereby “enhance transparency and consistency.”

           FAR 9.406-1 identifies ten debarment mitigation factors that SDOs should consider in making a debarment decision. The mitigation criteria give contractors credit for such factors as having effective standards of conduct and internal control systems in place before any government investigation began, self-reporting the activity to the agency in a timely manner, fully investigating the circumstances and making results available to the debarring official, fully cooperating with the Government, and undertaking various remedial measures. The proposed rule would add “aggravating factors” to consider along with the mitigation factors. The FAR Council proposes seven new factors, borrowed from the NCR, most of which are framed as aggravating factors:

(11) Whether the contractor has a pattern or prior history of wrongdoing, the frequency of incidents and/or duration of the wrongdoing, and the actual or potential harm or impact that results, or may result, from the wrongdoing.

(12) Whether and to what extent the contractor planned, initiated, or carried out the wrongdoing, and the kind of positions held by the individuals involved in the wrongdoing.

(13) Whether the wrongdoing was pervasive within the contractor’s organization.

(14) Whether the contractor’s principals tolerated the offense.

(15) Whether the contractor is or has been excluded or disqualified by an agency of the Federal Government or  has not been allowed to participate in State or local contracts or assistance agreements on a basis of conduct similar to one or more of the causes for debarment specified in this part.

(16) Whether the contractor has entered into an administrative  agreement with a Federal agency or a similar agreement with a State or local government that is not Governmentwide but is based on conduct similar to one or more of the causes for debarment specified in this part.

(17) Whether there are any other factors appropriate to the circumstances of a particular case.

89 Fed. Reg. at 1,048. These new factors would further up the ante for contractors to take affirmative steps to implement mitigation factors, such as establishing an effective government contracts compliance program, to try to prevent these negative factors from developing and to support a showing of present responsibility if grounds for debarment were to arise.

            In addition to aligning certain debarment factors, the proposed rule would align the times within which the SDO is required to render a debarment decision. The rule would increase the timeframe for a debarment decision under FAR 9.406-3(d)(1) from 30 working days after receipt of any information and argument submitted by the contractor, to 45 days, subject to further extension by the SDO for good cause. 89 Fed. Reg. at 1,049.

            The proposed rule would add or revise certain definitions in FAR 9.403 as well. Among other newly defined terms, a definition is proposed for “administrative agreement,” in recognition of the value of the use of such agreements as an alternative to debarment. The preamble notes that administrative agreements “often require that the parties take certain verifiable action to demonstrate present responsibility within a prescribed timeframe, such as the implementation of enhanced internal corporate governance practices and procedures and/or the use of independent third-party monitors,” but that such agreements vary and are fact-specific. The definition is thus broadly cast, encompassing any “agreement between an agency [SDO] and the contractor used to resolve a suspension or debarment proceeding” or potential proceeding.

           The proposed rule would also revise and expand the definition for “conviction” by adopting the definition from the NCR at 2 C.F.R. 180.920. The proposed rule says the rationale for the revised definition “is that fact-finding proceedings should not be necessary when there is a sufficient basis that the contractor was responsible for the misconduct for purposes of a proposed debarment.”

           A notable difference between FAR debarment proceedings and the NCR that the proposed rule would not change is that “a notice of proposed debarment under the FAR has the effect of immediately excluding the party but does not have this effect in the NCR.” The FAR Council notes that contracts are more likely than grants or other federal assistance to require immediate exclusion when something goes wrong. The proposed rule would add a definition for “pre-notice letter,” however, an optional mechanism for SDOs to engage in preliminary discussions with potential respondents or their counsel without resulting in immediate exclusion. The definition reflects an existing practice of agencies that has become more common in the past decade, to “resolve concerns involving contractor present responsibility short of a formal notice under the debarment and suspension rules.”

           Again, these and other proposed changes will not go into effect until after the notice and comment process runs its course. Notably, while this rulemaking is occurring in parallel with pending proposed guidance that would amend the Uniform Guidance, OMB characterized the proposed guidance changes to the NCR as “minimal.”  88 Fed. Reg. 69,390 (Oct. 5, 2023).

           It may seem odd to focus on suspension and debarment rules when comparatively few government contractors or federal award recipients will ever have to deal with them. The proposed rule cites recent data demonstrating that there are only about 200 to 250 SAM exclusions each year (of which roughly 75% are small businesses). But the suspension and debarment rules are important as a reminder that contractors and recipients should establish business ethics and compliance programs to prevent issues from arising that could present grounds for debarment, and to weigh as mitigating factors in the event of a problem. Once a contractor or recipient is facing a government investigation and potential suspension or debarment, there are much more limited options for mitigation.