The Defense Logistics Agency (DLA), is cracking down on procurement fraud and contract fraud. It has recently issued multiple referrals for suspension or debarment, and it is targeting not only prime vendors, but subcontractors, distributors, manufacturers, and other entities as well.
For DLA contractors and other entities, suspension and debarment referrals can have serious consequences. Not only can they lead to loss of eligibility for federal government contracts (which itself can have significant financial ramifications), but they can also potentially lead to civil or criminal charges.
“The Defense Logistics Agency plays a critical role in facilitating U.S. military, humanitarian, and disaster relief operations around the world. It relies heavily on its network of suppliers and other contractors; and, when these entities fail to meet their obligations, it does not hesitate to hold them accountable.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.
With this in mind, entities that are facing suspension and debarment referrals need to protect themselves by all means available. This starts with gaining a clear and comprehensive understanding of both the relevant facts and the legal issues at hand.
What DLA Contractors Need to Know After a Referral for Suspension or Debarment
Here are 10 critical facts for DLA contractors that are facing suspension or debarment:
1. Suspension and Debarment Proceedings Can Move Swiftly
Once the Defense Logistics Agency issues a referral for suspension or debarment, the suspending official may act quickly move the process forward. At this stage, the DLA has already accumulated sufficient evidence to substantiate allegations of fraud, and the government has a strong interest in both: (i) recovering taxpayer funds while they are still able to be recovered; and, (ii) ensuring that no more taxpayer funds are lost to fraud.
Show Cause Letters, Requests for Information, Suspension Letters, proposed debarment notices, and various other communications from a debarment official can indicate that a contractor or other entity’s continued business dealings with the DLA are at risk. Upon receiving any of these communications, a prompt and effective response is essential for mitigating the risks involved and working to prevent unnecessary consequences.
2. Suspension and Debarment Referrals Can Trigger High-Risk Investigations
In this same vein, another critical fact to keep in mind is that facing suspension or debarment may not be the only risk at hand. In many cases, DLA vendors and other entities that are facing suspension or debarment will be facing other consequences as well.
For example, in cases involving allegations of procurement fraud or contract fraud, vendors and other entities can face enforcement action under the False Claims Act. This is a broad federal statute that prohibits the submission of “false or fraudulent” claims to the government (as well as conspiracies and related offenses), and it includes provisions for both civil and criminal enforcement. Civil and criminal enforcement actions can both expose a suspended contractor to substantial liability, while cases that involve violating federal criminal laws can also expose owners, executives, and other individuals to fines and imprisonment.
When investigating DLA contractors (and other entities) for fraud, the U.S. Department of Justice (DOJ) typically assesses the viability of pursuing charges under a wide range of other federal statutes as well. From money laundering and tax evasion to public corruption and antitrust violations, investigations by the DLA and other federal agencies have the potential to result in numerous high-stakes federal charges.
3. There Are Various Strategies for Defending Against Suspension and Debarment
There are various strategies for defending against suspension or debarment as a DLA contractor or subcontractor, including when facing action by the General Services Administration (GSA). These range from affirmatively demonstrating compliance to demonstrating that there is insufficient evidence of wrongdoing to justify formal legal action.
In all cases, however, choosing the right strategy requires a comprehensive understanding of the factual and legal issues at hand. Informed decision-making is absolutely essential, and business owners and executives cannot afford to make assumptions about what the DLA (or the U.S. Department of Defense (DOD) or the U.S. General Services Administration (GSA)) might be able to prove. An unbiased approach to decision-making is critical as well. When evaluating the evidence, DLA contractors and subcontractors must make informed decisions by realistically assessing their risk of potential legal proceedings rather than focusing solely on trying to disprove (or raise questions about) the allegations against them.
4. Negotiating a Resolution that Avoids Suspension or Debarment May Also Be an Option
In some cases, the best approach won’t be to go on the offensive, but rather to work with a contracting officer or suspension/debarment official to find an amicable resolution before the debarment process advances. For example, it may be possible to develop a corrective action plan (CAP) or implement additional compliance controls that satisfy the DLA’s concerns. When this is an option—and when the contractor or subcontractor is not in compliance—it will often be the least risky, most favorable, and most cost-effective option available (unless the agency head determines that formal debarment is necessary regardless).
With that said, DLA vendors and other entities should not automatically assume that negotiating with a debarment official or debarment committee is the best approach. Acknowledging wrongdoing can increase the risks of facing additional scrutiny in the future, and this is a concern that warrants careful consideration.
5. Making Informed and Strategic Decisions Starts with Gaining a Clear Understanding of the Facts At Hand
We’ve touched on this already, but it bears repeating: When facing a DLA referral for suspension or debarment, it is critical to have a clear and comprehensive understanding of the facts at hand. Until you know not only why your company is facing suspension or debarment, but also what other risks it might be facing, you won’t be able to develop an informed and strategic defense.
Gathering the information needed typically involves conducting an internal compliance assessment. Even if the notice your company received states the reason, contractors facing proposed debarment should not rely on this exclusively. By engaging outside counsel, targeted companies can conduct an internal compliance assessment under the attorney-client privilege, and then they can work with their counsel to assess the legal implications of what they uncover.
6. A Wide Range of Federal Laws and Regulations May Apply
Numerous federal laws and regulations can come into play in DLA suspension and debarment cases. For example, violations of the following laws and regulations can potentially serve as grounds to suspend or debar contractors from defense contracting:
- Defense Federal Acquisition Regulation Supplement (DFARS)
- False Claims Act (FCA)
- Federal Acquisition Regulations (FAR)
- Foreign Corrupt Practices Act (FCPA)
- Truth-in-Negotiations Act (TINA)
These truly are just examples—there are many more laws and regulations that govern the federal procurement process as well as private-sector companies’ performance under defense contracts. Building a comprehensive and effective defense strategy starts with understanding all of the allegations that your company may be forced to defend against.
7. The DLA is Cracking Down on All Types of Fraud
Recent events suggest that the DLA is cracking down on all types of fraud. This includes both fraud during the procurement process and during contract execution--though not all issues, such as unavoidable supplier delays, constitute fraud. The following is just a small sampling of the types of fraud that have the potential to lead to a referral for suspension or debarment:
- Bid rigging, collusion, and other forms of procurement fraud
- Product substitution under DLA contracts
- Failure to deliver products under DLA contracts
- Billing violations such as overbilling, double-billing, and cross-charging
- Bribery and other forms of corruption
These allegations have the potential to lead to civil or criminal charges under the False Claims Act and other federal statutes. Once again, when facing a referral from the DLA for suspension or debarment, a comprehensive risk assessment is critical—as having a clear understanding of all pertinent risks is the only way that company owners and executives can make informed and strategic decisions.
8. The DLA is Cracking Down on All Types of Suppliers (and Other Companies)
Not only is the DLA cracking down on all types of fraud by government contractors, but it is also cracking down on all types of suppliers (and other companies). Companies that may be at risk of facing debarment or suspension include:
- Prime vendors
- Subcontractors
- Distributors
- Manufacturers
- Other parties involved in the chain of distribution domestically or abroad
As noted above, individuals who are implicated in procurement and contract-related violations may be at risk of facing penalties as well. This includes fines and prison time under the False Claims Act and other federal statutes.
9. Defense Contractors Can Challenge Their Suspension or Debarment in Federal Court if Necessary
While defense contractors can—and should—engage defense counsel to help them fight suspension or debarment proactively, it is also important to understand the rights granted contractors under the Administrative Procedure Act and other federal statutes to challenge such actions--including in federal court if necessary. Due to the substantial costs associated with losing eligibility to participate in defense contracts (including contracts for DLA Troop Support), it will usually be well worth fighting unwarranted suspensions and debarments by all means available.
10. A Comprehensive and Good-Faith Commitment to Compliance Will Be Critical Going Forward
For all DLA contractors and subcontractors, after receiving a referral for debarment or suspension, it is critical to show that they possess a comprehensive and good-faith commitment to compliance going forward in order to maintain the ability to conduct business in the future. Contractors and subcontractors that have faced scrutiny in the past may be at greater risk of facing scrutiny again in the future—and this makes it essential to be prepared.
Being prepared means not only maintaining strict compliance with all applicable statutory and regulatory requirements, but also having the documentation on hand for demonstrating present responsibility, if necessary. By working closely with experienced legal counsel, DLA prime vendors and other entities can take the necessary steps to demonstrate contractor responsibility and protect themselves both now and in the future.
