Debarment and suspension present significant financial and legal risks for defense contractors. As a result, when facing debarment or suspension by the U.S. Department of Defense (DOD) or the Defense Logistics Agency (DLA), an informed, strategic, and proactive defense is critical. Not only can DOD/DLA debarment or suspension lead to the loss of defense contract eligibility, but in some cases it can lead to other civil or criminal consequences as well. Understanding all of the risks involved is essential, and a multi-faceted defense strategy will often be necessary.
Building an effective defense strategy starts with gaining a clear and comprehensive understanding of the allegations (and potential allegations) at issue. Once you know what you need to defend against, then you can start preparing accordingly. With the substantial risks involved in facing DOD/DLA debarment or suspension, defense contractor responsibility cannot be overlooked—instead, contractors need to take an informed and strategic approach based on the specific facts and circumstances at hand.
“Defense contractors that are facing debarment or suspension need to act to protect themselves immediately. When the DOD or DLA issues a notice of proposed debarment or suspension, this means that the Department or Agency already has evidence in its possession that supports (or appears to support) the proposed action.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.
Procurement fraud, billing fraud, contract non-compliance, bribery and corruption, and other allegations that can trigger a notice of proposed debarment or suspension can also trigger other legal proceedings. These proceedings can either be civil or criminal in nature depending on the specific allegations involved. In some cases, a civil or criminal enforcement investigation can lead to a proposed debarment or suspension. In others, the DOD’s or DLA’s decision to act can trigger scrutiny from other federal agencies. As a result, regardless of the specific risks at hand, a comprehensive and cohesive approach is required to avoid unnecessary consequences.
Defending Against DOD/DLA Debarment or Suspension (and Related Legal Risks)
With this in mind, what do defense contractor need to do when facing the risk of suspension or debarment proceedings? Here are seven key defense strategies for defending against DOD/DLA debarment and suspension proceedings and related high-stakes federal legal matters:
1. Identify All Allegations (and Potential Allegations) At Issue
When facing debarment or suspension by the DLA or any other arm of the DOD (including the military branches), it is critical to ensure that you have a clear and comprehensive understanding of the allegations that triggered your company’s notice of proposed debarment or suspension. Equally important, you need to be aware of any additional allegations that could arise out of the DOD’s or DLA’s fact-finding process (or another federal inquiry) as well.
Thus, while it is important to carefully review your company’s notice of proposed debarment or suspension to discern the purported basis for the DOD’s or DLA’s action, this is not sufficient on its own. Defense contractors facing proposed debarment or suspension should also work with their defense counsel to conduct an attorney-client privileged internal compliance assessment focused on determining whether any additional concerns are at risk of coming to light.
2. Identify All Potential Legal and Financial Risks
After conducting an internal compliance assessment, it should be possible to identify all potential legal and financial risks. Depending on the circumstances at hand, these may include:
- DOD/DLA suspension
- DOD/DLA debarment
- Other defense contract-related penalties short of suspension or debarment
- Civil enforcement under the False Claims Act or other federal authority
- Criminal prosecution for fraud and/or other federal crimes
If your company relies heavily (or exclusively) on its continued business dealings with the DLA or any other arm of the DOD, suspension or debarment could have catastrophic consequences. Civil monetary penalties (CMP) under the False Claims Act or criminal fines could add to the costs involved. In criminal cases involving allegations of fraud, bribery, corruption, and other serious federal offenses, company owners, executives, and key personnel can potentially face fines and federal prison time as well.
3. Engage Proactively with the DOD or DLA
Given the risks involved—and the fact that by the time you learn your company is facing debarment or suspension, the DOD’s or DLA’s civil or criminal enforcement action is already well underway—engaging proactively with the DOD or DLA will often be a key defense strategy. Federal government contractors should not engage with the DOD or DLA regarding a proposed debarment or suspension directly, but rather rely on their defense counsel to engage on their behalf. Extreme caution is required in this situation, as inadvertent disclosures and other mistakes can be irreversible.
When engaging with the DOD or DLA, it is critical to do so with a clear strategy and a specific outcome in mind. Depending on the stage at which engagement occurs, this targeted outcome may be to gather additional information, or it may be to steer the proceedings toward a resolution that avoids suspension or debarment. With that said, government contractors (and their defense counsel) must also be prepared to adapt, as debarment or suspending officials may still choose to move forward without disclosing their intentions.
4. Focus on Raising Genuine Disputes of Material Facts
The Federal Acquisition Regulations (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS) require that the DOD and DLA conduct adequate fact-finding proceedings when there are “disputed material facts” or “a genuine dispute of material fact(s)” regarding a proposed suspension or debarment. As a result, focusing on raising genuine disputes of material facts can be an effective first-line defense strategy in DOD/DLA debarment and suspension cases.
Depending on the circumstances, raising genuine disputes of material facts (or even a single genuine dispute of a material fact) could be enough to facilitate favorable settlement negotiations or lead the DOD or DLA to drop its inquiry altogether. As discussed below, raising issues with the sufficiency of the DOD’s or DLA’s fact-finding process can be an effective strategy for challenging a debarment or suspension (if necessary) in appropriate cases as well.
5. Thoroughly Document the Fact-Finding and Debarment/Suspension Processes
While defense contractors can often achieve favorable resolutions by engaging proactively with the DOD or DLA proactively during the fact-finding and suspension/debarment processes, there are no guarantees. As a result, when facing debarment or suspension, defense contractors should prepare for the possibility of challenging their debarment or suspension as well.
This largely involves documenting the DOD’s or DLA’s fact-finding efforts and its other steps toward effecting a suspension or debarment. Failure to adhere to the DOD’s or DLA’s internal policies or representations (i.e., holding an in-person meeting with debarment officials when offered) or to observe defense contractors’ due process rights are two examples of potential issues that may warrant DOD/DLA suspension and debarment appeals. Here too, defense contractors should rely on their legal counsel to do what is necessary.
6. Target a Negotiated Resolution that Protects Your Company’s Defense Contract Eligibility if Warranted
If a proposed debarment or suspension is warranted under the circumstances at hand, it may still be possible to negotiate a resolution that avoids a complete bar from conducting business with the DOD or DLA. This, again, requires a proactive approach, and defense contractors will need to be able to rely on their legal counsel to effectively pursue a reasonable settlement. From overhauling a defense contractor’s internal controls to taking other steps to facilitate contract compliance on an ongoing basis, there are a variety of options for negotiating resolutions that are satisfactory to both parties.
With that said, there are no guarantees; and, of course, if your company is in compliance with all applicable federal laws and regulations, then no remedial (or punitive) action is warranted. Your company’s defense counsel should be able to help you make informed suspension and debarment decisions and determine how to proceed in light of the facts, risks, and opportunities at hand.
7. Address Other Legal Risks as Necessary
Finally, as discussed above, if your company is facing DOD/DLA debarment or suspension, it may also be facing other legal risks. Your company’s owners, executives, and other key personnel could be at risk of facing legal action as well. If the allegations at hand present risks for civil or criminal prosecution, these risks require equal attention.
Defending against multiple legal risks involving multiple federal authorities requires a comprehensive and cohesive approach. Oftentimes, the DOD or DLA will work with the U.S. Department of Justice (DOJ) and/or other federal authorities to investigate suspected fraud, bribery, and other offenses. However, even when investigations and other fact-finding efforts proceed in parallel, it is critical not to make representations or disclosures in one proceeding that could have adverse consequences in another. These are complex and high-risk scenarios that require a highly skilled and organized approach, and this makes it essential to have experienced defense counsel on your company’s side.
Facing DOD/DLA debarment or suspension presents substantial risks—including risks that may not be readily apparent. To maximize their chances of preserving their defense contract eligibility, and to minimize their risk of facing other legal consequences, defense contractors who have received a written notice of proposed debarment or suspension should engage experienced defense counsel as soon as possible.
