Government Contracts Monitor

Suspension & Debarment: Administrative Agreements as Road Maps for Compliance

March 23, 2015

By: Eric Whytsell

Most contractors have at least a general understanding that suspension and debarment should be avoided like the plague. Being found nonresponsible and, therefore, ineligible to do business with the government (or its prime contractors and subcontractors) would be a death knell for many companies. As many contractors know, however, you can challenge a notice of suspension and debarment -- and even win -- but the cost of achieving a victory often comes in the form of an administrative agreement, as demonstrated by FedBid’s recent experience with the Air Force.

On January 26, 2015, reverse auction vendor FedBid and its CEO, Ali Saadat, were suspended and proposed for debarment by the Air Force. The Air Force had taken the lead in an interagency review of the company’s actions described in a report issued last September by the Department of Veterans Affairs’ Inspector General. That report alleged that FedBid had engaged in improper conduct “reflecting adversely on its responsibility” under FAR Subpart 9.4.

In response to the suspension, FedBid submitted information describing its efforts to ensure the integrity and propriety of its business practices. Even before the suspension, FedBid went so far as to split itself into two companies, one focused on federal contracting (FedBid) and the other, a subsidiary called EPS Commerce, Inc., concentrated on commercial business. As part of that reorganization, Mr. Saadat was to work exclusively with EPS and FedBid hired a new CEO and management team.

After three weeks of negotiation, the Air Force and FedBid agreed to an Administrative Agreement “intended to provide assurances to the Government that FedBid is presently responsible and that, notwithstanding the basis for the debarment, FedBid can be trusted to deal fairly and honestly with the Government and that the debarment of FedBid is not necessary in this case.” The Air Force did not change its plan to debar Mr. Saadat.

The Administrative Agreement terminating FedBid’s debarment presents a laundry list of standard actions contractors are routinely required to take to establish present responsibility, including an ethics and compliance program with the following components: (i) a comprehensive information and education program for all employees consisting of at least one hour of training annually; (ii) a written Code of Conduct circulated to all employees and annual certifications from employees that they have read and understood the Code; (iii) a 24-hour, toll-free ethics hotline publicized by prominent notices at every company facility; (iv) written performance standards for evaluation of managers that include program compliance; (v) a Chief Compliance Officer with suitable background and experience; (vi) robust reporting, including quarterly reports of suspected misconduct, procurement-related and ethics investigations, management changes, and legal proceedings involving the company; and (vii) a written policy addressing how FedBid will avoid doing business with suspended or debarred entities.

FedBid also agreed to a number of more fact-specific requirements such as significant restrictions on its relationship with Mr. Saadat – e.g., during the period of Saadat’s suspension and debarment he cannot serve as an employee, agent, or consultant of FedBid, be involved in any way with the company’s operation or management, or obtain or exercise any ownership right to vote any stock in FedBid on any matter involving the company’s operation and management. In short, Saadat is cannot have any influence on the operation and management of FedBid.

FedBid's experience and the terms of the resulting Administrative Agreement provide contractors facing similar issues with a useful guide to the sorts of steps a contractor must undertake to establish present responsibility and to succeed in having a suspension or debarment lifted. Indeed the Administrative Agreement is a roadmap to compliance and training strategies the Government has found to be effective and sufficient – one that contractors may want to review to assess the sufficiency of their current compliance programs.

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