Suspension and Debarment: A New Government Approach

Sheppard Mullin Richter & Hampton LLP

Contractors and government contracts attorneys are likely to see (if they haven’t already) a rise in the number of cases in which individuals, rather than corporate entities, are targeted by government officials for suspension and debarment.  This is significant because, under the FAR, the misconduct of an individual can be imputed to the contractor, causing the contractor to lose its ability to receive Federal contracts.

Attention to the misconduct of individuals was encouraged by a September 9, 2015 memorandum from Deputy Attorney General Sally Yates entitled “Individual Accountability for Corporate Wrongdoing.”  The memorandum instructs government officials “consistently” to “focus on individuals” throughout an investigation.  Ms. Yates followed up her memorandum with remarks prepared for a conference held November 16, 2015 in Washington, D.C., in which she stated that the memorandum ushers in “a new policy designed to ensure that individual accountability is at the heart of [the government’s] corporate enforcement strategy.”

FAR Subpart 9.4, relating to Debarment, Suspension, and Ineligibility, has long-held that the misconduct of an individual “may be imputed to the contractor when the conduct occurred in connection with the individual’s performance of duties for or on behalf of the contractor, or with the contractor’s knowledge, approval, or acquiescence.”  Government officials, however, generally focused on broader corporate misconduct in making suspension and debarment decisions rather than on the improper behavior of individuals.

The FAR provision quoted above applies broadly to “any officer, director, shareholder, partner, employee, or other individual associated with a contract.”  Thus, agencies investigating a contractor for potential suspension and debarment may examine the conduct of individuals at all levels of a company.  The recent government focus on individuals makes it all the more imperative that contractors maintain a rigorous compliance program and internal control system that allows the contractor quickly to recognize and address individual misconduct.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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