Bloomberg News

Obama Expels BP, Record Number of Firms From Contracting

December 20, 2012

Obama Expels Record Number of Firms from U.S. Agency Contracting

A containment boom on a Waveland, Mississippi beach is coated with oil from BP's Deepwater Horizon spill in the Gulf of Mexico on July 9, 2010. Photo by Joe Raedle/Getty Images

The Obama administration has temporarily barred more than 3,800 contractors from winning new federal work so far in 2012, the most on record.

BP Plc (BP/) made the U.S. government’s blacklist last month after being suspended for its role in the biggest oil spill in the nation’s history. A Booz Allen Hamilton Holding Corp. unit in Texas was banned for about nine weeks after it hired a former government employee who shared sensitive information about a pending technology project.

The increase in companies and individuals suspended and proposed for debarments comes as federal agencies review contracts that surged during two wars. Also contributing to the record rebukes are pressure from Congress to weed out fraud, and companies that may be snitching on each other as they fight for a shrinking pool of awards.

Agencies are “absolutely behaving more aggressively and the numbers show that,” said Rob Burton, a former acting administrator of the Office of Federal Procurement Policy during the George W. Bush administration and now a partner at Venable LLP in Washington. “Contractors are also playing the role of whistle-blowers a little more than they used to. You’re always out to kill your competitor, right? But I’ve seen more of it lately.”

Burton said he has represented clients that have successfully challenged awards based on information they had on competitors. He declined to disclose the companies involved.

Crackdown Ordered

Lawmakers, inspector generals, and the Government Accountability Office have faulted procurement officials for failing to keep unethical or incompetent vendors from winning work in the $500 billion-a-year federal market.

A GAO report in October 2011 said six out of 10 executive branch agencies studied weren’t doing enough to weed out undesirable contractors that fail to play by the rules and urged the White House Office of Management and Budget to step up oversight. In November 2011, then OMB-Administrator Jacob Lew ordered agencies to appoint senior officials to ride herd on questionable awards and take other steps to strengthen sanction programs.

“This administration has made the utilization of suspension and debarment a very clear and prominent element of its enforcement toolkit,” said Alan Chvotkin, counsel and executive vice president of the Professional Services Council, an Arlington, Virginia-based association for federal vendors. “The numbers are high, much higher than in years past.”

Ethical Lapses

The General Services Administration, which oversees the online database used to track vendors banned from winning federal work, has records that go back to 1997 and provided data to Bloomberg. This year’s figures are from Jan. 1 through Dec. 3.

“With one in six federal dollars going to contractors and grantees, we have an ongoing responsibility to ensure taxpayer dollars are not at risk for waste, fraud and abuse,” Moira Mack, a spokeswoman for the White House’s Office of Management and Budget, said in an e-mail.

Contractors can be proposed for exclusion from government work for poor performance as well as ethical shortcomings, including overbilling or falsely claiming a company is owned by a disabled veteran in order to win special awards.

A suspension, which generally lasts fewer than 18 months, excludes a contractor pending completion of a legal proceeding or investigation. A debarment makes a contractor ineligible for government awards for a fixed time, usually three years or less. Companies are also ineligible to receive new work if they’ve been proposed for debarment.

BP Ban

In BP’s case, the EPA said it imposed the ban because the company’s conduct during the 2010 Deepwater Horizon disaster showed a “lack of business integrity.” The action doesn’t affect existing contracts. The incident killed 11 people and caused the largest environmental disaster in U.S. history, the EPA said.

BP on Nov. 15 reached a settlement with the Justice Department, agreeing to pay $4.5 billion to end all criminal charges and resolve securities claims relating to the Gulf explosion.

The suspension was unusual because the U.S. government is typically hesitant to go after larger companies, said Steve Ryan, head of the government contracts unit at law firm McDermott Will & Emery LLP in Washington.

“In the oil area, suspending or debarring one of the big ones is an unusual event,” Ryan said in a phone interview. “There’s a systematic reluctance against going after the big ones.”

More Coming

The number of firms barred from contracting “don’t necessarily reflect being tough” with large companies, said Charles Tiefer, a University of Baltimore law professor who specializes in government contracting.

“It’s good that the administration finally has the cojones to protect the government from bogus contractors,” said in a phone interview. “I still wonder whether the administration has higher numbers of suspensions and debarments due to its going after small fry.”

Tiefer, who served on the U.S. Commission on Wartime Contracting, said he expects to see more action from the government to exclude firms from contracting.

“There are still so many billions of dollars of wartime contracting to be reviewed by auditors that we could still see a wave of efforts to close the doors on bad contractors,” he said.

Booz Allen

A Booz Allen Hamilton (BAH:US) unit was suspended this year from competing for new contracts between Feb. 6 until April 13 after the company told the government its San Antonio office hired a former government employee who shared sensitive information about a planned information technology project. The employee, a former Air Force lieutenant colonel, was accused of disclosing details related to the incumbent vendor’s pricing and sensitive information related to a contract competition.

The agreement requires Booz Allen to file quarterly reports with the Air Force about the firm’s implementation of “remedial measures,” the company said in an April statement. It is also subject to enhanced requirements to disclose employee misconduct and ethics violations.

James Fisher, a company spokesman, declined to provide additional comment about the matter or the increase in contractor suspensions and debarments.

Skills Challenged

Roy Browning and KDV Inc., the Louisville, Kentucky-based construction business he owned, were temporarily blocked from winning federal work last year after a competitor alleged Browning had misrepresented himself to receive special contracts reserved for small companies owned by veterans. The rival questioned whether Browning, a disabled veteran, was running his construction business, as is required to receive the special contracts, according to court documents.

In April 2011, the Department of Veterans Affairs debarred KDV and Browning for five years, saying Browning’s prior experience as a hair dresser and automobile service manager made it unlikely he had the skills to control the company’s daily operations.

Browning sued the VA and it removed him from the debarred list last year pending additional investigation. The department dropped the case this year.

The government may be too aggressive in pursuing debarment in some cases, since what agencies see as fraud may occasionally be errors that occur when companies don’t fully understand the “complex” federal contracting system, Chvotkin of the contractors’ trade group, said.

The financial impact of even short-term blacklisting from federal work can be devastating for contractors, he said.

“It is for many a risk of a death sentence for doing business in the federal marketplace,” he said.

To contact the reporters on this story: Kathleen Miller in Washington at kmiller01@bloomberg.net; Danielle Ivory in Washington at divory@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net


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