FEDERAL CONTRACT LAW

On way out, Clinton threw sand in procurement gears

Joseph J. Petrillo

In its waning days, the Clinton administration promulgated a controversial new set of debarment regulations. Even if the Bush regime rescinds the new rule, its evolution is a lesson in how government procurement gets caught up in other issues of public policy.

At press time, the Civilian Agency Acquisition Council told non-Defense agencies they could delay implementation of the rules from Jan. 19 to July 15. I expect the Defense Department to follow suit soon.

The story starts in July 1999, when the Office of Federal Procurement Policy issued proposed changes to a long-standing section of the Federal Acquisition Regulation requiring that prospective contractors be found responsible.

This test is as vague as it sounds. Responsibility has several attributes. Most pertain to the ability to perform the contract, but one is 'a satisfactory record of integrity and business ethics.' You might ask what constitutes a satisfactory record, but the real question is, satisfactory to whom? The contracting officer makes this judgment, with no guiding standards in the regulation.

At first blush, the proposed rules seemed to solidify matters. A nonresponsibility finding would require 'persuasive evidence' of substantial noncompliance with various labor, employment, environmental, antitrust or consumer protection laws. Tax law violation would always be sufficient for a finding of nonresponsibility.

Although this proposal appeared to impose some standards, it sparked instant and vehement opposition. Contractors objected that it amounted to a new form of blacklisting for violations unrelated to the procurement process. A nationwide coalition arose to stop the new rule. Agencies also disliked the proposal, not because it would limit their broad discretion, but because it could embroil them in unfamiliar dispute territory.
More importantly, the proposal was widely seen as a Democratic political payoff to labor unions. Hypothetically, a union would be able to punish a labor law offender not just with the usual sanctions, but also with the loss of federal contracts.

This perception has shaped the policy debate over the proposed debarment rules. The administration backed off only a little from the original proposal. A June 2000 rewrite emphasized formal determinations of noncompliance within the three years preceding a procurement. This did not satisfy the critics.

The final rules are even narrower than either proposal. They focus on 'repeated, pervasive, or significant violations of law.' A single violation is normally not enough to merit a finding of nonresponsibility. Like the June proposal, the final version gives most evidentiary weight to formal adjudications of noncompliance made within the last three years. Also, the new rule ranks the importance of legal violations, from most severe, such as contract fraud convictions, to least severe, mere indictments.

Several business groups filed suit to block the new rule, charging that the rules went beyond the government's authority.

The real problem with this regulation lies not in the standard it imposes, but in the murky boundary between nonresponsibility and debarment. Questions of responsibility should reach only those issues specific to the contract award in question. When the reasons for denying award are more general, such as 'integrity and business ethics,' the matter should be handled as a question of debarment or suspension, where the procedures provide for more rigorous due process.

Unfortunately, the new rule fails to make this distinction and continues to treat both as issues of responsibility. The introduction to the new regulation points out that a wronged bidder can file a protest, but this is disingenuous. When the standards in question are as inherently subjective as they are here, protest forums are loathe to second-guess contracting officers.

At the end of the day, the impact of the new rule will depend on those charged with implementing it. Among today's hollowed-out procurement work force, there will be little enthusiasm for eliminating would-be contractors because of arcane and remote legal violations. Even if the new rules remain on the books, they are much more likely to be ignored than applied.

Joseph J. Petrillo is an attorney with the Washington law firm of Petrillo & Powell. E-mail him at jp@petrillopowell.com.

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