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Posted on Monday, September 24, 2012

Debarment: A Potentially Deadly Problem for Small Government Contractors

A few years ago, a government official made a startling statement about debarment from government contracting.  The statement was startling not because of its content, but because it was made at all, considering the natural tendency of people, including government officials to spin the facts to put themselves and their agencies in the best light.  The government official said: “If you are a small contractor and you do something wrong, we will debar you.  If you are a big contractor and you do something wrong, we will work it out.”  Amazing: candor and truth all in one breath, and from a government official no less.  Big government contractors, fear not!  You are not only too big to fail, but also too big to be debarred.  Big contractors rarely, if ever, are debarred.  I cannot recall that it has ever happened to a big contractor.  The Air Force brags that more than nine years ago it temporarily suspended three business units of Boeing.  That was a long time ago, and even then the Air Force granted temporary waivers of the suspension to permit Boeing to bid on new work.

However, small contractors, watch out!  Debarments are on the rise.  Congress has been pushing departments and agencies to debar more contractors.  The game is on – that is, the numbers game.  Government agencies want to bolster their debarment statistics.  So, who will they debar?  You got it, small contractors!

Small government contractors should educate themselves on the potentially lethal remedy of debarment.  There is too much to cover in a short blog, but here is a fundamental point.  The government starts a debarment proceeding by proposing a contractor for debarment.  The contractor has an opportunity to respond in an effort to convince the government that the contractor should not be debarred.  But, here is the problem for a small contractor.  A proposal to debar has the same practical effect as a permanent debarment.  When the government proposes to debar a contractor, the contractor’s name goes on the Excluded Parties List maintained by the General Services Administration.  That means that the contractor cannot receive any new business from the government – no new contracts, no new purchase orders, no new task orders, and no options on existing contracts.  Bluntly put, the small contractor’s oxygen supply is cut off, and then the question is how long can the contractor hold its breath.

The author is John W. Polk, Special Counsel to Berenzweig Leonard LLP, a business law firm located in the Washington D.C. Metropolitan Area.  John can be reached at  jpolk@berenzweiglaw.com.