To debar and suspend?

Thanks to several recent high-profile cases, suspension and debarment of vendors have gained new prominence in the federal government's arsenal of enforcement tools.

The renewed visibility is raising new questions, such as are the sanctions are applied fairly, are they effective at deterring bad behavior, and should government use them to punish companies for wrongdoing outside the scope of their federal activities.

Suspension prohibits companies from taking new contracts for a temporary period of time, usually while an agency considers debarment. Debarment can shut a company out of new contracts for up to three years, or more in certain circumstances.

Enron Corp. officials and the company's accounting firm Arthur Andersen LLP rekindled the debate on those punishments, said Steven Schooner, associate professor at the George Washington University School of Law in Washington, D.C. Schooner, who chaired a panel discussion today on the topic, said that the General Services Administration suspended Enron and Andersen in 2002 as the result of "a high-profile witch hunt" at the behest of former Office of Management and Budget Director Mitch Daniels. Neither Enron nor Andersen was a significant government contractor, Schooner said.

"The question is, if this is going to become a more frequently used remedy, do we need to pay more attention to it?" Schooner asked in opening the discussion.

Richard Bednar, senior counsel at the law firm of Crowell and Moring LLP and national coordinator of the Defense Industry Initiative on Business Ethics and Conduct, said government should ban companies from contracts only when they show no serious effort to prevent the kinds of ethical or performance lapses that make them a bad risk for agencies.

"Most of these organizations do experience difficulties from time to time," said Bednar, a former Army debarment official.

Even suspension, seemingly the lesser action, can be devastating for a company, he said.

"Suspension itself really ought to be an exceptional remedy," he said. "It's a catastrophic event. If you are proposed for debarment, you are treated [by agencies] as if you are already debarred. That's wrong."

Joseph Neurauter, GSA's suspension and debarment official, agreed that the key factor should be whether the company has undertaken a renewed commitment to ethical behavior and implemented internal controls that will effectively prevent future misdeeds.

"The larger and more convoluted the company is, the more likely it is that people will do bad things," he said. "That doesn't mean the company should be suspended or debarred."

Neurauter is considering whether or not to debar telecom provider MCI, formerly known as MCI WorldCom. He said that case is still pending and declined to comment on it but noted that one point critics of debarment often make is that as industry consolidates, there are fewer and fewer companies able to provide certain services.

"If things keep going like they're going, one day [someone in] government will pick up the phone and there won't be a dial tone," he said. "What is the best way to [deal with corporate misconduct] that is in everyone's best interests?"

However, Neurauter said he disagreed with those who believe that suspension and debarment should only be used for issues that are directly related to a company's government contracting activities.

"That's far too narrow," he said. "Doing business with somebody who's been bad is not good business."