Don’t go overboard banning military contractors

By Steven Shaw
August 8, 2012

During the 15 years that I led the Air Force’s contractor responsibility and fraud missions, we debarred and suspended nearly 5,000 contractors – more than any other government agency. But what is far more important than the statistics is the greater protection we were able to provide the government by exercising these powers fairly and with balance, through the careful exercise of discretion. But that is coming to an end. We are now seeing a disturbing trend: new rules and outside pressures that would limit, and even eliminate, the ability of officials like me to exercise that discretion. Companies are being “blacklisted” – often for lengthy periods, sometimes automatically without due process, and often based solely upon the actions of a few rogue employees, with little consideration of whether such action is needed or fair.

The debarment regime is important for the government, and frankly makes sense. Most of us would not hire a plumber whom we knew did faulty work on a neighbor’s pipes. Given that, why would we put up with the serious fraud being committed today, particularly where it may affect our troops in multiple war zones? We can and should work only with responsible contractors. To do that, the government sets standards for contractor eligibility, and each agency has a suspension and debarment (S&D) official empowered to administer those standards. But in administering those standards those officials must always be mindful that the S&D system is not intended as a tool for punishment. While punishing fraud is important, it properly belongs in the criminal justice system, not with procuring agencies.

Not every act of misconduct should result in a company being blacklisted. Even the best companies have employees who cross legal and ethical lines. The important point is how a company’s leaders encourage proper conduct, identify and mitigate compliance risk, respond to the misconduct of their employees, and accept responsibility for good corporate governance. In most cases the government is not threatened by continuing to deal with a contractor whose employees engaged in isolated misconduct but whose management corrected the problem and is now acting responsibly. Regrettably, the current political atmosphere is straining this delicate balance in three notable respects. And there is a lot at stake: The U.S. Government is the world’s largest purchaser of goods and services, with approximately one out of every six dollars of federal government spending awarded to contractors.

First, some public officials are seeking to score political sound bites by making S&D mandatory – that is, imposing it automatically following a triggering event such as an allegation of wrongdoing, an indictment or a conviction.  The Consolidated Appropriations Act of 2012, for example, prohibits certain agencies, including the Department of Defense, from funding contracts for corporations convicted of any federal felony within the preceding 24 months, unless each agency that deals with that contractor makes a separate affirmative determination that such action is not necessary to protect that agency’s interests. Other proposed legislation would go even further to provide for the automatic suspension of a contractor when the government merely alleges fraud against a contractor in any civil or criminal proceeding related to a federal contract.

Such approaches are ill-advised. Automatic debarment prevents agency officials from proactively encouraging contractors to mitigate fraud risk prior to any misconduct occurring. And it also limits the government’s ability, after misconduct is discovered, to structure resolutions that influence and motivate positive corporate behavior – or to take no action at all.

If a single rogue employee, in a company of 10,000 individuals, engaged in misconduct, should the entire company always be suspended? Furthermore, automatic suspensions give contractors every incentive to stonewall rather than cooperate with the government in identifying and fixing problems. Congress should allow agency officials to exercise discretion to strengthen contractors for the benefit of the government, rather than imposing “one strike and you’re out” policies. Removing discretion from agency S&D officials strips them of one of the government’s greatest tools in the fight against contractor fraud, thereby essentially allowing fraud against the government to increase.

Second, some congressional leaders, as well as the Commission on Wartime Contracting in Iraq and Afghanistan, have legitimately criticized some agencies for dealing with contractors too leniently in contingency environments and elsewhere. Some agency officials – particularly those with less mature programs – have responded by seeking to increase their S&D statistics to show that they are tough with contractors, with little consideration of the contractor’s present responsibility or the need to debar it. This submission to perceived political pressure is unfortunate. Given that S&D decisions cannot be appealed within the executive branch and can be overruled by a court only where there is an abuse of discretion, it is incumbent upon agency officials to exercise their authority more thoughtfully and responsibly.

S&D officials must consider the facts of each case and devise appropriate solutions. This may include the increased use of administrative agreements that require improvements to an organization’s ethics and compliance systems and independent monitoring to provide an outside verification tool for the government. Such approaches serve as both the “carrot” by providing the contractor with an incentive to avoid debarment by improving its ethical culture, and the “stick” by identifying the consequences for failure to do so.

Third, contractors must accept that S&D is a powerful, legitimate tool for protecting taxpayer dollars. If they wish to remain eligible to receive federal funds, their leaders must be vigilant in setting high standards for ethics and compliance. Failure to do so can have devastating collateral consequences for investors and employees alike – as well as for the government, which risks losing essential goods and services needed for our national defense. There is no crisis for a contractor equal to that of losing its only customer, and more than one CEO or board chairman has lost his or her job by failing to lead in this area.

“Blacklist Bad Contractors” fits nicely onto a bumper sticker, as one politician recently told me.  The politicization of federal contracting is unlikely to subside anytime soon. Leaders on all sides must act responsibly or risk further damage to this delicate but necessary interdependency.

PHOTO: Tanks are seen on display during a tour of the Joint Systems Manufacturing Center, Lima Army Tank Plant, in Lima, Ohio, April 23, 2012. REUTERS/Matt Sullivan

23 comments

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Ban all of them. The leeches, the scum of society who profit out of people’s death should be eliminated. Just like the pimps who stay under cover while others do the dirty job. Even worse – they take your tax money to use it for their immoral endeavors.

Posted by Renox | Report as abusive

Hey Reuters, you didn’t sell like a month of time to this … lobbyist.. did you? How long do we have to see this spin on the site taking up room?

Posted by tmc | Report as abusive

Steve Shaw is the kind of guy who spent his life in contractor meetings getting stroked. He apparently mistook that for authority. The only thing this guy is an authority on, is being a tool. What a disgrace to the United States.

Posted by AlkalineState | Report as abusive