The Final Rule on Contractor Responsibility
 
January 9, 2001
 
Richard O. Duvall- Northern Virginia

Effective January 19, 2001, the Federal Acquisition Regulation (FAR) will be amended to ensure that the federal government stops doing business with contractors who violate the law. Under this new regime, a prospective federal contractor must certify whether it has, within the past three years: (1) been convicted of a federal or state felony; (2) had an adverse judgment in a civil case brought by the United States; or (3) had an adverse administrative adjudication indicating a willful violation of law. Contracting officers must use the new regulatory framework to analyze contractor-provided information and any other "relevant, credible information" at their disposal and to make the affirmative determination of contractor responsibility required by law. By promulgating these regulations, the Federal Acquisition Regulatory Council (FAR Council) hopes that contracting officers will be better equipped to exercise their discretion in making affirmative responsibility determinations so that the Government can "improve the integrity of the contracting process, reduce the risk of fraud or noncompliance, and encourage standards of integrity and compliance with the law.

Brief Background

According to the FAR Council, the need for these new regulations is demonstrated by a recent, four-year General Accounting Office (GAO) study of the top 100 federal defense contractors. The GAO study focused solely on contractor compliance with procurement laws and revealed over 100 instances of contractor convictions or post-indictment settlements resulting in over $400 million in fines and restitution. The study also revealed that contracting officers even awarded contracts to contractors with records of multiple procurement law violations. Based on this data, the FAR Council issued two Notices of Proposed Rulemaking (NPRMs) in July 1999 (64 FR 37360; 65 FR 40830) to revise the rules governing contractor responsibility. These NPRMs generated over 1800 comments from the contracting community at large.* The Final Rule, issued on December 20, 2000 (65 FR 80256), amends FAR Parts 9, 14, 15, 31, and 52, as more particularly described below.

New Requirements For Prospective Contractors

The new FAR requirements impose two direct changes on prospective federal contractors. First, new certification forms are required by changes to FAR 52.209-5 and FAR 52.212-3.** The new certification at 52.209-5 requires a prospective contractor to complete the following form:

The offeror . . . "has [ ] has not [ ] within the past three years, relative to tax, labor and employment, environmental, antitrust, or consumer protection laws- (1) Been convicted of a Federal or state felony (or has any Federal or state felony indictments currently pending against them); (2) Had a Federal court judgment in a civil case brought by the United States rendered against them; or (3) Had an adverse decision by a Federal administrative law judge, board or commission indicating a willful violation of law.

The change in the commercial item certification at 52.212-3 incorporates the same language.

Second, the FAR Council amended FAR 14.404-2 and 15.503 to incorporate much-needed procedural safeguards. Under these amended regulations, contracting officers must promptly notify unsuccessful bidders/offerors of a "non-responsibility" determination and expressly state the basis for any determination that results in rejection or exclusion of a bid/offer. Prospective contractors may seek independent review of adverse responsibility determinations by suing the federal agency in federal district court under the Administrative Procedure Act (APA) or by filing a bid protest with the agency, GAO, federal district court, or the United States Court of Federal Claims (COFC).

New Requirements For Contracting Officers

The changes to FAR Part 9, which prescribe the contracting officer's methodology for making a "responsibility" determination, are both dramatic and essential to achieving the stated regulatory objectives. First, the new regulations mandate the use of an analytical framework that balances the prospective contractor's record of operation with the boundaries of the law as "an irreducible element of what it means . . . to have a satisfactory record of integrity and business ethics." Second, contracting officers are required to consider "all relevant credible information" about a contractor's record of compliance, even beyond the information provided by the contractor itself, giving the greatest weight to the record within the past three years. Finally, the new rule directs contracting officers to focus the responsibility assessment on identifying "repeated pervasive or significant violations of law" and to coordinate "non-responsibility" determinations with legal counsel for the procuring agency.

Prospective contractors need to understand that contracting officers must consider the information provided in its certification, as well as, credible information from any other source (including information provided by a contractor's competitors) as required by the following hierarchical framework:

Contracting officers must consider information based on the following which are listed in descending order of importance: (i) Convictions of and civil judgments . . . for- (A) Commission of fraud or a criminal offense in connection with obtaining, attempting to obtain, or performing a public (Federal, state or local) contract or subcontract; (B) Violations of Federal or state antitrust statutes relating to the submission of offers; (C) Commission of embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, tax evasion, or receiving stolen property; (ii) Indictments for the offenses listed in 9.104-3(c)(1)(i); and (iii) Convictions, civil judgments, adverse administrative adjudications, or indictments related to tax, labor and employment, environmental, antitrust, or consumer protection laws. Contracting officers may also consider other relevant information such as civil or administrative complaints, if such action reflects an adjudicated determination by the agency.

FAR 9.104-3(c)(1) (paraphrased). Notably, the scope of information to be considered by the contracting officer is much broader than that provided by the prospective contractor's certification. For example, civil or administrative complaints relative to tax, labor and employment, environmental, antitrust, or consumer protection laws are not required to be revealed by the contractor certification, but are within the mandatory consideration of the contracting officer. A prospective contractor's record of compliance with foreign laws and regulations is also within the scope of the contracting officer's review.

Conclusion

New FAR regulations mandate that contracting officers consider all "relevant credible information" regarding a prospective contractor's past record of compliance with procurement, tax, labor and employment, environmental, antitrust, and consumer protection laws to make an affirmative determination of contractor responsibility. Contractors rejected or excluded from a contract award due to a contracting officer's determination of "non-responsibility" must be promptly notified of the adverse decision and its basis and are entitled to review by filing a protest or civil action under the APA. Unless blocked by the new administration*** or judicially overturned,**** these new regulations will become effective January 19, 2001. For more information and assistance in implementing compliance procedures responsive to these new regulations, please contact Holland & Knight LLP.

* For a more complete summary and discussion of the initial Notice of Proposed Rule Making (NPRM), please refer to Michelle D. Hertz, What Does "Responsibility" Really Mean?, Vol. 3 HOLLAND & KNIGHT LLP Government Contracts Newsletter, Issue 3 (Third Quarter 1999).

** Note, under FAR 52.212-3, the new certification form is required only for commercial item contracts where the contract value is expected to exceed the simplified acquisition threshold.

*** Not only have defense and space industry groups appealed to President-Elect Bush to rescind the rule, Department of Defense, General Services Administration, and Environmental Protection Agency procurement officials have lobbied against implementation of the rule. Additionally, several influential senators and congressmen, including Senators Warner (R-Va.), Thompson (R-Tenn.), Nickles (R-Okla.), Hutchinson (R-Ark.) and Congressmen Davis and Moran (D-Va.), have publicly urged the President to delay implementation of or totally withdraw the rule.

**** On December 22, 2000, the U.S. Chamber of Commerce, the Business Roundtable, and several other business groups representing the manufacturing and construction communities filed suit in the United States District Court for the District of Columbia seeking to invalidate the "Blacklisting" rule as "arbitrary, capricious, an abuse of discretion, and otherwise contrary to law" and to permanently enjoin its implementation. Business Roundtable v. United States, D.D.C. No. 1:00CV3088 (D.D.C. filed Dec. 22, 2000).