FAR Councils Issue Final Rule Unveiling A New Measure Designed To Ensure Only Responsible Contractors Obtain Contract Awards

The Federal Awardee Performance and Integrity Information System, (“FAPIIS”), takes effect on April 22, 2010. Responding to heightened Congressional concerns regarding the performance and integrity of companies receiving federal contracts, FAPIIS is intended to enhance the government’s ability to prevent non-responsible contractors from receiving contract awards. FAPIIS will serve as a “one-stop” repository containing all data reflecting on a contractor’s responsibility.

Contracting officers, in fulfilling their obligation to make a responsibility determination prior to contract award, will be required to review the FAPIIS data pertaining to the contractor. That information will include: contracting officers’ non-responsibility determinations; default terminations; defective pricing determinations; administrative agreements with suspension and debarment officials; contractor criminal convictions, civil liability, and adverse administrative actions involving a finding of fault and liability in connection with the award or performance of a government contract; and certain settlements in criminal, civil, or administrative proceedings.

The Civilian Agency Acquisition Council and Defense Acquisition Regulations Council believe that arming contracting officers with this information will “significantly enhance the Government’s ability to evaluate the business ethics and quality of prospective contractors competing for Federal contracts and to protect taxpayers from doing business with contractors that are not responsible sources.” (See FR 14059, March 23, 2010, available at: http://edocket.access.gpo.gov/2010/2010-6329.htm).

Responsibility for providing and updating the data in FAPIIS will rest, at least in part, on contractors, who may be required to certify their compliance with the new rule.

Responsibility Determinations Under Current Law

Currently, before the award of any federal government contract, contracting officers are required to make an “affirmative determination of responsibility.” (FAR 9.103(b)). To make this determination, contracting officers are required to “possess or obtain information sufficient to be satisfied that a prospective contractor currently meets the applicable standards . . . .” (FAR 9.105-1). In practice, contracting officers typically review the Excluded Parties List System (“EPLS”), www.epls.gov, the Past Performance Information Retrieval System (“PPIRS”), www.ppirs.gov, and any other information they receive pertaining to the contractor’s responsibility, including information obtained through pre-award surveys. FAPIIS will significantly expand the nature and volume of data to be considered by contracting officers and will store that information in a single repository.

FAPIIS Applies to All Contracts that Exceed the Simplified Acquisition Threshold, Including Commercial Item Contracts and Contracts With Small Businesses

FAR 9.104-6 will require contracting officers to review the FAPIIS database, located at http://www.ppirs.gov/fapiis.html, prior to any contract award that exceeds the simplified acquisition threshold. The rule is applicable to commercial item and commercial-off-the-shelf (COTS) procurements, and to contracts awarded to small business concerns. The FAPIIS database will provide the contracting officer access to the data maintained in the EPLS, the PPIRS, and the additional information now required by the new rule. Contracting officers will be required to document the contract file to explain how the information was considered in any responsibility determination, as well as the action that was taken as a result of the information.

Additionally, prior to proceeding with award, contracting officers must notify the agency official responsible for initiating debarment or suspension, if information is identified in FAPIIS that appears appropriate for that official’s consideration.

Contractor Reporting Requirements

The rule will impose new reporting requirements on contractors in connection with all federal contract solicitations exceeding $500,000. Under FAR 52.209-7, offerors will be required to report information pertaining to legal proceedings in connection with the award or performance of a federal government contract.

Specifically, offerors will be required to report whether within the last five years they or a principal were involved in any proceedings that resulted in: (1) a criminal conviction; (2) a finding of fault and liability in a civil proceeding that results in a payment of greater than $5,000; (3) a finding of fault and liability in an administrative proceeding that results in a fine of greater than $5,000, or reimbursement, restitution, or damages greater than $100,000; and (4) a settlement in a criminal, civil, or administrative proceeding where fault is admitted and a decision on the merits could have led to any of the results above.

FAR 52.209-7 also will require offerors to indicate whether they have active federal contracts and grants with a total value greater than $10 million. If so, by submission of their offer, the contractor is deemed to certify that the data they have submitted under FAPIIS is current, complete and accurate as of the date of submission of the offer. In addition, contracts exceeding $500,000 awarded to contractors with active federal contracts and grants with a total value greater than $10 million will contain FAR 52.209-8, “Updates of Information Regarding Responsibility Matters.” That clause will require the contractor to update the data it is required to submit to FAPIIS on a semi-annual basis through the life of the contract.

The Rule Offers Some Protection to Contractors

The rule does provide some limited protections to contractors. If the FAPIIS database contains adverse information, contracting officers will be required to give offerors the opportunity to provide additional information to demonstrate their responsibility before making a non-responsibility determination, unless the contractor already has been suspended or debarred. Consistent with the current protections provided to small business concerns, where the contracting officer determines that such a concern is not responsible, the contracting officer is required to refer the concern to the Small Business Administration, which will decide whether to issue a Certificate of Competency.

In addition, FAPIIS will notify contractors whenever the government posts new information to the contractor’s record, and the contractor will have an opportunity to post comments and respond.

The Rule Presents Challenges to the Government and Contractors Alike

Contracting officers are now charged with reviewing and analyzing a potentially large database of conclusory and often negative information in order to determine whether the contractor is responsible. While the new rule serves the legitimate purpose of preventing taxpayer dollars from going to non-responsible contractors with whom the funds may not achieve their intended purpose, the rule appears to be fraught with potential issues for the government and contractors alike including:

• Misuse of Information: FAPIIS collects a significant amount of information, some relevant, that contracting officers are required to evaluate. Yet, the rule provides no guidance to contracting officers as to how to utilize this information other than to say use “sound judgment.” Many contracting officers may lack the experience and/or training necessary to assess the weight to afford to the various types of information contained in FAPIIS.
• Disclosure of Contractor Information: While FAPIIS is restricted to the government and to contractors, who may access their own data, the information housed in FAPIIS likely is to be the target of Freedom of Information Act (“FOIA”) requests by private citizens and watchdog groups leading to the potential disclosure of contractor-sensitive data.
• Delay to the Acquisition Process: As a result of the amount of information contracting officers may need to review as a result of FAPIIS, and their efforts to collect additional information from contractors so as to document the file with an explanation for their award decision, including to support awards to contractors with apparent adverse matters in their database, the acquisition process is likely to be further protracted by this new rule.
• Increase in Suspension and Debarment Inquiries/Actions: The rule is likely to generate a significant increase in referrals to suspension and debarment officers from contracting officers whose only guidance is to refer “information . . . that appears appropriate for that official’s consideration.” Such an increase in referrals, in turn, is likely to result in additional inquiries from agency suspension and debarment officials to contractors in the form of requests for information and show cause letters. Contractors will be required to incur the cost and disruption of preparing present responsibility submissions, in many cases likely stemming from dated and insignificant matters.
• Increase in Bid Protests: Bid protests alleging erroneous and unreasonable agency decisions as to responsibility determinations are likely to increase. Not only will contract performance under these protested contracts be delayed, but the government and contractors will be required to spend considerable sums of money to resolve them.
• Decreased Contractor Incentive to Enter Into Administrative Agreements: The rule may act to discourage contractors from entering into administrative agreements concerning suspension and debarment because such agreements or the substance thereof will be published in FAPIIS and ostensibly could be used by a contracting officer to find a contractor non-responsible for a procurement, despite the additional undertakings to which the contractor agreed, including remedial measures, enhancements to their compliance program, and new internal controls.
• De Facto Debarment: The compilation of apparent negative data in FAPIIS may result in agencies repeatedly denying a contractor awards based on responsibility concerns without following the debarment procedures set forth in FAR Subpart 9.4, in violation of law and the contractor’s due process rights.

Time will reveal whether these concerns regarding FAPIIS are more theoretical than actual, and whether the rule serves to enhance the ability of the government to do business only with responsible contractors. It may be that the rule will require revision, both as to the nature of the information contained in the database as well as to the instructions provided to contracting officers in using that data.

In the interim, contractors should revise their procedures and compliance practices to include the collection and reporting of FAPIIS information. Additionally, contractors need to be alerted to new information posted by the government to their FAPIIS database and to the use of that information by contracting officers. Contractors should be prepared quickly to address new postings and to respond to contracting officer inquiries with additional information that is relevant and may provide proper context for any adverse information contained in FAPIIS. Failure to take such steps could result in a variety of negative consequences, ranging from non-responsibility determinations and the loss of contract awards to the submission of inaccurate data and improper certifications.

© 2010 McKenna Long & Aldridge LLP