Size Protects Government Contractors That Stray


WASHINGTON — Weeks into the largest oil spill in American history, government officials met in Washington to discuss ways to compel BP, which leased the drilling rig, to move faster in stopping the spill.

One proposal called for suspending the company from getting government work under a federal law aimed at protecting taxpayers against unscrupulous contractors.

But there was a snag. BP, the regulators knew from experience, might be too big to ban. They recalled that last year, before the spill in the Gulf of Mexico, officials at the Environmental Protection Agency wanted to stop BP from getting government contracts until it addressed various environmental and safety violations. Then, according to a lawyer involved in the debarment process at the agency, the Pentagon objected: BP was its biggest supplier of fuel.

As the case of BP illustrates, the largest companies often escape the stiffest penalties because government agencies are too dependent on them. And even when there are suspensions or debarments they usually affect individuals or a business unit within the company, not the whole company.

The top 100 government contractors have paid more than $19 billion in cases of fraud, bribery, falsifying records and other violations over the past 15 years, but only four of them have been suspended from government contracting, and none have been debarred, according to a database from the Project on Government Oversight, a group based in Washington. The database is based on the contractor rankings for the 2009 fiscal year.

The issue of how to deal with these big companies has gained currency in recent months because of the BP case and allegations that Iraqi officials were bribed by Blackwater Worldwide, now called Xe Services, in violation of the Foreign Corrupt Practices Act. In the case of Blackwater, State Department officials pledged to pull its contracts, only to find that no other security companies were big enough to do the work.

While small companies are often debarred, the biggest ones, like BP, have become the equivalent of “too big to fail,” Senator Russ Feingold, Democrat of Wisconsin, said at a Congressional hearing this year.

“We need to hold government contractors to a high standard,” Mr. Feingold said, “and I do not think that large corporations should be given a free pass for behavior that would typically result in the debarment of a smaller corporation.”

Some government officials concede there are problems. During a recent conference, inspectors general from the Departments of Transportation and Homeland Security and the General Services Administration said the system was plagued by inconsistent standards, a reluctance to act in many cases, and other issues.

Numerous audits by the Government Accountability Office and federal agencies have pointed to shortcomings. One last year by the inspector general of the Agency for International Development found that the agency has not used contractor suspension and debarment to adequately protect the public interest.

Only three agencies in the federal government have full-time debarment officials, the E.P.A., the Air Force and the Navy. The rest have part-time officials who are typically part of the procurement office, creating a potential conflict because these officials are also trying to arrange contracts for their agencies.

Representative Luis V. Gutierrez, Democrat of Illinois, has pushed through an amendment to the military authorization bill requiring the secretary of defense to review whether BP is a “responsible” contractor, with a “satisfactory record of integrity and business ethics.” If not, the legislation would require Defense Secretary Robert M. Gates to bar the oil giant from military contracts, said Mr. Gutierrez’s spokesman, Douglas Rivlin.

Last month, the House of Representatives passed a debarment bill, introduced by Peter Welch, Democrat of Vermont, that would ban contractors guilty of violating the Foreign Corrupt Practices Act from government contracts. It was aimed at Xe Services, which has not been charged with or convicted of a crime, but it would also affect large government contractors like BAE Systems, Daimler AG, and Innospec Inc., which all pleaded guilty this year to making illegal payments to foreign officials.

Both measures passed with bipartisan support.

Alan Chvotkin, executive vice president and counsel of the Professional Services Council, a Washington trade group that represents large contractors, said he thought the current system worked well.

Large corporations, Mr. Chvotkin said, are often better able to identify and correct misconduct, and that may account for the low rate of suspensions and debarments for the largest contractors.

At small companies, Mr. Chvotkin said, the person responsible for the misconduct might be the company leader who is also critical to making or providing what the government needs. “If you remove or isolate him, you isolate the expertise, and the company can’t really provide a service to the government,” he said.

He added that “since there are more small companies with government contracts than larger ones, it makes sense that they would be represented more in the database.”

Government debarment officials say they aggressively pursue companies regardless of size, citing the suspension of International Business Machines in 2008 after an E.P.A. employee provided proprietary information to I.B.M. employees that was used to try to win a government contract, Boeing in 2004 for illegally obtaining proprietary information from a competitor, and more recently L-3 Communications after it admitted to monitoring e-mails of its workers, workers for other contractors and United States government employees.

Two units of BP have also been banned from government contracts because of environmental and safety violations that resulted in the death of several workers. More recently, the government suspended GTSI, a big contractor, but reinstated it after the chief executive and the general counsel resigned. It recently won a share of a $30 billion contract from the F.B.I.

“I have always been empowered to do the right thing, regardless of the impact that a debarment would have on the ability to obtain specific goods or services,” said Steven Shaw, a debarment official with the Air Force, who was responsible for L-3’s suspension.

Debarment officials say agencies can be tough in ways other than suspension and debarment, including agreements in which companies agree to corrective measures with oversight by the agencies.

The government has suspended some big companies, but critics note that these cases usually involve individual units and not the entire company, unlike cases involving smaller businesses.

In the case of the Boeing suspension six years ago, they point out that it applied to two business units and that the government granted them a waiver and gave them contracts worth more than $50 million because of “compelling needs in the national interest,” according to the Air Force.

Scott Amey, general counsel of the Project on Government Oversight, said that although the Justice Department had gone after contractors for fraud and other crimes, its efforts had not been enough of a deterrent.

He noted that in May, the chairman of the House Committee on Oversight and Government Reform, Representative Edolphus Towns of New York, wrote to Attorney General Eric H. Holder Jr. expressing concerns that criminal and civil settlements between the Justice Department and federal contractors were preventing federal agencies from suspending or debarring poorly performing contractors.

In certain instances, Mr. Amey noted, contractors subject to civil and criminal settlements with the department continue to rack up violations.

Mr. Amey rejected the notion that the inclusion of so many small companies on the government’s list of banned companies was simply a matter of numbers. “When you look at the fact that the bulk of federal dollars going to contractors are going to large companies, that argument doesn’t hold up,” he said.

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Stuart H. Smith is an attorney based in New Orleans fighting major oil companies and other polluters.
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