Executive Summary
Summary of Recommendations
Introduction
Summary of Methodology
Table: Top 43 Government Contractors
Graph: Percentage of Total Government Contracts Awarded to Top 43 Contractors
Graph: Percentage of Total Government Contracts Awarded to Top 10 Contractors
Suspension and Debarment Under the Federal Acquisition System
Contractor Misconduct
National Security
Fraud and Abuse
Putting Our Troops At Risk
Environment
Repeat Offenders
Table: Top 10 Repeat Offenders
Uneven Playing Field
Lack of Information
Recommendations
Endnotes
Appendix A: Company Responses to the Project On Government
Oversight's Federal Contractor Misconduct Database inquiry letter (pop-up).
Appendix B: Report/Database Methodology (pop-up)
Appendix C: For More Information (pop-up)

Executive Summary

• The total amount of fines/penalties, restitution, settlements, and Superfund cleanup costs for the 43 contractors examined totaled approximately $3.4 billion.
  
  
• Sixteen of the 43 contractors examined have been convicted of a total of 28 criminal violations; four of the top 10 have at least two criminal convictions.
  
  
• Yet, only one of the 43 contractors has been suspended or debarred from doing business with the government. This suspension action, against General Electric's Aircraft Division, lasted only five days after they pled guilty to diverting millions of dollars from the U.S. Foreign Military Aid Program to finance the sale of F-16 engines to Israel.

POGO found that large contractors enjoy an unfair advantage over smaller contractors in navigating the federal government's suspension and debarment system, the process whereby unethical companies are prevented from doing business with the government for a period of 18 months to 3 years. Repeat violations should be grounds for being suspended or debarred. However, according to debarment officials interviewed for this study, larger contractors have the financial means, plus high-priced attorneys, that enable them to avoid suspension or debarment.
Some companies in particular have mastered manipulation of the system despite repeated misconduct. Here is a summary of the track records for repeat offenders from 1990-2002:

• General Electric: 63 instances of misconduct or alleged misconduct resulting in approximately $982.9 million in fines/penalties, restitution, settlements, and Superfund cleanup costs.
  
  
• Lockheed Martin: 63 instances of misconduct or alleged misconduct resulting in approximately $231.9 million in fines/penalties, restitution, settlements, and Superfund cleanup costs.
  
  
• Boeing: 36 instances of misconduct or alleged misconduct resulting in approximately $358 million in fines/penalties, restitution, and settlements.
  
  
• Raytheon: 24 instances of misconduct or alleged misconduct resulting in approximately $128.7 million in fines/penalties, restitution, and settlements.
  
  
• Fluor: 19 instances of misconduct or alleged misconduct resulting in approximately $70 million in fines/penalties, restitution, and settlements.

Lack of information about the track records of contractors is a major obstacle in making suspension and debarment decisions. There is no centralized comprehensive database containing the information POGO has compiled about federal contractors. Debarment Officials do not have the time or resources to pull this information together. Lack of information compromises the government's ability to make informed contracting decisions. Click here for POGO's compilation of data of the misconduct and alleged misconduct of 43 of the government's top contractors.

---

Summary of Recommendations
1. Create a Centralized Database of Information. A single federal agency should maintain the database which could be consulted before awarding a contract or making a suspension or debarment decision. The database should include information such as civil judgements, criminal convictions, settlements, fines and Superfund cleanup costs imposed on contractors.

2. Contractor Disclosure. Require contractors to disclose current suspensions or debarments, litigation initiated against them on either the federal or state level in the past three years, and any Administrative Agreements they are currently implementing.

3. Fair and Equal Application of the Federal Acquisition Regulation. Debarment Officials should use suspension and debarment actions equally against large and small contractors.

4. Amend the Federal Acquisition Regulation. A suspension or debarment should be mandatory for a contractor who is either criminally convicted or has had a civil judgment rendered against them more than once in a three year period. In the case of repeat civil settlements, consent decrees, and administrative actions over a three year period, a suspension or debarment action should be decided upon by the leadership of the Interagency Committee on Debarment and Suspension, along with the appropriate agency Debarring Official.

5. Empower the Interagency Committee on Debarment and Suspension. The chair of this committee should have the authority to coordinate which federal agency takes the leadership role in a suspension or debarment case, based on the jurisdiction of the agency. The committee should also be required to submit semiannual reports to Congress regarding the suspension and debarment.

6. Improve the General Service Administration's List of Parties Excluded from Federal Procurement and Nonprocurement Programs ("GSA List"). Require this list, which only lists presently suspended or debarred contractors, to archive past suspensions and debarments.

"If any one case cries out for debarment, this is the case. If ever the
American people deserve to be protected from the type of reckless and
potentially life-threatening conduct, this is it."

-- Letter from William F. Fahey, Assistant United States Attorney for the Central District of California, to Kevin Vincent, United States Air Force, regarding the Northrop Corporation, March 13, 1990.

On February 27, 1990, the Northrop Corporation pled guilty to 34 counts of falsification of tests on the nuclear armed Air Launch Cruise Missile (ALCM) and the Harrier aircraft. The company paid a $17 million criminal fine. The falsification of the ALCM testing was so serious that three years after the discovery, the Air Force had no hope that the missile would work in combat. This case is one example of abuses committed by federal contractors against the government and the U.S. taxpayers. Despite the seriousness of Northrop's crime, Northrop was neither suspended nor debarred from doing business with the government.
The Project On Government Oversight's (POGO) research has shown that the federal government continues to do business with companies that repeatedly violate laws and regulations, despite rules specifying that, "Purchases shall be made from, and contracts shall be awarded to, responsible contractors only."¹ "To be determined responsible, a prospective contractor must have a satisfactory record of integrity and business ethics."² In order to protect the government's interest, agencies have the authority to suspend or debar non-responsible contractors from receiving future government contracts, government-wide, for a specified time period.
POGO has been investigating the effectiveness of the federal government's procedures for suspending and debarring contractors that break laws, rip-off the government, or engage in other unethical behavior. This report summarizes the findings of that investigation. Common sense, not to mention the law, dictates that the federal government should not do business with companies that have a history of unethical behavior in their dealings with the government and the public. Moreover, 13 of the 43 companies we examined appear not to have repeatedly violated laws or regulations, countering the perception that violating laws and regulations is a necessary part of doing business.
On March 15, 2002, the General Service Administration (GSA) rightfully suspended Enron and Arthur Andersen from contracting with the federal government.³ Neither of these corporations have long histories of violating the law, as do some of the government's top contractors we examined in this report. However, those companies, which have worse track records, have neither been suspended nor debarred.

Summary of Methodology
This report provides a broad overview of the business ethics of companies that receive the lion's share of government contracts; the top 43 contractors for fiscal year 1999 received 45% of all contract dollars awarded that year.⁴ These 43 contractors are made up of the top 20 contractors for fiscal year 1999,⁵ based on total contract dollars received, and the top five contractors of each of the government's top 10 agencies, based on total contract dollars awarded by each agency. Because many of these contractors appeared more than once, the total number of contractors added up to 43. The total contract dollars that are awarded to a company include contracts awarded to specific divisions and subsidiaries of that company as well as joint ventures.⁶
The data compiled for this report pertains to misconduct and alleged misconduct, occurring between 1990 and 2002, committed by these companies and their subsidiaries. This includes actions brought by the government and private parties. ThIs misconduct and alleged misconduct pertains to a broad spectrum of laws and regulations such as Wrongful Death; False Claims Act; Arms Export Control Act; Antitrust; Truth In Negotiations Act (TINA); and others. POGO also cites cases and settlements where a company was found or alleged to be a responsible party, as defined under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), at Superfund cites. POGO does not cite Occupational, Safety, and Health Act (OSHA) misconducts or National Labor Relations Board (NLRB) decisions in the report or database.
POGO's data is, by necessity, incomplete, as there is no official central repository of information about violations committed by contractors. Therefore, for this investigation a myriad of public records were searched for primary source data. POGO contacted every company that was examined in this report to verify our data and allow them to submit comments to be included in the report. POGO received ten responses; eight sent written responses that can be viewed in Appendix A. Listed below are the 43 contractors we examined for this report. Following this list are two charts showing the top contractors' percentage of overall contract dollars for FY 1999. For more information on methodology see Appendix B. Click here to see POGO's database of detailed information on misconduct and alleged misconduct of these 43 contractors.

-- Summary Judgment from Caiola v. Carroll⁷

The United States Government spent approximately $235 billion on goods and services for fiscal year 2001. These contracts were awarded for anything from Air Force fighter aircraft to food services. One of the responsibilities of the government is to make sure that these contracts are awarded to "responsible" contractors that have a satisfactory record of "integrity and business ethics."⁸ It is in the government's interest, as well as that of the taxpayers, to award contracts to companies that do not repeatedly violate federal laws. Although suspension and debarment cannot be used as a tool to punish a contractor charged with wrongdoing, the regulation states that it should be used "in the public interest for the Government's protection."⁹
The government's Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS) are the guidelines that government officials use in deciding with whom the federal government does business. FAR Subpart 9.4¹⁰ and DFARS Subpart 209.4¹¹ deal specifically with suspension and debarment regulations. The government officials who enforce these regulations are Debarment Officials; they are in most cases, the Suspension Official as well.
Most agency Debarment Officials participate in the Interagency Committee on Debarment and Suspension, which was created on February 18, 1986, when President Reagan signed Executive Order No.12549. The committee was created to "curb fraud, waste, and abuse in Federal programs, increase agency accountability, and ensure consistency among agency regulations concerning debarment and suspension of participants in Federal programs." Besides creating the committee, the regulation also made agency suspension or debarment of a grant recipient government-wide. Before this provision, a grant recipient could be debarred by one agency with no restriction on receiving awards from other agencies. President Bush further strengthened suspension and debarment actions when he signed Executive Order No.12689 on August 16, 1989. This made a suspension or debarment of a contractor government-wide as well.¹²

The following regulations detail causes for debarment and suspension.

FAR 9.406-2, causes for debarments include adequate evidence of or indictment for:

"(a) the commission of fraud or criminal offense related to obtaining or performing a government contract;
(b) antitrust evasion violations;
(c) commission of embezzlement, theft, forgery, bribery, making false statements, tax evasion, or other similar offenses; or
(d) commission of any other offense indicating a lack of business integrity or business honesty that seriously and directly affects the contractor's present responsibility."

FAR 9.407-2, causes for suspension include adequate evidence of or indictment for:

"(a) commission of a fraud or criminal offense related to obtaining or performing a government contract;
(b) violation of antitrust statutes;
(c) commission of embezzlement, theft, forgery, making false statements, or tax evasion;
(d) violation of the Drug-Free Workplace Act of 1988; or
(e) commission of any other offense indicating a lack of business integrity or business honesty that seriously and directly affects the present responsibility of the contractor."

A suspended or debarred contractor is not only ineligible for a new government contract, but is also automatically ineligible to receive assistance, licenses, or loan approvals from federal agencies in nonprocurement areas. Moreover, suspended or debarred contractors are also ineligible to receive contracts, which are funded with federal loans, grants, or assistance, from state or local governments.¹³ A contractor can remain suspended for up to 18 months, or until the conclusion of criminal or civil actions. A contractor suspension based upon an indictment will be upheld until the criminal proceedings related to the indictment are concluded.¹⁴ The length of a debarment depends on the seriousness of the violation(s), but it generally does not exceed three years.¹⁵ Suspensions and debarments do not have any impact on current federal contracts, only future contracts. The main reason to suspend or debar a company is "to protect the government from business relations with dishonest, unethical, or otherwise irresponsible persons."¹⁶
Certain laws expressly require debarment if violated. These laws are: Buy American Act¹⁷; Davis Bacon Act¹⁸; Walsh-Healey Act¹⁹; Service Contract Act of 1965²⁰; Contract Work Hours and Safety Standards Act²¹; Clean Water Act²²; Clean Air Act²³; Nuclear Proliferation Act of 1994²⁴; and Drug-Free Workplace Act of 1988²⁵. Also Executive Order No. 12954, regarding the replacement of striking workers, and Executive Order 12989, regarding the hiring of illegal aliens, both signed by President Clinton, allowed for the debarment of contractors who permanently replace lawfully striking employees or who hire illegal immigrants. In addition, some agencies have specific regulations that require debarment of their contractors.
Once a contractor is suspended or debarred, they are then automatically placed on the General Service Administration's List of Parties Excluded from Federal Procurement and Nonprocurement Programs ("GSA List").²⁶ Before a Contracting Officer awards a contract, they are required to consult the GSA List to confirm that the company bidding on the federal contract is not currently suspended or debarred.
The General Service Administration (GSA) stated on March 15, 2002, regarding the suspension of Enron and Arthur Andersen, "A contractor or prospective contractor who is not responsible may be barred or temporarily suspended from receipt of future Government business." However, many of the government's top contractors we examined received a failing grade when it came to demonstrating responsibility, with no abatement of federal contracts. Our research has identified that since 1990:

• The total amount of fines/penalties, restitution, settlements, and Superfund cleanup costs for 43 contractors we examined totaled approximately $3.4 billion.²⁷
  
• Sixteen of the 43 contractors we examined have been convicted of a total of 28 criminal violations; four of the top 10 have at least two criminal convictions.
  
• Only one of the 43 contractors has been suspended or debarred from doing business with the government. This suspension action, against General Electric's Aircraft Division, lasted only five days after they pled guilty to diverting millions of dollars from the U.S. Foreign Military Aid Program to finance the sale of F-16 engines to Israel.