The U.S. Government spent approximately $235 billion on goods and services for fiscal year 2001, making it the largest consumer in the world. These expenditures were awarded for contracts to purchase anything from Air Force aircraft to food services.
Current policies prescribe that taxpayer dollars only be awarded to "responsible" contractors that have a satisfactory record of "integrity and business ethics." An investigation completed by POGO confirms that this is not always the case.
POGO's report on this investigation provides an overview of the business ethics of companies that receive the lion's share of government contracts; the top 43 contractors of fiscal year 1999 that received over 45% of all contract dollars awarded that year. POGO compiled administrative, civil, and criminal violations and alleged violations for the companies examined using a wide variety of sources including the Justice Department, Inspector Generals, and legal documents. POGO also includes cases and settlements where a company was found to be a responsible party, as defined under the Superfund legislation, for the cleanup of hazardous substances at Superfund sites.
POGO's research has identified that since 1990:
- 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
- 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.
- 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.
- Fair and Equal Application of the Federal Acquisition Regulation. Debarment Officials should use suspension and debarment actions equally against large and small contractors.
- 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.
- 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.
- 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 1999,5based 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.
*Data from 1999 is used to remain consistent with report methodology.
See Appendix C for Company Web Sites
Suspension and Debarment Under the Federal Acquisition System
“Debarment reduces the risk of harm to the system by eliminating the source of the risk, that is, the unethical or incompetent contractor.”—Summary Judgment from Caiola v. Carroll (7)
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 Act;17 Davis Bacon Act;18 Walsh-Healey Act;19 Service Contract Act of 1965;20 Contract Work Hours and Safety Standards Act;21 Clean Water Act;22 Clean Air Act;23 Nuclear Proliferation Act of 1994;24 and Drug-Free Workplace Act of 1988.25 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.
"What we're saying is, basically, no matter what one of these defense contractors does, whether it is criminal, whether it is a systemic failure in terms of systems engineering, failure to monitor the subcontractor, we're simply not going to take one of these contracts away from them. I think that just makes a mockery out of the procurement system."
-- Congressman Ron Wyden (D-OR), Committee On Energy and Commerce Subcommittee on Oversight and Investigations Hearing, October 9, 1990.
The Federal Acquisition Regulation clearly states that civil judgements and criminal convictions are grounds for suspension or debarment. The following are more examples of contractor misconduct and alleged misconduct that did not result in suspension or debarment. Click here for more examples in the complete database.
- 2000: Lockheed Martin was charged with 30 violations of the Arms Export Control Act and the International Traffic in Arms Regulations. The violations were regarding the transfer of space launch assistance technologies to China. Lockheed Martin paid a civil penalty of $13 million.
2000: Boeing was charged with 110 violations regarding the Arms Export Control Act and the International Traffic in Arms Regulations. The charges pertained to munitions and defense articles (i.e., technical data) exported to Australia, Singapore, Malaysia, Turkey, Spain, and Italy. Boeing paid a civil penalty of $4.2 million.
- 1998: IBM East Europe/Asia Ltd., a subsidiary of IBM, pled guilty to violations of the International Emergency Economic Powers Act and the Export Administration Regulations relating to the unlawful export of computers to a Russian nuclear weapons laboratory. The company paid a $8.5 million criminal fine.
- 1998: Boeing was charged with 207 violations of the Arms Export Control Act and the International Traffic in Arms Regulations. Boeing allegedly unlawfully exported defense articles to Russia, Ukraine, and Norway. The company paid a $10 million civil penalty.
- 1995: Lockheed Martin pled guilty to violating the Foreign Corrupt Practices Act for paying bribes to officials of the Egyptian Government. They paid a criminal fine of $24.8 million.
Fraud and Abuse
- 2000: According to a Department of Defense Inspector General press release, Northrop Grumman"intentionally overestimated the cost to purchase B-2 bomber instruction and repair manuals from subcontractors." The company settled with the government for $1.4 million.
- 1999: Two Litton Industries subsidiaries, Litton Applied Technology Division and Litton Systems Canada, each pled guilty to conspiracies to defraud the United States and Taiwan in connection with military sales to Taiwan and Greece. The two subsidiaries paid a criminal fine of $16 million and an additional $2 million for restitution and the cost of the investigation.
- 1998: General Electric Capital Corporation (GE Capital) and its wholly-owned subsidiary Montgomery Ward Credit Corporation, allegedly induced consumers, who filed for bankruptcy protection, to pay debts they did not legally owe. GE Capital agreed to a $97 million settlement.
- 1997: Northrop Grumman allegedly overbilled the government on a Low Rate Initial Production contract for the B-2 Bomber. They reached a settlement with the government worth $34.8 million.
- 1996: Archer Daniels Midland (ADM) pled guilty for its role in two international conspiracies to fix prices to eliminate competition and allocate sales in the lysine and citric acid markets worldwide. ADM paid a criminal fine of $100 million, the largest criminal antitrust fine ever.
Putting Our Troops At Risk
- 1997: Air Force Academy cadet Pace Weber and Captain Glen Comeaux were killed when the engine in their aircraft failed. This was caused by an improperly designed fuel delivery system. Northrop Grumman paid part of a $4 million verdict.
- 1993: An Army Blackhawk helicopter crashed killing Colonel William Densberger, Colonel Robert Kelly, Specialist Gary Rhodes, Jr., and Major General Jarrett Robertson and seriously injured two others. Evidence revealed that Sikorsky Aircraft had found serious controllability problems with asymmetric fuel, but had failed to warn the Army. As a result, United Technologies, the parent company of Sikorsky Aircraft, paid a $22 million verdict.
- 1988, 1991, 1993: Three Army Chinook helicopter accidents occurred resulting in five deaths and two injuries. Boeing allegedly placed defective gears in the helicopters and then sold the aircraft to the Army. On August 3, 2000, Boeing agreed to pay the government $54 million in a settlement agreement.
- 1991: Mechanic Michael Booth was killed and Lieutenant Philip Erickson was seriously injured when the aircraft they were in crashed due to a missing flight control mechanism. The DynCorp company was found solely and legally responsible for this missing part which caused the crash. DynCorp agreed to pay a $1.6 million settlement.
- 1990: An Army Blackhawk helicopter crashed, allegedly due to fractured lock washers in the helicopter's tail rotor assembly. As a result, five soldiers died and eight were injured. Sikorsky Aircraft, a subsidiary of United Technologies, paid a $9.74 million civil settlement and took steps to prevent this from happening in 1,500 Army, Navy, and Air Force aircraft containing the same lock washers.
- 2001: TRW Vehicle Safety Systems, a subsidiary of TRW, pled guilty to criminal charges of violating the Resource Conservation and Recovery Act by improperly storing and disposing of waste containing sodium azide. The subsidiary paid a criminal fine of $12 million; in a related civil action the company paid a civil penalty of $5.6 million and a total of $7.2 million for cleanup and corrective measures.
- 2001: The Environmental Protection Agency ruled, in accordance with the Comprehensive Environmental Response, Compensation, and Liability Act, that General Electric is required to comprehensively clean-up PCB contamination in the Hudson River. The estimated clean-up cost is $460 million. In 1998, EPA Administrator Carol Browner testified before the New York State Assembly that "General Electric Corporation discharged more than 1 million pounds of toxic waste known as P.C.B.s into the Hudson River. Two hundred miles of poisoned fish habitat, two hundred miles of contamination that we still live with." Browner further stated that,"GE is a responsible party at 76 [Superfund (hazardous waste)] sites, more than any other large company in the United States."28
- 2000: Hughes Aircraft, a subsidiary of Raytheon, allegedly contaminated the drinking water of Tucson, Arizona, residents as the result of the dumping of TCE, a toxin. The company agreed to a settlement of approximately $13 million which included a medical monitoring program for residents
- 1999: General Electric entered into a settlement with the U.S., Massachusetts, and Connecticut in which they agreed to spend $250 million to cleanup PCB contamination in the Housatonic River at their Pittsfield plant and at other sites in Berkshire County, Massachusetts, including a school and several commercial properties.
“For the federal government to continue to do business with a private company that has a documented record of defrauding the government and abusing taxpayer money is unconscionable.”—Congressman Bob Barr (R-GA), August 23, 2001
Many of the contractors POGO examined in this investigation have a documented record of misconduct and alleged misconduct against the government and the taxpayers. However, this has not stopped the government from awarding billions of dollars in contracts to these companies. POGO's investigation documents over 400 instances of misconduct and alleged misconduct of the top contractors, since 1990. The top 10 repeat offenders identified through POGO's investigation are listed below:
Top 10 Repeat Offenders
In the late 1980s the government believed General Electric was violating laws at such a rate that it established an office specifically to handle GE violations of defense contracts. The Philadelphia Remedies Unit was established within the Defense Contract Management Agency's Mid-Atlantic District on June 1, 1990, at the request of the Department of Defense Inspector General. During the three year existence of this Unit, 183 investigative matters and 212 administrative matters were opened. By the end of the three years, 163 investigative and 147 administrative matters were resolved, resulting in the government recovering a total of $221.7 million from General Electric on noncompliance matters.29
Regarding suspension and debarment, the Unit's report states:
"[N]one of the recommendations made for action against a corporate entity of the General Electric Company were approved by the Debarring Officials at DLA [Defense Logistics Agency] or the Army who reviewed these recommendations. In the only matter involving a GE entity which resulted in administrative action, the DLA Debarring Official issued a suspension against the Aircraft Engine Group and lifted it five days later. The result of these efforts make it fairly clear that, at least in the case of the General Electric Company and probably other major contractors, administrative action is not a threatening remedy."30
The report went on to state, "Without a real possibility of the issuance of administrative action, the Government loses an important remedial tool to force compliance."31
This track record mirrors a larger trend: the government is less aggressive at enforcing laws and regulations than in the past. Criminal enforcement of administrative referrals, for example federal procurement fraud, fell from over 306 referrals in 1992 to only 102 in 1998. Prosecutions fell as well, with 36% of referrals prosecuted in 1992 and only 28% prosecuted in 1998. The number of referrals for civil actions from federal agencies to the Department of Justice fell from over 35,000 referrals in 1992 to only 6,324 in 1999. For example, the Department of Housing and Urban Development referred 2,945 civil enforcement actions to the Department of Justice in fiscal year 1995, but only referred 69 in fiscal year 1999. Moreover, the Department of Defense referred 489 civil enforcement actions to the Department of Justice in fiscal year 1995, but only 98 in fiscal year 1999.32
Uneven Playing Field
“[T]he Government can suspend or debar a company from future Government business. This power is exercised constantly against small companies, but has almost never been exercised against major Defense contractors.”—Congressman John Dingell (D-MI), Committee on Energy and Commerce, Subcommittee on Oversight and Investigations Hearing, July 27, 1990
The way in which the Federal Acquisition Regulation is currently enforced gives large contractors an unfair advantage over smaller contractors. The companies that are suspended or debarred are nearly exclusively small contractors, as can be seen on the General Service Administration's List of Parties Excluded from Federal Procurement and Nonprocurement Programs ("GSA List"). One reason is that larger contractors have the financial means, plus high-priced attorneys, that enable them to work with the government on an alternative to suspension or debarment.
Another problem is that the government typically relies on a single contractor to provide big ticket items, for example, major weapons systems. This particular situation has been exacerbated by a wave of corporate mergers in the defense industry over the past 10 years. Some of the most significant mergers that have occurred include Lockheed and Martin Marietta, Boeing and McDonnell Douglas, Northrop and Grumman, and Honeywell and Allied Signal. Since December 21, 2000, Northrop Grumman has acquired Litton Industries and Newport News Shipbuilding and is currently attempting a hostile takeover of TRW. Government officials are constrained by the fact that the government is wholly reliant on certain companies when it comes to specific projects. Therefore, suspension and debarment become nearly impossible.
The reality is that, as the Philadelphia Remedies discovered, large contractors do not view suspension and debarment as a realistic threat. The contractors' preferred alternative to suspension or debarment is an Administrative Agreement and the government nearly always agrees to this alternative. Some agencies refer to them as Compliance Agreements or Corporate Integrity Agreements. The goal of an Administrative Agreement is to change the corporate culture of a company, to make them a responsible and ethical company. Administrative Agreements are negotiated on a case-by-case basis with the involved federal agency and generally require a company to implement an ethics code; a compliance program or other internal controls; remove alleged wrongdoers; submit progress reports to the agency; and allow ongoing monitoring by the agency. The implementation of Administrative Agreements tends to be very costly; as a result, Administrative Agreements are often not an option for small contractors.
For more than a decade, corporations have been conducting various types of corporate ethics and integrity training seminars for their employees and producing vast amounts of literature on the subject. Many of the government's top contractors have their own internal ethics programs in addition to membership in different corporate ethics associations, such as the Ethics Officer Association, the Coalition for Ethics and Compliance Initiatives, and the Defense Industry Initiative (DII). DII includes almost all the top 20 defense contractors. The Defense Federal Acquisition Regulation Supplement (DFARS) Subpart 203.7001(a)(2)33requires a written code of business ethics and conduct including employee training.
According to the Defense Industry Initiative, their goal is "to create a heightened standard of ethical conduct by every employee in the defense industry." If this is the goal of DII, the corporate ethics associations mentioned above, and is a federal requirement, POGO's investigation suggests that contractors have yet to achieve this goal.
Large contractors often enter into Administrative Agreements in lieu of a suspension or debarment. However, if that contractor continues to break the law, thereby defaulting on their agreement, the government usually does not take a suspension or debarment action in response to the broken agreement. In fact, a large contractor can even administer multiple ethics programs concurrently. For example, a contractor could institute an Administrative Agreement that the Army has imposed on them for alleged procurement fraud, while concurrently administering an Administrative Agreement rendered against them by the EPA for an alleged environmental misconduct.
For example, in January of 1995 Lockheed Martin, a member of DII, pled guilty to bribing an Egyptian official. In addition to paying a $24.8 million fine, the Air Force imposed an Administrative Agreement on Lockheed Martin. Since implementing the Administrative Agreement, Lockheed Martin and its subsidiaries have been accused of at least eight violations and have paid approximately $7 million in fines/penalties and settlements.
In another example, Litton Industries, another member of DII, entered into an Administrative Agreement with the Navy for alleged procurement fraud in January of 1995; they settled the case for $82 million. Since implementing the 1995 Agreement, two Litton subsidiaries pled guilty to two criminal violations and paid approximately $17.8 million in fines.
Despite these examples suggesting that Administrative Agreements don't adequately protect the government's interests, the government tends to rely on these agreements as the preferred tool to deal with large contractors.
When an Administrative Agreement is imposed on a contractor and it does not specifically state in the agreement that the contractor bears the sole financial responsibility for executing the agreement, then the contractor can legally charge this cost to a government contract.
Lack of Information
“We found that OASAM [Office of Assistant Secretary of Administration and Management] has not developed a uniform approach to address issues related to debarment and suspension. There is a lack of information sharing between agencies which can ultimately have a negative impact on DOL.”—Evaluation of the Department of Labor's Policies and Procedures to Debar or Suspend Federal Contractors, Office of Inspector General Department of Labor Assistant Secretary for Administration and Management Report, September 2000
It is essential that Debarment Officials have pertinent information including all civil, criminal, and administrative actions in which a contractor has been involved, including past suspensions and debarments, terminated contracts due to poor performance, and administrative agreements the contractor has entered into with the government. Surprisingly, this important information is often unavailable to the officials charged with making decisions regarding suspension and debarment on behalf of the government.
In interviews with POGO researchers, Debarment Officials have stated that the lack of information is a major obstacle in making suspension and debarment decisions. There is no centralized comprehensive database containing this information. Realistically, the only way to obtain this information is through contractor disclosure. Contractors are already required to disclose detailed financial information, plus various other information requirements in application forms, disclosure of misconduct and alleged misconducts could easily be included in these forms. This lack of information compromises the government's ability to make informed decisions regarding suspensions and debarment.
- Create a centralized database of information. A single federal agency, possibly the Federal Procurement Data Center, the General Service Administration, or the Department of Justice, should maintain the database which Contracting Officers and Debarment Officials could consult before awarding a contract or making a suspension or debarment decision regarding a contractor.
The database should include the following information:
a. All civil judgements, criminal convictions, settlements, fines, and Superfund cleanup costs imposed on contractors by federal and state governments. There should be brief descriptions of all cases, including any monetary amounts the contractor paid to the government. The database should cover at least the past three years and be accessible to government officials as well as the public.
b. A listing of all cases where a contract was terminated due to poor performance
c. All Administrative Agreements, past and present, into which a contractor has entered. The Department of Health and Human Services (HHS) currently lists this information for their contractors on their web site. (http://www.oig.hhs.gov/fraud/c...
- Contractor Disclosure. Include in government contract solicitations a provision in which bidders are required to disclose any current suspensions or debarments, any litigation initiated against them on either the federal or state level that is either pending or has closed in the past three years, and any Administrative Agreements they are currently implementing. New York City government currently requires this information in their contract solicitations.34 Furthermore, it should be a requirement for government contractors to report all new litigation matters to the government agency or agencies with which they are currently contracting.
- Fair and Equal Application of the Federal Acquisition Regulation. Debarment Officials need to protect the government's interests by using suspension and debarment actions equally against large and small contractors that break the law. If it is deemed necessary to conduct business with an unethical company for a specific project, then the department or agency head must justify in writing the compelling reasons, as required by the Federal Acquisition Regulation (FAR) Subpart 9.405-2, 9.406-1(c), 9.407-1(d), and 23.506(e) and the Defense Federal Acquisition Regulation Supplement (DFARS) Subpart 209.45.
- Amend the Federal Acquisition Regulation. The FAR should be amended to specifically state that a suspension or debarment is mandatory for a contractor who is criminally convicted or has had civil judgments rendered against them more than once in a three year period. In the case of repeat civil settlements, fines, and penalties; consent decrees; administrative actions; and poor contractor performance 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 Debarment Official.
- 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 system, e.g., number of referrals Debarment Officials receive, action that was taken, names of contractors along with descriptions of misconducts or alleged misconducts committed. Ideally, the reports would be similar to Inspectors General Semiannual Reports to Congress. This would ultimately lead to more transparency and accountability in the suspension and debarment system.
- Improve the General Service Administration's List of Parties Excluded from Federal Procurement and Nonprocurement Programs ("GSA List"). Require the "GSA List," which only lists presently suspended or debarred contractors, to archive past suspensions and debarments on their online database.
1. Federal Acquisition Regulation (FAR) 9.103(a)
2. FAR 9.104-1(d)
4. The top 43 contractors received 45% of the $235 billion awarded in federal contracts, over $25,000. The top contractor received 10%; top three, 22%; top 10, 33%; and top 20, 41%.
5. Consequently, names of companies appear as they did in fiscal year 1999. This pertains specifically to Bindley Western, which was acquired by Cardinal Health; Cordant Technologies, which was acquired by Alcoa; Litton Industries, which was acquired by Northrop Grumman; and Morrison Knudsen, which changed its name to the Washington Group.
6. POGO determined which contractors to include from Government Executive Magazine’s FY1999 Top 200 Federal Contractors Issue, which is based on data from the Federal Procurement Data System (FPDS).
7. 851 F.2d 395 (D.C. Cir. 1988)
8. FAR 9.104-1(e)
9. FAR 9.402(b)
13. The Practitioners Guide to Suspension and Debarment, 2nd Edition, by the American Bar Association Committee on Debarment and Suspension Section of Public Contract Law, American Bar Association, Washington, D.C., 1996, preface p. 2, p. 97.
14. FAR 9.407-19(b)(1)
15. FAR 9.406-4(a)
16. The Practitioners Guide to Suspension and Debarment, 2nd Edition, by the American Bar Association Committee on Debarment and Suspension Section of Public Contract Law, American Bar Association, Washington, D.C., 1996, p. 1.
17. 41 U.S.C. §§ 10a-10d
18. 40 U.S.C. §§ 276a-277a-5
19. 41 U.S.C. §§ 35-45
20. 41 U.S.C. §§ 351-358
21. 40 U.S.C. §§ 327-332
22. 33 U.S.C. § 1368
23. 42 U.S.C. § 7606
24. 22 U.S.C. § 3201
25. 41 U.S.C. § 701
27. Thirteen contractors have zero fines/penalties, restitution, settlements, or Superfund cleanup costs, according to POGO's research.
28. Testimony by EPA Administrator, Carol Browner, at a Public Hearing before the New York State Assembly Standing Committee on Environmental Conservation regarding PCB Contamination in the Hudson River, July 9, 1998, p.8, 30.
29. Philadelphia Remedies Unit Final Report (1994) - Defense Contract Management Agency Mid-Atlantic District, p. 23.
30. Ibid, p. 25.
31. Ibid, p. 124.
32. This information was obtained from the Transactional Records Access Clearinghouse (TRAC), http://trac.syr.edu.
This report represents all actions that POGO was able to identify through research and document through primary sources. POGO does not claim to have cited all misconduct and alleged misconduct committed by the government's top contractors.
This compilation 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.
This database is not a legal document. Although some legal terminology is used, this database is only a compilation of instances of misconduct and alleged misconduct committed by government contractors. Sources used to compile this information came primarily from government documents, and in each case the source(s) is cited.
This is a compilation of misconduct and alleged misconduct occurring between 1990 and 2002; alleged misconduct is cited prior to 1990 if the case is still pending. POGO cited the number of violations, not incidents. If a single incident led to several violations, multiple violations were cited. The report's scope includes the government's top 20 contractors, for fiscal year 1999,based on total contract dollars they received, and the top five contractors of each of the government's top 10 agencies, based on total contract dollars awarded by each agency. Names of companies appear as they did in fiscal year 1999. This pertains specifically to Bindley Western, which was acquired by Cardinal Health; Cordant Technologies, which was acquired by Alcoa; Morrison Knudsen, which changed its name to the Washington Group; and Litton Industries, which was acquired by Northrop Grumman. Because many of these contractors appeared on this list more than once, this added up to a total of 43 contractors. The total contract dollars that are awarded to a company include divisions, subsidiaries, and joint ventures. POGO determined which contractors to include from Government Executive Magazine's annual Top 200 Federal Contractors Issue, which is based on data from the Federal Procurement Data System (FPDS). These 43 contractors accounted for over 42% of all contract dollars awarded for fiscal year 1999 for contracts valued at $25,000 or more.
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 nine responses; eight sent written responses that can be viewed in Appendix A. POGO made appropriate corrections in our data where needed as the result of these responses.
The following sources were utilized to obtain information for this report:
- Federal and state agency press releases
- Federal agency Inspector General (IG) press releases and reports
- U.S. Attorney's Offices (USAO) press releases
- State Attorneys General (AG) press releases
- Court dockets, settlement agreements, plea agreements, consent decrees
- Securities and Exchange Commission (SEC) reports
- Company press releases
- Freedom Of Information Act (FOIA) requests
- Private and public interest law firm press releases
- Interviews with private attorneys, government attorneys, and court clerks
- Interviews with Debarment Officials
- Taxpayers Against Fraud (TAF) False Claims Act and Qui Tam Quarterly Review reports
The following explanations correspond to columns in the database with the same title.
Contractor and Division/Subsidiary
All contractors cited in this column are parent companies. The report's scope includes the government's top 20 contractors, based on total contract dollars they 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 on this list more than once, this added up to a total of 43 contractors. The total contract dollars that are awarded to a company include contracts awarded to specific divisions and subsidiaries of that company. POGO determined which contractors to include from Government ExecutiveMagazine's August 1, 2000, edition of the annual Top 200 Federal Contractors Issue, which is based on data from the Federal Procurement Data System (FPDS).
Included in this column is the division or subsidiary of the parent company that was involved in the cited case, if applicable. Company names in parentheses represent a subsidiary of a subsidiary. Also listed in this column are names of companies before a merger occurred (e.g., Martin Marietta, McDonnell Douglas, Allied Signal, Lockheed, Northrop) if that pre-merger company was involved in the cited case. Subsidiaries are cited regardless of whether the violations or alleged violations occurred before the subsidiary was acquired by the parent company. Only subsidiaries of which the parent company owns a controlling share (over 50%) are listed. If a parent company has sold a subsidiary, POGO does not list that subsidiary's violations or alleged violations that occurred after the date of sale.
In order to make the database reader friendly and to allow the reader to manipulate the data more easily, the case types were condensed into seven different categories. A category can pertain to either a criminal, civil, or administrative proceeding. Listed below are descriptions of the categories.
Antitrust - Applies to price-fixing and bid-rigging cases. These cases fall under the Sherman Act, which is enforced by the Department of Justice's Antitrust Division.
Consumer - Pertains to cases where a company was alleged to have been deceitful, unethical, fraudulent, etc. in its dealings with consumers. Wrongful Death suits involving civilians are also included in this category. These cases generally deal with products or services that are directly marketed to the general public or public institutions.
Defense - This category involves military contracts and covers such violations and alleged violations as fraud, cost and labor mischarges, testing falsifications, kickbacks, and bribery. Some of the laws this category covers are the False Claims Act, Truth in Negotiations Act (TINA), Arms Export and Control Act, Foreign Corrupt Practices Act, Racketeer Influence and Corrupt Organizations (RICO), International Traffic in Arms Regulations, and Wrongful Death suits involving military personnel.
Environment - This category applies to issues relating to environmental pollution. Laws and regulations that relate to this category are the Clean Water Act; Clean Air Act; Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also known as the Superfund Law; Toxic Substances Control Act (TSCA); and the Resource, Conservation, and Recovery Act (RCRA).
Financial - Primarily refers to shareholder cases that are enforced by the Securities and Exchange Commission (SEC).
Labor - Pertains to any case that involves an employee's safety, health, or rights. Examples of this category are race discrimination, sex discrimination, age discrimination, and workplace injuries. POGO does not cite Occupational, Safety, and Health Act (OSHA) violations or National Labor Relations Board (NLRB) decisions in this category or in any other part of the database because historically these types of violations have not been grounds for a suspension or debarment action.
Other - This category includes any case that does not easily fit into the other categories. This category contains violations of laws such as Intellectual Property, which are laws pertaining to patents, trademarks, copyrights, unfair competition, trade secrets, and technology transfers. It also includes violations and alleged violations such as fraud, cost and labor mischarges, etc., that do not involve defense contracts.
Definition: The final arrangement or decision. Conclusion, settlement, determination, solution, resolution, outcome.
Fine - A sum of money imposed upon a defendant as a penalty for an admission of wrongdoing.
Found Guilty - Pertains to a criminal case where either a judge or a jury found the defendant guilty.
Judgment Against Defendant - A civil case where the defendant was either found guilty or entered into a plea of guilty.
Pled Guilty - Refers to a criminal case where the defendant entered a plea of guilty.
Pending - Applies to a case that has not yet been resolved.
Restitution - Making good or giving an equivalent value for any loss, damage, or injury. Reimbursement, compensation, retrieval, refund.
Settlement - Agreement between the prosecution or the plaintiff and the defense. In some settlement agreements, the contractor will admit to no guilt or wrongdoing. Consent Decrees are also included in settlement case dispositions.
Superfund Cleanup Costs - Payments to cover the costs of the cleanup by companies who were found to be, or alleged to be, potentially responsible parties under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also known as the Superfund Act.
In pending cases the date reflects the filing date of the case. In all other cases, the date refers to the date the case was closed. Many dates are approximate because not all sources cite the same date and sometimes the source will have incomplete information. A closed case may still be pending appeal.
Fine/Penalties, Restitution, and Settlements
Exempt Penalties - Under the Atomic Energy Act of 1954, nonprofit contractors, such as the University of California, are exempted from paying the civil penalties that the Department of Energy assesses under the act.
Fine/Penalty - Fines or money damages imposed by a regulatory agency. This can pertain to both civil and criminal cases.
Restitution - Making good or giving an equivalent value for any loss, damage, or injury. Reimbursement, compensation, retrieval, refund.
Settlement - A payment, adjustment, or compromise agreed upon by both plaintiffs and defendants.
"Part Of" - Indicates that there is more than one company involved in an alleged wrongdoing and therefore the company cited is not liable for the total fine/penalty, restitution, and/or settlement. Any monetary amount that has the words "Part Of" before it, is not included in the report's monetary statistics.
Sealed Case - The terms and the conditions of these cases are confidential and unknown to the public.
Other terms that are used in these columns are contract case, refunds, license restrictions, and liable for life insurance policy. These cases either did not allow for any monetary penalties or the disposition called for an action where monetary penalties were not quantified.
Case descriptions are directly quoted from the cited sources for that case. However, some cases are briefly described by the type of lawsuit, e.g., Age Discrimination, as cited by the court docket. Moreover, another brief description that is continuously used is "Procurement Fraud" as cited by the General Accounting Office.
This column lists the source(s) used to compile information regarding the specific case. To determine the facts of the cases, only primary sources were used, such as government documents (federal and state), court dockets, court opinions, law firm press releases, confirmations from private attorneys and government officials (federal and state), etc. Some case descriptions were obtained using newspaper or magazine articles because a brief description of the case was unobtainable through the primary source.
All the court cases that were identified are listed in this column. Some court cases are listed more than once because they involve more than one company. Some court cases are also listed more than once when they pertain to both criminal and civil fines or settlements. Blank columns do not imply that the case did not go to court. All court cases are abbreviated, for example US DC CD CA should read - United States District Court for the Central District of California. States have between one and four district courts.
Also listed in this column is the type of court each case was resolved in. This information appears in parenthesis in the Court Case column. The following are the three court types that are found in the database:
Administrative - Any charge that a federal or state agency brought against a contractor, that was not litigated in court.
Civil - Pertains to the court which hears disputes arising under the common law and civil statutes.
Criminal - Pertains to the court which hears prosecutions under criminal laws.
FOR MORE INFORMATION
Code of Federal Regulations
Defense Federal Acquisition Regulation Supplement
Federal Acquisition Regulations
United States Code
Environmental Protection Agency Grants and Debarment Division
Federal Procurement Data Center
General Accounting Office
Defense Contracting: Contractor Claims for Legal Costs Associated with Stockholder Lawsuits. July 1995. GAO/NSIAD-95-166
Occupational Safety and Health: Violations of Safety and Health Regulations by Federal Contractors. August 1996. GAO/HEHS-96-157
Worker Protection: Federal Contractors and Violations of Labor Law. October 1995. GAO/HEHS-96-8
General Services Administration List of Parties Excluded from Federal Procurement and Nonprocurment Programs
Department of Health and Human Services Corporate Integrity Agreements
House of Representatives Energy and Commerce Committee, Subcommittee on Oversight and Investigations
Northrop Corporation Investigation. Hearing held July 27 and October 9, 1990. Serial No. 101-216
Overhead Submittals for Government Contracts by McDonnell Douglas Corporation. Hearing held October 13, 1993. Serial No. 103-80
Roles of United Technologies and NAC and DOD in Illegal Diversion to Israel. Hearing held October 27, 1993. Serial No. 103-74
Interagency Committee on Debarment and Suspension
Department of Justice Antitrust Division
Department of Justice Environment and Natural Resources Division
Department of Justice Press Releases
Department of Labor, Office of Inspector General.
Evaluation of the Department of Labor's Policies and Procedures to Debar or Suspend Federal Contractors. September 28, 2000. Report No.: 2E-07-740-0001
New York City Mayor's Office of Contracts
Occupational Safety and Health Administration Integrated Management Information System
President's Council on Integrity and Efficiency and the Executive Council on Integrity and Efficiency
Securities and Exchange Commission Reports
United States Attorneys
United States Courts PACER Service Center (For Court Dockets)
American Bar Association Section of Public Contract Law Debarment and Suspension Committee
Government Accountability Project
National Association of Attorneys General
Taxpayers Against Fraud
Transactional Records Access Clearinghouse
Trial Lawyers for Public Justice
American Bar Association, Committee on Debarment and Suspension, Section of Public Contract Law. The Practitioner's Guide to Suspension and Debarment. 2nd ed. Washington: American Bar Association, 1996.
Government Executive Magazine
O'Boyle, Thomas F. At Any Cost: Jack Welch, General Electric, and the Pursuit of Profit. New York: Vintage Books, 1998.
Pasztor, Andy. When the Pentagon was for Sale: Inside America's Biggest Defense Scandal. New York: Scribner, 1995.
Company Web Sites
1. American Telephone and Telegraph (AT&T) - www.att.com
2. Amerisource Distribution - www.amerisourcebergen.net
3. Archer Daniels Midland (ADM) - www.admworld.com
4. Bechtel Group - www.bechtel.com
5. Ray Bell Construction Company - www.ray-bell.com
6. Bindley Western - www.cardinal.com
7. Boeing - www.boeing.com
8. Bollinger Shipyards - www.bollingershipyards.com
9. California Institute of Technology - www.caltech.edu
10. Cal Western Packaging - www.calwesternpkg.com
11. Cargill - www.cargill.com
12. Carlyle Group - www.thecarlylegroup.com
13. Clark Enterprises - www.clarkus.com
14. Compaq Computer - www.compaq.com
15. Computer Sciences Corporation - www.csc.com
16. Conagra - www.conagra.com
18. Crane Company - www.craneco.com
19. Dyncorp - www.dyncorp.com
20. Electronic Data Systems (EDS) - www.eds.com
21. Fluor Corporation - www.fluor.com
22. General Dynamics - www.generaldynamics.com
23. General Electric - www.ge.com
24. Goldman Sachs - www.gs.com
25. Honeywell - www.honeywell.com
26. International Business Machines (IBM) - www.ibm.com
27. Jones Group - www.jajones.com
28. JP Morgan - www.jpmorgan.com
29. Litton - www.litton.com
30. Lockheed Martin - www.lockheedmartin.com
31. Morrison Knudsen - www.wgint.com
32. Northrop Grumman - www.northropgrumman.com
33. Doug O'Bryan Contracting - P.O. Box 980, Martin, South Dakota 57551
34. Ratcliff Construction Company - www.ratcliffconstruction.com
35. Raytheon - www.raytheon.com
36. Research Triangle Institute - www.rti.org
37. Science Applications International Corporation (SAIC) - www.saic.com
38. Textron - www.textron.com
39. Thompson Ramo Wooldridge (TRW) - www.trw.com
40. Unisys - www.unisys.com
41. United Technologies - www.utc.com
42. University of California - www.ucop.edu
43. Westat - www.westat.com