11.10 Sanctioning contractors: suspension and debarment (S&D)
Suspension and debarment are administrative sanctions applied to contractors who fail to meet performance obligations, facilitate financial flows to malign actors, or commit crimes, including corruption and fraud. They include suspending existing contracts or debarring companies – usually for a defined period of time – from applying for new ones. They should be considered part of the sanctioning spectrum, alongside criminal sanctions and other approaches such as civil forfeiture, and can be especially useful if civil or criminal jurisdiction is disputed or if the justice system is ineffective.
S&D measures can be applied directly by the contracting authority and, while they do need to be based on solid evidence, the evidentiary threshold is lower than for criminal cases brought to court: it is normally ‘preponderance of evidence’, or likelihood that an offence has been committed. This provides the sanctioning authority with flexibility and greater repertoire of responses to infractions.
S&D, while flexible and useful responses where other measures fail, are not without challenges. First, it can be a challenge to ensure that individuals behind debarred companies do not simply establish a new company and apply for contracts again. Second, where they are applied in operational environments, it is not always possible to make all evidence – some of which could have been procured through intelligence channels and remains sensitive – publicly available. As the procedure is not a judicial one and there is no trial involved, the process and the decisions can be perceived as arbitrary and unfair, especially in cases where evidence is not made public. The company being suspended or debarred could also seek redress in court, increasing the time and costs for contracting authority.
It is important to ensure that the process does not allow for large amounts of discretion for individual officials, or it might create more risks than it addresses. To manage these risks, the suspension and debarment decisions themselves should be subject to audits and reviews, and the companies affected should have recourse to at least one instance of independent review.
Moreover, tools such as suspension and debarment (including designations such as the US Section 841), need to meet some conditions if they are to be effective:
- The contract termination threshold needs to match the average sums for contracts awarded in the area of operations. If it is set with regard to the usual practice in the sending country, it might leave out the bulk of contracts awarded in an area with lower prices. For example, the US Section 841 only applied to contracts valued above $100,000, although approximately 80 percent of contracts awarded in Afghanistan fall far below the $100,000 threshold.
- It needs to be based on a disciplined, timely flow of information, especially where sustainment arrangements include a significant amount of subcontracting and where the contracting authority has limited visibility on the supply chain. If primary contractors are made responsible for enforcing suspension and debarment of subcontractors, these arrangements need to come with information flows enabling timely decision making.
- Suspension and debarment on the basis of intelligence brings with it the challenges of classification: while the debarment itself can be made public, the reasons for it cannot. Therefore, the contracting authority needs to be prepared to underwrite the legal and possibly financial costs of this decision if a contractor or subcontractor decides to challenge it and wins in court.
Case Study: Afghanistan: Corruption and the making of warlords
Suspension of contracts: Afghanistan
Spurred by reports of US and ISAF resources likely flowing to Afghan insurgent groups, the US Congress mandated theatre commanders to suspend or abrogate contracts if those performing them were supporting US adversaries. The so-called Section 841 of the 2012 National Defense Authorization Act had become the legal basis for terminating contracts in the Central Command area of operations, especially in Afghanistan.View case study
Sanctioning misconduct: The World Bank and S&D
• The World Bank uses suspension and debarment to sanction contractor misconduct and protect Bank contracts from corruption, fraud and other offences subverting the procurement processes. In order to enable investigations and application of sanctions, Bank contracts contain clauses enabling Bank officials to access documents and correspondence (including emails) pertaining to the contract, and specify instances in which suspension and debarment can take place. The Bank has also issued debarment decisions targeting individuals and their holdings, to prevent individuals under sanction from simply establishing another company and continuing to apply for government contracts. In order to ensure continued access to relevant information, the Bank maintains a link of debarred companies, available online.View external case study
SIGIR and S&D in Iraq
In Iraq, SIGIR worked with the Army’s Legal Service Agency’s Procurement Fraud Branch to suspend 14 individuals and companies due to fraud and misconduct allegations. It also referred 12 other cases to the Army Suspension and Debarment Official, which debarred 8 of those.View external case study