[Federal Register Volume 60, Number 49 (Tuesday, March 14, 1995)]
[Notices]
[Pages 13692-13697]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6183]
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Notices
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains documents other than rules
or proposed rules that are applicable to the public. Notices of hearings
and investigations, committee meetings, agency decisions and rulings,
delegations of authority, filing of petitions and applications and agency
statements of organization and functions are examples of documents
appearing in this section.
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Federal Register / Vol. 60, No. 49 / Tuesday, March 14, 1995 /
Notices
[[Page 13692]]
ADMINISTRATIVE CONFERENCE OF THE UNITED STATES
Adoption of Recommendations
AGENCY: Administrative Conference of the United States.
ACTION: Notice.
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SUMMARY: The Administrative Conference of the United States (ACUS)
adopted two recommendations at its Fifty-First Plenary Session. The
recommendations concern the application and modification of Exemption 8
of the Freedom of Information Act, and procedures governing debarment
and suspension from federal programs.
FOR FURTHER INFORMATION CONTACT: Nancy G. Miller, 202-254-7020.
SUPPLEMENTARY INFORMATION: The Administrative Conference of the United
States was established by the Administrative Conference Act, 5 U.S.C.
591-596. The Conference studies the efficiency, adequacy, and fairness
of the administrative procedures used by federal agencies in carrying
out administrative programs, and makes recommendations for improvements
to the agencies, collectively or individually, and to the President,
Congress, and the Judicial Conference of the United States (5 U.S.C.
594(1)). At its Fifty-First Plenary Session, held January 19, 1995, the
Assembly of the Administrative Conference of the United States adopted
two recommendations.
Recommendation 95-1, ``Application and Modification of Exemption 8
of the Freedom of Information Act,'' suggests some changes in the scope
of coverage of that exemption. Exemption 8 protects from disclosure
certain documents relating to examination and supervision of banks by
federal agencies. The Recommendation proposes that Exemption 8 be
retained for examination reports of open banks, and modified for
examination reports for closed banks that have failed. Operating and
condition reports should be disclosed insofar as they contain or are
based on publicly available information. The Conference also makes
several suggestions to bank regulatory agencies on their administration
of Exemption 8.
Recommendation 95-2, ``Debarment and Suspension from Federal
Programs,'' addresses issues relating to debarments and suspensions
from federal procurement and nonprocurement programs. It recommends
that debarment from procurement programs have the effect of debarment
from nonprocurement programs, and vice versa. It recommends that
independent factfinders preside over hearings on disputed material
facts. It makes suggestions on improvements in the procedures governing
debarments and suspensions, and it recommends that Congress refrain
from legislating mandatory debarments.
The full texts of the recommendation are set out in the Appendix
below. The recommendations will be transmitted to the affected agencies
and to appropriate committees of the United States Congress. The
Administrative Conference has advisory powers only, and the decision on
whether to implement the recommendations must be made by the affected
agencies or by Congress.
Recommendations and statements of the Administrative Conference are
published in full text in the Federal Register. In past years
Conference recommendations and statements of continuing interest were
also published in full text in the Code of Federal Regulations (1 CFR
Parts 305 and 310). Budget constraints have required a suspension of
this practice in 1994. However, a complete listing of past
recommendations and statements is published in the Code of Federal
Regulations. Copies of all past Conference recommendations and
statements, and the research reports on which they are based, may be
obtained from the Office of the Chairman of the Administrative
Conference. Requests for single copies of such documents will be filled
without charge to the extent that supplies on hand permit (see 1 CFR
304.2).
The transcript of the Plenary Session is available for public
inspection at the Conference's offices at Suite 500, 2120 L Street, NW,
Washington, DC.
Dated: March 7, 1995.
Jeffrey S. Lubbers,
Research Director.
Appendix--Recommendations of the Administrative Conference of the
United States
The following recommendations were adopted by the Assembly of the
Administrative Conference on Thursday, January 19, 1995.
Recommendation 95-1, Application and Modification of Exemption 8 of The
Freedom of Information Act
Background
The Freedom of Information Act (FOIA), 5 U.S.C. Sec. 552,
generally mandates public access to records in the possession or
control of federal agencies, whether the records are generated by
the agency or obtained by it from other sources. The Act contains
nine exemptions, each of which authorizes but does not require the
agency to protect from disclosure certain types of information.
Exemption 8 permits agencies responsible for the regulation or
supervision of financial institutions to protect from disclosure
matters contained in or related to examination, operating, or
condition reports prepared by, on behalf of, or for the use of the
agency.
Exemption 8 provides an unusual level of protection to banks and
bank regulatory agencies.1 Except for Exemption 9, dealing with
geological and geophysical information, no other FOIA exemption is
industry- or agency-specific. In light of the change in the
regulatory environment of financial institutions since the passage
of the FOIA in 1966, the Conference has reviewed whether this broad
exemption continues to be justified. The upheaval faced by financial
institutions in the last decade and the number of such institutions
that have failed makes availability of information relating to the
regulation of that segment of the economy of particular interest. A
substantial amount of taxpayer money has been spent to alleviate
problems relating to financial institutions.
\1\The use of the term ``bank'' herein is intended to refer to
all financial institutions whose information is subject to Exemption
8. Likewise, the term ``bank regulatory agency'' refers to any
agency responsible for the regulation or supervision of financial
institutions.
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Exemption 8 covers a wide range of documents, primarily
operating reports, condition reports, and examination reports of
financial institutions. Operating and condition reports are largely
public financial statements submitted by the bank to the agency,
although they also may include some nonpublic information.
Examination reports are the written statements prepared by the
[[Page 13693]] agency's examiners evaluating the bank's operations
and practices, but they are not audit reports. Examination reports
include, among other things, information about an institution's
portfolio of loans, the strength of its management, and areas that
may need corrective action to improve its safety, soundness, and
compliance with law. While bank regulatory agencies encourage
examiners to make their reports candid, careful, and complete, the
reports often include preliminary analysis and commentary. The
examination report (known in some agencies as the ``open'' portion)
is made available to the bank, on the condition that it not be
disclosed outside the bank. The agencies retain the supporting
information for the report (which in some agencies is known as the
``closed'' portion). Most agencies also include in the examination
report and disclose to the bank what is known as a CAMEL rating: a
composite summary in numerical form of key components of the
examination--Capital, Asset quality, Management, Earnings, and
Liquidity. There are also ratings for each factor in the closed
portion.
Justification for Scope of Exemption 8
The Administrative Conference has always endorsed the FOIA
concept of disclosure of government records2 while recognizing
the need to balance competing concerns.3 Thus, it concludes
that, while the basic protection of confidential and sensitive data
relating to open banks should continue, where documents or
information in agencies' possession are already public or relate to
an institution no longer operating, the public interest in
disclosure outweighs the potential harm from such disclosure.
\2\See ACUS Recommendation 71-2, ``Principles and Guidelines for
Implementation of the Freedom of Information Act.'' See also
Presidential Memorandum for Heads of Departments and Agencies, The
Freedom of Information Act (Oct. 4, 1993) (Policy statement on the
use of the FOIA encouraging agencies to disclose agency records in
the absence of any clear harm); Attorney General's Memorandum for
Heads of Departments and Agencies, The Freedom of Information Act
(Oct. 4, 1993).
\3\See ACUS Recommendation 82-1, ``Exemption (b)(4) of the
Freedom of Information Act,'' Recommendation 83-4, ``The Use of the
Freedom of Information Act for Discovery Purposes.''
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Exemption 8's protection of operating, condition and examination
reports is generally seen as serving three primary purposes: (1) It
protects banks--including both the examined bank and those that have
relationships with it--from substantial harm that might be caused by
disclosure of information and opinion about their condition; (2) It
facilitates the free exchange of information between bank personnel
and examiners and encourages bank examiners to be candid, and as
necessary, immediately responsive, in their assessments of a bank's
financial position and operation; and (3) It protects the privacy of
bank customers (e.g., depositors and borrowers).
Bank regulators and the institutions they regulate and/or
supervise have generally asserted the need to protect both the
candor of examination reports and the nonadversarial nature of the
relationship between examiners and financial institution officials.
In particular, they have expressed concern that disclosure of
sensitive adverse information--especially preliminary data,
information, and conclusions--could reduce the candor of the
examiners' comments and analysis, and inhibit bank officials from
offering open access to their records and from being frank and open
in their discussions with the examiners. Examination reports, they
point out, are intended to draw the attention of bank management to
actual and potential problems as quickly as possible.
The exemption is also aimed at protecting the stability of
financial institutions by preventing the inappropriate disclosure of
information relating to the soundness of the institution, as
reflected in examination reports and in operating and condition
reports. The expressed concern is to avoid ``runs on the bank,'' as
well as other adverse impacts--e.g., short-term liquidity problems,
volatility in cost of funds, reduced access to credit or to
depositors. Nondisclosure is further justified on grounds that
harmful overreactions based on incomplete data are likely to
outweigh any public benefits. Financial institutions are also by
their nature interrelated, in the sense that an adverse impact on
one may have broad and possibly severe adverse implications for
others. Moreover, the need for disclosure is diminished insofar as
the public already receives, as a result of various banking and
securities law requirements, a substantial amount of detailed,
comparable information about banks.
Finally, there is a critical interest in protecting the privacy
of those doing business with a financial institution. Examiners
evaluate samples of loans. Information that might permit
identification of the borrowers and other customers, as well as
information about their financial situation and soundness, may
appear in examination reports. There seems little doubt that
information that might identify customers generally should be exempt
from disclosure.4
\4\Protection of a customer's privacy interest may require
redaction of more than a customer's name; other characteristics of
the loan might reveal customer identifications.
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Proper Scope of Exemption 8
Because of these considerations, the Conference believes that
Exemption 8's provisions should be retained for ``matters that are
contained in or related to examination * * * reports'' pertaining to
open banks. The continued protection of examination reports of open
institutions seems appropriate under the current regulatory regime.
Congress should, however, limit the exemption's coverage with
respect to information in operating and condition reports that is
publicly available. Almost all of the information contained in
operating and condition reports (i.e., quarterly statements of
income and expenses, assets and liabilities) is currently in the
public domain. As a result, bank regulatory agencies generally do
release such information even though it may literally fit within
Exemption 8. There is, therefore, no reason to retain this portion
of the exemption insofar as it permits nondisclosure of publicly
available data.
The more difficult question is whether the protection of other
information covered by Exemption 8 continues to be warranted.
Although the Conference concludes that examination reports with
respect to open institutions should remain protected, it believes
that examination reports (including all CAMEL ratings) of closed
institutions that have failed should not be exempt from disclosure.
(Closed institutions that did not fail would be treated like open
institutions for this purpose.5)
\5\The Conference does not seek to define when a closed bank
would be deemed to have failed. As discussed below, among the bases
for recommending that information about closed failed banks be
available under FOIA are the role of government oversight and
impacts on taxpayers.
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The deposit insurance program gives the public (and the
taxpayers) a particular interest in knowing what caused a bank to
fail and whether regulatory oversight was adequate or
effective.6 Release of examination report information is
unlikely to cause any harm to the institution itself once it is
closed; nor is there any ongoing relationship between the examiner
and the bank officials that would be jeopardized by disclosure. The
examiners' concern about protecting candor is sharply reduced for
banks that are closed.7 Further, the disclosure of such
information pertaining to closed banks would, of course, continue to
be subject to other FOIA exemptions.8
\6\While Congress has mandated reports by the agency's Inspector
General for certain bank failures after July 1, 1993 (see Federal
Deposit Insurance Corporation Improvement Act of 1991, 12
U.S.C.Sec. 1831o(k)), disclosure of the underlying data, if
requested, may provide a useful validation or check on such reports.
\7\Despite recent history, the vast majority of all financial
institutions do not fail. This recommendation, therefore, addresses
only the disclosure on request of examination reports of a narrow
group of banks where the justification for release of the data is
especially compelling.
\8\Among the potentially relevant exemptions are Exemptions 4
(confidential commercial or financial information), 5 (agency
predecisional documents), 6 (personal privacy), and 7 (investigative
reports).
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Nonetheless, to further ensure that disclosure will not cause
undue harm, the Conference recommends that certain limitations be
placed on disclosure of examination reports of closed banks that
have failed. Disclosure concerning a failed bank that could
reasonably be expected to impair the solvency of an open bank or
efforts to sell the failed institution or its assets should be
delayed. Similarly, disclosure should be delayed where it could
reasonably be expected to interfere with an ongoing civil or
criminal investigation. Information relating to specific loans or
other information that would identify customers could be redacted.
Moreover, in cases where either the Federal Deposit Insurance
Corporation or the Resolution Trust Corporation is involved in
responding to the bank's failure, other bank regulatory agencies
should consult with them before releasing examination reports.
Separately, the Conference also proposes that Congress consider
whether Exemption 8 [[Page 13694]] should continue to apply to
situations where examination or other reports of financial
institutions are prepared by agencies having no authority to
regulate or otherwise supervise those institutions.9 Especially
where the financial institutions do not accept deposits from the
public and there is no applicable deposit insurance, Congress should
review whether the policies underlying the Exemption apply.
\9\See, e.g., Public Citizen v. Farm Credit Administration, 938
F.2d 290 (D.C. Cir. 1991) (Reports of FCA regarding the National
Consumer Co-op Bank covered by Exemption 8).
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If Congress believes that additional information relating to
financial institutions would improve accountability and oversight or
provide for a better-informed marketplace, the Conference recommends
that Congress consider using the approach taken in the Community
Reinvestment Act, where specific, focused, published reports have
been required.10
\10\The Community Reinvestment Act, 12 U.S.C. Sec. 2906,
requires reports concerning credit made available by banks in low
and moderate income areas. See also the Federal Deposit Insurance
Corporation Improvement Act of 1991, which requires reports by the
agency's Inspector General for each bank failure after July 1, 1993.
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Administration of Exemption 8
There are a number of actions bank regulatory agencies can take
under their current authority to improve implementation of Exemption
8. Several bank regulatory agencies have already implemented many of
them, and the Conference recommends their consideration by all. As a
first step, agencies that regulate or supervise financial
institutions should ensure that information that is otherwise
publicly available is not treated as exempt under the FOIA. For
example, as noted, operating and condition reports contain
information that appears largely to be publicly available from other
sources. To the extent that this and other information currently
withheld under Exemption 8 is otherwise available and can be
separated from sensitive data, agencies should release such
information. Agencies should also continue to review their data
collection forms and information-gathering documents and design them
so that confidential information is collected separately and can be
easily segregated from information that could be disclosed.
Several bank regulatory agencies now participate in an
interagency FOIA group. The Conference lauds this effort, and
encourages all bank regulatory agencies to coordinate their
application of the exemption and its scope, in order to ensure that
similar documents are treated similarly. In doing so, agencies
should keep in mind the FOIA's intent to allow the public to know
what agencies are doing to the greatest extent possible. Agencies
generally should presume, for example, that if one agency releases a
particular type of document, such documents should be released by
all other agencies if requested. Agencies also should avoid
routinely exempting documents that are ``related to'' examination
reports without carefully evaluating whether the information could
be disclosed. Even though an examination report itself may be
nondisclosable, not all portions of all documents related to it are
necessarily also nondisclosable.
Bank regulatory agencies should also consider using the
ombudsmen recently mandated by statute11 to inquire into
citizen concerns about handling FOIA requests and to recommend
solutions or possible systemic improvements. The Conference has
previously stated that use of alternative means of dispute
resolution should be explored in resolving FOIA disputes12
\11\The Office of the Comptroller of the Currency has an
ombudsman, whose current responsibilities include involvement in
banks' challenges to their CAMEL ratings. Recently enacted Pub. L.
No. 103-325 requires each federal banking agency to appoint an
ombudsman to deal with complaints from the public about regulatory
activities.
\12\Administrative Conference Statement 12, 1 CFR 310.12 (1993).
It has also recommended the use of ombudsmen more generally in
federal agencies. Administrative Conference Recommendation 90-2,
``The Ombudsman in Federal Agencies,'' 1 CFR 305.90-2 (1993).
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Agencies generally have the discretion to release requested
information even if it is otherwise exempt under the FOIA. Pending
Congressional action on the recommendations to modify Exemption 8,
the bank regulatory agencies should implement the recommendations
independently and, in any case, they should experiment with the
release of examination reports for large failed banks. This would
provide information to the public about the banks for which the
largest amounts of money (and potentially, public funds) are at
stake, and would provide an opportunity for determining whether such
release has any significant untoward effects.
Recommendation
I. As applied to open financial institutions and closed
financial institutions that have not failed, the provisions of
Exemption 8 of the Freedom of Information Act should be retained for
``matters that are contained in or related to examination * * *
reports.'' The Conference concludes that bank regulatory agencies
should continue to have discretion to withhold such examination
reports, because, among other reasons, (a) disclosure of material
relating to supervision and regulation of open financial
institutions might have an adverse impact on the supervisory and
regulatory process and on the banks themselves,13 (b) such
disclosure also might have an adverse economic impact on other
banks, due to the unique interrelationship of such institutions, and
(c) a substantial amount of related information is already otherwise
available.
\13\The use of the term ``bank'' herein is intended to refer to
all financial institutions whose information is subject to Exemption
8. Likewise, the term ``bank regulatory agency'' refers to any
agency responsible for the regulation or supervision of financial
institutions.
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II. A. In order to ensure that information about banks is not
unreasonably withheld, Congress should limit the exception to
disclosure in Exemption 8 as follows:
1. As applied to closed institutions that have failed,
examination reports and CAMEL ratings should not be exempt from
disclosure, except that disclosure should be delayed where it could
reasonably be expected to (a) impair the solvency of an open bank or
an agency's efforts to sell the closed bank or its assets, or (b)
interfere with an ongoing civil or criminal investigation. Records
identifying specific loans or customers could be redacted,14
and prior consultation with other agencies with jurisdiction over
such a closed bank should be required.
\14\This recommendation does not seek to alter the applicability
of other FOIA exemptions or of notice requirements such as those set
out in Executive Order 12600 (relating to predisclosure notification
for confidential commercial information).
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2. As applied to all financial institutions, operating and
condition reports should not be exempt from disclosure insofar as
they contain or are based on publicly-available information.
B. Congress should also consider whether Exemption 8 should
continue to apply to examination or other reports of financial
institutions prepared by agencies having no authority to regulate or
otherwise supervise those institutions, especially where the
financial institutions do not accept deposits from the public.
III. To the extent that Congress determines that additional
information relating to the regulation or examination of financial
institutions should be publicly available to enhance accountability
and oversight, it should provide for preparation of special public
reports and analyses, or for other mechanisms specifically designed
to provide the necessary information to the public on a systematic
basis.15
\15\For an illustration of such a report, see the Community
Reinvestment Act, 12 U.S.C. Sec. 2906 (reporting on supply of credit
by banks in low and moderate income areas).
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IV. Agencies with supervisory or regulatory responsibilities
relating to financial institutions should continue to review ways to
improve their administration of the Freedom of Information Act.
A. Bank regulatory agencies should implement the following
practices:
1. Information subject to Exemption 8 should be withheld only
insofar as necessary to protect the efficacy of the examination
process and the privacy of sensitive data and to avoid adverse
economic impacts on other banks. Agencies should not withhold
information on the basis that it is ``related to'' operating,
condition or examination reports unless they determine that
nondisclosure is properly justified.
2. Information that is already publicly available should not be
treated as exempt from disclosure. For example, agencies should
continue, in response to FOIA requests, to release operating and
condition information submitted by financial institutions that is
publicly available.
3. To facilitate the disclosure of releasable information,
agencies should, to the extent feasible, design data-collection
forms or other information-gathering mechanisms in order to separate
disclosable and nondisclosable information.
4. Agencies authorized to rely on Exemption 8 should continue to
develop a coordinated approach for releasing
[[Page 13695]] information, so that the public receives uniform
treatment for similar data or types of documents.
5. Agencies should consider using their ombudsmen to inquire
into citizen concerns about handling of FOIA requests and to
recommend solutions or possible systemic improvements.16
\16\See Pub. L. No. 103-325, which requires each federal banking
agency to appoint an ombudsman. See Administrative Conference
Recommendation 90-2, ``The Ombudsman in Federal Agencies,'' 1 CFR
305.90-2 (1993).
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B. In light of their discretion to release even otherwise exempt
information in response to requests under the FOIA, bank regulatory
agencies should implement the recommendations set forth in Part
II(A). In any case, agencies should, on an experimental basis,
immediately make the disclosures recommended therein with respect to
large failed financial institutions.
Recommendation 95-2, Debarment and Suspension from Federal Programs
Introduction
The federal government is very big business in its purchases of
products and services and in its provision of grants, loans,
subsidies, and other types of economic assistance. Many private
companies--small, medium, and large--rely to a significant degree on
their business with the government for economic survival. In this
recommendation, the Administrative Conference of the United States
addresses several significant issues that arise when federal
agencies act to protect the public fisc by suspending or debarring
individuals and companies who allegedly are not responsible enough
to continue to do business with the government.
The Administrative Conference of the United States has
considered the topic of debarment and suspension from federal
programs several times in the last 35 years. The 1961-62 temporary
Administrative Conference issued a series of influential
recommendations on the procedural structure of debarment and
suspension of federal contractors. A 1975 study done for the
Conference found that those recommendations remained sound. Since
then, there has been substantial activity in the debarment and
suspension area, as the Federal Acquisition Regulation (FAR) and
other regulatory programs have been promulgated to authorize such
actions both in the procurement and nonprocurement arenas, and
Congress has authorized debarment and suspensions in a variety of
contexts.
The Conference's recent study focused on the regulatory programs
involving procurement debarment coordinated by the Federal
Acquisition Regulation Council (FAR Council)1 and promulgated
in the FAR,2 and a comparable (but not identical) effort
involving nonprocurement debarment coordinated separately by OMB
(known as the ``Common Rule'').3 The two debarment and
suspension programs have similar structures, but they are not
identical, and not completely complementary.
\1\The FAR Council includes representatives of the Office of
Federal Procurement Policy in OMB, the General Services
Administration, NASA, and the Department of Defense.
\2\48 CFR Sec. 9.400 et seq.
\3\53 Fed. Reg. 19,204 (1988).
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Debarment refers to an action to preclude individuals and
entities from receiving future contracts or other benefits such as
loans or grants for a designated period of time. A suspension is a
similar action on a temporary basis. They are intended to ensure
that government ``does business,'' in both its contracts and its
nonprocurement assistance programs, only with individuals and
entities that are ``presently responsible.''
The Department of Defense alone debarred or suspended 1,157
persons and businesses in 1994. Across the federal government,
almost 6,000 entities were debarred or suspended the same year.
A. Procurement
The regulations set forth in the FAR provide that each agency
should promulgate its own regulations consistent with the FAR
provisions. The FAR provides that an agency may suspend a contractor
on an immediate, temporary basis prior to a hearing, based on
``adequate evidence'' of a variety of actions relating to a lack of
contractor integrity. A proposed debarment, for which there is no
minimum evidentiary threshold set out in the FAR, also has the
effect of immediately precluding the award of additional federal
contracts. Contractors have the opportunity to present information
and argument in opposition to a suspension or proposed debarment. In
cases where there is a disputed issue of material fact, a contractor
is entitled to an informal factfinding hearing where the contractor
may appear with counsel, submit documentary evidence, and present
and confront witnesses. The regulations do not specify the type of
hearing officer. The regulations do contain a list of mitigating
factors the debarring official (who is usually also the suspending
official) should consider in deciding whether to debar or suspend.
Most debarments involve contractors that have been indicted or
convicted; relatively few involve disputed issues of material fact
that would warrant a hearing.4
\4\For example, 96 percent of the Air Force's debarments and
suspensions are based on indictments and convictions. Neither the
Army, Air Force, Defense Logistics Agency, nor the Navy has had
fact-based hearings in any debarment or suspension cases in the last
5 years.
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Contractor suspensions and debarments have government-wide
effect; i.e., no executive branch agency may enter into a contract
with a debarred or suspended contractor. The General Services
Administration administers a list of debarred and suspended
contractors.
B. Nonprocurement
The nonprocurement debarment and suspension process is based on
Executive Order 12549, issued in 1986. OMB led an effort for uniform
regulations (the Common Rule), and at least 36 agencies have issued
such a rule. The regulatory framework differs slightly from the
procurement debarment system. The procedures are basically similar,
with suspended persons entitled to appear in person or submit
written argument and information after the suspension is effective,
and a further informal hearing available in cases with disputed
issues of material fact. Unlike in the procurement context, however,
a proposed debarment does not have immediate effect. Nor do the
nonprocurement regulations contain a list of factors the debarring
official should consider in connection with the decision whether to
debar or suspend.
As in the procurement context, nonprocurement debarments and
suspensions have executive branch-wide effect and the GSA publishes
a list of those debarred or suspended. However, those debarred or
suspended under one (e.g., the nonprocurement) system are not now
debarred from the other; i.e., there is no reciprocal effect.
* * * * *
Debarments and suspensions under both regulatory programs
generally may not exceed 3 years. They may be terminated on a
showing that, among other things, there has been a bona fide change
in ownership or management, or that the causes on which the
debarment was based have been eliminated.
Discussion
Although the nonprocurement and procurement debarment programs
appear generally to be functioning fairly well, the Conference does
recommend some changes to make the process more efficient and more
fair.
A. Reciprocal Effect
As noted, the procurement and nonprocurement systems, while each
having government-wide effect, do not have reciprocal effect.
Legislation5 and an executive order6 have mandated that
this problem be resolved, and the Conference underscores the
importance of making the appropriate regulatory modifications
promptly to ensure that debarment or suspension under one system
leads to debarment or suspension under both. The Conference also
believes that the existing provisions allowing agency heads to waive
the applicability of a government-wide debarment or suspension for
their agency should be retained.7
\5\The Federal Acquisition Streamlining Act, Pub. L. No. 103-355
(1994).
\6\Executive Order 12689, issued in 1989.
\7\Waiver and exception procedures are currently found in the
FAR at 48 CFR 9.406-1(c), 9.407-1(d), and in the Common Rule at
X.215.
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B. Debarring Officials and Hearing Officers
Neither regulatory framework specifies criteria for appointing
the debarring official. Some agencies have written specifications
identifying the type of official who is to perform this function, as
well as the official who is to serve as a hearing officer in the
relatively few cases where informal hearings on disputed issues of
fact are held. However, there is no uniformity among the agencies
that have established these criteria. For example, at the Department
of Housing and Urban Development, where hearings are relatively
frequent, administrative law judges [[Page 13696]] (ALJs) or board
of contract appeals (BCA) judges serve in effect as debarring
officials, while also presiding over the hearings. At the Department
of the Air Force, the debarring official is the Assistant General
Counsel for Contractor Responsibility, and a military trial judge
presides over any factfinding proceedings. The Environmental
Protection Agency's debarring official is the director of its Office
of Grants and Debarment, but the agency uses hearing officers who do
not have the institutional independence of an ALJ, BCA judge, or
military judge. Few agencies expressly require either the debarring
official or the hearing officer to have any specific level of
institutional independence.
The informal nature of the adjudication, as well as the process
for a prehearing suspension, have been consistently upheld by the
courts as providing due process. Courts have occasionally discussed
the need to ensure some measure of independence on the part of
adjudicators.8 Neither the FAR nor the Common Rule explicitly
addresses the issue. Given the informal character of debarment and
suspension determinations, as well as the ``business'' protection
basis for such decisions, the strict separation of functions and
total avoidance of ex parte contacts that would apply in more formal
contexts may not be needed. However, it is important that the
debarring official be sufficiently independent to protect due
process. It is, for example, good practice that the debarring
official not be supervised by nor directly supervise the
investigators or advocates who are developing the cases. It is also
good practice for debarring officials generally to ensure that all
information that serves as the basis for decision appears in the
administrative record, and that it is made available to the
respondent in contested cases.
\8\In Girard v. Klopfenstein, 930 F.2d 738 (9th Cir. 1991), the
court suggested the need for a separation of the prosecutorial and
decisionmaking functions in a debarment case, but did not explicitly
decide the issue.
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When there is a hearing to resolve disputed issues of material
fact in a suspension or debarment case, a greater degree of
independence ought to be required on the part of the hearing
officer. The Administrative Conference has recently taken the
position that cases involving ``imposition of sanctions with
substantial economic effect'' should be heard by administrative law
judges.9 Debarments and suspensions clearly can have
substantial economic effect. Depending on the type of entity and the
nature of its business, a debarment from federal contracts or other
benefits may bankrupt a company. Therefore, while a full APA formal
hearing is not constitutionally required in debarment and suspension
cases, even where there are disputed issues of fact, use of a truly
independent hearing officer is consistent with notions, and
appearances, of fairness. In some statutory debarment programs,
Congress has required that post-debarment hearings be presided over
by ALJs.10 ALJs clearly have the requisite independence.
Administrative judges from boards of contract appeals and military
judges have similar independence. They are experienced in providing
hearings that ensure that the respondent has the proper opportunity
to present a case. Using only such independent judges for
factfinding hearings would also ensure uniformity among agencies;
since a debarment has government-wide effect, the nature of a fact-
finding hearing should not depend on the particular agency taking
the action. The Conference therefore recommends that, where there
are disputed issues of material fact in debarment or suspension
cases, the agency assign an ALJ, BCA judge, or military judge to
preside over the hearing. If an agency wishes to use some other
hearing officer, it should ensure that such officer is guaranteed
independence comparable to that of an ALJ.11 Agencies should
also provide in their rules whether the judge would issue (a)
findings of fact that would be certified to the debarring official;
(b) a recommended decision to the debarring official; or (c) an
initial decision, subject to any appropriate further appeal within
the agency.12
\9\See Recommendation 92-7, ``The Federal Administrative
Judiciary,'' at A(1)(c).
\10\See 42 U.S.C. Sec. 1320a-7(exclusion of health care
providers from Medicare program participation).
\11\See 5 U.S.C. Sec. 554(d)(2).
\12\Regarding the need to clearly set forth the appeals
procedure, see Darby v. Cisneros, 113 S.Ct. 2539 (1993)(in absence
of agency regulations governing agency appeal, respondents could
proceed directly to court).
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C. The FAR and Common Rule
As discussed above, the two sets of procedures, for procurement
and for nonprocurement debarment and suspension, are not identical.
Some of the variations relate to the differing natures of the
programs they address. On other issues, uniformity might serve to
eliminate confusion, especially in light of the government-wide
effect and (hopefully soon-to-be) reciprocal impact. At a minimum,
there are several issues that the Conference recommends be addressed
in each set of rules.
Both nonprocurement and procurement debarments and suspensions
are discretionary. The procurement regulations include a list of
mitigating factors the debarring official should consider in
determining whether to debar or suspend.13 No such list exists
in the nonprocurement context, and neither program has a list of
aggravating factors. The Conference recommends that a list of
mitigating and aggravating factors be included in the regulations
for both programs. These lists should be considered by debarring
officials both in determining whether to impose a debarment or
suspension, and in determining the period of debarment.14 The
Conference takes no position on whether any such list should
represent an exclusive list of factors to be considered, but does
recommend that each agency make clear its intention with respect to
exclusivity. The Conference also notes that both aggravating and
mitigating circumstances should focus on issues relating to the
respondent's ``present responsibility'' to avoid any appearance that
the debarment is intended as punishment.
\13\The procurement debarment rule indicates that the debarring
official ``should consider'' the mitigating factors in determining
whether to debar. The suspension rule provides that the suspending
official ``may, but is not required to consider'' mitigating factors
in determining whether to suspend. The Conference recommends that
the ``should consider'' language be used in both debarment and
suspension cases.
\14\The Administrative Conference has recommended standards for
mitigating statutory money penalty amounts imposed administratively.
See Recommendation 79-3, ``Agency Assessment and Mitigation of Civil
Money Penalties.''
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As noted, each type of debarment is effective across the
executive branch. There will thus be cases where a particular entity
does business with multiple agencies. The Conference recommends that
a procedure be developed by which agencies can efficiently and
routinely coordinate with each other and determine which agency will
serve as the lead agency on behalf of the government in taking
debarment and/or suspension action. This would avoid multiple
actions with inconsistent results. It may also ensure that the
agency with the greatest interest will handle the case. The
Conference is aware that agencies considering actions relating to
the same respondent do confer informally in many cases, but believes
that a more uniform, regularized process for agencies to determine a
lead agency in particular cases would be preferable.
As also noted, suspensions become effective immediately. The
suspended respondent may, after the fact, submit written comment and
information to the debarring official opposing the continuation of
the suspension. In some cases, the lack of advance notice is
necessary to allow an agency to protect the integrity of its
contracting or nonprocurement program. In other cases, however, it
may be appropriate to provide advance notice to the potential
respondent that a suspension or proposed debarment may be
forthcoming. In fact, some agencies do send what are in essence
``show cause'' letters in certain situations. In cases where the
interests of the government would not be substantially adversely
affected by providing advance notice of a suspension of proposed
debarment, the Conference encourages agencies to provide such
notice.
Given that debarments and suspensions have a government-wide
effect and may soon also apply to both procurement and
nonprocurement programs, it is especially important that respondents
be given notice at the earliest opportunity of these potential
impacts.
Suspensions require a finding of ``adequate evidence'' as a
threshold for their issuance. Proposed debarments, which in the
procurement context have a similar preclusive effect, have no such
threshold. (An ultimate decision to debar must be based on the
preponderance of evidence, however.) Given their immediate effect, a
minimum evidentiary threshold for procurement proposals to debar
would also be appropriate. The Conference recommends that proposals
to debar in the procurement context require ``adequate evidence of
cause to debar.''
The Administrative Conference also recommends that all agencies
within the ``executive branch'' (broadly construed to include
``independent'' agencies) should implement the ``Common Rule'' and
those portions of the FAR that address suspension and debarment.
[[Page 13697]]
D. Statutory Debarments
The procurement and nonprocurement debarment and suspension
programs are based in regulation and/or executive order. There are
also many statutorily-based debarment schemes, some of which also
involve procurement and nonprocurement programs. In many of these
statutory programs, Congress has restricted agencies' discretion
whether to debar, or to determine the length of a debarment.15
Congress has increasingly opted to require agencies to debar or
suspend in particular situations. Debarment and suspension are not
intended to be punitive remedies, but rather are premised on the
need to protect the integrity of government programs. The Conference
believes that Congress should ordinarily allow agencies to retain
the discretion to determine (1) whether debarments or suspensions
are appropriate in individual cases, and (2) the appropriate length
of such debarments. Moreover, Congress should review existing
statutory schemes that mandate debarment and/or particular terms of
debarment, and determine whether they should be continued. The
primary basis for recommending that agency discretion not be limited
with respect to most debarment and suspension determinations is the
need to retain flexibility to meet the needs of the government and
the public. The Conference believes that agency officials generally
would be in a better position than Congress to determine appropriate
remedial sanctions in individual cases that serve both to protect
the fisc and meet program needs.16
\15\For example, DHHS is required to exclude from
participation in the Medicare and Medicaid programs for 5 years any
health care provider who is convicted of a crime related to the
provision of services under those programs, or of patient abuse. 42
U.S.C. Sec. 1320a-7(a).
\16\This recommendation should not be read to discourage
Congress from providing guidelines for agencies to consider in
exercising their discretion.
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The co-existence of the regulatory debarment programs that are
the focus of this recommendation with a broad variety of statutory
debarment programs creates a number of issues that relate to the
interactions between them. The Conference may in the future study
these issues, which include conflicts that arise from inconsistent
procedural requirements and questions about whether all statutory
programs are intended to have government-wide effect.
Recommendation
I. Entities coordinating the Federal Acquisition Regulation
(FAR) and the Common Rule for nonprocurement debarment, and
individual agencies in their procurement and nonprocurement
debarment and suspension regulations, should promptly ensure that
the applicable regulations provide that suspensions or debarments
from either federal procurement activities or federal nonprocurement
activities have the effect of suspension or debarment from both,
subject to waiver and exception procedures.17
\17\Waiver and exception procedures are currently found in the
FAR at 48 CFR 9.406-1(c), 9.407-1(d), and in the Common Rule at
X.215.
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II. Entities coordinating the FAR and the Common Rule, and
individual agencies in their regulations, should ensure that:
A. cases involving disputed issues of material fact are referred
to administrative law judges, military judges, administrative judges
of boards of contract appeals, or other hearing officers who are
guaranteed similar levels of independence18 for hearing and for
preparation of (1) findings of fact certified to the debarring
official; (2) a recommended decision to the debarring official; or
(3) an initial decision, subject to any appropriate appeal within
the agency.
\18\See 5 U.S.C. Sec. 554(d)(2).
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B. debarring officials in each agency should:
1. Be senior agency officials;
2. Be guaranteed sufficient independence to provide due process;
and
3. In cases where the agency action is disputed, ensure that any
information on which a decision to debar or suspend is based appears
in the record of the decision.
III. Entities coordinating the FAR and the Common Rule, and
individual agencies in their regulations, should provide that each
regulatory scheme for suspension and debarment includes:
A. A list of mitigating and aggravating factors that an agency
should consider in determining (1) whether to debar or suspend and
(2) the term for any debarment;
B. A process for determining a single agency to act as the lead
agency on behalf of the government in pursuing and handling a case
against a person or entity that has transactions with multiple
agencies;
C. (With respect to procurement debarment only) a minimum
evidentiary threshold of at least ``adequate evidence of a cause to
debar'' to issue a notice of proposed debarment;
D. A requirement that all respondents be given notice of the
potential government-wide impact of a suspension or debarment, as
well as the applicability of any such action to both procurement and
nonprocurement programs; and
E. Encouragement for the use of ``show cause'' letters in
appropriate cases.
IV. All federal agencies in the executive branch (broadly
construed to include ``independent'' agencies) should implement the
``Common rule'' and FAR rules on suspension and debarment.
V. Congress should ordinarily refrain from limiting agencies
discretion by mandating suspensions, debarments, or fixed periods of
suspension or debarment. Congress should also review existing laws
that mandate suspensions, debarments, and fixed periods, to
determine whether to amend the provisions to permit agency
discretion to make such determinations.
[FR Doc. 95-6183 Filed 3-13-95; 8:45 am]
BILLING CODE 6110-01-P