An Unused System

If you survive long enough or are large enough, your company will do business with someone that, in retrospect, you should have avoided. Our government is no different; people will try to stiff it. When a government agency decides that it no longer wants to do business with a company for valid reasons, the agency must enter the company's name and information on what is called the Excluded Parties List System (EPLS). This makes sense, given the size of our government. But, as the GAO has discovered, the system does not work very well.
Some examples:

In July 2005, the Department of the Army debarred a German company and its president after the president violated German law and attempted to ship dual use aluminum tubes, which can be used to develop nuclear weapons, to North Korea. In the debarment decision, the Army stated that because the president “sold potential nuclear bomb making materials to a well-known enemy of the United States,” there was a “compelling interest to discontinue any business with this morally bankrupt individual.” Despite this debarment, the Army chose to continue to award the company task orders and paid it over $4 million during fiscal year 2006. Although the Army told us that it was legally obligated to continue the contract with the company, in fact several options were available for termination. It is not clear if the Army considered these options because the officials we spoke with were not sure of the exact circumstances surrounding the decision and there was no contemporaneous documentation related to the case.
• In April 2006, the Department of the Navy suspended a company after one of its employees sabotaged repairs on an aircraft carrier by using nonconforming parts to replace fasteners on steam pipes. If these pipes had ruptured as a result of faulty fasteners, those aboard the carrier could have suffered lethal burns. However, less than a month after the suspension, the Navy awarded the same company three new contracts because a contracting officer failed to check EPLS to verify the company’s eligibility.
• GSA suspended a construction company in September 2006 after its president opened fraudulent GSA surplus-property-auction accounts using fictitious social security numbers so that he could continue to do business with GSA while his original account was in default for nonpayment. The Department of the Interior attempted to check the contractor’s eligibility in EPLS prior to making several awards to the company, but the exclusion was not revealed because GSA did not enter the company into EPLS until October 2006, more than a month after the suspension began.
• The Department of Health and Human Services (HHS) debarred an individual in April 2003 for 5 years after he pleaded guilty to Medicare fraud. Because HHS did not debar the individual’s company, he transferred ownership of the company to his wife in an attempt to continue receiving Medicare reimbursements. After HHS objected to this arrangement, he then sold the company to a neighbor. Two years later, citing financial difficulties, the neighbor sold the business back to the original owner’s wife. The wife admitted to our investigators that she then legally changed her last name to her maiden name to avoid “difficulties” in using her husband’s name. Using this scheme, the couple received Medicare payments for the remaining 3 years of the husband’s debarment.

The problem seems to be that few pay attention to the system and, thus, either do not report bad companies, report incomplete information or do not search the lsit when a contract is to be awarded.