Ms. Laurie Duarte
General Services Administration
FAR Secretariat (MVR)
1800 F Street, NW
Room 4035
Washington, DC 20405

Re:     Proposed Stay and Revocation of Contractor Responsibility Provisions of Federal Acquisition Regulations; FAC 97-24, FAR Case 1999-010 (Stay) and FAR Case 2001-014 (Revocation)

Dear Ms. Duarte:

As discussed more fully below, the Food Marketing Institute (FMI) applauds the Federal Acquisition Regulation Council’s (FAR Council’s) proposals to stay and to revoke the recent amendments to the contractor responsibility provisions of the Federal Acquisition Regulation (FAR). 66 Fed. Reg. 17754 (April 3, 2001); 66 Fed. Reg. 17758 (April 3, 2001). FMI submitted comments in opposition to both the July 1999 and June 2000 proposals to amend the FAR contractor responsibility provisions and specifically asked the FAR Council to withdraw these proposals. We were concerned that the amendments would have allowed government contracting officers to prohibit companies from contracting with the federal government on unsubstantiated grounds.

However, despite comments filed by FMI and nearly 2000 others, the final rules were substantially similar to the proposals in this regard. See 65 Fed. Reg. 80256 (Dec. 20, 2000). “Blacklisting” of the sort now codified in the regulations reduces the number of companies eligible to compete for government contracts, which is, ultimately, a disservice to American taxpayers. Accordingly, FMI strongly supports the proposal to revoke the December 2000 contractor responsibility amendments and to stay the amendments in the interim.

FMI is a non-profit association that conducts programs in research, education, industry relations and public affairs on behalf of its 1,500 members and their subsidiaries. Our membership includes food retailers and wholesalers, as well as their customers, in the United States and around the world. FMI’s domestic member companies operate approximately 21,000 retail food stores with a combined annual sales volume of $300 billion, which accounts for more than three-quarters of all grocery store sales in the United States. FMI’s retail membership is composed of large multi-store chains, small regional firms, and independent supermarkets. Our international membership includes 200 members from 60 countries.


     A.     Background

Section 9.104-3 of the Federal Acquisition Regulations codifies the statutory requirement that prospective contractors must be “responsible sources” that have “a satisfactory record of integrity and business ethics” in order to receive a Government contract. 48 CFR § 9.104-3; 10 U.S.C. § 2305(b); 41 U.S.C. § 253b; 41 U.S.C. § 403(7)(D). Beginning in 1999, the FAR Council proposed to expand this standard to require “a satisfactory record of compliance with the law.” See 64 Fed. Reg. 37360 (July 9, 1999); 65 Fed. Reg. 40830 (June 30, 2000). The final rule incorporates this standard and broadly requires government contracting agents to “consider all relevant credible information” in making this determination. 48 CFR § 9.104-3(c). With respect to the number of violations that are relevant, the regulation states that “normally a determination of nonresponsibility, but evidence of repeated, pervasive or significant violations of the law may indicate an unsatisfactory record of integrity and business ethics.” Id. (emphasis added).


     B.     Comments

As with the proposals, the final rules amending the FAR do not provide sufficient guidance to contracting officers to allow them to implement the regulations in a consistent manner. Indeed, the substantial grant of authority under the final rules provides the potential for contracting officers to “blacklist” companies. Companies that are “blacklisted” would be ineligible to enter into procurement contracts with the federal government. The final regulation would prevent such companies from contracting with the government without consideration of such factors as the severity or number of the violations, the employers’ intent, or whether an appeal is pending.

The sweeping nature of the final regulation means that practically any company could find itself ineligible to contract with the federal government at any time. Every company in the food distribution industry must comply with a vast array of complicated, confusing and lengthy federal, state and local laws and regulations every day. Our businesses must comply with major regulations in the area of job safety, wage and hour, food safety, antitrust, tax and many other laws that are covered by the new contractor responsibility provisions. Nearly every aspect of every job in the food distribution system is in some way regulated by the far-reaching federal regulatory system. Although our industry employs legions of legal and technical experts to help our companies maintain compliance with these federal laws and regulations, under the final regulation, any lapse in compliance—no matter how unintentional, technical or perhaps inconsequential to health or safety—could result in a company being blacklisted and prevented from participating in federal contracting. Indeed, the regulation permits a single violation of the law to give rise to a determination of nonresponsibility.

The contractor responsibility provisions allow government contracting agents to make judgments and determinations about the eligibility of an individual company to engage in the contracting process. This eligibility determination would in most or all cases be made by contracting agents who do not the have technical or working knowledge of the vast requirements of environmental, employment, tax, antitrust or consumer protection statutes and regulations. Since the regulation provides no guidance with respect to the gravity of the violation or the status of appeal, government contracting officers are given the license to deny eligibility based on any violation or complaint without distinction. Furthermore, as the final regulation still is not clear how “satisfactory compliance” with the law is defined, contracting agents are responsible for making subjective and possibly unfair interpretations.

Under the final rule, contract denial may be based on a wide range of actions against a company, including court decisions, decisions by Administrative Law Judges, civil cases brought by federal agencies, or any decision, order or complaint issued by any federal agency, board or commission. This allows companies to be barred from contracting even though an order or decision may yet be the subject of a pending appeal. Thus companies could be prohibited from contracting with the government simply on the basis of a complaint having been made against the company, and before the company has had the opportunity to defend itself.
     
The July 1999 proposal authorized contracting officers to consider unsubstantiated allegations in determining whether a prospective contractor had a satisfactory record of integrity and business ethics. In comments submitted to the agencies, FMI and others observed that the proposal would allow contracting officers to blacklist prospective contractors unfairly. In response, the final rule exhorts contracting agents that they “must consider all relevant credible information.” 48 CFR § 9.104-3(c). However, the revision only shifts the inquiry to an undefined determination of whether an unproven allegation is relevant and credible. Thus, the final rule still permits a determination of ineligibility based on questionable information received from outside sources with a grudge against a particular company. Union organizers will be able to use this regulation as a weapon against open-shop food distribution companies in their efforts to organize those companies. Trial lawyers, disgruntled employees, or business competitors seeking to damage a company will also be able to use the proposed rule to unscrupulous advantage. Again, mere accusations may still form the basis for blacklisting a company, even if the accusations have never been proven or substantiated.


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FMI and the food distribution industry remain strongly opposed to the December December 2000 contractor responsibility provisions and we urge you to revoke them as quickly as possible.

Sincerely,


Tim Hammonds
President and CEO