In a recent case, OSG Product Tankers v. United States, 82 Fed. Cl. 570 (2008), the Court of Federal Claims (COFC) upheld a contracting officer's decision that a fifth generation (i.e., five levels removed from parent company) subsidiary was not a responsible contractor because of integrity and business ethics concerns caused by the parent company's environmental violations. The court further held that the contracting officer's decision of non-responsibility was not limited by another agency's decision not to debar the parent company for those violations. Thus, despite a previous "all clear," another contracting officer making an independent decision on responsibility under FAR 9.103 can still find a contractor non-responsible.
OSG Product Tankers' parent, OSG, pled guilty to 33 felony counts related to environmental violations by twelve of its foreign flagged tankers. As part of the plea deal, OSG agreed to meet the requirements of an environmental compliance plan that included its subsidiary, OSG Product Tankers. Because of the felony convictions, OSG also faced debarment. The Maritime Administration (MarAd), an agency within the Department of Transportation, was designated as the lead agency to investigate and make any debarment decision. OSG ultimately entered into an agreement with MarAd in lieu of debarment.
During this time, the subsidiary, OSG Product Tankers, bid on a Military Sealift Command solicitation for the long-term charter of two T-5 petroleum tankers. Although OSG submitted the lowest acceptable bid, the contracting officer determined that OSG was not a responsible contractor as a result of its parent's conduct and awarded the contract to another bidder. In making her own responsibility determination under FAR 9.103, the contracting officer conducted extensive research, reviewed the plea agreement and the settlement agreement, consulted with representatives of the Department of Justice, Environmental Protection Agency and Coast Guard and issued OSG Product Tankers over 30 questions. In addition, the contracting officer convened a board of experts, consisting of representatives of the Navy, Coast Guard and the Military Sealift Command, to assist her in the responsibility decision and further allowed OSG Product Tankers to make an oral presentation. After weighing the evidence, the contracting officer determined that OSG Product Tankers was not a responsible contractor. She reached this decision despite the resolution of the parent's proposed debarment by MarAd.
OSG Product Tankers protested the contracting officer's determination at the COFC. After expounding on the contracting officer's duty and authority to issue a responsibility determination, the COFC emphasized that a contracting officer's decision on responsibility is different from and independent of any previous debarment proceedings. Because the contracting officer's independent determination under FAR Subpart 9.1 was rational, supported by the record and within the contracting officer's business judgment, the COFC refused to overturn the award.
Contractors should take two lessons from this case. First, as set forth in FAR 9.104-3(c), the actions of affiliated entities may impact a responsibility determination under FAR Subpart 9.1. Second, the fact that one agency may decline to suspend or debar a contractor does not provide a "pass" in any future competition. Before making an award, the contracting officer will make an independent determination of responsibility and must be convinced, in his or her business judgment, that the prospective awardee is responsible.