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Executive Summary

BAXTER WILL APPEAL V-A SUSPENSION OF GOVERNMENT CONTRACT ELIGIBILITY within 30 days, the company said Aug. 13. The Department of Veterans Affairs suspended Baxter's eligibility to renew existing agreements or compete for new contracts with all government agencies on Aug. 13, giving the firm 30 days to appeal the decision. The suspension will last one year. The action, which applies to all Baxter divisions and "other organizational elements," will not affect existing contracts, the V-A said. "The decision to suspend [Baxter] stems from an investigation conducted by the V-A's office of the Inspector General" as well as the firm's conviction earlier this year for violating U.S. anti- boycott laws prohibiting cooperation with the Arab League boycott of Isreal, the V-A said. The IG's investigation started in 1990, following "allegations that Baxter provided false information to V-A purchasing agents concerning items which were not on government contract." The V-A characterized the "misrepresentations" as a "sales strategy" by which Baxter attempted to "'pull through' other, and at times more profitable, non-contract items by misleading V-A purchasing agents" about what products were under contract, according to the agency. Baxter said that in 1991 it "worked with the V-A and took systematic steps to assure that all its sales practices were proper and acceptable to the agency." The company "was advised at that time that the V-A was pleased with the company's response." In addition to the suspension, three top Baxter executives have been debarred by the V-A from doing business with the government as a result of the anti-boycott law violation: Vernon Loucks, Baxter's chairman and CEO; James Tobin, president and chief operating officer; and Marshall Abbey, former senior VP, secretary and general counsel of the firm. Under the terms of the debarment, the three are prohibited from participating in competition for government contracts for a period of three years. The 30-day window for presenting mitigating arguments in favor of reversal also applies to the debarments. If the action is not overturned, the Baxter topsiders would not be able to sign government contracts with the firm even after the one-year suspension ends, the V-A said. The government purchases about $138 mil. in supplies from Baxter annually. The V-A is just one of many government agencies with the authority to suspend firms or debar individuals from all government contract competition. Last spring, the Department of Defense's Defense Personnel Support Center sent a memo to hospitals it supplies indicating that Baxter's anti-boycott violations were serious enough to warrant a consideration of a recommendation for debarment.

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