Case Affirms Rights of Contractors Facing Debarment

By Frederic M. Levy, Michael Pierce and Michael Wagner

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Experienced defense companies understand that suspension or debarment from U.S. government contracts can be a death knell.

The ultimate decision on these actions typically lies with the procuring agency’s suspension and debarment official, and those officials generally enjoy substantial discretion. However, a recent federal court case shows that contractors can obtain judicial relief when an agency fails to follow required processes.

On July 8, part supplier Precision Metals Corp. was granted a temporary restraining order vacating and setting aside a Defense Logistics Agency debarment and enjoining debarment while court proceedings are pending. The decision, which emphasized two procedural violations, serves as a reminder that an agency’s authority to debar contractors is not unlimited and that it must strictly adhere to the rights granted contractors before taking action.

Federal procurement regulations set forth the procedures for suspension and debarment proceedings and provide that contractors “may submit, in person, in writing, or through a representative, information and argument in opposition to the proposed debarment.” The language generally has been understood to entitle contractors to an in-person meeting if requested.

In Precision’s case, the contractor’s rights were augmented by the language in the agency’s notice of proposed debarment, stating that Precision could submit a response “either in person or in writing, or both.”

Precision asserted that it had requested an in-person meeting with the DLA on numerous occasions. However, the agency issued its decision without such a meeting. In response, Precision filed a federal lawsuit before the Eastern District of New York under the Administrative

Procedures Act, asserting that the DLA’s decision was arbitrary and capricious.

The federal court agreed and ruled that Precision had “shown a likelihood of success on their claims against defendants,” stating that the agency had violated the procedures act when it issued a debarment without granting an in-person meeting. The court further held that in addition to likely violating the procedures act, the failure to provide the meeting also likely violated Precision’s Fifth Amendment due process rights.

In its decision, the court acknowledged the potentially catastrophic and irreparable impact of a federal debarment, particularly for a company like Precision operating on thin margins. The court reaffirmed its ruling by extending the restraining order to July 22 pending an expedited hearing to be held in September.

For contractors facing proposed debarment, in-person meetings are often a critical means of demonstrating present responsibility. Precision’s case illustrates the importance of clearly and unambiguously requesting an in-person meeting when responding to a proposed debarment.

Other best practices include following up consistently to remind the agency of the meeting request and working diligently with the government to schedule the meeting. Failure to follow up and pursue a requested meeting may allow the agency to argue that the contractor waived its request.

In addition to the general procedural requirement to provide the contractor an opportunity to respond in person, federal procurement regulations require that “[i]n actions in which additional proceedings are necessary as to disputed material facts, written findings of fact shall be prepared by the suspension debarment official.”

Here, Precision asserted that the procedures act and its Fifth Amendment due process rights were violated when the DLA failed to conduct a fact-finding hearing, even though Precision’s written response to the proposed debarment had raised issues of material facts.

Precision argued that it had presented the agency with evidence that it was at fault for the delays that had precipitated the proposed debarment, and that there had been other contributing causes including unavoidable supplier delays, supply chain issues, COVID-19 related delays and the serious health issues experienced by Precision’s then leader.

Precision contended that the DLA had acted arbitrarily and capriciously when it ignored Precision’s request for a fact-finding hearing and issued a debarment decision that summarily asserted that there was no disputed material fact.

The federal court again sided with Precision. It held that the contractor had shown a likelihood of success on its claim that the agency had violated the procedures act and Precision’s due process rights when it failed to hold a fact-finding hearing.

In practice, agencies often have avoided providing contractors with fact-finding hearings on the theory that so long as there is one undisputed fact that arguably justifies a debarment, it does not matter if other facts are in dispute. The decision in Precision underscores the importance of contractors including any material disputed facts in their response to a proposed debarment and requesting a fact-finding hearing.

When disputed material facts exist, best practice is to present the disputed facts, build the record with support for the contractor version of events and request an evidentiary hearing should the debarment proceed.

Proposed debarments are high-stakes disputes that frequently pose existential threats to their targets. The U.S. government has recognized that debarment is an extraordinary remedy only to be used as a last resort to protect the government, and contractors possess due process rights.

The Precision restraining order reaffirms that the procedural rigor an agency must exercise when attempting to exercise a debarment is commensurate with the remedy’s harshness.

As the Eastern District of New York has demonstrated, courts will take agencies to task if they attempt to circumvent contractors’ rights.

Contractors facing exclusion must be aware of their rights and applicable procedures to ensure that they are upheld. The Precision decision demonstrates the risk to agencies when those demands are ignored. 

Fred Levy and Mike Wagner are partners and Mike Pierce is an associate in the government contracts practice group at Covington and Burling LLP.

Topics: Defense Contracting

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