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Department of Defense Debarment Enjoined Due to Procedural Missteps

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The Eastern District of New York has enjoined a New York contractor’s federal debarment, in a rebuke of agency debarment actions that fail to honor contractors’ procedural rights.  On July 8, 2022, part supplier Precision Metals Corporation (“Precision”) was granted a Temporary Restraining Order (“TRO”) vacating and setting aside a Defense Logistics Agency (“DLA”) debarment and enjoining debarment while court proceedings are pending.  The decision, which emphasizes 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.  Each procedural violation, and its practical implications, is discussed below.

DLA Failed to Grant Precision a Requested In-Person Meeting to Oppose its Debarment

FAR 9.406-3(c)(4) provides 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 was further aided by the language in DLA’s Notice of Proposed Debarment (“NPD”) 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 DLA on numerous occasions.  However, DLA issued the debarment decision without such a meeting.  In response, Precision filed suit under the Administrative Procedures Act (“APA”) asserting that DLA’s decision to debar it without first granting an in-person meeting was arbitrary and capricious.       

The Eastern District of New York agreed.  It found that Precision Metals had “shown a likelihood of success on their claims against Defendants,” including that DLA had violated the APA when it issued a debarment without affording Precision its requested in-person meeting, and granted the TRO.  The court further held that in addition to likely violating the APA, the failure to provide the meeting also likely violated Precision’s Fifth Amendment Due Process Rights.

For contractors facing proposed debarment, in-person meetings with debarment officials are often a critical means of demonstrating present responsibility.  Precision illustrates the importance of clearly and unambiguously requesting an in-person meeting with the debarring agency when responding to proposed debarments.  Other best practices include following up consistently to remind the agency that the contractor has requested a meeting and working diligently with the government to get the meeting on the calendar.  Failure to follow up and pursue a requested meeting may allow the agency to argue that the contractor waived its request.

DLA Failed to Hold a Fact-Finding Hearing Despite the Existence of Disputed Material Facts

FAR 9.406-3(d) states 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.”  See also DFARS Appendix H-104(a) (“If the debarring and suspending official has determined a genuine dispute of material fact(s) exists, a designated fact-finder will conduct the fact-finding proceeding.”). 

Here, Precision asserted that the APA and its Fifth Amendment Due Process rights were violated when DLA failed to conduct a fact-finding hearing even though Precision’s written Motion in Opposition to Proposed Debarment had raised disputes about material facts.  Precision argued that it had presented DLA with evidence that DLA was at fault for the delays that had precipitated its NPD, 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.  Under the circumstances, Precision contended that 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 court again sided with Precision.  The court held that Precision Metals had shown a likelihood of success on its claim that DLA had violated the APA and Precision’s Fifth Amendment Due Process rights when it failed to hold a fact-finding hearing to consider disputed material facts. 

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 clearly present the disputed material facts, build the record with support for the contractor version of events, and request an evidentiary hearing on those facts should the debarment proceed.

Conclusion

Proposed debarments are high-stakes disputes that frequently pose existential threats to their targets.  The Government has recognized that debarment is an extraordinary remedy only to be used as a last resort where necessary to protect the Government, and contractors possess due process rights before any such action is taken.  The Precision TRO 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’ procedural rights.  Contractors facing exclusion must be intimately 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.

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