DLA's Suspension Illustrates the Inherent Challenges in Contesting Responsibility Reviews

Overview of the Case

The plaintiffs—JBL Systems Solutions, LLC (JBL); owner Joseph P. Lazzari; his wife Brenda Lazzari; Brenda Lazzari's business, Potomac Military Manufacturing LLC; and two of their employees (collectively "the Plaintiffs")—accused DLA of inappropriately using its debarment power to punish the company and its owner for challenging their suspensions from federal contracting. The Plaintiffs argued that DLA's suspension actions were improper and based on a misinterpretation of export control law. The complaint, which was once amended, alleged that while the Federal Acquisition Regulations (FAR) provide that a suspension may only be imposed "pending the completion of an investigation or legal proceedings," 4 C.F.R. § 9.407-1(b)(1), there was no evidence that DLA had even started (much less completed) an investigation or legal proceeding prior to issuing the notice of suspension.

Following its suspension of JBL, DLA moved to cancel JBL's existing contracts, several of which were categorized as "delinquent," but which DLA nevertheless had routinely allowed JBL to deliver under in the past. In support of the suspension decision, DLA cited FAR 9.405 (48 C.F.R. § 9.405), which DLA maintained required such action as a necessary consequence of the suspensions. With millions of dollars in outstanding contracts at risk, JBL filed a lawsuit in response to these cancellations, alleging violations of the Administrative Procedure Act. JBL asked the Court to grant declaratory and injunctive relief from DLA's suspension actions.

Just days after JBL filed suit, DLA took further action against the Plaintiffs (perhaps in retribution for JBL's lawsuit) and issued each of them notices of proposed debarment. In a memorandum in support of the proposed debarment, DLA stated that it was pursuing the debarments on four grounds, three of which involved JBL's purported failure to perform under various contracts with DLA, and one of which involved the alleged violations of export control regulations by Mr. Lazzari. Although DLA later withdrew JBL's suspension, but maintained the public record of the suspension in the System for Award Management (SAM), DLA continued to maintain the proposed debarment against the Plaintiffs.

Now facing proposed debarment, the Plaintiffs amended JBL's complaint and moved for a preliminary injunction, asking the Court to prohibit DLA from maintaining the historical record concerning JBL's suspension in SAM, and from maintaining the proposed debarment actions against Mrs. Lazarri, her business, and the two employees during the pendency of the lawsuit. In the motion, the Plaintiffs did not challenge DLA's proposed debarment proceedings as to Mr. Lazzari or JBL, as they intended to contest those actions in the applicable administrative forum. The parties briefed the issues, and the Court held a hearing on the motion on March 15.

The Court ultimately denied the Plaintiffs' motion, holding that it lacked jurisdiction to enjoin the recording of the contested suspensions in SAM, as the Plaintiffs failed to sufficiently allege an injury in fact capable of redress (in particular, because DLA had withdrawn the suspension notice). With regard to the remaining requests for relief, the Court considered the "substantial question" whether it had jurisdiction to enjoin ongoing debarment proceedings before a final agency decision has been issued. The Court concluded that DLA's debarment actions were sufficient to constitute "de facto debarments," conferring jurisdiction upon the Court to consider the motion. Nevertheless, the Court ultimately found that the Plaintiffs failed to make a clear showing of a likelihood of success on the merits. The FAR gives substantial discretion to an agency seeking to extend a debarment to an affiliate of the contractor, and the Court held that each of the Plaintiffs was "affiliated" with JBL and Mr. Lazzari. Noting that "[t]he standard for debarring an affiliate is broad and does not require any showing that the debarred affiliate committed or had knowledge of the contractor's wrongdoing," the Court concluded that Plaintiffs failed to clearly establish that DLA's debarment actions were arbitrary, capricious, an abuse of discretion, or contrary to law. Accordingly, the Court denied Plaintiffs' motion for a preliminary injunction.

Having failed to obtain the injunctive relief requested, JBL voluntarily dismissed the complaint, without prejudice, leaving open the opportunity to re-file a lawsuit on the same issues at a later date.

Dangerous Precedent

While the details of any continuing debarment actions are no longer publicly available via the lawsuit, and notwithstanding the narrow reasoning the Court applied to deny the Plaintiffs' motion, the case illustrates the unique challenges contractors may face in contesting negative responsibility reviews, even if such decisions appear to be (at least in part) in retribution for simply exercising their right to challenge the action. In other words, are contractors subject to a piling on of actions for challenging an initial action, despite the fact that the only new information is that the entity has filed a lawsuit challenging the agency's decision?

Suspensions may be imposed only for the government's protection. Thus, the government cannot suspend a contractor for purposes of punishment. In fact, the regulations are explicit on this point. See 48 C.F.R. § 9.402(b). The reason for this prohibition relates back to the seriousness of the administrative action. As JBL argued in its complaint, "[a] contractor's suspension has an immediate, government-wide legal effect, applying to all federally funded programs and projects, including contract procurements." Id. (citing 48 C.F.R. § 9.405(a)). Moreover, as occurred here, suspensions are reported in SAM, the government's online database for government contractors, and thus come into play when agencies review potential awardees for future government work. Thus, the government's suspension of a contractor can have serious consequences, even if the contractor is not ultimately debarred.

Similarly, debarring a contractor for filing a legal challenge to an allegedly unsupported suspension (or debarment action) is not a basis for debarment (or suspension). Again, the FAR (and the Nonprocurement Common Rule) are clear on this point. A contractor may be suspended or debarred based on the following grounds, among others, as set forth in FAR 9.406-2:

• Commission of fraud, embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, tax evasion, violating Federal criminal laws, receiving stolen property, an unfair trade practice;
• Violation of antitrust statutes;
• Willful, or a history of, failure to perform;
• Violation of the Drug-Free Workplace Act;
• Delinquent Federal taxes (more than $3,500);
• Knowing failure to disclose violation of criminal law; or
• Any other cause that affects present responsibility.

See 48 C.F.R. § 9.406-2; see also GSA, Frequently Asked Questions: Suspension & Debarment.

Here, both the timing of and rationale for DLA's debarment actions highlight the unique challenges facing government contractors seeking to contest the basis for a suspension or other negative responsibility determination. First, DLA's performance-related grounds generally do not provide a basis for debarment, but rather should be addressed through performance reviews or other contract remedies. Second, to the extent DLA based its debarment action on alleged violations of export control regulations, JBL raised good-faith legal challenges to the contracting officer's underlying rationale. The government's leap from suspension to proposed debarment for JBL and the individual plaintiffs, particularly in the face of a lawsuit, raises red flags of bad faith on the part of DLA (i.e., retribution for challenging the agency's initial action). And while the Court found jurisdiction to review a proposed debarment matter prior to the exhaustion of administrative remedies, unfortunately, it simply deferred to the wide discretion afforded to agencies for imputing affiliates, without holding the agency accountable for what are certainly questionable timing and bases for such action. As a result, perhaps more than ever, contractors and practitioners must continue to tread carefully when engaging with an agency regarding issues of present responsibility.