A Welcome Review Of Suspension And Debarment Actions - Law360

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A Welcome Review Of Suspension And

Debarment Actions
Law 360, N ew York (June 30, 2015, 10:54 AM ET) -- In
recent years, Congress and the m edia have given
significant attention to a little-know n adm inistrative tool
suspension and debarm ent that gives federal
agencies the discretion to exclude com panies and
individuals from the federalm arketplace. That attention
has resulted in a significant increase in the use of the
authority, an increase that has been possible due in part
to increased activity in this space by previously inactive
agencies.
Three recently filed actions challenging exclusions of
contractors and grant recipients m ay be, in part, a
reflection of the uncertainty resulting from the
expanded use of this authority. W hile one of the cases
appears to have been partially resolved on June 22
w hen the suspension w as lifted, it is possible that these
three cases w illresult in additionalcourt guidance on
R ichard Arnholt
agency suspension and debarm ent authority. That
guidance w ould be w elcom e given the shift in recent
years to m ore fact-based debarm ents and an overallincrease in the use of these
nonjudicialauthorities.

The Upward Trend in Exclusions

The num bers of suspension and debarm ent actions have increased steadily over the past
few years. Betw een fiscalyear 2009 and FY 2013, the num ber of suspensions governm ent
w ide increased from 417 to 887, proposed debarm ents increased from 750 to 2,229, and
debarm ents increased from 669 to 1,696. The m ost recent figures, included in a M arch 31,
2015, report issued by the Interagency Suspension and D ebarm ent Com m ittee, show that
dram atic uptick has continued, w ith 1,009 suspensions, 2,241 proposed debarm ents, and
1,929 debarm ents in FY 2014.
There are a num ber of factors behind this alm ost trebling of the num ber of actions in the
past five years. First, in response to m ultiple reports of contractor m alfeasance, Congress
has called on agencies to increase scrutiny of contractors and grant recipients and to use
the suspension and debarm ent authority m ore frequently. C ongressionalfrustration w ith
the lim ited use of this authority w as in part responsible for the introduction of legislation in
2013 that w ould have, if passed, consolidated the suspension and debarm ent program s for
dozens of agencies into a new centralized suspension and debarm ent board.
Further, in 2011, the U .S. G overnm ent Accountability O ffice reported that alm ost 70

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percent of federalagencies had few er than 20 suspension and debarm ent actions related
to federalprocurem ents and that six had none betw een fiscalyears 2006 and 2010. In
that sam e report, the G AO identified characteristics shared by agencies w ith the m ost
suspension and debarm ent cases. Agencies continue to im plem ent those, and other,
recom m endations and directions aim ed at increasing the use of the suspension and
debarm ent tool, including actions directed by the W hite H ouse O ffice of M anagem ent and
Budget in a N ov. 15, 2011, m em o. O fficials at agencies w ith active suspension and
debarm ent program s, such as the Air Force and the G eneralServices Adm inistration, have
devoted significant tim e to training officials at other agencies w ith an eye to expanding the
use of this authority.
These efforts have resulted in agencies that previously did not have active suspension and
debarm ent program s ram ping up their activity. In addition, suspending and debarring
officials are increasingly relying on prelim inary investigations by inspectors generaland
others as a basis for exclusion.

Challenging Suspension or Debarment Actions

As the num ber of suspension and debarm ent actions has increased due to new ly active
suspension and debarm ent program s and an expansion in the issues view ed to be
sufficient grounds for exclusion, contractors and grant recipients have paid closer attention
to the due process rights afforded entities that find them selves excluded or proposed for
exclusion. Suspending and debarring officials at federalagencies have trem endous
discretion w ith regard to w hen they can prohibit a contractor or individualfrom receiving
federalgrants or contracts. W hile the federalregulations at 48 CFR Subpart 9.4 (contracts)
and 2 CFR Part 180 (grants) provide contractors certain due process rights, perm itting
w ritten responses and hearings in som e instances, SD O s have the authority to exclude for
a host of different reasons, including the catch-all, based on any other cause of so serious
or com pelling a nature that it affects the present responsibility of the contractor or
subcontractor. 48 C FR 9.406-2(c) (contracts); 2 CFR 180.800(d) (grants) (using sim ilar
language).
U pon being suspended or debarred under these discretionary authorities, excluded parties
can challenge the action in federaldistrict court pursuant to the Adm inistrative Procedure
Act. The standard of review , though, is high, requiring the plaintiff to show that the SD O s
action w as arbitrary or capricious. Further, suing an agency that is already concerned
enough about a contractor or grant recipient to find that it is not presently responsible can
harm an already rocky relationship. For m any governm ent contractors and grant
recipients, inability to com pete for and w in governm ent w ork cuts off a key funding
stream , m aking the expensive undertaking of filing an APA action allthe m ore daunting.
For these reasons the high standard of review , relationship risk and cost parties
typically seek to resolve SD O concerns adm inistratively by dem onstrating the concerns are
unfounded or entering into agreem ents to shore up ethics and com pliance program s. Suits
challenging suspensions and debarm ents are rare.
That is w hy it is so unusualthat three such suits have been filed in the past six m onths,
tw o just in the past few w eeks. The cases are briefly sum m arized below .

International Exports Inc.

In D ecem ber 2014, InternationalExports Inc. and tw o individuals, Suzanne and Ziad Itani,
filed suit challenging their Sept. 23, 2011, debarm ents by the D efense Logistics Agency for
15 years, far longer than the generally applicable three-year period provided at 48 CFR
9.406-4(a). InternationalExports Inc. et al. v. H agelet al., N o. 14-C V-2064 RBW (D .D .C.).
According to the 83-page com plaint, the exclusions of the com pany and the tw o individuals
w ere allbased on the conviction of Suzanne Itanis husband, Sam ir Itani, for crim inal
conduct conspiracy to defraud the governm ent by overcharging and failing to pass on

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vendor discounts w hen w orking as a low er-tier subcontractor relating to one of his
businesses.
After the conviction, the D LA debarred Sam ir Itani. In addition, the D LA im puted his
w rongfulconduct to com panies he controlled; debarred his w ife, Suzanne, on the basis
that she either controlled or could controlthose sam e com panies; and debarred Ziad Itani,
Sam irs brother, based on his alleged association w ith one of those com panies. According
to the com plaint, InternationalExports w as debarred w ithout any finding of affiliation w ith
Sam ir Itani. In sum , the com plaint challenges the sufficiency of the evidence upon w hich
the debarm ents w ere based, the affiliation and im putation of Sam ir Itanis w rongful
conduct to the other parties, and the length of the debarm ent, arguing 15-year exclusions
to be punitive.
O n M ay 14, 2015, the governm ent m oved for sum m ary judgm ent, asserting that the
interlocking fam ilialand business relationship betw een Sam ir Itani, a convicted felon,
and the three plaintiffs provided a sufficient basis upon w hich to debar the plaintiffs. The
governm ent also argued that the 15-year exclusion is perm issible because the regulations
provide that debarm ent should generally not exceed three years and that an SD O is
authorized to extend the debarm ent for an additionalperiod.

Legion Construction
O n June 4, 2015, Legion C onstruction and Peter Ianuzzifiled a m otion in D .C . district court
asking the court to reopen a case seeking to term inate their exclusions by the U .S.
D epartm ent of Veterans Affairs, exclusions that have been in place since N ovem ber 2012.
Legion C onstruction Inc. et al. v. G ibson et al., N o. 1:14-CV-1045 RM C (D .D .C.). The
plaintiffs w ere initially suspended by the VA in N ovem ber 2012 based on a federalcrim inal
proceeding against a form er m inority ow ner of Legion. In D ecem ber 2013, 14 m onths after
the initialsuspension, the VA proposed the plaintiffs for debarm ent. The plaintiffs
subm itted a tim ely response to the proposed debarm ent, and w hen the VA failed to render
a decision on the proposed debarm ent, instead deciding to keep the proceeding open until
the com pletion of the legalproceedings against the form er m inority ow ner, the plaintiffs
filed suit in federaldistrict court seeking an injunction under the APA.
According to the m otion, the court denied the plaintiffs2014 request for a tem porary
restraining order and a prelim inary injunction based on representations from the
governm ent that the VA did not have the facts necessary to decide the debarm ent m atter,
that the VA needed to w ait untilthe trialw as com plete, and the trialw as expected to begin
in Septem ber 2014. In the June 2015 m otion to reopen, the plaintiffs argue that they have
new ly discovered evidence that (1) the VA has substantialfact-finding/investigative
capabilities; and (2) the VA previously determ ined that term ination of affiliation m ay m ake
a com pany eligible for new governm ent contracts. The plaintiffs also argue that the case
should be reopened because the indefinite delay of the trialof the form er ow ner m akes
additionaldelay unreasonable.

International Relief and Development

O n June 9, 2015, InternationalRelief and D evelopm ent Inc. and its affiliated entities
(IRD ) filed suit in D .C . district court asking the court to term inate the Jan. 26, 2015,
suspension by the U .S. Agency for InternationalD evelopm ent. InternationalRelief and
D evelopm ent, Inc. et al. v. U nited States Agency for InternationalD evelopm ent et al., N o.
15-CV-854 RCL (D .D .C .). The discretionary suspension w as issued under the
nonprocurem ent authority found at 2 C FR Part 180 and relied on the catch-all, any other
cause basis for exclusion. That sam e day IRD issued a press release in w hich IRD stated
the suit w as not a criticism of the im portant w ork and superior perform ance of U SAID
Bureaus and M issions around the w orld, but rather that IRD w as seeking im m ediate
judicialreview of questionable contracting oversight and a flaw ed suspension process that

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is the responsibility of the O ffice of Acquisitions and Assistance and the Bureau of
M anagem ent.
IRD , a Virginia-based nonprofit, w as, untilits suspension, one of the largest recipients of
U SAID internationaldevelopm ent grants. According to the com plaint, since 1998 IRD and
U SAID have w orked together on approxim ately 100 projects, and U SAID has aw arded IRD
m ore than $2 billion in contracts and aid agreem ents. IRD tim ely challenged U SAID s
suspension notice and, in response, U SAID issued a suspension continuation notice on
April13, 2015.
The crux of IRD s challenge is that the suspension continuation notice, w hich IRD styles as
a finalagency action, w as arbitrary and capricious because U SAID did not m ake the finding
required by 2 CFR Section 180.700(c) that im m ediate action w as necessary to protect
the public interest. IRD asserts that m onths prior to the suspension allem ployees and
officers responsible for any m ischarging w ere separated from the com pany and that IRD s
financialcontrols w ere, according to tw o leading accounting firm s, sufficient. Indeed, IRD
itself brought the alleged m isconduct to U SAID s attention m onths before the suspension,
and m et regularly w ith U SAID to apprise the agency of its progress in rem edying any
noncom pliance. Further, after IRD notified U SAID of the m isconduct, U SAID aw arded,
extended or m odified a num ber of IRD contracts and grants, actions that necessarily
required that the agency find IRD to be presently responsible.
U SAID s handling of the IRD m atter allegedly changed abruptly follow ing a Jan. 16, 2015,
letter from the chairm an of the Senate C om m ittee on Foreign Relations chiding U SAID s
handling of the IRD m atter. The chairm an, w hose com m ittee has jurisdiction over U SAID
m atters, dem anded that U SAID report back to the Senate by Jan. 30, 2015, on its review
of ongoing U SAID w ork by IRD and determ ine w hether suspension and debarm ent
proceedings should be im m ediately initiated against IRD .
It is notew orthy that this is the second tim e in recent years that U SAID has excluded one
of its largest internationalrelief and developm ent contractors. In D ecem ber 2010, U SAID
suspended the Academ y for EducationalD evelopm ent (AED ), w hich w as at the tim e one
of U SAID s key contractors m anaging approxim ately $500 m illion in U SAID contracts and
grants every year. After being suspended for less than three m onths, during w hich tim e it
w as not eligible for new governm ent contracts or grants, AED announced it w ould sellits
assets and dissolve itself.
IRD s suspension w as term inated by U SAID on June 22, 2015. IRD issued a press release
the next day, stating:
IRD has been inform ed by U SAID that the suspension issued on January 26, 2015
has been lifted effective June 22, 2015. By this action IRD is no longer excluded,
w ithout qualification or condition, from eligibility for extensions or new aw ards of any
type. The lifting of the suspension serves as affirm ation of IRD s present
responsibility and the integrity of IRD s internalcontrolenvironm ent.
C EO Roger Ervin said, This is an extrem ely positive outcom e for IRD and the
beneficiaries of our program s. W e are m ore determ ined than ever to focus on
w orking closely w ith U SAID and our other donor partners to support vulnerable
com m unities in challenging environm ents throughout the w orld.
"I know I speak for allof our em ployees w hen I say that IRD is com m itted to
m aintaining the trust and confidence of allof donors and those w e serve in over 25
countries. W e look forw ard to a bright and productive future serving com m unities
and individuals to achieve their aspirations.
O n June 24, U SAID issued a press release explaining that the suspension w as being lifted

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due to questions about U SAID s com pliance w ith Section 861 of the N ationalD efense
Authorization Act of 2013, w hich prohibits an SD O from reporting to or being subject to the
supervision of the acquisition office or the inspector general. U SAID stated that its new
SD O w illconduct a second review of IRD s present responsibility to m anage taxpayer
funds.
The sam e day the suspension w as lifted, the governm ent filed a m otion to dism iss IRD s
case as m oot and in opposition to IRD s request for injunctive relief. The m otion argues
that the plaintiffs have obtained everything they could recover by a favorable judgm ent in
this actions by virtue of U SAID s decision to lift the suspension, there for the case is m oot
because there is no actualcontroversy.
Three days later, IRD filed a response arguing that the lifting of the suspension did not
m oot the case because its prayer for relief w as m uch broader. For exam ple, it included,
am ong other requests, a declaration that the suspension w as nulland void from its
inception in January 2015. IRD also argued that U SAID s decision to lift the suspension,
w hich had been in place for six m onths, did not deprive the court of jurisdiction to issue an
injunction to address D efendants illegalconduct and the irreparable harm it is causing to
IRD .

Conclusion
The outcom e of these three still-pending cases w ill, obviously, turn on facts and legal
issues specific to each of them . But the fact that m ultiple parties have concluded in the
past few m onths that district court review of suspensions and debarm ents under the APA is
w arranted reflects a new dynam ic in the adm inistrative exclusion process, a process that
has increasingly resulted in exclusions of contractors based on allegations, rather than
evidence, of im propriety and has resulted in agencies relatively unfam iliar w ith these
authorities ram ping up their exclusion activity.
W hatever the reason, the recently filed APA suits are notable, and w illbe closely follow ed
by suspension and debarm ent practitioners. To the extent the resolution of these suits
helps to further define the rights and obligations of contractors and agencies during the
suspension and debarm ent process, the guidance w ould be w elcom e.
By Richard Arnholt, Bass Berry & Sim s PLC
Richard Arnholt is a member in the government contracts group in Bass Berry & Sims'
Washington, D.C., office.
The opinions expressed are those of the author(s) and do not necessarily reflect the views
of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates.
This article is for general information purposes and is not intended to be and should not be
taken as legal advice.
AllContent 2003-2015, Portfolio M edia, Inc.

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