Eugene Scalia, Esq., Steven J. Mandel, Esq., Douglas J. Davidson, Esq.,
Marva M. Peace-Jackson, Esq., U. S. Department of Labor, Washington, DC
For Development Resources Inc.:
Richard I. Manas, Esq., Oppenheimer, Blend, Harrison & Tate, San Antonio, Texas
FINAL DECISION AND ORDER
This case arises under the Service Contract Act and implementing regulations. McNamara-O'Hara Service Contract Act, 41 U.S.C.A. §§351-354 (West 1987) (SCA or Act); 29 C.F.R. §§4.12 and 4.188(c) (2001). Development Resources, Inc. (DRI) appeals from a determination by the Administrator, Wage and Hour Division, Employment Standards Administration (the Administrator) that DRI's President, Executive Director and Registered Agent, Terry Samuel, had a substantial interest in DRI while Samuel was under debarment for violating the SCA. DRI also asserts that relevant facts are in dispute.
We have jurisdiction to review the Administrator's determination pursuant to 29 C.F.R. §§4.12(f), and 8.7(b), and Department of Labor Secretary Order No. 2-96, 61 Fed. Reg. 19978 (May 3, 1996).
By means of the Service Contract Act, Congress established labor standards, such as minimum wage requirements, for the protection of employees of contractors and subcontractors furnishing services to or performing maintenance service for Federal Agencies. 41 U.S.C.A. §351. Except under unusual circumstances, contractors who violate the Act's requirements are debarred from contracting with any federal agency for a period of three years. Id. at §354(a).
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This debarment period applies not only to the violating contractor, but also to any person or firm in which the debarred contractor holds a substantial interest. Id. at §354(a) ("Unless the Secretary otherwise recommends because of unusual circumstances, no contract of the United States shall be awarded to . . . any firm, corporation, partnership, or association in which [debarred] persons or firms have a substantial interest until three years have elapsed from the date" the debarred person's name appears on the Comptroller General's list of ineligible contractors).1 (emphasis added)
1 The Comptroller General's list is maintained by the General Services Administration on its internet home page under the heading, "List of Parties Excluded from Federal Procurement and Nonprocurement Programs." www.gsa.gov.
[T]he term substantial interest is not defined in the Act. Accordingly, this determination, too, must be made on a case-by-case basis in light of the particular facts, and cognizant of the legislative intent "to provide to service employees safeguards similar to those given to employees covered by the Walsh-Healey Public Contracts Act". Federal Food Services, Inc., Decision of the ALJ, SCA 585-592, November 22, 1977. Thus, guidance can be obtained from cases arising under the Walsh-Healey Act, which uses the concept "controlling interest". See Regal Mfg. Co., Decision oftheAdministrator, PC-245, March 1, 1946; Acme Sportswear Co., Decision of the Hearing Examiner, PC-275, May 8, 1946; Gearcraft, Inc., Decision of the ALJ, PCX-1, May 3, 1972. In a supplemental decision of February 23, 1979, in Federal Food Services, Inc. the Judge ruled as a matter of law that the term "does not preclude every employment or financial relationship between a party under sanction and another * * * [and that] it is necessary to look behind titles, payments, and arrangements and examine the existing circumstances before reaching a conclusion in this matter."
(1) Where a person or firm has a direct or beneficial ownership or control of more than 5 percent of any firm, corporation, partnership, or association, a "substantial interest" will be deemed to exist. Similarly, where a person is an officer or director in a firm or the debarred firm shares common management with another firm, a "substantial interest" will be deemed to exist. Furthermore, wherever a firm is an affiliate as defined in § 4.1a(g) of Subpart A, a "substantial interest" will be deemed to exist, or where a debarred person forms or participates in another firm in which he/she has comparable authority, he/she will be deemed to have a "substantial interest" in the new firm and such new firm would also be debarred (Etowah Garment Co., Inc., Decision of the Hearing Examiner, PC-632, August 9, 1957). [emphasis added]
(2) Nor is interest determined by ownership alone. A debarred person will also be deemed to have a "substantial interest" in a firm if such person has participated in contract negotiations, is a signatory to a contract, or has the authority to establish, control, or manage the contract performance and/or the labor policies of a firm. A "substantial interest" may also be deemed to exist, in other circumstances, after consideration of the facts of the individual case. Factors to be examined include, among others, sharing of common premises or facilities, occupying any position such as manager, supervisor, or consultant to, any such entity, whether compensated on a salary, bonus, fee, dividend, profit-sharing, or other basis of remuneration, including indirect compensation by virtue of family relationships or otherwise. A firm will be particularly closely examined where there has been an attempt to sever an association with a debarred firm or where the firm was formed by a person previously affiliated with the debarred firm or a relative of the debarred person. [emphasis added]
(3) Firms with such identity of interest with a debarred person or firm will be placed on the debarred bidders list after the determination is made pursuant to procedures in § 4.12 and Parts 6 and 8 of this title. Where a determination of such "substantial interest" is made after the initiation of the debarment period, contracting agencies are to terminate any contract with such firm entered into after the initiation of the original debarment period since all persons or firms in which the debarred person or firm has a substantial interest were also ineligible to receive Government contracts from the date of publication of the violating person's or firm's name on the debarred bidders list.