ACTION SYSTEMS, INC., AND ACTION
BUILDING SYSTEMS, INC., 1982-SCA-81, 1985-SCC-15, 1986-SCA-37, 1988-SCA-96 (Dep. Sec'y Jan. 25, 1991)
CCASE:
ACTION SYS. & ACTION BUILDING SYS. & R. COHEN
DDATE:
19910125
TTEXT:
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[1] U.S. DEPARTMENT OF LABOR
DEPUTY SECRETARY OF LABOR
WASHINGTON, D.C.
20210
DATE: January 25, 1991
CASE NOS. 82-SCA-81 85-SCC-15 86-SCA-37 88-SCA-96
IN THE MATTER OF
ACTION SYSTEMS, INC., AND ACTION
BUILDING SYSTEMS, INC., CALIFORNIA
CORPORATIONS, AND RICHARD COHEN,
INDIVIDUALLY,
RESPONDENTS.
BEFORE: THE DEPUTY SECRETARY OF LABOR /FN1/
FINAL DECISION AND ORDER
These consolidated cases, arising under the McNamara-O'Hara
Service Contract Act of 1965, as amended (MOSCA or the Act), 41
U.S.C. [secs] 351-358 (1988), the Contract Work Hours and Safety
Standards Act, 40 U.S.C. [secs] 327-333 (1988), and the
implementing regulations, 29 C.F.R. Parts 4, 5, 6, and 8 (1990),
are before me for review. The sole issue is whether Respondents
should be relieved from an ineligibility listing under MOSCA
Section 5(a), 41 U.S.C. [sec] 354(a). Upon consideration of the
particular facts presented, I agree with Administrative Law Judge
(ALJ) Alexander Karst that unusual circumstances militate against
debarment, and I direct that Respondents be relieved from sanction.
[1]
/FN1/ The Deputy Secretary has been designated by the Secretary to
perform the functions of the Board of Service Contract Appeals
pending the appointment of a duly constituted Board. 29 C.F.R.
[sec] 8.0 (1990). [1]
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[2] Respondents are engaged in providing janitorial services,
and since entering the government contracting field in 1980, have
performed contracts awarded by the General Services Administration,
the Department of the Navy, the Department of the Air Force, and
the U.S. Border patrol at various locations throughout California.
Between 1980 and 1987, Respondents were subject to four MOSCA
compliance investigations involving eight government contracts. In
all instances, Respondent Richard Cohen, operator of the corporate
Respondents, cooperated fully with the investigators, promptly paid
all amounts found due, and consistently implemented procedures
designed to avoid future violations. No attempt ever was made to
conceal any of the violations, and nothing in the record supports
a finding that Cohen or any of his employees intended to violate
the Act or that any violation was the result of willful or
deliberate conduct. See Joint Exh. 1. Thus, under 29 C.F.R. [sec]
4.188(b)(3)(i), the threshold question is whether the violations
resulted from "culpable conduct such as culpable neglect to
ascertain whether practices are in violation, culpable disregard of
whether they were in violation or not, or culpable failure to
comply with recordkeeping requirements . . . ." /FN2/ [2]
/FN2/ The ALJ correctly explained the applicable legal standard.
Decision and Order (D. and O.) at 10. Relief from debarment
depends on the existence of "unusual circumstances." A finding of
unusual circumstances is foreclosed in the presence of willful,
deliberate, aggravated, or culpable conduct; a "history" of similar
violations; repeated violation of the Act; or previous "serious"
violations. 29 C.F.R. [sec] 4.188(b)(3)(i). (Under the
regulations, records falsification serves as an example of
(continued...)[FN2 CONTINUED ON PAGE 3](...continued) "culpable"
failure to comply with recordkeeping requirements.) Further, a
finding of unusual circumstances generally requires the presence of
a good compliance history, cooperation in the investigation,
payment of monies due, and sufficient assurances of future
compliance. 29 C.F.R. [sec] 4.188(b)(3)(ii). The absence of the
former "aggravated" circumstances and the presence of the latter
prerequisites then necessitates evaluation of other factors which
may militate for or against relief. Id. Debarment is not
appropriate where the violation is minor or inadvertent, or where
the sanction would be wholly disproportionate to the offense. 29
C.F.R. [sec] 4.188(b)(2). [END FN2][3]
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[3] Respondents began performance of their first government
contract in November, 1980. /FN3/ A mid-1981 compliance
investigation revealed that (1) three employees were paid at a
lower rate than their experience required, (2) five employees
received an incremental increase six months after hire when it
should have been forthcoming at the four-month mark, /FN4/ and (3)
Respondents failed to make pension and fringe benefit payments. The
initial violation resulted from Cohen's mistaken belief that for
purposes of the wage determination, an employee's compensation
level depended on contract experience rather than industry
experience, and from his ignorance about the employees' industry
experience. With regard to the unpaid pension benefits, Cohen
believed that GSA would bill him for payment of these benefits into
a fund, and he was attempting to clarify the procedure when he was
cited for violation. Payment of the health and welfare benefits
was delayed as the insurance program that [3]
/FN3/ Respondents contemporaneously were performing nongovernment
contracts valued at $256,000.00.
/FN4/ The ALJ found this failure inadvertent since Respondents
"automatically raised [the employees'] pay at six months." D. and
O. at 12. [3]
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[4] Cohen had arranged took effect. See ALJ Exh. 1 at 30, 33-41,
45-50. In this brief, initial experience in government
contracting, Respondents do not appear to have engaged in culpable
conduct. Rather, the violations understandably were associated with
the "start up" period as Cohen became familiar with government
contracting and set appropriate procedures in motion. Moreover,
additional elements under 29 C.F.R. [sec] 4.188(b)(3)(ii) are
present, i.e., cooperation, prompt payment, and the absence of
recordkeeping violations or other impediment to investigation. I
conclude that debarment on the basis of these facts would be
"wholly disproportionate to the offense." 29 C.F.R. [sec]
4.188(b)(2).
During the 1983-1984 contract year, Respondents were subject
to a comprehensive compliance investigation involving three
separate contracts. Because these circumstances present a close
case as to relief, they are discussed in detail below.
During each of the final two compliance investigations, for
the 1985-1986 and 1986-1987 contract years, Respondents were
assessed underpayments of amounts less than one percent of the
contract values. The final underpayment, involving the 1986-1987
contract year and contracts in San Diego, Tecate, and San Ysidro,
comprised less than one-fifth of one percent of the contract
values, /FN5/ an amount described as "virtually de minim[i]s" in
Federal Food Service, Inc. v. Donovan, 658 F.2d 830, 834 (D.C. [4]
/FN5/ The amount of underpayment on contracts worth $555,888.00
totaled $896.41. [4]
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[5] Cir. 1981). Following the comprehensive 1983-1984
investigation, these small ratios evidence an improved compliance
history and offer assurances of future compliance.
The existence of "a history of recurrent violations of
identical nature", Washington Moving and Storage Co., Case No.
SCA-168, March 12, 1974, slip op. at 4, may support a finding of
"culpability" largely because knowledge is presumed. Here,
investigation of the 1985-1986 contract revealed a violation
similar to Respondents' failure, five years earlier, to compensate
three employees at a starting rate commensurate with their
experience. The presumption is dispelled, however, based on the
particular circumstances. With regard to the 1985-1986 contract,
the ALJ found:
Two of the employees in question were already working at
the archives as janitors for the prior contractor when
[Cohen] was awarded the contract. They accepted
[Cohen's] offer to stay on the job as his employees. The
prior contractor, who was also subject to the
requirements of the Act, was paying the employees at the
lowest experience level. Each employee told [Cohen] that
he had worked for the prior contractor for "just a few
months." ... The DOL compliance officer ... determined
through the records of the contracting agency and
employee interviews that both individuals had over eight
months janitorial experience when hired by [Cohen] and
should have been paid [at an elevated rate].
D. and O. at 8. Thus, the record establishes that Respondents did
not know about these violations. Moreover, the record fully
documents the difficulties encountered by Cohen in attempting to
determine experience levels, including a language barrier, and
attests to his considerable efforts to achieve compliance. Hearing
Transcript (T.) 94-103; ALJ Exh. 1 at 68-69, 75-78; ALJ [5]
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[6] Exh. 2 at 19-31, 33-44. Accordingly, these violations should
not invoke imposition of the "catastrophic" debarment sanction. As
noted above, the comprehensive second investigation of three 1983-1984
contracts presents a close case.
1. The Concord Naval Weapons Station Contract
This initial contract is the least troublesome. The
violations were inadvertent. Respondents underpaid health and
welfare and pension benefits by ten cents an hour because an
incorrect rate mistakenly was entered in the payroll computer
program. The ALJ found:
The written contract was not forwarded to [Cohen's]
office until six weeks after performance began but
instead remained at the Concord site with [Cohen's] on-
site foreman. Because the Concord site was over an hours
drive from [Cohen's] office, the payroll particulars were
transmitted over the telephone by the foreman. The error
occurred when the wage figures were initially telephoned
to [Cohen's] bookkeeper.
D. and O. at 4 (citations omitted). Respondents also failed to
compensate seven employees correctly for overtime hours worked.
However, overtime was not authorized, and Cohen's ignorance that
employees were working overtime is explained by the procedure used
to relay bookkeeping information. /FN6/ See Mastercraft [6]
/FN6/ Cohen's receipt of a copy of the contract and wage
determination was delayed pending a security clearance
investigation, and the payroll information was relayed from the
remote work site to Respondents' bookkeeper by telephone. Thus,
Cohen apparently did not review any written confirmation of benefit
amounts or record of hours worked. ALJ Exh. 1 at 110-111,
143-145. [6]
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[7] Flooring, Inc. v. Donovan, 589 F. Supp. 258, 260 (D.D.C.
1984)./FN7/ Finally, Respondent inadvertently failed to compensate
one employee for accrued vacation and sick leave upon termination.
I note that the ratio of underpayment to contract value is less
than one and one half percent. Although possibly not de minim[i]s,
these underpayments are not overly serious.
2. The Hunter's Point Naval Shipyard Contract
Respondents here are held liable for violations of a
subcontractor in their first experience with government
subcontracting. After being awarded the contract, Cohen discovered
an alteration in the work site conditions. The ALJ found:
[O]ne of the buildings that [Cohen] had contracted to
clean was being remodelled and the construction dust
would significantly increase the time required to
adequately clean it. When the Navy refused to agree to
a modification of the contract [Cohen] concluded that he
could not make a profit. He then subcontracted the job
to another cleaning service. He understood that the
subcontractor was a family business which would perform
the work without employees... . At the time [Cohen]
believed that the subcontract relieved him of his duty to
comply with he Act.
D. and O. at 5 (citation omitted). Cohen was unaware that the
subcontractor thereafter employed undocumented aliens. In
fact, [7]
/FN7/ I agree with the ALJ, D. and O. at 11, that the Federal Food
Service decision is instructive in considering these cases. 658
F.2d at 833-834. That court suggested that a "standard of
reasonable manag[e]ment" should apply to any history of violations
relied upon to support debarment. The Mastercraft Flooring
decision also bears examination. There, as here, unauthorized
activities formed the basis of violations, the remote work sites
contributed to the employer's difficulties, and errors were
inadvertent rather than having been "committed willfully with an
intent to avoid the requirements of the contract and the Act ...."
589 F. Supp. at 260. [7]
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[8] the subcontractor had represented that he personally intended
to perform the work. See ALJ Exh. 1 at 159-163, 165, 176-177. The
Administrator found wage and benefit underpayments and
recordkeeping violations. Although Respondents promptly paid the
assessed amounts, they dispute the accuracy of the computations and
contend that a significant fraction of the total back wages was
paid to a particular employee erroneously. Some difficulty exists
in gauging the seriousness of these violations because of the
uncertainty as to underpayment amounts.
3. The Travis Air Force Base Contract
Here, the Administrator found minimum wage underpayments to
two employees and fringe benefit underpayments to one of the two
employees under a janitorial contract at a day care center. This
award represented a remote and isolated aspect of Respondents'
business. ALJ Exh. 1 at 112-116, 124-125. Again, although
Respondents promptly paid the wages computed due, dispute arises as
to whether the claimed hours of work were inflated. In attempting
to establish a compensation schedule for the principal employee,
Cohen and his foreman projected the daily hours necessary to
complete the job and paid the employee a salary amount calculated
to exceed the MOSCA minimum. This practice resulted in
recordkeeping violations for failure to maintain a record of hours
worked. [8]
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[9] The violations under the Concord contract were inadvertent
and did not result from culpable conduct. /FN8/ In the instance of
the Hunter's Point contract, Respondents were responsible for the
subcontractor's conduct, as the regulations make clear. Although
Respondents had been investigated previously and could be charged
with knowledge of this responsibility, the Hunter's Point
experience marked a first and unexpected attempt at subcontracting.
To some extent these circumstances explain Cohen's failure to
implement effective procedures for ensuring subcontractor
compliance. The Travis contract underpayment violations are
tenuous. Although he instituted an incorrect procedure, Cohen
recognized his general responsibilities and attempted compensation
above the MOSCA minimum to ensure compliance. /FN9/ In these
particular circumstances, I do not conclude that debarment is
warranted. My reservations are [9]
/FN8/ I also agree with the ALJ that the Concord and the later San
Diego overtime violations were dissimilar. D. and O. at 13. The
failure to pay the unauthorized overtime under the Concord contract
arose because the foreman reported the hours worked by telephone
and the payroll was processed semi-monthly. However, accurate
overtime hours were recorded on a workweek basis at the remote work
site. In other words, under the foreman-bookkeeper reporting
arrangement, "it was not obvious that some of the reported hours
exceeded the weekly maximum. n D. and O. at 4. In contrast, the
San Diego underpayments resulted from Respondents' violative
practice of recording hours worked on a semi-monthly basis. T.
68-69. With regard to the San Diego overtime violations, the ALJ
stated: "The compliance officer found that very little overtime was
worked on these contracts. Respondent[s] properly paid some of the
overtime worked but missed a few of the hours." D. and O. at 9.
/FN9/ Cohen makes a compelling case in challenging the claimed
hours of work at the day care center, T. 108, which the ALJ
considered in attributing Cohen with a reasonable, good faith
belief in the legality of his business practice. D. and O.
at 12. [9]
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[10] reinforced by Respondents' markedly improved compliance
history documented by the most recent investigations. In reaching
this result, I defer to the ALJ's credibility determination
regarding Cohen's reasonable, good faith belief in the legitimacy
of his business practices. D. and O. at 12-13. This determination
derived in part from implicit demeanor-based findings which, having
viewed the witnesses, the ALJ was qualified to make. Compare e.g.,
T. 77-86 (Travis employee Taylor) with T. 103-110 (Cohen).
Accordingly, I affirm the ALJ's finding that unusual
circumstances exist in the instant cases. Respondents Action
Systems, Inc., Action Building Systems, Inc., and Richard Cohen
shall be relieved from an ineligibility listing under MOSCA Section
5(a), 41 U.S.C. [sec] 354(a), as the result of the violations found
in these cases.
SO ORDERED.
[Roderick DeArment]
Deputy Secretary of Labor Washington, D. C. [10]
