(a) Section 5 of the Act provides that any person or firm found by
the Secretary or the Federal agencies to have violated the Act shall be
declared ineligible to receive further Federal contracts unless the
Secretary recommends otherwise because of unusual circumstances. It also
directs the Comptroller General to distribute a list to all agencies of
the Government giving the names of persons or firms that have been
declared ineligible. No contract of the United States or the District of
Columbia (whether or not subject to the Act) shall be awarded to the
persons or firms appearing on this list or to any firm, corporation,
partnership, or association in which such persons or firms have a
substantial interest until 3 years have elapsed from the date of
publication of the list containing the names of such persons or firms.
This prohibition against the award of a contract to an ineligible
contractor applies to the contractor in its capacity as either a prime
contractor or a subcontractor. Because the Act contains no provision
authorizing removal from the list of the names of such persons or firms
prior to the expiration of the three-year statutory period, the
Secretary is without authority to accomplish such removal (other than in
situations involving mistake or legal error). On the other hand, there
may be situations in which persons or firms already on the list are
found in a subsequent administrative proceeding to have again violated
the Act and their debarment ordered. In such circumstances, a new,
three-year debarment term will commence with the republication of such
names on the list.
(b)(1) The term unusual circumstances is not defined in the Act.
Accordingly, the determination must be made on a case-by-case basis in
accordance with the particular facts present. It is clear, however, that
the effect of the 1972 Amendments is to limit the Secretary's discretion
to relieve violators from the debarred list (H. Rept. 92-1251, 92d
Cong., 2d Sess. 5; S. Rept. 92-1131, 92d Cong., 2d Sess. 3-4) and that
the violator of the Act has the burden of establishing the existence of
unusual circumstances to warrant relief from the debarment sanction,
Ventilation and Cleaning Engineers, Inc., SCA-176, Administrative Law
Judge, August 23, 1973, Assistant Secretary, May 22, 1974, Secretary,
October 2, 1974. It is also clear that unusual circumstances do not
include any circumstances which would have been insufficient to relieve
a contractor from the ineligible list prior to the 1972 amendments, or
those circumstances which commonly exist in cases where violations are
found, such as negligent or willful disregard of the contract
requirements and of the Act and regulations, including a contractor's
plea of ignorance of the Act's requirements where the obligation to
comply with the Act is plain from the contract, failure to keep
necessary records and the like. Emerald Maintenance Inc., Supplemental
Decision of the ALJ, SCA-153, April 5, 1973.
(2) The Subcommittee report following the oversight hearings
conducted just prior to the 1972 amendments makes it plain that the
limitation of the Secretary's discretion through the unusual
circumstances language was designed in part to prevent the Secretary
from relieving a contractor from the ineligible list provisions merely
because the contractor paid what he was required by his contract to pay
in the first place and promised to comply with the Act in the future.
See, House Committee on Education and Labor, Special Subcommittee on
Labor, The Plight of Service Workers under Government Contracts 12-13
(Comm. Print
1971). As Congressman O'Hara stated: ``Restoration * * * [of wages and
benefits] is not in and of itself a penalty. The penalty for violation
is the suspension from the right to bid on Government contracts * * *.
The authority [to relieve from blacklisting] was intended to be used in
situations where the violation was a minor one, or an inadvertent one,
or one in which disbarment * * * would have been wholly disproportionate
to the offense.'' House Committee on Education and Labor, Special
Subcommittee on Labor, Hearings on H.R. 6244 and H.R. 6245, 92d Cong.,
1st Sess. 3 (1971).
(3)(i) The Department of Labor has developed criteria for
determining when there are unusual circumstances within the meaning of
the Act. See, e.g., Washington Moving & Storage Co., Decision of the
Assistant Secretary, SCA 68, August 16, 1973, Secretary, March 12, 1974;
Quality Maintenance Co., Decision of the Assistant Secretary, SCA 119,
January 11, 1974. Thus, where the respondent's conduct in causing or
permitting violations of the Service Contract Act provisions of the
contract is willful, deliberate or of an aggravated nature or where the
violations are a result of 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 (such as falsification of records),
relief from the debarment sanction cannot be in order. Furthermore,
relief from debarment cannot be in order where a contractor has a
history of similar violations, where a contractor has repeatedly
violated the provisions of the Act, or where previous violations were
serious in nature.
(ii) A good compliance history, cooperation in the investigation,
repayment of moneys due, and sufficient assurances of future compliance
are generally prerequisites to relief. Where these prerequisites are
present and none of the aggravated circumstances in the preceding
paragraph exist, a variety of factors must still be considered,
including whether the contractor has previously been investigated for
violations of the Act, whether the contractor has committed
recordkeeping violations which impeded the investigation, whether
liability was dependent upon resolution of a bona fide legal issue of
doubtful certainty, the contractor's efforts to ensure compliance, the
nature, extent, and seriousness of any past or present violations,
including the impact of violations on unpaid employees, and whether the
sums due were promptly paid.
(4) A contractor has an affirmative obligation to ensure that its
pay practices are in compliance with the Act, and cannot itself resolve
questions which arise, but rather must seek advice from the Department
of Labor. Murcole, Inc., Decision of the ALJ, SCA 195-198, April 10,
1974; McLaughlin Storage, Inc., Decision of the ALJ, SCA 362-365,
November 5, 1975, Administrator, March 25, 1976; Able Building &
Maintenance & Service Co., Decision of the ALJ, SCA 389-390, May 29,
1975, Assistant Secretary, January 13, 1976; Aarid Van Lines, Inc.,
Decision of the Administrator, SCA 423-425, May 13, 1977.
(5) Furthermore, a contractor cannot be relieved from debarment by
attempting to shift his/her responsibility to subordinate employees.
Security Systems, Inc., Decision of the ALJ, SCA 774-775, April 10,
1978; Ventilation & Cleaning Engineers, Inc., Decision of the Secretary,
SCA 176, September 27, 1974; Ernest Roman, Decision of the Secretary,
SCA 275, May 6, 1977. As the Comptroller General has stated in
considering debarment under the Davis-Bacon Act, ``[n]egligence of the
employer to instruct his employees as to the proper method of performing
his work or to see that the employee obeys his instructions renders the
employer liable for injuries to third parties resulting therefrom. * * *
The employer will be liable for acts of his employee within the scope of
the employment regardless of whether the acts were expressly or
impliedly authorized. * * * Willful and malicious acts of the employee
are imputable to the employer under the doctrine of respondeat superior
although they might not have been consented to or expressly authorized
or ratified by the employer.'' (Decision of the Comptroller General, B-
145608, August 1, 1961.)
(6) Negligence per se does not constitute unusual circumstances.
Relief
on no basis other than negligence would render the effect of section
5(a) a nullity, since it was intended that only responsible bidders be
awarded Government contracts. Greenwood's Transfer & Storage, Inc.,
Decision of the Secretary, SCA 321-326, June 1, 1976; Ventilation &
Cleaning Engineers, Inc., Decision of the Secretary, SCA 176, September
27, 1974.
(c) Similarly, the 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 of the Administrator, 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 Sec. 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).
(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.
(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 Sec. 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.
