Debarment, Blacklisting & Due Process

by Jennifer Friend

Michelman & Robinson

A trend has begun within some local cities of permanently precluding contractors from working on public projects by way of
debarment or determinations of non-responsibility. In some case, these actions are taken without first affording the contractor the
requisite due process. Currently, pre-qualification questionnaires are being used in some instances as a stepping-stone in this
process. As set forth below, prior to the taking of a contractor's right to engage in business, a public entity must afford that
contractor specific due process protections. Accordingly, it is vital that a contractor facing a determination of non-responsibility
or debarment immediately retains an attorney knowledgeable and experienced in defending a contractor throughout the process.
This is so because this area of the law is still evolving and many public entities are not even aware of the requirements imposed
upon them when making a determination of non-responsibility. The following brief discussion of some of those constitutional
requirements is provided to assist the contractor in being cognizant of the procedural protections that must be afforded if faced
with a debarment proceeding.

The United States Supreme Court and the courts of the State of California require that a contractor facing debarment be given a
fair opportunity to present its defense, an opportunity to present oral argument and witnesses at a hearing where there exist
disputed issues of material fact, and an opportunity to be heard before an unbiased administrative body.

The California Court of Appeal has specifically examined the requirements of due process in a debarment hearing in Golden Day
Schools, Inc. v. State Department of Education (2000) 83 Cal. App.4th 695, 708. In that case, the court found that debarment is
never a matter of small moment and implicates a contractor's liberty interests. Thus, the contractor facing debarment is entitled
to procedural safeguards including notice of specific charges, an opportunity to rebut those charges by presenting evidence and
cross-examining adverse witnesses, and a hearing before an impartial tribunal.

To determine what due process must be afforded to a contractor, the Court has held that the administrative body effectuating
the debarment must look to the effect of its decision on the contractor. The Supreme Court has held "The extent to which
procedural due process must be afforded the recipient is influenced by the extent to which he may be condemned to suffer
grievous loss." Goldberg v. Kelly 397 U.S. 254, 263, 90 S.Ct. 1011, 1018 citing Joint Anti-Fascist Refugee Committee v.
McGrath 341 U.S. 123, 168, 71 S.Ct. 624, 647. The Court goes on to say "Consideration of what procedures due process may
require under any given set of circumstances must begin with a determination of the precise nature of the government function
involved as well as of the private interest that has been affected by governmental action." Citing Hannah v. Larche 363 U.S. 240,
440, 422, 80 S.Ct. 1502, 1513, 1514.

The Supreme Court's ruling in the Goldberg case gives clear guidance and authority to municipalities and public agencies in
determining what due process must be given to a contractor at a debarment hearing:

"The fundamental requisite of due process of law is the opportunity to be heard. (Citations omitted). The hearing must be at a
meaningful time and in a meaningful manner. (Citations omitted). … These principles require that a recipient have timely and
adequate notice detailing the reasons for the proposed termination, and an effective opportunity to defend by confronting any
adverse witness and by presenting his own arguments and evidence orally. Id>. at 267, 268."

Due process requires that, upon being faced with a grievous loss such as permanent debarment, the recipient must be afforded
the time and opportunity to orally present evidence and witnesses before the decision making body. Presently, many
municipalities are seeking to satisfy this requirement by allowing the contractor to take the depositions of City staff and
employees. It appears to be their opinion that by allowing the contractor to examine and cross-examine witnesses via
deposition and then allowing for the submission of the deposition transcripts to the adjudicating body, this requirement is
fulfilled. It is probable that at some point this practice will be legally challenged. This is so because the United States Supreme
Court has specifically recognized that:

"Particularly where credibility and veracity are at issue, as they must be in many termination proceedings, written submissions
are a wholly unsatisfactory basis for decisions. In almost every setting where important decisions turn on questions of fact, due
process requires an opportunity to confront and cross-examine adverse witnesses. Id at 269."

Arguably, there is no situation more requiring of the opportunity to confront and cross-examine adverse witnesses before the
decision making body than disputes that involve the completion of public projects. In those cases, credibility and veracity are at
issue, as substantial questions of disputed material fact usually exist. For example, in many cases disputes exist between
inspectors, contract administrators, and the contractor regarding performance. Therefore, in such a case a contractor must be
able to confront inspectors or others claiming performance problems, regarding the specifics of their allegations.

A. Federal Due Process Standards

In addition to the clear mandates set forth above and enumerated by the United States Supreme Court, one can also look to the
Code of Federal Regulations to determine what level of due process must be afforded to a contractor facing debarment.

The Code of Federal Regulations makes it very clear that debarment is a drastic measure and that it should only be used when
absolutely necessary to protect the public interest and not for the purpose of punishment. 48 C.F.R. 9.402(b). Furthermore, the
Code states that debarment may only be had when following the procedures and standards set forth in the Code. 48 C.F.R.
9.402(b). Moreover, even if there is a cause for debarment, the Code states that such cause does not necessarily require that
the contractor be debarred; the seriousness of the contractors acts or omissions and any remedial measures or mitigating
factors should be considered in making any debarment decision.

As federal law indicates, strict standards must be used in debarment proceedings with government agencies. These standards
should apply to municipalities as well. It has been argued however that the standards that apply to federal debarment are more
stringent than those that apply to debarment by a municipality.

B. State Of California Standards

As is stated above, the courts have found that the debarment of a contractor is of no small moment and involves a fundamental
and vital liberty interest that must be protected by due process. Golden Day Schools, Inc. v. State Department of Education
(2000) 83 Cal.App.4th 695, 708. It is mandated by Government Code §114.25.10(a)(1)(2) that a person subject to administrative
adjudication is entitled to an opportunity to be heard.

As the California Court of Appeal held, the contractor subject to debarment is entitled to procedural safeguards including a
hearing wherein it has an opportunity to rebut the charges against it by presenting evidence and examining and cross-examining
adverse witnesses. Further, this mandate is set forth in the Government Code which states that a person facing the loss of a
business right is entitled to an opportunity to be heard, including the right to present and rebut evidence, and an opportunity to
conduct discovery. Government Code Sections 11503, 11505, 11507.5, 11507.6, 11513, and 11425.10(a)(1), (2).

Although these state guidelines and standards exist, at present, municipalities are codifying their own standards and processes
through drafting their city charters and municipal codes.

Due to the severe effect of a debarment on an individual's right to engage in contract, the California court in Golden Day Schools,
Inc. v. State Department of Education affirmatively found that …government debarment continues to implicate a liberty interest
which is protected by the Fourteenth Amendment. As such, in California the courts have specifically set forth the state due
process standards in this area:

"[…a] person facing suspension or debarment has a constitutionally protected liberty interest at stake and, therefore, is entitled
to certain procedural protections as a matter of due process of law… One who has been dealing with the government on an
ongoing basis may not be blacklisted, whether by suspension or debarment, without being afforded procedural safeguards…
Disqualification from bidding or contracting…directs the power and prestige of government at a particular person and, as we have
shown, may have a serious impact on that person. Such debarment cannot be left to administrative improvisation on a case-by-
case basis. The governmental power must be exercised in accordance with accepted basic legal norms. Considerations of basic
fairness require administrative regulations establishing standards for debarment and procedures which will include notice of
specific charges, opportunity to present evidence and to cross-examine adverse witnesses, all culminating in administrative
findings and conclusions based upon the record so made. Congress could not have intended the agency to act without these
minima of fair process, for to reach any other conclusion would give rise to serious constitutional issues. Golden Day at 706."

As set forth above, the standards of due process must be met when an act such as a debarment that affects a substantial
liberty interest is involved. The entity that is the subject of the debarment must be provided the basic procedural safeguards
guaranteed by due process. These safeguards include proper notice of the charges being made, an opportunity to conduct
discovery, the opportunity to cross-examine adverse witnesses and rebut the charges made, and a fair hearing before a
unbiased administrative body whose members do not serve both the role of investigator and adjudicator. A fair trial in a fair
tribunal is a basic requirement of due process. This is true of administrative adjudication as of courts. Not only is a biased
decision maker constitutionally unacceptable, but our system of law has always endeavored to prevent even the probability of
unfairness. Golden Day at 709.

C. A Contractor Facing Debarment Must Be Provided A Fair Hearing Before an Impartial Tribunal

It is required by law that a contractor subject to debarment or a determination of non-responsibility is entitled to a hearing before a
reasonably impartial, noninvolved reviewer also mandates it. Gai v. City of Selma (1998) 68 Cal.App. 4th 213. In some cases, the
administrative body seeking the debarment is not a reasonably impartial, non-involved reviewer of any issue involving the subject
contractor. Accordingly, in such an instance, the municipality should either seek third party intervention in the adjudication of the
proposed debarment, or at the very minimum, refer the matter to a panel other than itself. Also, the courts have recognized that
the combination of investigator and adjudicator roles creates an unconstitutional risk of bias and as such, administrative body
members who participate in the investigation of the debarment or non-responsibility of the contractor should not be allowed to vote
on the actual debarment. Golden Day Schools, Inc. v. State Department of Education, at. 706.

In sum, all contractors facing a debarment or determination of non-responsibility must be afforded due process. This is so
because the Courts have held that the right to contract with a public entity implicates a liberty interest and invokes constitutional
protections. Due to the ever-increasing popularity of pre-qualification and debarment/non-responsibility hearings, it is imperative
that contractors insure that their constitutional right to engage in business is not taken without a proper hearing and due process.
If this is not ensured then contractors may find that the improper debarment by one municipal or public entity precludes them
from engaging in business with any entity that has a pre-qualification program in place. This type of happening could result in the
erosion and possible eradication of the competitive bidding process mandated by Public Contract Code §20128.

Jennifer Friend and Eric Rans, formerly of Andrade & Associates, are now with the firm of Michelman & Robinson in their Orange
County office at 3 Hutton Centre, Suite 870, Santa Ana, CA 92707, telephone (714) 557-7990, facsimile (714) 557-7991. Jennifer
Friend can also be reached via email at Jfriend@mrllp.com.