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Tuesday, September 24, 2013

Lessons on Debarring Contractors from Bid Process

A recent case provides good news and bad news on governments that bar contractors from bidding.  In Blackout Seal Coding vs. Terry Peterson, a case involving the Chicago Transit Authority, the Seventh Circuit Court of Appeals provides us with hints about the dangers of "debarring" contractors from bidding on government contracts. The good news is that Blackout Seal Coating did not make the right allegations to win a damage award against the CTA for debarring it from bidding on CTA business for a period of one year.  The bad news is that the court suggested some alternate methods under which a lawsuit might be brought and did not completely invalidate such a cause of action.

Blackout was debarred because it had hired a man who had previously been debarred by the CTA. Although the CTA did not cancel any prior contract of Blackout, it did indicate that the CTA would not allow Blackout to bid on other business for a period of a year.  Blackout brought a civil rights lawsuit against the CTA, alleging that the CTA deprived the two owners of the company of "occupational liberty" without due process of the law.   The trial court judge dismissed the complaint, in part because the judge determined that Blackout did not allege that the decision by the CTA stopped the company’s ability to work for public or private entities other than the CTA.

On appeal, the Seventh Circuit affirmed the dismissal. However, the appellate court also seemed to suggest that Blackout could at least have tried in state court to assert that the action of the CTA constituted a breach of contract because it deprived it of a property interest. The court also suggested that a libel suit could have been brought because the plaintiff insisted that every public announcement of debarment was defamatory. The Seventh Circuit wrote, "repeated failure to get work under circumstances where success is normal could support an inference that debarment by the CTA amounted to blackballing from the industry". The Court went on to say, "plaintiffs might have made up for the lack of personal experience by showing what happened to other contractors that the CTA had debarred, but the complaint does not contain any allegations along those lines".
The opinion does contain some good news and recommendations for the way in which governmental bodies that seek to debar should act. The CTA sent Blackout a "notice of intent to debar." Blackout was entitled to and used its opportunity to respond in writing. The Seventh Circuit decision deals with these facts as follows: "What the due process clause requires is notice and then opportunity to respond – people must be given some kind of notice and afforded some kind of hearing...often an opportunity to comment in writing is all the hearing required. Indeed, that’s all the hearing most litigants in Federal Court receive." Blackout asked the Court to impose an obligation for a more rigorous and lengthy process before it could be debarred. The Appellate Court wrote, "the due process clause requires notice and an opportunity present one’s position; it does not requires an extended to-and-fro in which every internal recommendation kicks off a new round of submissions." The Appellate Court, clearly interested by the facts of this case ends the opinion by raising a question on whether corporations have "occupational liberty". In fact, the Court argues that the two people who owned the stock in Blackout Seal Coating could start a new corporation which would be free from the debarment.

The lesson of the Blackout Seal Coating case is that decisions by governmental bodies to prevent individuals or corporations from bidding on projects should be reviewed by attorneys who have read the cases cited and understand the risks of governmental action.
Post Authored by Stewart Diamond, Ancel Glink



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