U.S. Department of Labor

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Administrative Review Board

200 Constitution Ave. NW

Washington, DC 20210-0001

IN THE MATTER OF:

ADMINISTRATOR, WAGE AND

HOUR DIVISION, UNITED STATES

DEPARTMENT OF LABOR,

PROSECUTING PARTY,

ARB CASE NO. 2024-0005

ALJ CASE NO. 2018-SCA-00002

ASSOCIATE CHIEF

ALJ CARRIE BLAND

DATE: January 30, 2026

SEVEN HILLS, INC.,

RESPONDENT.

Appearances:

For the Administrator, Wage and Hour Division:

Seema Nanda, Esq., Jennifer S. Brand, Esq., Maria Van Buren, Esq.,

Jonathan T. Rees, Esq., and Priom Ahmed, Esq.; United States

Department of Labor, Office of the Solicitor; Washington, District of

Columbia

For the Respondent:

Natalie Nehls, Esq. and Jonathan W. Greenbaum, Esq.; Coburn

Greenbaum & Eisenstein PLLC; Washington, District of Columbia

Before JOHNSON, Chief Administrative Appeals Judge, and KAPLAN,

BURRELL, and KIKO, Administrative Appeals Judges; KAPLAN,

Dissenting

DECISION AND ORDER

This case arises under the McNamara-O’Hara Service Contract Act of 1965,

as amended (SCA or the Act), and its implementing regulations. 1 On September 29,

2023, a United States Department of Labor Administrative Law Judge (ALJ) held

that Respondent Seven Hills, Inc., failed to establish the “unusual circumstances”

41 U.S.C. §§ 6701-6707 (2011), and its implementing regulations at 29 C.F.R. Parts

4, 6, and 8 (2025).

the regulations require to warrant relief from an otherwise automatic three-year

debarment for their undisputed SCA violations. Respondent filed a Petition for

Review challenging its debarment.

Because a preponderance of evidence supports the ALJ’s culpable conduct

findings, we affirm the ALJ’s decision.

BACKGROUND

1. Statutory and Regulatory Framework

The SCA requires government contractors to meet minimum standards in

paying prevailing wages and fringe benefits. 2 Every contract must include clauses

setting forth the contract’s SCA obligations including a wage determination issued

by the Secretary of Labor through the Wage and Hour Division (WHD) establishing

the minimum prevailing wage rates and fringe benefits that contractors must pay

service employees. 3

The SCA implementing regulations, among other things, require contractors

to pay covered workers at least the “minimum compensation specified” for “each

hour worked,” 4 and provide “fringe benefits” to all covered workers for “all hours

spent working.” 5 Employers must “promptly” pay the prevailing wage rate no “later

than one pay period following the end of the pay period in which they are earned.” 6

In addition to creating liability for underpaid compensation, violations of these

requirements result in an automatic three-year debarment unless the contractor

can demonstrate that “unusual circumstances” warrant relief from debarment. 7

Under the SCA regulations, offending contractors must satisfy each stage of a

three-step process to establish unusual circumstances. 8 Step One prohibits relief

when any of the following circumstances exist: (1) the conduct causing SCA

41 U.S.C. §§ 6702-6703.

41 U.S.C. § 6703; 29 C.F.R. §§ 4.3(a), 4.6.

29 C.F.R. § 4.178.

Id. § 4.172.

Id. § 4.165.

41 U.S.C. § 6706; 29 C.F.R. § 4.188(a).

29 C.F.R. § 4.188(b)(3); Adm’r, Wage & Hour Div., U.S. Dep’t of Lab. v. Hearn’s

Enters., LLC, ARB No. 2020-0050, ALJ No. 2017-SCA-00006, slip op. at 14 (ARB Mar. 10,

2022). The convoluted test is a regulatory creation not found in the statute. “The term

unusual circumstances is not defined in the Act.” 29 C.F.R. § 4.188(b)(1). However, we are

bound by the regulations.

violations was willful, deliberate, or of an aggravated nature; (2) the violations were

the result of culpable conduct, including culpable neglect, culpable disregard, or

culpable failure to comply with recordkeeping requirements; (3) the contractor has a

history of similar violations or repeatedly violated the SCA; or (4) any previous

violations were serious in nature. 9 Therefore, the contractor must demonstrate that

these circumstances were not present.

Next, Step Two requires a contractor to show “prerequisites to relief” from

debarment, including: “[a] good compliance history, cooperation in the

investigation, repayment of moneys due, and sufficient assurances of future

compliance.” 10

Finally, at Step Three, “a variety of factors must still be considered,”

including: (1) “whether the contractor has previously been investigated for

violations of the Act;” (2) “whether the contractor has committed recordkeeping

violations which impeded the investigation;” (3) “whether liability was dependent

upon resolution of a bona fide legal issue of doubtful certainty;” (4) “the contractor’s

efforts to ensure compliance;” and (5) “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.” 11

10F

2. Seven Hills, SCA Covered Contract, Modifications, and Violations

A. Seven Hills, SCA Contract, and Violations

Seven Hills entered into Contract N00250-04-C-0052 (Contract) with

NEXCOM to provide food services at the Pentagon from October 15, 2004, through

September 24, 2019. 12 On November 21, 2014, NEXCOM issued contract

modification 40 (MOD-40), which included an updated wage determination with

11F

29 C.F.R. § 4.188(b)(3)(i). The numbering has been added for clarity to identify our

understanding of the different factors at each step—the numbers are not present in the

regulation.

Id. § 4.188(b)(3)(ii).

Id.

Decision and Order (D. & O.) at 6, ¶¶2-3, 9. NEXCOM stands for the “Navy

Exchange Service Command.” Administrator Response Brief (Adm’r Response Br.) at 3.

new applicable prevailing wages and fringe benefits as required by the SCA. 13

On November 26, 2014, Tadavarthy (Seven Hills’ President) signed MOD-40. 14

12F

13F

In the Summer of 2016, WHD investigated Seven Hills’ performance of the

Contract under the SCA. 15 At the conclusion of the investigation, WHD concluded

that Respondent failed to pay the proper prevailing wages and fringe benefits after

the rates increased under MOD-40. 16 After receiving the investigation findings,

Respondent paid $193,181.45 in back wages to employees for improperly paid

prevailing wages and fringe benefits. 17

14F

15F

16F

B. Other Relevant Violations

In 2014, the WHD investigated Respondent for prior Davis Bacon Act (DBA)

violations. The investigation revealed that Respondent failed to incorporate DBA

and CWHSSA clauses into a subcontract with a first-tier contractor, and then the

first-tier contractor did not incorporate the clauses into a subcontract with a

second-tier contractor. 18 As a result, the Administrator found $2,251.62 in back

wages due to seven employees, and $8,127.78 in unpaid fringe benefits due to eight

employees. 19

17F

18F

3. ALJ’s Decisions

A. ALJ D. & O.

The ALJ held a hearing on February 27, 2019. 20 It was undisputed that

Respondent violated the SCA by failing to pay the prevailing wage and required

19F

D. & O. at 7, ¶16. The parties also reference a MOD-41 (dated June 1, 2015), but it is

not detailed in the ALJ decision. Petition for Review (PFR) at 6; Adm’r Response Br. at 6.

D. & O. at 6-7, ¶¶10, 17. The D. & O. noted that Tadavarthy claimed he did not

“understand the contents of MOD-40” and he “was unfamiliar with the SCA.” Id. at 12.

However, in the Joint Prehearing Statement, the parties also stipulated that “Tadavarthy

was aware that the Contract was governed by the SCA and the regulations at 29 C.F.R.

Part 4.” Id. at 6, ¶12.

Id. at 2.

Id.; see also Administrator’s Exhibit (AX) 1 at 5 (SCA Investigation Narrative).

Respondent similarly admitted a failure to pay proper prevailing wages and fringe benefits.

D. & O. at 7, ¶¶22-23.

D. & O. at 7, ¶28; Id. at 10.

D. & O. at 8, ¶¶ 34-35.

Id. at 8, ¶¶ 36-37.

Id. at 3.

benefits. 21 Therefore, the issue before the ALJ was whether “unusual

circumstances” warranted debarment relief, and the ALJ considered the three steps

of the test: Step One (whether certain factors were present that preclude relief);

Step Two (whether prerequisites to relief were present); and Step Three (whether

other factors demonstrated entitlement to relief). 22

20F

21F

The ALJ examined the factors under Step One. The ALJ concluded that

Respondent did not engage in a deliberate SCA violation. However, the ALJ found

the presence of other factors that precluded relief at Step One, including that Seven

Hills’ violations were the result of culpable conduct (both culpable disregard and

culpable neglect), Seven Hills had a history of similar violations, and Seven Hills’

violations were serious, as discussed below.

The ALJ first found that “there [was] no evidence of [a] deliberate violation of

the SCA, intentional falsification of records, or other willful behavior.” 23 The ALJ

further explained that “there [was] no indication that Respondent deliberately

disregarded the requirements of the Contract.” 24

22F

23F

However, even though Respondent’s conduct was not deliberate or willful, the

ALJ found that Seven Hills’ violations were the result of culpable conduct, including

both culpable neglect and culpable disregard. The ALJ found that Respondent

engaged in “culpable disregard” by failing to properly pay prevailing wages and

fringe benefits after reading and signing MOD-40 in November 2014. 25 The ALJ

rejected Respondent’s claim that relief was appropriate because Tadavarthy was

unfamiliar with the SCA. The ALJ explained that “the requirements to comply”

with the SCA in MOD-40 were “clear.” 26 MOD-40 referenced the SCA and noted

how the new wage determination established the applicable minimum monetary

wages and fringe benefits for “[c]ontractor service employees working” at certain

concessions. 27 The ALJ also cited the SCA regulations to emphasize that unusual

circumstances do not include “a contractor’s plea of ignorance of the [SCA’s]

requirements where the obligation to comply with the [SCA] is plain from the

contract.” 28

24F

25F

26F

27F

Id. at 10.

Id. at 10, 14-15.

Id. at 12.

Id.

Id. at 12-13.

Id. at 13.

Id.

Id. at 13 (citing 29 C.F.R. 4.188(b)(1)).

The ALJ found “culpable neglect” because Respondent failed to take steps to

ensure SCA compliance. 29 The ALJ rejected Respondent’s argument that debarment

relief should apply because NEXCOM had not properly explained MOD-40 or the

SCA to Respondent. 30 The ALJ stressed that under the SCA regulations, “[a]

contractor has an affirmative obligation to ensure that its pay practices are in

compliance with the [SCA], and cannot [itself] resolve questions which arise, but

rather must seek advice from the Department of Labor.” 31 Thus, the ALJ explained

that it was “not the responsibility of NEXCOM, as a party to the contract, to ensure

that the other parties to the contract understand it.” 32

28F

29F

30F

31F

Next, the ALJ found at Step One that there was a history of similar

violations because the DBA violations from a previous investigation were

“substantially similar to the [SCA] violations” in this case. 33 The ALJ explained the

violations were “more similar than diverse” because “both sets of violations resulted

in failures to properly pay employees required prevailing wages and fringe

benefits.” 34

32F

33F

Finally, the ALJ also found at Step One that the violations in the current

case were “serious” because “Respondent owed a total of 178 employees an average

of more than $1,000.00 each.” 35

34F

The ALJ had other findings related to Steps Two and Three of the “unusual

circumstances” test, but we do not reach those issues because the Board affirms the

ALJ solely on the findings related to culpable conduct at Step One.

Id. at 13.

Id. at 12-13.

Id. at 13 (citing 29 C.F.R. § 4.188(b)(4)).

Id. at 13.

Id. at 14.

Id.

Id. As discussed in Discussion Section 3, the ALJ’s findings here were harmless

error because Step One only considers “where previous violations were serious in nature,”

29 C.F.R. § 4.188(b)(3)(i), and the ALJ’s Step One analysis pertained to present SCA

violations. The ALJ should have considered the seriousness of present violations at Step

Three: “the nature, extent, and seriousness of any past or present violations.” 29 C.F.R.

§ 4.188(b)(3)(ii) (emphasis added).

B. ALJ FLSA Order

We also note that, on July 15, 2021, prior to issuing the D. & O., the ALJ

issued an Order Denying the Admission of Prior FLSA Violations (FLSA Order). 36

The ALJ considered arguments from the parties regarding whether Respondent’s

prior FLSA violations were relevant to SCA proceedings, including whether they

could be considered in evaluating “a history of similar violations.” 37 The

Administrator claimed that “the regulatory language under the SCA clearly

contemplates similar violations under different statutes, otherwise the language

contained in the regulation would be repetitive and unnecessarily cumulative” 38

and that “DOL clearly intended to address similar violations under other laws.” 39

Furthermore, the Administrator argued that “Respondent’s failure to comply with

applicable labor laws is a pattern,” and to “ignore Respondent’s history of noncompliance of labor laws would be a violation of the purpose of the labor

regulations.” 40

35F

36F

37F

38F

39F

The ALJ issued an Order that thoroughly evaluated and rejected the

Administrator’s rationale for its broad interpretation of the subject regulation,

including the Administrator’s claim that FLSA violations could be considered as

part of “history of similar violations.” 41 Specifically, the ALJ explained:

40F

I find that the language of the SCA does not support the

inclusion of Respondent’s past FLSA violations. The

Administrator argues that the relevant language from the

regulation reads, “[R]elief 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.” The Administrator then argues that since these

items are in a list, they should be viewed independently,

and must be read to mean that the first clause includes

similar violations outside of the SCA. I do not find this

argument determinative since the regulation could be read

such that the relevant inquiry is whether a contractor had

We highlight the FLSA Order because it is relevant to our consideration of a “history

of similar violations” in Discussion Section 2, infra.

FLSA Order at 1; Administrator’s Brief Regarding the Admissibility of Evidence of

Similar FLSA Violations (Adm’r FLSA Br.) at 1-4.

Adm’r FLSA Br. at 3 (emphasis added).

Id. at 4 (emphasis added).

Id. at 6 (emphasis added) (citation and inner quotations omitted).

FLSA Order at 5-6.

a history of similar violations of the SCA, whether the

contractor repeatedly violated the SCA, and whether the

prior violations, either similar or numerous, were serious

in nature.[ 42]

41F

Accordingly, the ALJ issued an Order Denying the Admission of Prior

FLSA Violations. 43 We agree with the ALJ’s reasoning and find it instructive as we

consider the Administrator’s comparable argument on appeal that “history of

similar violations” can include “violations of the SCA or another law” related to

Respondent’s DBA violations, as considered below in Discussion Section 2. 44

42F

43F

JURISDICTION AND STANDARD OF REVIEW

The ARB has jurisdiction to hear and decide appeals from ALJ decisions and

orders under the SCA. 45 The Board’s review of an ALJ’s decision under the SCA is

an appellate proceeding. 46 As such, the Board reviews conclusions of law de novo. 47

The Board shall modify or set aside an ALJ’s factual findings, however, only when a

preponderance of evidence does not support them. 48

44F

45F

46F

47F

DISCUSSION

The SCA’s debarment provision is a “particularly unforgiving provision of a

demanding statute” forcing violating contractors “to run a narrow gauntlet” to

establish relief. 49 Indeed, debarment “should be the norm, not the exception” with

48F

Id. at 5 (emphasis in original and emphasis added). We also note that the

Administrator’s selective, implausible argument relied on the now defunct dictates of

Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984) in claiming

deference should apply to its interpretation. Adm’r FLSA Br. at 3. Of course, Chevron was

reversed by the Supreme Court in Loper Bright Enters. v. Raimondo, 603 U.S. 369 (2024).

D. & O. at 3; FLSA Order at 5-6.

Adm’r Response Br. at 21 (emphasis added).

Secretary’s Order No. 01-2020 (Delegation of Authority and Assignment of

Responsibility to the Administrative Review Board (Secretary’s discretionary review of ARB

decisions)), 85 Fed. Reg. 13,186 (Mar. 6, 2020); 29 C.F.R. §§ 6.20, 8.1(b).

29 C.F.R. § 8.1(d).

Hearn’s Enters., LLC, ARB No. 2020-0050, slip op. at 4-5 (citation omitted).

29 C.F.R. § 8.9(b).

Hearn’s Enters., LLC, ARB No. 2020-0050, slip op. at 14 (citation omitted). As

explained by the SCA regulations, “[t]he 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.” 29 C.F.R. § 4.188(b)(2).

“only the most compelling of justifications” relieving a “violating contractor from

[the] sanction.” 50

49F

We affirm the ALJ’s D. & O. because of the presence of certain circumstances

at Step One of the “unusual circumstances” test. Namely, Respondent engaged in

culpable conduct, including culpable disregard when Respondent failed to timely

pay the prevailing wage and fringe benefits, despite plain obligations in the

Contract to comply with SCA requirements; and culpable neglect when Respondent

failed to take proper steps to ensure compliance with the SCA. Under Step One, the

presence of any of the circumstances is an independent ground for debarment. Thus,

the findings of culpable disregard and culpable neglect each prohibit debarment

relief.

We conclude however, that the ALJ erred as a matter of law at Step One in

finding a history of similar violations and in finding that the “present” violations

were serious. Nonetheless, these were harmless errors because the ALJ correctly

ruled regarding culpable disregard and culpable neglect, and we affirm those

rulings.

Furthermore, because the culpable disregard and culpable neglect findings

prohibit relief from debarment, and we affirm the D. & O. on those findings at Step

One, we conclude that “unusual circumstances” do not exist to relieve Respondent

from debarment. Thus, it is unnecessary to consider Step Two and Three of the

“unusual circumstances” test. 51

50F

Adm’r, Wage & Hour Div., U.S. Dep’t of Lab. v. Mesa Mail Serv., LLC, ARB No.

2017-0071, ALJ No. 2009-SCA-00011, slip op. at 8 (ARB Sept. 30, 2020) (quotations and

citations omitted). In 1972, Congress amended the SCA, and the “effect of the 1972

Amendments” was “to limit the Secretary’s discretion to relieve violators from the debarred

list.” 29 C.F.R. § 4.188(b)(1). In 1971, “just prior to the 1972 [SCA] amendments,” the House

issued a Subcommittee report making “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.” 29 C.F.R. § 4.188(b)(2) (emphasis added).

Adm’r, Wage & Hour Div., U.S. Dep’t of Lab. v. Igwe, ARB No. 2007-0120, ALJ No.

2006-SCA-00020, slip op. at 11 (ARB Nov. 25, 2009) (citation omitted) (analyzing how Step

Two and Step Three are unnecessary to consider where an employer cannot satisfy Step

One).

1. Step One – Culpable Conduct

While the unusual circumstances determination “must be made on a case-bycase basis in accordance with the particular facts present,” 52 a contractor cannot

receive debarment relief where its violations result from “culpable conduct,” such as

“culpable disregard of whether they were in violation or not” or “culpable neglect to

ascertain whether practices are in violation.” 53 Culpable conduct goes “beyond

negligence,” but falls “short of specific intent.” 54

51F

52F

53F

On appeal, Respondent disputes the ALJ’s findings that there was culpable

conduct and argues that unusual circumstances apply. 55 First, Respondent contests

the ALJ’s finding of culpable disregard by primarily arguing that Seven Hills was

ignorant of the SCA and this was Seven Hills’ first SCA violation. 56 Next,

Respondent contests the ALJ’s finding of culpable neglect, pointing out that it

sought guidance from NEXCOM “with MOD 40 or the later modification,” and

NEXCOM had “mentioned to [Tadavarthy] that the wage rates applied only when

the employee works directly for the federal government, not with Seven Hills.” 57

54F

55F

56F

We disagree with Respondent. The preponderance of the evidence supports

the ALJ’s findings regarding culpable conduct. 58 We therefore affirm the ALJ that

(1) Respondent engaged in culpable disregard when it failed to timely pay the

prevailing wage and fringe benefits, despite plain obligations in the Contract to

comply with SCA requirements; and (2) Respondent engaged in culpable neglect

when it failed to take proper steps to ensure compliance with the SCA.

57F

A. Step One – Culpable Disregard of Whether They Were in Violation or Not

There cannot be debarment relief when a contractor’s SCA violations result

from “culpable disregard of whether they were in violation or not.” 59 The ALJ found

that Respondent engaged in “culpable disregard” by failing to properly pay

prevailing wages and fringe benefits after reading and signing MOD-40 in

58F

29 C.F.R. § 4.188(b)(1).

Id. § 4.188(b)(3)(i).

Igwe, ARB No. 2007-0120, slip op. at 9 (quotations and citation omitted).

Respondent Opening Brief (Resp. Br.) at 6.

Id. at 7-9.

Id. at 7; see also Respondent Reply Brief (Resp. Reply Br.) at 5.

29 C.F.R. § 8.9(b) (“The Board shall modify or set aside findings of fact only when it

determines that those findings are not supported by a preponderance of the evidence.”).

29 C.F.R. § 4.188(b)(3)(i).

November 2014. 60 On appeal, Respondent “contests the ALJ’s finding that Seven

Hills’ conduct constituted culpable disregard in its practices,” highlighting that

Respondent was “unfamiliar with SCA” and that it was their first SCA violation. 61

We disagree with Respondent. The preponderance of the evidence confirms

Respondent acted with culpable conduct by failing to pay SCA-required prevailing

wages and fringe benefits, despite plain obligations in the Contract to comply with

SCA requirements.

59F

60F

First, as highlighted by the ALJ, the debarment regulation explicitly provides

that when the contractor’s “obligation to comply with the Act is plain from the

contract,” the contractor’s “plea of ignorance of the Act’s requirements” does not

constitute “unusual circumstances.” 62 Furthermore, the Board has held that when

the SCA’s requirements are plain from the face of a contract, a violating contractor

is “at least culpably negligent in failing to read and perform them.” 63 Here, the

evidence in the record shows that the obligation to comply with the SCA was plain

from the Contract. In November 2014, Tadavarthy signed contract modification

MOD-40, which directly referred to the SCA and the applicable wage determination

for service workers at two of Respondent’s restaurants. Specifically, MOD-40 stated:

61F

62F

In accordance with Section H.8, “Service Contract Act”,

Wage Determination #2014-0140, Revision 1, establishes

the applicable minimum monetary wages and fringe

benefits to be provided to Contractor service employees at

the following concessions:

• Burger King, Concourse Food Court

• Starbucks, Concourse Food Court. 64

63F

Accordingly, because the plain terms of MOD-40 established a clear SCA

obligation under the Contract, Respondent cannot rely on a plea of ignorance. 65 The

failure to properly pay prevailing wages and fringe benefits, in accordance with the

plain terms of the Act and the contract, establishes culpable disregard. 66

64F

65F

D. & O. at 12-13.

Resp. Br. at 6-9.

29 C.F.R. § 4.188(b)(1).

Adm’r, Wage & Hour Div., U.S. Dep’t of Lab. v. Integrated Res. Mgmt., Inc., ARB No.

1999-0119, ALJ No. 1997-SCA-00014, slip op. at 6 (ARB June 27, 2002) (emphasis added).

AX 8 at 1 (MOD-40).

See 29 C.F.R. § 4.188(b)(1).

See Integrated Res. Mgmt., Inc., ARB No. 1999-0119, slip op. at 6.

Furthermore, even if we assumed that MOD-40’s terms were not plain in

establishing Respondent’s SCA obligations, Respondent cannot rely on a plea of

ignorance because Respondent knew (or clearly should have known) about the SCA

obligations under the Contract prior to MOD-40. 67 The parties stipulated that “[a]t

all times relevant to the performance of the subject blanket purchase agreement,

Raghu Tadavarthy was aware that the Contract was governed by the SCA and the

regulations at 29 C.F.R. Part 4.” 68 Furthermore, Respondent had been on notice of

its SCA’s obligations since the start of the Contract in 2004, not just since MOD-40.

The parties stipulated that the “Contract contained the representations and

stipulations required by the SCA.” 69 It strains credulity that Seven Hills was

unaware of the SCA’s obligations related to the Contract. Thus, because Respondent

knew (or clearly should have known) about the SCA and the accompanying

obligations, Respondent cannot rely on a plea of ignorance.

66F

67F

68F

Finally, Seven Hills cites to A to Z Maintenance Corp. v. Dole, 70 claiming that

it permits relief from debarment when a contractor is unfamiliar with the SCA and

it is the contractor’s first violation. 71 Thus, Respondent argues its “plea of ignorance

should warrant against debarment here, as this was the first time it had violated

the SCA, and there was no pattern of culpable disregard for the SCA.” 72

We disagree. Here, as already discussed, the plain terms of MOD-40 established a

clear SCA obligation and Respondent knew (or clearly should have known) about

the SCA—therefore, Respondent cannot rely on a of plea ignorance. Furthermore,

regarding relief from debarment for a first violation, A to Z Maintenance Corp.

clearly notes that debarment is still permissible for a single violation, stating: the

SCA “does not require a series of violations as a prerequisite to debarment,”

it “provides without qualification that ‘a violation’—i.e., a single, perhaps wholly

inadvertent violation—may provide grounds for debarment.” 73 Here, even though

Seven Hills had no former SCA violations, we affirm the ALJ that Respondent’s

failure to properly pay prevailing wages and fringe benefits, as required by the

69F

70F

71F

72F

Cf. Adm’r, Wage & Hour Div., U.S. Dep’t of Lab. v. Coleman Constr. Co., ARB No.

2015-0002, ALJ No. 2013-DBA-00004, slip op. at 8 (ARB June 8, 2016) (“Coleman’s only

argument that Davis-Bacon shouldn’t apply to it is premised on . . . feigned ignorance about

the applicability of Davis-Bacon . . . . ,” but “[t]he evidence establishes that Coleman

Construction knew or clearly should have known that the subcontract was subject to DavisBacon Act requirements.”) (emphasis added).

D. & O. at 6, ¶12 (emphasis added).

Id. at 6, ¶4.

710 F. Supp. 853 (D.D.C. 1989); Resp. Br. at 6.

Resp. Br. at 6-9.

Id. at 9.

A to Z Maint. Corp., 710 F. Supp. at 855.

plain terms of the Act and the contract, establishes culpable disregard. 74 Thus,

culpable conduct is present at Step One, a finding that prohibits debarment relief.

73F

B. Step One – Culpable Neglect to Ascertain Whether the Practices Are in

Violation

Debarment relief is prohibited when a contractor’s SCA violations result from

“culpable neglect to ascertain whether practices are in violation.” 75 The ALJ found

Respondent engaged in “culpable neglect” because Respondent failed to take steps

to ensure SCA compliance. 76 On appeal, Seven Hills claims that it did not engage in

culpable neglect, pointing out that it sought guidance from NEXCOM “with MOD 40

or the later modification,” and NEXCOM had “mentioned to [Tadavarthy] that the

wage rates applied only when the employee works directly for the federal

government, not with Seven Hills.” 77 We disagree. The preponderance of the

evidence confirms Respondent acted with culpable conduct by failing to take proper

steps to ensure SCA compliance.

74F

75F

76F

The SCA regulations explain that: “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.” 78 Thus, under the regulations, Seven Hills had an obligation to seek

77F

See 29 C.F.R. § 4.188(b)(1); Integrated Res. Mgmt., Inc., ARB No. 1999-0119, slip op.

at 6. Respondent also attempts to contrast the circumstances here with Vigilantes, Inc. v.

Adm’r, Wage & Hour Div., U.S. Dep’t of Lab. a case where the company’s violations

demonstrated a pattern of culpable neglect. 968 F.2d 1412 (1st Cir. 1992). Seven Hills

claims that the circumstances here are distinct and warrant debarment relief because,

unlike the company in Vigilantes, Seven Hills has no prior SCA violations. Resp. Br. at 8-9.

We disagree that relief is warranted. As already discussed, we affirm the ALJ that

Respondent’s SCA violations constitute culpable disregard that preclude debarment relief.

Respondent also highlights how “unlike the company in Vigilantes, Seven Hills promptly

paid the monies due.” Id. at 8. This argument does not persuade us regarding our

considerations of culpable conduct at Step One. Furthermore, it is more properly examined

at Step Three, which requires consideration of “whether sums due were promptly paid.”

29 C.F.R. § 4.188(b)(3)(ii). However, as discussed elsewhere, we affirm the D. & O. on those

findings at Step One, and we conclude that “unusual circumstances” do not exist to relieve

Respondent from debarment. Thus, it is unnecessary to consider Step Three of the test.

See Igwe, ARB No. 2007-0120, slip op. at 11 (analyzing how Step Two and Step Three are

unnecessary to consider where an employer cannot satisfy Step One).

29 C.F.R. § 4.188(b)(3)(i).

D. & O. at 13.

Resp. Br. at 7; see also Resp. Reply Br. at 5.

29 C.F.R. § 4.188(b)(4).

guidance from the Department of Labor, not NEXCOM. 79 By failing to take proper

steps to ensure compliance, Respondent engaged in culpable neglect. Thus, culpable

conduct is again present at Step One, another finding that prohibits debarment

relief.

78F

Furthermore, while guidance from a contracting agency alone is insufficient

to establish relief for debarment, the record here does not even support

Respondent’s claim that Seven Hills contacted NEXCOM regarding MOD-40 (or

MOD-41) or that NEXCOM explained that the modifications did not apply to

Respondent. In addition, Respondent’s claim is implausible that NEXCOM

explained to Respondent that the modified wage rates only applied to federal

workers.

Respondent relies on Tadavarthy’s deposition testimony as evidence that

Respondent contacted NEXCOM and that NEXCOM provided guidance regarding

the modification. 80 However, in Tadavarthy’s deposition, he does not remember

crucial details, such as the MOD he discussed with NEXCOM. In his deposition,

Tadavarthy explained “I called [the] NEXCOM office. That is what I remember.

Was it [MOD] 40, 41, or some other MOD? I don’t remember.” 81

79F

80F

In addition to not recalling the MOD discussed, Tadavarthy also could not

remember whom he spoke with at NEXCOM. 82 Tadavarthy testified that he

contacted NEXCOM when “one [of] the MODs” came in with “some wage

determination papers.” 83 He explained that “I don’t remember who I talked to,”

but “[t]hey said this does not apply to Seven Hills,” the modification only applies to

“Federal Government employees that work directly [for] the government.” 84

81F

82F

83F

Cf. 29 C.F.R. § 4.187(e)(5) (“Reliance on advice from contracting agency officials (or

Department of Labor officials without the authority to issue rulings under the Act) is not a

defense against a contractor’s liability for back wages under the Act.”).

Resp. Br. at 7.

Respondent’s Exhibit (RX) 13 (Tadavarthy Dep.) at 58. There are several other

examples of Tadavarthy not recalling which MOD he discussed with NEXCOM. In his

deposition, DOL asked Tadavarthy “[d]o you recall if for MOD 40 you had a conversation

with somebody at NEXCOM?” Tadavarthy responded “I don’t remember whether that is in

MOD 40 or in some other MOD.” Id. at 44. The questioning continued: “But it’s possible

that conversation was on a different MOD and not [MOD-40]?” Tadavarthy responded,

“[y]es.” Id. at 44-45.

Id. at 16.

Id.

Id. Similarly, Respondent’s Accountant testified that he had heard of the SCA

because “it was listed on a MOD,” but he claimed he “wasn’t aware it pertained to our

employees.” RX 12 (Joseph Palo Dep.) at 13.

Based on Tadavarthy’s testimony, it is unclear whether Respondent sought

guidance from NEXCOM related to MOD-40 or MOD-41. 85 However, Respondent’s

claim regarding NEXCOM’s guidance fails on another ground. Namely, it is highly

improbable that “NEXCOM mentioned to [Tadavarthy] that the wage rates applied

only when the employee works directly for the federal government, not with Seven

Hills.” 86 MOD-40 states that the wage determination establishes the “minimum

monetary wages and fringe benefits” for “service employees working at” Burger

King and Starbucks. 87 Given the clear requirements of MOD-40 and the fact the

SCA does not apply to the “U.S. Government, its agencies, and instrumentalities,” 88

it is borderline ludicrous that NEXCOM would explain that MOD-40 only applies to

federal government workers at Burger King and Starbucks or that the Respondent

would not have followed up on such a purported, critical clarification and requested

such a clarification in writing.

84F

85F

86F

87F

Further, as discussed above, even if the evidence was clear that NEXCOM

advised Respondent that MOD-40 only applied to federal government workers,

guidance from a contracting agency alone is insufficient as evidence for debarment

relief. The SCA regulations note that a contractor “cannot itself resolve questions

which arise,” but must “seek advice from the Department of Labor.” 89 We are

unaware of evidence that Respondent sought advice from the Department of Labor.

Accordingly, based on the foregoing, we affirm the ALJ’s finding that Seven Hills

engaged in culpable neglect when it failed to properly take steps to ensure

compliance with the SCA.

88F

2. Step One – History of Similar Violations

While we affirm the ALJ’s analysis and findings on “culpable conduct,”

including “culpable neglect” and “culpable disregard,” we conclude that the ALJ

erred as a matter of law in counting DBA violations as part of her finding that the

employer had a “history of similar violations.” 90 The error is harmless because we

affirm the ALJ’s culpable conduct findings, but we nonetheless here explain our

reasoning to foreclose similar future efforts by the Administrator to argue that

“history of similar violations” could involve violations of statutes beyond the SCA.

89F

We are also unaware of any other evidence in support, such as evidence from a

NEXCOM representative. We also do not see evidence that Seven Hills followed up with

NEXCOM on this obviously important issue.

Resp. Br. at 7 (emphasis added).

AX 8 at 1.

29 C.F.R. § 4.1a(f).

Id. § 4.188(b)(4).

D. & O. at 14.

The relevant regulatory language can be found at 29 C.F.R. § 4.188 (b)(3)(i),

which states that relief from debarment is not appropriate (under the “unusual

circumstances” proviso discussed above) where a “contractor has a history of similar

violations, where a contractor has repeatedly violated the provisions of the Act [the

SCA], or where previous violations were serious in nature.”

The Administrator has argued for a broad interpretation of “history of

similar violations,” noting how the regulatory text expressly limits “repeated

violations” to violations of the SCA, “but the ‘history of similar violations’ criterion

contains no such limitation in the regulatory text and hence encompasses ‘similar

violations’ whether they are violations of the SCA or another law.” 91 As noted in the

Background Section 3(B), the Administrator provided a similar rationale to the

ALJ, arguing that Respondent’s FLSA violations should be considered as part of a

“history of similar violations.” 92 However, in her FLSA Order, the ALJ rejected the

Administrator’s broad interpretation of the of “history of similar violations.” 93

The ALJ explained that the SCA “regulation could be read such that the relevant

inquiry is whether a contractor had a history of similar violations of the SCA . . . .” 94

The ALJ’s reading of the regulation in the FLSA Order is also instructive here.

We disagree with the Administrator’s argument that “history of similar violations”

can include “violations of the SCA or another law,” such as the DBA. 95

90F

91F

92F

93F

94F

Perhaps if the Administrator had admitted to some limiting principle in

defining “similar violations” (such as other “prevailing wage laws”) this might be

seen as a small technical issue in the practical world of enforcement, but no limiting

principle as to what “other laws” can be considered can be found in its arguments

before the Board or in the briefs before the ALJ relating to the FLSA violations,

discussed in Background Section 3(B). Indeed, the narrowest reading of the briefed

arguments would be that, at the very least, the full panoply of employment laws

could be considered by the decision maker in determining whether the employer has

“a history of similar violations.” However, even this reading is charitable, as the

Administrator generally puts no limitations on what violations of other laws may be

included. Thus, if accepted, the Administrator’s interpretation of the words in

question would not lend itself to any limitation.

Adm’r Response Br. at 21 (emphasis added) (citation omitted).

The Administrator argued “history of similar violations” includes violations of the

SCA or “different statutes” or “other laws.” Adm’r FLSA Br. at 3-4 (citations omitted).

FLSA Order at 5-6.

Id. at 5 (emphasis added). The ALJ did not explain why this reasoning did not apply

to DBA violations in its subsequent D. & O.

Adm’r Response Br. at 21 (emphasis added).

Therefore, we take this opportunity to make clear, for the reasons explained

below, that it is not appropriate to engraft violations from other statutes onto the

SCA in order to compute penalties, including debarment.

Each statute has its own specific regime in defining what is prohibited and

required by that law, and therefore what is a violation thereof; this includes its own

particular enforcement mechanisms and its own appropriate penalties. Likewise,

each statute has its own administrative directives, implementing regulations, case

law, and nuances. To say that statutes vary widely under our nation’s employment

laws alone is an understatement. Some include debarment but most do not. Some

penalize violators with back pay and double loss pay. Others include penalties such

as punitive and compensatory damages. Some are enforced only through agency

action, others also with private causes of action, with jury trials. 96 All vary widely

with regard to the underlying substantive rights. And though there may be

similarities at the very general top line level, between (e.g. DBA and SCA) statutes,

there is no “cookie cutter” format. This is hardly surprising since the contours of

statutes are normally forged after much debate and drafting representing broad

compromises between competing goals, enforcement mechanisms, and other

factors. 97

95F

96F

These have been set by the Congress. It is not appropriate therefore for an

agency to mix and match penalties from one statute with those of another, absent

express Congressional authority to do so—clearly absent here where the regulations

spring solely out of the statutory wording “unusual circumstances.” 98 We therefore

decline to interpret the subject regulation in such a manner. Doing so would not

only raise constitutional issues, 99 but more importantly for our purposes, open doors

for boundless creative agency enforcement efforts which could pull from many other

enforcement proceedings (where claims of alleged “violations” may be pending or

finalized) under many other statutes in other forums, and inappropriately cross

pollinate their requirements and penalties. This is not an apocalyptic prediction and

97F

98F

For example, SCA has no private cause of action, while FLSA has a private cause of

action (with jury trials). Furthermore, the statutes’ penalties are vastly different.

See Adm’r, Off. of Foreign Lab. Certification, Employment and Training Admin.,

U.S. Dep’t of Lab. v. Cent. Fla. Lab. Servs., LLC, ARB No. 2025-0026, ALJ Nos. 2023-PED00011, -00012, -00014, -00015, slip op. at 19 n. 92 (ARB Mar. 28, 2025) (Johnson, C.J.,

concurring).

Supra note 8, “The term unusual circumstances is not defined in the Act.” 29 C.F.R.

§ 4.188(b)(1).

“It is well settled that when Congress has directly addressed the extent of authority

delegated to an administrative agency, neither the agency nor the courts are free to assume

that Congress intended the Secretary to act in situations left unspoken.” Associated

Builders & Contractors of Se. Tex. v. Rung, No. 1:16-CV-425, 2016 WL 8188655, at *7 (E.D.

Tex. Oct. 24, 2016) (citations and quotations omitted).

indeed this path has been traveled before under past administrations. These paths

were blocked either by subsequent rulemaking, the courts, or the Congressional

Review Act. 100

99F

Finally, we would like to emphasize that we have diligently searched the

preambles to the relevant regulations and found no discussion which would lend

itself to the expansive interpretation of this section advanced by the Administrator

here. 101

100F

President Obama issued Executive Order 13673, “Fair Pay and Safe Workplaces,”

on July 31, 2014, which, with Guidance for Executive Order 13673, 81 Fed. Reg. 58654

(Aug. 25, 2016), required federal contracting officers to review prospective

contractor/employers’ history of compliance with 14 federal employment laws, and

“equivalent” state laws, to evaluate whether these applicants for federal contracts had a

suitable record to justify being awarded a contract. In sum, those judged not to have a

suitable record were barred from receiving federal contracts. Hence, the record of

compliance with many laws which did not even include a penalty or sanction of debarment

were carried over to use in evaluating whether contractors should be barred from receiving

federal contracts. This initiative was enjoined in Rung, 2016 WL 8188655, at *15, and

President Trump subsequently revoked Executive Order 13673. See Revocation of Federal

Contracting Executive Orders, Exec. Order No. 13782, 82 Fed. Reg. 15607 (Mar. 27, 2017).

Furthermore, a related FAR regulation, 81 Fed. Reg. 58562, was repealed by Congress

under the Congressional Review Act, H.J. Res. 37, 115th Cong. (as passed by House, Feb. 2,

2017, and Senate, Mar. 6, 2017), and signed by President Trump on March 27, 2017. Pub.

L. No. 115-11. The Obama initiative was preceded by a similar one under President Clinton

(which included an even more expansive list of laws—tax, labor and employment,

environmental, antitrust, consumer protection—to be considered for the purposes of

eligibility to contract with the government). See 65 Fed. Reg. 80255 (Dec. 20, 2000).

However, the Clinton final rule was ultimately repealed by President George W. Bush.

See Contractor Responsibility, Labor Relations Costs, and Costs Relating to Legal and

Other Proceedings-Revocation, 66 Fed. Reg. 66986 (Dec. 27, 2001). Both were very

controversial on legal as well as policy grounds, and the broad coverage of both indicate the

deceptive reach of the simple words “other laws” as argued by the Administrator. In all

these proceedings, a pervasive issue was what level or type of violations should be

considered and when can a covered “violation” be considered even if still pending and under

review at some stage—agency complaint, ALJ decision, administrative appeals level, or

pending before Article III courts? See Fair Pay and Safe Workplaces, Exec. Order No.

13673, 79 Fed. Reg. 45309 (July 31, 2014); Rung, 2016 WL 8188655, at *12 (“These

examples of enforcement agency conduct that has later been rejected by the courts

illustrate the fallacy and danger of the DOL Guidance’s definition of “‘violation.’”).

Of course, none of these important caveats would even be part of the Administrator’s

sweeping position here concerning adoption of (undefined) “violations” under other laws.

100

See, e.g., Labor Standards for Federal Service Contracts, 33 Fed. Reg. 9880 (July 10,

1968); Labor Standards for Federal Service Contracts, 48 Fed. Reg. 49736 (Oct. 27, 1983);

Amendments to Federal Contract Labor Laws by The Federal Acquisition Streamlining Act

of 1994, 61 Fed. Reg. 40714 (Aug. 5, 1996); Labor Standards for Federal Service Contracts;

66 Fed. Reg. 5328 (Jan. 18, 2001); Updating Regulations Issued Under Service Contract Act

101

Furthermore, the cases cited in the regulation itself do not lend themselves to this

interpretation. 102 We also note that, after an exhaustive search, there is virtually

no case law which would support the Administrator’s interpretation 103—even after

101F

102F

and Other Acts, 82 Fed. Reg. 2221 (Jan. 9, 2017). We recognize that certain parts of the

SCA implementing regulations cross reference standards from other statutes and

incorporate those requirements as part of those regulations. See, e.g., 29 C.F.R. § 4.181

(“Overtime pay provisions of other Acts”). However, the few statutes identified are a far cry

from the position advanced by the Administrator here of “other laws,” which, troublingly,

admits to no limiting principle, nor does the Administrator look at these provisions to

“cabin in” its broad position. Further, these provisions in our view do not authorize

adopting into an SCA enforcement proceeding, to justify debarment, violations under these

other statutes arising in other proceedings. They are simply part, by reference, of the SCA

standards against which a contractor’s performance is to be measured in an enforcement

action under the SCA.

29 C.F.R. § 4.188(b)(3)(i) cites decisions as examples of the criteria developed by the

Department “for determining when there are unusual circumstances within the meaning of

the [SCA].” Wash. Moving & Storage Co., SCA No. 168 (Aug. 16, 1973) (Decision of the

Assistant Secretary); Wash. Moving & Storage Co., SCA No. 168 (Mar. 12, 1974) (Decision

of the Secretary); Quality Maint. Co., Inc., SCA No. 119 (Jan. 11, 1974) (Decision of the

Assistant Secretary). Paper copies of these decisions and those cited in them were retrieved

from the Wirtz Labor Library. None of the cases expressly define “a history of similar

violations,” but they discuss recurrent violations and their impact on whether a finding of

unusual circumstances is warranted: “It is also clear that a history of recurrent violations of

identical nature, such as repeated violations of identical minimum wage or recordkeeping

provisions does not permit a finding of ‘unusual circumstances.’ On the other hand, where a

bona fide legal question of doubtful certainty exists, and an employer reasonably chooses to

litigate such question in order to resolve it, this should not prevent a finding of ‘unusual

circumstances.’” Quality Maint. Co., SCA No. 119, slip op. at 19 (citing Wash. Moving &

Storage Co., SCA No. 168, slip op. at 10 (Aug. 16, 1973)). Quality Maint. Co. also refers to

supplemental ALJ decisions in the following cases: Emerald Maint., Inc. SCA No. 153 (Apr.

5, 1973); Burns Sec. Sys., Inc., SCA No. 150 (Apr. 30, 1973); Kelly Cab Co., Inc., SCA No.

146 (Mar. 22, 1973); Foreman’s Sec. Serv., Inc., SCA No. 167 (Mar. 14, 1973); Bouchet, SCA

No. 165 (Jan. 23, 1973). Some of these decisions noted how there was no history of previous

violations of the SCA, but they did not find a history of similar violations of other statutes

as argued by the Administrator.

102

Our research did not yield recent federal, ARB, or Secretarial decisions defining

“a history of similar violations” as used in 29 C.F.R. § 4.188(b)(3)(i). One ALJ decision was

found which supports the Administrator’s position, although it was not cited by the

Administrator. Adm’r, Wage & Hour Div., U.S. Dep’t of Lab. v. Davis-Paige Mgmt. Sys.,

LLC, ALJ No. 2019-SCA-00003 (ALJ Jan. 29, 2024). In Davis-Paige Mgmt. Sys., the ALJ

determined that an ERISA default judgment amounted to a “history of similar of

violations,” illustrating the Administrator’s unbridled interpretation. Id. at 27. ERISA is an

extremely complicated statute far removed from the SCA. Notably, the appeal of the ALJ’s

decision was administratively closed by the Board. Adm’r, Wage & Hour Div., U.S. Dep’t of

Lab. v. Davis-Paige Mgmt. Sys., LLC, ARB No. 2024-0053, ALJ No. 2019-SCA-00003 (ARB

103

decades of enforcement under the SCA. 104 We therefore conclude that the

regulatory language can only logically be interpreted to allow the inclusion of

“violations” under the Service Contract Act, and not that of other laws, in

evaluating a “history of similar violations.”

103F

3. Step One – Previous Violations Serious in Nature

The ALJ erred in finding at Step One that Seven Hills’ SCA violations

“found under the instant investigation” were serious. 105 Step One prohibits

debarment relief “where previous violations were serious in nature.” 106 However,

the ALJ’s Step One analysis pertained to the SCA violations “found under the

instant investigation,” not “previous” violations. Step Three allows for consideration

of the seriousness of “present” violations: “the nature, extent, and seriousness of any

past or present violations.” 107 Thus, the ALJ should have considered the seriousness

of the “present” SCA violations (those “found under the instant investigation”) at

Step Three. The ALJ’s error is harmless though because the ALJ correctly ruled

regarding culpable conduct and we affirm that ruling—therefore, Respondent still

104F

105F

106F

Sept. 4, 2024) (Order of Administrative Closure). We also note that the Administrator, in its

FLSA brief before the ALJ in this case, cited to the ARB’s decision in Hugo Reforestation,

Inc., ARB No. 1999-0003, ALJ No. 1997-SCA-00020 (ARB Apr. 30, 2001), but the

Administrator referred to how the ALJ ruled in Hugo, not how the ARB ruled, noting that

the ALJ found it appropriate to consider “different statutes” related to “history of

violations.” Adm’r FLSA Br. at 5. In the FLSA Order, the ALJ in this case disagreed with

the Administrator, noting that in Hugo, “it is clear that the ARB determined the inclusion

of respondent’s prior FLSA violations to be irrelevant to the analysis of whether or not

respondent ‘had a history of violating the SCA.’” FLSA Order at 6. We agree with the ALJ

in the FLSA Order. See also Hugo Reforestation, Inc., ARB No. 1999-0003, slip op. at 4 n.3.

The Davis-Paige Mgmt. Sys. and Hugo Reforestation ALJ decisions thus lack broad or

controlling authority.

Similarly, under other statutes, expansive interpretations have been critiqued when

the interpretation is inconsistent with historical practice. Cent. Fla. Lab. Servs., LLC.,

ARB No. 2025-0026, slip op. at 18-19 (Johnson, C.J., concurring) (“Stated simply, given this

is the first time this issue has arisen in the many years the H-2A program has operated, it

begs credulity that debarment at the pre-certification stage is needed for effective

enforcement,” and it is “perplexing the Administrator has not pointed to any instances in

which it has utilized this purported power in the past.”); Hiran Mgmt., Inc. v. NLRB, 157

F.4th 719, 722 (5th Cir. 2025) (“Ninety years after Congress created the National Labor

Relations Board (“NLRB”), the NLRB claimed for the first time the ability to award full

compensatory damages in its enforcement proceedings. . . .We hold that the NLRB lacks

statutory authority to award full compensatory damages.”).

104

105

D. & O. at 14.

106

29 C.F.R. § 4.188(b)(3)(i) (emphasis added).

Id. § 4.188(b)(3)(ii) (emphasis added). The Administrator also considers seriousness

of present violations under Step Three in their brief. Adm’r Response Br. at 24-28.

107

fails Step One of the “unusual circumstances” test, such that there can be no

debarment relief. 108 Because we affirm the ALJ’s culpable conduct

findings—findings that prohibit debarment relief—we do not need to proceed to

Step Three of the test.

107F

4. Respondent’s Other Argument on Appeal

Seven Hills also argues that they have been prejudiced by undue delay,

noting that the WHD investigation began in 2016 and that the period of debarment

for SCA violations is three years. 109 Seven Hills cites to 29 C.F.R. § 6.19(b), which

states that the ALJ “shall make” a decision “[w]ithin a reasonable time.” Seven

Hills claims it has not bid on a contract in several years and ended its contract at

the Pentagon in 2021. 110 Seven Hills also notes that the ALJ erred in ordering

debarment from the effective date of the D. & O., and that subsequently, the

Administrator contacted the Comptroller General, stating that Seven Hills and its

owners “are ineligible from bidding on government contracts.” 111 As a result, Seven

Hills was improperly (and briefly) added to the ineligibility list. 112 However,

Respondent was notified that due to their appeal to the Board, they were removed

from the ineligibility list. 113

108F

109F

110F

111F

112F

We are sympathetic to the delays and the errors that resulted in Seven Hills

temporarily being listed on the ineligibility list. However, these arguments are not

relevant to the examination of “unusual circumstances.” In addition, Seven Hills

decided to end its contracts and not pursue additional contracts—they were not

required to take those actions.

Even though the ALJ analyzed the “present” violations at the wrong step, the ALJ’s

analysis would be relevant to Step Three. The ALJ found that that Respondent’s violations

“under the instant investigation” were serious because “Respondent owed a total of 178

employees an average of more than $1,000 each.” D. & O. at 14. We do not reach Step

Three, but we agree with the ALJ’s analysis.

108

109

PFR at 11-12.

110

Id. at 12.

111

Resp. Reply Br. at 9.

112

Id.

113

Id., Attachment 1.

CONCLUSION

We AFFIRM the ALJ’s findings that “unusual circumstances” do not exist to

relieve Respondent from debarment. As a result, we AFFIRM the ALJ’s order that

the Respondent shall not be awarded United States government contracts for three

years.

SO ORDERED.

RANDEL K. JOHNSON

Chief Administrative Appeals Judge

THOMAS H. BURRELL

Administrative Appeals Judge

PHILIP G. KIKO

Administrative Appeals Judge

Judge Kaplan, Dissenting:

With some reluctance, I respectfully dissent from the majority’s affirmance

of the ALJ’s D. & O. Because of insufficient findings of fact and conclusions of law,

the preponderance of the evidence does not support her findings, and the “unusual

circumstances” test could result in findings of fact and conclusions of law that show

that debarment relief is not appropriate. 114 Therefore, I cannot support the

majority’s analysis, 115 and I would reverse and remand the case to the ALJ for

further findings of fact and conclusions of law. 116

113F

114F

115F

I take issue with my learned colleagues on the majority reaching their own

conclusions on the facts in reliance on the testimony. Had the ALJ relied on the

same evidence as the majority for her findings of fact and articulated the same

conclusions, I would not be writing this dissent. However, judges rely on intuition,

context, and demeanor to assess credibility. None of these non-verbal

communications exist on a transcript, therefore it is improper for an appellate court

to review testimony and reach its own conclusions because the reader lacks the

ability to read the witness; there are no voice inflections, facial expressions, or

evidence of the litigation drama that combined can be the best evidence of the truth.

“The Board shall modify or set aside an ALJ’s factual findings . . . when a

preponderance of evidence does not support them.” 29 C.F.R. § 8.9(b).

114

115

Except as noted later in the dissent.

An ALJ must “adequately explain why he credited certain evidence and discredited

other evidence.” Sea “B” Mining Co. v. Addison, 831 F.3d 244, 253 (4th Cir. 2016) (citations

omitted). And although an ALJ “need not address every aspect of [a party’s claim] at length

and in detail,” the findings “must provide enough information to ensure the Court that he

properly considered the relevant evidence underlying [the party’s] request.” Mori v. Dep’t of

the Navy, 917 F. Supp. 2d 60, 65 (D.D.C. 2013) (citations omitted). The failure to address

evidence or resolve conflicts in the evidence thus requires remand; ultimately, a reviewing

court must be able to “discern what the ALJ did and why he did it.” Printz v. STS Aviation

Grp., ARB No. 2022-0045, ALJ No. 2021-AIR-00013, slip op. at 30 (ARB Dec. 15, 2023)

(citation omitted).

116

When an ALJ fails to ground a decision in findings of fact and conclusions of law,

the decision ceases to be an act of law and becomes an exercise of discretionary judgment,

untethered from constitutional limits. See GARY L. MCDOWELL, EQUITY AND THE

CONSTITUTION (University of Chicago Press 1982). In Professor McDowell’s comprehensive

treatise on equity, he draws a sharp distinction between law as a rule and equity as

discretionary judgment. His core concern is that when decision-makers (including

administrative actors) fail to anchor decisions in findings of fact and conclusions of law,

they cease to be bound by constitutional legal constraints and instead exercise personal

judgment under the guise of fairness. For McDowell, this is dangerous not because

“fairness” is bad per se, but because equity untethered from law becomes arbitrary

power—the very thing the Constitution was designed to restrain.

Those signals and nuances do not exist on a page of transcript. 117 That is the

wisdom reflected in Dantran. 118

116F

117F

DISCUSSION

The stated purpose underlying debarment is not to punish but rather to

protect the government from the potential consequences of contracting with nonresponsible contractors. 119 The case for debarment must be established by a

preponderance of the evidence, 120 therefore to support debarment the evidence

must establish a level of culpability beyond negligence. 121 Disregard of obligations

must involve “some element of intent.” 122 Intentional failure to look at the law is

also sufficient. 123

118F

119F

120F

121F

122F

In the words of Supreme Court Chief Justice Burger, then a Circuit Judge,

“[t]he 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 . . . culminate[] in administrative findings and conclusions, based upon

the record so made.” 124

123F

Under the SCA, an employer must establish “unusual circumstances” to

warrant relief from debarment for SCA violations. 125 “Unusual circumstances” must

be determined “on a case-by-case basis in accordance with the particular facts

present.” 126 Furthermore, as the majority explains, the SCA regulations outline a

124F

125F

See Puddifoot K., Re-Evaluating the Credibility of Eyewitness Testimony, Vol 17-2

EPISTEME 255 (2020).

117

Dantran, Inc. v. U.S. Dep’t of Lab., 171 F.3d 58, 72 (1st Cir. 1999), in which the First

Circuit reversed the ARB’s decision (which had in turn reversed the ALJ’s decision) in part

because “the ALJ, not the ARB, had the opportunity to observe the witnesses’ demeanor at

first hand.”).

118

119

48 FAR 9.402(b).

120

48 FAR 9.406-2.

121

Dantran, 171 F.3d at 68.

NCC Elec. Servs., Inc., ARB No. 2013-0097, ALJ No. 2012-DBA-00006, slip op. at 8

(ARB Sept. 30, 2015). In addition, an employer’s bad faith and/or gross negligence

regarding compliance have also been found to constitute disregard of statutory obligations.

Id.

122

123

Id. at 9.

124

Gonzalez v. Freeman, 334 F.2d 570, 578 (D.C. Cir. 1964) (emphasis added).

125

41 U.S.C. § 6706; 29 C.F.R. § 4.188(a).

126

29 C.F.R. § 4.188(b)(1).

three-step process to establish “unusual circumstances.” 127 Here, the preponderance

of the evidence may not support the ALJ’s findings related to “unusual

circumstances,” 128 because the ALJ did not make sufficient findings of fact and

conclusions of law to support her muddled conclusion that Respondent failed to

show unusual circumstances. Although I support remand for further findings of fact

and conclusions of law, I set forth my analysis of the unusual circumstances test on

the facts as they exist below, which favor reversal.

126F

127F

1. Unusual Circumstances Test, Step One

Under 29 C.F.R. § 4.188(b)(3)(i), Step One of the “unusual circumstances”

Test prohibits relief when any of the following circumstances exist: (1) the conduct

causing SCA violations was willful, deliberate, or of an aggravated nature;

(2) the violations were the result of culpable conduct, including culpable neglect,

culpable disregard, or culpable failure to comply with recordkeeping requirements;

(3) the contractor has a history of similar violations or repeatedly violated the SCA;

Id. § 4.188(b)(3). The full “unusual circumstances” test is detailed on page 2-3 of the

majority opinion. The Board is bound to the regulations. See Secretary’s Order No. 01-2020

(Delegation of Authority and Assignment of Responsibility to the Administrative Review

Board), 85 Fed. Reg. 13,186 (March 6, 2020) at (5)(a)(4)(b)(69): “The Board shall not have

jurisdiction to pass on the validity of any portion of the Code of Federal Regulations that

has been duly promulgated by the Department of Labor and shall observe the provisions

thereof, where pertinent, in its decisions.” However, I take this opportunity to note that the

SCA “unusual circumstances” test is unnecessarily complex and unduly burdensome on

employers. The statute only uses the term “unusual circumstances,” yet the regulatory test

interpreting those words is immensely complicated and provides hurdles that are nearly

insurmountable. See 29 C.F.R. § 4.188(b)(1) (“The term unusual circumstances is not

defined in the Act.”). Justice Joesph Story pointed out the difficulty in assuming that one

could properly codify a comprehensive legal code, noting that it requires one “to suppose

that [the legislator] is capable of all this, is to suppose that he is omniscient, all-wise, and

all-powerful; that he is perfect, or that he can attain perfection; that he can see all the

future in the past, and that the past is present to him in all it relations.” JOSEPH STORY,

“LAW, LEGISLATION, AND CODES,” ENCYCLOPEDIA AMERICANA, at 587. The deficiencies of

the SCA test highlight the limitations. Furthermore, as Alexander Hamilton noted:

“In Law as in Religion the Letter Kills What the Spirit Makes Alive.” Julius Goebel, Jr., ed.,

The Law Practice of Alexander Hamilton: Documents and Commentary, 2 vols. (New York:

Columbia University Press, 1964), p. 391. Furthermore, a judge is not a traffic cop and “is

more than a moderator or umpire,” “[h]e has the responsibility to preside in such a way as

to promote a fair and expeditious development of the facts unencumbered by irrelevancies.”

Smith v. United States, 305 F.2d 197, 205 (9th Cir. 1962).

127

However, there were certain components of the ALJ’s D. & O. that I would affirm,

all noted below. For example, I would affirm the ALJ’s findings related to Step One, Factor

One. Namely, that Respondent did not engage in deliberate conduct. Nonetheless, I would

not affirm the ALJ’s ruling.

128

or (4) any previous violations were serious in nature. 129 Therefore, the contractor

must demonstrate that these circumstances were not present. I consider the Step

One factors below, and after review, I would find that the preponderance of the

evidence does not support the ALJ’s conclusions—the evidence shows Respondent

met its burden.

128F

“There must be affirmative evidence of culpable conduct” 130 which the ALJ

has failed to articulate. “There are no facts in the record to refute the judicial belief

that no rational precautions could reduce violations to absolute zero . . . Certainly,

contractors could hire an army of bookkeepers, accountants and supervisors to

ensure no underpayments would occur, and perhaps most needful to all, lawyers at

each location. Such a practice, however, would elevate the cost of operation to a

level to endanger the future of appellants’ type of business as a source of

employment.” 131 Tadavarthy testified that when he received the contract

modification he called NEXCOM and was told it only applied to government

employees, not his. However, at no time does the ALJ explain that she does not

believe Tadavarthy’s testimony, but instead explains her reasoning stating, “[i]t is

not the responsibility of NEXCOM, as a party to the contract, to ensure that other

parties to the contract understand it.” 132 That is true, but a long way from imputing

his culpability. The ALJ is in the best position to evaluate the credibility of a

witness and must state the reasons for those conclusions. Tadavarthy may

have used poor judgment, but he testified he had always called NEXCOM whenever

he received a Wage and Hour modification over the 13 years he was a contractor to

129F

130F

131F

29 C.F.R. § 4.188(b)(3)(i). The SCA “unusual circumstances” test, as articulated in

the regulations, is convoluted and unnecessarily complex. For clarity, Step One of the test

has been presented here with numbering to identify the different factors—the numbers are

not present in the regulation.

129

130

Dantran, 171 F.3d at 69.

131

Fed. Food Serv., Inc. v. Donovan, 658 F.2d 830, 834 (D.C. Cir. 1981).

132

D. & O. at 13.

the government if he had a question about the MOD. 133 There is no question

that he should have called the Department of Labor, but considering that

Tadavarthy had a clean heart but an empty head, he should not be found

to have been culpable. Unless the ALJ found him to be deceitful or

dishonest, he should not have been found to have failed the test at this

Step, because deceit and dishonesty is what the Act is trying to manage.

132F

I do not believe you can declare the debarment death sentence without clear

and concise findings of fact to overcome Respondent’s 13-year practice of asking

NEXCOM if MODs related to him. Additionally, debarment should not be imposed

without a clear articulation of the facts that support the ALJ’s conclusions.

Finally, the additional criteria under § 4.188 must be considered. Moreover, why did

the ALJ continue with her analysis under Step Two, after she found that there were

no unusual circumstances at Step One? Was it a flip of a coin or is it that the ALJ

did not understand the criteria for ineligibility for further contracts when violations

occur because she went on to analyze issues that are irrelevant once culpable

conduct is found? Certainly, it is evidence of arbitrary or perhaps muddled

judgment. 134

133F

A. Willful Conduct

Notably, in considering the first factor, the ALJ did not find “that

Respondent willfully or deliberately violated the SCA in relation to the

Contract.” 135 The ALJ further explained that “there [was] no indication that

Respondent deliberately disregarded the requirements of the Contract.” 136 I would

affirm these findings.

134F

135F

The majority states “[b]ased on Tadavarthy’s testimony, it is unclear whether

Respondent sought guidance from NEXCOM related to MOD-40 or MOD-41. However,

Respondent’s claim regarding NEXCOM’s guidance fails on another ground. Namely, it is

highly improbable that ‘NEXCOM mentioned to [Tadavarthy] that the wage rates applied

only when the employee works directly for the federal government, not with Seven Hills.’”

Majority Op. at 15. Further “[w]e are also unaware of any other evidence in support, such

as evidence from a NEXCOM representative. We also do not see evidence that Seven Hills

followed up with NEXCOM on this obviously important issue.” Majority Op. at 15 n.85.

Tadavarthy testified that MODs came often and that he called NEXCOM but could not

remember who he had spoken to years before. Yet based on these statements, the majority

reaches the bold conclusion that this is evidence of culpable neglect in spite of there being

no evidence in the record to support such a conclusion and the ALJ did not find Tadavarthy

to be dishonest. This is an insurmountable problem with the findings of facts and

conclusions of law in this case.

133

134

Supra, Dissent note 116.

135

D. & O. at 11.

136

Id. at 12.

B. Culpable Conduct

Regarding the second factor, the SCA regulations do not allow relief for

debarment “where the violations are the 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).” 137

136F

The ALJ made two findings related to culpable conduct: (1) Respondent

engaged in “culpable disregard” by failing to properly pay prevailing wages and

fringe benefits after reading and signing MOD-40 in November 2014; 138 and

(2) Respondent engaged in “culpable neglect” because Respondent failed to take

steps to ensure SCA compliance. 139 As explained below, I disagree with these

findings of culpability because the evidence shows Respondent did not understand

the modification as it was not obvious on its face, Respondent regularly sought

guidance from NEXCOM, and Respondent did not have a history of prior SCA

violations. Accordingly, Respondent should not be debarred under these

circumstances because its actions do not amount to culpable conduct.

The preponderance of the evidence does not support the ALJ’s findings—they

should be reversed, or we should remand for additional findings.

137F

138F

The second factor hinges on how to understand “culpable” in the SCA

regulations. The First Circuit decision in Dantran, Inc. v. U.S. Department of Labor

is instructive:

What the regulations mean by the term “culpable” is not

spelled out, except to stipulate that “falsification of

records” (an evil not present in this case) qualifies as

“culpable failure to comply with recordkeeping

requirements.” If this latter example is intended to serve

as a guide, culpability must require more than simple

negligence or a mere failure to ascertain whether one’s

practices coincide with the law’s demands.[ 140]

139F

Furthermore, the Dantran Court also noted: “There must be affirmative

evidence of culpable conduct.” 141 Here, the ALJ’s findings were insufficient and did

not amount to affirmative evidence of culpable conduct. Furthermore, consistent

140F

137

29 C.F.R. § 4.188(b)(3)(i) (emphasis added).

138

D. & O. at 13.

139

Id.

140

171 F.3d 58, 68 (1st Cir. 1999) (citation omitted and emphasis added).

141

Id. at 69.

with Dantran, the evidence shows Respondent’s actions do not rise to culpable

conduct because Respondent merely failed “to ascertain whether [its] practices

coincide[d] with the law’s demands.” 142

141F

First, the ALJ found that the “the requirements to comply [were] clear even

in the brief contract modification . . . .” 143 I disagree. The debarment regulation

provides that when the contractor’s “obligation to comply with the Act is plain from

the contract,” the contractor’s “plea of ignorance of the Act’s requirements” does not

constitute “unusual circumstances.” 144 However, Dantran notes that “this language

contemplates an automatic finding of culpability only when the law’s requirements

are obvious on the face of the contract.” 145 In accordance with Dantran, I examine

MOD-40 to determine whether the requirements were “obvious on the face of the

contract.” MOD-40 stated:

142F

143F

144F

In accordance with Section H.8, “Service Contract Act”,

Wage Determination #2014-0140, Revision 1, establishes

the applicable monetary wages and fringe benefits to be

provided to Contractor service employees at the following

concessions:

• Burger King, Concourse Food Court

• Starbucks, Concourse Food Court.[ 146]

145F

Upon review, it is not abundantly clear that the obligations were obvious on

the face of the contract. 147 In fact, when I first read MOD-40, the obligations were

not obvious on the face of the contract to me. Notably, the relevant provision

highlighted above is listed in between several other provisions in MOD-40.

Despite including such a significant obligation, MOD-40 does not clearly highlight

the new requirement.

146F

Second, the majority makes findings of facts and conclusions of law that are

not in the record regarding Tadavarthy’s truthfulness when they state:

“Respondent cannot rely on a plea of ignorance because

Respondent knew (or clearly should have known) about the

SCA obligations under the contract prior to MOD-40 . . .

142

Id. at 68.

143

D. & O. at 13.

144

29 C.F.R. § 4.188(b)(3)(i) (emphasis added)

145

Dantran, 171 F.3d at 69 (emphasis in original and added).

146

AX 8 at 1 (MOD-40).

147

See Dantran, 171 F.3d at 69.

The parties stipulated that “[a]t times relevant to the

performance of the subject blanket purchase agreement,

Raghu Tadavarthy was aware that the Contract was

governed by the SCA and the regulations at 29 C.F.R. Part

4 . . . . It strains credulity that Seven Hills was unaware of

the SCA’s obligations related to the Contract. Thus,

because Respondent knew (or clearly should have known)

about the SCA and the accompanying obligations,

Respondent cannot rely on a plea of ignorance.”[ 148]

147F

However, the plain language of the regulation does not present a question of

whether Tadavarthy should have known, but rather the question of whether he

understood the MOD. Subjective evidence is information rooted in an individual’s

personal perception, opinion, belief, or internal experience rather than verifiable

external facts. It reflects what a person genuinely knew, thought, or intended at a

specific time and often involves a person’s state of mind or their interpretation of

events, which cannot be directly proven by external means. When the majority

concludes that “[i]t strains credulity,” they are making a finding of fact that is

beyond their capability because they are independently reviewing testimony and

reaching their own conclusions. This task is beyond the majority’s capability

because they lack the ability to read the witness; there are no voice inflections,

facial expressions, or evidence of the litigation drama that combined can be the best

evidence of the truth of the statement. As earlier stated, those signals and nuances

do not exist on a page of transcript. 149 Again, that is the wisdom stated in

Dantran. 150

148F

149F

Further, I take issue with the majority’s use of an objective analysis to reach

their conclusion that “Respondent knew (or clearly should have known) about the

SCA and the accompanying obligations.” 151 Rather, the analysis should focus on

Tadavarthy’s subjective or good faith belief as to whether the SCA obligations

applied. The majority’s conclusion does not disprove or modify Tadavarthy’s

testimony that he was unaware that the SCA governed the relevant contracts:

150F

Q. So when you entered into these government contracts

you’ve mentioned, Pentagon, Norfolk, Little Creek, and

Jacksonville, were you aware that you – that they would be

subject to the Service Contract Act?

148

Majority Op. at 12 (citations omitted).

149

Supra, Dissent note 117.

150

Dantran, 171 F.3d at 72.

151

Majority Op. at 12.

A. No, ma’am.[ 152]

151F

The ALJ never stated in the D. & O. whether she believed Tadavarthy knew or

believed in good faith that he had SCA obligations to fulfill.

Next, the majority argues Tadavarthy knew (or should have known) about

the SCA obligations because “the parties stipulated that ‘[a]t all times relevant to

the performance agreement, Raghu Tadavarthy was aware that the Contract was

governed by the SCA and the regulations at 29 C.F.R. Part 4.’” 153 In my experience,

attorneys prepare stipulations and rarely would a client review them because the

client cannot typically appreciate their significance. Additionally, stipulations are

not evidence that disproves a client’s testimony. For this reason, this is another

objective conclusion of the majority—the ALJ did not find Tadavarthy to be

dishonest, mendacious, or deceptive in her findings of fact and conclusions

of law, and thus, the majority’s conclusion on what he should have known is wrong

in all respects. 154

152F

153F

Accordingly, I would find that Respondent’s actions were not culpable

conduct and only amount to “mere failure to ascertain whether one’s practices

[of thirteen years] coincide with laws demands,” 155 which is consistent with

§4.188(b)(2) “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.” 156

154F

155F

Next, the ALJ found that Respondent “has offered no evidence to suggest he

sought guidance from the Department of Labor regarding the requirements of the

contract modification or the SCA.” 157 The SCA regulations explain that:

“A contractor has an affirmative obligation to ensure that its pay practices are in

156F

152

Tadavarthy Dep. at 15

153

Majority Op. at 12 (citing D. & O. at 6, ¶12).

It is interesting to note that the majority quotes 29 C.F.R. § 8.9(b) (“The Board shall

modify or set aside findings of fact only when it determines that those findings are not

supported by a preponderance of the evidence.”). Preponderance means in a legal context it

is more likely than not (greater than 50% chance). The conclusions of the majority

interpreting the testimony and calling those conclusions evidence are arbitrary and not

evidence because they were not the conclusions of the trier of fact, and therefore they are

untethered from the law and not evidence at all.

154

155

Dantran, 171 F.3d at 68.

29 C.F.R. § 4.188(b)(2) (emphasis added) (citing Hearings on H.R. 6244 and H.R.

6245 Before the Special Subcomm. on Labor of the H. Comm. on Ed. and Lab., 92d Cong.

(1971)).

156

157

D. & O. at 12.

compliance with the Act, and cannot itself resolve questions which arise, but rather

must seek advice from the Department of Labor.” 158 Therefore, in accordance with

the SCA regulation, Respondent should have sought DOL guidance to resolve

questions it had related to MOD-40. However, the regulation does not indicate that

a failure to reach out to the DOL constitutes culpable conduct, and Respondent’s

actions do not indicate culpability.

157F

Respondent had maintained a practice of reaching out to NEXCOM for

guidance. Tadavarthy could not recall whether he sought guidance related to MOD40, or a different MOD, but he indicated in testimony that he regularly contacted

NEXCOM for guidance. For example, Tadavarthy testified that “I do talk to [the]

NEXCOM office quite often at Norfolk” 159 and “I did make so many calls to

NEXCOM,” but for “[w]hich modification, I don’t recall.” 160 Furthermore,

Tadavarthy testified that “there was a time when a modification came in,” and he

cannot remember the specific MOD, but he “called NEXCOM,” [and t]hey said that

[MOD] applies only to federal government, not for” Seven Hills. 161 The ALJ found

“it is not the responsibility of NEXCOM, as a party to a contract, to ensure that the

other parties to the contract understand it.” 162 I agree that it was Seven Hills’

responsibility, but I still find Respondent’s efforts to comply, including reaching

out to NEXCOM, were reflective of “mere failure to ascertain whether one’s practices

coincide with the law’s demands,” 163 not “culpable neglect to ascertain whether

practices are in violation.” 164 The difference being that Seven Hills’ actions do not

rise to the level of culpable conduct.

158F

159F

160F

161F

162F

163F

It is also noteworthy that Respondent does not have any prior SCA violations.

In Karawia v. U.S. Department of Labor, 165 the District Court found that the

company’s “numerous and repeated violations of the SCA, particularly after being

put on notice as to the statute’s requirement, constitute culpable neglect.” 166 The

circumstances are distinct here, and I consider the lack of prior SCA violations as

weighing against culpable conduct.

164F

165F

158

29 C.F.R. § 4.188(b)(4).

159

Tadavarthy Dep. at 16.

160

Hearing Transcript at 180.

161

Id. at 181.

162

D. & O. at 13.

163

See Dantran, 171 F.3d at 68 (citation omitted and emphasis added).

164

29 C.F.R. § 4.188(b)(3)(i).

165

627 F.Supp.2d 137 (S.D.N.Y 2009).

166

Id. at 150.

Here, Tadavarthy did not understand the modification because to him it was

not obvious on its face, Tadavarthy regularly sought guidance from NEXCOM, and

Respondent did not have a history of prior SCA violations. Accordingly, Respondent

demonstrated that its actions did not amount to culpable conduct. Because the

preponderance of the evidence does not support the ALJ’s findings, I would reverse

or remand for further findings.

C. History of Similar Violations and Previous Serious Violations

Regarding factors three and four, the SCA regulations note how “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.” 167 Because Respondent does not have

any prior SCA violations, 168 the ALJ clearly erred in her findings related to these

factors. 169 I generally agree with the majority’s analysis related to “history of

similar violations” and “previous violations of a serious nature,” 170 except I disagree

with the majority’s ruling that these ALJ findings were harmless error. 171 I would

reverse the ALJ’s D. & O., or at least remand for further consideration because the

ALJ’s errors are not harmless. 172

166F

167F

168F

169F

170F

171F

2. Unusual Circumstances Test, Step Two

The ALJ found that Respondent met all of the Step Two, “unusual

circumstances” requirements for relief: “the prerequisites to relief (good compliance

history, cooperation in the investigation, repayment of moneys due, and sufficient

167

29 C.F.R. § 4.188(b)(3)(i).

The ALJ found that “there is no evidence in the record of prior SCA violations by

Employer.” D. & O. at 15.

168

169

D. & O. at 14.

170

Supra, Discussion Sections 2 and 3 of majority opinion.

I also agree with the majority that the ALJ analyzed “present” violations at the

wrong step, and she should have considered “present” violations at Step Three. Majority

Op. at 21 n.108. However, I disagree with the majority’s agreement “with the ALJ’s

analysis” regarding serious violations. See Infra, Dissent, Section 3(E) (disagreeing with

ALJ’s analysis).

171

It is noteworthy that the ALJ has made more legal errors in her D. & O. than Seven

Hills made in thirteen years of government service. However, the majority found this error

to be harmless error. Judging is difficult and the law (especially debarment) is complicated

and can result in unusual circumstances. Findings of Facts and Conclusions of Law are as

important to a decision as the law. It is also instructive to note that had the ALJ made

thorough findings of fact and conclusions of law she may have recognized her errors and

likely reached another conclusion more in line with this dissent.

172

assurances of future requirements) were met.” 173 I would affirm the ALJ’s findings

related to Step Two.

172F

3. Unusual Circumstances Test, Step Three

At Step Three of the “unusual circumstances” test, “a variety of other factors

must still be considered,” including: (1) “whether the contractor has previously been

investigated for violations of the Act;” (2) “whether the contractor has committed

recordkeeping violations which impeded the investigation;” (3) “whether liability

was dependent upon resolution of a bona fide legal issue of doubtful certainty;” (4)

“the contractor’s efforts to ensure compliance;” and (5) “the nature, extent, and

seriousness of any past or present violations, including the impact of violations on

unpaid employees, and whether sums due were promptly paid.” 174

173F

Step One of the test requires the absence of the factors to proceed (presence of

a factor bars debarment relief) and Step Two requires the presence of the factors to

proceed (absence of a factor bars debarment relief). 175 Unlike Step One and Step

Two of the test, “a variety of factors must still be considered” at Step Three, but the

regulation does not indicate that the presence (or absence) of any of the Step Three

factors precludes relief from debarment. Thus, I examine each factor below and

consider the totality of the Step Three factors. Based on a review of all the factors

and the current record, I would find that if Respondent has met its burden for Step

Three, it should be afforded relief from debarment. But because the preponderance

of the evidence does not support the ALJ’s findings, I would reverse or remand for

further findings.

174F

A. Prior SCA Violations

The ALJ found “[t]here is no evidence in the record of prior SCA violations by

Employer.” 176 I agree and would affirm the finding—it weighs in favor of debarment

relief.

175F

173

D. & O. at 14-15.

174

29 C.F.R. § 4.188(b)(3)(ii).

See 29 C.F.R. § 4.188(b)(3)(i)-(ii) (“Where these prerequisites are present [Step Two

factors] and none of the aggravated circumstances [Step One factors] in the preceding

paragraph exist, a variety of factors [Step Three factors] must still be considered”).

29 C.F.R. § 4.188(b)(3)(ii).

175

176

D. & O. at 15.

B. Recordkeeping Violations

The ALJ found that Respondent’s failure to “keep appropriate records as

required by 29 C.F.R. § 4.6(g) impeded the investigation, potentially preventing

investigators from identifying employees who were paid improperly.” 177 The ALJ

cited to the SCA narrative that noted: “due to the high turnover of employees

working on this contract and the firm’s lack of records to properly identify all of the

Fast-Food Shift Leaders who worked on this contract, the writer was only able to

compute back wages or the shift leaders identified[.]” 178 Seven Hills claims that the

“recordkeeping” violations cited by the ALJ in the D. & O. were not raised in the

SCA Complaint and the SCA investigation did not note any “recordkeeping”

violations. 179 I agree with Seven Hills—therefore, I do not find that this factor

weighs against Seven Hills. Alternatively, if the ALJ properly found that there were

recordkeeping violations, then this factor weighs against Seven Hills. Nonetheless, I

would still find that Respondent met its burden at Step Three, based on the totality

of the Step Three factors.

176F

177F

178F

C. Bona Fide Legal Dispute

The ALJ found “[t]here is no evidence that there was a bona fide legal dispute

regarding Respondent’s commission of violations.” 180 The ALJ notes there was a

dispute between Respondent and the Administrator, but they resolved the issue. 181

I would affirm the ALJ’s findings, which do not weigh for or against debarment

relief.

179F

180F

D. Efforts to Comply

The ALJ found that Respondent paid the back wages, but after it paid the

back wages, “the Administrator filed evidence regarding Respondent’s continued

failure to timely pay fringe benefits to at least one employee, Maria Cruz.” 182

The paystubs “show that during three pay periods, Ms. Cruz was paid for hourly

wages and overtime, but not fringe benefits.” 183 Upon notice by Ms. Cruz,

Respondent “mailed a check for benefits at a later date.” 184 Seven Hills notes that

181F

182F

183F

177

Id.

178

Id. (citation omitted).

179

Reply Br. at 2, 7.

180

D. & O. at 15.

181

Id. at 15-16.

182

Id. at 16.

183

Id.

184

Id.

this was a payroll glitch, and Seven Hills replaced the payroll system with a new

system that resolved the glitch. 185

184F

I disagree with the ALJ—I would find that Seven Hills made efforts to

comply with the Act. Here, Respondent made a small mistake, quickly resolved it,

and took steps to ensure future compliance by replacing the payroll system.

Moreover, the SCA regulations note: “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.” 186 Here, we have a “minor” violation that was

“inadvertent” from a company that had no prior SCA violations. Similar to the

regulations, I caution against debarment in such circumstances. It is nearly

impossible, or at least cost prohibitive, to prevent all “minor” and “inadvertent”

violations. The D.C. Circuit Court noted the difficulty of preventing all violations:

185F

Certainly, contractors could hire an army of bookkeepers,

accountants, and supervisors to ensure no underpayments

would occur, and perhaps most needful to all, lawyers at

each location. Such a practice, however would elevate the

cost of operation to a level to endanger the future

appellants’ type of business as a source of employment.[ 187]

186F

I would find that Seven Hills made efforts to comply with the SCA, and

this factor weighs in favor of Seven Hills.

E. Seriousness of Violations

As noted elsewhere, 188 the ALJ improperly considered present serious

violations at Step One. Step One requires consideration “where previous violations

were serious in nature,” 189 while Step Three requires consideration of the “nature,

extent, and seriousness of any past or present violations, including the impact of

violations on unpaid employees, and whether sums due were promptly paid.” 190

Accordingly, I consider the ALJ’s examination of the “serious violations” here.

187F

188F

189F

185

PFR at 10-11.

186

29 C.F.R. § 4.188(b)(2) (emphasis added).

187

Fed. Food Serv., Inc., 658 F.2d at 834.

188

Supra, Dissent note 171.

189

29 C.F.R. § 4.188(b)(3)(i).

190

Id. § 4.188(b)(3)(ii) (emphasis added).

The ALJ found that Respondent’s “violations found under the instant

investigation to be serious ones.” 191 In support, the ALJ explained that “Respondent

owed a total of 178 employees an average of more than $1,000.00 each.” 192

I disagree.

190F

191F

According to the ALJ, the underpayments occurred from July 15, 2014,

through August 1, 2016—a period of about two years. 193 The D. & O. also noted that

for one year, from February 2015 to February 2016, “Seven Hills, Inc. had

approximately $5,000,000.00 in gross annual sales from the food services at the

Pentagon.” 194 By my calculations, the underpayment is 3.86% of the annual gross

sales for the year ending in February 2016 195 (part of the time frame being

investigated). Moreover, if you look at the combined gross revenues from 2013 to

2016 of over sixty-six million dollars 196 the percentage of gross sales is .0027%.

Neither 3.86 nor .0027 percent are sufficient to demonstrate any nefarious efforts

on the part of Respondent and can be viewed as supportive of Tadavarthy’s

assertion that he did not know that he was not paying the correct amount. 197

Given these numbers, it is clear that the underpayments were a very small

percentage of gross sales, which makes it unlikely that the underpayments resulted

from nefarious efforts by Respondent. It also supports the view that Respondent

thought it was paying the correct amount. While $1,000 over that timeframe is

significant for an employee, the factor also requires consideration of “whether the

sums due were promptly paid.” 198 Here, the Respondent promptly paid. The ALJ

noted that: “At the completion of the Department of Labor’s 2016 SCA investigation

of Respondent, Wage and Hour informed Respondent of the findings of the

192F

193F

194F

195F

196F

197F

191

D. & O. at 14.

192

Id.

193

Id. at 7, ¶¶20-23.

194

Id. at 6, ¶8.

195

See id.

See id. (I reached this figure by adding $23,455,000.00 in 2015, $22,430,000.00 in

2014, and $20,598,000.00 in 2013).

196

See Fed. Food Serv., Inc., 658 F.2d at 834 (“In the instant case, after finding

appellants were responsible for a deficiency of $3,328.35 an amount less than one-fifth of 1

percent of the contract values and in a labor-intensive business, no doubt almost as low a

ratio compared to total payrolls the ALJ ostensibly applied the Washington Moving

guidelines. The ALJ found that there was no evidence the violations were willful or

deliberate and that appellants cooperated with the extensive and complex investigation of

the case except for one unexplained instance at the Norfolk location. Payments were made

fully and promptly even though substantial amounts had to be estimated through no fault

of appellants. Previous violations were not substantial and did not result in debarment

because of unusual circumstances.”).

197

198

29 C.F.R. § 4.188(b)(3)(ii).

investigation, and Respondent agreed to pay the prevailing wages found to be

due.” 199 I disagree with the ALJ, and I would find that this factor weighs in favor of

Respondent.

198F

CONCLUSION

I respectfully dissent from the majority’s affirmance of the ALJ’s D. & O.

Seven Hills performed so well for the Defense Department that they chose Seven

Hills to fulfill other food service contracts at other facilities and the Pentagon for

over 13 years. Tadavarthy took responsibility when the Administrator informed him

of the error and fulfilled his obligations under the contract even though he had to

borrow the money personally. 200 Contractors make innocent mistakes with no

intent to hurt the government, employees, or creditors, and in this matter, there has

never been any suggestion by the ALJ or the Administrator that Seven Hills

attempted to enrich themselves at the expense of their employees or the

government. Debarment is a drastic result for a contractor akin to a “death

penalty.” 201 I would reverse the ALJ’s ruling because the preponderance of the

evidence does not support her findings, and the “unusual circumstances” test shows

that debarment relief is appropriate. Alternatively, I would remand this matter to

the ALJ for further findings of fact and conclusions of law citing to the record or

instruct her to make an entry of an appropriate judgment based on our

consideration of the debarment scheme and history. 202

199F

200F

201F

ELLIOT M. KAPLAN

Administrative Appeals Judge

199

D. & O. at 7, ¶26.

It is notable that Tadavarthy’s efforts to comply promptly required him to borrow

money, creating personal liability for himself rather than borrowing through the company.

200

Cf. Five Star Automatic Fire Prot., LLC, ARB No. 2023-0051, ALJ No. 2019-DBA00004, slip op. at 11 (ARB Aug. 25, 2025) (citation omitted) (“Debarment has long been

considered the ‘death penalty’ of procurement law as it can cut off the lifeblood of an

employer or contractor’s business. Given the severe impact of debarment, it is appropriate

that agency impositions of debarments as a penalty be carefully reviewed.”).

201

The Board shall modify or set aside an ALJ’s factual findings, however, only . . .

when a preponderance of evidence does not support them. 29 C.F.R. § 8.9(b).

202

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.