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program.

(A.R. at E2).

The Agreement provided for termination as follows:

This agreement may be terminated by either party hereto by written notice to the other party at least 30 days in advance of the effective date of the termination. This agreement for services can be terminated by NRCS if NRCS determines that MEFAC has failed to comply with the provisions of this agreement. In the event this agreement is terminated, MEFAC shall bill NRCS and be reimbursed for services provided up to the effective date of termination.

(A.R. at E4).

On December 6, 1995, MEFAC requested $75,000 as reimbursement for research and development; preparation of a staffing mobilization plan; and planning for the National Symposium. On February 12, 1996, MEFAC requested a second disbursement of $75,000 for research and identification of potential businesses to include in the MEFAC/RECD project, and for the planning and design of a model for regional workshops. Both requests for reimbursement were certified as proper and two disbursements of $75,000 each were made. (A.R. at F & G).

At the request of Pearlie Reed, Associate Chief, NRCS, Tom Reese, Acting director, Financial Management Division, and Ed Biggers, Director, Management Services Division, NRCS, traveled to the Alabama State Office on April 30, 1996 to review the validity of the Cooperative Agreement and the transfer of funds. (A.R. at H1). The May 9, 1996 report of the trip raised several concerns as to the legality of the agreement, noting First Amendment and Equal Protection issues, as well as a lack of legal authority for NRCS participation. (A.R. H3).

On May 16, 1996, Dayton Watkins, Administrator of RBS, advised the Debarring Official that he reviewed the issues raised by the Reese and Biggers report, and found that there were no problems with the agreement that could not be resolved by providing explanations and corrections in documents where necessary. (A.R. I). Mr. Watkins further found that the MEFAC invoices were properly certified, and that the payments had been properly made. (A.R. 13). Nevertheless, on June 18, 1996, NRCS notified MEFAC that it was initiating a review of the agreement at the request of Congress, and that pending the outcome

of the investigation, all work under the agreement was to cease immediately. (A.R. AA96). On December 12, 1996, NRCS notified MEFAC of its intent to terminate the agreement and collect the $150,000 that was previously disbursed. (A.R. K).

On December 17, 1996, the Office of Inspector General (OIG) issued a report which concluded that MEFAC had violated the terms of the agreement because it did not hold regional workshops; it was not a non-profit entity as claimed in the statement of work; it failed to maintain financial records in accordance with the regulations; and it used funds inappropriately. (A.R. L).

MEFAC has not returned the $150,000 that was disbursed prior to termination of the agreement. USDA turned the matter over to the Department of Treasury; however, the Department of Treasury does not consider misused grant funds to be collectable under the Debt Collection and Consolidation Act. (A.R. S5-7).

On July 16, 1997, the Debarring Official issued a notice of immediate suspension and proposed debarment to MEFAC. The notice informed MEFAC that the action was being taken because of MEFAC's failure to return grant funds and failure to follow the terms of the Cooperative Agreement, and that the debarment would be applicable to all of MEFAC's divisions and other organizational elements. (A.R. T1). The letter also stated that the seriousness of MEFAC's conduct warranted a period of debarment in excess of the usual three year maximum, and proposed a period of five years. (A.R. T3). Pursuant to § 3017.313 of the regulations, Respondent submitted information and argument in opposition to the proposed debarment on September 17, 1997. In addition, a meeting was held on December 8, 1997, at which Respondent submitted additional information and argument. On January 27, 1998, the Debarring Official issued a final notice of debarment, stating that MEFAC and all other organizations using the acronym MEFAC were prohibited from participating in government programs for a period of five years effective January 27, 1998. The Debarring Official cited as cause for debarment § 3017.305(b) which provides for debarment based "[v]iolation of the terms of a public agreement or transaction so serious as to affect the integrity of an agency program... ;" and § 3017.305(d) which allows debarment for "[a]ny other cause of so serious or compelling a nature that it affects the present responsibility of a person."

Specifically the Debarring Official cited as cause for debarment, the failure to hold 12 regional workshops prior to December 1996, as called for in the statement of work; failure to be designated as a non-profit 501(c)(3) corporation as indicated in the statement of work; failure to maintain accounting records to show the disposition of funds received under the Cooperative Agreement; and failure to return grant funds dispersed prior to termination of the agreement. (A.R. Y2).

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Discussion

Respondent does not appeal its inclusion in MEFAC's debarment. Instead it challenges the substance of the debarment, appealing on the grounds that the decision was not supported by the evidence; was arbitrary and capricious, and an abuse of discretion; and was not issued in accordance with law.

Respondent argues that the Debarring Official did not issue the decision in accordance with law, as she failed to issue findings of fact as required by § 3017.314(b). The regulations do not specify the form in which the findings of fact must be recited. It merely requires findings to be made whenever additional proceedings are held to resolve issues of material fact. The Debarring Official's decision contained factual statements in support of her decision, delineating the specific conduct that she determined to be cause for debarment. As such, the Debarring Official made the requisite factual findings in accordance with the law.

The remainder of Respondent's arguments essentially amount to a claim that the evidence does not support a finding that adequate cause for debarment existed under §§ 3017.305(b) and 3017.305(d); and that the decision was, therefore, arbitrary and capricious, and an abuse of discretion. In assessing an agency action. under the arbitrary and capricious standard it is necessary to determine whether the agency "considered the relevant factors and articulated a rational connection between the facts found and the choice made." Baltimore Gas & Electric Co. v. National Resources Defense Council, Inc., 462 U.S. 87, 105 (1983).

Section 3017.305 of the regulations provides that:

Debarment may be imposed in accordance with the provisions of §§ 3017.300 through § 3017.314 for:

(b) Violation of the terms of a public agreement or transaction so serious as to affect the integrity of an agency program, such as:

(1) A willful failure to perform in accordance with the terms of one or more public agreements or transactions;

(2) A history of failure to perform or of unsatisfactory performance of one or more public agreements or transactions; or

(3) A willful violation of a statutory or regulatory provision or requirement applicable to a public agreement or transaction.

(d) Any other cause of so serious or compelling a nature that it affects the present responsibility of a person.

7 C.F.R. § 3017.305. The existence of cause for debarment must be established by the agency, by a preponderance of the evidence. 7 C.F.R. § 3017.314(c).

The Debarring Official cited four instances of conduct which she found violated the terms of the Cooperative Agreement, and were so serious as to affect the integrity of an agency program, and affected the present responsibility of Respondent.

1. Failure to Hold 12 Regional Workshops by December 1996.

The Debarring Official asserted that MEFAC's failure to hold 12 workshops by December 1996, as set forth in the statement of work, constitutes a violation of the terms and conditions of the Cooperative Agreement so as to provide cause for debarment. Respondent argues that the workshops were not required by the Cooperative Agreement because the agreement required performance of duties as outlined in the attached statement of work, and there was no statement of work attached to the agreement at the time it was signed.

Although the statement of work may not have been attached at the time the agreement was signed, it appears clear that the agreement was referencing the statement of work that was submitted by MEFAC and subsequently revised by RBS. The regional workshops were integral to both the original and the revised versions of the statement of work. It, therefore, seems clear that the workshops were intended to be an integral part of the MEFAC/NRCS alliance. NRCS, however, prevented performance by December 1996 when it order MEFAC to cease work under the agreement in June of 1996. As such, failure to hold the conferences cannot be considered a violation of the agreement so serious as to affect either the integrity of the program or MEFAC's present responsibility.

It is also worth noting that the workshops were not the only tasks to be completed under the statement of work. The agreement listed eight responsibilities on the part of MEFAC, and performing the duties as outlined in the statement of work was the eighth. Therefore, MEFAC's requests for reimbursement, if properly supported, were reasonable.

2. Failure to return funds disbursed prior to termination of the agreement.

The Debarring Official asserts that MEFAC's failure to return the $150,000 in grant funds that were disbursed prior to termination of the agreement

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constitutes serious abdication of its responsibilities under the Cooperative Agreement. The payments were certified as proper at the time they were made. The agency has not obtained a judgment ordering return of the funds, and the Cooperative Agreement does not contain any provision directing the return of the grant funds upon termination of the agreement. To the contrary, the Cooperative Agreement requires NRCS to reimburse MEFAC for services provided up to the effective date of termination. (A.R. E4).

The regulations applicable to agreements with non-profit organizations do provide that if a grant recipient materially fails to comply with the terms and conditions of an award, all or part of the cost related to the noncompliant activity or action may be disallowed. 7 C.F.R. § 3019.62(a). In taking such an enforcement action, however, the agency is required to provide the grant recipient with a hearing, appeal, or other administrative proceeding to which the recipient is entitled under any statute or regulation applicable to the action involved. 7 C.F.R. § 3019.62(b). There is no indication that MEFAC was provided with any such opportunity to be heard. In fact, the same letter that terminated the agreement also demanded return of the grant funds. Therefore, although the agency might have some legal claim to the grant funds, at this point, MEFAC's failure to return the funds would not appear to be a valid cause for debarment.

3. Falsely identifying itself as a 501(c)(3) tax exempt organization.

The statement of work that MEFAC submitted to RECD states that "MEFAC is a 5013c [sic] corporation qualified to be the recipient of grants and other benefits of a not for profit entity." (A.R. AA30). In the preceding paragraph MEFAC was identified as the Minority Enterprise Financial Acquisition Corporation. There is no evidence that MEFAC is a non-profit organization. Although Respondent also uses the acronym MEFAC, and is a non-profit organization with a 501(c)(3), neither the statement of work, nor the Cooperative Agreement makes any reference to Respondent.

Respondent argues that because the agreement does not require a 501(c)(3) designation, MEFAC did not breach the agreement by failing to disclose its forprofit status. It is not, however, necessary to find a breach of contract to find cause for debarment. MEFAC falsely identified itself as a non-profit organization in its statement of work. NRCS apparently relied on this information in drafting the Cooperative Agreement as it incorporates by reference rules and regulations applying to grants awarded to non-profit entities. MEFAC's dishonesty seriously reflects on its present responsibility to engage in business with the government. As such, it is a valid cause for debarment under § 3017.305(d).