Where in the FAR/DFARS does it say that because a vendor exists in SAM (although the registration is inactive) a SAM exception for that vendor cannot be used? Or, is this simply a systems constraint?
This response is based on the information provided. We suggest you discuss with your contracting officer and/or legal department as appropriate.
The exception you cite to not use System for Award Management (SAM) appears not to be applicable because SAM had the vendor in its database. The rationale to not use SAM, "if it is impractical to obtain System for Award Management registration..." doesn't hold since the vendor is already in the system, albeit inactive. The simplest solution would appear to be to get the vendor to reactivate (one assumes the vendor wants the work). Alternatively, you could discuss the issue with a PoC connected with SAM.