Government Contracts Monitor

Can Affiliates Be Suspended Indefinitely? Stay Tuned: The Eleventh Circuit is About to Tell Us

May 28, 2013

By: Lindsay Simmons

Agility Defense & Government Services, Inc., et al. v. U.S. Department of Defense, a case we have reported on twice before as it winds its way through the judicial system, is now before the U.S. Court of Appeals for the Eleventh Circuit and ready for oral argument.  The importance of this case is that it tackles head-on the question of whether the FAR rule permitting a suspension and debarment official to include a contractor’s affiliates in the suspension decision, requires that the suspension be limited to 18 months unless “legal proceedings have been initiated” against the affiliated concern “within that period.” FAR 9.407-4.

Agility’s parent, Public Warehousing Company, K.S.C. (PWC), is accused of defrauding the U.S. military of $6 billion in connection with allegedly false invoicing under its food supply contracts for our troops abroad. The suspension and debarring official included PWC’s affiliates, Agility DGS and Agility International (AI) in his suspension decision. Agility DGS and AI are just two of the many affiliates that were suspended from U.S. government contracting in 2009 when PWC was suspended. None of the suspended affiliates are accused of wrongdoing.

In December 2012, the U.S. District Court, on reconsideration of this issue below, lifted the suspensions of affiliates Agility DGS and AI, holding that the DoD could not keep them suspended beyond the 18-month period provided for under the FAR without attempting to prove wrongdoing beyond their affiliation with PWC. The Department of Defense appealed.

On appeal, the parties agree that the FAR allows agencies to suspend affiliates of a suspended contractor for up to 18 months without any legal proceedings being initiated.  The disagreement centers on whether affiliates can remain suspended beyond this 18-month period in cases where the legal proceedings are initiated but solely against the indicted company.

Contractors such as PWC are understandably concerned about the due process questions raised by lengthy affiliate suspensions – i.e., the government’s ability to suspend contractors based on solely on their affiliations with an indicted company.

The government is understandably concerned that the indicted company's culture and unscrupulous business practices may have tainted the affiliate and that the indicted company may transfer its government business to its affiliates in order to avoid the impact of a suspension.

The central issue before the Eleventh Circuit is when the affiliate’s suspension can be extended beyond the 18-month limit imposed by FAR 9.407.  The District Court held that FAR 9.407 treats the suspension of a contractor separately from that of its affiliates and, therefore, that the requirement for the government to initiate legal proceedings within the 18-month period in FAR 9.407-4 must be applied separately to each suspended concern, including each affiliate. The Government views this reading as “new and unsupported” and argues that the focal point of the duration-limiting section of the FAR remains the suspended contractor, not its affiliates.  Therefore, according to the Government, as long as legal proceedings have been commenced against the contractor, the suspension of its affiliates may continue past the 18-month period.

Until the Eleventh Circuit decides Agility, affected affiliates should be on guard and proactive: Meet with the cognizant suspension and debarring official and address whatever concerns the agency may have regarding current responsibility – make the case that the indicted company does not direct or control the suspended affiliate.

Lindsay Simmons is the attorney responsible for the content of this article.