The FAR permits the government to suspend or debar a contractor based solely on its affiliation with another contractor that has been suspended. See FAR 9.406-1(c) & FAR 9.407-1(c). The Eleventh Circuit’s decision in Agility Defense & Government Services v. U.S. Dept. of Defense, 739 F.3d 586 (11th Cir. 2013), significantly expands the impact of a suspension due to affiliation. The court held that the initiation of legal proceedings (such as an indictment) permits the indefinite suspension of the contractor’s affiliates, even if the affiliates have not been accused of any wrongdoing. The decision overturned a 2012 Alabama district court decision that was a limitation on suspension due solely to corporate affiliation. We discuss the district court case in an earlier blog post.
Public Warehousing Company was indicted for fraud related to a government contract in November 2009 and was suspended as a result of the indictment. The Defense Logistics Agency then suspended Agility Defense & Government Services and Agility International, Inc., subsidiaries of Public Warehousing. The affiliates submitted written requests for reinstatement because they were not implicated in the indictment. After the agency’s refusal to reinstate them, the affiliates undertook several actions attempting to end their suspension, including a proposed management buyout that would have resulted in Public Warehousing retaining only an indirect 40-percent ownership in one of the affiliates.
As their suspension approached three years, the affiliates filed suit in the United States District Court for the Northern District of Alabama. The court found in their favor, ending the suspension. The district court reasoned that the applicable regulation limited the automatic suspension to 18 months. In the district court’s view, suspension beyond 18 months required the agency to initiate legal proceedings directed to the affiliates’ involvement. The Eleventh Circuit Court of Appeals reversed.
The Eleventh Circuit’s approach
The critical question on appeal was the interpretation of FAR 9.407-4(b), which expressly limits suspensions to 18 months unless “legal proceedings” have been initiated. The regulation does not specify whether “legal proceedings” must be initiated against the suspended affiliate or against the indicted contractor within the 18 month period.
The Eleventh Circuit held that legal proceedings initiated against the indicted government contractor tolled the 18 month time limit for the suspension of the affiliates. According to the court, an agency must satisfy only three requirements to suspend an affiliate:
- establish that it is an affiliate of the indicted contractor with the power to control or be controlled by the indicted contractor;
- specifically name the affiliate; and
- provide notice of the suspension and an opportunity for the affiliate to respond.
Notably, the Eleventh Circuit stated that the regulations permit an agency to suspend and debar an affiliate of an indicted contractor based solely on its affiliate status, even if the affiliate was not engaged in wrongdoing.
Earlier entries on this topic—