The June 26, 2012 decision in Agility Defense & Government Services, Inc. v. United States Department of Defense, No. 11-4111 (N.D. Ala. June 26, 2012) [pdf] reflects an important limitation on the government’s authority to suspend contractors simply because they are affiliated with companies accused of wrongdoing.

Agility Defense and Government Services, Inc. and Agility International, Inc. filed suit seeking to undo their suspensions after spending 31 months on the Excluded Parties List and being unable to convince the Defense Logistics Agency to lift the suspensions. DLA suspended the two companies not because they had engaged in wrongdoing, but because they were indirect affiliates of their ultimate parent company, Public Warehousing Company, K.S.C. The parent company was under indictment for defrauding the government of over $6 billion on food supply contracts in the Middle East. ADGSI and Agility had proposed a management buyout and other measures designed to remove PWC’s ability to control them and to assure their compliance with federal procurement laws. DLA nevertheless refused to lift the suspension.

In the litigation challenging the suspension, ADGSI and Agility presented four arguments:

  1. DLA provided an inadequate rationale for the suspensions;
  2. the suspensions were punitive;
  3. the suspensions were excessive; and
  4. the continuing suspensions denied them due process of law.

In addition to opposing each of the substantive arguments, DLA argued that the District Court lacked jurisdiction even to hear the case because suspension decisions are matters of unfettered discretion that are beyond judicial review.

DLA was able to convince the court that the initial decision to suspend ADGSI and Agility was a proper exercise of its power to “extend” the parent company’s suspension to its affiliates. But the court sided with the plaintiffs on the other issues in the case. In rejecting the Government’s jurisdictional defense, the Court holds that it has the power to decide the propriety of the suspension.

The Court ruled that continuing the suspension of the affiliate companies for more than 18 months was improper. The Court reasoned that the applicable Suspension and Debarment regulations (FAR Subpart 9.4) preclude a suspension lasting more than 18 months unless legal proceedings have been initiated against the particular affiliate within that period. In the Court’s words, “no contractor may be suspended for greater than eighteen months unless legal proceedings are initiated against that contractor itself, regardless of the basis for the initial decision to suspend the company.”

The Court rejected the Government’s argument that the initiation of legal proceedings against the parent company permitted a longer suspension of the parent’s indirect affiliates. According to the decision, an agency may extend the suspension beyond 18 months only if it has evidence that the particular affiliate has engaged in wrongdoing that would independently support suspension.