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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 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.

The Contractor’s Perspective is up to three entries on the application of FAR 52.204-10, which requires some federal contractors and first-tier subcontractors to report the compensation of their top-five highest paid executives. Even though it has been almost two years since the requirement first appeared in the FAR, the topic still generates a lot of interest and a lot of questions. Here are answers to some of the questions we received in the executive compensation reporting segment of our recent webinar on Transparency in Government Contracting. We hope you find them useful.

Question: Does FAR 52.204-10 apply only to new contracts or does it also apply retroactively to existing contracts?

Answer: Even though the statutory requirement for reporting executive compensation became law in April 2008 when President Bush signed the Government Funding Transparency Act of 2008, the contractual requirement didn’t go into effect until July 8, 2010, when the FAR Councils published FAR 52.204-10 as an “interim rule.” According to the text of the interim rule, FAR 52.204-10 is required in all contracts over $25,000 that are awarded after July 8, 2010. It does not apply to contracts awarded before on or before July 8, 2010.

Contractors seeking to comply with the new requirement to report the compensation of their five highest paid executives under FAR 52.204-10 (July 2010) still have a lot of unresolved questions. We heard some of the questions during our June 8, 2011 webinar on the topic, which was sponsored by L2 Federal Resources, LLC, publisher of The Contracting Post. Thanks for hosting!

Here are some of the questions posed, along with our answers.