Eleventh Circuit: Affiliates of Indicted Government Contractors May Be Indefinitely Suspended Even Without Wrongdoing | Practical Law

Eleventh Circuit: Affiliates of Indicted Government Contractors May Be Indefinitely Suspended Even Without Wrongdoing | Practical Law

In Agility Defense & Government Services, et al. v. U.S. Department of Defense, the US Court of Appeals for the Eleventh Circuit held that affiliates of indicted government contractors may also be suspended indefinitely, solely on the basis of their affiliate status, and that the suspension length does not violate the affiliates' due process rights.

Eleventh Circuit: Affiliates of Indicted Government Contractors May Be Indefinitely Suspended Even Without Wrongdoing

by Practical Law Commercial
Published on 14 Jan 2014 • USA (National/Federal)
In Agility Defense & Government Services, et al. v. U.S. Department of Defense, the US Court of Appeals for the Eleventh Circuit held that affiliates of indicted government contractors may also be suspended indefinitely, solely on the basis of their affiliate status, and that the suspension length does not violate the affiliates' due process rights.
On December 31, 2013, the US Court of Appeals for the Eleventh Circuit held in Agility Defense & Government Services, et al. v. U.S. Department of Defense that:
  • An affiliate of an indicted government contractor can be suspended in excess of 18 months when legal proceedings have been initiated against the indicted government contractor.
  • Indefinitely suspending an affiliate of an already suspended government contractor does not violate due process because the Federal Acquisition Regulation (FAR) affords affiliates sufficient process to contest its suspension.
(No. 13–10757, (11th Cir. Dec. 31, 2013).)
Both Agility International (AI) and Agility Defense & Government Services (ADGS) are subsidiaries, and consequently affiliates, of Public Warehouse Company, K.S.C. (PW), a government contractor indicted for fraud in November 2009. Later that month both subsidiaries were suspended by the Department of Defense (DOD) solely on the basis of their affiliation with PW. AI and ADGS challenged the DOD's authority under the FAR to indefinitely suspend affiliates of suspended government contractors solely because of the affiliation.
The FAR allows any agency to temporarily suspend a government contractor for a variety of reasons, including offenses indicating a lack of honesty or business integrity(48 C.F.R. § 9.407-2(a)). An agency can extend the suspension of a government contractor to include any affiliate, if the affiliate is:
  • Specifically named by the agency.
  • Given written notice of the suspension and an opportunity to respond.
A nexus between the affiliate and the offending behavior is not required to extend a suspension (48 C.F.R. § 9.407-1(c)). No suspension (of either government contractors and their affiliates) can last longer than 18 months unless a legal proceeding has been initiated within that period (48 C.F.R. § 9.407-4(a)).
The court found that the FAR clearly imputes legal proceedings initiated against a government contractor or its affiliates, for the purposes of tolling the 18-month period. Independent legal actions against affiliates of offending government contractors are not required for an agency to have the authority to suspend a company based on its affiliations.
Government contractors and their affiliates need to be aware of each other's actions that could potentially warrant suspension. With respect to cases in the Eleventh Circuit, agencies may indefinitely suspend an affiliate of a government contractor solely on the basis of the affiliation without any connection to the government contractor's offending conduct. At this point it is unclear whether the Eleventh Circuit's approach will be followed by the other circuits but practitioners should prepare for this possibility.
For an overview of procuring a government contract, see Public Procurement in the United States: Overview.