The Final Word? Suspension of Affiliates Is Worse Than You Think
February 4, 2014
By: Eric Whytsell
We reported on the saga of two contractors suspended solely based on their affiliation with another company that had actually been indicted for overbilling the Government on subsistence contracts performed in the Middle East. At that time, having detailed the contractors travails, we suggested that the complete story had yet to be written. Barring an appeal to the United States Supreme Court, however, the story now appears to have reached an end and not in a good way.
The contractors, Agility Defense & Government Services, Inc., and Agility International, Inc. (together, Agility), won a victory when the United States District Court for the Northern District of Alabama denied the Governments motion for summary judgment and instead granted summary judgment in favor of Agility, holding that their suspensions were contrary to law because neither the United States nor its agencies had initiated legal proceedings against them within 18 months of their suspension notices pursuant to 48 C.F.R. § 9.407-4(b). The only legal proceedings initiated involved Agilitys indicted affiliate, Public Warehousing. Unfortunately, in the recent decision in Agility Defense & Government Services v. U.S. Dept. of Defense, No. 13-10757 (11th Cir. Dec. 31, 2013) the United States Circuit Court of Appeals for the 11th Circuit recently overturned the lower courts decision.
The central issue on appeal was whether the United States or its agencies must initiate legal proceedings against an affiliate of an indicted government contractor to toll the 18-month time limit on the suspension of the affiliate even though the affiliate was suspended solely on account of its affiliate status. Agility Defense, at 7. The regulation in question, 48 C.F.R. § 9.407-4(b), is silent on the issue, stating only, In no event may a suspension extend beyond 18 months, unless legal proceedings have been initiated within that period. Id. The Government argued that legal proceedings must be understood as meaning legal proceedings against the indicted government contractor rather than against the suspended affiliate. Id. Not surprisingly, Agility argued that only legal proceedings against the suspended affiliate can justify extending a suspension of that affiliate past 18 months. Id.
The Eleventh Circuit agreed with the Government, citing a number of reasons. First and foremost, the Court pointed out that the FAR clearly provides that both suspension and debarment of an affiliate may derive solely from its status as an affiliate. Agility Defense, at 8 (citing 48 C.F.R. § 9.407-1(c) and 9.407-1(b)). It went on to note that, since no cause need precipitate a suspension beyond mere affiliation, the United States and its agencies have little reason to initiate any sort of proceedings against an affiliate suspended solely because it is an affiliate. Id. at 8-9. Finally, the Court pointed out that the proceedings against Public Warehousing that led to Agilitys initial suspension could ultimately led to the debarment of Agility if Public Warehousing were convicted and concluded, [i]t would be nonsensical to require the agency either to terminate the suspensions of [Agility] or to initiate separate legal proceedings against [Agility] only to debar it later based on the Public Warehousing conviction. Id. at 10-11.
For these reasons, the Eleventh Circuit reversed the lower court and rendered judgment in favor of the Government. This, of course, does not mean that contractors finding themselves suspended based solely on affiliation should not do as Agility did in this case and take every available action to undo the suspension (as described in detail in our earlier report). But it does mean that there is one less argument available: Under the FAR, Governments suspension of a blameless contractor may continue more than eighteen months so long as legal proceedings have been initiated against an affiliate of the contractor.
Eric Whytsell is the attorney responsible for the content of this article.
© Jackson Kelly PLLC 2014