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Suspension by Association: 11th Circuit Decision Illustrates the Significant Impact a Parent Company’s (Alleged) Wrongdoings Can Have on an Affiliated Government Contractor

Those who were too busy celebrating the end of 2013 may have missed the 11th Circuit’s decision in Agility Defense & Government Services, Inc., et al v. U.S. Department of Defense, et al, No. 13-10757 involving a suspension and debarment matter.  In 2009, two affiliate contractors were suspended per FAR 9.403 and 9.407-1(c) solely because their parent company was indicted on criminal charges.  The affiliates’ suspensions continued for longer than 18 months due to their parent company’s ongoing criminal proceedings; FAR 9.407-4(b) states that a suspension may not “extend beyond 18 months, unless legal proceedings have been initiated within that period.”  (Emphasis added).  The affiliates ultimately commenced an action before the United States District Court for the Northern District of Alabama for injunctive and declaratory relief.  The District Court held that, “[b]ecause neither the United States nor its agencies initiated legal proceedings against the affiliates within 18 months of their suspension notices,” the agency “did not have the power to suspend the affiliates indefinitely even if it initially had the power to suspend the affiliates based solely on their affiliate status.”  (Emphasis added).  The 11th Circuit disagreed.  Among other things, the 11th Circuit determined that the “legal proceedings” in FAR 9.407-4(b) referred to proceedings initiated against the indicted contractor.  The “regulation permits the suspension of an affiliate of an indicted government contractor to exceed 18 months when legal proceedings have been initiated against the indicted government contractor.”  It further stated, “[t]he present responsibility of an affiliate is irrelevant.”

This decision illustrates the significant impact that a parent company’s (alleged) wrongdoings can have on an affiliated government contractor – e.g., a prolonged suspension due to no fault of the affiliated government contractor.  A government contractor must be cognizant of this issue, and be prepared to take actions necessary to insulate itself from its parent company in the event of such an occurrence, even if the wrongdoing is unrelated to government contracting.

Suspension by Association: 11th Circuit Decision Illustrates the Significant Impact a Parent Company’s (Alleged) Wrongdoings Can Have on an Affiliated Government Contractor