Lessons From The Agility Defense Case: Severing Affiliation With A Suspended Contractor

Affiliates of government contractors involved in suspension and debarment proceedings should note the recent decision in Agility Defense and Government Services, Inc., et al. v. U.S. Department of Defense, et al., No. CV-11-S-4111-NE, 2012 WL 2480484 (N.D. Ala. Jun. 26, 2012). In Agility Defense, the U.S. District Court for the Northern District of Alabama confirmed that the government may suspend a government contractor solely on the basis of being affiliated with another suspended government contractor. However, without initiating any further legal proceedings against each affiliate, the government's suspension may last only 18 months. The court also reviewed the means by which affiliates can sever their ties with suspended contractors.

Following Agility Defense, any government contractor or affiliate facing a suspension or debarment should consider:

how to sever an affiliation as described in the case; and how long their current suspension has lasted. (If it has lasted longer than 18 months, the Government must have initiated further legal proceedings against each affiliate.) The Decision

The Agility Defense decision focused on "affiliation" under the FAR suspension and debarment regulations. Under FAR 9.403, business concerns, organizations, and individuals are "affiliates" of each other if, directly or indirectly, (1) either one controls or has the power to control the other, or (2) a third party controls or has the power to control both. Some indicia of control include:

interlocking management or ownership; identity of interests among family members; shared facilities and equipment; or common use of employees. A business entity organized following a suspension, debarment, or proposed debarment, which has the same or similar management, ownership, or principal employees as the suspended or debarred entity, also falls under the definition of "affiliate."

Efforts to Sever Affiliation

The plaintiffs in the case included Agility Defense and Government Services, Inc. (Agility Defense) and its subsidiary, Agility International, Inc. (Agility International). Agility Defense itself was a subsidiary of Public Warehousing Company, K.S.C. (PWC), which was suspended in 2009 after being indicted on allegations of defrauding the government. Based on their affiliation with PWC, Agility Defense and Agility International were suspended by the Defense Logistics Agency (DLA). In an effort to sever the affiliation, Agility Defense proposed a "managed...

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