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Court Upholds 3-Year Contracting Suspension

Mess Hall

Former Secretary of the Army John McHugh shares a meal with soldiers in Afghanistan. Agility was a food contractor at similar dining facilities.

Last week saw another twist in the ongoing legal saga of Agility. The Kuwaiti logistics company—once a vital supplier to the U.S. military in the Middle East, now in its fifth year of a federal contracting suspension—got bad news from a federal appellate court on the last day of 2013.

In November 2009, Agility (formerly known as Public Warehousing Company KSC and PWC Logistics) and several of its subsidiaries and affiliates were suspended after being charged with committing fraud on food supply contracts. The criminal prosecution and a related civil False Claims Act lawsuit still drag on in U.S. and Kuwaiti courts.

In June 2012, however, the U.S. District Court for the Northern District of Alabama ordered the Pentagon to lift the suspension of two U.S.-based Agility affiliates that were not criminally charged—Agility Defense and Government Services, Inc., and Agility International, Inc. The District Court ruled that, under Federal Acquisition Regulation (FAR) subpart 9.407-4(b), suspensions of subsidiary and affiliated companies must be terminated after 18 months unless the government initiates legal proceedings against those specific entities. (In the words of the FAR, “In no event may a suspension extend beyond 18 months, unless legal proceedings have been initiated within that period.”) At the time, both affiliates had been suspended for nearly three years despite no allegation of wrongdoing.

But on New Year’s Eve, a three-judge panel of the United States Court of Appeals for the Eleventh Circuit reversed the lower court. The appellate court broadly construed the term “legal proceedings” to hold that unindicted affiliates of indicted contractors can be suspended for longer than 18 months. The court stated that, since the FAR allows the government to suspend (or debar) a company based solely on its status as an affiliate of an indicted contractor and not on any specific showing of wrongdoing, there is no need to bring legal proceeding against the affiliate—as long as the government provides the affiliate notice of the suspension and the opportunity to challenge it.

The appellate court’s relatively short opinion stuck to the plain letter of the FAR. The court did not cite the government’s policy argument for allowing the suspensions in this case to exceed the 18-month limit: that it will deter prime contractors from flouting suspensions by shifting business to an affiliate or subsidiary.

When contacted by the Project On Government Oversight, Agility had no comment about the appellate court’s decision and whether it plans to appeal. POGO checked the federal government’s suspension and debarment database, the System for Award Management, and discovered that the government lifted the suspensions of both Agility affiliates in December 2012 and has not yet re-excluded them.

Image from the U.S. Army.

By: Neil Gordon
Investigator, POGO

Neil Gordon, Investigator Neil Gordon is an investigator for the Project On Government Oversight. Neil investigates and maintains POGO's Federal Contractor Misconduct Database.

Topics: Contract Oversight

Related Content: Contractor Accountability, Federal Acquisition, Federal Contractor Misconduct, Suspension and Debarment

Authors: Neil Gordon

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