Pentagon Ordered to Lift Suspension of Kuwaiti Contractor's Affiliates

By NEIL GORDON

You might be familiar with the story of Agility, the Kuwaiti company that was, until a few years ago, a key provider of logistics services for the U.S. military in the Middle East. That changed in November 2009 when Agility (formerly called Public Warehousing Company KSC and PWC Logistics) was indicted on charges of defrauding the government of more than $6 billion on food supply contracts, and the Defense Logistics Agency  suspended Agility and dozens of affiliated and subsidiary companies from federal contracting. (Agility was also the target of a civil False Claims Act lawsuit in which a default judgment was recently entered against Agility for failing to respond to the lawsuit.)

The criminal prosecution drags on and the suspensions are nearing the three-year mark. But last week, the U.S.  District Court for the Northern District of Alabama heard the plea of two PWC affiliates and ordered the logistics agency to lift their suspensions. The court ruled that the suspensions of Agility Defense and Government Services, Inc., and Agility International, Inc., two U.S.-based “indirect subsidiaries” of PWC, were illegal.

The controlling law on suspensions and debarments, the Federal Acquisition Regulation, provides that a suspension can last up to 18 months without any formal action being taken, but once proceedings are initiated, the suspension can remain in effect indefinitely. The suspensions of the two subsidiaries were imposed solely because of their relationship to PWC – the government has never initiated legal proceedings against them for suspected wrongdoing.

The Court ruled that suspension exceeding 18 months, without the initiation of legal proceedings, is a violation of the Administrative Procedure Act. The Court did not rule on the subsidiaries’ claim that their suspensions also violated their Constitutional rights, but it stated in a footnote that “to allow the government to suspend a contractor indefinitely, without suspicion, raises due process concerns” (emphasis added).

So the two subsidiaries are once again eligible for government contracts, although as the court pointed out, the government still has an ace up its sleeve. Before considering any bid for a contract, the Federal Acquisition Regulation requires the government to determine whether the bidder is presently “responsible,” which includes, among other things, having “a satisfactory record of integrity and business ethics.”

This will hopefully eliminate a contracting abuse that the government argued in the case in support its position but which the court found unpersuasive—evading  the consequences of a suspension or debarment by shifting business from a parent company to an affiliate or between affiliates.

Neil Gordon is a POGO investigator.

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