Guilt by Affiliation: A Recent Court Decision that Every Government Contractor Should Consider

by Snell & Wilmer

One of the many business strategies to win more government contracts is to “team” with other companies that provide specific specialties or qualify for socio-economic benefits. Sometimes, these partnerships are formal through a “teaming agreement” or “joint venture,” or informal without a written agreement. Under any arrangement, a government contractor is usually concerned about officially being considered “affiliated” with its project partners because of the possible loss of the socio-economic benefits the government contractor possesses. Now, a recent Eleventh Circuit case, Agility Defense & Government Services v. United States Department of Defense,[1] has taken fears of “affiliation” to a new level.

A traditional government contractor was concerned about an affiliation determination in regard to socio-economic preferences, usually concerning small business and certification status (such as HUBZone, 8(a), veteran, etc.). Typically, the small business would bid on a set aside project and promise to do the required portion of the scope of work, while subcontracting the remainder to a large company. Prior to bidding, as referenced above, some partners would solidify the arrangement through a teaming agreement or joint venture. But, any agreement, division of scope of work, and control had to be carefully crafted and assigned to avoid being considered affiliated by the government, which would result in the small business losing its status for a period of time (in addition to not being awarded the government contract).

To determine whether two separate business concerns are effectively affiliated, the government applies a totality of the circumstances test. In a Size Protest, the Small Business Administration will evaluate the incorporating documents of both companies, the agreements between both companies and the realistic relations that exist (i.e., sharing of employees, facilities, back office support, etc.) to determine if affiliation exists.

Affiliation is not always negative. Potential contractors might be able to affiliate with a partner to show that the company is of the appropriate size to complete the project, has the necessary capital or bonding capacity necessary for the project and has a track record of responsibility before being considered for a contract.

But as a recent decision from the Eleventh Circuit Court of Appeals shows, government contractors must now be aware of a new pitfall of any affiliation with their partners. In Agility Defense, the Eleventh Circuit held that an affiliate can be suspended indefinitely based solely on its status as an affiliate with a potentially-seedy entity. In that case, Agility Defense & Government Services and Agility International, Inc. (Affiliates) were suspended by the Defense Logistics Agency (DLA)[2] pursuant to 48 C.F.R. § 9.407-1, after its parent company, Public Warehousing Company, K.S.C., was indicted for fraud.[3]

The Affiliates then sued the DLA, claiming that the agency could not indefinitely suspend them while legal proceedings against Public Warehousing continued. Because the DLA had not brought legal proceedings against the Affiliates within the timeline required by 48 C.F.R. § 9.407-4, the district court ordered the DLA to terminate their suspensions.[4]

On appeal, the Eleventh Circuit reversed the district court after concluding that the term “legal proceedings,” as used in 48 C.F.R. § 9.407-4(b), means “legal proceedings against the indicted government contractor.”[5] But, more importantly, the appellate court held that in order to suspend an affiliate under the regulations, an agency must satisfy only three requirements: (1) it must establish that the affiliate has the power to control the indicted government contractor or be controlled by the indicted government contractor; (2) it must specifically name the affiliate; and (3) it must provide notice of the suspension and notice of an opportunity for the affiliate to respond.[6] “Together,” the Court stated, “the suspensions of an indicted government contractor and its affiliate constitute one ‘suspension decision’ because an affiliate is ‘include[d]] in the suspension of the indicted government contractor.”[7] What’s more, “no showing of wrongdoing by the affiliate is required for suspension or disbarment.”[8]

As one might imagine, the Eleventh Circuit’s decision carries tremendous implications for affiliates of government contractors. Not only might such an affiliate be indefinitely suspended based on actions of the contractor, but the affiliate might be debarred—a more permanent prohibition against the affiliation—as a result of a contractor’s conviction.[9] Losing a socio-economic benefit is bad enough if “affiliation” is determined when such determination is unwanted because of the lost business opportunities associated with such benefits. Now, the risk of being debarred should cause all government contractors to review their current partnership arrangements and perform solid due diligence before entering into future “teaming” arrangements.

As referenced above, “affiliation” is determined utilizing a “totality of circumstances” test. So there is not a “checklist” that a government contractor can easily follow to ensure affiliation does not exist, while still ensuring adequate legal protections in any partnership relationship. The bottom-line is that the government is concerned about “control.” Control is not only reflected in a team’s written agreements, but also in regard to a factual analysis concerning common ownership, past projects for which the team partnered, bonding arrangement, and practical control on any project.

Partnering with other companies provides a competitive advantage against other bidders on government projects. But the decision to partner should be made after careful consideration, so as to avoid the unintended consequence (indeed, a potential death sentence) of becoming a suspended or debarred government contractor. Consulting with knowledgeable legal counsel who understands the regulatory environment of government contracting and procurement law can also help a company get and maintain an edge in government contracting—and possibly avoid guilt by affiliation.


[1] Agility Def. & Gov’t Servs., Inc. v. United States Dept. of Def., No. 13-10757, 2013 WL 6850891 (11th Cir. Dec. 31, 2013).

[2] The Defense Logistics Agency is a combat support agency of the Department of Defense. Id. at *2.

[3] Id.

[4] Id.

[5] Id. at *3-4.

[6] Id. (citing 48 C.F.R. §§ 9.403, 9.407-1(c)). Providing the affiliate with notice of and an opportunity to respond to its suspension in writing are “are constitutionally adequate procedures” to negate a due process violation from the affiliate’s indefinite suspension. Id. at *5.

[7] Id. at *4 (citing 48 C.F.R. §9.407-1(c)).

[8] Id. at *3.

[9] Id. at *4.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Snell & Wilmer | Attorney Advertising

Written by:

Snell & Wilmer

Snell & Wilmer on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.