While the administrative tools of suspension and debarment allow the government to prohibit entities from receiving contracts or grants directly, the procurement regulations also contain restrictions on prime contractors’ ability to subcontract with suspended or debarred entities. Historically, these restrictions, found at section 52.209-6 of the Federal Acquisition Regulation, have:

• Prohibited government contractors from entering into subcontracts over $30,000 with any entity that is excluded from government contracting (there is a “compelling reason” exception). This restriction has been limited to “first-tier subcontracts,” meaning suspended or debarred entities could work as government subcontractors at the 2nd tier or below.
  
• Required government contractors to collect written certifications from first-tier subcontractors with subcontracts over $30,000 stating whether the subcontractor or any of its principals were suspended, debarred, or proposed for debarment.

In response to a legislative expansion of the definition of “procurement activities” to include, with certain commercial exceptions, subcontracts at any tier, these requirements were revised by an interim rule issued in December 2010. The interim rule includes two key changes: it exempts certain subcontracts from coverage regardless of whether they are over $30,000 and, for the first time, applies the restriction and certification requirements to lower tier subcontractors. Where the revised version of the clause applies, a contractor’s obligations now depend on whether (1) the items being acquired qualify as “commercial-off-the-shelf” (COTS) items, defined as commercial items sold in substantial quantities in the commercial marketplace and offered to the Government without modification (excluding bulk cargo such as agricultural or petroleum products) and (2) the prime contract is for non-commercial or commercial items:

• If the prime contract is for a non-commercial item, the prime contractor must apply the prohibition and certification provisions to all lower-tier non-COTS subcontracts over $30,000.
  
• If the prime contract is for a commercial item, the prime contractor must apply the prohibition and certification to only first-tier non-COTS subcontracts.
  
• If the subcontract is for COTS items:
  
  • there is no restriction on subcontracting with suspended or debarred parties regardless of the amount of the subcontract
    
  • no suspension/debarment certification is required from the subcontractor
    
  • there is no requirement to flow down the requirement

Because we are now beginning to see the revised provision in contracts, we suggest that contactors, both primes and subs, review the new clause to ensure your policies and procedures take the revisions into account. While the changes present an opportunity to limit certifications required from COTS subcontractors, unless a prime contractor can be certain that a subcontractor is providing only COTS items a certification regarding suspension and debarment is still recommended. More important is the new requirement to flow down the provision to non-COTS lower tier subcontracts over $30,000 where the prime contract is not for a commercial item.

We note that the expansion of the definition of procurement activities to include subcontracts at any tier is a further indication of the reach of government procurement regulations. While the exceptions for certain commercial or COTS items contracts are helpful, government contracting has become more onerous, yet again, for non-commercial item contractors and subcontractors.