Photo of Lorraine M. CamposPhoto of M.Yuan Zhou

When assessing whether a contractor is eligible for award, contracting officers are required to conduct a meaningful present responsibility determination using the factors contained in FAR 9.1. However, a final rule issued by the FAR Council on September 30, 2016 has inserted a wild card into the process—the agency suspension and debarment official (SDO).

The final rule adopts an interim rule without change, which amends the FAR to establish the following representation and certification requirements:

  • Representation (FAR 52.209-11): Any corporation responding to a federal solicitation must represent whether it: (1) has any unpaid federal tax liability that has been assessed and is not being appealed or paid in a timely manner; or (2) has a felony conviction for a violation under any federal law within the preceding 24 months. There is no de minimus amount for reporting tax delinquencies. Consistent with the Consolidated and Further Continuing Appropriation Acts, an affirmative response to either prong would create an automatic exclusion that precludes the award of federal contracts in a “shoot first, ask questions later” fashion.
  • Certification (FAR 52.209-12): Corporate offerors must certify to tax matters contained in FAR 52.209-12(b) when responding to certain solicitations where the resultant contract (including options) may have a value greater than $5 million. If applicable, contractors must ensure that their certifications are accurate; otherwise additional liability could arise for the submission of false statements.

The definition of “corporation” is broadly interpreted, and the rule may apply to joint ventures and other teaming arrangements. Under the rule’s representation requirements, while delinquent federal taxes need not be disclosed while administrative or judicial remedies are being exhausted, corporate offerors must report any federal felony conviction, regardless of whether it is on appeal.  This could affect a significant number of corporate contractors, as the United States Sentencing Commission estimated that in fiscal year 2015, the number of corporations and other organizational defendants sentenced for at least one federal criminal offense increased 10.5 percent from fiscal year 2014. The rule’s representation requirement also applies to acquisitions for commercial items (including commercially available off-the-shelf items) as well as acquisitions in amounts below the simplified acquisition threshold.

There is only one way in which a corporation may regain eligibility for award after disclosing a federal tax delinquency or recent federal felony conviction—the agency SDO must review the matter and determine that further action is not necessary to protect the Government’s interests. While bright-line rules have now been established for a corporate offeror’s disclosure and certification requirements, the rest is not so clear.

Once an SDO receives notification of a corporation’s tax delinquency or felony conviction, there is neither a set timeframe during which the SDO must make a suspension or debarment decision nor is there any set guidance for SDOs to follow, which could significantly delay the timeline for award. It is also unclear whether this rule would leverage the usual lead agency process for suspension and debarment matters, or whether it requires consideration of suspension and debarment on an agency -by-agency basis.  If the latter, each SDO may apply their own factors to the process, which creates the risk of inconsistent determinations. The timeframe of such SDO determinations could halt contract awards and impact various aspects of acquisition.

Now that agency suspension and debarment officials have been affirmatively injected into the pre-award responsibility determination process, corporations with a tax delinquency or recent federal felony conviction can no longer escape the suspension and debarment system if it seeks to obtain a federal contract.  As a practical matter, contractors should—prior to negotiating any settlement or plea agreement regarding tax liability or felony convictions—consider meeting with their agency SDOs to affirmatively demonstrate their present responsibility.  This meeting should not only include lead agency SDOs, but likely all key agency customers. Potential corporate contractors that do not have the benefit of a previously-established SDO relationship should similarly consider the implications of this final rule in negotiating any settlement or plea agreement when facing a federal felony criminal charge.

Note that this set of certifications is different from Certifications Regarding Responsibility Matters dealing with notifications of corporate tax delinquencies contained at FAR 52.209-5(a)(1)(i)(D). That rule calls upon the offeror and/or its principals to notify the government when the offeror itself is delinquent in its taxes.  For those interested in the interplay between the two disclosures, the Final Rule implementing FAR 52.209-5(a)(1)(i)(D) is available here.

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Photo of Lorraine M. Campos Lorraine M. Campos

Lorraine M. Campos is a partner and member of the Steering Committee of Crowell & Moring’s Government Contracts Group and focuses her practice on assisting clients with a variety of issues related to government contracts, government ethics, campaign finance, and lobbying laws. Lorraine…

Lorraine M. Campos is a partner and member of the Steering Committee of Crowell & Moring’s Government Contracts Group and focuses her practice on assisting clients with a variety of issues related to government contracts, government ethics, campaign finance, and lobbying laws. Lorraine regularly counsels clients on all aspects of the General Services Administration (GSA) and the U.S. Department of Veterans Affairs (VA) Federal Supply Schedule (FSS) programs. She also routinely advises clients on the terms and conditions of these agreements, including the Price Reduction Clause, small business subcontracting requirements, and country of origin restrictions mandated under U.S. trade agreements, such as the Trade Agreements Act and the Buy American Act. Additionally, Lorraine advises life sciences companies, in particular, pharmaceutical and medical device companies, on federal procurement and federal pricing statutes, including the Veterans Health Care Act of 1992.

Lorraine has been ranked by Chambers USA since 2013, and she was recognized by Profiles in Diversity Journal as one of their “Women Worth Watching” for 2015. Additionally, Lorraine is active in the American Bar Association’s Section of Public Contract Law and serves as co-chair of the Health Care Contracting Committee.

Photo of M.Yuan Zhou M.Yuan Zhou

M. Yuan Zhou is a counsel in the Washington, D.C. office of Crowell & Moring, where she is a member of the firm’s Government Contracts Group.

Yuan’s practice includes a wide range of investigatory, counseling, and transactional capabilities, including: internal investigations related to…

M. Yuan Zhou is a counsel in the Washington, D.C. office of Crowell & Moring, where she is a member of the firm’s Government Contracts Group.

Yuan’s practice includes a wide range of investigatory, counseling, and transactional capabilities, including: internal investigations related to the False Claims Act, the Procurement Integrity Act, and other civil and criminal matters; compliance reviews and enhancing contractor compliance programs; representing clients in suspension and debarment proceedings; counseling on data rights issues, challenges, and disputes; mandatory disclosures; and providing government contracts due diligence in transactional matters. As part of the firm’s State and Local Practice, Yuan also counsels clients on state and local procurement issues, ranging from bid protests to contract negotiations with state agencies, and advises prime contractors and subcontractors on a variety of issues including prime/sub contract formation, disputes, and other government contracts issues.