On September 30, 2016, the FAR Council published a Final Rule that immediately adopted, without change, the Interim Rule published on December 4, 2015 regarding a company's unpaid Federal tax liability or conviction of a felony criminal violation. Specifically, the Final Rule created FAR 52.209-11 titled "Representation by Corporations Regarding Delinquent Tax Liability or a Felony Conviction under any Federal law and FAR 52.209-12 titled "Certification Regarding Tax Matters".
FAR 52.209-11 now requires businesses to represent:
1) Whether it is a corporation that has any unpaid Federal tax liability that has been assessed, for which all judicial and administrative remedies have been exhausted or have lapsed, and that is not being paid in a timely manner pursuant to an agreement with the authority responsible for collecting tax liability; and
2) Whether it is a corporation that was convicted of a felony criminal violation under a Federal law within the preceding 24 months.
If the business answers either of those in the affirmative, the Contracting Officer is then required request additional information from the offeror and notify the agency SDO. The Contracting Officer is unable to make an award to the corporation unless the SDO has considered suspension or debarment of the corporation and determined that this further action is not necessary to protect the interests of the Government.
Certification for Contracts Over $5,000,000
For contracts that are funded by the Consolidated and Further Continuing Appropriations Act of 2015 (including similar provisions in subsequent appropriations acts) and which have a value in excess of $5,000,000, corporations are now required to provide the following certifications:
1) That it has filed all Federal tax returns required during the 3 years preceding the certification;
2) That it has not been convicted of a criminal offense under the Internal Revenue Code of 1986; and
3) That it has not, more than 90 days prior to certification, been notified of any unpaid Federal tax assessment for which the liability remains unsatisfied, unless the assessment is the subject of an installment agreement or offer in compromise that has been approved by the IRS and is not in default.
If a corporation is unable to certify to these items, the Contracting Officer is unable to make the award to the corporation.
Other Notes Regarding These FAR Clauses
- Although the term "corporation" is used specifically in this clause without definition, the preamble to the Final Rule makes clear that this term applies to essentially all of the corporate forms, including limited liability companies. It may also apply to Joint Ventures, depending on whether the Joint Venture is a separate legal entity such as an LLC.
- Failure to provide the required representations, certifications or such information as may be requested by the Contracting Officer pursuant to these clauses may render the offer to be nonresponsible.
- Despite comments articulating concerns, the FAR Council made clear in the Final Rule that it is not imposing any time limits on the SDO for making a decision under FAR 52.209-11, nor is it providing any other guidance for SDOs to follow in making a decision. Based on this, it is likely we will see inconsistencies in determinations and contractors subject to this section will experience delayed awards or a failure to be awarded a contract.
- These FAR clauses do not alter FAR 52.209-5(a)(1)(i)(D), which requires, as part of a contractor's representations & certifications, to notify the Federal government if, within the preceding 3-year period, it has delinquent Federal taxes over $3,500, and which liability remains unpaid at the time of the certification.
Recommendation: For contractors that anticipate issues with delinquent taxes or a Federal felony conviction, to the extent you are able to do, you should communicate with the agency SDO prior to negotiating (and definitely prior to finalizing) a settlement or plea agreement in order to make your case for responsibility and/or just get a sense of what the SDO's process is and how he/she makes his/her determinations in this area. In addition, from the Prime and/or Subcontractor perspective, prior to entering into a teaming agreement, you should find out from your teammate whether they have a Federal tax delinquency or felony conviction, as it may have an impact on you and/or the contract award down the road.