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Under New Rule, Federal Contractors Can Lose Out on Projects, Be Debarred for Tax Delinquencies
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June 23, 2008
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By Aaron R. Gruber
Thelen LLP
The Federal Acquisition Regulation (FAR) has been amended to make tax delinquencies grounds for declaring bidders non-responsible and for debarment and suspension from federal contracting.
The amendments, effective May 22, 2008, are the result of a study entitled "Thousands of Federal Contractors Abuse the Federal Tax System" by Congress' Government Accountability Office. The study of federal contractors with unpaid federal taxes was presented to the House Subcommittee on Government Management, Organization and Procurement, which is part of the Committee on Oversight and Government Reform. Click here to view the full text of the report.
The GAO report led to introduction of a bill entitled "Federal Contractor Accountability Act of 2007" (HR 1986), which in turn prompted the amendments to FAR.
FAR 52.209-5 now requires all contractors to make the following additional certifications when bidding on federal contracts:
The Offeror certifies. that. [t]he Offeror and/or any of its Principlals.
Have , have not , within a three-year period preceding this offer, been notified of any delinquent Federal taxes in an amount that exceeds $3,000 for which the liability remains unsatisfied..
Federal taxes are considered delinquent if both of the following criteria apply:
| (i) | The tax liability is finally determined. The liability is finally determined if it has been assessed. A liability is not finally determined if there is a pending administrative or judicial challenge. In the case of a judicial challenge to the liability, the liability is not finally determined until all judicial appeal rights have been exhausted.
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| (ii) | The taxpayer is delinquent in making payment. A taxpayer is delinquent if the taxpayer has failed to pay the tax liability when full payment was due and required. A taxpayer is not delinquent in cases where enforced collection action is precluded.
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The regulation defines "principals" broadly and includes "officers; directors; owners; partners; and, persons having primary management or supervisory responsibilities within a business entity (e.g., general manager; plant manager; head of a subsidiary, division, or business segment, and similar positions)."
Similar changes were made in FAR 52.212-3.
A new FAR 9.104.6 requires contracting officers to include FAR 52.209-5 in all solicitations expected to exceed the simplified acquisition threshhold.
A new FAR 9.104-5 requires the contracting officer, upon receipt of an affirmative responses to the questions, to seek additional information from the bidder to demonstrate the bidder's responsibility. It also requires the contracting officer, before proceding with award, to notify the agency official responsible for initiating debarment and suspension proceedings. Amendments to FAR 9.406-2 and FAR 9.407-2 make tax delinquency grounds for debarment and suspension.
FAR 52.209-5 provides that disclosure of unfavorable information is not necessarily fatal to receiving a contract award. Such a certification "will not necessarily result in withholding of an award under this solicitation. However, the certification will be considered in connection with a determination of the Offeror's responsibility." The regulation does caution that failure to provide a certification or provide additional information requested by the contracting officer may render the bidder nonresponsible.
The regulation requires contractors to immediately notify the contracting officer in writing if they learn of an error in their certification or if changed circumstances make a certification erroneous.
It also provides that their contracts may be terminated for default if the contracting officer determines that they knowingly made a false certification.
The regulation warns that false certification can result in federal criminal prosecution under 18 USC §1001, which provides for prison terms of up to eight years for falsifying, concealing or covering up facts material to the federal government or making fraudulent statements.
The amended regulation expressly states that it does not require establishing "a system of records" in order to make a good faith certification. Rather, the required level of knowledge need not "exceed that which is normally possessed by a prudent person in the ordinary course of business dealings."
Click here for the full text of the new regulation:
Click here for the Final Rule and the federal government's response to comments made in response to the proposed rule.
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For more information about the issues covered in this report, please contact Aaron R. Gruber in our San Francisco office at 415-369-7621 or at agruber@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2008 Thelen LLP
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