Unpaid Federal Taxes Will Mean “No Contracts” Under New FAR Provision

January 29, 2016
Under a new FAR provision effective in February 2016, the Government typically will not enter into a contract with any corporation that has an unpaid Federal tax liability that is not being contested or timely repaid.  The same new FAR provision prohibits the Government, in most cases, from awarding a contract to a company recently convicted of a Federal felony.

The new FAR provision requires a corporate offeror to represent whether it has any unpaid tax liabilities or recent felony convictions.  If the answer to either question is “yes,” the Government cannot award a contract unless it has first considered suspension or debarment of the offeror, and determined that suspension or debarment is unnecessary to protect the Government’s interests.

On December 4, 2015, the FAR Council issued an interim rule amending the FAR to implement certain sections of the Consolidated and Further Continuing Appropriations Act, 2015.  The interim rule, which takes effect on February 26, 2016, requires that any offeror responding to a Federal solicitation make a representation regarding whether the offeror is a corporation with a delinquent tax liability or a felony conviction.

If the contractor responds “yes” to either question, “the contracting officer shall not make an award to the corporation unless an agency suspending or debarring official has considered suspension or debarment of the corporation and determined that this further action is not necessary to protect the interests of the Government.”

Under the interim rule, the representation requirement applies to acquisitions for commercial items (including commercially available off-the-shelf items) as well as acquisitions in amounts below the simplified acquisition threshold.  Although the FAR Council considered exempting these acquisitions, it chose not to because the requirement “imposes a minimal burden . . . in contrast to the benefit of avoiding awarding contracts to corporations that have unpaid taxes, or felony convictions for violations of Federal Law . . ..”

Fortunately, the interim rule recognizes that corporations may contest assessed tax liabilities, or may be parties to an agreed-upon payment plan to repay any unpaid taxes.  A contractor in these situations ordinarily would not be required to answer “yes” under the representation requirement.  No such nuances exist with respect to felony convictions, however; the interim rule would require a “yes” any time a corporation was convicted of a felony under Federal law within 24 months preceding the offer.

New FAR 52.209-11(b) states, in full:

(b) The Offeror represents that-
(1) It is [ ] is not [ ] 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 the tax liability; and (2) It is [ ] is not [ ] a corporation that was convicted of a felony criminal violation under a Federal law within the preceding 24 months.