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Legislative Watch: Potential Changes That May Affect Responsibility Determinations

As we report in more detail in the upcoming Legislative and Regulatory Update, appearing in the April issue of NCMA Contract Management Magazine, Congress has recently taken two noteworthy legislative actions that could greatly affect contractor responsibility determinations.

On April 15, the House unanimously passed the Contracting and Tax Accountability Act of 2015 (H.R. 1562).  If enacted, this bill would require contractors to certify that they have no “seriously delinquent tax debts” when submitting a bid or proposal for any contract or grant in excess of the simplified acquisition threshold.  For the purposes of the bill, a “seriously delinquent tax debt” includes any federal tax liability assessed by the Secretary of the Treasury under the Internal Revenue Code that can be collected by levy or court proceeding, with some exceptions.  Should a contractor admit that it does have a seriously delinquent tax debt within this definition, the bill would require contracting officers to find that the contractor is not presently responsible and, absent a waiver for urgent and compelling circumstances, would require agencies to initiate a suspension or debarment proceeding.  With such serious consequences—as well as  the potential for False Claims Act liability should a party incorrectly certify its tax liability status—contractors should keep an eye out for this bill as it works its way through the Senate.  Should the bill be enacted, contractors must facilitate open communication between their departments to ensure parties making these certifications are fully apprised of the company’s tax liability status.

Also introduced in April is the Small Business Fairness Act (S. 958), which would broaden the scope of information a contracting officer examines when making a past performance or financial responsibility determination for small businesses proposing a team of subcontractors or a joint venture.  The bill would require contracting officers to consider the capabilities and past performance of each first-tier subcontractor of the proposed team; or, if a joint venture is proposed and the joint venture does not have sufficient capabilities or past performance to be considered, the contracting officer would then consider the capabilities and past performance of each member as the capabilities and past performance of the whole.  In addition, the bill would require contracting officers to certify annually that each small business member of a team or joint venture has retained the same status—small business, qualified HUBZone small business, small business owned and controlled by service-disabled veterans, and so on—under which it was awarded the contract.  To the extent this bill could act to limit small businesses from continuing to perform contracts after a change in status, it would have a significant effect on contractors.

To be certain, these bills could have significant effects on contractors of all types if enacted.  We will continue to monitor their progress as they move through Congress.

Legislative Watch: Potential Changes That May Affect Responsibility Determinations

Suspension by Association: 11th Circuit Decision Illustrates the Significant Impact a Parent Company’s (Alleged) Wrongdoings Can Have on an Affiliated Government Contractor

Those who were too busy celebrating the end of 2013 may have missed the 11th Circuit’s decision in Agility Defense & Government Services, Inc., et al v. U.S. Department of Defense, et al, No. 13-10757 involving a suspension and debarment matter.  In 2009, two affiliate contractors were suspended per FAR 9.403 and 9.407-1(c) solely because their parent company was indicted on criminal charges.  The affiliates’ suspensions continued for longer than 18 months due to their parent company’s ongoing criminal proceedings; FAR 9.407-4(b) states that a suspension may not “extend beyond 18 months, unless legal proceedings have been initiated within that period.”  (Emphasis added).  The affiliates ultimately commenced an action before the United States District Court for the Northern District of Alabama for injunctive and declaratory relief.  The District Court held that, “[b]ecause neither the United States nor its agencies initiated legal proceedings against the affiliates within 18 months of their suspension notices,” the agency “did not have the power to suspend the affiliates indefinitely even if it initially had the power to suspend the affiliates based solely on their affiliate status.”  (Emphasis added).  The 11th Circuit disagreed.  Among other things, the 11th Circuit determined that the “legal proceedings” in FAR 9.407-4(b) referred to proceedings initiated against the indicted contractor.  The “regulation permits the suspension of an affiliate of an indicted government contractor to exceed 18 months when legal proceedings have been initiated against the indicted government contractor.”  It further stated, “[t]he present responsibility of an affiliate is irrelevant.”

This decision illustrates the significant impact that a parent company’s (alleged) wrongdoings can have on an affiliated government contractor – e.g., a prolonged suspension due to no fault of the affiliated government contractor.  A government contractor must be cognizant of this issue, and be prepared to take actions necessary to insulate itself from its parent company in the event of such an occurrence, even if the wrongdoing is unrelated to government contracting.

Suspension by Association: 11th Circuit Decision Illustrates the Significant Impact a Parent Company’s (Alleged) Wrongdoings Can Have on an Affiliated Government Contractor