Government Contracts Monitor

Short Take: FAR Council Issues Final Rule on Contract Restrictions Based on Felony Convictions and Delinquent Taxes

October 24, 2016

The Federal Acquisition Regulation (FAR) Council recently adopted its previously proposed restrictions on federal agencies’ ability to enter into contracts with corporations having a delinquent federal tax liability or a felony conviction under any federal law. The final rule, which took effect on September 30, 2016, establishes an outright prohibition against contracts where either of these circumstances exist, unless the agency awarding the contract has considered suspension or debarment of the entity and determined that neither is necessary to protect the government’s interests. The final rule made no changes to the Council’s December 4, 2015 interim rule as a result of any input received during the public comment period.

One commenter expressed concern that the rule did not define “corporation,” but the Council declined to include a specific definition, stating in the commentary on the final rule that “the term ‘corporation’ is used throughout the FAR without definition,” and thus has the “standard dictionary definition.” It also noted that, although a corporation is a legally created entity and an artificial construct, it generally has the same rights and responsibilities as a natural person. Thus, even as an artificial entity, a corporation can commit a crime, and its officers or shareholders can, in some cases, be held responsible for corporate convictions, under the doctrine of piercing the corporate veil.

The Council also declined to modify the interim rule to provide clarification on (i) when a felony conviction is final for the purposes of the rule; and (ii) how long the appropriate debarring official has to make a decision as to suspension or debarment after the contracting officer inquires.

The rule was required by 2015’s Consolidated and Further Continuing Appropriations Act, as part of the federal government’s ongoing effort to avoid misuse of federal appropriated funds.