Tax Delinquencies to Jeopardize Contract Eligibility Under New Final Rule

Alerts / October 5, 2016

On Friday, September 30, 2016, the Department of Defense, General Services Administration and National Aeronautics and Space Administration issued a Final Rule aimed at blocking tax evaders and convicted felons from receiving federal contracts. The Rule, which was unchanged from the version first proposed last December, significantly expands the circumstances under which contractors will be barred from award due to tax delinquencies.

Although the Federal Acquisition Regulation (FAR) has historically required prospective contractors to make limited certifications regarding their tax payment history, the new Rule broadens that policy by extending it to virtually all federal government contracts. The principal provision of the Final Rule – the new contract clause found at FAR 52.209-11, Representation by Corporations Regarding Delinquent Tax Liability or a Felony Conviction Under Any Federal Law – differs from these previous policies in three key respects. First, unlike existing provisions, which require the disclosure only of federal tax delinquencies exceeding $3,500 in the preceding three years, the Final Rule requires the disclosure of any existing federal tax delinquency not currently in dispute. Second, where existing provisions have applied only to contracts whose value exceeded a certain monetary threshold (generally $150,000), the new provisions apply to all contracts. Finally, and most importantly, in contrast to the existing rules, which afforded contracting officials discretion over whether to disqualify contractors for tax delinquencies, the Final Rule expressly prohibits contracting with tax delinquents except under very narrow circumstances.

Importantly, federal tax liabilities that are the subject of judicial or administrative challenge do not constitute delinquencies for the purposes of the Rule. Questions regarding how the Final Rule may affect a contractor’s or prospective contractor’s business can be directed to Barron Avery,, or William O’Reilly,, with the Government Contracts team, or to Jay Nanavati,, with the Tax Controversy and Litigation team.

Authorship credit: W. Barron A. Avery, William O’Reilly and Jay R. Nanavati

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