F.  Procedures for Determining Status as an Inverted Domestic Corporation

Background: FAR 9.108-3(b) of the interim rule stated that contracting officers "should rigorously examine circumstances known to them that would lead a reasonable business person to question the contractor self-certification, and after consultation with legal counsel, take appropriate action where questionable self-certification cannot be verified."

Further, the Federal Register preamble to the interim rule states that "the appropriation restriction applies to accountable Government officers, and if willfully and knowingly violated, may result in criminal penalties."

Comments: Two respondents commented on the procedures for the contracting officer to determine the validity of an offeror's representation regarding status as an inverted domestic corporation. These respondents have several concerns--that these procedures place undue burdens on contracting officers, that different contracting officers will reach inconsistent conclusions about a single offeror, and that the Federal Register preamble cites potential criminal penalties.

One respondent stated that the procedure is inefficient because it places the burden of determination on many contracting officers. The respondent stated that contracting officers are not in the best position to make the determination. Both respondents were concerned that many different contracting officers may reach multiple conclusions regarding a single contractor.

One respondent commented that it is an unusual step to identify potential criminal penalties for contracting officers to adequately review contractor's certifications." The other respondent stated that there is no basis for the threat of criminal penalties in the appropriations restrictions.

Response: The Councils concur with the comments on the first issue. The Councils have revised FAR 9.108-3(b) as follows:

"The contracting officer may rely on an offeror's representation that it is not an inverted domestic corporation unless the contracting officer has reason to question the representation."

This is a lesser standard than "rigorously examine," but the contracting officer should not ignore information that provides a valid reason to question (including the challenge of an interested party). The provisions of the Anti-Deficiency Act would not allow contracting officers to rely solely on a representation in the face of contradictory evidence. The representation is to prevent violating restrictions on expenditure of funds which would trigger the Anti-Deficiency Act. This approach is similar to the direction to contracting officers with regard to the representation offerors make regarding small business status.

The Councils note that the basis for mention of criminal penalties in the Federal Register preamble was because knowing and willful violation of the Anti-Deficiency Act (31 U.S.C. 1341) is a criminal offense (31 U.S.C. 1350) subject to criminal penalties. The Federal Register did not state that there would be criminal penalties for failure to "adequately review" the offeror's representation but only cited potential criminal penalties if the appropriations act restriction is "knowingly and willfully violated."