G.  Flowdown

Comments: Two respondents commented on the question of whether the prohibition against contracting with an inverted domestic corporation should be flowed down to subcontractors. The interim rule did not require flowdown and requested comments on the issue. One respondent commented that silence puts a prime contractor at risk of cost disallowances if a subcontractor is subsequently found to be an inverted domestic corporation, i.e., the Government might disallow subcontractors' expenditures of restricted fiscal years' monies.

On the other hand, a second respondent made a strong case that Congress would have specifically asked for flowdown in the statute if it wanted the requirement to apply to subcontractors. The absence of any mention of subcontractors in the statute, according to the respondent, means that Congress did not want the prohibition to apply to subcontractors.

Response: Given the plain wording of the statute and the comments received on this subject, the Councils have determined that it is not appropriate to include a flow down requirement in this rule.