Federal Acquisition Regulation; Prohibition on Contracting with Inverted Domestic Corporations, 74554-74557 [2014-29153]

Agencies

• DEPARTMENT OF DEFENSE
• General Services Administration
• National Aeronautics and Space Administration

[Federal Register Volume 79, Number 240 (Monday, December 15, 2014)]
[Rules and Regulations]
[Pages 74554-74557]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-29153]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 9 and 52

[FAC 2005-79; FAR Case 2014-017; Item II; Docket No. 2014-0017, 
Sequence No. 1]
RIN 9000-AM70


Federal Acquisition Regulation; Prohibition on Contracting with 
Inverted Domestic Corporations

AGENCY: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Interim rule.

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SUMMARY: DoD, GSA, and NASA are issuing an interim rule amending the 
provisions of the Federal Acquisition Regulation (FAR) that address the 
continuing Governmentwide statutory prohibition on the use of 
appropriated (or otherwise made available) funds for contracts with any 
foreign incorporated entity that is an inverted domestic corporation or 
any subsidiary of such entity.

DATES: Effective: December 15, 2014.
    Comment Date: Interested parties should submit written comments to 
the Regulatory Secretariat on or before February 13, 2015 to be 
considered in the formation of the final rule.

ADDRESSES: Submit comments identified by FAC 2005-79, FAR Case

[[Page 74555]]

2014-017, by any of the following methods:
     Regulations.gov: https://www.regulations.gov. Submit 
comments via the Federal eRulemaking portal by searching for ``FAR Case 
2014-017'' Select the link ``Comment Now'' that corresponds with ``FAR 
Case 2014-017''. Follow the instructions provided at the ``Comment 
Now'' screen. Please include your name, company name (if any), and 
``FAR Case 2014-017'' on your attached document.
     Fax: 202-501-4067.
     Mail: General Services Administration, Regulatory 
Secretariat (MVCB), ATTN: Ms. Flowers, 1800 F Street NW., 2nd floor, 
Washington, DC 20405.
    Instructions: Please submit comments only and cite FAC 2005-79, FAR 
Case 2014-017, in all correspondence related to this case. All comments 
received will be posted without change to https://www.regulations.gov, 
including any personal and/or business confidential information 
provided.

FOR FURTHER INFORMATION CONTACT: Mr. Michael O. Jackson, Procurement 
Analyst, at 202-208-4949 for clarification of content. For information 
pertaining to status or publication schedules, contact the Regulatory 
Secretariat at 202-501-4755. Please cite FAC 2005-79, FAR Case 2014-
017.

SUPPLEMENTARY INFORMATION:

I. Background

    This interim rule amends the provisions of the FAR that address the 
continuing Governmentwide statutory prohibition (in effect since Fiscal 
Year (FY) 2008) on the use of appropriated (or otherwise made 
available) funds for contracts with any foreign incorporated entity 
that is an inverted domestic corporation (under section 835 of the 
Homeland Security Act of 2002, codified at 6 U.S.C. 395) or to any 
subsidiary of such entity. By separate notice, DOD, GSA, and NASA are 
issuing a proposed rule (FAR Case 2015-006) that would require 
additional actions by contractors to assist contracting officers in 
ensuring compliance with the statutory prohibition. An inverted 
domestic corporation is a corporation that meets the criteria specified 
in 6 U.S.C. 395(b) and (c).
    In particular, this rule amends FAR 9.108 and the associated 
solicitation provisions and contract clauses, so that it more clearly 
reflects the ongoing, continuing nature of the statutory prohibition on 
contracting with inverted domestic corporations and their subsidiaries.
    Beginning with section 745 of Division D of the Consolidated 
Appropriations Act, 2008 (Pub. L. 110-161), and in all subsequent 
fiscal years, Congress in the annual appropriations acts and continuing 
resolutions (CRs) has imposed a continuous Governmentwide statutory 
prohibition against using appropriated funds to contract with either an 
inverted domestic corporation (as defined in section 835 of the 
Homeland Security Act of 2002, codified at 6 U.S.C. 395) or a 
subsidiary of an inverted domestic corporation.
     In FY 2009, the statutory prohibition was continued by the 
FY 2009 short-term CR (Pub. L. 110-329, as extended by Pub. L. 111-6), 
under the general terms of the CR, and by section 743 of Division D of 
the Omnibus Appropriations Act, 2009 (Pub. L. 111-8).
     In FY 2010, the statutory prohibition was continued by the 
FY 2010 short-term CR (Pub. L. 111-68, as extended by Pub. L. 111-88), 
under the general terms of the CR, and by section 740 of Division C of 
the Consolidated Appropriations Act, 2010 (Pub. L. 111-117).
     In FY 2011, the statutory prohibition was continued by the 
FY 2011 short-term CR (Pub. L. 111-242, as extended by Public Laws 111-
290, 111-317, 111-322, 112-4, 112-6, and 112-8) and full-year CR (Pub. 
L. 112-10), under the general terms of the CRs.
     In FY 2012, the statutory prohibition was continued by the 
FY 2012 short-term CR (Pub. L. 112-33, as extended by Public Laws 112-
36, 112-67, and 112-68), under the general terms of the CR, and by 
section 738 of Division C of the Consolidated Appropriations Act, 2012 
(Pub. L. 112-74).
     In FY 2013, the statutory prohibition was continued by the 
FY 2013 short-term CR (Pub. L. 112-175) and full-year CR (Pub. L. 113-
6), under the general terms of the CRs.
     In FY 2014, the statutory prohibition was continued by the 
FY 2014 short-term CR (Pub. L. 113-46), under the general terms of the 
CR, and by section 733 of Division E of the Consolidated Appropriations 
Act, 2014 (Pub. L. 113-76).
     In FY 2015, the statutory prohibition is currently being 
continued by the FY 2015 short-term CR (the Continuing Appropriations 
Resolution, 2015; Pub. L. 113-164), under the general terms of the CR.
    The prohibition on contracting with inverted domestic corporations 
is addressed at FAR 9.108. In the years since the Governmentwide 
prohibition was first enacted in FY 2008, the FAR Council has sought to 
update this FAR section to reflect the enactment of new appropriations 
acts. See FAR Case 2008-009 which was published as an interim rule in 
the Federal Register at 74 FR 31561 on July 1, 2009, and as a final 
rule at 76 FR 31410 on May 31, 2011, and FAR Case 2012-013 published as 
an interim rule at 77 FR 27547 on May 10, 2012, and as a final rule at 
78 FR 6185 on January 29, 2013.
    Insofar as Congress has retained the statutory prohibition in place 
since FY 2008, this interim rule amends FAR 9.108-2, 9.108-3, and 
9.108-5 to reflect the ongoing nature of the prohibition for as long as 
Congress extends the prohibition in its current form through subsequent 
appropriations action (in full-year appropriations acts and in short-
term and full-year CRs).
    This interim rule also makes several technical revisions to the 
coverage in FAR 9.108 to state more clearly when a corporation is 
covered by the prohibition. In particular, it eliminates unclear 
discussion and references in the definition of ``inverted domestic 
corporation''.
    In addition, the interim rule simplifies the coverage addressing 
exceptions. Specifically, the interim rule deletes a long listing of 
exceptions that accurately reflected exceptions set forth in the 
applicable appropriations acts, but had become increasingly difficult 
to understand with the passage of each appropriations act. Instead, the 
interim rule explains that each appropriations provision addressing the 
prohibition included an exception stating that the section shall not 
apply to any Federal Government contract entered into before the date 
of the enactment of the Act, or to any task order issued pursuant to 
such contract. Effectively, the prohibition does not extend to 
additional work that is performed under the contract if that additional 
work is funded by appropriations that are provided in a subsequent FY's 
appropriations. In light of this exception, contracting officers are 
instructed, as a precaution, to consult with legal counsel if a 
contractor becomes an inverted domestic corporation (or a subsidiary of 
one) during contract performance to ensure appropriate application of 
the prohibition.
    Finally, the interim rule makes conforming changes to solicitation 
provisions and contract FAR clauses at 52.204-8, 52.209-2, 52.209-10, 
52.213-3, and 52.212-5 so that offerors and contractors have clearer 
notice of the ongoing and continuing nature of the statutory 
prohibition on contracting

[[Page 74556]]

with inverted domestic corporations and their subsidiaries.

II. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is a significant regulatory action and, therefore, was subject to 
review under section 6(b) of E.O. 12866, Regulatory Planning and 
Review, dated September 30, 1993. This rule is not a major rule under 5 
U.S.C. 804.

III. Regulatory Flexibility Act

    DoD, GSA, and NASA do not expect this rule to have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., 
because this rule will only impact an offeror that is an inverted 
domestic corporation and wants to do business with the Government. It 
is expected that the number of small entities impacted by this rule 
will be minimal. Small business concerns are unlikely to have been 
incorporated in the United States (or, if a partnership, established in 
the United States) and then subsequently incorporated in a foreign 
country; the major participants in these transactions are reportedly 
large multinational corporations. No domestic entities will be impacted 
by this rule. For the definition of ``small business'', the Regulatory 
Flexibility Act refers to the Small Business Act, which in turn allows 
the U.S. Small Business Administration (SBA) Administrator to specify 
detailed definitions or standards (5 U.S.C. 601(3) and 15 U.S.C. 
632(a)). The SBA regulations at 13 CFR 121.105 discuss who is a small 
business: ``(a)(1) Except for small agricultural cooperatives, a 
business concern eligible for assistance from SBA as a small business 
is a business entity organized for profit, with a place of business 
located in the United States, and which operates primarily within the 
United States or which makes a significant contribution to the U.S. 
economy through payment of taxes or use of American products, materials 
or labor''. Therefore, an Initial Regulatory Flexibility Analysis has 
not been performed. DoD, GSA, and NASA invite comments from small 
business concerns and other interested parties on the expected impact 
of this rule on small entities.
    DoD, GSA, and NASA will also consider comments from small entities 
concerning the existing regulations in subparts affected by the rule in 
accordance with 5 U.S.C. 610. Interested parties must submit such 
comments separately and should cite 5 U.S.C. 610 (FAR Case 2014-017), 
in correspondence.

IV. Paperwork Reduction Act

    The rule does not contain any information collection requirements 
that require the approval of the Office of Management and Budget under 
the Paperwork Reduction Act (44 U.S.C. Chapter 35).

V. Determination To Issue an Interim Rule

    A determination has been made under the authority of the Secretary 
of Defense (DoD), the Administrator of General Services (GSA), and the 
Administrator of the National Aeronautics and Space Administration 
(NASA) that urgent and compelling reasons exist to promulgate this 
interim rule without prior opportunity for public comment. While the 
revisions in the interim rule do not change the scope or meaning of the 
statutory prohibition, they will help to better ensure agency 
compliance with the Continuing Appropriations Resolution, 2015 (Pub. L. 
113-164) (continuing the prohibition found in section 733 of Division E 
of the Consolidated Appropriations Act, 2014 (Pub. L. 113-76)). 
However, pursuant to 41 U.S.C. 1707 and FAR 1.501-3(b), DoD, GSA, and 
NASA will consider public comments received in response to this interim 
rule in the formation of the final rule.

List of Subjects in 48 CFR Parts 9 and 52

    Government procurement.

    Dated: December 5, 2014.
William Clark,
Acting Director, Office of Government-wide Acquisition Policy, Office 
of Acquisition Policy, Office of Government-wide Policy.
    Therefore, DoD, GSA, and NASA amend 48 CFR parts 9 and 52 as set 
forth below:

0
1. The authority citation for 48 CFR parts 9 and 52 continues to read 
as follows:

    Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 
U.S.C. 20113.

PART 9--CONTRACTOR QUALIFICATIONS

0
2. Amend section 9.108-1 by revising the definition ``Inverted domestic 
corporation'' to read as follows:


9.108-1   Definitions.

* * * * *
    Inverted domestic corporation means a foreign incorporated entity 
that meets the definition of an inverted domestic corporation under 6 
U.S.C. 395(b), applied in accordance with the rules and definitions of 
6 U.S.C. 395(c).
* * * * *

0
3. Revise section 9.108-2 to read as follows:


9.108-2   Prohibition.

    (a) Section 745 of Division D of the Consolidated Appropriations 
Act, 2008 (Pub. L. 110-161) and its successor provisions in subsequent 
appropriations acts (and as extended in continuing resolutions) 
prohibit, on a Governmentwide basis, the use of appropriated (or 
otherwise made available) funds for contracts with either an inverted 
domestic corporation, or a subsidiary of such a corporation, except as 
provided in paragraph (b) of this section and in 9.108-4 Waiver.
    (b)(1) Section 745 and its successor provisions include the 
following exception: This section shall not apply to any Federal 
Government contract entered into before the date of the enactment of 
this Act, or to any task order issued pursuant to such contract.
    (2) To ensure appropriate application of the prohibition and this 
exception, contracting officers should consult with legal counsel if, 
during the performance of a contract, a contractor becomes an inverted 
domestic corporation or a subsidiary of one.

0
4. Amend section 9.108-3 by revising paragraph (a) to read as follows:


9.108-3   Representation by the offeror.

    (a) In order to be eligible for contract award, an offeror must 
represent that it is neither an inverted domestic corporation, nor a 
subsidiary of an inverted domestic corporation. Any offeror that cannot 
so represent is ineligible for award of a contract, unless waived in 
accordance with the procedures at 9.108-4.
* * * * *

0
5. Amend section 9.108-5 by revising the introductory text to read as 
follows:


9.108-5   Solicitation provision and contract clause.

    The contracting officer shall--
* * * * *

[[Page 74557]]

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
6. Amend section 52.204-8 by revising the date of the provision and 
paragraph (c)(1)(v) to read as follows:


52.204-8   Annual Representations and Certifications.

* * * * *
Annual Representations and Certifications (Dec 2014)
* * * * *
    (c)(1) * * *
    (v) 52.209-2, Prohibition on Contracting with Inverted Domestic 
Corporations--Representation.
* * * * *

0
7. Amend section 52.209-2 by revising the date of the provision and 
paragraphs (a) and (b) to read as follows:


52.209-2   Prohibition on Contracting with Inverted Domestic 
Corporations--Representation.

* * * * *
Prohibition on Contracting With Inverted Domestic Corporations--
Representation (Dec 2014)
    (a) Definitions. Inverted domestic corporation and subsidiary have 
the meaning given in the clause of this contract entitled Prohibition 
on Contracting with Inverted Domestic Corporations (52.209-10).
    (b) Government agencies are not permitted to use appropriated (or 
otherwise made available) funds for contracts with either an inverted 
domestic corporation, or a subsidiary of an inverted domestic 
corporation, unless the exception at 9.108-2(b) applies or the 
requirement is waived in accordance with the procedures at 9.108-4.
* * * * *

0
8. Amend section 52.209-10 by revising the date of the clause and in 
paragraph (a), the definition ``Inverted domestic corporation'' to read 
as follows:


52.209-10   Prohibition on Contracting with Inverted Domestic 
Corporations.

* * * * *
Prohibition on Contracting With Inverted Domestic Corporations (Dec 
2014)
    (a) * * *
    Inverted domestic corporation means a foreign incorporated entity 
that meets the definition of an inverted domestic corporation under 6 
U.S.C. 395(b), applied in accordance with the rules and definitions of 
6 U.S.C. 395(c).
* * * * *

0
9. Amend section 52.212-3 by revising the date of the provision; in 
paragraph (a), the definition ``Inverted domestic corporation'' and 
paragraph (n)(1) to read as follows:


52.212-3   Offeror Representations and Certifications--Commercial 
Items.

* * * * *
Offeror Representations and Certifications--Commercial Items (Dec 2014)
    (a) * * *
* * * * *
    Inverted domestic corporation means a foreign incorporated entity 
that meets the definition of an inverted domestic corporation under 6 
U.S.C. 395(b), applied in accordance with the rules and definitions of 
6 U.S.C. 395(c).
* * * * *
    (n) Prohibition on Contracting with Inverted Domestic Corporations. 
(1) Government agencies are not permitted to use appropriated (or 
otherwise made available) funds for contracts with either an inverted 
domestic corporation, or a subsidiary of an inverted domestic 
corporation, unless the exception at 9.108-2(b) applies or the 
requirement is waived in accordance with the procedures at 9.108-4.
* * * * *

0
10. Amend section 52.212-5 by--
0
a. Revising the date of the clause;
0
b. Redesignating paragraphs (a)(1) through (3) as paragraphs (a)(2) 
through (4), respectively;
0
c. Adding a new paragraph (a)(1); and
0
d. Removing and reserving paragraph (b)(10).
    The revision and addition read as follows:


52.212-5   Contract Terms and Conditions Required To Implement Statutes 
or Executive Orders--Commercial Items.

* * * * *
Contract Terms and Conditions Required To Implement Statutes or 
Executive Orders--Commercial Items (Dec 2014)
    (a) * * *
    (1) 52.209-10, Prohibition on Contracting with Inverted Domestic 
Corporations (Dec 2014)
* * * * *
[FR Doc. 2014-29153 Filed 12-12-14; 8:45 am]
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