Continuation of Prohibition Against DOD Contracting with Companies with Unpaid Delinquent Tax Liability or a Federal Felony Conviction

On January 22, 2013, the Director of Defense Procurement and Acquisition Policy ("DPAP") issued Class Deviation 2013-O0006, which continues the 2012 prohibition against the Department of Defense ("DOD") contracting with corporations that have unpaid delinquent tax liability or a felony conviction. The new class deviation applies to all contracts that are to be funded by fiscal year 2013 general appropriations for the DOD, including commercial items contracts and all contracts utilizing fiscal year 2013 military construction funds.

Effective immediately, the DOD cannot contract with a corporation if the DOD is aware that the corporation: (i) has unpaid delinquent federal tax liability, for which all judicial and administrative remedies have been exhausted or have lapsed; or (ii) was convicted of a federal felony criminal violation within the preceding 24 months. Similarly, military construction funds cannot be used to enter into a contract with a corporation that was convicted of a federal felony criminal violation within 24 months. The exception to this rule allows the DOD to contract with corporations subject to the prohibition only if the agency has considered suspension or debarment of the corporation and has determined that further action is not necessary. All offerors will be required to disclose any unpaid federal tax liabilities, or any federal felony criminal violations within the past two years, even if the felony charge is unrelated to the DOD or federal procurement activities.

Potential DOD contractors must consider the implications of this prohibition in negotiating or arriving at any settlement or plea agreement, including a no contest plea, in response to any federal felony criminal charge. Contractors also must ensure that they fully disclose the existence any felony convictions or guilty or no contest pleas within the past two years and any delinquent tax debts when submitting proposals for fiscal year 2013 DOD contracts, as failure to disclose such information could result in additional liability.

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Peter F. Garvin III

Grant H. Willis

Kendall A. Lucas

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