80 FR 38309 - Federal Acquisition Regulation; Prohibition on Contracting With Inverted Domestic Corporations

DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

Federal Register Volume 80, Issue 127 (July 2, 2015)

DoD, GSA, and NASA have adopted as final, without change, an interim rule amending the Federal Acquisition Regulation (FAR) to 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.

[Federal Register Volume 80, Number 127 (Thursday, July 2, 2015)]
[Rules and Regulations]
[Pages 38309-38310]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-16215]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 9 and 52

[FAC 2005-83; FAR Case 2014-017; Item V; 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: Final rule.

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SUMMARY: DoD, GSA, and NASA have adopted as final, without change, an 
interim rule amending the Federal Acquisition Regulation (FAR) to 
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: July 2, 2015.

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 2005-83, FAR Case 2014-
017.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD, GSA, and NASA published an interim rule in the Federal 
Register at 79 FR 74554 on December 15, 2014, to address the continuing 
Governmentwide statutory prohibition (in effect through annual 
appropriations acts since Fiscal Year 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. One respondent submitted 
comments in response to the interim rule.

II. Discussion and Analysis

    The Civilian Agency Acquisition Council and the Defense Acquisition 
Regulations Council (the Councils) reviewed the public comments in the 
development of the final rule.

A. Summary of Significant Changes

    There were no changes made to the rule as a result of the comments 
received. There were no comments on the Regulatory Flexibility Act.

B. Analysis of Comments

    A discussion of the comments follows:
1. Deletion of References to the Specific Fiscal Years
    Comment: The respondent does not favor the deletion of references 
to the specific fiscal years covered in several subsections of FAR 
9.108. The respondent states that the interim rule obscures the fact 
that the restrictions on contracting with inverted domestic 
corporations are fiscal year specific, and that those restrictions may 
or may not be enacted in future years. The respondent states that the 
interim rule now provides only a general description of the common 
exception language. The respondent recommends--

[[Page 38310]]

    [cir] Specifically listing the covered fiscal years in the 
prohibition at FAR 9.108-2(a), the requirement for representation at 
9.108-3, and the solicitation provision and contract clause 
prescriptions at 9.108-5; and
    [cir] A separate listing at FAR 9.108-2(b) for the statutory 
exception for each fiscal year, e.g., for fiscal year 2008 ``This 
prohibition does not apply when using Fiscal Year 2008 funds for any 
contract entered into before December 26, 2007, or for any order issued 
pursuant to such contract.'' (This exception was then repeated for each 
fiscal year, inserting the date of enactment of the act).
    Response: Insofar as Congress has retained the Governmentwide 
statutory prohibition in place since Fiscal Year 2008, this interim 
rule amended 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).
    [cir] Because this prohibition is enacted in annual appropriations 
acts, the prior format of the regulation (listing all fiscal years) 
required annual update of the FAR to keep adding new fiscal years. Due 
to the required rulemaking process, this necessitated a substantial lag 
between enactment of the annual appropriations act and incorporation of 
the current fiscal year in the regulations. With the new approach in 
the interim rule, the FAR will only require revision if the 
requirements of the new appropriations act change. The prohibition at 
FAR 9.108-2 does make clear that the prohibition arises from 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). The Councils review the 
new appropriations act every year, and will take action to change the 
FAR if there is a change in the prohibition.
    [cir] The interim rule provides an exact repetition of the common 
statutory exception language. Since the exception in each 
appropriations act is the same, the interim rule states the exception 
once: i.e., ``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 enactment of this 
Act, or to any task order issued pursuant to such contract.'' Listing 
of each fiscal year exception separately was becoming repetitive and 
cumbersome. Whether the exception is listed separately for each fiscal 
year, or is just stated once, seeking legal counsel is recommended if a 
contractor, during contract performance, becomes an inverted domestic 
corporation or a subsidiary of one.
2. Recommended Minimum Change
    Comment: The respondent recommended, at a minimum, that language 
should be added at FAR 9.108-3 and 9.108-5 to limit applicability to 
``fiscal periods for which Congress has enacted the prohibition 
described in Section 9.108-2(a) above'' and ``When using appropriated 
funds from fiscal years for which Congress has enacted the prohibition 
described in section 9.108-2(a) above,'' respectively. Although this 
approach resolves the issue of requiring annual updates to the 
regulations, it imposes a burden on the many thousands of contracting 
officers to determine for which fiscal periods Congress has enacted the 
prohibitions.
    Response: The Councils have determined that this prohibition has 
been continuously applicable since FY 2008. As listed in the Federal 
Register, this required a review of 25 statutes. Not many FAR users 
will know which funds are tied to this restriction without further 
research. A contracting officer would not know whether to include the 
solicitation provision and contract clause without researching the 
appropriations act that appropriated the funds being used. It is more 
efficient for the Councils to make that determination, and ensure that 
the regulations appropriately reflect the requirement, without 
necessitating research by every contracting officer in the Federal 
Government.

III. 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 not a significant regulatory action and, therefore, was not 
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.

IV. Regulatory Flexibility Act

    DoD, GSA, and NASA certify that this rule will not 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 or a subsidiary of an inverted domestic 
corporation and wants to do business with the Government. 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. 
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''.

V. 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).

List of Subjects in 48 CFR Parts 9 and 52

    Government procurement.

    Dated: June 18, 2015.
William Clark,
Director, Office of Government-wide Acquisition Policy, Office of 
Acquisition Policy, Office of Government-wide Policy.

Interim Rule Adopted as Final Without Change

    Accordingly, the interim rule amending 48 CFR parts 9 and 52, which 
was published in the Federal Register at 79 FR 74554 on December 15, 
2014, is adopted as a final rule without change.

[FR Doc. 2015-16215 Filed 7-1-15; 8:45 am]
 BILLING CODE 6820-EP-P