For most Americans, tax season is happily behind them and Memorial Day festivities signaled the start of summer. A recent GAO report, however, may give cause for some federal contractors to revisit their tax policies before lighting up the grill next weekend.
Contracting Officers are required to take in a wealth of information prior to awarding a contract. One piece of information each contracting officer is supposed to review is the tax status of offerors. If an offeror is delinquent in paying taxes, the contracting officer has several subsequent review steps to take. But contracting officers do not not always conduct this review, so Congress asked GAO to review the impact of these missing steps.
In the report, GAO reviewed the actions of five agencies (Army, Navy, DOE, HHS, and VA) to determine their consideration of a contractor’s federal tax debts before awarding contracts. You read that right: in addition to focusing on teaming agreements, CPARS, and your next deliverable, you also need to make sure you are current on your tax payments or risk losing out on a contract or even worse penalties. In fact, the report says that “[a]s part of the responsibility determination, the contracting officer must also access, review, and document the prospective contractor’s applicable representations and certifications, including qualifying federal tax debt reported under § 52.209-11 and § 52.209-5.”
FAR 52.209-5 and 52.209-11 contain the various certifications all offerors must make regarding their responsibility to perform a contract. Under FAR 52.209-5, non-corporate offerors certify whether they have “been notified of any delinquent Federal taxes in an amount that exceeds $3,500.” Under FAR 52.209-11, corporations cannot have any delinquent taxes unless a series of additional elements are present, which we will not analyze here. FAR 9.406-2(b)(1)(v) allows a debarring official to debar contractors who have “delinquent Federal taxes in an amount that exceeds $3,500.”
Returning to the GAO Report, each of the agencies “examined have established control activities to varying degrees to help contracting officers” identify offerors with delinquent taxes. The Army, Navy, DOE, HHS, and VA each have class deviations that “generally required contracting officers to include an alternative provision in solicitations and, if a contractor reported having qualifying tax debt, to not award the contract without a written suspension and debarment determination from” the agency’s Suspension and Debarment Official (SDO). The contracting officers may make an award if the SDO determined that “suspension or debarment is not necessary to protect the interests of the government[.]”
Even with this procedure, and others, in place GAO found that the Army, Navy, DOE, HHS, and VA cumulatively “awarded 1,849 contracts to contractors that reported qualifying federal tax debts[.]” While the report did not analyze the dollar value associated with these 1,849 contracts, it did find that over 4,600 federal contractors “had unpaid taxes at the time they received a contract award in 2015 and 2016.” These 4,600 “contractors received about $17 billion in contract awards and owed $1.8 billion in unpaid taxes[.]”
When the GAO discussed the 1,849 contracts with the five agencies at issue, the agencies “were unable to explain whether or why their control activities did not operate effectively to ensure compliance” with laws and regulations. These agencies told GAO, “in response to [GAO’s] review, they plan to take actions to improve control activities to identify contractors’ federal tax debts” under the applicable regulations.
GAO’s recommendations were for each of the identified agencies to “review the contracts [GAO] identified.” While the recommendations do not call for a system-wide review, this report will likely bring a focus on identifying delinquent taxpayers and precluding them from potential awards.
Now that the three-day weekend is behind us all, it may be wise to make sure your firm is compliant with the applicable FAR tax provisions first thing. Because based on this report, federal agencies are also putting tax compliance on the front burner.