The pool of potential competitors for federal contracts may have just gotten a little bit smaller. On February 21, 2014, the Undersecretary of Defense for Acquisition, Technology and Logistics issued a memorandum to all Department of Defense (“DOD”) contracting agencies and officers instructing that, effective immediately and with limited exceptions, no funds made available under DOD’s 2014 appropriations acts may be used for contracting with a corporation delinquent on its taxes or recently convicted of felony. The DOD memo reflects express prohibitions on the use of federal funds peppered throughout the Consolidated Appropriations Act for 2014. Thus, it is only a matter of time before civilian agencies follow suit in implementing similar prohibitions.

The DOD memo effectuates a class deviation to the Defense Federal Acquisition Regulation Supplement (“DFARS”) that will remain in effect until incorporated in the DFARS or the Federal Acquisition Regulation, or otherwise rescinded. The deviation, which is codified as a new DFARS provision required in all affected solicitations (DFARS 252.209-7993), prohibits any DOD agency from spending 2014 funds on a contract with any corporation that: (1) has assessed an enforceable federal tax liability that the corporation is not paying in a timely manner; or (2) was convicted of a felony under any federal law within the preceding 24 months. A DOD agency is not required to enforce the prohibition if it has considered suspending or debarring the corporation, and made a determination that such action is “not necessary to protect the Government’s interests.” To assist DOD agencies in making the necessary considerations, DFARS 252.209-7993 requires a corporation submitting a proposal to a DOD agency to provide affirmative representations regarding its tax and felony liability.

The fact that the government would rather not do business with corporations that have failed to pay their taxes or comply with federal criminal law should come as no surprise. Indeed, the prohibitions at the root of this policy have appeared in previous years’ appropriations bills. But the affirmative representation requirement that comes with these prohibitions makes them worthy of special attention. A contactor that misrepresents its tax or felony liability to a contracting agency at the very least risks (criminal) penalty under the False Statements Accountability Act. This and other potential consequences should keep contractors on notice of the certification requirements in the contracts they seek, as well as the ones they have. Even a mistaken misrepresentation can have dire consequences – including making the pool of potential competitors even smaller (but not in the way one would want).