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Fara Fasat

Contractor definition

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Is there a definition of "contractor" anywhere in the FAR? Specifically, does it refer to an entire corporation, a corporation plus all subsidiaries and affiliates, or just the business unit or segment performing the contract? The term is probably used thousands of times, yet sometimes it's not clear which would be the appropriate scope of the term.

Take GE for example. GE has a business unit that makes military aircraft engines. GE also owns NBC. Does "contractor" refer to all of the GE corporate family, including NBC?

This came up in the discussion of a new DoD rule that says a contractor cannot pay compensation to certain former DoD employees for 2 years after their service. The rule is implemented in a new clause. If the GE engines division gets a new contract with the clause, does the restriction now apply across all of GE, including NBC?

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The definition of contractor in the FAR is offered more than once, and generally in specific context to the policy area covered in that part of the FAR.

One could interpret these examples to imply a generally inclusive definition of what is a contractor, unless specific exceptions can be cited from statute, case law, and the like. It may not be suitable to state in regulation a single harmonious, universal definition of contractor since there can be many different contexts in which its rules may apply, or exceptions thereof.

FAR 9.403

?Contractor? means any individual or other legal entity that?

(1) Directly or indirectly (e.g., through an affiliate),

submits offers for or is awarded, or reasonably may be

expected to submit offers for or be awarded, a Government

contract, including a contract for carriage under Government

or commercial bills of lading, or a subcontract under a Government

contract; or

(2) Conducts business, or reasonably may be expected

to conduct business, with the Government as an agent or representative

of another contractor.

FAR 3.502-1

?Prime Contractor? means a person who has entered into a prime contract with the United States.

FAR 22.801

?Prime contractor? means any person who holds, or has held, a Government contract subject to E.O. 11246.

FAR 44.101

?Contractor? means the total contractor organization or a separate entity of it, such as an affiliate, division, or plant, that performs its own purchasing.

I do not have a reply to your GE example, but there could be many context-specific, regulatory and policy considerations for reaching the proper conclusion whether that corporate unit is a contractor. As you've stated, it's not clear until you examined which ones may apply to your situation(s).

HTH

"Klaatu, mind your manners. 'Gort Veringa, please!'"

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The definition of contractor in the FAR is offered more than once, and generally in specific context to the policy area covered in that part of the FAR.

One could interpret these examples to imply a generally inclusive definition of what is a contractor, unless specific exceptions can be cited from statute, case law, and the like. It may not be suitable to state in regulation a single harmonious, universal definition of contractor since there can be many different contexts in which its rules may apply, or exceptions thereof.

FAR 9.403

?Contractor? means any individual or other legal entity that?

(1) Directly or indirectly (e.g., through an affiliate),

submits offers for or is awarded, or reasonably may be

expected to submit offers for or be awarded, a Government

contract, including a contract for carriage under Government

or commercial bills of lading, or a subcontract under a Government

contract; or

(2) Conducts business, or reasonably may be expected

to conduct business, with the Government as an agent or representative

of another contractor.

FAR 3.502-1

?Prime Contractor? means a person who has entered into a prime contract with the United States.

FAR 22.801

?Prime contractor? means any person who holds, or has held, a Government contract subject to E.O. 11246.

FAR 44.101

?Contractor? means the total contractor organization or a separate entity of it, such as an affiliate, division, or plant, that performs its own purchasing.

I do not have a reply to your GE example, but there could be many context-specific, regulatory and policy considerations for reaching the proper conclusion whether that corporate unit is a contractor. As you've stated, it's not clear until you first examine which ones may apply to your situation(s).

HTH

Sorry, I meant to just corrct a typo on my first reply and ended with a completely separate reply. My apologies.

"Klaatu, mind your manners. 'Gort Veringa, please!'"

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Guest carl r culham

Fara Fasat - Have you followed the history of the clause to the specific statute on which it is based.? Doing so may link you to a definition. Also just guessing at this point but with your mention of DoD have you researched the DFARS for a definition of contractor in the part which requires the clause to be inserted into a contract? Finally from the view of the forum knowing the specific clause number may help in getting further response to your question.

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It may help if I break this down into two ways that the word "contractor" seems to be used. First, it is used when addressing contractor performance, as in "the contractor shall...." There is no definitional problem here, because it is clear that it refers to the performing entity. In fact, who cares whether GE owns NBC when the contract is for engines.

However the second use presents the problem I raised above. It addresses issues outside of contract performance, such as status, activities, or programs. For example, most of the reps and certs ask the "contractor" to certify that it has something, or hasn't done something, e.g. has submitted an EO report; is not debarred; hasn't paid lobbyists; has an affirmative action program, etc. The example I gave above is also non-performance related (contractor shall not hire certain ex-DoD employees).

Furthermore, a large corporation will have several DUNS numbers, one for each organizational subunit such as branches or divisions. Each of these may also have a unique CAGE code. In addition, wholly-owned subsidiaries will not only have their own DUNS numbers, but wil have a separate taxpayer identification number as well. At least for administrative purposes, the government seems to treat subsidiaries and subunits as unique entities.

So again, what is "the contractor" for this second type of use? When you fill your reps and serts, do you include all subsidiaries? Does a subsidiary answer as if it was the parent? Can NBC hire ex-DoD officials when it gets an engine contract with that clause in it? When a subsidiary gets a contract with that clause, does the bar apply to the parent as well?

By the way, those definitions provided by Gort are preceded with "as used in this subpart," so they do not apply across the FAR.

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So again, what is "the contractor" for this second type of use? When you fill your reps and serts, do you include all subsidiaries? Does a subsidiary answer as if it was the parent? Can NBC hire ex-DoD officials when it gets an engine contract with that clause in it? When a subsidiary gets a contract with that clause, does the bar apply to the parent as well?

Fara:

You have asked a great question: What does contractor mean? It means the company whose name is on the contract. But what you are really asking is whether and to what extent parent companies are bound by and liable for the contractual obligations of their subsidiaries. The answer is: It depends. Generally, the "corporate veil" would protect the parent from breaches by its subsidiary. But there are times when an injured party will try to "pierce" the corporate veil and reach out for the parent. In the case of the rule that you are asking about, which is found in Public Law 110-181 Section 847, implemented by DFARS 203.171, the issue is whether the parent company is bound by the subsidiary's promise not to hire certain DOD senior officials within two years after he or she leaves office. I don't know. Neither the statute nor DFARS defines contractor for the purposes of this rule. I presume that Congress was referring to the company whose name is on the contract, not its parent.

Generally, it is not easy to pierce the corporate veil, but it has been done. There has been quite a lot written about the question. A recent article in the December 2008 issue of Tulane Law Review discusses the question in terms of the Foreign Corrupt Practices Act. See Lestelle, The Foreign Corrupt Practices Act, International Norms of Foreign Public Bribery, and Extraterritorial Jurisdiction, 83 TLNLR 527, in which the author says:

[C]orporate law theories of limited liability suggest that prosecutors could "pierce the corporate veil" and implicate the shareholders of a corporation in cases where the corporation is merely a shell for making illicit payments. In such cases, instead of premising jurisdiction on the corporation's relationship with the United States, it may be possible to premise jurisdiction on the territorial allegiance of inculpated shareholders. If the corporation is a subsidiary, veil piercing could implicate the parent corporation, and prosecutors could base jurisdiction on the parent corporation's affiliation. Although unclear from the statute, legislative history and case law indicate that foreign subsidiaries of U.S. companies who do not act as agents of their parent corporation and who act on their own behalf are excluded from the FCPA. However, a parent company with allegiance to the United States may be implicated if the parent has the requisite state of mind prescribed by the FCPA: that of "knowledge" of the corrupt purposes of the payment.

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For a good discussion of piercing the corporate veil in matters of breach of contract when the contractor has an alien (foreign) parent, see Schwartz, Piercing the Corporate Veil of an Alien Parent for Jurisdictional Purposes: A Proposal for a Standard that Comports with Due Process, in the June 2008 edition of the California Law Review, 96 CALR 731. The author says:

Veil-piercing in general is an exception to the overarching presumption of limited shareholder liability, one of the key attributes of the corporate form. Corporate law is founded on the principle that corporations are legal entities distinct from their shareholders...

The same presumption of limited liability is also at the heart of parent-subsidiary relationships...

Yet in limited circumstances, sufficient grounds exist to pierce the corporate veil for jurisdictional purposes. In these cases, courts will disregard corporate separation and assert personal jurisdiction over a parent corporation in litigation arising out of the actions of its subsidiary...

An articulation of a jurisdictional veil-piercing test is set forth in Hoffman v. United Telecommunications, Inc. The district court in Kansas laid out a typical three-factor test:

"First, the court must search for factors which establish whether or not any relationship exists between the affiliated corporate parties. Second, the court must search for factors which establish direction or control from the forum, and, third, the court must look for factors which establish a flow of benefits or funds to and fromn the forum such that the defendant may be said to have purposefully availed itself of the benefits and protections of the forum. If a court applying this test finds that the factors point to a lack of separation between the subsidiary and parent's actions in the forum, the court will pierce the corporate veil... .

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For want of any better guidance in the FAR, that may be a good rule of thumb -- the "contractor" is the entity whose name is on the contract. Sounds obvious, but if you follow it strictly you would treat wholly-owned subsidiaries ("WOS") and parents as separate entities. This may not a big deal for the parent but it might be for the WOS. For example, if a WOS submitted reps and certs, it would answer with respect to only itself, not its parent. Similarly, if a WOS was awarded a contract with the DoD-hiring restriction mentioned above, the parent would not be restricted.

I would also note that there are some sections of the FAR that specifically combine parents and subsidiaries. Size status, for example, includes all affiliates, which includes WOSs. I believe the scope of a debarment also includes all affiliates.

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For want of any better guidance in the FAR, that may be a good rule of thumb -- the "contractor" is the entity whose name is on the contract. Sounds obvious, but if you follow it strictly you would treat wholly-owned subsidiaries ("WOS") and parents as separate entities. This may not a big deal for the parent but it might be for the WOS. For example, if a WOS submitted reps and certs, it would answer with respect to only itself, not its parent. Similarly, if a WOS was awarded a contract with the DoD-hiring restriction mentioned above, the parent would not be restricted.

I would also note that there are some sections of the FAR that specifically combine parents and subsidiaries. Size status, for example, includes all affiliates, which includes WOSs. I believe the scope of a debarment also includes all affiliates.

You have lost me. I don't understand what point you are trying to make. An affiliate is included in a debarment only if specifically named by the debarring official. See FAR 9.406-1(B).

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Didn't have the FAR handy at the time. I thought I remembered the part 9 definition of contractor to include affiliates.

However, that definition does bring up another interesting question. It includes in the definition of a contractor a legal entity that is awarded a contract indirectly, e.g. through an affiliate. How does one entity obtain a contract through another, and which entity's name goes on the contract? Since we've just agreed that the contractor is the entity whose name is on the contract, which one is officially "the contractor" for purposes of reps and certs, employment restrictions, etc?

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Fara Fasat - Have you followed the history of the clause to the specific statute on which it is based.? Doing so may link you to a definition. Also just guessing at this point but with your mention of DoD have you researched the DFARS for a definition of contractor in the part which requires the clause to be inserted into a contract? Finally from the view of the forum knowing the specific clause number may help in getting further response to your question.

Carl,

It sure sounds like we're talking about DFARS 252.203-7000, Requirements Relating to Compensation of Former DoD Officials.

There is no definition of "contractor" in DFARS Part 203.

Both DFARS 203.171 and 252.203-7000 are the result of DoD's implementation of Sec. 847 of the National Defense Authorization Act for FY2008, Pub. L. 110-181.

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Apparently the GAO reads Wifcon.

In Computer Cite, B-400830 (Feb 3, 2009), the GAO held that only a wholy-owned subsidiary must register in CCR in order to obtain a contract, not the parent. The GAO satated that the registration requirements pertain to "the offeror itself" which implicitly answers what "the contractor" is. That should answer what the entity is for purposes of filling out reps and certs as well, and I would use the same logic to conclude that when the subsidiary obtains a contract with DFARS 252.203-7000 in it, the hiring restriction would apply only to the subsidiary and not flow up to the parent.

It doesn't necessarily answer whether the parent company must include all subsidiaries in its reps and certs, or whether a parent contract with DFARS 252.203-7000 in it would restrict subsidiaries as well. Based on the above I would argue that they are separate entities and that requirements would not flow down just as they don't flow up.

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