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FAR 9.108:  Prohibition on Contracting with Inverted Domestic Corporations

Comptroller General - Key Excerpts

Next, Inchcape asserts that MLS is an inverted domestic corporation and, therefore, the agency was barred from making award to the firm. Protest at 13-17; Comments at 2, 6‑16; Supp. Comments at 2, 6-12. As stated above, FAR § 9.108-2, together with section 733(a) of the Consolidated Appropriations Act, 2014 (Pub. L. No. 113-76), establishes a prohibition against the award of a federal contract to an inverted domestic corporation. As also stated above, MLS’s proposal included a letter certifying that the firm was not an inverted domestic corporation. AR, Tab 10, MLS Certifications and Representations, at 9. The contracting officer states that he relied on this certification in his affirmative responsibility determination for MLS. AR, Tab 21, Contracting Officer’s Supp. Statement, ¶ 6.

As noted above, the solicitation advised that an offeror’s inverted domestic corporation status would be evaluated as a matter of responsibility. RFP at 95. Our Bid Protest Regulations provide that our Office will not review challenges to an agency’s affirmative responsibility determination except when the protest alleges that definitive responsibility criteria have not been met (not the case here) or identifies “evidence raising serious concerns that, in reaching a particular responsibility determination, the contracting officer unreasonably failed to consider available relevant information or otherwise violated statute or regulation.” 4 C.F.R. § 21.5(c) (2014).

Inchcape contends that the contracting officer’s determination was flawed because FAR § 9.108-3(b) provides that a “contracting officer may rely on an offeror’s representation that it is not an inverted domestic corporation unless the contracting officer has reason to question the representation.” Comments at 9-10 (quoting FAR § 9.108-3(b) (emphasis added)). Inchcape argues that here, the contracting officer had reason to question MLS’s representation--and therefore could not rely on it--because Inchcape raised this issue in prior protests before our Office. Id. at 10.

The agency acknowledges that prior to award, the contracting officer was aware of Inchcape’s prior allegations that MLS is an inverted domestic corporation. See AR, Tab 21, Contracting Officer’s Supp. Statement, ¶ 3; Agency E-Mail to GAO (Apr. 11, 2014) at 2. In this regard, the agency explains that prior to award, the cognizant deputy director of contracts as well as an attorney from the cognizant office of counsel informed the contracting officer of Inchcape’s prior allegations and advised him that in this procurement he could rely on MLS’s representation. AR, Tab 21, Contracting Officer’s Supp. Statement, ¶¶ 3, 5; AR, Tab 22, Agency Counsel’s Statement, at 1; AR, Tab 23, Deputy Director of Contracts’ Statement ¶ 4; Agency E-Mail to GAO (Apr. 11, 2014) at 2. The basis for this course of action, the agency explains, was as follows.

In a protest filed with our Office in 2009, Inchcape asserted that MLS was an inverted domestic corporation. Agency Ltr. to GAO (Apr. 3, 2014) at 1. This allegation led the agency’s office of counsel to analyze the issue. Id.; AR, Tab 20, Agency Legal Memorandum (July 28, 2010). The office of counsel’s analysis culminated in a detailed legal memorandum dated July 28, 2010 that set forth factual and legal bases for the conclusion that MLS was not an inverted domestic corporation. AR, Tab 20, Agency Legal Memorandum (July 28, 2010), at 2-4. The aforementioned deputy director of contracts and attorney were aware of these events. AR, Tab 22, Agency Counsel’s Statement, at 1; AR, Tab 23, Deputy Director of Contracts’ Statement, ¶¶ 3-5. The deputy director of contracts also was aware that Inchcape had raised the issue on numerous other occasions, but had “never demonstrated MLS to be an inverted domestic corporation.” AR, Tab 23, Deputy Director of Contracts’ Statement, ¶ 4. Accordingly, the deputy director of contracts and counsel believed that the issue had been vetted and resolved through the appropriate agency channels, and they therefore advised the contracting officer that in this procurement he could rely on MLS’s representation. See AR, Tab 22, Agency Counsel’s Statement, at 1.

Based on the circumstances here, we see no basis to question the contracting officer’s acceptance of MLS’s representation that the firm is not an inverted domestic corporation. The record shows that although the contracting officer was aware of Inchcape’s prior allegations, he nevertheless relied on MLS’s representation because the agency already had analyzed the issue and determined that MLS was not an inverted domestic corporation. The record also shows that the agency’s analysis of the issue considered relevant and detailed information regarding MLS’s corporate history, structure, and ownership interests, as well as whether there was a basis to find that each of the three mandatory inverted domestic corporation elements set forth in 6 U.S.C. § 395(b) had been met. AR, Tab 20, Agency Legal Memorandum (July 28, 2010), at 2-4. The agency found that none of the elements were met. Id.

Inchcape disagrees with the agency’s findings, characterizing the analysis as “flawed, incomplete, outdated, and insufficient.” Inchcape Ltr. to GAO (Apr. 15, 2014) at 3, 12-18. However, based on Inchcape’s arguments and the record, we cannot conclude that the agency’s analysis was unreasonable. Further, to the extent that Inchcape believed, prior to filing this protest, that the contracting officer should have considered information or arguments that were not raised in its 2009 protest, Inchcape could have--but did not--inform the contracting officer prior to award. In fact, even during this protest Inchcape has not provided any substantive new evidence regarding the issue. Instead, Inchcape simply disagrees with the agency’s conclusions. In sum, we see no information in the record--other than Inchcape’s prior protest allegations, which the agency analyzed and found to be without merit--that would have provided the contracting officer with a reasonable basis to question MLS’s representation. Accordingly, this basis of protest is denied.  (Inchcape Shipping Services (Dubai) LLC, B-409465, B-409465.2: May 12, 2014)  (pdf)

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For the Government For the Protester
Inchcape Shipping Services (Dubai) LLC, B-409465, B-409465.2: May 12, 2014  (pdf)  
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