Washington policymakers are criticizing corporate “inversions”—i.e., U.S. companies that reincorporate abroad under lower corporate income tax rates—and contractors should take note.  Currently, U.S. law bars an inverted domestic corporation (“IDC”) from receiving funds under a prime U.S. contract.  See Consolidated Appropriations Act of 2014 (H.R. 3547); see also FAR 9.108-2.  On July 29, 2014, lawmakers proposed a bill—the No Federal Contracts for Corporate Deserters Act (“NFCCDA”)—that would expand this prohibition in at least two ways.  First, a company that reincorporates abroad will be considered an IDC if 50% of the shares of the new foreign company are held by the former shareholders of the domestic company (under current law, the threshold is 80%).  Second, any federal contract exceeding $10 million will be required to contain a provision that prohibits the prime contractor from “awarding a first-tier subcontract with a value greater than 10 percent of the total value of the prime contract” to an IDC.

Other anti-IDC legislation is in the works.  House appropriations bills have included amendments intended to prohibit federal contract awards to IDCs that are re-incorporated in Bermuda or the Cayman Islands.  The Senate version of the FY15 Defense spending bill has a similar provision.

If passed into law, the NFCCDA could have a significant impact on the contracting industry, particularly given the continuing uncertainty regarding subcontractor relationships under various federal programs (such as TRICARE and Federal Employees Health Benefit Plan).

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Photo of Jennifer Plitsch Jennifer Plitsch

Jennifer Plitsch is co-chair of the firm’s Government Contracts practice group. Her practice includes a wide range of contracting issues for large and small businesses in both defense and civilian contracting. Her practice involves advising clients on contract proposal, performance, and compliance questions…

Jennifer Plitsch is co-chair of the firm’s Government Contracts practice group. Her practice includes a wide range of contracting issues for large and small businesses in both defense and civilian contracting. Her practice involves advising clients on contract proposal, performance, and compliance questions as well as transactional and legislative issues. Her practice also includes bid protest and contract claims and appeals litigation before GAO, agency boards and the federal courts. Ms. Plitsch has particular expertise in advising clients in the pharmaceutical and biologics industry. She advises a range of pharmaceutical and biologics manufacturers on Federal Supply Schedule contracts, including the complex pricing requirements imposed on products under the Veterans Health Care Act, as well as research and development contracts and grants with various federal agencies. She also has significant experience advising on the requirements of various programs under which vaccine products and biodefense medical countermeasures are procured by the Government.

Photo of Michael Wagner Michael Wagner

Mike Wagner helps government contractors navigate high-stakes enforcement matters and complex regulatory regimes.

Combining deep regulatory knowledge with extensive investigations experience, Mr. Wagner works closely with contractors across a range of industries to achieve the efficient resolution of regulatory enforcement actions and government…

Mike Wagner helps government contractors navigate high-stakes enforcement matters and complex regulatory regimes.

Combining deep regulatory knowledge with extensive investigations experience, Mr. Wagner works closely with contractors across a range of industries to achieve the efficient resolution of regulatory enforcement actions and government investigations, including False Claims Act cases. He has particular expertise representing individuals and companies in suspension and debarment proceedings, and he has successfully resolved numerous such matters at both the agency and district court level. He also routinely conducts internal investigations of potential compliance issues and advises clients on voluntary and mandatory disclosures to federal agencies.

In his contract disputes and advisory work, Mr. Wagner helps government contractors resolve complex issues arising at all stages of the public procurement process. As lead counsel, he has successfully litigated disputes at the Armed Services Board of Contract Appeals, and he regularly assists contractors in preparing and pursuing contract claims. In his counseling practice, Mr. Wagner advises clients on best practices for managing a host of compliance obligations, including domestic sourcing requirements under the Buy American Act and Trade Agreements Act, safeguarding and reporting requirements under cybersecurity regulations, and pricing obligations under the GSA Schedules program. And he routinely assists contractors in navigating issues and disputes that arise during negotiations over teaming agreements and subcontracts.