The DoD, GSA, and NASA have issued a proposed rule that, if adopted, would greatly increase visibility into affiliate relationships among entities that hold federal contracts.  Under the proposed rule, the Federal Awardee Performance and Integrity Information System (“FAPIIS”) would be required to include information identifying any immediate owner or subsidiary of an offeror, as well as all predecessors of an offeror that within the last three years held a federal contract or grant. 

The proposed rule is designed to implement Section 852 of the 2013 National Defense Authorization Act (“NDAA”), which called for the inclusion of affiliate and predecessor information in FAPIIS in order to “give the acquisition officials using the database a comprehensive understanding of the performance and integrity of the corporation in carrying out Federal contracts and grants.”  See 41 U.S.C. § 2313(d)(3).  By requiring the identification of direct owners and subsidiaries, and all predecessors who have held contracts in the past three years, the proposed rule aims to provide source selection officials with a more complete picture of an awardee’s performance history.  The proposal builds upon other recent expansions to the FAPIIS database since its inception in 2010, and it continues the trend of requiring increased contractor disclosure.

Also notable, however, is what the proposed rule does not require.  Specifically, the rule would not mandate the inclusion of data related to affiliated entities other than direct owners or subsidiaries.  The decision not to require such information in FAPIIS was driven by two considerations.  First, in the judgment of the Defense Acquisition Regulation Council and Civilian Agency Acquisition Council (“the Councils”), “the further the distance between the entities, the less relevant the information is likely to be for establishing responsibility of the offeror.”  Second, the Councils concluded that the substantial “cost and complexity” of monitoring all direct and indirect subsidiaries would outweigh the benefits of such a system.

Unlike data on indirect affiliates, data on the immediate owner and direct subsidiaries of an offeror will be readily available, as that information is now required in response to FAR provision 52.204-17, which became effective November 1, 2014.  And in order to ensure that information about predecessor entities will be readily obtainable, the Councils have propose a new FAR provision 52.204–WW, entitled ‘‘Predecessor of Offeror,” which would require an offeror to state whether it “is or is not a successor to a predecessor that held a Federal contract or grant within the last three years.”[1]  If the offeror answers the question affirmatively, it would have to provide the CAGE code and legal name of any such predecessor entity.

In addition to serving as a resource for acquisition officials, the proposed rule may also constitute a valuable source of information for the wider contracting community, as information in FAPIIS regarding immediate owner, subsidiaries, and predecessors would be publicly available, as mandated by Section 3010 of the 2010 Supplemental Appropriations Act.  It is not difficult to see that this new information may prove significant in a number of settings, including with due diligence and bid protests efforts.  At the same time, however, the proposal of new reporting requirements further underscores the importance of developing and implementing company policies that maintain full compliance with the evolving FAPIIS standards.

Interested parties may submit written comments on the proposed rule by February 2, 2015.

[1] The term successor would be defined as “an entity that has replaced a predecessor by acquiring the assets and carrying out the affairs of the predecessor under a new name (often through acquisition or merger).”  The term would not encompass “new offices/divisions of the same company or a company that only changes its name.”