United States: FAR revisions to implement the Comprehensive Iran Sanctions, Accountability and Divestment Act

On 29 September 2010, an interim rule was published, revising the Federal Acquisitions Regulations (FAR) to implement the government contractor certification requirements under the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (CISADA). The new rule is applicable to all procurement contracts with the U.S. government, including contracts at or below the simplified acquisition threshold of $100,000, contracts for the acquisition of commercial items and contracts for the acquisition of commercially available off-the-shelf (COTS) items offered to the U.S. government. The interim rule is effective upon its publication in the federal register (i.e., as of 29 September 2010).

The following is a summary of the provisions related to certifications that federal contractors need to make with respect to business dealings with Iran.

I. FAR revisions implementing the CISADA

• The revision of the FAR sets forth a new certification provision that an "offeror" for a procurement contract or "any person owned or controlled by the offeror" must certify that it does not conduct any activity that is sanctionable under the Iran Sanctions Act, as amended by CISADA.
• This revision also prohibits executive agencies from entering into or extending procurement contracts to persons that export certain "sensitive technology" to Iran. Further implementation of this provision is forthcoming and the interim rule did not define "sensitive technology" beyond the language used in CISADA.
• The new certification is applicable to all procurement contracts, even those at or below the simplified acquisition threshold of $100,000; to contracts for the acquisition of commercial items; and to contracts for the acquisition of commercially available off-the-shelf (COTS) items offered to the government.
• The Regulatory Secretariat will accept comments on the interim rule for 60 days after the federal register publication date.

II. Contractor certification requirement

• Who must certify: Each "offeror" must provide a certificate that the "offeror" and "any person owned or controlled by the offeror" does not engage in any activity that is sanctionable under the Iran Sanctions Act, as amended by CISADA. 48 C.F.R. § 25.703-2(a)(1). "Offeror" is not defined in the regulations but is otherwise defined in the FAR to mean "offeror or bidder," which is the legal entity submitting the offer.
• • Additionally, the interim rule does not include a requirement to flow down the clause to subcontracts, thus limiting the certification provision to prime contractors, who are the "offeror[s]" with respect to the federal government in procurement contracts, and to any person owned or controlled by the "offeror."
  • "[P]erson" is defined as a natural person; a corporation, business association, partnership and any other business organization; or a successor to any corporation or other business organization. Id. § 25.703-1.
  • The rule does not define "ownership" or "control." The conference report states that "exercising control as a 'parent company' over subsidiaries or affiliates should be considered in functional terms, as the ability to exercise certain powers over important matters affecting an entity. 'Control' may also be defined according to ownership of a majority or a dominant minority of the total outstanding voting interest in an entity, board representation, proxy voting, a special share, or contractual arrangements, to direct important matters affecting an entity." H.R. REP. NO. 111-512, at 56 (2010).
• What is a sanctionable activity: Sanctionable activities are described in more detail in our 1 July update on CISADA and they include the following, when the activity exceeds certain threshold amounts: 1) knowingly making an investment that contributes to Iran's ability to develop petroleum resources; 2) knowingly selling or providing Iran with goods or services that could directly and significantly facilitate Iran's production of refined petroleum products; 3) knowingly selling or providing Iran with refined petroleum products; 4) knowingly selling or providing Iran with goods, services, or technology that could contribute to Iran's ability to import refined petroleum products; or 5) exporting to Iran goods, services or technology knowing it will contribute materially to Iran's ability to acquire or develop nuclear weapons or related technologies. 48 C.F.R. § 25.703-2(a)(2)(i)-(v).
• Remedies for false certification: If an offeror falsely certifies that it or any person it owns or controls is not engaging in sanctionable conduct, the agency may: 1) terminate the contract; 2) suspend the contractor; or 3) debar the contractor for a period not to exceed three years. Id.§ 25.703-2(b).
• Exceptions for trade agreements: The certification requirements do not apply for procurement of eligible products under section 308(4) of the Trade Agreements Act of 1974, 19 U.S.C. §2518(4), of any foreign country or instrumentality designated under Section 301(b) of the Trade Agreements Act of 1974, 9 U.S.C. § 2511(b). Id. § 25.703-2(c).
• Waiver of the certification provision: The President can waive the certification requirement on a case-by-case basis if the President determines doing so is in the "national interest" and certifies this conclusion in writing to the appropriate congressional committees, the Committee on Armed Services of the Senate, and the Committee on Armed Services of the House of Representatives. Id.§ 25.703-2(d)(1).
• • Contractors seeking a waiver must submit the request through the Office of Federal Procurement Policy. Id.§ 25.703-2(d)(2).
  • This waiver must include a justification demonstrating that no other "offeror" can provide the product and explaining why it is in the national interest for the certification to be waived. Id.§ 25.703-2(d)(3)(v). Also, the contractor must disclose which sanctionable activities it is engaged in. Id.§ 25.703-2(d)(3)(viii).
• The annual certification can be done by "offerors" through the Online Representations and Certifications Application (ORCA), if the "offeror" is registered in the Central Contractor Registration.

III. Commercial items certification

• Who must certify: An "offeror" must make the same certification for itself or any person owned or controlled by the offeror described above with respect to procurement contracts for commercial items. Id. § 52.212-3(o).
• Exceptions for trade agreements: The certification requirement does not apply if the solicitation includes a trade agreements certification and the offeror has certified that all the offered products to be supplied are designated country end products. Id. § 52.212-3(o)(2).

IV. Certification related to exports of sensitive technology

• Agencies are prohibited from entering into or extending a contract for the procurement of goods or services with a person that exports certain sensitive technology to Iran, as determined by the President and listed on the Excluded Parties List System (EPLS). Id. § 25.703-3.
• Under section 106(c) of CISADA, "sensitive technology" includes hardware, software, telecommunications equipment, and technology restricting the free flow of unbiased information or disrupting, monitoring or otherwise restricting speech in Iran.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.