Is a parent company authorized to discuss and perform business affairs with the government for their wholly-owned subsidiaries, when the executed government contract states the subsidiary as the contract holder? Can the employees of the parent and subsidiary be one in the same? Are the following ideas potential opportunities for remediation: a mitigation plan addressing OCI issues; termination of contract if the original contractor, the subsidiary, is not performing; and/or executing novation agreement with the government?
Q. Is a parent company authorized to discuss and perform business affairs with the government for their wholly-owned subsidiaries, when the executed government contract states the subsidiary as the contract holder?
Only if they have been authorized to do so by the subsidiary, XYZ. You could think of this as the equivalent of a warrant issued to a Contracting Officer, only in this case it is the authorization of the subsidiary, in writing, for the parent company, ABC, to act on their behalf. The authorization needs to come from an individual that has contract authority on behalf of the subsidiary.
One of the primary reasons to have subsidiaries is to keep the business transactions separated. This may be done to segregate liability or to provide a US entity to allow a multi-national corporation to contract with the US government. If the parent company works on behalf of the subsidiary, the courts may rule that they are no longer independent, allowing any liabilities of the subsidiary to be assigned to the parent company. This can also have implications on SEC filings, annual reports and tax liabilities for the parent corporation. The GAO has held that the parent company has to show that the subsidiary is other than a separate and distinct legal entity to dissolve the boundaries between the two. (GAO decision Integral Systems, Inc. B-405303.1)
Q. Can the employees of the parent and subsidiary be one and the same?
An individual can be the employee of more than one company at a time, including a parent and a subsidiary. This needs to be specifically shown through a concrete action, it does not happen just because of the relationship between the two companies or someone has an email address from the company. An employee of a subsidiary is not automatically considered an employee of the parent company or the other way around. Even when the parent company may be administering benefits on behalf of the subsidiary, there is still a separation of the two organizations.
Q. Are the following ideas potential opportunities for remediation:
1. a mitigation plan addressing OCI issues;
2. termination of contract if the original contractor, the subsidiary, is not performing;
3. and/or executing novation agreement with the government?
Remediation through a mitigation plan is certainly acceptable as long as XYZ is specifically agreeing to the proposed plan, or has specifically authorized ABC to represent them.
The contract certainly may be terminated just as any government contract may be terminated. Cause is not required, but could be used if appropriate for the situation. Notification of cancellation goes directly to XYZ.
A novation agreement would be the most straight forward option to take to allow ABC to work on behalf of the contract signed by XYZ. It also makes it clear to the government who is responsible for executing the contract.