FAR 52.209-10—Prohibition on Contracting with Inverted Domestic Corporations.
Plain-English Summary
FAR 52.209-10 implements the statutory prohibition on contracting with inverted domestic corporations and explains how that prohibition works during contract performance. This clause defines key terms such as "inverted domestic corporation" and "subsidiary," tells contractors when the Government may be prohibited from paying for work performed after an inversion event, and preserves the Government’s ability to pursue available remedies if performance is affected. It also points readers to the regulatory exceptions at FAR 9.108-2, which can allow an otherwise prohibited situation to proceed in limited circumstances. In practical terms, the clause is a compliance and risk-allocation provision: contractors must monitor corporate structure changes, notify the contracting officer quickly if an inversion occurs, and understand that post-inversion performance may not be payable. Contracting officers use the clause to protect the Government from continuing to fund work by entities that fall within the statutory prohibition and to manage the consequences if a contractor’s corporate status changes mid-performance.
Key Rules
Key corporate definitions
The clause defines "inverted domestic corporation" by reference to 6 U.S.C. 395(b) and the related rules in 6 U.S.C. 395(c). It also defines "subsidiary" as an entity more than 50 percent owned directly by a parent corporation or indirectly through another subsidiary.
Payment may be barred
If the contractor becomes an inverted domestic corporation, or becomes a subsidiary of one, during performance, the Government may be prohibited from paying for contractor activities performed after the inversion date. The clause focuses on post-event performance, not necessarily work performed before the event.
Government remedies preserved
If the contractor fails to perform because of Government action under this clause, the Government may seek any available remedies. This preserves the Government’s rights under the contract and applicable law rather than waiving them.
Exceptions are elsewhere
Any exceptions to the prohibition are not stated in the clause itself; they are located at FAR 9.108-2. Users must consult that section to determine whether an exception applies.
Mandatory notice within five business days
If the contractor becomes an inverted domestic corporation or a subsidiary of one during performance, it must give written notice to the contracting officer within five business days of the inversion event. This is an affirmative reporting obligation, not merely a best practice.
Responsibilities
Contractor
Monitor corporate transactions and ownership changes throughout performance; determine whether any reorganization creates an inverted domestic corporation or subsidiary status; provide written notice to the contracting officer within five business days after an inversion event; and avoid assuming that post-inversion work will remain payable.
Contracting Officer
Include and administer the clause when prescribed; evaluate the effect of any reported inversion on contract performance and payment; consult the applicable exceptions at FAR 9.108-2; and protect the Government’s rights and remedies if the contractor’s status changes during performance.
Government/Agency
Apply the statutory prohibition consistently, determine whether payment for post-inversion activities is barred, and decide whether an exception under FAR 9.108-2 applies. The agency must also preserve and pursue available contractual or legal remedies when performance is affected.
Practical Implications
Contractors need internal controls to catch mergers, acquisitions, and reorganizations early, because the five-business-day notice clock starts when the inversion event occurs.
A corporate restructuring can create immediate payment risk for work performed after the inversion date, even if the contract was properly awarded before the change.
Failure to notify the contracting officer promptly can compound compliance problems and may affect the Government’s response to the event.
Contracting officers should not treat this clause as purely informational; it can affect invoice approval, continued performance, and remedy decisions.
Always check FAR 9.108-2 for exceptions before concluding that the prohibition applies without qualification.
Official Regulatory Text
As prescribed in 9.108-5 (b) , insert the following clause: Prohibition on Contracting with Inverted Domestic Corporations (Nov 2015) (a) Definitions . As used in this clause- Inverted domestic corporation means a foreign incorporated entity that meets the definition of an inverted domestic corporation under 6 U.S.C. 395(b) , applied in accordance with the rules and definitions of 6 U.S.C. 395(c) . Subsidiary means an entity in which more than 50 percent of the entity is owned- (1) Directly by a parent corporation; or (2) Through another subsidiary of a parent corporation. (b) If the contractor reorganizes as an inverted domestic corporation or becomes a subsidiary of an inverted domestic corporation at any time during the period of performance of this contract, the Government may be prohibited from paying for Contractor activities performed after the date when it becomes an inverted domestic corporation or subsidiary. The Government may seek any available remedies in the event the Contractor fails to perform in accordance with the terms and conditions of the contract as a result of Government action under this clause. (c) Exceptions to this prohibition are located at 9.108-2 . (d) In the event the Contractor becomes either an inverted domestic corporation, or a subsidiary of an inverted domestic corporation during contract performance, the Contractor shall give written notice to the Contracting Officer within five business days from the date of the inversion event. (End of clause)