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Federal Contractors Must Report Top Executive Pay and Subcontract Awards Under New Interim Rule
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August 23, 2010
By David Beck
A new interim rule under the Federal Acquisition Regulations requires all federal contractors to report detailed information about their first-tier subcontracts and compensation of their (and their subcontractors’) five most highly paid executives. The new rule applies to virtually all federal contracts and to all businesses regardless of size or ownership.
The New Rule
Contracting officers must include new FAR 52.204-10, Reporting Executive Compensation and First-Tier Subcontract Awards, in all solicitations and resultant contracts, effective July 8, 2010. Contractors must report subcontractor award information and executive compensation on all contracts valued at $25,000 or more except for classified contracts and contracts with individuals.
These reporting obligations will be phased in over the next several months. FAR 52.204- 10(e) provides: “Until September 30, 2010, any newly awarded subcontract must be reported if the prime contract award amount was $20,000,000 or more. From October 1, 2010 until February 28, 2011, any newly awarded subcontract must be reported if the prime contract award amount was $550,000 or more. Starting March 1, 2011, any newly awarded subcontract must be reported if the prime contract award amount was $25,000 or more.”
The new rule is consistent with the extensive reporting requirements mandated by the 2009 American Recovery and Reinvestment Act (ARRA). Indeed, the reporting elements required by the new rule mirror those of FAR 52.204-11, which was implemented under ARRA to more aggressively track the use of ARRA funds. However, the genesis for the new rule dates back further. It is based on the Federal Funding Accountability and Transparency Act (Transparency Act) of 2006. Public Law 109-282.
In 2006, the Transparency Act was enacted to reduce “wasteful and unnecessary spending.” The act required the Office of Management and Budget to establish a public Web site containing full disclosure of all federal award information for contracts of $25,000 or more. Initially, the act was implemented through a pilot program to test the collection of subcontractor data. The pilot program applied only to prime contracts of $500 million or more and required the reporting of subcontractor information only for subcontracts of $1 million or more. The pilot program terminated on January 1, 2009.
In 2008, the Transparency Act was amended by Congress to include an additional reporting element, requiring contractors and subcontractors to report the compensation of their five most highly compensated executives. In March 2009, the requirements of the Transparency Act (both as to subcontractor reporting and executive compensation) were extended to all contracts awarded under ARRA. These obligations, through FAR 52.204-10, now are being extended to all federal contracts.
First-Tier Subcontractor Award Reporting
The interim rule requires contractors to report all first-tier subcontracts valued at $25,000 or more. A “first tier subcontract” is defined as “a subcontract awarded directly by a Contractor to furnish supplies or services (including construction) for performance of a prime contract, but excludes supplier agreements with vendors such as long-term arrangements for materials or supplies that would normally be applied to a Contractor’s general and administrative expenses or indirect cost.” FAR 52.204-10(a). The information required to be disclosed includes: unique identifier (DUNS number); name of subcontractor; amount of subcontract award; description of services or products being provided; and other contact information such as the subcontractor’s address and principle performance location.
Executive Compensation Reporting
The new rule requires that under certain circumstances contractors and first-tier subcontractors annually report the names and total compensation of their five most highly paid executives. “Executive” is broadly defined to include “officers, managing partners, or any other employees in management positions.” FAR 52.204-10(a). Executive compensation must be reported if:
| 1. | The contract or subcontract is valued at $25,000 or more;
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| 2. | The company received 80 percent or more of its annual gross revenues in the preceding year from federal contracts;
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| 3. | The company received $25 million or more in annual gross revenues in the preceding year from federal contracts;
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| 4. | The company does not already publicly report executive compensation through the SEC or IRS.
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Any contractor or subcontractor meeting all four of the above criteria must report its executive compensation through the Central Contractor Registration Web site.
Exceptions
The reporting requirements imposed by FAR 52.204-210 do not apply to classified contracts or contracts with individuals. Further, the reporting requirements do not apply if the contractor (or subcontractor) in the previous tax year had annual gross income of under $300,000. FAR 52.204- 10(d).
Comment Period
A final rule regarding these disclosure requirements is expected to be issued by the end of the year.
Interested parties may submit written comments to the Regulatory Secretariat by September 7, 2010. Comments should bear the identifier FAC 2005-44, FAR Case 2008-039 and can be submitted in the following ways:
 | At Regulations.gov: Submit comments by inputting "FAR Case 2008-039" in the "Enter Keyword or ID" field and clicking "Search." When search results are displayed, click on "Submit a Comment" in the right column entitled “Actions.”
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| Fax a letter to: 202-501-4067.
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| Mail a letter to: General Services Administration, ATTN: Hada Flowers, Regulatory Secretariat (MVCB), 1800 F Street, NW, Room 4041, Washington, DC 20405.
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