On July 7, 2010, the Department of Defense, the General Services
Administration, and the National Aeronautics and Space
Administration issued an interim rule requiring federal contractors
to make certain disclosures regarding first-tier subcontract
awards. In particular, the rule requires contractors to report
first-tier subcontract awards expected to be $25,000 or more and,
for certain larger government contractors, to report the executive
compensation of the top five executives of both the contractor and
subcontractor. (A "first-tier" subcontract is one made
directly with the company contracting directly with the federal
government.) In turn, this information will then be made available
to the public. The interim rule is an outgrowth of the Federal
Funding Accountability and Transparency Act of 2006, which required
the Office of Management and Budget to create a free, public
website containing full disclosure of all federal contract award
information.
The interim rule does contain a number of exceptions to these
reporting requirements. The reporting requirements do not apply to
classified contracts, contracts with individuals, or contractors
and subcontractors whose annual gross income is less than $300,000.
In addition, the executive compensation disclosures are only
required of contractors and subcontractors if: (1) the entity
receives at least $25 million in annual gross revenue from federal
contracts, loans, grants, and cooperative agreements; (2) the
annual gross revenue from the federal contracts, loans, grants, and
cooperative agreements makes up more than 80 percent of the
entity's annual gross revenue; and (3) the entity does not
already publicly report the compensation of its senior
executives.
While the interim rule takes effect immediately, its reporting
requirements will be phased in based upon the size of the prime
contract at issue. Until Sept. 30, 2010, any newly awarded
subcontract must be reported if the prime contract award was $20
million or more. From Oct. 1, 2010, to Feb. 28, 2011, the threshold
will be lowered to prime contracts of $550,000 or more. On March 1,
2011, the threshold will be further reduced to prime contracts of
$25,000 or more. The rule also states that interested parties
should submit comments on the interim rule by Sept. 7, 2010, in
order for those comments to be considered prior to the formulation
of a final rule.
Employers with government contracts should take care to determine
whether the interim rule applies to them, and determine the best
methods for complying with it. They should also consider whether to
submit comments in order to shape the formulation of a final
rule.
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.