Federal Government Contractors Must Report Executive Compensation And First-Tier Subcontract Awards

On July 8, 2010, the Federal Government issued an Interim Rule that requires certain Government contractors to report first-tier subcontract awards and the names and total compensation of the contractor’s and first-tier subcontractor’s five most highly compensated executives. This Interim Rule implements 2008 amendments to the Federal Funding Accountability and Transparency Act (P.L. 109-282) which require reporting of Federal contract information to reduce “wasteful and unnecessary spending.” The Government has imposed similar reporting requirements on recipients of American Recovery and Reinvestment Act funds.

Application Of The Reporting Requirements: The first-tier subcontract reporting requirement applies to all Federal contractors, including small businesses and commercial item/commercial-off-the-shelf (COTS) contractors, who had gross revenue of $300,000 or more in the previous tax year. Such contractors must report first-tier subcontracts of $25,000 or more, including options.

The executive compensation reporting requirement applies only to contractors and subcontractors who in the preceding fiscal year:

• Received 80 percent or more of annual gross revenue from Federal contracts, loans, grants or cooperative agreements;
• Had $25 million or more in annual gross revenue from Federal contracts, loans, grants or cooperative agreements; and
• Do not publicly report executive compensation information in SEC or IRS filings.

Effective Date For The Interim Rule: The executive compensation reporting requirement is effective July 8, 2010. The subcontract reporting requirement phases-in. From July 8, 2010 until September 30, 2010, subcontract reporting applies only to prime contract awards of $20 million or more. From October 1, 2010 until February 28, 2010, the Rule will apply to prime contract awards of $550,000 or more, and starting on March 1, 2011, it will apply to contract awards of $25,000 or more. The Government will issue a Final Rule later this year.

Reporting Requirements: Contractors must report the required information to the Federal Funding Accountability and Transparency Act Sub-award Reporting System (FSRS) at http://www.fsrs.gov. The subcontract award data will be posted on the Government’s U.S.A. Spending website. Contractors who fail to comply with the Interim Rule may be subject to contractual remedies, including contract termination.

Seyfarth Shaw’s Government Contracts Practice Group regularly counsels clients on compliance matters. Our Government Contract Compliance Handbook (4 th ed. Thomson West) has been a primary compliance resource for clients for more than 20 years. Should you have any questions about this One Minute Memo, please contact the Seyfarth Shaw LLP attorney with whom you work, or any Government Contracts attorney on our website.