Rule to Require Contractors to Disclose Executive Compensation and Contract Awards

A number of federal agencies plan to issue an interim rule (pdf) that will require federal contractors and subcontractors to disclose executive compensation details and first-tier subcontractor awards on contracts expected to be $25,000 or more. This rule amends the Federal Acquisition Regulation (FAR) to implement the section of the Federal Funding Accountability and Transparency Act that requires the Office of Management and Budget (OMB) to create a free, public website that provides information about all federal contract awards. To that end, the rule requires that by the end of the month following the month the contract is awarded, and annually thereafter, the contractor or first-tier subcontractor must report the names and total compensation of each of the five most highly compensated executives for the contractor’s or first-tier subcontractor’s preceding completed fiscal year. Contractors and subcontractors whose gross income in the previous tax year was less than $300,000 are exempt from these disclosure requirements. The rule also requires contractors to report subcontracts of $25,000 or more, and any changes made to those contracts which impact data previously submitted. According to the interim rule, these reporting requirements “are sweeping in their breadth, and are intended to empower the American taxpayer with information that may be used to demand greater fiscal discipline from both executive and legislative branches of Government.”

As explained by the small entity compliance guide (pdf) that will be published when the rule is issued, the new reporting requirements will be implemented in a phased approach in order to minimize the burden on federal agencies and contractors:

1. Until September 30, 2010, any newly awarded subcontract must be reported if the prime contract award amount was $20 million or more.
2. 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.
3. Starting March 1, 2011, any newly awarded subcontract must be reported if the prime contract award amount was $25,000 or more.

Contracting officers must insert the Reporting Executive Compensation and First-Tier Subcontract Awards clause at FAR 52.204-10 in all solicitations and contracts with a value of $25,000 or more. The disclosure rule does not apply to classified contracts or solicitations, or contracts with individuals. The clause is required in commercial item contracts, including commercially available off-the-shelf (COTS) item contracts, as well as actions under the simplified acquisition threshold (currently $100,000) meeting the $25,000 threshold.

Those wishing to comment on this interim rule will have 60 days from the date of the rule’s publication in the Federal Register to submit their input. The agencies are particularly interested in comments as to whether this collection of information is necessary for the proper performance of functions of the FAR, and will have practical utility; whether the estimate ($22,608,776) of the public burden of this collection of information is accurate, and ways in which the burden of collecting the information can be minimized through the use of appropriate technological collection techniques or other forms of information technology.

All comments must contain the identifier: FAC 2005-44 or FAR case 2008-039. Written comments may be sent to: General Services Administration, Regulatory Secretariat (MVCB), 1800 F Street, NW., Room 4041, ATTN: Hada Flowers, Washington, DC 20405. Alternatively, comments may be submitted electronically to: http://www.regulations.gov, or via facsimile to: 202-501-4067.

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