Federal Contractors Must Report Executive Compensation and Subcontractors

August 6, 2010

by Richard L. Connors
Stinson Morrison Hecker LLP
Copyright © 2010

Federal contractors are required to report – to the federal government – executive compensation and first-tier subcontractor awards on federal contracts expected to be $25,000 or more issued on or after July 8, 2010, under a sweeping new government contract rule that applies to all businesses, "regardless of business size or ownership."

Reason for New Rule – The new contracting rule implements a provision in the Federal Funding Accountability and Transparency Act of 2006 (as amended by the Government Funding Transparency Act of 2008), which requires the government to establish a free, public website containing full disclosure of all Federal contract award information.

"The reporting requirements of the Transparency Act 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."

Covered Contracts – The new rule applies to all solicitations and contracts with a value of $25,000 or more issued after July 8, 2010, and applies to all businesses, large and small, regardless of size or ownership.

The rule applies to commercially available off-the-shelf (COTS) item contracts, as well as actions under the simplified acquisition threshold, meeting the $25,000 threshold.

It does not apply to classified solicitation and contracts, and contracts with individuals.

Contractor Must Obtain Information from First-Tier Subcontractors – The law requires the Contractor to report information on subcontract awards. The law also requires all reported information be made public, therefore, the Contractor is responsible for notifying its subcontractors that the required information will be made public.

Subcontract Reporting Requirement – Unless otherwise directed by the contracting officer, by the end of the month following the month of award of a first-tier subcontract with a value of $25,000 or more (and any modifications to these subcontracts that change previously reported data), the Contractor must report the following information at http://www.fsrs.gov for each first-tier subcontract:

Unique identifier (DUNS Number) for the subcontractor receiving the award and for the subcontractor's parent company, if the subcontractor has a parent company.
Name of the subcontractor.
Amount of the subcontract award.
Date of the subcontract award.
A description of the products or services (including construction) being provided under the subcontract, including the overall purpose and expected outcomes or results of the subcontract.
Subcontract number (the subcontract number assigned by the Contractor).
Subcontractor's physical address including street address, city, state, and country. Also include the nine-digit zip code and congressional district.
Subcontractor's primary performance location including street address, city, state, and country. Also include the nine-digit zip code and congressional district.
The prime contract number, and order number if applicable.
Awarding agency name and code.
Funding agency name and code.
Government contracting office code.
Treasury account symbol (TAS) as reported in FPDS.
The applicable North American Industry Classification System code (NAICS).

Exception if Gross Income is Less than $300,000 – If the Contractor in the previous tax year had gross income, from all sources, under $300,000, the Contractor is exempt from the requirement to report subcontractor awards. Also, if a subcontractor in the previous tax year had gross income from all sources under $300,000, the Contractor does not need to report awards to that subcontractor.

Subcontract Reporting to be Phased-In – The subcontract reporting requirement only applies to first-tier subcontracts and will be phased in as follows:

Until September 30, 2010, any newly awarded subcontract must be reported if the prime contract award amount was $20 million or more;

From October 1, 2010 until February 28, 2011, any newly awarded subcontract must be reported if the prime contract award was $550,000 or more; and

Starting March 1, 2011, any newly awarded subcontract must be reported if the prime contract award amount was $25,000 or more.

Executive Compensation Reporting – By the end of the month following the month of a contract award, and annually thereafter, the Contractor must report the names and “total compensation” of each of the five most highly compensated executives for the Contractor’s preceding completed fiscal year at http://www.ccr.gov, if:

In the Contractor’s preceding fiscal year, the Contractor received: (1) 80% or more of its annual gross revenues from Federal contracts (and subcontracts), loans, grants (and subgrants) and cooperative agreements; AND (2) $25 million or more in annual gross revenues from Federal contracts (and subcontracts), loans, grants (and subgrants) and cooperative agreements; AND

The public does not have access to information about the compensation of the executives through periodic reports filed under the Securities Exchange Act.

Executive Compensation of Subcontractor – Unless otherwise directed by the contracting officer, by the end of the month following the month of a first-tier subcontract with a value of $25,000 or more, and annually thereafter, the Contractor must report the names and “total compensation” of each of the five most highly compensated executives for each first-tier subcontractor for the subcontractor’s preceding completed fiscal year at http://www.ccr.gov, if:

In the subcontractor’s preceding fiscal year, the subcontractor received: (1) 80% or more of its annual gross revenues from Federal contracts (and subcontracts), loans, grants (and subgrants) and cooperative agreements; AND (2) $25 million or more in annual gross revenues from Federal contracts (and subcontracts), loans, grants (and subgrants) and cooperative agreements; AND

The public does not have access to information about the compensation of the executives through periodic reports filed under the Securities Exchange Act.

Total Compensation to be Included in Executive Compensation – Total compensation for purposes of executive compensation reporting means the cash and noncash dollar value earned by the executive during the Contractor’s preceding fiscal year and includes: (1) salary and bonus; (2) awards of stock, stock options and stock appreciation rights; (3) earnings for services under non-equity incentive plans; (4) change in pension value; (5) above-market earnings on deferred compensation which is not tax-qualified; and (6) other compensation.

Richard L. Connors is an attorney with Stinson Morrison Hecker LLP, one of the country's largest law firms with more than 300 attorneys in more than 45-industry-focused areas. Mr. Connors represents management exclusively in employment and labor law.

Law at Work is designed to give general information and is not intended to be a comprehensive summary or to treat exhaustively the subjects and matters covered. The information appearing herein does not constitute legal advice or opinions. Such advice and opinions are provided only upon engagement with respect to specific factual situations. Nothing contained herein shall be considered as an admission in any matter or controversy.

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