• Government Contractors Required to Report Subcontracts and Executive Compensation
  • August 2, 2010 | Author: Eric John Felsberg
  • Law Firm: Jackson Lewis LLP - Melville Office
  • Under a new Interim Rule issued by the Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration, federal contractors are required to identify first-tier subcontract awards on contracts and orders expected to amount to at least $25,000 and report annually the total compensation of the contractors’ and first-tier subcontractors’ top five executives for the preceding fiscal year.  The Interim Rule is effective immediately.

    The Interim Rule is applicable to solicitations and contracts valued at $25,000 or more and any modifications made to those contracts that change previously reported data.  It also applies to commercial item contracts, including those for commercially available off-the-shelf (COTS) item contracts.  The Interim Rule applies to future contracts and existing indefinite-delivery indefinite-quantity contracts. 

    Comments to the Interim Rule must be submitted by September 7, 2010.

    Not Applicable to All Contractors
    The Interim Rule does not apply to:

    • Classified solicitations and contracts,
    • Contracts with individuals,
    • Contracts of less than $25,000, and
    • Contractors and subcontractors whose gross income is less than $300,000.

    Compensation information is not required unless both criteria (a) and (b) are met:

    (a)  In the contractor or subcontractor’s preceding fiscal year, the contractor or subcontractor received:

    • 80 percent or more of its annual gross revenue in federal contracts (and subcontracts), loans, grants (and subgrants), and cooperative agreements, and
    • $25 million or more in annual gross revenue from federal contracts (and subcontracts), loans, grants (and subgrants), and cooperative agreements.

    (b) The public does not have access to information about the compensation of the senior executives through periodic reports filed under applicable laws.

    Phased In Over Time
    To minimize the burden the Interim Rule will impose on federal agencies and contractors, it will be phased in as follows:

    • Until September 30, 2010, any newly awarded subcontract must be reported if the prime contract award amount was at least $20 million.
    • From October 1, 2010, until February 28, 2011, any newly awarded subcontract must be reported if the prime contract award amount was at least $550,000.
    • Beginning March 1, 2011, any newly awarded subcontract must be reported if the prime contract award amount was at least $25,000.

    Total Compensation
    Total compensation means the cash and noncash dollar value earned by an executive during the contractors’ or first-tier subcontractors’ preceding fiscal year.  It includes salary, bonus, awards of stock, stock options, stock appreciation rights, earnings for services under non-equity incentive plans, change in pension value, above-market earnings on deferred compensation that is not tax-qualified, and other compensation, if the aggregate value of all such other compensation exceeds $10,000.

    What Should Employers Do?

    Federal contractors should:

    • Inventory their contracts to determine whether they have any existing contracts valued at $25,000 or more.
    • Determine whether any exceptions to the reporting requirements apply to their organization.
    • Calendar the phase-in dates to ensure compliance.