Federal Contractors to Report Executive Compensation & Subcontractor Awards Under New Rule

A final rule to implement a Federal Funding Accountability and Transparency Act requirement affecting federal contractors will go into effect on Aug. 27, 2012. Under the new rule promulgated by the Federal Acquisition Regulation (FAR) Council, federal contractors will be required to report the names and total compensation of the five most highly compensated officers under certain circumstances, as well as awards to first-tier subcontractors above $25,000. The new FAR section 52.204-10 burdens prime contractors with reporting not only their top five paid executives, but also their first-tier subcontractor’s top five paid executives when the subcontract has a value of $25,000 or more. A prime contractor must report this information for itself and/or for its first-tier subcontractor when either contractor received: (1) 80 percent or more of its annual gross revenues from federal contracts, subcontracts, and other forms of federal financial assistance and (2) $25 million or more of its annual gross revenues from federal contracts, subcontracts, and other forms of federal financial assistance. Executive compensation need not be reported if the public has access to the information through certain periodic reports filed under the Securities Exchange Act of 1934 or the Internal Revenue Code. When the FAR Council first solicited comments on the interim rule in 2010, AGC expressed its concerns with the potential burden on federal contractors. Among those concerns, AGC noted that many small business contractors lack the infrastructure to track such information and that primes should not be responsible for reporting subcontractor information. In the comments to the final rule, the FAR Council admits the financial burden and further clarified the definition of “first-tier subcontractor.” However, the Council did not alter the prime’s duty to report the subcontractor information, stating that “[t]he Federal Government has no privity of contract with subcontractors and is therefore reluctant to establish communication channels that could potentially be construed as creating a contractual relationship.” For more information, please contact Jimmy Christianson at 703-837-5325 or christiansonj@agc.org.