On July 26, 2012, the Department of Defense, General Services Administration, and the National Aeronautics and Space Administration issued a final rule requiring federal prime contractors to provide annual reports to the Central Contractor Registration database concerning executive compensation and first-tier subcontract awards. The final rule also amends the Federal Acquisition Regulation (“FAR”) Subpart 4.14 to implement section 2 of the Federal Funding Accountability and Transparency Act of 2006 (“FFATA”). This amendment requires the Office of Management and Budget to create a free, publicly available website with information about all federal contract awards.
First-Tier Subcontract Reporting Requirements
FAR 52.204-10, called “Reporting Executive Compensation and First-Tier Subcontract Awards,” will be inserted into all solicitations and contracts of $25,000 or more issued after August 27, 2012. The clause requires that federal prime contractors, including contracts for “commercial items,” such as commercially available off the shelf (“COTS”) items, to identify in an annual report its first-tier subcontracts. This requirement, however, does not apply if either the prime contractor or the subcontractor had gross income from all sources under $300,000 in the previous tax year.
First-tier subcontracts are defined as subcontracts awarded directly by the prime contractor to furnish supplies or services (including construction services and supplies) for performance of the prime contract. The final rule specifically excludes from this definition long-term arrangements with vendors, such as contracts for “materials or supplies that benefit multiple contracts and/or the costs of which are normally applied” to the prime contractors administrative or overhead expenses.
Executive Compensation Reporting Requirements
The executive financial disclosure requirements require contractors to report the names and total compensation of the five most highly compensated executives during the preceding financial year of both the contractor and its first-tier subcontractor. Prime contractors must report this information as part of their annual registration requirement in the Central Contractor Registration database. Prime contractors must report executive compensation information for first-tier subcontractors by the end of the month following the month of the award, and annually thereafter. These reporting requirements, however, apply only if the prime contractor or the first-tier subcontractor:
• Received in the preceding fiscal year at least 80 percent of their annual gross revenue from federal contracts, subcontracts, loans, grants, subgrants or cooperative agreements;
• Earned $25 million or more in annual gross revenue in the preceding fiscal year from federal awards, including contracts, subcontracts, grants, subgrants, loans or cooperative agreements; and
• The public does not have access to the executive compensation information through reports to the SEC or IRS.
Addition Reporting Requirements Concerning Subcontractors
Prime contractors are responsible for reporting the following information for each first-tier subcontract with a value of $25,000 or more:
• Unique identifier for subcontractor receiving the award and for the subcontractor’s parent company;
• Name of subcontractor;
• Amount and date of subcontract award;
• Description of products or services (including construction services and products) being provided under the subcontract;
• Subcontract number assigned by the prime contractor;
• Subcontractor’s physical address and primary performance location;
• Prime contract and order number;
• Awarding agency, funding agency, and government contracting office codes;
• Treasury account symbol as reported in the Federal Procurement Data System; and
• Applicable North American Industry Classification System (“NAICS”) code.
The contractor must report the information by the end of the month following the month of the award, and annually thereafter.
Although the final rule does not specifically identify sanctions for contractors who fail to adhere to these requirements, the final rule makes clear that violators will face the “standard contractual remedies,” which potentially include suspension and debarment.