On July 26, 2012, the FAR Council issued a final rule entitled “Reporting Executive Compensation and First-Tier Subcontract Awards.” The final rule follows an interim rule issued on the same subject on July 8, 2010. Both the interim and final rule implement a section of the Federal Funding Accountability and Transparency Act of the 2006 as amended by a section of the Government Funding Transparency Act of 2008, which requires OMB to establish a free, public Web site containing full disclosure of all Federal contract award information.
Specifically, the interim rule requires a federal contractor that awards a “first-tier” subcontract valued at greater than $25,000 to report that subcontract award, along with specific details regarding the subcontract, in the FSRS database. In addition, after receiving a contract award of greater than $25,000 a contractor must report in CCR the names and “total compensation” of each of the five most highly compensated executives for the contractor’s preceding completed fiscal year if the contractor:
(A) receives 80% or more of its annual gross revenues from federal contracts; (B) receives at least $25 million in annual gross revenues from Federal contracts; and (C) the public does not otherwise have access to this compensation information through SEC filings made by the contractor. Similarly, following the award of a “first-tier” subcontract valued at greater than $25,000, a prime contractor must report the same type of executive compensation information of its subcontractor.
The final rule reviews the comments received on the interim rule, but doesn’t change very much about the interim rule. The most notable changes are as follows:
- The definition of “first-tier subcontracts” has been modified slightly to clarify that the definition does not include long-term contracts for supplies and materials that are not solely related to an applicable contract. According to the preamble, this “change” is supposed to give contractors “greater flexibility” in determining what type of company qualifies as a “first-tier” subcontractor but, frankly, I don’t see this to be a significant change – the language is nearly the same as that included in the interim. If someone can educate me on this, I’d appreciate it!
- The interim rule included language stating that it did not apply to classified contracts. A commenter noted that Contracting Officers were interpreting the provision to mean that the contract document itself was classified. The final rule amends this provision to state instead that nothing in the statute requires disclosure of “classified information.”
- The final rule deletes another exception to the applicability of the rule: contracts with “individuals.” The preamble notes that the statute does not contain such an exception.
- Language has been included to clarify that contractors will have to provide similar data when registering in CCR
- The final now also clarifies a contractor’s responsibility to correct and inaccurate pre-populated data that appears in FSRS or inaccurate data provided by the contractor.
A number of critics of the rule have claimed that it will have a disproportionate impact on small business. Bloomberg BNA Federal Contracts Reports interviewed me on this subject yesterday. If you are interested in what this Northern Virginia government contracts attorney said about that – check out the link on the Protorae Law website. Ciao!