Berkshire Associates’ 2010 Enforcement Agency Updates: Reporting Executive Compensation and First-Tier Subcontract Awards

In July 2010, the Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration issued an interim rule, which will amend the Federal Acquisition Regulation to implement section 2 of the Federal Funding Accountability and Transparency Act (2006). The Act requires the Office of Management and Budget (OMB) to establish a free, public online database containing all federal contract award information.

This rule will require federal contractors to report executive compensation and first-tier subcontractor awards on solicitations and contracts of $25,000 or more. Commercial item contracts, including those for commercially available off-the-shelf (COTS) item contracts, future contracts, and existing indefinite-delivery indefinite-quantity contracts are also covered under this rule. Exempt from this rule are contracts with individuals and classified contracts or solicitations. The OMB may exempt any entity that demonstrates gross income, from all sources, and did not exceed $300,000 in the entity's previous tax year. “Executives” are officers, managing partners, or any other employees in management positions. “Total compensation” means the cash and noncash compensation, if the aggregate value of all noncash compensation exceeds $10,000.

Contractors and first-tier subcontractors are required to report the total compensation information required by the rule, if all of the following apply:

• In the contractor or subcontractor's preceding fiscal year, the contractor or subcontractor received:

o   Eighty percent or more of its annual gross revenue in federal contracts, subcontracts, loans, grants, subgrants, and cooperative agreements; and

o   Annual gross revenue from federal contracts, subcontracts, loans, grants, subgrants, and cooperative agreements exceeded $25 million.

• The public does not have access to information about the compensation of the senior executives through periodic reports filed under the Securities Exchange Act (definitive proxy statements for 10-Ks) or section 6104 of the Internal Revenue Code (Form 990 for non-profits).

The rule will be phased in as followed to minimize burden on contractors and federal agencies:

• Any newly awarded subcontract must be reported if the prime contract award amount is $20 million or more
• From October 1, 2010, until February 28, 2011, any newly awarded subcontract must be reported if the prime contract award amount was $550,000 or more
• Starting March 1, 2011, any newly awarded subcontract must be reported if the prime contract award amount was $25,000 or more.

By the end of the month following the award of a contract, and annually thereafter, the contractor shall report the names and total compensation of each of the five most highly compensated executives for the contractor's preceding completed fiscal year. It is expected this rule will apply to approximately 617,001 small businesses. For more details please click here.

To find out more about this reporting change, please contact Berkshire Associates at 800.882.8904 or email bai@berkshireassociates.com.