Several federal contractors have been in the news recently for potentially engaging in prohibited lobbying activity. Both the Department of Justice and the Department of Defense Inspector General have been focusing on this issue. This restriction applies to any recipient of a federal contract, grant, loan or cooperative agreement and specifically prohibits using federally appropriated funds to influence the executive branch or Congress in connection with any federal contract, grant, loan or cooperative agreement. This restriction is known as the Byrd Amendment.
The Byrd Amendment restrictions apply to the funds themselves and do not prohibit recipients of federal contracts, grants, loans, or cooperative agreements from lobbying using their own funds or from using profit or fee from a covered Federal action. Likewise, the restriction applies to subcontractors or sub grantees, including state and local governments. In addition, the ban on using federal funds to lobby is not absolute – it only applies to lobbying in connection with a “covered action” – the awarding of a federal contract, the making of a federal grant or loan, the entering into of any cooperative agreement, or the extension, continuation, renewal, amendment, or modification of the foregoing. The ban does not apply to lobbying that does not involve a covered action, although the Federal Acquisition Regulation (FAR) place additional restrictions on the allowability of lobbying costs.
Certification and Disclosure
In addition to the lobbying restrictions, the Byrd Amendment also requires disclosure of certain types of lobbying activity and a certification that no payment has been made for any prohibited lobbying activity. Each entity that requests or receives a federal contract, grant, loan or cooperative agreement must:
- disclose the name of any outside lobbyist registered under the Lobbying Disclosure Act, who has made lobbying contacts in connection with the federal contract, grant, loan or cooperative agreement
- certify no prohibited lobbying payments have been made.
Similar statements and certifications also must be obtained from subcontractors. All information must be updated by the end of the calendar quarter in which the relevant change occurred.
Disclosure of outside lobbyists is accomplished using form LLL. Only external lobbyists must be disclosed on form LLL. FAR provision 52.203-11 sets forth the requirement to submit Form LLL and states that, by signing the offer, the offeror certifies that it is complying with these provisions of law. That FAR provision also states that the certification and disclosure are prerequisites to receiving the contract in question.
Each prohibited lobbying expenditure or missed disclosure or certification is subject to a $10,000 to $100,000 penalty. In addition, because of the nature of the certification and disclosure as prerequisites to receiving contract award, a false certification or disclosure could form the basis of a False Claims Act case against the contractor.
Exceptions and Special Issues
By law, certain organizations, namely Indian tribes, tribal organizations or any other Indian organization “eligible to receive Federal contracts, grants, cooperative agreements or loans” are exempt from these requirements. However, other legal requirements may preclude the use of such funds for lobbying purposes, including the FAR’s cost principles. Notably, state and local governments are NOT exempt under the relevant provisions of the FAR.
In addition, the FAR provides that, to the extent a contractor can demonstrate that it has sufficient funds, other than from appropriated funds, that these “other monies” were spent on lobbying activity. Entities that receive all of their funding from federal sources may have a difficult time meeting this presumption. For example, special purposes entities that are established to pursue and perform a particular contract could encounter difficulty, absent a clear infusion of sufficient cash from another source.
Considerations for the Prudent Contractor
Prudent contractors and other federal awardees should address these issues in their ethics and compliance program and ensure that those making the requisite certifications and disclosures are doing so accurately and on an informed basis. Entities that are entirely reliant on Federal funding, particularly special purpose entities, should pay closer attention to these requirements.