In the wake of widespread media attention to political scandals, government reform advocates across the country are lobbying state, county, and local officials to pass what are commonly referred to as “pay-to-play” laws. The purpose of “pay-to-play” laws is to prevent the appearance of campaign contributions influencing the granting of business contracts.
A jurisdictional trend in recent years has been to expand one’s lobbying laws to cover not only traditional legislative activity, but also contracts and/or communications with other branches of government. “Lobbying” (on both a state and municipal level) can now include attempts to influence “executive” and “administrative action,” as well as legislative efforts. The result is that many government contractors are now being forced to report political contributions not only from their connected PACs, but also individual contributions by their officers and/or employees as well as additional information pertaining to the details of existing and potential government contracts. Just as corporations must manage their financial risks, they similarly must try to manage the potential risks that accompany their interactions with government decision-makers. Those businesses that fail to follow the rules face potential civil and criminal penalties, a loss of “business reputation,” and in some cases, the vendor may risk losing existing contracts and being barred from new ones if they fail to comply.
How to Minimize the Risk
It is imperative that government contractors adopt a political compliance program to assess potential political risk as well as minimize future risk. A compliance program for government affairs is just as important as a program for insider trading, antitrust, environmental law, or other areas of potential organizational liability. The elements of a political compliance program include:
- Establish standards and procedures to prevent and detect noncompliant behavior.
- Provide appropriate oversight.
- Communicate standards and procedures.
- Monitor and audit for compliance.
- Provide incentives and discipline to promote compliance.
- Respond accordingly to violations and take steps to prevent similar conduct.
We will continue to monitor and keep you apprised of developments involving “Pay-to-Play” and the impact upon businesses.