Participation in the Government contract arena, especially at the state and local levels, is not for the unwary. In addition to the politicians and bureaucrats who are involved, contractors and potential contractors face forms, regulations and rules designed to safeguard the expenditure of public funds. Compliance with these requirements is mandatory for successful bids, profitable contracts and the potential for new and more business.

Recently, many states and localities have added several relatively new types of restrictions to the regulatory burdens faced by contractors and prospective contractors. These two burdens are pay-to-play laws and procurement lobbying laws. As with the other types of regulation, compliance is key, but, since these are relatively new areas in many jurisdictions, compliance has to begin with an analysis of the law, an assessment of the pitfalls and risks involved and an understanding of which officers and employees are or might be covered.

Pay-to-Play Laws Can Disqualify Contractors

So-called "pay-to-play" laws are laws, ordinances, rules, regulations and executive orders that regulate, in some, way political contributions from individuals and entities seeking and/or holding certain contracts with a state or local jurisdiction. The laws can prohibit contributions (such as in Colorado), impose a contribution limit (such as in California and New York City) or require public disclosure of contributions (such as in Rhode Island). The aim of these laws is to prevent "paying" (i.e., making campaign contributions) in order to "play" (i.e., getting a contract with the jurisdiction of the recipient). Pay-to-play laws in many jurisdictions either ban or regulate contributions made by directors, officers and/or other employees connected to the contractor or prospective contractor.

Some of these pay-to-play regulations apply only to sole-source or non-bid contracts, but others apply even to competitively bid contracts (such as in New Jersey and Illinois). Many localities have their own pay-to-play laws (click here for a list of the various ordinances applicable in New Jersey), and state law in some jurisdictions also apply to contracts and contractors at the local level (such as Kentucky).

Violations of pay-to-play laws can lead to the loss of a current contract, the loss of a potential contract, debarment from future contracts with the jurisdiction, fines and other penalties. Earlier this year, the New Jersey Supreme Court upheld a lower court's ruling by which Earle Asphalt Company lost its $6 million contract because of an impermissible campaign contribution in the amount of $1,500 to a county political party committee.

Procurement Lobbying Laws May Require Contractors to Register as Lobbyists

Procurement lobbying laws are those lobbying laws that apply to efforts to influence Government officials and employees with respect to Government contracts, loans, and, sometimes, grants. The aspects of the procurement process affected include contract specifications, bidding procedures and the actual contract award itself. Each state's lobbying law is different, but procurement lobbying laws can mean that salespersons or those who support salespersons (often technical experts) can end up as "lobbyists" who are required to register and report as lobbyists and are subject to the myriad of other lobbyist restrictions like limits on political contributions, special gift bans, etc. Most states also have contingency-fee lobbying prohibitions, so it also is important to ensure that the activities of any commissioned salespersons fall outside these rules or within an exception.

Violations of a jurisdiction's lobbying laws can lead to fines and other penalties. In some jurisdictions, such as New York state, a violation of certain procurement lobbying laws can lead to the loss of a contract and debarment from future contracts.

Ongoing Changes in the Law

The relatively new and unsettled nature of the law in these areas means that jurisdictions are constantly fiddling with the requirements—in response to scandals, political pressure, media hype or otherwise. For example, New Jersey's governor expanded the state's pay-to-play laws late last year through an executive order—just in time for this year's gubernatorial election. The law now extends to certain officials at entities that seek or hold contracts with state agencies. Moreover, Illinois made two pay-to-play laws effective at the beginning of this year—one through statute and one through executive order, and the new governor then rescinded the executive order this April. The legislature, governor and a reform committee continued to grapple with the appropriate pay-to-play protections for the state and some changes to the statute this June. Further, in Colorado, voters approved a pay-to-play ballot measure that took effect on December 31, 2008, and an appellate court in Ohio upheld the invalidation of the state's newest pay-to-play law, sending the pay-to-play law back to how it existed a few years ago.

Compliance Is Essential

In order to avoid the steep penalties and potential loss of business, compliance with the pay-to-play laws and the procurement lobbying laws is imperative. Given the nature of these laws, compliance begins with up-to-date information on the nature of the laws and an analysis of how the laws affect what your company and its employees do and how the company undertakes its government contracting business. Effective compliance then applies the facts against the law in the form of tailored corporate policies and processes to implement and enforce the policies.