Contractors seeking to comply with the new requirement to report the compensation of their five highest paid executives under FAR 52.204-10 (July 2010) still have a lot of unresolved questions. We heard some of the questions during our June 8, 2011 webinar on the topic, which was sponsored by L2 Federal Resources, LLC, publisher of The Contracting Post. Thanks for hosting!
Here are some of the questions posed, along with our answers.
Availability of executive compensation data
Question: Where can I find executive compensation data that has already been reported?
Answer: Executive compensation data reported on projects funded by ARRA is available for download at www.recovery.gov. Executive compensation data reported for all government contracts is available for download at www.usaspending.gov. The information is available in a database file that can be opened in any spreadsheet software such as Microsoft Excel.
Corporate form issues
Question: Is reported compensation universal for a parent company or do you report only the compensation for the contractor that holds the contract?
Answer: The reporting obligation belongs to the "contractor," which is the entity to which the contract is awarded and which holds a unique DUNS number. It is possible that the contractor would share executives with a parent company, in which case the reported executive compensation would be identical for both entities. If the executives are not the same, each contractor receiving an award would have a separate reporting obligation.
Question: Is a joint venture that has no executives required to report executive compensation?
Answer: Joint ventures subject to the reporting requirements, but a joint venture with no executives would have no executive compensation to report. We're not aware of any government effort to ignore the joint venture as an entity and to require the members of the joint venture to report the compensation of their own executives. It is nevertheless important to recognize that the scope of the reporting obligation would not turn simply on which individuals the joint venture identifies as an executive. FAR 52.204-10 provides the following definition: "Executive means officers, managing partners, or any other employees in management positions."
Annual revenue thresholds
Question: The executive compensation thresholds (80%/$25 million) are tied to revenues on contracts and subcontracts. Is that subcontracts at any tier?
Answer: The source of federal revenues for the 80%/$25 million threshold is broad—it includes "Federal contracts (and subcontracts), loans, grants (and subgrants) and cooperative agreements." There is no language that would disregard revenue from lower-tier subcontracts.
Question: Is the revenue of parents, affiliates, and subsidiaries aggregated for purposes of the 80%/$25 million executive compensation revenue thresholds?
Answer: Since the obligation to report executive compensation belongs to the contractor, earnings of parent companies, affiliates, and subsidiaries are not aggregated for purposes of applying the revenue threshold. But the sources of revenue are broad—they include "Federal contracts (and subcontracts), loans, grants (and subgrants) and cooperative agreements."
Question: Do you have any expectation that the thresholds for reporting executive compensation (80%/$25 million) may be lowered?
Answer: The 80%/$25 million thresholds are specified in the Government Funding Transparency Act of 2008, which amends the Federal Funding Accountability and Transparency Act of 2006. Because the thresholds are statutory, the FAR Councils would therefore not be in a position to lower the thresholds without Congressional approval.
Subcontractor reporting procedures
Question: Is the requirement to report subcontractor executive compensation applicable even if the prime contractor is not required to report its own executive compensation?
Answer: Yes. Reporting of subcontractor executive compensation is not keyed to the prime contractor's obligation to report its own compensation. A prime contractor would be required to report first-tier subcontractor executive compensation if the applicable thresholds are met. A prime contractor that is exempt from the reporting obligation because it does not meet the 80%/$25 million thresholds, for example, would be obligated to report executive compensation for a subcontractor that meets the threshold.
Question: Why do first-tier subcontractors have to provide executive compensation information to prime contractors when they have already provided the same information as a prime contractor through the Central Contractor Registration system (www.ccr.gov)?
Answer: Although the effort appears to be duplicative, prime contractors subject to FAR 52.204-10 are required to report their own executive compensation as well as that of first-tier subcontractors holding subcontracts of $25,000 or more. There is no exemption for subcontractors whose executive compensation has already been submitted to the CCR.
Question: FAR 52.204-10 provides for prime contractors to report the executive compensation of first-tier subcontractors that meet the applicable revenue thresholds. Are there alternatives to providing executive compensation data directly to prime contractors?
Answer: There are currently no alternatives to this procedure. A subcontractor that meets the applicable reporting threshold must provide the executive compensation data to the prime contractor, which then reports it at www.esrs.gov. Various industry groups have objected to this procedure and proposed alternatives, citing both subcontractor reluctance to disclose confidential data to prime contractors and the administrative burden for prime contractors required to gather and report it. Although the reporting procedures in FAR 52.204-10 remain subject to change, we're not aware of any specific proposal to change the procedure. At this point the confidentiality argument seems unpersuasive because there is now a statutory requirement that the data be made public.
Question: Does the executive compensation reporting requirement apply to subcontractors at lower tiers?
Answer: As set forth in FAR 52.204-10, the subcontract data and executive compensation reporting requirements apply only to the prime contractor and any first-tier subcontractors holding subcontracts of $25,000. The reporting requirements do not apply to lower-tier subcontractors.
Applicability to GSA Leases
Question: Is a GSA lease of property a "contract" for purposes of the requirement to report executive compensation?
Answer: Yes. FAR 52.204-10 will be included in GSA leases over $25,000. GSA amended the GSA FAR Supplement on May 27, 2010 to require the inclusion of this clause in GSA leases. The Federal Register notice announcing the amended rule is available here.
Monitoring contractor compliance
Question: How will contractor compliance with executive compensation reporting be monitored?
Answer: Agency contracting officers are charged with taking action if the contractor "fails to comply with the reporting requirements." See FAR 4.1403(c). The contracting officer is directed: (a) to exercise "appropriate contractual remedies;" and (b) to include the noncompliance with the reporting obligation in the contractor's past performance evaluation. Assuming the contractor reports false information, the government may seek to hold a contractor responsible for the submission of false claims or false statements. In addition, there appears to be general assumption that making the data available to the public through www.usaspending.gov will allow the general public to act as inspectors general.
An audio recording of the webinar and the live question-and-answer session, as well as a copy of the written materials and the questions and answers is available through The Contracting Post. Background information is available in our white paper on all of the new federal contractor transparency rules [pdf] such as FAPIIS and the requirement to self-report responsibility information. We also discuss the issues in earlier posts on the blog.