Under a new Federal Acquisition Regulation ("FAR") requirement, effective July 8, 2010, federal contractors must disclose first-tier subcontractor award information for contracts valued at $25,000 or more. In addition, contractors must report, under certain circumstances, executive compensation information for both the prime contractor and its first-tier subcontractors.

The new FAR provision broadly applies to all businesses regardless of a business's size or ownership. Further, it applies to contracts for commercial items and commercial off-the-shelf items. Finally, it applies to contracts at or below the simplified acquisition threshold (provided the contract value is $25,000 or more).

New FAR Clause

The requirement is implemented through an interim rule and new clause, FAR 52.204-10 (Reporting Executive Compensation and First-Tier Subcontract Awards). Federal contracting officers are required to include the clause in all solicitations and contracts of $25,000 or more, except in the cases of classified contracts or contracts with individuals. For existing Indefinite Delivery-Indefinite Quantity ("ID/IQ") contracts (such as Federal Supply Schedule and Government-wide acquisition contracts), federal contracting officers have the discretion to include the clause in contracts of $25,000 or more before issuing new orders. This includes the discretion to add the clause to blanket purchase agreements under ID/IQ contracts.

The clause implements Section 2 of the Federal Funding Accountability and Transparency Act of 2006, as amended by Section 6202 of the Government Funding Transparency Act of 2008, which requires the Office of Management and Budget to establish a free, public website containing full disclosure of all federal contract award information. The government will make this information available at www.USASpending.gov.

Subcontractor Award Reporting

The interim rule requires a contractor to report first-tier subcontracts valued at $25,000 or more. A "first-tier subcontract" is a subcontract awarded directly by a contractor to furnish supplies or services (including construction) for performance of a prime contract, but excludes supplier agreements with vendors, such as long-term arrangements for materials or supplies that would normally be charged to a contractor's general and administrative or other indirect cost account. In filing a report, the contractor must follow the instructions at www.fsrs.gov.

There are two notable exceptions to subcontractor award reporting requirements. First, the prime contractor is exempt if its gross income from all sources was under $300,000 in the previous tax year. Second, the contractor does not have to report any awards made to a subcontractor whose gross income from all sources was under $300,000 in the previous tax year.

Subcontractor award reporting requirements are being phased in. Until September 30, 2010, 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 is $550,000 or more. Beginning March 1, 2011, any newly awarded subcontract must be reported if the prime contract award amount is $25,000 or more.

Executive Compensation Reporting

In addition to subcontractor award reporting requirements, the contractor is obligated to report its executive compensation when (i) the contractor's annual revenue from federal sources (federal contracts and subcontracts, grants and subgrants, loans, and cooperative agreements) is $25 million or more, (ii) 80% of its annual revenue is derived from federal sources, and (iii) the public does not have access to the contractor's executive compensation information through SEC or IRS filings.

Similarly, the contractor is obligated to report the executive compensation of a subcontractor (in the case of a first-tier subcontract with a value of $25,000 or more) when (i) the subcontractor's annual revenue from federal sources is $25 million or more, (ii) 80% of its annual revenue is derived from federal sources, and (iii) the public does not have access to the subcontractor's executive compensation information through SEC or IRS filings.When obligated to report, the contractor must report the total compensation of its and/or its subcontractor's five highest paid executives. An "executive" is an officer, managing partner, or any other employee in a management position. "Total compensation" means the cash and noncash dollar value earned by the executive during the contractor's preceding fiscal year.

The contractor must file the executive compensation reports at www.ccr.gov and similar reports for subcontractors at www.fsrs.gov .

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.