The Contractor's Perspective

The latest news on executive compensation and first-tier subcontract reporting requirements

Posted in New FAR Rules, Subcontracting

The FAR Council has issued final regulations that include changes to the interim regulations concerning executive compensation and first-tier subcontract reporting found in FAR Subpart 4.14. The newly revised FAR Subpart 4.14 [pdf] becomes effective on August 27, 2012.

FAR Subpart 4.14 implements the Federal Funding Accountability and Transparency Act of 2006, which requires contractors to report subcontract award data and the total compensation of the five most highly compensated executives of the contractor and its first-tier subcontractors. These reporting requirements apply when, in the preceding fiscal year, the contractor derived more than 80% of its gross annual revenues from government contracts; it received more than $25 million in government contract awards; and when such compensation data is not reportable to the Securities and Exchange Commission—that is, it applies to privately-held companies. The contractor must report first-tier subcontract awards in excess of $25,000. The reported information is publicly available at http://usaspending.gov.  Interim regulations were issued in 2010, and the new, final regulations make changes and clarifications.

Here are the highlights of the final regulations:

  • The new regulations clarify the definition of the term “first-tier subcontract.” A “first-tier subcontract” is now defined as a subcontract awarded directly for purposes of acquiring supplies or services (including construction) for performance of a prime contract. It does not include supplier agreements with vendors that benefit multiple contracts and/or costs normally applied to G&A or other indirect cost accounts.
  • The interim regulations stated that the requirements did not apply to classified contracts or contracts with individuals. The new regulations now clarify that the reporting requirements apply to all contracts with a value of $25,000 or more, but that they do not require the disclosure of classified information. In addition, there is no exemption for contracts with individuals, although the regulations maintain the reporting exemption when either the prime or subcontractor has less than $300,000 in gross revenues. This latter exemption should apply to many contracts with individuals.
  • The new regulations now expressly prohibit the splitting of subcontract awards to avoid meeting the $25,000 threshold.
  • The comments to the new regulations state that there is no exemption from the reporting requirements for prime or subcontract awards for commercial items or for commercial-off-the-shelf items.
  • The new regulations define the term “month of the award” as the month in which the contract or subcontract was signed and clarify that a prime contractor is not required to submit additional subcontract data reports after the first-tier subcontract expires.

For additional background on executive compensation and first-tier subcontracting reporting requirements, you can see our previous posts here, here, and here.  You may also want to review our White Paper on Federal Contractor Transparency Rules [pdf].