FAR Council Seeks to Require Federal Contractors to Report First-Tier Subcontractor Information, Including Potentially Executive Compensation Data

The FAR Council published a Notice seeking public comments regarding its request to obtain approval from the Office of Management and Budget (“OMB”) of the “reinstatement” of a previously approved Information Collection Requirement (“ICR”) of certain first-tier subcontractor information. If approved, the ICR would require prime federal contractors to report to a publicly available federal contracting database information about (a) the contracts with their first-tier subcontractors, AND (b) potentially the compensation their first-tier subcontractors pay their top five executives.

Comments on the proposal proceeding under OMB Control Number 9000-0177 are due by July 23, 2024. You may submit your comments here or here.

The Notice seeks to resurrect this same requirement President Obama had proposed on June 16, 2010, (that is not a typo) early in his first term. OMB approved the proposal for a six-month period that expired on December 31, 2010. Thereafter, the Obama Administration quietly abandoned the reporting requirement for first-tier subcontractors. The Obama proposal has now lain dormant for the past 14 years until the Biden Administration last week, also quietly, sought its miraculous Lazurus-like delayed resurrection.

According to the FAR Council, its proposal identifies information that federal procurement agencies (“procurement entities”) must require federal prime contractors to report concerning their first-tier “subcontractors” to the Federal Subaward Reporting System (“FSRS”). Please note that the new FAR Council proposal would require the prime federal contractor to report its first-tier subcontract information and potentially also the subcontractor’s compensation information to the FSRS—NOT the first-tier subcontractor.

In support of its proposal, the FAR Council cites the requirements of the Federal Acquisition Regulation (FAR) clause at 52.204-10 as its source of legal authority to impose the currently proposed reporting. That FAR Rule requires reports of Executive Compensation and First-Tier Subcontract Awards. Prime contractors must follow the instructions at FSRS.gov to report the required compensation data for their first-tier subcontractors (as part of this new proposal).

The FAR Council Notice also explains that this collection of information is required to comply with Section 2 of the Federal Funding Accountability and Transparency Act of 2006 (Pub. L. 109-282) (“FFATA”), as amended by Section 6202 of the Government Funding Transparency Act of 2008 (Pub. L. 110-252). That statute required the OMB to establish a free, public, online database containing full disclosure of all Federal contract award information. The public may view first-tier subcontract award data at usaspending.gov.

Which Federal Government Contractors Are Now Caught Up in This Latest Subcontractor Reporting Burden?

The May 24 Notice explained that the information collection at issue here, first of all, covers only “procurement entities.” These are federal agencies that sign federal procurement contracts with prime federal Supply and Service and Construction contractors.

Although the FAR Council has not (so far) disclosed any Supporting Statement for this ICR, federal procurement Rules at 2 CFR §1108.300 define a “procurement contract” as:

“a legal instrument which, consistent with 31 U.S.C. 6303, reflects a relationship between the Federal Government and a State, a local government, or other recipient when the principal purpose of the instrument is to acquire property or services for the direct benefit or use of the Federal Government. A procurement contract is a prime-tier transaction and therefore distinct from a recipient’s or subrecipient’s “procurement transaction” or from a recipient’s or subrecipient’s “contract” as defined in this subpart.”

What Are the Reporting Requirements?

The new ICR for “procurement entities” covers two subsections of 52.202.10: general information about the contractor/subcontractor and the contract/subcontract, and potentially (if certain monetary thresholds are met) certain compensation information.

First, the new ICR covers FAR 52.204-10(d)(2), which provides:

“Contractors shall report the following information for their first-tier subcontracts at http://www.fsrs.gov by the end of the month following the month of award of a first-tier subcontract valued at or above $30,000:

1. Unique entity identifier for the subcontractor receiving the award and for the subcontractor’s parent company, if the subcontractor has a parent company.
2. Name of the subcontractor.
3. Amount of the subcontract award.
4. Date of the subcontract award.
5. A description of the products or services (including construction) being provided under the subcontract, including the overall purpose and expected outcomes or results of the subcontract.
6. Subcontract number (the subcontract number assigned by the contractor).
7. Subcontractor’s physical address including street address, city, state, and country. Also include the nine-digit zip code and congressional district.
8. Subcontractor’s primary performance location including street address, city, state, and country. Also include the nine-digit zip code and congressional district.
9. The prime contract number, and order number if applicable.
10. Awarding agency name and code.
11. Funding agency name and code.
12. Government contracting office code.
13. Treasury account symbol as reported in FPDS.
14. The applicable North American Industry Classification System code.”

Second, the new ICR covers FAR 52.204-10(d)(3), which provides:

“Contractors shall report the names and total compensation of each of the five most highly compensated executives for their first-tier subcontractors for that first-tier subcontractor’s preceding completed fiscal year at http://www.fsrs.gov, if—

1. (i) In the subcontractor’s preceding fiscal year, the subcontractor received—
   1. 80 percent or more of its annual gross revenues from Federal contracts (and subcontracts), loans, grants (and subgrants), cooperative agreements, and other forms of Federal financial assistance; and
   2. $25,000,000 or more in annual gross revenues from Federal contracts (and subcontracts), loans, grants (and subgrants), cooperative agreements, and other forms of Federal financial assistance; and
2. The public does not have access to information about the compensation of the executives through periodic reports filed under section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a), 78o(d)) or section 6104 of the Internal Revenue Code of 1986. (To determine if the public has access to the compensation information, see the U.S. Security and Exchange Commission total compensation filings at http://www.sec.gov/​answers/​execomp.htm.”

Editorial Note: It is entirely unclear how a prime federal contractor will know whether its first-tier subcontractor had been signatory in the prior year to a federal contract or subcontract. Moreover, the prime contractor will also be in the dark as to whether its first-tier subcontractor’s prior year’s annual gross revenues from federal contracts and subcontracts and one or more forms of nonprocurement financial transfers (i.e., grants, cooperative agreements, loans, etc., detailed above) amounted to both:

• 80% or more of the first-tier subcontractor’s annual gross revenues, AND
• $25,000,000 or more in total revenues.

Action Items

Should OMB approve this new FAR Council proposal, and a federal Court does not enjoin its implementation, where will responsibility lie within a prime federal contractor company to (a) notify its first-tier federal contractors of the prime’s reporting obligation (is that in the prime contractor’s Procurement Department, or would that be the Compliance Group? Who?); (b) gather the required executive compensation data; and (c) put the data on file with the FSRS?

Also, prime federal contractors should remember to change the language of their contract instruments (call the Legal Department) used to bind each of their first-tier subcontractors to perform work on and under their prime federal contracts. The needed new language should impose a contract-based duty for the first-tier subcontractor to timely supply the needed subcontract and executive compensation data (where applicable: see above as to reporting requirements) to the prime contractor so the prime contractor may discharge its contract duty by getting those data on file with the FSRS.

Note: In those circumstances in which the prime contractor will be required to disclose the first-tier subcontractor’s executive compensation data to the federal government, the prime federal contractor should NOT agree to any NDA (“Non-Disclosure Agreement”) to which the first-tier subcontractor might seek to bind the prime contractor to protect the confidentialit

What Are We NOT Talking About?

This proposed new reporting requirement would pertain to only “procurement entities” (meaning the federal agencies that sign prime federal contracts to procure goods and services from federal Supply & Service contractors and Construction contractors).

Not Covered Under this OMB Notice is Federal Contractor Reporting of Its Prime Contract or the Compensation the Prime Pays Its Top Five Executives

The May 24 Notice covers reporting requirements for (only) federal “Procurement Entities” signing federal procurement contracts with federal contractors, as noted above. In Friday’s Notice, the FAR Council explained that the information collection at issue here covers only “procurement entities” (see definition above) as opposed to “nonprocurement entities” discussed below.

However, last week’s FAR Council ICR Notice ONLY proposes new requirements that would require prime federal contractors to report data for their first-tier subcontractors. The new proposal does not address the obligations of the “procurement entities” to require prime contractors to report their contract information or the compensation a prime federal contractor pays its five most highly paid executives. Those reporting obligations exist elsewhere under another OMB Control Number.

Specifically, the new FAR Council Notice explains that, while existing FAR Rules at FAR 52.204-10(d)(1) require federal contractors to report the names and total compensation of each of the five most highly compensated executives for its preceding completed fiscal year as part of the contractor’s annual registration requirement in the System for Award Management (SAM) (FAR provision 52.204-7), the SAM registration requirements for prime federal contractors fall under a different OMB Control Number – 9000-0189.

Please note that prime federal contractors thus annually file their contract data and executive compensation data with SAMS, while the prime contractor would file (under the coming FAR Council proposal) its first-tier subcontractor data with FSRS, as noted above.)

“Nonprocurement Entities” Not Covered in this Notice

Apart from not addressing the obligations of prime contractors to report their contract and compensation data in this new FAR Council proposal, the new proposed requirement also does not address “nonprocurement entities” that accomplish so-called “nonprocurement transactions.” 31 CFR 19.970 (a) explains that the term “nonprocurement transaction” means “any transaction, regardless of type (except procurement contracts), including, but not limited to the following: (1) Grants,(2) Cooperative agreements, (3) Scholarships, (4) Fellowships, (5) Contracts of assistance, (6) Loans, (7) Loan guarantees, (8) Subsidies, (9) Insurances, (10) Payments for specified uses, and (11) Donation agreements.

A separate OMB Control Number – 3090-0292 – different from the OMB Control Number for “Procurement Entities” (the federal procurement agencies signing federal contracts), covers “nonprocurement entities” and their contracts supporting the above-referenced eleven “nonprocurement financial transactions.” Also, the federal agency sponsoring that non-procurement entity transaction reporting requirement is the General Services Administration (not the FAR Council).

OMB has approved and renewed its approval of the reporting requirements for non-procurement entities since July 29, 2010. The most recent approval under OMB Control Number 3090-0292 expires on June 30, 2024. The FAR Council’s most recent Supporting Statement on the information collection under Control Number 3090-0292 – dated December 29, 2020, and available for download here – explains that it covers the eleven (11) types of federal nonprocurement financial transactions listed above.

What About OFCCP?

OFCCP has NOT filed a companion Rule applicable to the contractors the agency covers pursuant to the three statutes it enforces as to federal contractors and covered federal Government “subcontractors.” This is because the new FAR Council proposal as to first-tier “subcontractors” is broader than OFCCP’s jurisdictional reach. Indeed, the FAR Council’s proposal will subsume and include obligations for all OFCCP’s covered federal Government contractors and “subcontractors” without the need for OFCCP to issue Rules in parallel with the FAR Council.

Note: The FAR Council Federal Register Notice does not define the especially important term “subcontractor.” Accordingly, it appears that the new FAR Council proposal intends to cover all first-tier subcontractors without distinction or further definition reducing their ranks. By contrast, OFCCP’s Rules implementing Executive Order 11246 (at 41 CFR Section 60-1.3: scroll down to “Subcontract”) contain a two-part definition which seven court decisions have now narrowed rather substantially to make the definition far different than either a common sense or a Webster’s Dictionary definition. In fact, OFCCP’s definition of the term “subcontract” covers very few subcontractors of prime federal Government contractors subject to OFCCP’s Executive Order 11246 jurisdiction.

Why Is This New Reporting Issue Raising Its Ugly Head Now After 14 Years?

Democrat Administrations in the White House have been keenly interested in this reporting because it would provide public information that one of their largest political constituencies (unions) could easily access to aid them in union organizing drives of smaller government subcontractors as unions continue to falter in the United States. (Only 6.9 percent of all private sector employees in the United States are currently union members).

OFCCP Withdrew Its Previous Decision to Require Subcontractor Reporting

In light of the above Subcontractor reporting proposed Rule the FAR Council has now released, it may explain OFCCP’s unexpected action last Fall as to its interest in a list of subcontractors. Readers may recall that, in our story on the Fall 2023 Regulatory Agenda, we reported that, in August 2023, OFCCP withdrew its plan to publish a proposed Rule on “Notification of Supply and Service Subcontract Awards.” The proposal would have, OFCCP said, added “provision(s) to the regulations implementing Executive Order 11246 requiring contractors to provide notice to OFCCP when they award supply and service “subcontracts.”

With knowledge of the FAR Council’s new subcontractor reporting Rule, OFCCP will be able to access the FSRS database and comb it electronically to identify all first-tier federal subcontractors meeting its jurisdictional standards. OFCCP may then consider including some of those first-tier subcontractors in the agency’s audit pools if those subcontractors have not already voluntarily identified themselves to OFCCP through OFCCP’s Contractor Portal.

THIS COLUMN IS MEANT TO ASSIST IN A GENERAL UNDERSTANDING OF THE CURRENT LAW AND PRACTICE RELATING TO OFCCP. IT IS NOT TO BE REGARDED AS LEGAL ADVICE. COMPANIES OR INDIVIDUALS WITH PARTICULAR QUESTIONS SHOULD SEEK ADVICE OF COUNSEL.