Client Alerts
February 25, 2011

Federal contract reporting of first-tier subcontracts now applied to prime contracts

Stites & Harbison, PLLC, Client Alert, February 25, 2011

by Stites & Harbison, PLLC

On July 8, 2010, the Federal government issued rules that required prime contractors to report: (1) first-tier subcontract awards valued at $25,000 or more; (2) the prime contractor’s five highest compensated executives; and (3) all first-tier subcontractor’s five highest compensated executives for subcontracts valued at $25,000 or more. FAR 52.204-10 The rules required the prime contractor to report the names and total compensation of each of the five most highly compensated executives for the prime contractor and its first-tier subcontractor if, during the preceding fiscal year, the prime contractor or subcontractor received: (1) 80% or more of its annual gross revenues from Federal contracts (and subcontracts), loans, grants, (and subgrants) and cooperative agreements; and (2) $25,000,000 or more in annual gross revenues from Federal contracts (and subcontracts), loans, grants (and subgrants) and cooperative agreements. The reporting requirement was not necessary if the public has access to information about the compensation of the executives through SEC or IRS filings. The reporting requirement was also not required of contractors or subcontractors with income of less than $300,000 the previous year.

Prior to March 1, 2011, the prime contractor has to report the award of all first-tier subcontracts of $25,000 or more if the amount of the prime contract was in excess of $550,000. This was part of a phase in of the subcontract reporting requirement which had gone from $20,000,000 to $550,000 and now to $25,000. Starting March 1, 2011, any newly awarded first-tier subcontract must be reported if the prime contract award amount is $25,000 or more.

In addition to reporting the award of subcontracts, the prime contractor must also report the five most highly compensated executives for itself and the first-tier subcontractors who meet the requirements discussed above. The “total compensation” which must be reported for the five most highly compensated executives is very inclusive. The term is defined as the cash and non-cash dollar value earned by the executive during the contractor’s preceding fiscal year and includes the following: (1) salary and bonus; (2) awards of stock options and stock appreciation rights; (3) earnings for services under non-equity incentive plans; (4) change in pension value; (5) above market earnings on deferred compensation which is not tax qualified; and (6) other compensation if the aggregate value of all such compensation (e.g., severance, termination payments, value of life insurance on behalf of the employee, perquisites or property) for the executive exceeds $10,000. While the rule lists the components of total compensation, it does not require prime contractors to report those components separately. The prime contractor must only report the total compensation of the executive.

It should be noted that the prime contractor, not the subcontractor, is responsible for making the reports. The prime contractor must notify the subcontractor that the information will be made public. In light of this, prime contractors should establish protocols for reporting the top five executive compensation for itself and first-tier subcontractors.

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