[Federal Register Volume 77, Number 144 (Thursday, July 26, 2012)]
[Rules and Regulations]
[Pages 44047-44059]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17724]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 1, 2, 4, and 52
[FAC 2005-60; FAR Case 2008-039; Item I; Docket 2010-0093, Sequence 2]
RIN 9000-AL66
Federal Acquisition Regulation; Reporting Executive Compensation
and First-Tier Subcontract Awards
AGENCIES: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Final rule.
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SUMMARY: DoD, GSA, and NASA are adopting as final, with changes, the
interim rule amending the Federal Acquisition Regulation (FAR) to
implement a section of the Federal Funding Accountability and
Transparency Act of 2006 as amended by a section of the Government
Funding Transparency Act of 2008, which requires the Office of
Management and Budget (OMB) to establish a free, public Web site
containing full disclosure of all Federal contract award information.
This rule requires contractors to report executive compensation, and
first-tier subcontractor awards on contracts of $25,000 or more.
DATES: Effective Date: August 27, 2012.
Applicability: Contracting officers shall include the FAR clause at
52.204-10, Reporting Executive Compensation and First-Tier Subcontract
Awards, in accordance with FAR 4.1403, in solicitations issued on or
after the effective date of this rule, and resultant contracts.
Contracting officers shall modify, on a bilateral basis, in
accordance with FAR 1.108(d)(3), existing contracts that include the
FAR clause implemented in the interim rule dated July 2010, to require
contactors to comply with the requirements of this final rule FAR
clause, if the contractor will be required to provide another annual
report. If the contracting officer is unable to negotiate this
modification, the contracting officer shall obtain approval at least
one level above the contracting officer to negotiate an alternate
resolution.
FOR FURTHER INFORMATION CONTACT: Mr. William Clark, Procurement
Analyst, at 202-219-1813 for clarification of content. For information
pertaining to status or publication schedules, contact the Regulatory
Secretariat at 202-501-4755. Please cite FAC 2005-60, FAR Case 2008-
039.
SUPPLEMENTARY INFORMATION:
I. Background
On September 26, 2006, the Federal Funding Accountability and
Transparency Act (hereafter referred to as the Transparency Act) (Pub.
L. 109-282, 31 U.S.C. 6101 note), was enacted to reduce ``wasteful and
unnecessary spending,'' by requiring that OMB establish a free, public
Web site containing full disclosure of all Federal award information,
for awards of $25,000 or more. The Transparency Act required, by
January 1, 2009, reporting on subcontract awards by Federal Government
contractors and subcontractors. The Transparency Act's initial phase
was conducted as a Pilot Program (Pilot), to test the collection and
accessibility of the subcontract data. In order to implement the Pilot,
a proposed rule was published in the Federal Register at 72 FR 13234,
on March 21, 2007, under FAR Case 2006-029.
A final rule implementing the Pilot was published in the Federal
Register at 72 FR 51306, on September 6, 2007. Exempted from the Pilot
were solicitations and contracts for commercial items issued under FAR
part 12 and classified solicitations and contracts. To minimize the
burden on Federal prime contractors and small businesses, the Pilot
applied to contracts with a value greater than $500 million and
required the awardees to report all subcontract awards exceeding $1
million to the Transparency Act database at www.esrs.gov. The Pilot
terminated January 1, 2009.
On June 30, 2008, section 6202 of Public Law 110-252 amended the
Transparency Act to require the Director of OMB to include an
additional
[[Page 44048]]
reporting element requiring contractors and subcontractors to disclose
information on the names and total compensation of their five most
highly compensated executives.
DoD, GSA, and NASA published in the Federal Register at 74 FR
14639, on March 31, 2009, FAR case 2009-009, American Recovery and
Reinvestment Act of 2009 (the Recovery Act)--Reporting Requirements,
which required contractors receiving a Recovery Act funded contract
award to provide detailed information on subcontracts, including the
data elements required to comply with the Transparency Act. Although
the Transparency Act reporting requirements flow down to all
subcontracts, regardless of tier, the Recovery Act limited the
reporting on subcontract awards to the contractor's first-tier
subcontractors.
DoD, GSA, and NASA published an interim rule for public comment in
the Federal Register at 75 FR 39414, on July 8, 2010, under FAR Case
2008-039 with the following criteria:
Subcontract reporting would apply only to first-tier
subcontracts.
The rule would phase-in the reporting of subcontracts of
$25,000 or more--
[cir] Until September 30, 2010, any newly awarded subcontract must
be reported if the prime contract award amount was $20 million or more;
[cir] From October 1, 2010, until February 28, 2011, any newly
awarded subcontract must be reported if the prime contract award amount
was $550,000 or more; and
[cir] Starting March 1, 2011, any newly awarded subcontract must be
reported if the prime contract award amount was $25,000 or more.
By the end of the month following the month of award of a
contract, and annually thereafter, the contractor shall report the
names and total compensation of each of the five most highly
compensated executives for the contractor's preceding completed fiscal
year.
Unless otherwise directed by the contracting officer, by
the end of the month following the month of award of a first-tier
subcontract, and annually thereafter, the contractor shall report the
names and total compensation of each of the five most highly
compensated executives for the first-tier subcontractor's preceding
completed fiscal year.
There would be a $300,000 gross income exception for prime
contractors and subcontractors.
Data quality requirements would apply to agencies and
contractors.
The interim rule required contractors to report subcontracts of
$25,000 or more, and any modifications made to those subcontracts which
changed previously reported data. The reporting requirements of the
Transparency Act are sweeping in their breadth, and are intended to
empower the American taxpayer with information that may be used to
demand greater fiscal discipline from both executive and legislative
branches of Government. The Transparency Act reporting requirements
apply to all businesses, regardless of business size or ownership.
Contractors provide these subcontract reports to the Federal
Funding Accountability and Transparency Act Subaward Reporting System
(FSRS) at http://www.fsrs.gov. FSRS is a module of the Electronic
Subcontracting Reporting System (eSRS) designed specifically to collect
the Transparency Act required data.
Contracting officers will be required to modify existing contracts
to cover future orders--see the Applicability section above.
II. Discussion and Analysis
DoD, GSA, and NASA published an interim rule for public comment in
the Federal Register at 75 FR 39414, on July 8, 2010. The comments, as
categorized and summarized below, were considered by the Civilian
Agency Acquisition Council and the Defense Acquisition Regulations
Council (``the Councils'') in the formation of a final rule.
A. Disclosure of Executive Compensation
B. Definitions
C. Thresholds
D. Paperwork Burden
E. Applicability
F. Subcontract Award Data
G. Impact on Small Businesses
H. Reporting System
I. Other Concerns About the Rule
A. Disclosure of Executive Compensation
Comment: A number of respondents objected to the reporting of total
compensation, as required by the rule, for several reasons including
that total compensation is generally not allowable under FAR 31.205-6
or cost-reimbursement contracts, such information is outside the scope
of the taxpayer's interest, and the information will have no practical
utility. Another respondent believed that the rule should be updated
with a provision that subcontractors who submit executive compensation
information to the Defense Contract Audit Agency (DCAA) need not
provide it to prime contractors. A respondent requested that the rule
be clarified to provide that only the allowable portion of an officer's
salary is reported. Several respondents stated that total executive
compensation is already being reported to the Government annually
through an incurred cost submission (see FAR 52.216-7(d)).
Response: The public disclosure of executive compensation
information implemented under this rule is a statutory requirement. The
law does not limit reporting to the amount funded or reimbursed by
Federal funds, nor does the law make an exception for situations in
which a contractor or subcontractor is already reporting executive
compensation through an incurred cost submission. Therefore, the
Councils cannot create such an exception. Moreover, information
reported to DCAA is not public information, and DCAA is not authorized
to release that information. No change to the rule is required.
Comment: A number of respondents were concerned that publishing
executive compensation information will create discord, envy, and
turnover.
Response: The public disclosure of executive compensation
information implemented under this rule is a statutory requirement.
Contractors have publicly disclosed executive compensation through the
Securities Exchange Act (SEC) of 1934 15 U.S.C. 78m(a), 78o(d) or
section 6104 of the Internal Revenue Code of 1986 for years through
periodic reports, prior to the advent of the Transparency Act.
Comment: A respondent stated that most commercial companies lack
the required systems to track, monitor, and calculate the required
compensation information requested for prime contractors and their
first-tier subcontractors. Two respondents thought that the
requirements will be burdensome because small businesses, including
first-tier subcontractors, are unaccustomed to such requirements and do
not have infrastructure in place to comply.
Response: There may be some burden (i.e., one-time start-up cost
for the infrastructure to collect or report the information should be a
one-time cost) associated with the reporting required by this rule.
Additionally, the Councils have revised the rule at FAR 52.204-10(a) to
lessen the potential burden by clarifying the definition of ``first-
tier subcontractor.''
Comment: A number of respondents believed that executive
compensation information is proprietary. They suggested that this type
of information is not currently disclosed to the public,
[[Page 44049]]
even pursuant to Freedom of Information Act (FOIA) requests.
Response: The public disclosure of executive compensation
information implemented under this rule is a statutory requirement
mandated by Congress. This statute has created an exception to the
usual practices for handling contractor proprietary information. The
FOIA exemption for contractor proprietary information does not forbid
release of this information.
Comment: A respondent stated that making the amount of an
employee's compensation available to their Government counterparts may
have a significantly detrimental impact on these critical working
relationships.
Response: This rule implements a statutory requirement for the
disclosure of executive compensation.
Comment: A number of respondents stated that disclosure of
executive compensation may translate into safety issues for the
executives, their families, and potentially, U.S. Government personnel
outside the United States. The respondents opined that executives or
their families could be subject to extortion, blackmail, or kidnap as a
result of these disclosures.
Response: The public disclosure of executive compensation
information implemented under this rule is a statutory requirement.
This rule does not require contractors to disclose the home addresses
of executives or U.S. Government personnel.
Comment: A number of respondents stated that disclosing
compensation information will create risk that a company may lose its
key personnel to raiding by competitors. According to the respondents,
this potential outcome will drive some contractors and subcontractors
out of the Government contracting arena and, by implication, deprive
the Federal Government of access to cutting edge technologies and
ideas, and increase the Government's costs by reducing competition.
These respondents also suggested that competitors may be able to use
compensation data for executives who serve multiple roles to determine
their pricing strategies. These respondents further opined that
competitors who fall below the reporting threshold set forth in the
rule will have an unfair advantage.
Response: Disclosure of executive compensation could have some
anti-competitive aspects, which may ultimately result in increased
contract costs for the Government and the taxpayer. However, the public
disclosure of executive compensation information implemented under this
rule is a statutory requirement mandated by Congress. The disclosure of
such information was established in order to increase transparency in
Government contracting. The exceptions to the disclosure requirement
implemented in the rule such as the 80 percent/$25 million exception,
the $300,000 gross income exception, and the definition of ``first-tier
subcontract,'' will substantially reduce the number of contractors that
would otherwise be required to report such information.
Comment: A number of respondents expressed the view that
``providing this information or any other type of proprietary data to
prime contractors could jeopardize a contractor's competitive
position''. Those respondents stated that it is not unusual for a
subcontractor to be a prime contractor on one effort, and competing
with that same contractor on another effort. The respondents further
opined that the Government has typically not asked that subcontractors
provide such proprietary information to prime contractors. Another
respondent noted that ``* * * currently this data is being requested
and stored on a public facing Web site'' (www.ccr.gov), and questioned
how the Government would ensure that the data is protected from hackers
or inadvertently disclosed by a contracting officer.
Response: The correct interpretation of the nature of the statute
and rule is that prime contractors will not hold the information to
themselves, but instead must enter the information into a database; the
compensation information will be available on the internet to everyone
as public information.
Comment: A number of respondents recommended revising the rule to
require a flowdown clause to allow subcontractors to report executive
compensation directly to the Government. They indicated that flowing
down the requirement would reduce the administrative burden on the
prime. One respondent recommended a ``safe harbor'' for prime
contractors to address situations in which subcontractors fail to
provide the information, so that any failure does not reflect
negatively on the prime contractor's performance evaluation. A
respondent recommended revision of the rule expressly permitting prime
contractors to rely on their subcontractors' determinations as to
whether they must disclose compensation data under the rule.
Response: The Federal Government has no privity of contract with
subcontractors and is therefore reluctant to establish communication
channels that could potentially be construed as creating a contractual
relationship. The Federal Government has privity of contract only with
the prime contractor. Therefore, the prime contractor will be held
accountable for ensuring that their subcontractors provide the
necessary information for contract compliance. Because Transparency Act
reporting is statutorily required, compliance with reporting should
remain a consideration as a past performance evaluation element.
Comment: A respondent indicated that no process exists to ensure
accuracy in reporting executive compensation, either to verify or
monitor the accuracy of reported information. Several respondents
requested clarification of the contractor's obligation to verify the
accuracy of its subcontractor's information. One stated that the prime
cannot guarantee the accuracy of the disclosures and should not be
responsible for their accuracy.
Response: The law requires a searchable Web site for reporting, and
FSRS at www.fsrs.gov, is the reporting tool used by the Federal
Government to reduce contractor burden. One of the features of FSRS
that will mitigate the burden of prime contractor reporting of first-
tier subcontractor executive compensation is the capability of the FSRS
system to pre-populate FSRS entries with information from other
Government systems including the Central Contractor Registration (CCR).
Furthermore, the clause at FAR 52.204-10(d)(3) indicates that the prime
contractor is required to report the names and total compensation of
the five most highly compensated executives for each first-tier
subcontractor. The prime contractor should (1) hold first-tier
subcontractors responsible for complying with this contractual
reporting requirement under its contract with the Federal Government;
and (2) hold the first-tier subcontractor responsible for guaranteeing
the accuracy of the compensation information.
Comment: A respondent recommended that the rule end the prime
contractor's obligation to report first-tier subcontractor information
upon completion of the subcontract.
Response: The final rule was revised at FAR 52.204-10(f) and
requires reporting first-tier subcontractor's information (including
executive compensation) at least once, but further reporting is not
required upon the completion of the first-tier subcontract.
Comment: Several respondents noted that all contractors, whether
large or small, are required to provide the requested compensation data
on the CCR. They opined that it is redundant to ask prime contractors
to submit data
[[Page 44050]]
on their first-tier subcontractors in www.fsrs.gov when such
information already resides in the CCR. Those respondents also stated
that since all contractors are required to furnish compensation data on
the CCR, the Government should consider eliminating the requirement for
the prime contractor to report its subcontractor's compensation data on
http://www.fsrs.gov.
Response: The Transparency Act requires that information on Federal
awards (Federal financial assistance and expenditures) be made
available to the public via a single, searchable Web site, which is
www.USASpending.gov. FSRS is the reporting tool Federal prime awardees
(i.e., prime contractors and prime grants recipients) use to capture
and report subaward and executive compensation data regarding their
first-tier subawards to meet the Transparency Act reporting
requirements. To ensure consistency between the FSRS.gov system and
other Government systems, the FSRS.gov system is designed to pull in
data from other feeder systems (e.g., CCR). There is no requirement for
subcontractors to be in CCR. Thus, it is not the case that all
subcontractors will be in CCR. So, eliminating the requirement for the
prime contractor to report its subcontractor's compensation data on
http://www.fsrs.gov would not allow the Government to meet the intent
of the Transparency Act. The prime needs to report the first-tier
subcontractor information at http://www.fsrs.gov. However, if a first-
tier subcontractor is otherwise registered in CCR, the first-tier
subcontractor's executive compensation information from their CCR
record may be pulled into the prime contractor's FSRS report when the
prime contractor enters the first-tier subcontractor's information as
it appears in the CCR record. The Councils added clarification language
at FAR 52.204-7 to make contractors aware that data may be required by
the Transparency Act when registering in CCR. Also, a corresponding
change was made at FAR subpart 2.1.
Comment: Several respondents believed that the rule and CCR
guidance conflict when it comes to defining the public company
exemption, and recommended that the final rule and CCR guidance be
reissued to define the contractor's executive compensation to include
``all affiliates''. A respondent recommended that the rule be revised
to state that reporting is not required if the total compensation of
the contractor's executives or the executives of its parent company (in
the case of wholly owned subsidiaries) is already available to the
public, regardless of whether it was filed with the U.S. Government, a
State government, or a foreign government. One respondent believed that
the rule appropriately places the disclosure requirement with the
entity that receives the contracts.
Response: The rule and CCR guidance do not conflict. CCR requires
reporting of executive compensation, under certain circumstances, by
the legal entity to which this specific CCR record, represented by a
Data Universal Numbering System (DUNS) number, belongs. The rule
requires reporting by the contractor. The contractor is the legal
entity that signed the contract. The contractor, except in certain
circumstances as specified in FAR 4.605(b), has to have a DUNS number
to be a Government contractor and receive a contract award. There may
be legal entities that are not publicly traded but are wholly owned by
public companies. However, the statute did not make an exception for
reporting of a legal entity at lower levels of a publicly traded
company if the parent company already discloses the executive
compensation through the Securities and Exchange Commission (SEC)
reporting. The exceptions for reporting executive compensation are
based in the statute. Therefore, the Councils cannot create an
exception for information already available through other sources. No
change to the rule is required.
Comment: A respondent indicated that in order to keep total
compensation information confidential within the company, the rule
forces the company to limit internal access to the CCR system. This
will require the respondent to modify its existing business practices,
and to restrict access away from individuals whose job responsibilities
normally include accessing and updating the CCR system.
Response: The respondent's possible internal adjustments to comply
with reporting requirements of the rule are noted. However, even though
the information will not be viewable in CCR by the general public, the
executive compensation will be made public (including to contractor
employees), if not already as a result of SEC filings, through other
Government systems (e.g., USASpending.gov) when matched with a Federal
award to that company.
Comments: Several respondents requested that the subsidiaries of a
parent company limit the executive compensation reporting to the parent
company. A respondent had a concern with the reporting requirement, and
its effect on joint ventures since there are no officers in a joint
venture. Several respondents requested modification to the reporting
requirements to exempt from reporting institutions of higher education,
hospitals, other non-profit organizations and organizations that do not
have salaries or other compensation as defined in the rule. A
respondent requested changes in the exemption for reporting the
percentage and amounts of annual gross revenue, and potential for
disparities in reporting between companies. The respondent also
requested clarification on an exemption when the executive compensation
was provided in the last completed fiscal year.
Response: The thresholds and exemptions in the rule at FAR 52.204-
10(d)(1), (d)(3), and (g) are based in the statute. The Transparency
Act reporting requirements apply to all businesses, regardless of
business size or ownership, and the Act did not make exceptions for
subsidiaries of a parent company, joint ventures, institutions of
higher education, hospitals, and other non-profit organizations. The
disclosure of executive compensation is required annually for
individuals who manage the contractor entity. Thus, the reporting
requirement includes officers, executives, and other individuals who
perform management functions for the contractor even though they may
not have a formal title. Additionally, the Transparency Act established
the gross revenue amounts that are reflected in the rule.
Comment: A number of respondents submitted general comments
regarding the rule's executive compensation reporting requirements. A
respondent was concerned about the rationale behind the rule and
believed that it is ``pure politics.'' Several respondents had concerns
about the rule's impact on acquisitions under the Recovery Act, and the
rule's disclosure requirements. A respondent was concerned that the
Recovery Act procurement contracting officers required the disclosure
information with an offeror's response to a request for proposal, but
noted that neither the interim rule nor the Transparency Act provides
for such disclosure. The respondent requested that the Councils issue
guidance stating that the disclosure information is only required
postaward. A respondent was concerned that the rule overestimates the
degree to which contractors are already reporting the disclosure
requirements under the Recovery Act, and believed that the Councils'
reliance upon the Recovery Act as a substitute for rulemaking required
by the Transparency Act, and the Government Funding Transparency Act is
improper. The respondent believed that the Councils obscured the
application of the reporting requirements, and negatively
[[Page 44051]]
impacted contractors' understanding of their application to other
Federal procurements by imposing the disclosure requirements for the
first time under the Recovery Act. The respondent suggested that the
rule be amended to allow the Councils additional time to fully consider
important comments, and contractors' time to prepare and assess the
implication of the reporting requirements.
Response: The impetus for the rule is the Federal Funding
Accountability and Transparency Act of 2006 (Transparency Act), which
is intended to empower every American with the ability to hold the
Government accountable for each spending decision. With respect to the
respondent requesting guidance stating that the disclosure information
is only required postaward, FAR 52.204-10(c)(2) and (c)(3) (now (d)(1)
and (d)(3)) provide disclosure requirements. FAR 52.204-10(d)(1)
requires a prime contractor as a part of its annual registration
requirement in the CCR database to report the names and total
compensation of each of its five most highly compensated executives for
its preceding completed fiscal year. FAR 52.204-10(d)(3) requires that
the prime contractor disclose first-tier subcontract information by the
end of the month which follows the month of award of a first-tier
subcontract award with a value of $25,000 or more, and annually
thereafter. The decision to proceed with implementation of this rule is
not based on an overestimate of the degree to which contractors are
already reporting the disclosure requirements under the Recovery Act.
After publication of FAR Case 2006-029, and implementation of the
Recovery Act (inclusive of reporting prime and first-tier
subcontractors' total compensation for the five most highly compensated
executives), published under FAR case 2009-009, there was a reasonable
basis for implementation of the Transparency Act. Additionally, as
stated in the interim rule, the Councils implemented the Transparency
Act in a phased-in approach to allow for a more manageable Transparency
Act implementation.
B. Definitions
Comments: Several respondents were concerned with the rule's use of
the term ``executive.'' Generally, the respondents believed that the
rule's definition could cause non-executive employees to face public
disclosure of their compensation. The respondents pointed out that the
statute is limited to ``officers,'' and urged the Councils to narrow
the definition to ``corporate officers'' or ``partners'' of the
company.
Response: The statute used both terms ``officer'' and
``executive.'' To avoid any ambiguity, the FAR only uses ``executive''.
The disclosure requirement is for the compensation of individuals who
manage the contractor entity. Thus, the reporting requirement includes
officers, executives, and other individuals who perform management
functions for the contractor even though they may not have a formal
title. By defining ``executive'' to mean officers, managing partners,
or any other employees in management positions, the rule provides the
contractor with the maximum flexibility to determine its executives for
the purposes of the reporting requirements.
Comment: Several respondents requested that the Councils define
``subaward'' in a manner consistent with OMB Circular A-110 for an
organization that receives Federal grants and contracts. A respondent
preferred that the FAR follow the grants guidance, which would require
incorporating into the FAR the definition of ``subawards'' in paragraph
(ff) of section 2 of Appendix A to OMB Circular A-110, found at 2 CFR
215.2(ff).
Response: The term ``subaward'' does not require definition in the
rule for the purpose of consistency with OMB Circular A-110(ff)/2 CFR
215.2(ff), which provides guidance to Federal agencies on the
administration of grants to and agreements with institutions of higher
education, hospitals, and other non-profit organizations. The term
``subaward'' is not used in the rule, and providing a definition for
the term without using it as a function of the rule would not be
prudent and could cause confusion.
Comment: A respondent requested that the Councils define the term
``subcontract.'' The respondent stated that the term is only defined in
FAR part 44. Another respondent was concerned that the definition of
``first-tier subcontractor'' differs from the definition used in the
September 2007 clause, and noted the definition excluded contracts that
provide supplies or services benefiting two or more contracts. The
respondent recommended revising the definition of ``first-tier
subcontract'' to mean ``a subcontract awarded by a contractor solely
and directly to furnish supplies or services (including construction)
for the performance of a prime contract, but exclude supplier
agreements that benefit two or more contracts.'' Another respondent
believed that the definition for ``first-tier subcontract'' is unclear,
overly broad, and requested that the definition be revised to emphasize
that all vendor supply and service agreements are excluded from the
rule.
Response: The term ``subcontract'' does not need to be defined, as
the definition of ``first-tier subcontract'' is sufficient to meet the
intended purpose of the Transparency Act. The specific changes of the
definition of ``first-tier subcontract'' recommended by the respondents
are not necessary, as the recommended changes may restrict the
reporting of relevant first-tier subcontracts that should be reported.
However, the Councils have made changes at 52.204-10(a) to ensure
clarity, and to eliminate the potential that contractors may report
long term vendor agreements for material or supplies, which are outside
the scope of the core functions of a contractor's contract with the
Government.
Comment: A respondent suggested that a definition of ``month of
award'' be added to the rule.
Response: The Councils have added a definition of ``month of
award'' at 52.204-10(a).
Comment: A respondent was concerned with how contracting officers
are interpreting the rule's exclusion of classified contracts. The
respondent indicated that contracting officers are interpreting the
term to mean contracts where the document itself is classified. To
ensure proper implementation of the exemption, the respondent
recommended that the rule, in FAR 1.1401 and 1.1403, reference the FAR
2.101 definition for ``classified contract.''
Response: The Councils have revised the rule at FAR 4.1401, 4.1403
and 52.204-10(c) for consistency with the statute, which indicates that
nothing in the statute requires disclosure of classified information.
C. Thresholds
Comment: A number of respondents requested that the threshold for
including the clause in contracts be increased. One respondent
recommended that this clause only apply to sole source contracts over
$1 million and competitively awarded contracts over $50 million.
Another respondent thought that the Government could report 80 percent
of all contract activity by selecting only 20 percent of the largest
contracts. A respondent recommended that the Government conduct another
pilot program to assess the true cost to report contracts at $25,000,
and above to assess the true extent to which reporting such low dollar
value subcontracts is useful to the public in reducing wasteful and
unnecessary spending.
[[Page 44052]]
Response: The Transparency Act requires the full disclosure of all
Federal award information for awards of $25,000 or more.
Comment: A respondent wanted to see all the applicability details
laid out in a concise flow chart so that all contractors can easily
decipher the rule.
Response: The applicability of FAR 52.204-10, Reporting Executive
Compensation and First-Tier Subcontract Awards, is clear on its face.
Also, additional information is available at https://www.fsrs.gov/,
which provides responses to frequently asked questions, a user guide,
and gives an explanation of FSRS.
Comment: A respondent thought that the rule does not provide
sufficient guidance concerning its applicability to indefinite-delivery
indefinite-quantity (IDIQ) contracts, and that the rule should be
revised to state that the thresholds are to be applied at the order
level.
Response: The applicability section of the interim rule published
in the Federal Register on July 8, 2010, at 75 FR 39414, required that
contracting officers modify existing IDIQ contracts on a bilateral
basis in accordance with FAR 1.108(d)(3) to include the clause for
future orders. This includes modifying blanket purchase agreements
under IDIQ contracts. IDIQ contracts include Federal Supply Schedule
contracts and task and delivery-order contracts such as Governmentwide
acquisition contracts.
D. Paperwork Burden
Comments: A respondent was concerned about the potential unintended
and unnecessary burden the rule will have on wholesale distributors who
distribute products for hundreds of vendors who will independently
report the same information. The respondent believed that the rule will
impose additional burdens and costs that will affect the healthcare
system in general, as the information required to be reported by prime
contractors is duplicative of information separately required of first-
tier subcontractors. A respondent was concerned with the rule's
assumption that the executive compensation is an annual reporting
requirement. The respondent suggested that the Councils' estimate does
not take into account time required to provide information from
privately held companies, and that the estimated cost is based on the
number of firms that may have to report, not the actual number of
reports required because of contract awards. The respondent believed
that using contract awards is clearly a better basis for estimating the
reporting requirements. The respondent also believed that some
executive compensation data will need reporting multiple times, and
that the rule does not exempt firms that have previously disclosed in
the current fiscal year from reporting a second, third, or hundredth
time.
Response: The time required to conduct research and obtain
information specifically for the disclosure of compensation
information, especially from first-tier subcontractors, was not
considered in the public reporting burden published with the interim
rule. FAR 52.204-10(d) provides that the contractor is required to
report the five most highly compensated executives for each first-tier
subcontractor. Many of the required subcontract award data elements
will be pre-populated by the Government. Information not pre-populated
(e.g., first-tier subcontractor name, address, primary place of
performance subcontract number, subcontract amount, description of
product or service, etc.), should be readily known or available to the
contractor to permit ease in reporting. Disclosing compensation and the
first-tier subcontract award information may require updating, but such
updating will be infrequent and, at best, not more than once a year.
The rule will have an impact on all Government contractors including
healthcare wholesale distributors. However, because the reporting
system is designed to pre-populate disclosures from CCR into FSRS,
wholesale distributors will not necessarily independently report the
same information for hundreds of vendors that will also disclose the
required compensation information. The revisions to the definition of
``first-tier subcontractor'' allow some flexibility for the contractor
to determine its first-tier subcontractors. FAR 52.204-10(a) eliminates
the potential for contractors reporting vendor agreements that benefit
multiple contracts and/or are generally considered a part of a
contractor's general and administrative expenses or indirect cost. The
reporting requirements are not necessarily new, and were first
introduced to Government contractors on September 6, 2007, under FAR
case 2006-029, and later on March 31, 2009, as part of the reporting
requirements for the American Recovery and Reinvestment Act of 2009,
under FAR case 2009-009. The reporting requirements in these FAR cases
provided Government contractors, first-tier subcontractors, and those
wishing to do business with the Government ample time to anticipate
implementation of the statutory reporting requirements, and the ability
to comply with the requirements once they became mandatory.
E. Applicability
1. Commercial Items, Including Commercially Available Off-the-Shelf
(COTS) Items
Comment: A number of respondents requested that the requirement to
disclose executive compensation not apply to commercial item and COTS
contracts. The respondents provided various reasons for the request
including that the disclosure requirement--
Conflicts with the Federal Acquisition Streamlining Act of
1994 (Pub. L. 103-355);
Should not apply to privately held contracts; and
Is not supported by any evidence of a meaningful nexus
between the amount a contractor pays in executive compensation and the
likelihood the procuring agency is paying fair and reasonable prices
for that contractor's goods and services.
A respondent indicated that FAR 52.204-10, Reporting Executive
Compensation and First-Tier Subcontract Awards, is not an applicable
commercial item clause as shown in FAR 52.301.
Response: The Transparency Act makes no exception for contracts
involving the acquisition of commercial or COTS items, nor does it
specifically state applicability to commercial items. The clause is
shown as applicable to commercial items in FAR 52.301.
Pursuant to the requirements of 41 U.S.C 1906 (formerly 41 U.S.C.
430), the FAR Council has determined that it is not in the best
interest of the Federal Government to exempt commercial item contracts
from coverage under this rule, given that the Transparency Act was
enacted to reduce ``wasteful and unnecessary spending''. Further,
pursuant to the requirements of 41 U.S.C. 1907 (formerly 41 U.S.C.
431(a), and (b)), and 41 U.S.C. 104 (formerly 41 U.S.C. 431(c)) OFPP
has determined that it is not in the best interest of the Government to
exempt COTS items contracts from coverage under this rule (see 75 FR
39414). The Act required that OMB establish a free, public, Web site
containing full disclosure of all Federal contract award information.
Therefore, contracts for commercial items and COTS items must be
reported.
FAR 52.204-10 is included in 52.212-5, Contract Terms and
Conditions Required to Implement Statute or Executive Orders--
Commercial Items, which is prescribed at 12.301(a)(4).
[[Page 44053]]
Comment: A respondent believed that not exempting commercial items
conflicts with the Council's prior interpretation of the Transparency
Act. The respondent stated that when establishing the Transparency Act
Pilot program (FAR Case 2006-029), the Councils added Transparency Act
to the list of laws not applicable to commercial item contracts. The
respondent felt that the interim rule should have explained this
reversal.
Response: There were decisions made for the purposes of
implementing the Pilot on a limited basis that did not establish
permanent policy for the implementation of the Transparency Act.
2. Outside the United States
Comment: Some respondents recommended that FAR clause 52.204-10
should be inapplicable to contracts/subcontracts that will be awarded
to a company located outside the United States for performance that
will take place entirely outside the United States, or for the
contracting officer to exempt a class of subcontracts from the
reporting requirement to ensure force protection of U.S. Government
personnel outside the United States.
Other respondents questioned what can be done if a foreign
contractor refuses to sign a modification to incorporate the required
clause or foreign subcontractor refuses to comply. In the event that a
contractor refuses to accept such a modification, will the contractor
be ineligible for award of any work that uses Federal funds?
Response: The Transparency Act reporting requirements apply to all
businesses, regardless of business size or ownership. If a business/
contractor enters into a contract with the U.S. Government, then the
business/contractor is required to abide by the terms and conditions of
the U.S. Government contract including this contract reporting
requirement.
In the event that a contractor, foreign or otherwise, refuses to
accept such a modification, and the contracting officer is unable to
negotiate this modification, the contracting officer shall obtain
approval at least one level above the contracting officer to negotiate
an alternate resolution, as stated in the Applicability section of the
preamble.
3. Classified Contracts
Comment: A respondent stated that merely exempting classified
contracts from this interim rule is, by itself, inadequate protection
of our nation's security interests and needs. The respondent opined
that the reporting requirement created by the Transparency Act
conflicts with the significant and ongoing efforts throughout the
Government to protect sensitive but unclassified information. At a
minimum, the respondent recommended that Transparency Act data
reporting should exclude any contract that has restrictions on the
disclosure of information to foreign nationals.
Response: Congress mandated that the information required by the
Transparency Act be made publicly available. This requirement was
published as part of the interim rule for comment on July 8, 2010 (75
FR 39414). There appears to be no conflict with the intent of the
statute and any ongoing efforts throughout the Government to protect
sensitive but unclassified information. Notably, much of the
information required for reporting under this rule is already
publically available.
4. Other Applicability
Comment: Some respondents questioned the applicability of the rule
to commodity IDIQ contracts or firm-fixed-price contracts that are
awarded competitively without cost or pricing data.
Response: The Transparency Act did not make an exception to the
reporting requirements for commodity IDIQ contracts (including GSA
Schedule contracts), or firm-fixed price contracts that are awarded
competitively without cost or pricing data.
F. Subcontract Award Data
Comment: A respondent was concerned about the reporting of
information, FAR 52.204-10(c)(1)(ix) (now (d)(2)(ix)), which requires
the prime to report by prime contract number and order number. The
respondent wanted to know if they should provide the subcontractor data
not only by prime contract, but by prime contract task/delivery order,
as well. A respondent stated that per FAR 52.204-10(c)(1)(xi) (now
(d)(2)(xi)), the contractor must provide first-tier subcontract
information, including the funding agency name and code. Since many
contracts are Governmentwide contract vehicles used by multiple funding
agencies, and the respondent wanted to know if they are required to
report by prime contract, by task/delivery order, and funding entity as
well.
Response: The clause requires the contractor, by the end of the
month of award of a first-tier subcontract with a value of $25,000 or
more, to report information for the first-tier subcontract. Reporting
of the information is required at whatever level the first-tier
subcontract is awarded. If the prime signs separate first-tier
subcontracts with the same subcontractor valued at $25,000 or more, at
both the contract level and the order level, then the information
should be reported at both the contract and order level, regardless of
funding entity. The clause requires reporting of a separate subcontract
number.
Comment: A respondent indicated that it is unfamiliar with the term
``Treasury Account Symbol'' used in FAR 52.204-10(c)(1)(xiii) (now
(d)(2)(xiii)). The respondent questioned whether or not the Treasury
Account Symbol is the fund cite.
Response: The Treasury Account Symbol reporting element will be
pre-populated from FPDS. The fund cite is not captured at the FPDS
level, or at FSRS.
Comment: A respondent stated that FAR 52.204-10(c)(1)(xiv) (now
(d)(2)(xiv)) requires the North American Industry Classification System
(NAICS) code of the prime contract. Furthermore, subparagraph (c)(1)(v)
(now (d)(2)(v)) requires a description of the product or services the
subcontractor provides under the subcontract, and the NAICS of the
prime contract would not necessarily be descriptive enough to provide
complete information on the subcontract. The respondent noted that the
narrative description alone without a standardized method for reporting
the industry/products/services under the subcontract will make it
difficult for large and small businesses and industry groups to use the
data to find opportunities to perform as subcontractors.
Response: The purpose of the Act is to reduce ``wasteful and
unnecessary spending'' by establishing a free, public, online database
containing full disclosure of all Federal contract award information.
In regard to business opportunities, the primary purpose of notices
through the Governmentwide Point of Entry at http://www.fedbizopps.gov
is to provide large and small businesses access to contracting
opportunities.
Comment: A respondent recommended that the rule clarify that the
required NAICS code is the code applicable to the prime contract rather
than the NAICS code for the subcontract, which may differ.
Response: The NAICS code is pre-populated based on the input of the
FPDS information for the contract award. The prime's NAICS code is used
for reporting purposes.
Comment: One respondent recommends that every entity receiving
Federal funds above some de minimus
[[Page 44054]]
amount, regardless of how many degrees removed from the prime
contractor, report directly to a centralized Web site, giving the
public a full picture of who is receiving Federal contracting dollars.
Response: Although the Transparency Act reporting requirements flow
down to all subcontracts, regardless of tier, OMB Memorandum, ``Open
Government Directive-Federal Spending Transparency,'' April 6, 2010,
directed that the FAR be amended to limit the reporting of subcontract
awards to the contractor's first-tier subcontractors.
Comment: Several respondents recommended that the rule be revised
to identify what data, if any, in the reporting forms will be pre-
populated by the Government and ensure that it is consistently
available across the board. Inconsistent pre-population of data fields
will greatly burden contractors in designing reports to support the
reporting obligation. Another respondent suggested a way to reduce the
administrative burden of compliance could include an assurance that all
awarding agencies in the Government will provide the appropriate codes
necessary for complete reporting, e.g. the awarding agency code, the
funding agency code, and the Treasury account symbol.
Response: When contracting officers report the contract action to
the FPDS in accordance with FAR subpart 4.6, certain data will then
pre-populate from FPDS, to assist contractors in completing and
submitting their reports. Information on the Web site at https://www.fsrs.gov/documents/data_definitions_contracts.pdf specifies which
items are pre-populated. In addition, the rule has been revised to
indicate that if data originating from FPDS is found to be in error
when the contractor completes the subcontract report, the Government
contracting officer is responsible for correcting that data in FPDS.
However, the contractor is responsible for correcting all other
information.
Comment: A respondent recommended that the rule at FAR 52.204-
10(c)(1)(v) (now (d)(2)(v)) be revised to modify the reporting
requirement to delete the words ``including the overall purpose and
expected outcomes or results of the subcontract'' from the information
that must be reported. Contractor procurement systems typically contain
a brief description of the work required by the contract. The
respondent further opined that if a contractor must manually supplement
what is captured in its automated system, compliance with the reporting
requirement on a timely basis will be virtually impossible.
Response: The Government expects only a brief description of the
requirement to comply with this reporting element. In addition, there
is a capability in FSRS to allow contractors to connect their system
directly to FSRS for electronic system-to-system reporting.
Comment: A respondent recommended that the rule be revised to
modify the reporting requirement to avoid the release to the public of
proprietary information, such as the aggregate value of all first-tier
subcontracts issued under each prime contract. Some respondents stated
that the disclosure of subcontracts conflicts with the Federal Trade
Secrets Act, 18 U.S.C. 1905, with the FOIA exemption for trade secrets
and privileged and confidential commercial, and financial information,
5 U.S.C. 552(b)(4), and with the intent of the Procurement Integrity
Act, 41 U.S.C. 423 and implementing regulations at FAR 3.104-4 and
24.202. Several respondents believed that there is no equivalent
commercial practice by which such information is collected or reported
internally.
Response: Congress mandated that the executive compensation of
Government prime contractors and subcontractors be public information
under the Transparency Act. The Transparency Act created an exception
to the usual handling of contractor proprietary information. The FOIA
exemption for contractor proprietary information does not forbid
release of this information. The rule does not require the contractor
to report any trade secrets, export controlled information, or
proprietary information.
Comment: One respondent stated that double reporting under the
Recovery Act and the Transparency Act is unnecessary. The respondent
recommended that the Councils amend the rule to exempt contractors
already reporting under the Recovery Act rules, which would reduce the
burden without sacrificing transparency.
Response: Double reporting as required by the Recovery Act and
Transparency Act may be necessary under certain circumstances. For
American Recovery and Reinvestment Act (ARRA)-funded Federal contracts
that are subject to the Transparency Act reporting requirements, the
prime recipient will be required to report the ARRA-funded Federal
contracts to both FederalReporting.gov, and FSRS if the contract so
requires.
Comment: A respondent recommended that the follow-on subcontract
reporting requirement be amended to provide for a report whenever a
modification increases the subcontract to a value of $25,000 or more.
Response: The respondent's recommendation would increase the burden
on the public and the Government. However, the Councils revised FAR
52.204-10 to state that the contractor shall not split or break down
first-tier subcontract awards to a value less than $25,000 to avoid the
reporting requirements.
Comment: One respondent recommended clarification of the reporting
responsibilities that apply to prime contractors versus first-tier
subcontractors. Another respondent saw the interim rule as unreasonably
placing the burden of ensuring subcontractor compliance on prime
contractors, and recommends that the information is reported directly
to the Government by first-tier subcontractors.
Response: The requirements in the clause apply to the prime
contractor. The Federal Government has privity of contract only with
the prime contractor. Therefore, the contractor will be held
accountable for ensuring their subcontractors provide the necessary
information for contract compliance. The prime contractor could
encourage its first-tier subcontractor to register in CCR because
information in FSRS is pre-populated from CCR. However, the prime
contractor should also make the first-tier subcontractor aware that the
same data will have to be completed (including criminal proceedings
information for the Federal Awardee Performance and Integrity
Information System (FAPIIS)), taxpayer identification number, and
electronic funds transfer information, as any other registrant.
Comment: A respondent thought that the interim rule could force a
prime contractor to breach the terms of a subcontract if the
subcontract includes a requirement for nondisclosure agreements and/or
``release of information to the public''. The respondent recommended
that the requirement to include the clause only be applied to new
solicitations first issued at least 60 days after the effective date of
any subsequently issued new rule, so that companies will be able to
structure their business transactions with full knowledge of this
disclosure requirement.
Response: The interim rule implements a statute. The statute was
originally passed in 2006, and amended in 2008 to require reporting of
executive compensation. There was a previous FAR case implementing the
statute on a
[[Page 44055]]
pilot basis. There has been sufficient notice to the public of the
requirements that would be implemented in this FAR case (2008-039). The
clause as implemented included a phased-in approach to mitigate the
impact on the contractor (e.g., business arrangements between prime
contractors and subcontractors).
Comment: Some respondents indicated that many reporting elements of
the rule conflict with non-disclosure requirements in certain clauses
(e.g., 52.227-17(d), DFARS 252.204-7000, etc.). According to the
respondents, most agencies require written contracting officer approval
before disclosing to the public. The FAR rule must clarify if such
preapproval requirement applies, and if it does, provide additional
time to obtain such clearance prior to reporting, or provide that any
limitation is over-ridden and no longer applicable.
Response: The majority of the information required for reporting in
accordance with this rule is publicly available through other
Government systems (e.g., CCR, FPDS, etc.), and will be pre-populated
by the Government. Information not pre-populated (e.g., first-tier
subcontractor name, address, primary place of performance, subcontract
number, subcontract amount, description of product or service, etc.),
should not conflict with non-disclosure requirements appearing in
agency contracts. However, contractors should consult with the
contracting officer of the agency contract.
Comment: Two respondents recommended splitting the reporting
requirement into two clauses, one for subcontractor reporting and the
other for executive compensation.
Response: There is no need to separate the requirements into two
clauses, because the requirements are related and the prescription for
use of each clause would be the same. The Councils revised the clause
to more clearly distinguish the prime contractor's requirements for
reporting first-tier subcontractor information and reporting the names
and total compensation of each of the five most highly compensated
executives for the prime contractor's preceding completed fiscal year
in CCR.
Comment: A respondent stated that public disclosure of subcontracts
serves no useful purpose. The disclosure of subcontracts on a
Government Web site implies the Government plays a role in the
selection of subs. The requirement for the prime to list each sub's
``congressional district'' is pernicious, as it implies and invites
politicization of the subcontractor selection process.
Response: The disclosure of subcontract information on a Government
Web site and reporting the subcontractor's ``congressional district''
is required by the Transparency Act. Such disclosure does not imply a
Government role in the selection of subcontractors. However, consent to
subcontract is required by the Government in certain circumstances in
accordance with FAR subpart 44.2.
Comment: A respondent suggested that a way to reduce the
administrative burden of compliance is to automate the reporting
process, through an XML upload, as was originally conceived and
implemented under section 1512 of the American Recovery and
Reinvestment Act.
Response: The FSRS reporting system currently has the capability
for an XML upload. Details on this process are at https://www.fsrs.gov/resources.
Comment: A respondent suggested that a way to reduce the
administrative burden of compliance would be to use a single deadline,
such as the anniversary date of the prime award, for the annual update
of subcontractor information, as opposed to an update annually from the
issue date of each subcontract.
Response: FAR 52.204-10 has been revised to require reporting of
the names and total compensation of each of the five most highly
compensated executives of the first-tier subcontractor, for the first-
tier subcontractor's preceding completed fiscal year, annually based on
the prime contract award date.
Comment: A respondent was concerned about the potential penalties
concerning violations of the reporting requirements, and how they will
be assumed by or imposed on the prime contractor.
Response: Generally, the model for Federal contracts is that the
Government will hold prime contractors responsible for performance, and
prime contractors hold their subcontractors responsible for
performance. Standard contractual remedies apply for failure to perform
contractual requirements, as with any other contractual performance
requirement in a Federal contract. In accordance with FAR 1.602-2,
contracting officers are responsible for ensuring performance of all
necessary actions for effective contracting, ensuring compliance with
the terms of the contract, and ensuring that contractors receive
impartial, fair, and equitable treatment.
G. Impact on Small Businesses
Comment: Several respondents were concerned that the rule puts
small businesses and private companies at a competitive disadvantage. A
respondent believed that this rule requires that small and private
businesses divulge competitive and proprietary information to customers
and competitors alike. According to the respondent, these mandatory
disclosures and additional new administrative burdens will have a
particularly adverse impact on small businesses. A respondent believed
that the increased general, administrative, and overhead costs could
make it difficult for smaller businesses to vie for Government
contracts by reducing the overall competition pool in Government
contracting. Another respondent questioned the purpose of the
directive. Several respondents thought that the requirements are
burdensome because small businesses, including first-tier
subcontractors, are unaccustomed to such requirements and do not have
infrastructure in place to comply.
Response: The requirements may have some potential impact on small
privately held businesses; however, the public disclosure of executive
compensation information implemented under this rule is statutory.
There are exceptions which will eliminate some companies which would
otherwise be covered, such as the 80 percent/$25 million exception, the
$300,000 gross income exception, and the definition of ``first-tier
subcontract.'' Additionally, changes to the rule summarized at section
III. of this preamble may lessen the burden on small businesses.
Comment: Given the unintended yet far-reaching effect the
requirements may have upon similarly situated small businesses, a
respondent encouraged the Councils to work closely with the Small
Business Administration (SBA) in addressing such concerns, or consider
the impact the executive compensation reporting requirements rule may
have on small business and small business supply chains.
Response: During the FAR rulemaking process, the SBA and the Chief
Counsel for Advocacy of the SBA (see Regulatory Flexibility Act, 5
U.S.C. 601, et seq.) are afforded an opportunity to review and comment
on each FAR rule prior to publication, with the focus of limiting
burden on small businesses as much as possible. The Councils consider
the comments by SBA and the Chief Counsel for Advocacy of the SBA in
the formulation of a FAR rule.
[[Page 44056]]
H. Reporting System
Comment: Several respondents expressed concerns about reporting in
FSRS. A respondent was concerned that the FSRS system does not
automatically notify contracting officers when a report is submitted
for review. According to the respondent, with contracting personnel
already overburdened, daily checking of the system will be time
consuming. The respondent recommended adding an automatic notification
process to FSRS. A respondent recommended the use of
Federalreporting.gov, since contractors are already familiar with that
system.
Response: FAR 4.1402 requires the agency to ensure that contractors
comply with the reporting requirements of 52.204-10. This allows the
agency maximum flexibility to establish the most efficient process to
ensure compliance. Additionally, FSRS is not equipped to provide for an
automatic notification. In regard to the recommendation to use
Federalreporting.gov, the reporting requirements of the Transparency
Act and the Recovery Act are separate and distinct requirements.
Therefore, a decision was made not to use this system.
I. Other Concerns About the Rule
Comment: A number of respondents expressed concern that the rule is
costly to the taxpayer and businesses, and questioned how the rule
could accomplish the objective of deterring wasteful and unnecessary
spending or empower the taxpayer with information that may be used to
demand greater fiscal discipline from the executive and legislative
branches of Government. The respondents were also concerned with the
rule's overall impact on their practice of doing business with the
Government.
Response: The requirements are statutory. The changes to the rule
summarized at section III. of this preamble may lessen the burden on
businesses.
Comment: A respondent believed that complete transparency requires
the prime contractors to list their first-tier subcontracts when
submitting their bid. The respondent believed the list of first-tier
subcontractors needs to be made available to the taxpayers at the time
of bid submission. Furthermore, according to the respondent, delaying
the reporting of this information until a month after the award allows
time for prime and subcontractors in the construction industry to
participate in unethical practices.
Response: The Transparency Act, which is the impetus for the rule,
contains no requirement for bid information to be made available to the
public unless an award is made.
Comment: A respondent believed since the majority of first-tier
subcontractors in the health care industry are also prime contractors,
they should not have to supply the same information multiple times. The
respondent believed that is unduly burdensome for multiple distributers
to gather and submit information identical to that which the Government
has already received directly from that source. To the extent that the
data is not already being collected under the Act, the respondent would
incur the costs to provide the needed information.
Response: The Transparency Act may unavoidably require some
duplicate data collection. The rule has been revised to the extent
possible, in response to public comments, to lessen the burden on
contractors. The revisions are summarized later in this preamble. There
are also exceptions which will eliminate some companies, which would
otherwise be covered, such as the 80 percent/$25 million exception and
the $300,000 gross income exception.
Comment: A respondent believed that the preamble to the interim
rule was incorrect in stating that FAR clause 52.204-10 flows down to
subcontracts. Inclusion of this clause in subcontracts would result in
flowing down the subcontract reporting requirement to the second-tier
of subcontractors. The respondent felt that the preamble should clarify
that the only part of the clause which `flows' down is the requirement
to report executive compensation.
Response: The interim rule preamble stated that OMB directed that
the FAR be amended to initiate subcontract award reporting under the
Transparency Act. However, OMB Memorandum, ``Open Government Directive-
Federal Spending Transparency,'' April 6, 2010, limited the subcontract
reporting only to first-tier subcontracts.
Comment: A respondent believed that the final FAR rule should allow
contracts awarded under the interim rule to be modified, without
consideration, to incorporate the final rule. The respondent believed
that this will be less burdensome on the contractors than having two
different reporting schemes.
Response: The Applicability section of this preamble provides the
direction for modifying existing contracts. This should avoid having
two different reporting schemes.
Comment: A respondent believed that the reporting requirements
should be extended beyond the first-tier of subcontracts to fully
realize transparency in Government contracting.
Response: Extending the reporting requirements beyond the first-
tier would significantly increase the burden on subcontractors. OMB
directed the implementation of the Transparency Act at the first-tier
subcontract level.
III. Summary of FAR Changes
This FAR rule revises 2.101, subpart 4.14, 52.204-7 and 52.204-10
for Transparency Act reporting requirements. A summary of the FAR
changes are as follows:
A. FAR 2.101
[cir] Clarifies that prime contractors must enter Transparency Act
data when registering in CCR.
B. FAR Subpart 4.14
[cir] Revises 4.1401 of the rule for consistency with the statute
which exempts ``classified information,'' not ``classified contracts''.
The Councils have deleted the exception for ``individuals'', which is
not used in the statute for contracts. These changes are required to
ensure consistency with the implementation of the statute. The
paragraph regarding the phase-in schedule was deleted since all phase-
in dates have passed, and this final rule is after that period.
[cir] Revises 4.1402(b) to clarify the responsibility for
correcting any pre-populated data in FSRS.
[cir] Revises 4.1403 to remove the exception for inserting the
clause in classified solicitations and contracts, or solicitations or
contracts with individuals. However, the Councils added that the clause
is not prescribed for contracts that are not required to be reported in
the FPDS.
C. FAR 52.204-7
[cir] Revises FAR 52.204-7, Central Contractor Registration, to
conform to the change at FAR 2.101.
D. FAR 52.204-10
[cir] Revises the definition of ``first-tier subcontract'' to allow
contractors greater flexibility to determine their first-tier
subcontractors.
[cir] Adds a definition of ``month of award''.
[cir] Adds a paragraph to remind contractors that nothing in this
clause requires the disclosure of classified information.
[cir] Moves text previously at FAR 52.204-10(c)(2) to FAR 52.204-
10(d)(1) to ensure the prime contractor's reporting requirements of its
executive compensation are discussed in the
[[Page 44057]]
clause before the reporting requirements for the first-tier
subcontract. In addition, FAR 52.204-10(d)(1) includes a change to
conform to the change made at FAR 52.204-7. The prime contractor is
required to report its executive compensation in the CCR database as a
part of its annual registration requirement in the CCR.
[cir] Clarifies the 80 percent and $25 million language now at FAR
52.204-10(d)(1)(i) and (d)(3)(i) by adding wording derived from the
statute: ``and other forms of Federal financial assistance.''
[cir] Adds FAR 52.204-10(e) to state that the contractor shall not
split or break down first-tier subcontract awards to a value less than
$25,000 to avoid the first-tier subcontract reporting requirements.
[cir] Adds FAR 52.204-10(f), to state that the contractor is
required to report information on a first-tier subcontract when the
subcontract is awarded. However, continued reporting on the same
subcontract is not required unless one of the reported data elements
changes during the performance of the subcontract. The Contractor is
not required to make further reports after the first-tier subcontract
expires. FAR 52.204-10(f) requirements replace and clarify a
parenthetical requirement in the interim rule at FAR 52.204-10(c)(1)
for the contractor to report on any modification to the first-tier
subcontract that changed previously reported data.
[cir] Relocates text previously at paragraph 52.204-10(d) to
paragraph 52.204-10(g).
[cir] Deletes reference to a phase-in schedule previously at
52.204-10(e), since the phase-in schedule has been completed.
[cir] Adds a paragraph (h) to clarify responsibility for correcting
incorrect data.
IV. Executive Orders 12866 and 13563
Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). E.O.
13563 emphasizes the importance of quantifying both costs and benefits,
of reducing costs, of harmonizing rules, and of promoting flexibility.
This is a significant regulatory action and, therefore, was subject to
review under Section 6(b) of E.O. 12866, Regulatory Planning and
Review, dated September 30, 1993. This rule is not a major rule under 5
U.S.C. 804.
V. Regulatory Flexibility Act
DoD, GSA, and NASA prepared a Final Regulatory Flexibility Analysis
(FRFA) consistent with 5 U.S.C. 604, et seq. The FRFA is summarized as
follows:
The Transparency Act was enacted to reduce ``wasteful and
unnecessary spending'' by requiring that OMB establish a free,
public, online database containing full disclosure of all Federal
contract award information. The objective of the rule is to empower
the American taxpayer with information that may be used to demand
greater fiscal discipline from both executive and legislative
branches of Government. According to the sponsors of the
Transparency Act, the new database will deter ``wasteful and
unnecessary'' spending, since Government officials will be less
likely to earmark funds for special projects if they know the public
could identify how much money was awarded to which organizations,
and for what purposes.
Comments were received that indicated the rule would impact
small businesses. The comments covered a number of issues including:
The rule disproportionately damages the competitive position of
small and medium-sized contractors, and the increased general,
administrative, overhead costs could make it difficult for smaller
businesses to vie for Government contracts. Other issues are cited
in this preamble.
The responses in the preamble point out a number of aspects of
the rule that may lessen the impact of the rule on small businesses,
including: The lessons learned from issuance of FAR case 2006-029,
familiarization from the Recovery Act reporting rule, the exceptions
in the rule that exclude some contractors, the revisions to the rule
listed in section III. of this preamble, and pre-population of data
in FSRS from other Government systems.
The rule applies to all contracts and subcontracts, of $25,000
or more. The clause does not require the disclosure of classified
information. The rule requires contractors to report first-tier
subcontract award information and annually report the contractor's
and first-tier subcontractors' five most highly compensated
executives for the contractor and subcontractor's preceding
completed fiscal year. To arrive at an estimate of the number of
small businesses to which the rule would apply, the Councils queried
the FDPS for FY 10 contract award information. DoD, NASA and GSA
believe 233,623 is a reasonable estimate of the total number of
small businesses, both as prime and first-tier subcontractors to
whom the rule will apply.
The rule applies to all, regardless of business size or
ownership. The professional skills necessary for the preparation of
the report would probably be a company officer or division manager
or a company subcontract administrator.
DoD, NASA and GSA considered a number of alternatives that may
have lessened the impact on small businesses, but the alternatives
would have prevented the full disclosure of all Federal award
information for awards of $25,000 or more, as required by the
Transparency Act. One alternative of excluding small businesses
entirely from the rule would not be feasible, given the objectives
of the rule.
Interested parties may obtain a copy of the FRFA from the
Regulatory Secretariat. The Regulatory Secretariat has submitted a copy
of the FRFA to the Chief Counsel for Advocacy of the Small Business
Administration.
VI. Paperwork Reduction Act
The Paperwork Reduction Act (44 U.S.C. chapter 35) applies because
this final rule contains information collection requirements. OMB has
cleared this information collection requirement under OMB Control
Number 9000-0177, titled: Reporting Executive Compensation and First-
tier Subcontract Awards in the amount of 75,117 burden hours. Comments
on the interim rule as well as the information collection requirement
were received and considered in the revisions to both the rule and the
collection. DoD, GSA, and NASA published in the Federal Register at 77
FR 22766 on April 17, 2012 a revised paperwork burden analysis by
increasing the total overall public burden, as a result of analysis of
the public comments received. In addition, analysis of public burden
comments and changes required to the rule is summarized in this
preamble in section II, Discussion and Analysis, under various comment
categories, but especially comment category D.
List of Subjects in 48 CFR Parts 1, 2, 4, and 52
Government procurement.
Dated: July 16, 2012.
Laura Auletta,
Director, Office of Governmentwide Acquisition Policy, Office of
Acquisition Policy, Office of Governmentwide Policy.
Interim Rule Adopted as Final With Changes
Accordingly, the interim rule amending 48 CFR parts 4, 12, 42, and
52, which was published in the Federal Register at 75 FR 39414 on July
8, 2010, is adopted as final with the following changes:
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1. The authority citation for 48 CFR parts 1, 2, 4, and 52 is revised
to read as follows:
Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51
U.S.C. 20113.
[[Page 44058]]
PART 1--FEDERAL ACQUISTION REGULATIONS SYSTEM
1.106 [Amended]
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2. Amend section 1.106 in the table following the introductory text, by
adding in numerical sequence, FAR segment ``4.14'' and its
corresponding OMB Control Number ``9000-0177'', and FAR segment
``52.204-10'' and its corresponding OMB Control Number ``9000-0177''.
PART 2--DEFINITIONS OF WORDS AND TERMS
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3. Amend section 2.101, in paragraph (b)(2), in the definition
``Registered in the CCR database'' by revising paragraph (1) to read as
follows:
2.101 Definitions.
* * * * *
(b) * * *
(2) * * *
Registered in the CCR database * * *
(1) The contractor has entered all mandatory information, including
the DUNS number or the DUNS+4 number, as well as data required by the
Federal Funding Accountability and Transparency Act of 2006 (see
subpart 4.14), into the CCR database; and
* * * * *
PART 4--ADMINSTRATIVE MATTERS
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4. Revise section 4.1401 to read as follows:
4.1401 Applicability.
(a) This subpart applies to all contracts with a value of $25,000
or more. Nothing in this subpart requires the disclosure of classified
information.
(b) Reporting of subcontract information will be limited to the
first-tier subcontractor.
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5. Amend section 4.1402 by revising paragraph (b); and removing from
paragraph (d) ``52.204-10(d)'' and adding ``52.204-10(g)'' in its
place.
The revised text reads as follows:
4.1402 Procedures.
* * * * *
(b) When contracting officers report the contract action to the
Federal Procurement Data System (FPDS) in accordance with FAR subpart
4.6, certain data will then pre-populate from FPDS, to assist
contractors in completing and submitting their reports. If data
originating from FPDS is found by the contractor to be in error when
the contractor completes the subcontract report, the contractor should
notify the Government contracting officer, who is responsible for
correcting the data in FPDS. Contracts reported using the generic DUNS
number allowed at FAR 4.605(b)(2) will interfere with the contractor's
ability to comply with this reporting requirement, because the data
will not pre-populate from FPDS.
* * * * *
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6. Revise section 4.1403 to read as follows:
4.1403 Contract clause.
(a) The contracting officer shall insert the clause at 52.204-10,
Reporting Executive Compensation and First-Tier Subcontract Awards, in
all solicitations and contracts of $25,000 or more.
(b) The clause is not prescribed for contracts that are not
required to be reported in the Federal Procurement Data System (FPDS)
(see subpart 4.6).
PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
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7. Amend section 52.204-7 by--
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a. Revising the date of the clause; and
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b. In paragraph (a), in the definition ``Registered in the CCR
database'' revising paragraph (1) to read as follows:
52.204-7 Central Contractor Registration.
* * * * *
Central Contractor Registration (Aug 2012)
(a) Definitions. * * *
Registered in the CCR database * * *
(1) The Contractor has entered all mandatory information,
including the DUNS number or the DUNS+4 number, as well as data
required by the Federal Funding Accountability and Transparency Act
of 2006 (see subpart 4.14), into the CCR database; and
* * * * *
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8. Revise section 52.204-10 to read as follows:
52.204-10 Reporting Executive Compensation and First-Tier Subcontract
Awards.
As prescribed in 4.1403(a), insert the following clause:
Reporting Executive Compensation and First-Tier Subcontract Awards (AUG
2012)
(a) Definitions. As used in this clause:
Executive means officers, managing partners, or any other
employees in management positions.
First-tier subcontract means a subcontract awarded directly by
the Contractor for the purpose of acquiring supplies or services
(including construction) for performance of a prime contract. It
does not include the Contractor's supplier agreements with vendors,
such as long-term arrangements for materials or supplies that
benefit multiple contracts and/or the costs of which are normally
applied to a Contractor's general and administrative expenses or
indirect costs.
Month of award means the month in which a contract is signed by
the Contracting Officer or the month in which a first-tier
subcontract is signed by the Contractor.
Total compensation means the cash and noncash dollar value
earned by the executive during the Contractor's preceding fiscal
year and includes the following (for more information see 17 CFR
229.402(c)(2)):
(1) Salary and bonus.
(2) Awards of stock, stock options, and stock appreciation
rights. Use the dollar amount recognized for financial statement
reporting purposes with respect to the fiscal year in accordance
with the Financial Accounting Standards Board's Accounting Standards
Codification (FASB ASC) 718, Compensation-Stock Compensation.
(3) Earnings for services under non-equity incentive plans. This
does not include group life, health, hospitalization or medical
reimbursement plans that do not discriminate in favor of executives,
and are available generally to all salaried employees.
(4) Change in pension value. This is the change in present value
of defined benefit and actuarial pension plans.
(5) Above-market earnings on deferred compensation which is not
tax-qualified.
(6) Other compensation, if the aggregate value of all such other
compensation (e.g., severance, termination payments, value of life
insurance paid on behalf of the employee, perquisites or property)
for the executive exceeds $10,000.
(b) Section 2(d)(2) of the Federal Funding Accountability and
Transparency Act of 2006 (Pub. L. 109-282), as amended by section
6202 of the Government Funding Transparency Act of 2008 (Pub. L.
110-252), requires the Contractor to report information on
subcontract awards. The law requires all reported information be
made public, therefore, the Contractor is responsible for notifying
its subcontractors that the required information will be made
public.
(c) Nothing in this clause requires the disclosure of classified
information.
(d)(1) Executive compensation of the prime contractor. As a part
of its annual registration requirement in the Central Contractor
Registration (CCR) database (FAR clause 52.204-7), the Contractor
shall report the names and total compensation of each of the five
most highly compensated executives for its preceding completed
fiscal year, if--
(i) In the Contractor's preceding fiscal year, the Contractor
received--
(A) 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
(B) $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
(ii) 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.).
[[Page 44059]]
(2) First-tier subcontract information. Unless otherwise
directed by the contracting officer, or as provided in paragraph (g)
of this clause, by the end of the month following the month of award
of a first-tier subcontract with a value of $25,000 or more, the
Contractor shall report the following information at http://www.fsrs.gov for that first-tier subcontract. (The Contractor shall
follow the instructions at http://www.fsrs.gov to report the data.)
(i) Unique identifier (DUNS Number) for the subcontractor
receiving the award and for the subcontractor's parent company, if
the subcontractor has a parent company.
(ii) Name of the subcontractor.
(iii) Amount of the subcontract award.
(iv) Date of the subcontract award.
(v) 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.
(vi) Subcontract number (the subcontract number assigned by the
Contractor).
(vii) Subcontractor's physical address including street address,
city, state, and country. Also include the nine-digit zip code and
congressional district.
(viii) Subcontractor's primary performance location including
street address, city, state, and country. Also include the nine-
digit zip code and congressional district.
(ix) The prime contract number, and order number if applicable.
(x) Awarding agency name and code.
(xi) Funding agency name and code.
(xii) Government contracting office code.
(xiii) Treasury account symbol (TAS) as reported in FPDS.
(xiv) The applicable North American Industry Classification
System code (NAICS).
(3) Executive compensation of the first-tier subcontractor.
Unless otherwise directed by the Contracting Officer, by the end of
the month following the month of award of a first-tier subcontract
with a value of $25,000 or more, and annually thereafter (calculated
from the prime contract award date), the Contractor shall report the
names and total compensation of each of the five most highly
compensated executives for that first-tier subcontractor for the
first-tier subcontractor's preceding completed fiscal year at http://www.fsrs.gov, if--
(i) In the subcontractor's preceding fiscal year, the
subcontractor received--
(A) 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
(B) $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
(ii) 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.)
(e) The Contractor shall not split or break down first-tier
subcontract awards to a value less than $25,000 to avoid the
reporting requirements in paragraph (d).
(f) The Contractor is required to report information on a first-
tier subcontract covered by paragraph (d) when the subcontract is
awarded. Continued reporting on the same subcontract is not required
unless one of the reported data elements changes during the
performance of the subcontract. The Contractor is not required to
make further reports after the first-tier subcontract expires.
(g)(1) If the Contractor in the previous tax year had gross
income, from all sources, under $300,000, the Contractor is exempt
from the requirement to report subcontractor awards.
(2) If a subcontractor in the previous tax year had gross income
from all sources under $300,000, the Contractor does not need to
report awards for that subcontractor.
(h) The FSRS database at http://www.fsrs.gov will be
prepopulated with some information from CCR and FPDS databases. If
FPDS information is incorrect, the contractor should notify the
contracting officer. If the CCR database information is incorrect,
the contractor is responsible for correcting this information.
(End of clause)
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9. Amend section 52.212-5 by revising the date of the clause, and
paragraph (b)(4) to read as follows:
52.212-5 Contract Terms and Conditions Required To Implement Statutes
or Executive Orders--Commercial Items.
* * * * *
Contract Terms and Conditions Required To Implement Statutes or
Executive Orders--Commercial Items. (Aug 2012)
* * * * *
(b) * * *
(4) 52.204-10, Reporting Executive Compensation and First-Tier
Subcontract Awards (Aug 2012) (Pub. L. 109-282) (31 U.S.C. 6101
note).
* * * * *
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10. Amend section 52.213-4 by--
0
a. Revise the date of the clause;
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b. Remove paragraph (a)(2)(i);
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c. Redesignate paragraphs (a)(2)(ii) through paragraphs (a)(2)(viii) as
paragraphs (a)(2)(i) through paragraphs (a)(2)(vii), respectively;
0
d. Redesignate paragraphs (b)(1)(i) through paragraphs (b)(1)(xii) as
paragraphs (b)(1)(ii) through paragraphs (b)(1)(xiii), respectively;
and
0
e. Add a new paragraph (b)(1)(i).
The revised and added text reads as follows:
52.213-4 Terms and Conditions--Simplified Acquisitions (Other Than
Commercial Items).
* * * * *
Terms and Conditions--Simplified Acquisitions (Other Than Commercial
Items) (Aug 2012)
* * * * *
(b) * * *
(1) * * *
(i) 52.204-10, Reporting Executive Compensation and First-Tier
Subcontract Awards (Aug 2012) (Pub. L. 109-282) (31 U.S.C. 6101
note) (Applies to contracts valued at $25,000 or more).
* * * * *
[FR Doc. 2012-17724 Filed 7-25-12; 8:45 am]
BILLING CODE 6820-EP-P