Five Things Government Contractors Should Keep in Mind about Political Activities this Election Season

Justin Chiarodo and Stephanie M. Harden 

The 2016 election season is unlike any other in recent memory. But like elections past and yet to come, political contributions and lobbying remain a mainstay of the political process. This is particularly true in the federal government contracting community, which is heavily influenced by executive and legislative action (and inaction). Though we can expect the unexpected in the three months leading up to the election, we offer below five fundamental “do’s and don’ts” that government contractors should keep in mind to guide their political activities.

1. Do Not Make Contributions to Political Candidates Using Contractor Funds

Federal law prohibits individual contractors (as well as business entity contractors) from contributing to political candidates and parties. See 52 U.S.C. § 30119(a)(1). This restriction is enforced by the Federal Election Commission and recently survived a constitutional challenge by a three government contractors who argued that the law violated their First and Fifth Amendment rights. See Wagner v. Federal Election Commission, 793 F.3d 1 (D.C. Cir. 2015), cert. denied, Miller v. Federal Election Commission, 136 S. Ct. 895 (2016). Notably, the restriction applies to individual contractors, but not to political action committees or corporate officers, shareholders, or employees.

2. Do Not Use Federal Government Funds for Lobbying Expenditures

The Byrd Amendment prohibits contractors from using federal funds for many lobbying activities. The restrictions apply to “covered action”—which includes awarding a federal contract; making a federal grant or loan; entering into a cooperative agreement; or extending, amending, or modifying any of these types of contractual actions. The Justice Department has recently targeted suspected Byrd Amendment violators.

In addition to the Byrd Amendment’s restrictions, the cost principles go even further in limiting the allowability of lobbying expenditures. Indeed, FAR 31.205-22 (Lobbying and Political Activity Costs) disallows costs pertaining to “attempts to influence the outcomes” of elections, referendums, initiatives, and legislation. It also disallows costs associated with “establishing, administering, contributing to, or paying the expenses of a political party, campaign, political action committee, or other organization established for the purpose of influencing the outcomes of elections.”

The exceptions to these restrictions are very narrow. Note that most state and local government contracts will be subject to similar restrictions.

3. Do Disclose Lobbying Activities When Required

In addition to restricting the use of federal funds for lobbying, the Byrd Amendment also requires that contractors disclose certain types of lobbying activities and certify that they have not made any payment for a prohibited lobbying activity.

The Lobbying Disclosure Act (“LDA”) also generally requires companies to register as a lobbying firm if the following two conditions are met: (1) any of its employees have “lobbyist” status (a carefully-defined term) and (2) the company’s total expenses for lobbying activities exceed or are expected to exceed $12,500 during a quarterly period. Notably for contractors, communications to covered officials that seek to impact the direction of a contracting program or impact program funding may constitute lobbying contacts, as may communications about the formulation, modification, or adoption, of legislation, rules, regulations, policies, etc.

4. Do Ensure Employees Understand Company Policies and That First Amendment Rights Are Protected

A challenging issue for contractors is how to balance the First Amendment rights of their employees with the need to manage risk in these areas. A sound course of action is to prohibit employees from engaging in political activities while on company time or using company resources unless they have express prior written approval. Employees also should not make representations that may be construed as political advocacy on behalf of the company (or that could reasonably be viewed as having the company’s endorsement) without express prior written approval. On their own time, however, employees should be free to endorse candidates and issues as they wish, as long as they do not use company resources or state or imply that the company endorses their views. A clear policy to this effect is important to ensure that employees understand their rights and responsibilities.

5. Don’t Forget about Gift and Gratuity Restrictions

It is also important to keep gift and gratuity rules in mind as the election—and accompanying turnover among politicians and their staffs—draws near. There are both contractor-facing and government-facing restrictions that prohibit contractors from giving, and government employees from receiving, gifts and gratuities.

The contractor-facing restrictions prohibit providing “any thing of value” to a public official with the intent to influence any official act or for or because of an official act. The government-facing restrictions are even broader, prohibiting all government employees from receiving any gift, gratuity, entertainment, loan, or anything of value from anyone with business before the agency (or who is seeking such business) or who has interests that may be substantially affected by the performance of the employee’s duties. These rules have also been construed as prohibiting contractor employees from receiving such gifts or gratuities where the contractor is acting on behalf of the government.

Although there are some de minimus exceptions to these rules and each of their constituent elements are carefully defined, navigating these issues can be quite complex. Indeed, the highly-publicized recent corruption case involving former Virginia Governor Bob McDonnell went all the way to the Supreme Court over the interpretation of what constitutes an “official act.” Thus, contractors should be sure that they and their employees are aware of and follow these restrictions throughout the coming election cycle and beyond.