Federal Acquisition Regulation; Reporting Executive Compensation and First-Tier Subcontract Awards, 44047-44059 [2012-17724]

Download as PDF Federal Register / Vol. 77, No. 144 / Thursday, July 26, 2012 / Rules and Regulations double taxation of Government costreimbursement contracts when contractors and their subcontractors purchase tangible personal property to be used in performing services in whole or in part in the State of New Mexico, and for which title to such property will pass to the United States upon delivery of the property to the contractor and its subcontractors by the vendor. Small businesses benefit from this agreement because they will no longer have the administrative effort and cost associated with collecting this tax. Dated: July 11, 2012. Richard Ginman, Director, Defense Procurement and Acquisition Policy. Item V—Clarification of Standards for Computer Generation of Forms (FAR Case 2011–022) [FR Doc. 2012–17717 Filed 7–25–12; 8:45 am] DoD, GSA, and NASA published a proposed rule in the Federal Register at 76 FR 79609 on December 22, 2011, to implement the removal of Federal Information Processing Standard (FIPS) 161. FIPS 161 is being removed based on the notice posted in the Federal Register at 73 FR 51276 on September 2, 2008, by the Department of Commerce. This is a technical change acknowledging the removal by the Department of Commerce of FIPS 161 and replacement with the American National Standards Institute (ANSI) X12 set of standards. There is no impact to the Government or contractors in establishing ANSI X12 as the new standard. Small businesses will continue to be able to generate forms by computer. No public comments were received on the proposed rule, therefore, the final rule will be published with no changes. DEPARTMENT OF DEFENSE Item VI—Technical Amendments Editorial changes are made at FAR 1.105–2, 16.301–3, 22.1801, 22.1802, 52.212–5, 52.215–20, 52.222–54, and 52.223–2. srobinson on DSK4SPTVN1PROD with RULES3 Dated: July 16, 2012. Laura Auletta, Director, Office of Governmentwide Acquisition Policy, Office of Acquisition Policy, Office of Governmentwide Policy. Federal Acquisition Circular (FAC) 2005–60 is issued under the authority of the Secretary of Defense, the Administrator of General Services, and the Administrator for the National Aeronautics and Space Administration. Unless otherwise specified, all Federal Acquisition Regulation (FAR) and other directive material contained in FAC 2005–60 is effective July 26, 2012, except for Item I, II, and IV which are effective August 27, 2012. VerDate Mar<15>2010 18:38 Jul 25, 2012 Jkt 226001 Dated: July 12, 2012. Laura Auletta, Acting Senior Procurement Executive, Office of Acquisition Policy, U.S. General Services Administration. Dated: July 10, 2012. Ronald A. Poussard, Director, Contract Management Division, National Aeronautics and Space Administration. BILLING CODE 6820–EP–P 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 Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA). ACTION: Final rule. AGENCIES: 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. SUMMARY: PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 44047 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 E:\FR\FM\26JYR3.SGM 26JYR3 srobinson on DSK4SPTVN1PROD with RULES3 44048 Federal Register / Vol. 77, No. 144 / Thursday, July 26, 2012 / Rules and Regulations 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— Æ Until September 30, 2010, any newly awarded subcontract must be reported if the prime contract award amount was $20 million or more; Æ 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 Æ 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. VerDate Mar<15>2010 18:38 Jul 25, 2012 Jkt 226001 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 costreimbursement 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. PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 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, E:\FR\FM\26JYR3.SGM 26JYR3 srobinson on DSK4SPTVN1PROD with RULES3 Federal Register / Vol. 77, No. 144 / Thursday, July 26, 2012 / Rules and Regulations 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 anticompetitive 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 VerDate Mar<15>2010 18:38 Jul 25, 2012 Jkt 226001 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 PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 44049 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 E:\FR\FM\26JYR3.SGM 26JYR3 srobinson on DSK4SPTVN1PROD with RULES3 44050 Federal Register / Vol. 77, No. 144 / Thursday, July 26, 2012 / Rules and Regulations 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 firsttier 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 VerDate Mar<15>2010 18:38 Jul 25, 2012 Jkt 226001 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 PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 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 E:\FR\FM\26JYR3.SGM 26JYR3 Federal Register / Vol. 77, No. 144 / Thursday, July 26, 2012 / Rules and Regulations 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. srobinson on DSK4SPTVN1PROD with RULES3 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 VerDate Mar<15>2010 18:38 Jul 25, 2012 Jkt 226001 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 ‘‘firsttier 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 PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 44051 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. E:\FR\FM\26JYR3.SGM 26JYR3 44052 Federal Register / Vol. 77, No. 144 / Thursday, July 26, 2012 / Rules and Regulations srobinson on DSK4SPTVN1PROD with RULES3 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 VerDate Mar<15>2010 18:38 Jul 25, 2012 Jkt 226001 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 prepopulate 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 PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 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). E:\FR\FM\26JYR3.SGM 26JYR3 Federal Register / Vol. 77, No. 144 / Thursday, July 26, 2012 / Rules and Regulations 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. srobinson on DSK4SPTVN1PROD with RULES3 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 VerDate Mar<15>2010 18:38 Jul 25, 2012 Jkt 226001 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 firmfixed-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 PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 44053 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 prepopulated 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 prepopulated 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 E:\FR\FM\26JYR3.SGM 26JYR3 srobinson on DSK4SPTVN1PROD with RULES3 44054 Federal Register / Vol. 77, No. 144 / Thursday, July 26, 2012 / Rules and Regulations 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 VerDate Mar<15>2010 18:38 Jul 25, 2012 Jkt 226001 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 systemto-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 PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 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 E:\FR\FM\26JYR3.SGM 26JYR3 srobinson on DSK4SPTVN1PROD with RULES3 Federal Register / Vol. 77, No. 144 / Thursday, July 26, 2012 / Rules and Regulations 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 VerDate Mar<15>2010 18:38 Jul 25, 2012 Jkt 226001 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. PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 44055 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. E:\FR\FM\26JYR3.SGM 26JYR3 44056 Federal Register / Vol. 77, No. 144 / Thursday, July 26, 2012 / Rules and Regulations srobinson on DSK4SPTVN1PROD with RULES3 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 firsttier 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, VerDate Mar<15>2010 18:38 Jul 25, 2012 Jkt 226001 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 PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 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 Æ Clarifies that prime contractors must enter Transparency Act data when registering in CCR. B. FAR Subpart 4.14 Æ 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. Æ Revises 4.1402(b) to clarify the responsibility for correcting any prepopulated data in FSRS. Æ 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 Æ Revises FAR 52.204–7, Central Contractor Registration, to conform to the change at FAR 2.101. D. FAR 52.204–10 Æ Revises the definition of ‘‘first-tier subcontract’’ to allow contractors greater flexibility to determine their first-tier subcontractors. Æ Adds a definition of ‘‘month of award’’. Æ Adds a paragraph to remind contractors that nothing in this clause requires the disclosure of classified information. Æ 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 E:\FR\FM\26JYR3.SGM 26JYR3 Federal Register / Vol. 77, No. 144 / Thursday, July 26, 2012 / Rules and Regulations 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. Æ 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.’’ Æ 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. Æ 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. Æ Relocates text previously at paragraph 52.204–10(d) to paragraph 52.204–10(g). Æ Deletes reference to a phase-in schedule previously at 52.204–10(e), since the phase-in schedule has been completed. Æ Adds a paragraph (h) to clarify responsibility for correcting incorrect data. srobinson on DSK4SPTVN1PROD with RULES3 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 VerDate Mar<15>2010 18:38 Jul 25, 2012 Jkt 226001 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 prepopulation 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 PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 44057 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: 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. E:\FR\FM\26JYR3.SGM 26JYR3 44058 Federal Register / Vol. 77, No. 144 / Thursday, July 26, 2012 / Rules and Regulations PART 1—FEDERAL ACQUISTION REGULATIONS SYSTEM 1.106 [Amended] 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 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 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 firsttier subcontractor. ■ 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. srobinson on DSK4SPTVN1PROD with RULES3 * * * * * (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 VerDate Mar<15>2010 18:38 Jul 25, 2012 Jkt 226001 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. * * * * * ■ 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 7. Amend section 52.204–7 by— a. Revising the date of the clause; and 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 * * * * * 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. PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 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.). E:\FR\FM\26JYR3.SGM 26JYR3 srobinson on DSK4SPTVN1PROD with RULES3 Federal Register / Vol. 77, No. 144 / Thursday, July 26, 2012 / Rules and Regulations (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 VerDate Mar<15>2010 18:38 Jul 25, 2012 Jkt 226001 44059 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) Terms and Conditions—Simplified Acquisitions (Other Than Commercial Items) (Aug 2012) 9. Amend section 52.212–5 by revising the date of the clause, and paragraph (b)(4) to read as follows: AGENCY: ■ 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). * * * * * 10. Amend section 52.213–4 by— a. Revise the date of the clause; b. Remove paragraph (a)(2)(i); c. Redesignate paragraphs (a)(2)(ii) through paragraphs (a)(2)(viii) as paragraphs (a)(2)(i) through paragraphs (a)(2)(vii), respectively; ■ d. Redesignate paragraphs (b)(1)(i) through paragraphs (b)(1)(xii) as paragraphs (b)(1)(ii) through paragraphs (b)(1)(xiii), respectively; and ■ 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). * PO 00000 * Frm 00015 * * Fmt 4701 * Sfmt 4700 * * * * * (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 DEPARTMENT OF DEFENSE GENERAL SERVICES ADMINISTRATION NATIONAL AERONAUTICS AND SPACE ADMINISTRATION 48 CFR Parts 16, 32, and 52 [FAC 2005–60; FAR Case 2011–003; Item II; Docket 2011–0003, Sequence 1] RIN 9000–AM01 Federal Acquisition Regulation; Payments Under Time-and-Materials and Labor-Hour Contracts Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA). ACTION: Final rule. DoD, GSA, and NASA are issuing a final rule amending the Federal Acquisition Regulation (FAR) to make necessary revisions to accommodate the authorization to use time-and-materials and labor-hour contract payment requirements. DATES: Effective Date: August 27, 2012. FOR FURTHER INFORMATION CONTACT: Mr. Edward N. Chambers, Procurement Analyst, at 202–501–3221 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 2011–003. SUPPLEMENTARY INFORMATION: SUMMARY: I. Background DoD, GSA, and NASA published a proposed rule in the Federal Register at 76 FR 44884 on July 27, 2011, to make the necessary regulatory revisions to enable the use of the appropriate payment provisions for time-andmaterials and labor-hour contracts. These revisions supplement the following previously issued revisions to the FAR addressing time-and-materials contracts: E:\FR\FM\26JYR3.SGM 26JYR3

Agencies

[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]


-----------------------------------------------------------------------

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.

-----------------------------------------------------------------------

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:

0
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]

0
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

0
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

0
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.

0
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.
* * * * *

0
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

0
7. Amend section 52.204-7 by--
0
a. Revising the date of the clause; and
0
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
* * * * *
0
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)


0
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).
* * * * *

0
10. Amend section 52.213-4 by--
0
a. Revise the date of the clause;
0
b. Remove paragraph (a)(2)(i);
0
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