National Association of Government Contractors

Know the Pay-to-Play Laws for Federal Contractors

The Federal Election Commission (FEC) recently fined a federal contractor $34,000 for contributing $200,000 to a federal independent expenditure-only political action committee (super PAC).

This marks the first fine for prohibited contributions to a super PAC under the federal contractor pay-to-play law.

The law prohibits direct and indirect contributions to federal candidates, political party committees and political action committees (PAC) by any person who contracts with a federal agency to provide goods or services. The prohibition applies from the date of an agency procurement solicitation or the start of contract negotiations to the completion of the federal contract.

The federal contractor fined $34,000 said the violation was inadvertent and that it has since established a pay-to-play compliance plan. Because the company's business model did not generally rely on government work, it may not have considered that any contract with a federal agency triggers the federal ban on contractor contributions.

Had it been aware of the ban, it may have nonetheless been unsure about its application to federal super PAC contributions by federal contractors. Generally, individuals, except foreign nationals, may contribute to federal candidates and committees subject to contribution limits and may make unlimited contributions to super PACs. However, a consultant under contract to a federal agency or a sole proprietor with a federal contract may not contribute to federal candidates or committees.

Corporations may not contribute to federal candidates, political action committees or national political party committees but they may contribute to super PACs. Since the pay-to-play law predates the emergence of super PACs, it does not expressly address super PAC contributions by a federal contractor.

The FEC had not previously addressed whether applying the federal contractor ban to super PAC contributions is consistent with the U.S. Supreme Court's decisions on the regulation of independent expenditures.

No court has yet addressed, the constitutionality of banning contractor contributions to a federal super PAC, which does not contribute to candidates and engages only in independent speech. The FEC approved a petition for rulemaking on this issue in 2015, but a rule was never adopted.

Contractors are advised to seek ensure their company and contributions are compliant with Pay-to-play laws, or seek the advice of an attorney if required.

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