Lobbying Costs and Legislative Earmarks

Today we begin a short series on costs associated with lobbying and legislative earmarks. This is an area that is now receiving increased attention by the Government. DCAA (Defense Contract Audit Agency) recently revamped its audit guidance on the subject. It is also an area that we've discussed frequently in this blog but never in a comprehensive manner.

In general, lobbying costs represent amounts incurred to influence the outcome of elections, referendums, legislation, and other governmental actions at all levels of Government. Most of the time, these costs are unallowable on Government contracts however there are a few exceptions which we will be describing later (see FAR 31.205-22, Lobbying and Political Activity Costs). It is useful to note that this cost principle contains a provision that is unique among the many cost principles; it requires that contractors separately identify lobbying costs in their indirect rate submissions and maintain adequate records to affirm their certification of these costs as either allowable or unallowable. So, contractors should not be commingling lobbying costs with other expenses, such as legal and professional fees - they need to be specifically identified.

First, we'll take a look at what kinds of activities or costs are not allowable under Government contract.

Among the types of lobbying activities considered unallowable, are:

1. Attempts to influence the outcomes of any Federal, State, or local election, referendum, initiative, or similar procedure, through in-kind or cash contributions, endorsements, publicity, or similar activities (Note the term "in-kind". Some contractors have run afoul of this prohibition by "donating" employee time to such activities);
2. Establishing, administering, contributing to, or paying the expenses of a political party, campaign, political action committee, or other organization established for the purpose of influencing the outcomes of elections;
3. Any attempt to influence
• The introduction of Federal, state, or local legislation, or
• The enactment or modification of any pending Federal, state, or local legislation through communication with any member or employee of the Congress or state legislature or with any government official or employee in connection with a decision to sign or veto enrolled legislation
4. Any attempt to influence
• The introduction of Federal, state, or local legislation, or
• The enactment or modification of any pending Federal, state, or local legislation by preparing, distributing or using publicity or propaganda, or by urging members of the general public, or any segment thereof to contribute to or participate in any mass demonstration, march, rally fund raising drive, lobbying campaign or letter writing or telephone campaign
5. Legislation liaison activities
6. Costs incurred in attempting to improperly influence an employee or officer of the Executive branch of the Federal Government to give consideration to or act regarding a regulatory or contract matter.

For contractors with DoD contracts, the DoD FAR Supplements adds an additional prohibition: costs incurred by DoD contractors for preparing any material, report, list, or analysis concerning the actual or projected economic or employment impact in a particular state or congressional district of an acquisition program for which all research, development, testing and evaluation has not been completed.

This is a very comprehensive listing and does not leave much "wiggle room". However, there are a few exceptions to these prohibitions that we will discuss tomorrow.