Lobbying Costs and Legislative Earmarks - Part 3

For the past two days, we have been laying out the general allowability criteria for lobbying costs by studying the FAR cost principle (FAR 31.205-22). On Wednesday, we looked at the activities that are unallowable and yesterday, we discussed some exceptions to the general prohibition against claiming lobbying costs on Government contracts. There are a few.

Besides the FAR cost principle, there are two other statutes governing lobbying activities that Government contractors need to be aware of.

31 U.S.C. 1352, Limitation on Use of Appropriated Funds to Influence Certain Federal Contracting and Financial Transactions. This statute prohibits a recipient of a Federal contract (including grants, loans and cooperative agreements) from using appropriated funds to pa any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with any covered Federal Actions. This prohibition is very similar to the FAR cost principle but would also apply to situations where the FAR cost principle does not apply.

2 U.S.C. 26, The Lobbying Disclosure Act of 1995. This statute significantly expands the registration and reporting requirement for those who engage in lobbying activities. Contractors must register with the Secretary of the Senate and the Clerk of the House if the organization has at least one employee who meets the statutory definition of lobbyist and lobbying expenses exceed $10 thousand per year. This is an extremely low threshold and most contractors who engage in lobbying activities, easily exceed it.

Earmarks. Government auditors have taken the position that efforts expended to pursue legislative earmarks are a form of lobbying costs. That position may be eventually challenged on the basis that such activities are constituent services and do not meet the precise definition of lobbying activities. In any event, we would advise contractors to identify and exclude such costs from any submissions made to the Government. Usually such costs would not be significant enough to affect an indirect rate.

The OMB (Office of Management and Budget) describes earmarks as funds provided by Congress for projects, programs, or grants where the purported Congressional direction circumvents otherwise applicable merit-based or competitive allocation processes, or specifies the location or recipient..