Political Campaign Activities at Contractor Facilities

You've seen it on TV. Perhaps you've experienced it first hand. Some politician is touring a plant, looking at a production line, shaking hands, answering questions, getting photographed and filmed, making a speech. It could be a campaign stop or a visit to support and endorse new technology. These visits cost money, right? They also take away from the productive work that employees are engaged in. Who pays for those costs? Who absorbs the downtime?

Well, if the company happens to be a Defense contractor, the Department of Defense wants to make sure that none of the costs are being passed off, charged to, or allocated to its contracts. DoD has taken the position that political candidate appearances at contractor facilities are tantamount to lobbying costs and therefore unallowable under FAR 31.205-22(a)(1). That particular FAR section states that costs associated with 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 are unallowable. That might seem like a stretch to you but not to DoD.

DoD's auditors, if they find out about contractors hosting political events, will be asking you a lot of questions. They will be trying to build a case to demonstrate that the activities are "clearly an attempt by the contractor to influence the outcome of an election by soliciting votes."

The auditors have been told to determine how the candidate is portrayed by the contractor and the subject matter of the candidate's speech. They can learn a lot from news articles and broadcasts. Most likely, they will conduct interviews of organizers and attendees.

Not only will auditors question the costs associated with the event, but they will also pad the amount by finding directly associated costs. Additionally, we are aware of a case where auditors questioned the salaries and wages of contractor employees attending the event.

This is one of those situations where contractors really need to weigh the costs against the benefits. If you think a candidate's appearance is disruptive, just wait until the auditors come in and ask their questions. You'll really experience disruption.