Playing Politics: Will It Help or Hurt Your Next Bid for a Public Sector Contract

Every American has certain political rights, including the right to financially contribute to campaigns. However, many state and local government agencies now have the right to know about your political contributions – if your business wants to earn theirs. The rise in bribes, corruption, and questionable contract awards in recent years has resulted in a ban of political contributions by all federal government contractors (more on that below). It has also led many states to pass legislation designed to eliminate financially motivated biases that could influence "business" decisions, such as procurements. As a result, many professionals are now being required to disclose their once private political activities in a somewhat public manner or halt their activity altogether.  

Preventing Pay-to-Play Procurements

Laws preventing pay-to-play contracts are being enacted in many jurisdictions across the U.S. to eliminate any question of ethical or legal missteps in lucrative contract awards. For example, Montana has an executive order requiring companies applying for state government contracts with a value of at least $25,000 for services or $50,000 for goods to disclose “any political expenditures if they spent more than $2,500 over the previous two years.”  This includes any campaign contributions or election advertising from the contractor, its parent companies or its subsidiaries. Bidders must also disclose donations to “other organizations that make political expenditures.”

Other states have taken similar steps to mitigate potential blowback from perceived political influence on procurement decisions, especially from what is known as “dark money” groups that aren’t otherwise required to disclose their donors because of their tax-filing status.  Illinois, Maryland, New Jersey, Pennsylvania and Rhode Island all have political contribution disclosure rules:  

• In Illinois, “A company with any combination of state work bids, proposals or contracts worth more than $50,000 for goods or services with a state agency must register electronically with the Illinois State Board of Elections prior to submitting the bid or proposal causing the $50,000 threshold to be exceeded.” The registration must list “all covered donors,” including parent companies and subsidiaries, executives, and even the spouses of some donors.
• The reporting requirements in Maryland are a little more lenient on contract value, but stricter on contribution value: “An entity must file a public disclosure form if the entity, or its subsidiary, makes a single contract with the state, a county, a municipal corporation or other political subdivision of the state, that equals or exceeds $200,000. Such disclosure includes the name of each candidate, if any, to whom one or more applicable contributions in a cumulative amount of $500 or more were made during the reporting period by all covered donors combined. For this $500 contribution reporting threshold, covered donors include not only the entity and its subsidiaries, but also company PACs, officers, directors and partners of the business entity and its subsidiaries. Furthermore, political contributions made by employees, agents or other persons at the suggestion or direction of a business entity or subsidiary also must be reported.”
• Pennsylvania is a bit more focused on preventing the most direct form of corruption, the biased award of non-bid contracts: “Under Pennsylvania law, a business entity is required to file a report disclosing individuals’ contributions made to Pennsylvania state and local candidates, political parties and PACs if the business entity has been awarded a non-bid contract (e.g., a contract let by virtue of some selection process or exercise of governmental discretion) from the Commonwealth of Pennsylvania or its political subdivisions during the preceding calendar year.”     

While each state government is authorized to define their own rules and regulations for bidders and contractors, and most state and local laws only restrict political contributions from contractors’ owners, officer, the federal government has long upheld a ban on political financial contributions by its contractors.  

This is Who Can, and Can’t, Financially Support Political Campaigns  

As noted by the Federal Election Commission, “campaigns are prohibited from accepting contributions from certain types of organizations and individuals.” This includes:  

• Federal government contractors
• Corporations, including nonprofit corporations (although funds from a corporate separate segregated fund are permissible)
• Contributions in the name of another 

As detailed on the FEC website:

Campaigns may not accept or solicit contributions from federal government contractors. Since corporate contributions are already prohibited, the government contractor ban applies primarily to contributions from a partnership (or a limited liability company) with a government contract. It also applies to the personal and business funds of individuals under contract to the federal government; and sole proprietors of businesses with federal contracts.

*The spouses of individuals and sole proprietors who are federal government contractors and employees of federal government contractors, however, may make contributions from personal funds.  

Also:

A partnership or LLC that is negotiating a contract with the federal government or that has not completed performance of such a contract is prohibited from making contributions. However, an individual partner in such a firm may make contributions from personal funds (rather than from funds drawn on the partnership’s account).  

Also, an individual, who is, in his or her own right or as a sole proprietor, a federal government contractor or negotiating a contract with the federal government may not make contributions using any funds (business or personal) under his or her control. Note that the spouse of such an individual is not prohibited from making a personal contribution in his or her own name (as long as he or she is not otherwise prohibited from making contributions in connection with a federal election).

What happens if you, as a partner, LLC, or executive contributed to a political campaign before you bid on, negotiated and/or won your first government contract?

Our best advice is to seek counsel from your legal or political campaign experts. They are well versed on contractor contribution restrictions at all levels of government.

Remember: Public sector procurement officials are obligated to conduct business in a fair and open manner. As such, transparency by both buyers and suppliers is essential. These laws, regulations, and executive orders are not intended to deter certain individuals or organizations from participating in the open bidding process. Nor are states’ political disclosure requirements designed to show favoritism for, or bias against, companies during the procurement process. It is illegal for agencies to discriminate based on bidders’ political views or activities.  Government agencies just need a well-defined checks and balances system to discourage bribes, mitigate corruption, and ensure that open and fair competitive environment.  If you are unsure whether political financial contributions or other political activities conducted by you, your company, or your employees will impact your eligibility for a government contract, consult with agency procurement officials or your legal counsel.