Political Participation Can Help Contractors

By Bradel, Ryan C. | National Defense, December 2013 | Go to article overview

Political Participation Can Help Contractors


Bradel, Ryan C., National Defense


Most government contracting companies need an effective government relations operation.

Whether it is advocating for the election of a representative who is friendly to the company's industry, or working with a sitting representative to encourage greater government purchasing in a particular sector, companies have a critical need to establish strong working relationships with government officials.

For better or for worse, fostering these relationships often involves participation in an elected representative's fundraising campaign, either by hosting a fundraiser or by making an actual contribution. In the interest of preventing even the appearance of corruption, the federal government has long maintained a robust regime to regulate political activities by businesses. This regime is constantly evolving, so it is necessary to examine the latest developments as well as revisit long standing rules related to political participation.

Government contractors are barred from contributing directly to a candidate in nearly all instances. One rationale for this ban is to avoid any appearance of favoritism when it comes to government contract awards. This bar applies to any individual, sole proprietorship or partnership holding a federal government contract. Limited liability companies that elect to be taxed as a partnership are similarly barred.

In fact, all corporations, regardless of whether they are government contractors--and all limited liability companies that elect to be taxed as a corporations--may not contribute directly to a federal candidate.

Despite the bans on direct contributions by government contractors and corporations, there remain avenues for political participation by these companies. The most common and the most important is through a company-sponsored "separate segregated fund," colloquially known as a political action committee, or PAC.

A PAC operates by gathering voluntary contributions only from certain individuals affiliated with the sponsoring corporation--its owners, directors, executives and their families, who are known as the "restricted class."

The PAC will then contribute or expend those funds on behalf of a candidate for federal office. Though the PAC technically is separate from the corporation, it exercises full control over the committee and selects candidates to receive donations. The corporation may also use its general treasury fund to cover a PAC's administrative and fundraising expenses.

The PAC thus truly serves the corporation's political interests.

The rationale behind generally limiting solicitations to the restricted class is to prevent companies from exerting undue pressure on lower-level employees to contribute or otherwise to imply that an employee's job depends on a contribution.

The corporation must describe the PAC's political purpose to those it is soliciting money from. They have the right to decline to contribute, with no adverse consequences. They must be assured that the amount of a contribution will provide no benefit or disadvantage within the corporation.

A corporation may solicit PAC contributions through a variety of methods, including orally, in mailings or through an in-house corporate publication. However, it is important that only the restricted class receive these solicitations, and solicitations must not be sent to anyone outside of the restricted class.

As noted above, the cost of these solicitations need not come out of the PAC's treasury but may be paid for from the corporation's general treasury. …

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