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First Reports Under American Recovery And Reinvestment Act Due October 10, 2009

Act Includes Sweeping New Disclosure Requirements—Federal Website Now Open For Registration
September 8, 2009

The American Recovery and Reinvestment Act (“ARRA” or the “Recovery Act”) has provided $787 billion of stimulus benefits to the flagging U.S. economy, but it contains detailed reporting requirements that are quite different from those imposed on recipients of Government funds in the past. The Government’s remedies for failure to comply with these requirements range from withholding funds to suspension, termination and debarment, or even pursuing fraud prosecutions. As a result, recipients and subrecipients of these funds need to ensure that they understand these requirements and confirm that they have the ability to comply before accepting Recovery Act funding. 

The Recovery Act’s reporting requirements are intended to assist the Government in tracking ARRA‑funded projects and their impact on the economy, as well as to promote transparency in the way ARRA funds are awarded and spent. They are broad in scope, and their details have evolved since ARRA was enacted.  To assist our clients in achieving compliance, we summarize below the current requirements, but caution that changes must be monitored. The most significant requirement is that most prime recipients of Recovery Act funds, as well as most first-tier subrecipients, will be required to make public, in detail, the compensation of each of their five most highly compensated officers.

Reporting on the Use of ARRA Funds
Section 1512 of the Recovery Act and the implementing regulations, along with detailed guidance from the Federal Office of Management and Budget (OMB), impose unprecedented reporting requirements that apply to “prime recipients” of ARRA funds, as well as “subrecipients” (i.e., a subcontractor to a prime contractor or a contractor under a grant) working on ARRA‑funded projects. Reports must be filed electronically and will be made available to the public on the Government website www.recovery.gov.
The Recovery Act requires that within 10 days after the end of each calendar quarter (beginning October 1, 2009), each “prime recipient” of ARRA funds must submit a report to the funding agency using the central recipient reporting portal www.Federalreporting.gov.1 The Recovery Act defines a “prime recipient” as a nonfederal entity that receives ARRA funds in the form of a contract, grant, loan or cooperative agreement directly from the federal government. A prime recipient of ARRA funds can include a state or local government, management and operations (M&O) contractor or any other entity receiving ARRA funds directly from the federal government.

ARRA did not draw any distinction for reporting purposes between entities that play significant roles as subcontractors, and those whose role is only minor. To clarify the situation, OMB issued guidance addressing this issue.2 Those receiving payouts of ARRA funds from prime recipients fall into two categories:  (1) subrecipients, which consist of nonfederal entities that are awarded ARRA funding through a legal instrument (e.g. grant or contract) from the prime; and (2) vendors, which consist of dealers, distributors, merchants or other sellers providing goods and services that are required for the performance of an ARRA‑funded program. Subrecipients must comply with ARRA’s reporting requirements; vendors are not required to report.3 

The OMB guidance defines a vendor as one who:

These are new tests that are unique to ARRA. The most significant test is whether the goods or services are ancillary to the operation of the Federal program. Mere suppliers of commonplace items are typically going to be characterized as vendors. But a supplier of an item that is integral to the success of the federal program may well have to report.

If ARRA funds go first to a state, the subrecipient could be, for example, a research university under contract to a state energy department. Alternatively, a subrecipient could be a general contractor under contract to a state department of transportation. At this time, only first-tier subrecipients are charged with reporting obligations in addition to those imposed on the prime recipient. The first-tier subrecipient reports by furnishing required information to the prime, which in turn provides the information to the Government and is responsible for its accuracy.

On March 31, 2009, the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council issued an interim rule amending the Federal Acquisition Regulation (FAR) to implement Section 1512 of the Recovery Act, identifying specific reporting requirements. The interim rule added a new subpart 4.15 to the FAR and established a new contract clause, FAR § 52.204‑11, to be included in all ARRA‑funded solicitations, contracts and first‑tier subcontracts, with the exception of classified solicitations and contracts. The reporting requirements for prime recipients and first‑tier subcontractors are different, with the latter subject to less reporting—although prime recipients are permitted to delegate their reporting burden to the first-tier subrecipient. First-tier subrecipients should be on the alert for this delegation and take steps to make sure that the prime recipient (typically a state or local agency) does not delegate the reporting obligation at the last moment, when it could be next to impossible to meet the federal deadlines. It is also critical that prime and subrecipients coordinate their actions to ensure that the most accurate information is submitted.

The FAR requires that a prime recipient collect and report the following data:

  1. The government contract and order number, as applicable.

  2. The amount of ARRA funds invoiced by the contractor for the reporting period.

  3. A list of all significant services performed or supplies delivered, including construction, for which the contractor invoiced in the calendar quarter.

  4. Program or project title.

  5. A description of the overall purpose and expected outcomes or results of the contract, including significant deliverables and, if appropriate, associated units of measure.

  6. An assessment of the contractor’s progress towards the completion of the overall purpose and expected outcomes or results of the contract (e.g. not started, less than 50 percent completed, or completed).

  7. A narrative description of the employment impact relating to work funded by the Recovery Act (i.e.types of jobs created and retained and an estimate as to the number of jobs created and retained).  This should be cumulative for each calendar year and only address the impact on the contractor’s workforce. A “job created” is a new, paid position created and filled, or an existing unfilled position that is filled as a result of the Recovery Act. A “job retained” is an existing paid position that would not have continued to be filled, but for the Recovery Act funds. Employees not directly charged to the ARRA‑funded project are not counted as jobs created or retained, even though their support may be critical.

  8. Names and total compensation of the prime recipient’s five most highly compensated officers for the calendar year in which the Recovery Act award was made, if in the preceding fiscal year, the prime recipient:

    (a) received 80% or more of its annual gross revenues from federal contracts, subcontracts, loans, grants or cooperative agreements; and    

    (b) had $25,000,000 or more in annual gross revenue from federal contracts and subcontracts, loans, grants or cooperative agreements. 

    There is an exception for entities filing periodic reports under Section 13(a) or 15(d) of the Exchange Act of 1934, or Section 6104 of the Internal Revenue Code. For an estimated 95% of those reporting, however, this exception will be meaningless, since most public companies do not report the compensation of the officers of their subsidiaries. Note that “compensation” includes all aspects of compensation, including stock awards, changes in pension value, and perquisites of any kind over $10,000 in value. Note also that the compensation reporting obligation is a one-time, rather than a continuing, obligation.

  9. First-tier subcontracts valued at less than $25,000; any first-tier subcontracts awarded to an individual; and first-tier subcontracts awarded to a subcontractor that in the previous tax year had gross income under $300,000 may be bundled by the prime recipient, which is required to report only the aggregate number of such first‑tier subcontracts awarded in the quarter and their aggregate dollar amount.

  10. For first-tier subcontracts valued over $25,000 that do not qualify for the bundling treatment described in paragraph 9 above, the prime recipient is required to provide the following information:

These requirements in effect turn the prime into a policeman over the sub charged with gathering controversial data, the accuracy of which the prime will have a hard time verifying.  This problem was noted in a number of the public comments addressing the interim FAR rule.  Commentators urged that subs be required to self-report such information instead.  Revised guidance in response to these comments has not yet been issued.

To facilitate reporting and later audit, OMB and the FAR require that reporting contractors implement tracking systems segregating all Recovery Act funds from other funding sources for a project. Contractors embarking on ARRA-funded work are advised to prepare their accounting systems now to address the segregated tracking and reporting functions that will be looked for by federal auditors.

It should again be emphasized that all reporting provided under the Recovery Act and its implementing regulations will be available for public inspection. Every private company, or subsidiary of a public company, considering doing business as a prime recipient or subrecipient of Recovery Act funds should analyze the costs as well as the benefits of pursuing ARRA‑funded projects, weighing the economic returns of the proposed contract against the potential consequences of making the reported information available to the public. 

This Advisory has focused on the Recovery Act’s reporting obligations.Contractors, particularly those new to federal government contracting, will also find that the “Buy American” provisions in Section 1605 of the Act add considerable complications to ARRA-funded public works contracts. Under ARRA, Buy American requirements have been extended to construction projects carried out by state and local governments, which are typically not familiar with the intricacies of the requirements and have not incorporated the ARRA Buy American details into their bidding documents. Buy American analysis is extremely fact-specific and the results can be counter-intuitive. Typically at least two statutes will be involved (the original Buy American Act of 1933 and the Recovery Act), as well as the Buy American provisions applicable to the Federal Transit Administration or the Federal Highway Administration. We will be releasing a detailed Advisory on this subject in the near future.


1This website is now up and running for registration purposes only.  Recipients of funds who will be filing reports in October are encouraged to register now.  Registration requires a DUNS number, available through http://fedgov.dnb.com/webform, and, for recipients of federal grants and loans, a Central Contractor Registration (CCR) number, available through www.ccr.gov.  As of August 20, nearly 3,000 recipients of Recovery Act funds had registered.

2 OMB Memorandum M-09-21, June 22, 2009, Implementing Guidance for the Reports on Use of Funds Pursuant to the American Recovery and Reinvestment Act of 2009.

3 However, the name of the vendor, the amount of the ARRA-funded purchase from the vendor, and a description of the purchase must be reported by the prime recipient if the payment to the vendor exceeds $25,000.

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