Proposed rule would force subcontractor disclosures

A proposed new rule, that would require contractors to reveal information about their subcontractors on some contracts is causing some companies to fear that their competitors will learn trade secrets.

The rule proposes a pilot program under which only large subcontracts would be reported, but if the pilot is successful and the program is enacted permanently, the thresholds are likely to drop to much lower levels.

The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council jointly proposed the rule, which is required by the Federal Funding Accountability and Transparency Act of 2006.

The pilot program, which would start no later than July 1, 2007, and end no later than January 1, 2009, would apply only to prime contracts worth $500 million or more and subcontracts worth $1 million or more. The contract awardees would be required to submit information to a database which will be open to the public.

Both prime and subcontractors should be concerned, said Emily Murphy, counsel at the law firm of Miller & Chevalier, and former chief acquisition officer at the General Services Administration.

The goal of the legislation is to make federal spending easier for the public to get information about and understand, but it may accomplish that to the detriment of contractors, she said.

"If you're a value-added reseller on the GSA schedule, you're suddenly going to be telling everyone out there how much you're paying your suppliers and how much value-add you're supplying," she said.

Any business should be concerned about having to reveal proprietary information, such as the names of the suppliers and how much the prime contractor pays them, she said.

"Those are trade secrets," she said. "It's easier for the contracting officer to see how your dollars are being spent, but it's also easier for your competitors to see how your dollars are being spent."

For contracts that are not part of the schedules, the potential worries increase. The database will make it easier for both contracting officers and other interested parties to see how well the prime contractors comply with rules such as the nonmanufacturer rule and the limitations on subcontracting that apply to set-aside contracts.

"It's information that's going to help contractors comply with the laws, and nobody can argue that complying with the laws is not a good thing. But I see small businesses that are not as aware of the laws. They've got a chance right now to get their house in order."

The public comment period ends May 21. In the proposed rule, the acquisition councils list the questions that they are particularly interested in answers to, including whether the permanent program should apply to subcontracts worth as little as $25,000, to work performed outside the United States and to subcontracts beyond the first tier of subcontractors.

The councils also are interested in comments on whether the reporting is too burdensome, whether the information disclosed presents a real competitive risk and whether making the data publicly available raises national security concerns.