Is your B-to-G sales force engaged in lobbying? Twenty-six states can answer. But their responses may be surprising. In this article, a legal expert advises that you become thoroughly familiar with the issues and, even then, be careful of every step you take, every move you make. By Chris Ashby.
The Supreme Court’s recent decision in Citizens United v. FEC placed public attention on a cresting wave that some fear soon will wipe out decades’ worth of government regulation of corporate political activities. But something got lost in the opinion’s wake: state regulation of so-called “procurement lobbying,” a development with far more significant consequences. This trend will have more impact on American businesses—and on a daily basis—than deregulation of corporate money in politics.
What is “Procurement Lobbying?”
That question is becoming harder to answer. Traditionally, states have regulated attempts to influence lawmakers and administration officials as legislative and executive lobbying, respectively. But in recent years, many states amended statutory definitions of “lobby,” “lobbyist” or “lobbying” to bring within their scope attempts to influence the negotiation or award of government contracts. Massachusetts’ law is a recent and typical example: “Executive lobbying [is] . . . any act to communicate directly with a covered executive official to influence a decision concerning policy or procurement… .” (Mass. Gen. Laws Ch. 3 & 39).
This law—and others like it in Arkansas, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Tennessee, Texas, and Vermont—transformed the many government contractors’ business-to-government (B-to-G) sales employees subject to regulation into “procurement lobbyists.”
These laws are relatively obscure. But what makes them more vexing (especially for multi-state government contractors) is that specific definitional thresholds, registration and reporting requirements, substantive prohibitions and restrictions vary widely from state to state.
In this article I’ll identify:
- Types of activities that generally do and do not give rise to lobbyist registration obligations for B-to-G sales personnel
- Information that most often must be reported by procurement lobbyists
- Restrictions and prohibitions that states sometimes place upon registered lobbyists’ conduct.
Further, I’ll explore the consequences of non-compliance.
Specific Activities and Thresholds
Generally, procurement lobbying is defined as an attempt to influence the negotiation or award of a government contract. However, states often exclude the following activities:
- Monitoring of the procurement process and requests for information about the process;
- Submission of a bid or response to an RFP;
- Participation in a bid conference;
- Taking or filling orders; and
- Requesting (or responding to a request for) technical advice, assistance or clarification.
Essentially, activities that take place on the record or those not intended to influence usually fall outside the scope of state definitions of procurement lobbying. This means that a B-to-G sales employee who confines his or her actions to these types of activities probably will not be required to register as a lobbyist. At the other end of the spectrum, any attempt to influence contents of an RFP, or performing product demonstrations, or “campaigning” for a product or service or against a competitor likely will lead to a procurement lobbying registration requirement. Also, more states now consider “door opening” or “goodwill lobbying” to constitute procurement lobbying. If an employee undertakes these types of activities in one of the 26 states listed above, the chances are that he or she is engaged in procurement lobbying. In that case, two additional threshold factors come into play:
- Most states include only certain government officials within the scope of their procurement lobbying laws. Contacts with other officials—even those designed to influence award of a contract—do not count as procurement lobbying contacts.
- Most states apply time and/or monetary thresholds so that persons engaged in only a de minimis amount of lobbying, as measured by the time spent or compensation received for lobbying, do not have to endure the registration, reporting and other burdens that apply to lobbyists.
Registration and Reporting
The principal obligation of all who qualify as procurement lobbyists is to register with the state. Registration, which usually is valid for one year and must be renewed annually, typically requires fee payment and disclosure of certain basic information, including name, employer, telephone number and addresses, as well as the anticipated subject or scope of lobbying activities (e.g., “Department of Transportation contracts”). In some states, the lobbyist registers and discloses employer or client. In other states, the employer or client registers and lists its lobbyists. Still other states require both to register.
Regular reporting also is required – again either regarding the lobbyist, the employer/client, or both, depending on the state. Reports generally require the disclosure of information about the lobbyist or company’s lobbying compensation, expenditures and activities, such as the agencies, officials and/or contracts the lobbyist attempted to influence.
Restrictions and Prohibitions on Conduct
Lobbyists—including procurement lobbyists—are subject to several other important restrictions and prohibitions that can pose special problems for government contractors. These involve:
- Gifts to Public Officials – Generally defined, a “gift” is anything of value, including food, beverages, travel expenses, tickets and other entertainment. Of special interest to government contractors, “gifts” also can include promotional materials, product samples and similar items. While all states regulate the provision of gifts to public officials in some manner, such as by placing limits on the value of gifts that public officials may accept and by requiring gifts to be reported publicly, many states impose more stringent restrictions on gifts from lobbyists and companies that employ them. Most commonly, gifts from lobbyists and their employers are banned, subject to a few exceptions. Government contractors in states that regulate procurement should become familiar with the lobbying gift rules—which usually are more restrictive than procurement integrity rules—to avoid making an impermissible gift to a public official.
- Contingent Fee Compensation – State law bans on contingent compensation for registered lobbyists are perhaps the most disruptive consequence of qualification as a procurement lobbyist. Contingent fee compensation is payment that is dependent on the outcome of a governmental action or decision. Currently, a number of procurement lobbying states ban or limit such compensation. In Connecticut, Georgia, Illinois, Michigan, Mississippi, New Jersey, New York and Tennessee, contingent compensation of procurement lobbyists is prohibited entirely, and commission-based compensation of government sector sales personnel therefore is unlawful for those personnel who qualify as procurement lobbyists. In Delaware, Florida, Idaho, Kentucky, Maryland, Massachusetts, North Carolina, Ohio, Pennsylvania and Texas, contingent compensation is permitted with certain restrictions. Here, commission contracts may have to be modified to bring compensation in compliance with state law.
Another important trend in government regulation of corporate political activities is the explosion in state and local “pay-to-play” laws that prohibit or limit political contributions from government contractors and certain affiliated personnel or entities. Recently, states have begun to extend these bans to cover registered lobbyists, too. In Green Party of Connecticut v. Garfield, Nos. 09-0599-CV and 09-0609-CV (July 13, 2010), the United States Court of Appeals for the Second Circuit recently struck down Connecticut’s ban on campaign contributions by lobbyists. However, similar bans or limitations are still alive in Alaska, Arizona, California, Florida, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, North Carolina and Vermont, among other states. In states that regulate procurement lobbying, these political contribution prohibitions or restrictions will apply to contributions from procurement lobbyists just as they would to contributions from more traditional legislative and executive lobbyists.
Following the new federal model, states for the first time are placing responsibility for compliance with political activity laws jointly on lobbyists and their employers on the one hand, and on public officials on the other. In addition, penalties are becoming more substantial. For civil violations, fines reach into the thousands of dollars. Criminal violations (i.e., “knowing and willful”) can result in disqualification, debarment and even prison sentences.
But perhaps the greatest deterrents are the legal fees, reputation damage and lost opportunities that stem from implication in a corporate/government relationship scandal. For this reason, political activity law compliance—including procurement lobbyist registration and reporting—is becoming a top priority for many government contractors.
Chris Ashby is a partner at LeClairRyan, a law practice that focuses on political activity law, including campaign finance, election law, lobbyist regulation and government ethics. This article is not intended to be and does not constitute legal advice. Consult with legal counsel for a fact- and state-specific analysis before making decisions or taking action on any matter addressed in this article.