Pay-to-play laws restrict or prohibit businesses, as well as their owners, officers, and in some cases, their employees, from making political contributions (the “pay”) if they have been awarded or are trying to obtain government contracts (the “play”). These laws, which are found at the federal, state and local levels, are an outgrowth of government contracting scandals and can strike at a company’s bottom line by disqualifying bids and voiding contracts. Violations also can result in fines, damaging publicity, and even jail.
Government contractors should have a pay-to-play compliance plan that takes into account the jurisdictions where covered owners, officers, and employees are located, and where the company does or seeks to obtain business with government agencies. In addition, contractors should have a process for training covered employees, a mechanism for pre-clearing contributions, and protocols for meeting registration and ongoing reporting requirements.
Here are a few questions to help determine whether pay-to-play laws pose a risk to your business:
- Do pay-to-play laws apply to my business activities?
- If so, which affiliated individuals and entities are subject to the law?
- What are the consequences for covered individuals and entities (prohibitions, reduced contributions limits, reporting, other)?
- What are the penalties for violating applicable pay-to-play laws?