Companies that do business with state and local governments are subject to a wide array of laws restricting their political contributions, as well as the personal political contributions of their owners, officers, and some employees. These laws are known as pay-to-play laws because they are aimed at severing the relationship — or the appearance of a relationship — between a contribution (the “pay”) and the award of a government contract (the “play”).

Violations of pay-to-play laws — even a single, inadvertent political contribution — can result in costly bid disqualifications, voided contracts, and damaging publicity.

In approaching compliance, government contractors should do a risk assessment that takes into account where the company does business with government agencies, whether its contracts are covered by relevant laws, and where its employees live. For many companies, pre-clearing contributions and political fundraising (which some laws also cover) and training affected personnel are essential elements of an effective compliance plan. Also, companies should adopt protocols for registration and reporting to state election boards, as there are some pay-to-play laws that impose such requirements instead of, or on top of, contribution restrictions.

Pay-to-play laws vary across jurisdictions; we have outlined the broad requirements and highlighted certain relevant updates but encourage consultation with our political law attorneys to customize a compliance plan for your particular needs.


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The District of Columbia has adopted a “pay-to-play” law that bans political contributions from city contractors, as well as personal political contributions from their senior officers. Violators may forfeit contracts, face disqualification on bidding for up to four years, and pay civil penalties. The law takes effect on November 4, 2020.

Other major municipalities, such as Chicago, New York City, and Philadelphia have similar laws that either restrict political contributions from contractors and their principals, require the contractor to file reports with the relevant election board, or both. A number of states also have pay-to-play laws, including Maryland, New Jersey, and Illinois.


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Overview

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?


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Maryland has had a pay-to-play law for many years, which requires government contractors to register and file reports concerning political contributions to state and local candidates. Since 2015, the law has been in a state of flux as legislators and regulators have written and re-written the requirements, creating a complex reporting system.

The law is

dollar signIt was the best of times, it was the worst of times. For investment advisers and others subject to the pay-to-play rules, that is. Although both vice presidential picks have gubernatorial experience, because Mike Pence is a sitting governor and Tim Kaine is a former governor, there are certain pay-to-play rules that apply to contributions to Trump/Pence that do not apply to Clinton/Kaine. Thus, the Pence pick has important implications for many companies and firms engaged in the financial services industry.

As reported by various news outlets, Governor Pence’s role with the Indiana Public Retirement System subjects contributions to the Trump/Pence ticket to the SEC’s and other pay-to-play rules. Violations of these rules can carry significant penalties. And the shadow of the pay-to-play fundraising restrictions has even caused some to speculate that Pence should resign as governor.


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By EFF (Own work) [CC BY 3.0], via Wikimedia Commons

This week, the U.S. Court of Appeals for the D.C. Circuit upheld the Federal Election Campaign Act’s long-standing ban on contributions from federal government contractors to federal candidates and parties. We have followed the case since the District Court’s decision in 2012.

The ban has been in a place since 1940. Pointing to a history of federal and state corruption scandals involving government contracts, the court ruled that the ban continues to further the government’s interest in preventing quid pro quo corruption and removes political pressure on government employees. Some of the most important things about the ruling for government contractors are: 
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Earlier this month, Virginia Governor Terry McAuliffe signed into law a new bill making significant changes to Virginia’s lobbying and gift laws. The critical changes made by this bill, Senate Bill No. 1424, will become effective on January 1, 2016. Many of the revisions focus on gift reform, but the bill also contains important changes affecting lobbying as well as pay-to-play compliance. 
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Last week the U.S. Ninth Circuit Court of Appeals upheld key provisions of Hawaii’s campaign finance laws requiring a for-profit company making campaign contributions and expenditures to register as a political committee, and prohibiting government contractors from contributing to state legislators and candidates.

Broad Implications for Companies and Nonprofits Participating in Hawaii Elections

Hawaii requires

Ramping Up for the 2016 Cycle Make Compliance a Priority for LobbyingThursday, March 26, 2015
1:30 p.m. – 2:30 p.m. ET – Webinar

The Justice Department recently announced its first criminal prosecution for coordination. States like Virginia are revamping their ethics laws and California recently imposed new restrictions on lobbyists. Although the IRS has yet to issue regulations for 501(c)(4)s, many states have created new disclosure requirements for politically active nonprofit groups. Maryland has imposed tough new disclosure requirements on state contractors that make campaign contributions. 
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SpiderWebAs we have discussed, Maryland amended its pay-to-play rules to impose new reporting requirements on entities that do business with state or local governments. The first report under the new system is due on February 5, and if the roundtable hosted yesterday by the State Board of Elections is any indication, confusion abounds regarding the law’s core requirements.

This post highlights a few of the issues discussed at that roundtable.  
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