Contractor Political Campaign Activism Unleashed?

Alan Chvotkin, Executive Vice President and Counsel, Professional Services Council

On January 21 the Supreme Court issued a significant opinion on federal campaign finance law and regulation.  The Court ruled that the First Amendment to the Constitution on free speech protects corporate speech as much as individual speech.

Accordingly, corporations, labor unions and even certain types of trade and business associations may now make unlimited “independent expenditures” and engage in “electioneering communications” regarding federal candidates.

However, the court did not overturn the restrictions on direct campaign contributions, including in-kind contributions, thus ensuring some continuing role for corporate and labor union political action committees. Nor did the court modify the existing tax law restrictions applicable to non-profit organizations.

The court also did not modify the existing prohibition on contributions and expenditures by foreign nationals. Finally, while the court’s ruling addressed corporate and labor union spending, it ignored other restrictions on certain federal contractors, such as partnerships and sole proprietors.

The ink was barely dry on the decision before the President, congressional leaders and others criticized the ruling and questioned whether federal elections would be significantly changed because of the money that could now flow.

Notwithstanding the instant political response, federal election law practitioners are still studying the 163-page, split-court, decision to understand its effect. Similarly, the Federal Election Commission (FEC), and perhaps the IRS and others, will be required to update regulations that give implementation guidance. Nevertheless, many theories and questions are being raised concerning the potential impacts of this decision on the federal contracting community.

In a break from my traditional approach to this column, I will address some of those theories and questions.

How will federal government contractors respond?

While I’m no election law expert, my experience tells me that almost all federal contractors will await clear guidance from their election law experts about permissible conduct.  Companies may even defer until regulatory changes are made before taking action.

The reason for this is that most firms have become comfortable with the current system and have learned to operate with and within it.  The largest contractors, which have traditionally invested heavily in program or issue lobbying, will also carefully watch how key competitors are reacting to the decision.

However, some trade and business groups, or other, existing special interest organizations or that could be formed because of the Supreme Court’s decision, may not wait long to begin capitalizing on the decision, particularly in fundraising, even as they sort out new advocacy strategies.

Will this decision affect other regulations?

To answer, I look at three different sets of regulations. The first set comprises the primary FEC rules on campaign finance and campaign advocacy; since the Supreme Court’s decision focused specifically on the laws and restrictions relating to independent expenditures and “electioneering communications,” these regulations will certainly have to be changed.

The second set of regulations, such as the tax laws, is directly affected by the Supreme Court’s decision, though not specifically addressed by it. The extent of the impact on these rules will depend on how the FEC, IRS and other agencies interpret the scope of the decision.

Finally, there are numerous other regulations affecting government contractors, such as the FAR cost principles, that make certain “lobbying” and political advocacy costs unallowable for government contracts. I see no chance that these types of regulations will be changed – or need to be changed – based on the court’s decision. A host of other rules, such as those relating to conflict of interest, seem removed from the scope of the Court’s decision.  Accordingly, I don’t see them being addressed.

Will government customers start monitoring company actions?

Some have speculated that government customers will become aware of the advocacy actions of their contractors and that this awareness could translate into some form of informal disqualification in the evaluation or award selection. Despite the repeated efforts by some to show a link between campaign contributions and contract awards, given that campaign contributions must be reported publicly, I’m pleased that there is no evidence that campaign contributions –for president or Congress – have had any impact on an agency’s procurement evaluation or award decisions.

But I won’t discount the potential that some in government will be considering a candidate litmus test for contributions from government contractors seeking to do business with an agency or seeking congressional support for their program. Similarly, I won’t discount the potential that competitors might resort to providing such information to either agencies or congressional offices. But for the integrity of the federal procurement system, I hope to never see this behavior and trust that agencies would be broadly cautioned against it.

Will the decision change the composition of lobbying activities and actions by companies or trade associations?

I do not expect the decision to have a significant short-term impact in the government contract arena, which I follow broadly in terms of policy, regulations, and business. But I would expect single-issue organizations or broad advocacy organizations, such as the National Rifle Association or even the U.S. Chamber of Commerce, to immediately try to capitalize on the potential opportunities the decision provided.  They may, for example, increase fundraising outreach to affinity groups.

By contrast, traditional government contractors and advocacy associations with broad public policy agendas will probably proceed slowly. My view is reinforced by the statements by the President and members of Congress that they intend to either override the decision as quickly as possible or to blunt its impact through new regulations.

Given these policy dynamics, and the uncertain regulatory landscape, there may be only a limited window of opportunity for even the most aggressive advocacy organizations to dive into the openings created by the Court.  For most government contractors, the existing tools and techniques remain in place and have proven effective.

In my view, the long-term uncertainty about the legal compliance requirements outweighs the need for pushing the envelope to take immediate advantage of the court’s landmark decision.