Increased Scrutiny for Government Contracts Under New Maryland Pay-to-Play Law

Skadden, Arps, Slate, Meagher & Flom LLP

Kenneth A. Gross Ki P. Hong Matthew Bobys Melissa L. Miles Charles M. Ricciardelli Tyler Rosen Shayla K. Parker

Amendments to Maryland's pay-to-play law taking effect January 1, 2015, will impose burdensome contract reporting requirements for many companies. Although Maryland has had a pay-to-play law on the books for years, these amendments will require many companies to change how they have been approaching compliance with the law. As described in our May 8, 2013, mailing, the same legislation also amends the state's contribution limits and campaign finance reporting requirements. These changes also will take effect on January 1.

Government Contracts Must Be Itemized Even If No Reportable Contributions: Whereas previously the law allowed companies that did not have reportable political contributions to avoid filing reports altogether, the amended law will require all companies to itemize their Maryland state and local government contracts — even if the company has no reportable contributions.

Increased Enforcement: These contract reports will be uploaded to a searchable online database. The State Board of Elections anticipates uploading old reports to the same database. Enforcement of the law also is shifting from the attorney general to the State Board of Elections, which is expected to result in greater scrutiny of the reports and any failure to file required reports.

Summary of the New Pay-to-Play Reporting Requirement

The requirement will apply to companies that enter into or maintain a contract with a state or local governmental entity with a total value of at least $200,000 (covered business) or have subsidiaries that enter into or maintain covered business. This includes leasing real or personal property as lessee or buying or otherwise obtaining supplies, services, construction, construction related services, architectural services, engineering services or services provided under an energy performance contract. Certain medical care reimbursement contracts are exempt.

An initial report must be filed online no later than the day after the covered business is awarded and then semi-annually for the duration of the contract. Such reports must contain a list of contributions by covered donors to covered recipients totaling $500 or more during the reporting period (24 months for the initial report), along with identification of the recipient, donor and amount of contribution. The filer also must disclose the nature and amount of the covered business awarded, the agency that awarded the contract and the company that was awarded the contract (including a contracting company in which the filer owns a 30 percent interest). For companies that have not filed an initial report on any current contract, the filing obligation will commence with the first $200,000 contract on or after January 1, 2015. For companies that have filed an initial report on a $200,000 contract that is still active, semi-annual filing will be required in February regardless of whether there are reportable contributions.

Covered donors include the company, subsidiaries, company PACs, officers (i.e., CEO, president, vice president, secretary, treasurer, CFO, managing partner, managing member, principal or any other role in which an individual exercises substantial independent responsibility for managing the company's affairs), directors and partners, as well as employees, agents, or other persons who make a contribution at the direction of the company or a subsidiary. Covered recipients include any candidate for, or holder of, state or local office in a jurisdiction with which the company is doing covered business.

Importance of Seeking Timely Exemptions: Companies may obtain a waiver from disclosing the value of their contracts and the agencies with which they contract by petitioning the State Board of Elections and showing the requirement is unduly burdensome and the public interest is not harmed by the lack of disclosure. We are happy to assist in preparing any waiver requests, which may be submitted before the amendments take effect at the end of the year.

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.