THE BLOG
11/13/2014 10:54 am ET Updated Jan 13, 2015

Pay-to-Play Restrictions on Government Contracting Under Assault

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One of the most successful regulations for curtailing political corruption -- restrictions on those seeking government contracts from making campaign contributions to public officials and candidates responsible for awarding those contracts -- is under fire in the courts.

Government contractors who want to dole out campaign contributions, and political parties who want their candidates to receive large amounts of contractor campaign donations, have filed lawsuits against the federal pay-to-play law and a separate long-standing Securities and Exchange Commission (SEC) rule restricting campaign contributions from Wall Street firms seeking state and municipal financial services contracts. The legal challenges could soon be headed to the Roberts Court, which so far hasn't met a campaign finance law it likes.

Pay-to-play is the all-too-common practice of a business entity making campaign contributions to a public official with the hope of gaining a lucrative government contract. Rarely does pay-to-play constitute outright bribery for a government contract. Rather, pay-to-play usually involves a business entity endearing itself and buying access for consideration of a government contract.

Throughout federal, state and local jurisdictions, it is widely believed by contractors and the public alike that making campaign contributions to those responsible for issuing government contracts is a key factor in influencing who wins those contracts. Actual sting operations have recorded public officials trading contracts for campaign contributions, for example, by former Governors Rod Blagojevich in Illinois and John Rowland in Connecticut, both of whom are sitting in prison. Just as tellingly, strong correlations between campaign contributors and those who were awarded government contracts under the local administrations of former Mayors Jeremy Harris in Honolulu and John Street in Philadelphia have led to corruption investigations and convictions. The SEC has documented numerous cases of investment managers orchestrating campaign contributions in exchange for lucrative contracts to manage government investments or pension funds. And, of course, surveys of businesses have shown that many contractors believe they must pay to play and that the public perceives such a corrupt culture in government contracting.

Following these and other high profile scandals and convictions, the federal government, the SEC, 15 states and several agencies and localities have restricted campaign contributions from government contractors. The SEC rules affecting Wall Street, and the state laws of Connecticut, Illinois and New Jersey, are the strongest and most effective of pay-to-play restrictions -- each of them enacted closely on the heels of scandal. The "best" pay-to-play restrictions define government contractors as not just the business itself, but also its owners and senior management combined; restrict contributions well before contract negotiations begin and well after termination of the contract; and mandate that contractors themselves document and certify compliance among their senior management -- a disclosure task too burdensome for government officials.

So far, the courts have firmly stood behind pay-to-play laws and regulations. As early as the 1995 Blount v. SEC decision and more recently in the 2010 Green Party of Connecticut v. Garfield decision, the courts have recognized the grave potential for corruption in government contracting and have upheld pay-to-play laws and rules as narrowly tailored remedies to a very real and specific problem.

But that hasn't stopped the lawsuits. Buoyed by the hostile shift of today's Supreme Court against campaign finance laws, contractors are challenging the federal law that applies to federal contractors (Wagner v. FEC) and the New York and Tennessee Republican parties are challenging the SEC rule that applies to state financial service contractors (New York Republican State Committee v. SEC). The latter case has ramifications for the 2016 presidential race. Some of the GOP contenders -- Chris Christie and Rick Perry, for example -- are sitting governors responsible for awarding pension fund management contracts to Wall Street and thus prohibited from receiving Wall Street campaign cash.

So far, pay-to-play restrictions are faring well in the lower courts. On September 30, oral arguments in the Wagner case were presented to a federal appeals court, which expressed skepticism to the challenge. On the same day, a federal district court in the New York Republican case determined that plaintiffs filed in the wrong court and must re-file in the federal appeals court.

As inconvenient as pay-to-play restrictions may be for some politicians, it is imperative that the courts continue to acknowledge the long, sordid record of pay-to-play corruption and recognize that restrictions on campaign contributions from government contractors to those who can influence the awarding of contracts are narrowly tailored and just make common sense.

Pay-to-play not only damages the public's confidence in government; it often ends up hurting government officials, endangering otherwise promising careers, and causing the legitimate business community to think twice about engaging in government services.

Pay-to-play is a costly problem for government, taxpayers, businesses and the public alike that can be checked with appropriate constraints against the exchange of campaign cash for government contracts. Pay-to-play restrictions constitute desperately-needed government contracting reform -- designed to preserve the integrity of the government contracting process and save taxpayer dollars -- not campaign finance reform. Even the Roberts Court may well see this.