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How a Pro-Regulation Decision Is Good for Business

By voting 11–0 to maintain the ban on political donations by federal contractors, the D.C. Circuit showed moral clarity and common sense.

The D.C. Circuit had a moment of unadulterated moral clarity in upholding a longstanding ban on federal contractors’ donations to the campaigns of federal candidates and political parties. Even though the case was about an individual contractor, this decision is good for business.

On July 7, 2015, in the case Wagner v. FEC, the D.C. Circuit Court ruled that the Hatch Act of 1939 and the FEC’s rules implementing it were constitutional. This ban on federal contractors giving to federal campaigns had been challenged on the basis that the ban violated the First Amendment and Equal Protection rights of federal contractors. A unanimous court of 11 circuit judges agreed that the ban should remain in place because human nature, which can be tempted by opportunities for personal profit, had not changed in 75 years.

Drawing on the legislative history of the Hatch Act, Supreme Court precedent, including the recent Williams-Yulee case upholding a solicitation ban for judges in Florida, the Department of Defense’s Encyclopedia of Ethical Failure, and basic common sense, the court in Wagner recognized the risk of quid pro quo corruption inherent in the government contracting relationship (as politicians want the campaign cash; meanwhile federal contractors eager to ink the deal may fork it over).   

The Court also pointed at historical examples of the pressure that can be exerted over federal contractors by elected officials including examples from Watergate like President Nixon’s “‘Responsiveness Program,’ pursuant to which agencies were to ensure that ‘[t]he letting of Government grants, contracts, and loans’ was directed at ‘meet[ing] reelection needs[.]’”

The Court also highlighted scandals of a more recent vintage including “[i]n 2005, for example, Representative Randy “Duke” Cunningham pled guilty to accepting millions of dollars in bribes in exchange for influencing Defense Department contract awards…” as well as “[i]n 2006, Representative Bob Ney similarly pled guilty to a series of quid pro quos with the lobbyist Jack Abramoff, including steering a ‘multi-million dollar’ contract for a House of Representatives infrastructure project to one of Abramoff’s clients.” And the Court noted that “[t]he FEC has assembled an impressive, if dismaying, account of pay-to-play contracting scandals…”

So this decision was a welcome result for those of us who want some prophylaxis protecting our democracy from quid pro quo corruption. But why should businesses also be pleased with this decision? The Court said the law was justified on two grounds (1) to prevent quid pro quo corruption and (2) to protect merit-based public administration. It is this second part that should be of interest to businesses that would like to contract with the government to sell their wares and services.   

Had the plaintiffs in the Wagner case won, the restriction on federal contractors giving contributions to candidates and political parties would have ended. As the court put it, “the record offers every reason to believe that, if the dam barring contributions were broken, more money in exchange for contracts would flow through the same channels already on display.” 

Thus, had the court gone the other way, it would have been open season for sitting Congressmen, Senators and even Presidents to start the shake down of federal contractors for contributions. These are the type of payments that should make an honest businessman’s blood boil since they have nothing to do with the quality of the service or the merits of the work.

On the other hand, if he thinks that competitors up for the same government contract will hand over money, then he may feel coerced to give as well. All of this pay to play might line the campaign coffers of those running for office, but it would be unlikely to result in the taxpayer getting more bang for the buck from the next highway improvement or F-16.

The Court focused on protecting individuals from coercion as one of the reasons that Congress enacted the Hatch Act in the first place.  In the legislative history of the Act the court found that “the coercion of contractors …[was] a prime example of ‘political immorality and skullduggery that should not be tolerated.’” And the court found that this protection from coercion in government contracting is still needed even after three quarters of a century have passed.

As Lyle Denniston argued, this decision may give some courage to the Obama Administration to finally issue an executive order requiring more transparency around the political spending of federal contractors.

On too many occasions, the D.C. Circuit can be a graveyard for good ideas like stronger graphic warning labels on cigarettes or proxy access for shareholders. I wrote a whole law review article about how the D.C. Circuit makes me nervous when it gets its hands on good laws. But this time around, they got it right in Wagner, which is good for the democratic process, good for the federal contracting process, and ultimately good for businesses that want to work for Uncle Sam. And with the unanimous decision from D.C. Circuit, this is teed up to be one hell of a fight if it goes to the Supreme Court.

(Photo: Thinkstock)

The views expressed are the author’s own and not necessarily those of the Brennan Center for Justice.