This bill prohibits executive agencies from awarding contracts, grants, cooperative agreements, or making related payments to any company if any covered beneficial owner was a special Government employee (SGE) on or after January 1, 2025 — unless that individual immediately ceases SGE status and remains off SGE status for 365 days after the bill becomes law. "Covered beneficial owner" uses the SEC beneficial ownership test in 17 C.F.R. §240.13d–3 (as of Dec. 20, 2019) and a five-percent ownership threshold.
Why it matters: SB1365 creates a blunt procurement disqualification tied to equity ownership and SGE status rather than to specific contractual conflicts or disclosures. Compliance officers, agency procurement offices, and companies with founders or board members serving as SGEs will face new screening obligations and potential business disruption unless ownership or SGE arrangements change to meet the bill's cooling-off requirement.
At a Glance
What It Does
SB1365 bars executive agencies from entering into contracts, grants, cooperative agreements, or making related payments to companies where any covered beneficial owner was an SGE on or after Jan 1, 2025, unless that owner immediately resigns SGE status and remains a non-SGE for 365 days after enactment. It defines covered beneficial owner by reference to the SEC beneficial-ownership rule and a ≥5% equity threshold.
Who It Affects
Federal executive agencies and their contracting officers must screen potential recipients against SGE ownership; companies with founders, executives, or investors who serve as SGEs — particularly startups and contractors — are directly affected. SGEs who serve on advisory panels or as consultants will face a consequential choice between service and maintaining equity-based business roles.
Why It Matters
The bill substitutes an ownership-based bar for case-by-case conflict-of-interest analysis, raising enforcement and identification challenges and potentially disqualifying companies that pose no direct procurement conflict. The change could push agencies to adopt new due-diligence processes and reshape how outside experts organize ownership and compensation.
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What This Bill Actually Does
SB1365 establishes a categorical procurement prohibition tied to equity ownership by special Government employees. If an individual who meets the bill's definition of "covered beneficial owner" was an SGE at any point on or after January 1, 2025, executive agencies may not award a contract, grant, or cooperative agreement to that company or make any payment related to those instruments unless the individual immediately stops being an SGE and remains off SGE status for 365 days after enactment.
The bill therefore creates a near-immediate operational consequence when an SGE holds a defined level of company equity.
The statute borrows technical definitions from existing securities and procurement law: it imports the SEC's beneficial-ownership test in 17 C.F.R. §240.13d–3 (frozen to its December 20, 2019 text) and uses the Securities Exchange Act's definition of "equity security" to determine what counts toward the five-percent threshold. Executive agency is defined by reference to 41 U.S.C. §133, and SGE uses the familiar definition in 18 U.S.C. §202(a).
Those cross-references steer interpretation toward established administrative meanings but also create practical frictions when applied to private companies or nontraditional equity arrangements.Practically, the bill forces three immediate compliance tasks. Agencies must (1) incorporate an ownership-and-SGE check into award screening and payment authorization; (2) decide how to treat payments already in-flight when they discover covered ownership; and (3) determine what documentary evidence satisfies the borrowed SEC standard for beneficial ownership in private-company contexts.
Companies and SGEs must decide whether to restructure equity, resign SGE roles, or wait out the 365-day cooling-off requirement. The bill does not create new criminal penalties or administrative remedies in the text; its enforcement rests on the procurement bar itself and agency implementation decisions.
The Five Things You Need to Know
The bill bars awards and any related payments to a company if any covered beneficial owner was a special Government employee on or after January 1, 2025, unless that owner immediately resigns SGE status and remains a non‑SGE for 365 days after enactment.
It defines "covered beneficial owner" by reference to 17 C.F.R. §240.13d–3 (as in effect Dec. 20, 2019) and a direct or indirect ownership threshold of 5% or more of the company's equity securities.
The procurement prohibition applies equally to contracts, grants, and cooperative agreements and to any payment related to those instruments — not just award decisions.
The bill imports "executive agency" from 41 U.S.C. §133 and "special Government employee" from 18 U.S.C. §202(a), tying application to federal executive-branch procurement and the long-standing SGE statutory category.
The statute gives agencies no express administrative enforcement mechanism, penalty structure, or exception process within the text — the bar operates as an absolute disqualification conditioned only on the SGE resignation-plus-365-day pathway.
Section-by-Section Breakdown
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Short title
Gives the act its public name: the "No Federal Payments to Companies Controlled by Special Government Employees Act of 2025." This is purely caption text; it signals the bill's focus on stopping federal payments to companies tied to SGEs but carries no operational effect beyond identification.
Procurement and payment prohibition
Imposes the core substantive rule: an executive agency may not award a contract, grant, or cooperative agreement, nor make any payment related to those instruments, to a company if any covered beneficial owner was an SGE on or after Jan 1, 2025 — unless that owner immediately ceases SGE status and remains a non‑SGE for 365 days following enactment. The provision is broad: it covers both award and payment steps, and it conditions eligibility on a post‑enactment cooling-off period rather than on prior recusal or divestiture alone.
What counts as a company and as equity
Defines "company" expansively to cover corporations, LLCs, limited partnerships, business trusts, associations, and similar entities, so the prohibition reaches typical commercial forms used by startups and established vendors. "Equity security" is tied to the Securities Exchange Act definition (15 U.S.C. §78c(a)), which directs attention to stock and similar instruments; that linkage matters when agencies assess whether an individual meets the five‑percent ownership threshold, especially for instruments like preferred stock, options, or convertible interests.
Covered beneficial owner: SEC test and 5% threshold
Uses the SEC Schedule 13D/13G beneficial‑ownership standard in 17 C.F.R. §240.13d–3 (frozen to the December 20, 2019 text) to identify beneficial owners, and then adds an explicit quantitative hook: the individual must own, directly or indirectly, 5% or more of the company's equity securities. That combination imports a regulatory test designed for public‑filing contexts into private and grant settings; agencies will need to decide how to apply the SEC rule's concepts (e.g., beneficial ownership attribution) where public filings are absent.
Cross-references to executive agency and SGE definitions
Clarifies that the rule applies to executive agencies as defined in 41 U.S.C. §133 and uses the statutory definition of special Government employee in 18 U.S.C. §202(a). By doing so, the bill ties the bar to executive‑branch procurement and to the SGE category (short‑term, intermittent federal consultants and advisors) rather than to all federal employees, narrowing application to the group Congress has labeled SGEs but leaving open interpretive questions about hybrid or dual‑status arrangements.
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Explore Government in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Federal procurement integrity interests — The prohibition reduces situations where a company accepting federal funds is at the same time substantially owned by an SGE, addressing a structural appearance-of-conflict risk and providing agencies a clear, easy-to-communicate rule.
- Competing vendors without SGE ownership — Firms lacking SGE-affiliated owners gain relative procurement advantage because certain competitors will be disqualified unless they restructure ownership or their SGE resigns.
- Taxpayers and oversight offices — The bright-line rule simplifies some oversight: watchdogs and inspectors general can point to a concrete ownership threshold instead of having to litigate nuanced recusal or impartiality questions.
Who Bears the Cost
- Startups and private companies with founder-SGEs — Founders or early employees who serve as paid or unpaid SGEs may force their firms out of federal procurement and grant eligibility unless they divest, transfer ownership, or they and the company wait out the cooling-off period.
- Special Government employees and advisory panels — Individuals serving as SGEs who hold ≥5% equity in firms face a stark choice: resign SGE roles or foreclose their companies from federal awards for at least a year post‑enactment.
- Executive-branch contracting and grant offices — Agencies must implement new screening, documentation, and potential pre-award investigative processes to detect covered ownership, increasing administrative burden and creating potential delays in award and payment processing.
- Smaller grant recipients and nonprofits with board members who are SGEs — Nonprofit and academic entities that rely on external experts who are SGEs could be disqualified or pressured to reconfigure governance or funding relationships.
Key Issues
The Core Tension
The bill pits a desire for a bright-line procurement safeguard against SGEs' equity ownership against the practical need for outside expertise and the realities of modern startup capitalization: preventing even potential conflicts by ownership threshold reduces ambiguity but risks excluding otherwise qualified firms and forcing SGEs to choose between public service and entrepreneurial interests.
The bill substitutes a simple ownership threshold for the more nuanced conflict-of-interest and recusal regime that currently governs SGEs. That simplicity is operationally attractive but creates several unresolved issues.
First, the reliance on 17 C.F.R. §240.13d–3 as of Dec. 20, 2019 imports a rule written for public-company shareholding and Schedule 13D/13G reporting into private-company and grant contexts where filings and public disclosures may not exist; agencies will need interpretive guidance about how to apply beneficial‑ownership attribution (for example, to options, convertible instruments, or layered holding companies). Second, the five‑percent numeric test can both under- and over-identify meaningful control: multiple investors each under 5% can exercise de facto control, while a passive 5% holder might have negligible influence; the statute does not distinguish between control and passive investment.
Enforcement and remedies are also thin. The statute bars awards and payments but does not specify whether agencies must claw back payments discovered after the fact, whether contractors can cure by forced divestiture, or how debarment and suspension interact with this new prohibition.
Finally, the 365‑day post‑enactment cooling-off period attaches to the date of enactment rather than to the date an SGE last served; that construct could create retroactive effects (for example, if someone continues as an SGE until enactment, they effectively must resign immediately to preserve company eligibility) and invites strategic timing of resignations or ownership transfers to avoid the bar.
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