New Emphasis on Labor Compliance for Contractors

GovConAdvisors® Blog

In a Proposed Rule published in the Federal Register on May 28, 2015, the Federal Acquisition Regulation (FAR) Council is proposing to amend the FAR to add new regulations and contract clauses that implement Executive Order (EO) 13673, Fair Pay and Safe Workplaces, dated July 31, 2014, as amended by EO 13683 on December 11, 2014. The proposal creates new responsibilities for agency contracting officers and contractors and subcontractors, and provide the Department of Labor (DoL) with vast new enforcement tools to ensure government contractor and subcontractor labor compliance.

The Proposed Rule implements several new requirements, which can be summarized as follows-

• For all contracts estimated to exceed $500,000, offerors will be required to disclose whether there has been any administrative merits determination, civil judgment, or arbitration award or decision rendered against the offeror during the prior three (3) years under any of fourteen (14) federal labor laws and executive orders and equivalent state laws.

• Contracting Officers awarding covered contracts will be required to assess offeror labor compliance disclosures prior to award as part of the present responsibility determination already required by the FAR.

• Prime contractors awarded a covered contract will be required to update their labor compliance disclosure on a semi-annual basis during the performance of the contract. The information will be submitted and maintained on a new website to be created by the government, and certain of the compliance information will be available to the public.

• Prime contractors will be required to obtain similar labor compliance disclosures and make similar responsibility determinations for each subcontractor with whom they have a subcontract exceeding $500,000, other than for commercially available off-the-shelf items. The requirements will apply at all tiers of the subcontracting chain.

• Contractors and subcontractors performing work under government contracts will be required to provide employees and independent contractors with specific information about their hours and wages so that these individuals can more easily determine whether they are being paid properly for work performed. In addition, independent contractors must be officially notified of their non-employment status.

• Finally, for contracts estimated to exceed $1 million dollars, the Proposed Rule calls for prohibitions against a contractor requiring its employees and independent contractors to enter into pre-dispute arbitration agreements relating to Title VII of the Civil Rights Act claims and torts related to sexual assault or harassment.

The Proposed Rule contemplates the appointment of a new senior agency official in each agency to be the Agency Labor Compliance Advisor (ALCA) responsible for advising contracting officers, coordinating with the DoL, and assessing contractor labor compliance. Notably, the ALCA will provide written advice and recommendations to contracting officers within 3 business days of a contracting officer’s request relating to a contractor’s compliance with labor laws. For contractors that disclose non-compliance matters, the ACLA will evaluate the severity of the violations and a contractor’s efforts to comply.

The Proposed Rule also contemplates an advisory or support role for the DoL to advise contractors and subcontractors regarding their compliance with labor laws and envisions increased use of compliance agreements between DoL and contractors and subcontractors to demonstrate their present responsibility and commitment to compliance when violations have occurred.

The 14 federal labor laws and executive orders covered by the Proposed Rule include:

• The Fair Labor Standards Act
• The Occupational Safety and Health Act (OSHA)
• The Migrant and Seasonal Agricultural Worker Protection Act
• The National Labor Relations Act
• The Davis-Bacon Act (now the Fair Labor Standards Act)
• The Service Contract Act (now the Service Contract Labor Standards Act)
• EO 11246 of September 24, 1965 (Equal Employment Opportunity)
• Section 503 of the Rehabilitation Act of 1973
• The Vietnam Era Veterans’ Readjustment Assistance Acts of 1972 and 1974
• The Family and Medical Leave Act
• Title VII of the Civil Rights Act of 1964
• The Americans with Disabilities Act of 1990
• The Age Discrimination in Employment Act of 1967
• EO 13658 of February 12, 2014 (Minimum Wage for Contractors)

In addition, the rules will apply to equivalent state laws as defined in guidance issued by the DoL.

Contractors and subcontractors at every tier will need to seriously consider doubling down on their labor compliance efforts. For companies that have violated the any of the covered laws, EOs or equivalent state laws in the past 3 years, careful consideration of the disclosure requirements as well as the potential ramifications on business operations is warranted. Some companies may consider proactively engaging DoL or customer agency ACLA’s, and adopting new compliance measures or even a labor compliance agreement to demonstrate present responsibility and commitment to labor compliance.

The Proposed Rule imposes significant new reporting requirements on contractors and subcontractors, which may require new processes and procedures to adequately and accurately track and report and coordinate what will be additional DoL and procuring agency inquiries into labor non-compliance matters. Prime contractors will not only be required to monitor and accurately report their own compliance with labor laws, but will be required to implement new systems to obtain disclosures from subcontractors in the supply chain on a semi-annual basis and assess subcontractor responsibility. Such assessments may be burdensome and costly for companies with a broad or deep supply chain.

The Proposed Rule vests significant new power and discretion in the DoL to monitor labor compliance of the government contracting community. Notably, the new regulations impact every tier of the supply chain, and likely reach every company that holds even a single government contract or subcontract exceeding $500,000. The only exemption currently contemplated is for subcontractors who supply COTS items; commercial item contracts and subcontracts that do not qualify as COTS are not exempt. Although most federal government transactions fall well below the threshold, the requirements impact every contractor seeking or holding only a single contract exceeding the threshold. Thus, most government contractors will be impacted by at least the reporting and subcontractor assessment and reporting requirements.

While the Proposed Rule suggests that a single reported labor violation might not give rise to significant responsibility concerns, it clearly amplifies the considerable discretion contracting officers have to assess contractor responsibility and confers new responsibilities in the ACLA and the DoL to assess the severity of past labor law violations singly and overall. Some companies will find themselves under a microscope and will be required to explain and document past labor violations they thought were behind them. Some companies may even find themselves effectively blacklisted from doing business by particular agencies or contracting officers. Responsibility determinations occur on a procurement-by-procurement basis and are relatively subjective. Moreover, the new rules contemplate ongoing reporting during contract performance, and responsibility assessments by contracting officers prior to exercising each option period of an affected contract.

Contractors and subcontractors with labor law violations during the past 3 years or that arise during contract performance of a covered contract will be encouraged to enter into labor compliance agreements with the DoL to demonstrate their present responsibility. For example, the DoL guidance to ACLA’s reflected in the Proposed Rule envisions that ACLA may make only one of three recommendations when requested to assess contractor responsibility with labor laws: (1) satisfactory record of integrity and business ethics; (2) satisfactory record of integrity and business ethics if the process to enter into or enhance a labor compliance agreement is initiated; and (3) unsatisfactory record of integrity and business ethics and the agency suspending and debarring official should be notified. These options seem limited and likely to generate more compliance agreements and suspension and debarment investigations. Moreover, if a contractor is currently negotiating a labor compliance agreement with the DoL, the ACLA is called upon by DoL guidance to advise the contracting officer whether the contractor is negotiating in good faith. Thus, DoL is conferred new leverage to extract concessions from contractors negotiating such agreements.

The Proposed Rule seeks comments from interested parties by July 27, 2015. Several interested parties have requested extensions emphasizing the gravity and complexity of the Proposed Rule.

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