Federal Contracting Gets Safer Thanks to New, Common-Sense Regulations

Federal contractors that violate labor laws not only cheat workers by disregarding their rights to fair pay and safe workplaces, but they also tend to run into unexpected costs and delays during performance of the contracts they're awarded. With this in mind, in 2014, President Obama issued Executive Order (E.O.) 13673, which seeks to improve cost savings and efficiency in government contracting by requiring prospective contractors to disclose labor law violations and obligating contracting agencies to review those violations before awarding contracts. The E.O. also requires federal contractors to provide employees with wage statements that include certain information so that workers can verify the accuracy of their paychecks. 

Consistent with the E.O.'s directives, the Federal Acquisition Regulatory (FAR) Council and Department of Labor (DOL) published a final rule and guidance, respectively, in the Federal Register on Aug. 25. The Center for Progressive Reform's (CPR) Executive Director Matthew Shudtz and CPR policy analyst Katherine Tracy joined with several public interest advocates in submitting comments on the proposed FAR rule and DOL guidance. Our comments generally expressed our support for the proposals, but we also recommended several important improvements, some of which are reflected in the final rule and guidance. 

Initial Representations and Pre-Award Disclosures 

The final FAR rule, which will be completely phased in on Oct. 25, 2017, requires companies bidding on contracts valued at over $500,000 to disclose whether any "administrative merits determinations, civil judgments, or arbitral awards or decisions" have been rendered against them during the past three years for violations of any of 14 federal labor laws and/or equivalent state laws. Once awarded a contract, the contractor must also make additional disclosures semi-annually. 

In our comments on the proposed rule and guidance, we noted that a prospective contractor that initially represented it had no disclosable violations was not instructed to provide an update to the contracting officer prior to receiving an award. As a result, the contractor would only need to disclose such information during the semi-annual disclosure period, after which the agency would have already awarded the contract. In DOL's final guidance, the agency recognized the validity of our concern, noting, "Contractors have a duty to provide an update to the contracting officer prior to the date of an award if the contractor's initial representation is no longer accurate." And the final FAR rule now requires a contractor to notify the contracting officer of an update to its representation if a new labor law decision was rendered or the contractor learns that its initial representation is no longer accurate. 

The "Responsibility" Determination 

Long-standing rules governing federal contracting require agencies only to do business with "responsible sources." The E.O. simply provides that agencies take into consideration contractors' past labor law violations in determining whether a firm is responsible for purposes of contracting. Specifically, an agency labor compliance advisor (ALCA) – a senior agency official responsible for the agency's implementation of the E.O. – will review a contractor's disclosures and weigh any violations classified as serious, repeated, willful, or pervasive in light of the totality of the circumstances, including the severity of the violations, the size of the contractor, and any mitigating factors. The ALCA will then provide the agency contracting officer with a written analysis on the firm's compliance record and a recommendation. The agency contracting officer ultimately makes the responsibility determination.  

Our comments on the proposed FAR rule and DOL guidance emphasized that contracting officers shouldn't be allowed to consider "a single violation" or "long period of compliance" as mitigating factors in making a determination as to a firm's responsibility. Those factors could easily have just as much (or more) to do with an agency's declining resources than with a contractor's responsibility, and thus, could result in an erroneous determination. We also emphasized that the proposed guidance lacked any indication as to what duration of time constitutes a "long period of compliance." 

To our disappointment, the final FAR rule and DOL guidance retain these two mitigating factors. But our comments did lead DOL to clarify in its final guidance that "a long period of compliance" should be considered "a stronger mitigating factor where the contractor has a recent Labor Law decision that it must disclose, but the underlying conduct took place significantly before the 3-year disclosure period and the contractor has had no subsequent violations." 

Clarifying the Public's Role 

Under the E.O., during the post-award period, if a contracting officer learns of labor law violations through the contractor's semi-annual disclosure or from "other sources," the officer must consult with the ALCA and decide whether action is necessary. Our comments asked for clarification on the methods in which the public may submit information to contracting agencies for consideration. 

DOL's final guidance clarified that "other sources" might include employees, worker representatives, community groups, the public, or even competitors. Third parties can submit information about contractors' labor law violations to the relevant ALCA. The agency further noted that it "does not believe that the Order intended to limit the sources of information that contracting officers may consider—either during the preaward or postaward process." Additionally, the final FAR rule clarified that while an ALCA may receive information from third parties, he or she may only make a recommendation to the contracting officer based on labor law decisions rendered against the contractor. Both the rule and guidance also explain that due to limits on public availability of information concerning ongoing contracts, contracting officers cannot solicit information from third parties. 

Paycheck Transparency 

The E.O. directs contracting officers to include a clause in contracts that requires contractors to provide wage statements to their workers with information about an individual's hours worked, overtime hours, pay, and additions made to or deductions made from pay. In our comments, we recommended expanding this list to require that wage statements include, alongside information about deductions from pay, a description of the reason for the deduction (e.g., health insurance). The FAR Council and DOL agreed and revised the final rule and guidance to clarify that additions and deductions must be itemized on the wage statements. 

Conclusion 

All federal contractors should be held to a high standard of labor practices, including full compliance with safety and health, wage and hour, and anti-discrimination laws and regulations. The final FAR rule and DOL guidance, especially with the revisions made in response to our comments, will substantially contribute to the E.O.'s goal of increasing efficiency and cost savings in the performance of federal contracts, assisting contractors with complying with labor laws, and leveling the playing field for companies that do right by their workers.