The
Department of Labor and FAR Council issued final regulations that require
federal contractors to disclose labor violations from the past three years.
This blog updates an earlier edition
with what you need to know. For more details or if this impacts your business,
I encourage you to read official guidance here.
Ahhhh, Labor Day. The unofficial end of summer. A century-old
government-granted day off to squeeze in another day at the pool, buy the last
of the school supplies (who really needs
a protractor anyway?), see the grandparents, and now – for federal
contractors – an opportunity to review your company’s legal history.
It doesn’t sound quite right, does it? But for thousands of federal
contractors, that is exactly what newly finalized regulations mean. I will get
into to the details and timeline of the new requirement in a moment, but first,
a little history on a change WIPP has watched closely.
In 2014, President Obama issued an Executive
Order with the goal of barring bad companies from winning federal
contracts. The following summer the Labor Department (DOL) and the FAR Council
(overseers of contracting rulebook, “the FAR”) proposed how this could be achieved. Last week, final rules were published –
and contractors nationwide let out a collective groan.
You see, excluding companies with a history of bad acts from winning
government work – a generally universally accepted idea – is not easy. WIPP
said just that in our formal comment last year.
We agreed that companies that follow the rules should not have to compete against
companies that break them for federal contracts. But the proposed system would
place burdens on women-owned contractors and dump paperwork requirements on
contracting officers.
Our comment, along with hundreds from individual business owners and
other trade groups, did little to sway the government from moving forward. The
new requirement detailed below goes into effect on October 25, 2016.
The regulation requires federal contractors and subcontractors to
disclose violations of 14 federal labor laws and the equivalent state laws from
the previous three years. Exemptions were provided for companies with contracts
valued less than $500,000. Prospective federal contractors will need to declare
if they had labor violations in the previous three years when submitting an
offer. During an initial evaluation, contracting officers will see that declaration
(a simple “yes” or “no”), without any additional detail or explanation.
Later, if a contractor were likely to win an award, the contracting
officer would have to decide if the contractor is a responsible company (a requirement
of all government contracts already). It is in this phase that details like appeals,
remediation, or mitigating factors could be explained. Contracting officers will
attempt to identify companies with “serious”, “willful”, “repeated”, and/or “pervasive”
violations and not award them contracts. Companies with minor violations could
still be considered responsible and win contracts.
In what the
government views as a compromise since their initial proposal, the system will
be phased-in over the next two years. The DOL released the
following timeline:
Phased-In Implementation Schedule
· Week of
September 12, 2016: Preassessment begins,
through which current or prospective contractors may come to DOL for a
voluntary assessment of their labor compliance history, in anticipation of bids
on future contracts but independent of any specific acquisition.
· October
25, 2016: The final
rule takes
effect. Mandatory disclosure and assessment of labor law compliance begins for
all prime contractors under consideration for contracts with a total value
greater than or equal to $50 million. The reporting disclosure period is
initially limited to one (1) year and will gradually increase to three (3)
years by October 25, 2018.
· January
1, 2017: The Paycheck Transparency clause takes effect, requiring
contractors to provide wage statements and notice of any independent contractor
relationship to their covered workers.
· April
25, 2017: The total contract value threshold for prime contracts requiring
disclosure and assessment of labor law compliance is reduced to $500,000.
· October
25, 2017: Mandatory assessment begins for all subcontractors under
consideration for subcontracts with a total value greater than or equal to
$500,000.
Needless to say, our concerns remain. And before I go into a few of
them, I would point out that the $50 million threshold sounds like a lot. It
includes, however, companies on a multiple award contract with a ceiling amount
above $50 million. Meaning a company that wins a BPA or IDIQ valued above $50
million, though not necessarily the amount of work the company will actually
perform, will face the October 2016 deadline.
On a broader level, the rule simply is not ready for primetime. The
Labor Department and FAR Council chose not to include what state labor law
violations must be reported. It is impossible to gauge the impact of a regulation
when missing significant portions.
What is in the rule, however, is equally concerning. In some
cases, violations that require reporting will not be be fully adjudicated. That
is, companies would have to report decisions against them that may ultimately
be overturned – as nearly a third of NLRB decisions have been.
This is compounded by WIPP’s worry that simply having violations on
record will “blacklist” companies without providing any opportunity to offer explanation.
With limited resources and time, contracting officers may elect to avoid
companies with any disclosed violations, despite the intent of the order to
only bar violations of a certain severity.
Burdens on subcontractors are also being created. They must report
violation history as well – directly to DOL. This was a notable change in the
final rule, by making the subcontractor and the Labor Department engage each
other, and not put the responsibility on the prime contractor.
At the same time the government has admitted it lacks the resources to
answer all questions about weighing different labor violations from hundreds of
thousands of subcontractors. Ultimately, this change could be the most damning,
as many of these companies are unaware of the new requirements because they never
sought business with the government in the first place.
Finally, the Fair Pay and Safe Workplaces requirement is one of many
in a disconcerting trend of new regulations that specifically target federal
contractors. Earlier this year, regulations raised the minimum wage solely for
workers on federal contracts. New requirements regarding sick leave were also
released. These make contracting with the federal government more onerous,
particularly for women entrepreneurs seeking to enter the market. At a time
when we want more competition and innovation in government, policies impacting
only federal contractors put up barriers for entry.
Without question, WIPP supports efforts by the federal government to
rid the contracting environment of businesses with a history of abusive and
neglectful violations. In doing so, the government levels the playing field for
the millions of businesses playing by the rules. But the government already has
those tools and this rule will not achieve this goal. Instead, it will be harder
to be a contractor, pushing the innovative products and services of women-owned
businesses out of the federal market.
So to the federal contractors out there gearing up for a warm holiday
weekend, fire up those grills, wear that final white outfit, and head into the
office – it’s going to be a busy day.
John
Stanford is part of WIPP's Government Relations team in Washington, D.C.,
specializing in federal procurement and healthcare policy. When not bothering
lawmakers about needed changes, he can be found in the woods at local golf
courses.
