Recent Executive Orders Impose New Obligations on Government Contractors
February 9, 2009
Mark E. Baker- Northern Virginia
On January 30, 2009, President Obama issued a trio of executive orders that impose substantial new requirements on government contractors. The orders specify new posting obligations relative to employee unionization rights, require service contractors who win a successor contract to give incumbent employees first rights to jobs on the contract and prohibit contractors from recovering costs related to certain labor relations activities. Reflecting the new orientation of the Obama Administration, the orders reverse longstanding policies under President Bush.
The new executive orders all apply to both contractors and their subcontractors via mandatory flow-down clauses. The remedies for a violation of the orders or any regulations issued under them include contract cancellation, termination, or suspension, as well as debarment from future contracting. The Secretary of Labor is charged with enforcement and administration of the orders, including the investigation and remediation of complaints of violations.
Each of the orders is summarized below.
Notification of Employee Rights Under Federal Labor Laws
The first new executive order, intended to “ensure the economical and efficient administration and completion of Government contracts,” requires inclusion in most government contracts of a clause that requires the contractor to post a notice to all employees apprising them of their rights under federal labor law (including the National Labor Relations Act) to engage in unionization and collective bargaining. The content and form of the notice will be specified in regulations to be issued by the Secretary of Labor. Contractors will be required to comply with all provisions of the specified notice and all “related rules, regulations, and orders of the Secretary of Labor.”
The Secretary of Labor is directed to initiate rulemaking under the order within 120 days of its January 30, 2009 effective date. Contracts resulting from solicitations issued on or after the effective date of the Secretary’s regulations will be subject to the new requirements.
Nondisplacement of Qualified Workers Under Service Contracts
President Obama also has directed, for most contracts which are subject to the Service Contract Act of 1965 and which succeed a contract for the performance of the same or similar services at the same location, that the successor contractor and its subcontractors offer a right of first refusal of employment to employees who worked on the predecessor contract. Under the required contract clause implementing this requirement, the successor contractor may elect to employ fewer employees than the predecessor but “there shall be no employment opening” under the new contract until a right of first refusal has been provided to every qualified employee of the predecessor. Each qualified predecessor employee must be given “an express offer of employment” stating “the time within which the employee must accept such offer, but in no case shall the period within which the employee must accept the offer ... be less than 10 days.”
There are very limited exceptions to the required hiring of predecessor employees. First, a successor contractor may employ on the contract any of its employees who have worked for the contractor at least three months immediately preceding the commencement of the contract “and who would otherwise face lay-off or discharge.” Second, the requirement does not apply to employees who are not “service employees” within the meaning of the Service Contract Act. Third, an offer of first refusal is not required for any employee of the predecessor whom the contractor “reasonably believes, based on the particular employee’s past performance, has failed to perform suitably on the job.”
In addition to the above requirements, the new contract clause will require that, at least 10 days before completing its contract, each contractor provide the contracting officer with a “list of the names of all service employees working under this contract and its subcontracts.” The list must contain the employees’ anniversary dates of employment under the expiring contract and for any predecessor contractor on the same contract. The contracting officer will then provide the list to the successor contractor and its union (if any).
The Secretary of Labor, in consultation with the Federal Acquisition Regulatory Council (FAR Council), is directed to issue regulations under this executive order within 180 days of its January 30, 2009 effective date. The requirements will go into effect for all solicitations issued on or after the effective date of the new regulations.
Economy in Government Contracting
The final new executive order specifies that all executive branch agencies “shall treat as unallowable the costs of any activities undertaken to persuade employees – whether employees of the recipient of the Federal disbursements or of any other entity – to exercise or not to exercise, or concerning the manner of exercising, the right to organize and bargain collectively through representatives of the employee’s own choosing.” Under the order, unallowable costs include the costs of the following activities when undertaken to persuade employees to exercise or not to exercise, or concerning the manner of exercising, union rights: preparing and distributing materials; hiring or consulting legal counsel or consultants; holding meetings (including pay to attendees at the meetings held for this purpose); and planning or conducting activities by managers, supervisors, or union representatives during working hours.
The order directs the FAR Council to adopt implementing regulations within 150 days of the order’s January 30, 2009 effective date. The new requirements will apply to contracts resulting from solicitations issued on or after the effective date of the new regulations.
Conclusion
These three executive orders portend significant new burdens on government contractors. The new posting requirements will be easy to satisfy, although it remains to be seen what additional obligations may be imposed by the regulations that govern the posting. The new preferential hiring requirements and cost exclusion rules will be considerably more burdensome and will require major changes in hiring practices on successor service contracts and in cost accounting practices. Contractors should begin now to analyze their practices and assess where changes will be necessary.
For more information, contact:
Mark Baker
703.969.0882
mark.baker@hklaw.com
toll free: 1.888.688.8500
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