On May 28, 2015, the government proposed to amend the Federal Acquisition Regulation (FAR) to mandate disclosure by government prime and subcontractors of violations of 15 categories of worker protection laws. The Department of Labor (DOL) published a guidance document simultaneously, which the FAR Amendment incorporates (DOL Guidance). Both documents implement Executive Order 13673, “Fair Pay and Safe Workplaces.”
The proposed FAR provisions contain three basic requirements:
Comments are due on July 27, 2015. Given the proposal’s complexity, its costs of implementation and its potential impact on the prime/subcontractor relationship, the importance of contractor comments cannot be overstated. The government, in fact, has announced its need for industry comments, urging input on several specific aspects of the rulemaking. The highlighted areas include information on the cost of establishing internal systems to track and report labor law violations and the extent to which information reported by contractors should be publicly available.
The first several sections of this alert explain the requirements under the proposed regulations. The final sections of this alert discuss the comment process, and actions companies can take now to be ready for the regulations once finalized.
The proposed FAR amendments require contracting officers to make a specific determination of responsibility based on each offeror’s history of labor law compliance for all prime awards more than $500,000. This determination begins with disclosure by the offeror of any labor law violations within the three years preceding proposal submission. If an offeror discloses a violation or violations, it must then submit specific information concerning the violation. This information, which contractors must update semi-annually, is to include:
Importantly, disclosure of basic information about the labor violations will be made publicly available in the Federal Awardee Performance and Integrity Information System (FAPIIS). The government is also working on development of a single website for reporting labor law violations under the new regulations.
The regulatory proposal identifies 15 categories of labor laws for which violations must be reported. They are:
However, other than OSHA-approved state plans, implementation of the requirement to report state law violations is being deferred pending issuance of additional guidance from DOL.
The proposed regulations define a labor law violation under one of the 15 enumerated laws as one resulting from an administrative merits determination, an arbitral award or decision, or a civil judgment. Even determinations, decisions or judgments that are subject to appeal or further review must be reported by contractors. More specifically, the proposed FAR amendments state:
The accompanying DOL Guidance further defines these terms. For example, it sets forth a list of specific agency actions falling within the administrative merits determination category, such as a WH-56, “Summary of Unpaid Wages” form or an OSHA citation. The DOL list is intended to be exhaustive. Therefore, administrative actions that do not fall within the listed actions will not constitute administrative merits determinations that must be reported. Nor are employee complaints made to enforcement agencies such as the DOL Wage and Hour Division. State administrative violations will not need to be reported until DOL issues another guidance document providing additional detail as to what will constitute state administrative violations.
Based on the reported information, contracting officers will be required to make pre-award responsibility determinations and conduct post-award monitoring. Contracting officers are to be assisted in making these determinations by a new category of acquisition officials called agency labor compliance advisors (ALCAs). Once a contracting officer receives the required information concerning reported labor law violations from a contractor and provides it to the ALCA, the ALCA has three business days (unless the contracting officer designates a different time period) to issue written advice and recommendations. The ALCA is to issue one of the following three recommendations:
In making the responsibility determinations, the regulations require the contracting officer and the ALCA to consider: whether the violations are serious, repeated, willful or pervasive; the number of violations; whether the contractor has initiated its own remedial actions; the need for a labor compliance agreement; and any other information the government deems necessary. The DOL Guidance accompanying the FAR proposal spends considerable time amplifying the definitions of serious, repeated, willful and pervasive violations. It even contains tables that provide examples of each violation category. Some of these terms are already defined in statutes such as OSHA, and the DOL Guidance incorporates these definitions. In addition, illustrative benchmarks from the guidance include the following:
Upon receipt of the ALCA’s advice, the contracting officer is to make a responsibility determination. If the contracting officer deems it appropriate based on the ALCA report, the contracting officer may refer the matter to the agency debarring and suspending official.
For post-award labor law violations, the contracting officer is to follow the same procedure of referral to the ALCA. At that point, the contracting officer has the option to (i) take no action; (ii) refer the matter to DOL for action, such as implementation of a labor compliance agreement; (iii) decide not to exercise remaining options; (iv) terminate; (v) or notify the agency suspending or debarring official.
The proposed regulations create an entirely new dynamic between prime and subcontractors. Prime contractors must evaluate labor violation information when determining subcontractor responsibility in connection with subcontracts (other than those for commercially available off-the-shelf items) with an estimated value exceeding $500,000. This evaluation applies to subcontractors at any tier and the FAR clause must be flowed down to noncommercial subcontracts meeting the threshold. Contractors may decide to conduct the evaluations for all qualifying subcontractors at any tier, or devise and manage a program imposing the requirements on higher-tier subcontractors.
Thus, subcontractors must represent whether they have any labor law violations and, if they do, provide the same information about the violations as prime contractors must supply the contracting officer. Prime contractors must then evaluate their subcontractors’ responsibility using the analysis described above. As part of their analysis, prime contractors are to determine whether their subcontractors’ disclosures warrant further action, including requiring a new or enhanced labor compliance agreement, requiring compliance assistance, or discontinuing the subcontract relationship. The proposed regulations state that prime contractors may seek assistance from DOL in making the requisite subcontractor responsibility determination, but neither the proposed regulations nor the DOL Guidance contains much detail about how this consultation is to work.
In terms of timing, prime contractors are to perform the subcontractor evaluation within 30 days of subcontract award for subcontracts entered into within five days of the prime contract execution, and prior to award for all other subcontracts unless urgent circumstances exist, in which case, the determination must be made within 30 days. Subcontractors must update their disclosures semi-annually. They also will be required to notify their higher-tier contractors within five days of a DOL notice that the subcontractor has violated a labor compliance agreement or is refusing to enter into such an agreement within a reasonable time.
In addition to the labor violation reporting provisions, the FAR proposal contains paycheck transparency requirements and a prohibition on mandatory arbitration for Title VII disputes.
Contractor and subcontractors with contracts valued at more than $500,000.00 whose workers are subject to the Davis-Bacon Act, Fair Labor Standards Act, Service Contract Act, or equivalent state laws to be identified by DOL, must provide pay statements that identify the hours worked, overtime hours (if applicable), pay, and any additions or deductions for each pay period. Where a “significant portion” of the workforce is not fluent in English, contractors must provide this information in the language or languages with which the workforce is more familiar. Finally, contractors must advise any independent contractors of their status prior to their beginning work.
The final piece of the regulatory proposal is the imposition of a ban on the use of pre-dispute arbitration agreements relating to disputes arising under Title VII of the Civil Rights Act.
There can be no doubt that the Fair Pay and Safe Workplace proposal is one of the most sweeping FAR changes in a long while. If finalized, the regulations will impose significant new compliance and reporting requirements on contractors, new duties on contracting officers, and an entirely new dynamic between prime and subcontractors.
The proposal implicitly acknowledges the broad impact of the new requirements by calling out specific areas for which the government seeks comments. These areas are:
Industry comments, however, need not be limited to the specified topics. For large and small businesses alike, implementation of a requirement to track and report labor law violations as broadly defined as in the proposal will involve a substantial investment of time, training and new system requirements. Companies with multiple establishments will need to ensure that there is a common understanding throughout their organization as to what must be reported and that reports are timely made and collected. The proposal contains an estimate of more than $106 million in total contractor costs to comply with the requirements in their first year. However, more information from the affected contractor community about the personnel, system, and other compliance costs involved in setting up the policies and procedures needed to meet the new requirements is necessary in order to produce final regulations that reasonably balance the regulatory purpose with the cost of compliance. Thus, the submission of information to assist in this cost/benefit analysis is very important.
The proposed regulations raise other open questions. For example:
Information from the contracting community will be critical to formulation of rules that are workable while still achieving the goals of the Fair Pay and Safe Workplace proposal.
The proposal’s three-year look-back means that labor law violations occurring now or in the near future may need to be reported. Contractors should therefore be evaluating their current practices to be ready. Specifically, this evaluation should include:
Contractors should also be considering their third-party relationships. The three-year look-back counsels revisions to subcontract agreements now. These agreements will need to contain requirements for subcontractor reporting of covered labor violations to the prime contractor, representations about subcontractors’ compliance with the executive order’s mandates, clear statements of the parties’ expectations as to how the prime will handle any violations reported by the subcontractor, and indemnification clauses covering damages flowing from either false or incomplete reports.
There are also logistics to consider. Companies with paycheck systems that are not compliant with the paycheck transparency section of the order will need to change the form and substance of whatever documentation accompanies their payment to employees. Similarly, contractors may need to revise their employment agreements relating to covered government contracts to remove references to pre-award arbitration clauses. In that connection, companies will need to decide to delete any pre-award arbitration requirements in all of their employment contracts, or in the alternative, just in the agreements relating to government contracts. This analysis will necessarily include considering the impact of different employment agreement provisions on similarly situated employees and the relative administrative burdens of managing two sets of employment agreements.
The labor violation reporting mandate is far-reaching. It establishes new relationships between federal procurement and employment laws, between contracting agencies and DOL, and between contractors and subcontractors. Many of its requirements have no precedent. Compliance will be complicated and will involve establishment of new systems and new procedures for interacting with subcontractors and employees. A contractor who begins preparing for these requirements now will not only mitigate the risk of non-compliance but may also secure a competitive advantage on future procurements. The analysis necessary to such preparation may also be useful in terms of providing meaningful input into the rulemakings that will eventually implement the order’s requirements.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.
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