The FAR Council and the Department of Labor have published the final versions of their respective final rule and DOL guidance implementing the President’s July 2014 Executive Order entitled “Fair Pay and Safe Workplaces”—EO 13673.

Detractors frequently refer to EO 13673 as the “Blacklisting” or “Bad Actors” Executive Order. The order and the new regulations purport to promote efficiency in government procurement by ensuring that federal agencies contract only with “responsible” contractors that comply with federal and state workplace protection laws.

This objective is already a well-established requirement of the government’s procurement rules. The regulations impose additional administrative burdens on current and future contractors, adding an element of uncertainty to future contract award decisions, but only achieving marginal improvements in workplace law compliance.

Who is affected?

When the new regulations are fully implemented, approximately 14,000 contractors will receive prime contracts each year that are covered by EO 13673. Only a small portion of these contractors are expected to have reportable information. An even smaller share are expected to be at risk of being found nonresponsible as a result of such reports.

When do the regulations go into effect?

The DOL guidance states that agencies may begin using it as of August 25, 2016. The guidance is intended to assist agencies in complying with EO 13673.

The FAR Council’s final rule does not go into effect immediately. The disclosure requirements they impose will be phased in over a two-year period beginning October 25, 2016.

Specific elements of the phased introduction include:

  • Five weeks before the regulations take effect, the DOL will open a ”preassessment“ phase. Starting September 12, 2016, contractors can request a voluntary assessment of their labor compliance history from DOL. The assessment would be requested in anticipation of bids on future contracts but independent of any specific acquisition. Participation in a preassessment will be considered as a mitigating factor in future acquisitions. The preassessment phase is an ongoing endeavor, and does not end when the final rule takes effect.
  • Beginning October 25, 2016, federal contracts of $50 million or more will require prime contractors to disclose violations of 14 federal laws for the previous year. Also, contractors and subcontractors with federal contracts of at least $1 million are prohibited from forcing employees to sign pre-dispute agreements to arbitrate sexual assault or civil rights claims.
  • On January 1, 2017, federal contractors, including subcontractors, must begin providing wage statements to employees.
  • On April 24, 2017, federal contractors must disclose violations of 14 federal laws from the previous year whenever they seek a federal contract of $500,000 or more.
  • On October 25, 2017, subcontractors must disclose violations of 14 federal laws from the previous year whenever they seek a federal contract of $500,000 or more.
  • On October 25, 2018, all federal contractors and subcontractors must begin disclosing violations of 14 federal laws for the previous three years.

Once fully implemented, the regulations will apply to new contracts and subcontracts for goods and services, including construction, where the estimated value exceeds $500,000 over the life of the contract. Note that they will not apply to contracts for commercially available off-the-shelf (“COTS” items).

Laws covered by the regulations

Once fully implemented, the final rule establishes the procedures by which contracting officers are to consider employers’ compliance records with respect to federal labor laws before awarding contracts and subcontracts valued at more than $500,000. The relevant workplace laws on which employer compliance must be assessed include the following:

  • Fair Labor Standards Act
  • Occupational Safety and Health Act (and state law equivalents)
  • Migrant and Seasonal Agricultural Worker Protection Act
  • National Labor Relations Act
  • Family and Medical Leave Act
  • Davis-Bacon Act
  • Service Contract Act
  • Title VII of the Civil Rights Act
  • Americans with Disabilities Act
  • Age Discrimination in Employment Act
  • Executive Order 11246 (affirmative action and equal employment opportunity)
  • Vietnam Era Veterans’ Readjustment Assistance Act
  • Section 503 of the Rehabilitation Act
  • Executive Order 13658 (federal contractor minimum wage)

With the exception of state OSHA laws, the state law equivalents of the laws listed above will be subject to future rulemaking before contractors will be required to report violations.

Which legal entity makes the disclosure?

The regulations address a critical issue that was unclear in the proposed rules and guidance: which legal entities’ labor law compliance history must be disclosed to comply with the regulations’ requirements? The FAR Council’s final rule provides an informative example of which disclosures are required in a typical corporate parent-subsidiary structure:

If XYZ Corporation is the legal entity whose name appears on the bid/offer, covered labor law decisions concerning labor law violations by XYZ Corporation at any location where that legal entity operates would need to be disclosed.

The fact that XYZ Corporation is a subsidiary of XXX Corporation and the immediate parent of YYY Corporation does not change the scope of the required disclosure. Only XYZ Corporation’s violations must be disclosed.

It is worth noting that this reporting requirement applies to the entire corporation. Even if the contracting entity is a division of a corporation, the entire corporation’s compliance record will be required.

Additional changes in the final rule

A second important difference between the proposed rules and the final regulations is the definition of civil judgments. DOL explained that the term excludes temporary restraining orders and offers of judgment under Rule 68 of the Federal Rules. These are not reportable.

The regulations included two additional changes for subcontractors. First, subcontractor reporting obligations do not commence at the same time as the prime contractors’ requirements. Subcontractors on contracts valued at $500,000 or more must begin disclosing their compliance history on October 25, 2017—one year after the first reporting requirements for prime contractors. Second, subcontractors are required to make their initial disclosures directly to DOL, not to prime contractors. Subcontractors must inform their prime contractors of the results of DOL’s analysis.

Pre- and post-award assessments of labor law violations

The regulations provide additional details regarding the procedures to be used by contracting officers and each of the Agency Labor Compliance Advisors (“ALCA”) when reviewing an offeror’s compliance history. Examples of these details include:

  • The disclosure of labor law decision(s) does not automatically render a prospective contractor non-responsible.
  • Any mitigating circumstances provided by the contractor in SAM to demonstrate responsibility will not be made public unless the contractor determines it wants the information to be made public.
  • ALCAs must provide their written analysis to the contracting officer
  • The minimum contents of each ALCA’s written analysis.
  • The contracting officer must include in the contract file how the ALCA’s written analysis was considered as part of the responsibility determination.
  • Successful offerors must update their labor law compliance disclosures twice each year during performance of the awarded contract(s).
  • The final rules set forth a process for contractors to receive notice of, and respond to, agency recommendations prior to a final responsibility determination.

DOL will publish an Agency Labor Compliance Advisory Directory after the final rule takes effect on October 25, 2016.

Paycheck Transparency

The final rule requires covered contractors and subcontractors to provide wage statements to covered workers, giving them information concerning their hours worked, overtime hours, pay, and any additions to or deductions made from their pay. If a significant portion of the workforce is not fluent in English, the wage statement must also be provided in the language(s) other than English in which that portion or those portions of the workforce are fluent.

The wage statement provided to workers who are exempt from overtime pay under the FLSA need not include a record of hours worked if the contractor informs the individuals of their exempt status.

EO 13673 also requires covered contractors and subcontractors to provide to workers whom they treat as independent contractors a document informing them of their independent contractor status.

The effective date for pay transparency is January 1, 2017.

Prohibition on mandatory pre-dispute arbitration clauses

The final rule requires contractors with contracts exceeding $1,000,000 to agree that the decision to arbitrate claims arising under title VII of the Civil Rights Act of 1964, or any tort related to or arising out of sexual assault or harassment, be made only with the voluntary consent of employees or independent contractors after such disputes arise, subject to certain exceptions (e.g. employees covered by a collective bargaining agreement).

This prohibition on pre-dispute arbitration also applies to subcontractors with subcontracts exceeding $1,000,000 except for subcontracts for the acquisition of commercial items.

The effective date for the arbitration prohibition provision is October 25, 2016.