As the summer season continues, government contractors should note that the FAR Council and the U.S. Department of Labor have provided contractors additional time, through August 11, 2015, to comment on the rules and guidance proposed to implement Executive Order (E.O.) 13673, Fair Pay and Safe Workplaces. The rules, when finalized and implemented, may apply significant labor reporting requirements on prime contractors and subcontractors alike, and call for significant remedies.

Overview of the Proposed Rule and Guidance

The proposed rule and guidance implement the requirements of E.O. 13673, which was promulgated in July 2014 to ensure that parties contracting with the federal government comply with labor laws. The key E.O. requirements proposed for implementation include:

1. Reporting Compliance with Labor Laws

Pre-Award Reporting

An entity submitting an offer for a contract estimated to exceed $500,000 (excluding contracts for commercially available off-the-shelf (COTS) items) must represent, using the System for Award Management, whether in the past three years the offeror was found to have violated one of 14 federal labor laws and executive orders (including the Fair Labor Standards Act, the Occupational Safety and Health Act, the National Labor Relations Act, and others).1 A labor violation under the proposed rule is one resulting in i) an administrative merits determination, ii) an arbitral award or decision, or iii) a civil judgment.

If the offeror represents it has a violation and is in line for an award, the contracting officer, as part of his or her responsibility determination, will require the offeror to submit additional details about the violation(s), and allow the offeror an opportunity to provide information on mitigating circumstances and remedial measures that it has taken, such as labor compliance agreements, to demonstrate responsibility. If a contract is awarded, the contractor will be obligated to update the information on labor violations semi-annually.

The rule will apply to subcontractors, at any tier, proposed to work on subcontracts estimated to exceed $500,000 (excluding subcontracts for COTS items). The proposed rule will require the prime contractor, in its own evaluation of the subcontractor's responsibility, to assess the subcontractor's report of labor violations. Thus, the prime contractor must submit to a responsibility determination concerning its labor violations, and it must also perform a responsibility determination of its own subcontractors. The prime contractor will be obligated to document and explain its responsibility determination if the subcontractor reports labor violations.

Post-Award Reporting and Remedies

Contractors and subcontractors are obligated to report semi-annually if there are any new reports related to labor violations. In assessing reports, the contracting officer will again consider the advice and recommendations of the ALCA (Agency Labor Compliance Advisor) to determine whether any action may be warranted. Actions of the contracting officer could include:

  • Determine no action is required and continue contract performance;
  • Refer the matter to the DOL for action, to include a potential new or enhanced labor compliance agreement;
  • Decline to exercise an option;
  • Terminate the contract; or
  • Notify the agency Suspending and Debarring Official if there are such serious, repeated, willful or pervasive labor violation(s) that the violation(s) demonstrates a lack of integrity or business ethics of a contractor or subcontractor, in accordance with agency procedures.

There is a requirement at a newly proposed clause at 52.222-AB, Subcontractor Responsibility Matters Regarding Compliance with Labor Laws (EO 13763), and 52.222-BB, Compliance with Labor Laws, that will require pre-award subcontractor labor violation disclosures and semi-annual post-award updates during subcontract performance, and evaluations thereof.

2. Establishing Agency Labor Compliance Advisors

The proposed rule establishes the role of the ALCA, who will be a senior official in each agency, designated in accordance with the E.O. The ALCAs will provide written advice and recommendations to contracting officers as they assess contractor reports of labor violations. The ALCAs will also review the relevant information provided by contractors, including administrative merit determinations, arbitral awards or decisions, or civil judgments as necessary to support their recommendations. In a pre-award context, an ALCA will make one of the following recommendations:

  1. The prospective contractor could be found to have a satisfactory record of integrity and business ethics;
  2. The prospective contractor could be found to have a satisfactory record of integrity and business ethics if the process of entering into or enhancing a labor compliance agreement is initiated; or
  3. The prospective contractor could be found not to have a satisfactory record of integrity and business ethics, and the agency Suspending and Debarring Official should be notified per agency procedures.

3. Establishing Paycheck Transparency

The rule will also implement the E.O. requirement for paycheck transparency. Contractors performing on contracts exceeding $500,000 must provide a wage statement or pay stub during every pay period to all individuals performing work under the contract, for which contractors are required to maintain a wage record under the Federal Labor Standards Act, Wage Rate Requirements (for Construction services), the Service Contract Labor Standards, and equivalent state laws.

Contractors must provide similar documentation to independent contractors. The documentation must inform the independent contractors of their status, and provide them with details concerning their payment under the contract.

4. Providing Complaint and Dispute Transparency

The rule will also implement the E.O. requirement to provide transparency about complaints and disputes. Entities performing under contracts exceeding $1,000,000 must 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.

Specific Requests for Comments

The FAR Council has included in the proposed rule specific requests for comments on the topics summarized below.

Reduction of Burden on Small Businesses

The FAR Council seeks input on how to reduce the burden on small businesses in complying with the Fair Pay and Safe Workplaces Requirements. The Council cites the following aspects of the proposed rule to demonstrate efforts at burden reduction:

  • Disclosure requirements are limited to only those contracts and subcontracts in excess of $500,000 and excluding COTS items.
  • Initial disclosures are limited to simple statements of whether the offeror has any covered labor violations.
  • More detailed disclosures will only be required from the apparent awardee as part of the responsibility evaluation.
  • Post-award, updates on labor violations need only be updated semi-annually. To help promote consistent responses to labor violations across government agencies, new ALCAs will coordinate through the DOL.

The FAR Council is also considering phasing in requirements for flowdown obligations to subcontractors, as well as disclosure of state labor law violations.

The DOL also intends to allow entities to work with DOL and other enforcement agencies to remedy potential labor violation issues independent of the procurement process, so an entity can focus on the procurement process when a solicitation of interest is issued.

Public Disclosure of Violations

The FAR Council seeks comments on whether the right balance has been reached regarding transparency and the creation of a reasonable environment for contractors to work with enforcement agencies on compliance agreements and other remediation measures. The Council cites the following to demonstrate the current balance of disclosure obligations:

Disclosure obligations:

  • Contractors must publicly disclose violations of covered laws ruled upon within the last three years.
  • For any prospective awardees subject to responsibility determinations, they must further share basic information about violations (such as docket numbers, the law violated, and name of the body that made the decision).

No disclosure obligations:

  • Additional documents that the prospective contractor deems necessary to demonstrate responsibility (such as mitigating circumstances, remedial measures, or other steps necessary to achieve compliance with labor laws) are not subject to public disclosure.
  • Contractors need not disclose details of administrative merits determinations, arbitral awards or decisions, or civil judgments.

Subcontractor Requirements

The proposed rule allows prime contractors to seek assistance from DOL in evaluating subcontractor labor violations and making determinations of responsibility or, for existing subcontracts, evaluating the need for other actions. The FAR Council is considering alternative language for addressing the handling of flowdown clauses. The public may comment on the handling of flowdown clauses, in both the proposed rule and potential alternatives.

Recordkeeping

The FAR Council seeks comments on the costs that contractors and subcontractors may incur in setting up internal databases to track violations subject to disclosure. Specifically, the FAR Council seeks comments on the need for and cost of setting up internal systems, how such costs depend on the contractors' size and organizational structure, and the extent to which such systems would reduce recurring disclosure costs in following years.

FAR Council-Proposed Alternatives

The FAR Council is also proposing three alternatives to create clear and manageable reporting and compliance processes. These, too, are subject to public comments.

1. Phase-in of Subcontractor Disclosure Requirements

During the phase-in process of the final rule, the rule would apply only to prime contractors. Subcontractor compliance would be phased in.

2. Subcontractor Disclosures and Contractor Assessments

Under the proposed rule, the prime contractor must determine the responsibility of its subcontractor (or take other action if a subcontractor reports violations post-award). The DOL will provide assistance in evaluating subcontractor labor valuations.

The FAR Council proposes an alternative, which would allow the subcontractor to consult with DOL regarding its violations and remedial measures (if any have been taken) and represent to the prime contractor based on the DOL's input. The DOL would provide the prime contractor with guidance on the type of subcontractor representation that could support a finding of responsibility. In addition, to avoid delays in the procurement process, the alternative language would grant the prime contractor the flexibility to arrive at its own responsibility determination if the DOL failed to respond to the subcontractor's inquiry in three business days.

The FAR Council seeks comment on whether the initially proposed approach or the alternative approach is preferable, and whether the prime contractor should have the flexibility to select from either approach.

3. Contractor and Subcontractor Remedies

The FAR Council also seeks comments on the range of remedies for failure of prime contractors and subcontractors to take timely remedial actions as a result of labor violations. The Council has proposed authorizing the ALCA to inform the contracting officer of the failure of a prime contractor to enter into or timely comply with a labor compliance agreement. Alternatively, the DOL would be authorized to inform the prime contractor of concerns about subcontractor violations. The prime contractor, in turn, would be obligated to report to the contracting officer if it elected to select the subcontractor to continue working under the subcontract, and why. The potential remedies for subcontractors may include:

  • Requiring a new or enhanced labor compliance agreement;
  • Other appropriate remedial measures;
  • Compliance assistance;
  • Resolving issues to avoid further violations; or
  • A decision not to continue with the subcontract, if necessary.

Comments on the proposed rules will be accepted through August 11, 2015.