A new Executive Order (EO) that imposes new and onerous obligations and risks on federal contractors was the subject of a House joint subcommittee hearing on Thursday. The Subcommittee on Workforce Protections and the Subcommittee on Health, Employment, Labor, and Pensions heard testimony on the impact Executive Order 13673 will have on federal contractors and subcontractors.
Issued on July 31, 2014, EO 13673 provides that employers can be denied federal contracts if they or their subcontractors violated or allegedly violated various federal labor laws. Specifically, federal contractors must disclose during the bidding process any labor law violations committed within the past three years. Under the EO, the contracting officer will review these disclosures and determine whether the bidding contractor is a "responsible source that has a satisfactory record of integrity and business ethics." Moreover, prime contractors will need to certify that each of their subcontractors whose compensation exceeds $500,000 meets the newly imposed responsibility standards. The contractors' determinations regarding their subcontractors' responsibility will be subject to additional consideration and scrutiny by agency officials. A detailed discussion of the new EO can be found here. Failure to receive the officer's approval or meet the other requirements in the EO may result in the contractor's being deemed ineligible for the government contract.
Notably, none of the hearing panelists were government contractors. According to Subcommittee on Workforce Protections Chair Tim Walberg (R-MI), invited contractors declined due to fear of retribution. Phil Roe (R-TN), Chair of the Subcommittee on Health, Employment, Labor, and Pensions, was not present at the hearing, but noted in a statement that contractors are similarly concerned that the EO not only expands the scope of contractor reporting requirements, but also "undermines their due process protections, disregards existing remedies to address labor law violations, and relies on a highly subjective review process."
Rep. Walberg and others at the hearing emphasized there already is an adequate system in place for suspending or debarring bad actors from contracting with the government. Instead of revising this system or working with contractors to increase labor law compliance, the Administration issued an EO that is "burdensome, redundant, and unnecessarily punitive," said Walberg. One witness explained, "If a pipe breaks in your house, you hire a plumber; you don’t build a new house."
Many at the hearing were similarly troubled with the amount of discretion new "Labor Compliance Advisors" will have in monitoring and enforcing labor law responsibility requirements to which contractors are subject, and determining whether contractors' actions "rise to the level of a lack of integrity or business ethics." Walberg considers the degree of subjectivity involved in this process "deeply troubling."
Other witnesses pointed out that a contractor can essentially be blacklisted based on alleged labor law violations that are later found to have no merit. This "guilty until proven innocent" process could particularly harm employers that are the targets of union corporate campaigns, according to Rep. Bradley Byrne (R-AL).
The new self-reporting requirements will be especially tough for small businesses, several panelists said. If a prime contractor is a small business and needs to subcontract out some of the work, that small business will be responsible for attesting that its subcontractor – even if that subcontractor is a large, multi-state entity – has complied with the terms of the EO. Doing so is a "monumental task" that the business will be incapable of performing, one witness said. This process also changes the dynamics between the prime and subcontractor, forcing the former to become very involved in the subcontractor's business, raising trade secrets concerns.
Another witness who is the President and CEO of the Professional Services Council, said the new EO is "poorly constructed, poorly thought out, and rushed through the system." He explained that it is routine for companies to have labor law violations, the majority of which are "technical in nature." According to the panelist, most violations stem from some technical failure on the government's part, and are later reversed in court. As previously discussed, contractors must certify that they and their subcontractors have not committed violations. The witness explained that if such certifications are unintentionally false, contractors are subject to severe penalties. The requirement to have no violations "ignores the massive complexity of the system."
Another witness testifying on behalf of the U.S. Chamber of Commerce echoed this complaint, stating that the EO mandates that contractors comply with equivalent state laws as well. As a result, contractors, including small employers, will have to master "literally hundreds of state laws. That simply cannot be done." Many federal laws are themselves exceedingly complex, and courts have time and again struggled to determine whether violations are "repeated, willful, and pervasive." Thus, one witness said, "there is no reason to believe agencies are better equipped" to interpret these requirements. According to the Chamber's witness, the EO is "so deeply flawed in so many ways, it is beyond redemption."
Another change the EO makes is to bar employers bidding for contracts of $1 million or more from requiring their employees to sign mandatory arbitration agreements to resolve disputes regarding sexual discrimination, harassment or assault. Rep. Byrne and others said this provision is in direct violation of the Federal Arbitration Act (FAA).
A complete list of panelist and links to their testimony can be found here.