ecently, President Obama signed four Executive Orders affecting Federal contractors, all of which overturn prior Executive Orders on the same topics signed by President Bush. The Orders are part of President Obama's Task Force on Middle Class Working Families and, according to the White House, are designed to "level the playing field for workers and the unions that represent their interests." Understanding the change in law as a result of these Executive Orders is critical to anyone who enters into contracts with the Federal government or sells goods and services to the Federal government.

On January 30, 2009, President Obama signed the first three Executive Orders affecting Federal contractors and their employees.

1. Economy in Government Contracting. The first Executive Order denies Federal contractors reimbursement under Government contracts for funds spent on activities designed to persuade employees to join or to not join a union, including funds spent to print materials, hire consultants or promote meetings. The stated purpose of this Executive Order is to promote economy and efficiency in Government contracting by prohibiting Government reimbursement of certain costs that are not directly related to the contractors’ provision of goods and services to the Government. Denying reimbursement of union-related costs will directly reduce Government expenditures. Such costs shall be excluded from any billing, claim, proposal, or disbursement applicable to any Federal Government contract.

Significantly, contracting departments and agencies are allowed to pursue reimbursement of costs incurred in maintaining satisfactory relations between the contractor and its employees, including costs associated with: labor-management committees, employee publications (other than those undertaken to persuade employees to exercise or not to exercise the right to organize and bargain collectively), and other related activities.

The Executive Order lists examples of unallowable costs, which includes the following activities:

(a) preparing and distributing materials; (b) hiring or consulting legal counsel or consultants; (c) holding meetings (including paying the salaries of the attendees at meetings held for this purpose); and (d) planning or conducting activities by managers, supervisors, or union representatives during work hours.

The Federal Acquisition Regulatory Council (FAR Council) has 150 days to adopt rules and regulations and issue Orders necessary and appropriate to carry out the Executive Order. The Order will apply to contracts resulting from solicitations issued on or after the effective date of the actions taken by the FAR Council.

2. Notification of Employee Rights Under Federal Labor Laws. The second Executive Order requires all Federal contracts to require contractors to post a notice informing employees that they have a right to decide whether to join a union. A prior Executive Order from President Bush required contractors to post a notice informing employees that they had a right not to join a union.

The policy behind this Order is that the Government has a proprietary interest in ensuring that contracts will be performed by contractors whose work will not be interrupted by labor unrest. The attainment of industrial peace is most easily achieved and workers’ productivity is enhanced when workers are well informed of their rights under Federal labor laws. Relying on contractors whose employees are informed of their rights under Federal labor laws facilitates efficient and economical completion of the Federal Government’s contracts. To that end, the second Executive Order requires contractors to conspicuously post the required notice during the term of its Federal contract.

The Secretary of Labor (“Secretary”) has 120 days to initiate a rule prescribing the size, form and content of the notice to be posted by the contractor. The Secretary has authority to investigate any contractor to determine compliance and the Secretary has authority to issue sanctions, including, but not limited to, termination of the contract. The Executive Order is effective immediately, and applies to contracts resulting from solicitations issued on or after the effective date of the rules promulgated by the Secretary. The FAR Council will implement rules necessary and appropriate to carry out the Order.

3. Nondisplacement of Qualified Workers Under Service Contracts. The third Executive Order requires all Federal contracts to include a provision requiring any contractor who assumes the contract from a previous contractor to retain that previous contractor's qualified employees. The policy behind the third Executive Order is that the Federal Government’s procurement interests in economy and efficiency are served when the successor contractor hires the predecessor’s employees. A carryover work force reduces disruption to the delivery of services during the period of transition between contractors and provides the Federal Government the benefits of an experienced and trained work force that is familiar with the Federal Government’s personnel, facilities, and requirements.

This Executive Order provides as follows: “it is the policy of the Federal Government that service contracts and solicitations for such contracts shall include a clause that requires the contractor, and its subcontractors, under a contract that succeeds a contract for performance of the same or similar services at the same location, to offer those employees (other than managerial and supervisory employees) employed under the predecessor contract whose employment will be terminated as a result of the award of the successor contract, a right of first refusal of employment under the contract in positions for which they are qualified. There shall be no employment openings under the contract until such right of first refusal has been provided.”

The Executive Order does not apply to several categories of Government contracts. For example, the Order does not apply to vending facilities entered into pursuant to the preference regulations issued under the Randolph-Sheppard Act, among others.

The Executive Order provides the specific contract clause that must be included in solicitations for service contracts. The Secretary of Labor is responsible for investigating and obtaining compliance with this Order and the Secretary shall have the authority to issue final Orders prescribing appropriate sanctions and remedies, including, but not limited to, Orders requiring employment and payment of wages lost. The Secretary of Labor can also provide that companies that fail to comply with the Order be disbarred for a period of up to three years.

The FAR Council must issue, within 180 days of the date of the Executive Order, regulations that require inclusion of the contract clause in Federal solicitations and contracts subject to the Executive Order. The Executive Order is effective immediately and applies to solicitations issued on or after the effective date of the action taken by the FAR Council.

On February 6, 2009, President Obama signed the fourth Executive Order related to Federal contracting.

4. Use of Project Labor Agreements for Federal Construction Projects. The fourth Executive Order allows the Federal Government to require project labor agreements (PLAs) on large-scale Federal construction projects. This Executive Order overturns a prior Executive Order from President Bush disallowing PLAs.

A PLA is defined as "a pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project." PLAs are relatively common in the construction industry. The policy behind requiring PLAs is to prevent potential labor disputes from developing by providing structure and stability to large-scale construction projects. A “large-scale construction project” is defined as a construction project where the total cost to the Federal Government is $25 million or more.

The Executive Order requires that the PLA:

(a) bind all contractors and subcontractors on the construction project through the inclusion of appropriate specifications in all relevant solicitation provisions and contract documents;

(b) allow all contractors and subcontractors to compete for contracts and subcontracts without regard to whether they are otherwise parties to collective bargaining agreements;

(c) contain guarantees against strikes, lockouts, and similar job disruptions;

(d) set forth effective, prompt, and mutually binding procedures for resolving labor disputes arising during the project labor agreement;

(e) provide other mechanisms for labor-management cooperation on matters of mutual interest and concern, including productivity, quality of work, safety, and health; and

(f) fully conform to all statutes, regulations, and Executive Orders. The FAR Council has 120 days to amend the Federal Acquisition Regulation to implement the provisions of this Order and the Executive Order will be effective immediately and shall apply to all solicitations for contracts issued on or after the effective date of the action taken by the FAR Council.

If you would like any additional information on any of these topics or if there are any other questions that warrant attention, please contact a member of Dorsey & Whitney LLP’s Construction and Design practice group.

For the full text of the Executive Orders, please see the links below.

1. Economy in Government Contracting.

2. Notification of Employee Rights Under Federal Labor Laws.

3. Nondisplacement of Qualified Workers Under Service Contracts.

4. Use of Project Labor Agreements for Federal Construction Projects.