On July 31, 2014, President Obama issued an Executive Order creating new and heightened self-reporting requirements for labor law violations on federal government procurements. The Order is available at http://www.whitehouse.gov/the-press-office/2014/07/31/executive-order-fair-pay-and-safe-workplaces.

This Order affects all prime contracts and subcontracts for any services or goods (including construction contracts) with an estimated value over $500,000. All contracting entities performing work for the federal government should review and analyze the Order, as it will have a significant impact on the compliance function of government contractors.

In summary, the Order reiterates the requirement for all federal government contractors to comply with labor laws and also adds the new requirement for contractors to self-report labor law violations. The new requirement is similar to the self-reporting and mandatory disclosure requirements contained in FAR 52.203-13. This is a new and potentially onerous requirement for government contractors.

Applicable Laws & Orders

The Order affects all of the following laws and orders (collectively, the Laws):

  • Fair Labor Standards Act
  • Occupational Safety and Health Act of 1970
  • Migrant and Seasonal Agricultural Worker Protection Act
  • National Labor Relations Act
  • Davis-Bacon Act
  • Service Contract Act
  • Executive Order 11246 of September 24, 1965 (Equal Employment Opportunity)
  • Rehabilitation Act of 1973 Section 503
  • Vietnam Era Veterans’ Readjustment Assistance Act of 1974
  • Family and Medical Leave Act
  • Civil Rights Act of 1964 Title VII
  • Americans with Disabilities Act of 1990
  • Age Discrimination in Employment Act of 1967
  • Executive Oder 12658 of February 12, 2014 (the recent Order establishing a new minimum wage for federal contractors)
  • Equivalent state laws

Pre-Award Actions

The Order applies to all procurements of goods or services, including construction contracts, if they are expected to exceed $500,000. Executive agencies now must ensure solicitations contain provisions requiring each offeror state:

…to the best of the offeror’s knowledge and belief, whether there has been any administrative merits determination, arbitral award or decision, or civil judgment, as defined in guidance issued by the Department of Labor, rendered against the offeror within the preceding 3-year period for violations of any of the [aforementioned Laws].

Before making an award, the contracting officer (CO) must make a preliminary responsibility determination (most typically required for sealed bids, not negotiated procurements) and disclose it to the offeror. Offerors will be given the chance to advise the CO what steps they have taken to correct violations and improve their labor law compliance, including any agreements entered into with an enforcement agency.

The CO then must consult with the Labor Compliance Advisor (LCA), a new position created by the Order, to determine whether the offeror is responsible, possessing a “satisfactory record of integrity and business ethics” to justify award, subject to the Department of Labor (DOL)-promulgated guidance.

Subcontracts

If a subcontract is estimated to exceed $500,000 and is not for commercially available off-the-shelf items (COTS), the CO shall likewise require the contractor to represent at the time the contract is executed that it:

  1. will require each subcontractor to disclose any administrative merits determination, arbitral award or decision, or civil judgment rendered against the subcontractor within the preceding 3-year period for violations of any of the requirements of the labor laws listed [above], and update the information every 6 months; and
  2. before awarding a subcontract, will consider the information submitted by the subcontractor pursuant to subparagraph (A) of this paragraph in determining whether a subcontractor is a responsible source that has a satisfactory record of integrity and business ethics, except for subcontracts that are awarded or become effective within 5 days of contract execution, in which case the information may be reviewed within 30 days of subcontract award.

Prime contractors will now need to incorporate or “flow down” the requirement in subcontracts exceeding $500,000. The CO, DOL and LCA will be made available to consult with a contractor to determine the propriety of including a particular subcontractor in the contract.

There is also a possibility disclosed matters will be referred to the debarment official under Agency procedures, but the details of such action are not spelled out by the Order.

Post-Award Actions

While a contract is being performed, contracts will require covered contractors to update their information every six months during contract performance and obtain like information from covered subcontractors.

If any information, discloses or indicates violating the labor laws, the CO must consider, in consultation with the LCA, whether action is necessary. Such action may include, without limitation:

  • Requiring appropriate remediation measures
  • Providing compliance assistance
  • Deciding not to exercise contract options
  • Terminating contracts
  • Referring matters to the agency’s suspension and debarment official.

If information is brought to the CO’s attention by the subcontractor or from “other sources,” the “Contractor shall consider whether action is necessary” to avoid further violations, which may include remediation measures, compliance assistance or resolution of issues.

While not explicitly defined, “other sources” implies DOL should inform agencies of any investigations of prime contractors or subcontractors on federal contracts. “Other sources” may also include relators/whistleblowers, newspaper articles or any other “source.”

FAR Implementation & New Programs

The Federal Acquisition Regulations (FAR) apply to most federal contracts. To implement the Executive Order, the president directed that the FAR be amended in several ways. This includes accounting for and providing guidance for the identification of “considerations for determining whether serious, repeated, willful, or pervasive violations of the labor laws … demonstrate a lack of integrity or business ethics.” Specifically, the FAR amendments shall:

  1. provide that, subject to the determination of the agency, in most cases a single violation of law may not necessarily give rise to a determination of lack of responsibility, depending on the nature of the violation;
  2. ensure appropriate consideration is given to any remedial measures or mitigating factors, including any agreements by contractors or other corrective action taken to address violations; and
  3. ensure that contracting officers and Labor Compliance Advisors send information, as appropriate, to the agency suspending and debarring official, in accordance with agency procedures.

Likewise, the Secretary of Labor is directed to establish guidance in the Labor Regulations to achieve the following objectives:

  1. where available, incorporate existing statutory standards for assessing whether a violation is serious, repeated, or willful; and
  2. where no statutory standards exist, develop standards that take into account:
  1. for determining whether a violation is “serious” in nature, the number of employees affected, the degree of risk posed or actual harm done by the violation to the health, safety, or well-being of a worker, the amount of damages incurred or fines or penalties assessed with regard to the violation, and other considerations as the Secretary finds appropriate;
  2. for determining whether a violation is “repeated” in nature, whether the entity has had one or more additional violations of the same or a substantially similar requirement in the past 3 years;
  3. for determining whether a violation is “willful” in nature, whether the entity knew of, showed reckless disregard for, or acted with plain indifference to the matter of whether its conduct was prohibited by the requirements of the labor laws listed in section 2(a)(i) of this order; and
  4. for determining whether a violation is “pervasive” in nature, the number of violations of a requirement or the aggregate number of violations of requirements in relation to the size of the entity;….

FAR and DOL implementation will take some time, and the Order establishes no timeframe for when these regulations must be developed and placed in effect.

Reporting Website

The Order also establishes a one-stop website under the U.S. General Services Administration (GSA) for federal contractors to use for all reporting requirements associated with this Order, and other self-reporting requirements. Given that GSA already administers the Excluded Parties List System for debarment and suspensions, this is a natural outgrowth that may signal increased debarment and suspensions of parties violating this new Order.

Paycheck Transparency

The FLSA, Davis-Bacon Act, Service Contract Act and other laws mandate certain reporting requirements to the agencies for which work is performed and the employees themselves. The new Order adds requirements for employers to provide their employees information relating to the individual’s hours worked, overtime hours, pay, and additions or deductions made to that pay. This requirement applies not only in covered prime contracts but also flows down to subcontracts covered by the Order (excluding those not covered for overtime payments under applicable laws (e.g., exempt employees) who are not required to receive the hours information). While this is typically already done by many contractors, it is not reinforced as mandatory by the Order.

This new requirement does not apply to COTS item contracts.

To the extent an employer treats and considers an individual an independent contractor, formal notice of this treatment is required in writing.

Title VII Dispute Arbitration Election

For all contracts in which the estimated value of supplies and services acquired exceeds $1 million, new solicitation and contract clauses will provide employees with the right to refuse to arbitrate claims arising from Civil Rights Act of 1964 Title VII or any tort arising from sexual assault or harassment. If arbitration is elected by the employer, it can proceed only with the voluntary consent of the employee or independent contractor involved in that dispute. This requirement shall also flow down to subcontracts expected to exceed $1 million in value.

This arbitration election section does not apply to parties covered by any type of collective bargaining agreement or employees or independent contractors who entered into a valid contract to arbitrate before the contractor or subcontractor bid on a contract covered by the Order; that provision, however, may be changed post-award.

Conclusion

This Order is a major change to the compliance requirements involving labor and employment law and regulations. New rules, regulations and contact clauses will affect nearly all government contractors and subcontractors performing non-COTS work on contracts or subcontracts exceeding $500,000 in value. This will not only affect competition for federal contracts and subcontracts, but the ongoing reporting requirements will affect the cost of doing business with the federal government.

While this Order uses inconsistent terms that will create ambiguity, the intent of the Obama administration is clear: Comply with all labor laws and regulations or risk a finding of non-responsibility, termination of contracts, suspension and even possible debarment.