The Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) have issued a final rule implementing Executive Order (EO) 13494, Economy in Government Contracting, which precludes government contractors from being reimbursed for expenses incurred to influence employees regarding their decisions to form unions or engage in collective bargaining. Issued on January 30, 2009, EO 13494 considers as un-reimbursable any activities that are undertaken to persuade employees to exercise or not exercise such rights, such as preparing and distributing materials, hiring or consulting legal counsel or consultants, holding meetings (including paying the salaries of the attendees at meetings held for this purpose) and planning or conducting activities by managers, supervisors or union representatives during working hours. Such expenditures are deemed “unallowable” under any federal government contract by the order. Although federal contractors cannot use federal funds for these purposes, they may use federal dollars to “maintain satisfactory relations” between the contractor and its employees. As stated in the order, such expenditures could include the cost of labor-management committees, employee publications (provided they do not attempt to persuade employees regarding unionization), and other related activities.

The final rule does not deviate in any significant way from the proposed rule issued in April 2010. The agencies acknowledge that some comments submitted in response to the proposal argued that the changes favor unions and penalize contractors, contain unclear and conflicting language, impose significant compliance burdens on contractors, and infringe upon a contractor’s right to engage in free speech that is not otherwise prohibited by the National Labor Relations Act (NLRA), and is therefore preempted. As to the last point, the agencies disagreed with the preemption assessment, explaining that the rule “does not prohibit or otherwise regulate persuader activities; it only disallows the reimbursement of the costs of these activities under Federal contracts.” Predictably, the agencies also disagreed with the other raised concerns, and reaffirmed the language and changes posed in the proposed rule.

The final rule therefore revises section 31.205-21 of the Federal Acquisition Regulations (FAR) to read as follows:

31.205-21 Labor relations costs.

(a) Costs incurred in maintaining satisfactory relations between the contractor and its employees (other than those made unallowable in paragraph (b) of this section), including costs of shop stewards, labor management committees, employee publications, and other related activities, are allowable.

(b) As required by Executive Order 13494, Economy in Government Contracting, costs of any activities undertaken to persuade employees, of any entity, to exercise or not to exercise, or concerning the manner of exercising, the right to organize and bargain collectively through representatives of the employees’ own choosing are unallowable. Examples of unallowable costs under this paragraph include, but are not limited to, the costs of—

(1) Preparing and distributing materials;

(2) Hiring or consulting legal counsel or consultants;

(3) Meetings (including paying the salaries of the attendees at meetings held for this purpose); and

(4) Planning or conducting activities by managers, supervisors, or union representatives during work hours.

The changes made by the rule apply to contracts resulting from solicitations issued on or after the rule’s November 2, 2011 effective date.