E-Verify for federal contractors has been in effect for over 100 days. Many of you may have received your first federal contract or contract modification after Sept. 8, 2009 containing the FAR E-Verify Clause. For a sample clause under FAR 52.222-54, see the attached contract modification.

Two thorny problems have been reported to us which we discuss below. We hope you will find this report to be useful as your use E-Verify and start to transition to the use of FAR E-Verify.

1. 90 or 180 days?

The FAR rules require that after receiving a contract which incorporates the E-Verify clause, the federal contractor must use for E-Verify for ALL new hires and for all employees assigned to the qualifying federal contract. The new rules also allow employers to select the option to E-Verify all employees.

Federal contractors dealing with the new E-Verify rules often opt to put all their existing employees in the system. They figure that it’s easier to check everyone than to try to decide which employees are assigned to the qualifying contract. In addition, it would appear that the employer would have 180 days to verify all current employees. [Remember, once you check the box to verify your existing employees, you are committed and cannot go back, uncheck the box, and limit your obligation to existing employees assigned to the contract.]

However, federal contractors need to proceed cautiously. Checking the box to E-Verify all employees within 180 days does not eliminate the requirement that all employees assigned to the contract with the FAR E-Verify clause in it must be entered into the system within 90 days. In short, the 180 days rule does not trump the 90 day rule. The headache remains. Namely, you still must make sure all employees assigned to the contract are enrolled within the 90 days.

So how do you figure out which employees are “assigned to the contract?” FAR 52-222-54 provides some guidance through use of a “direct performance” test, as follows:

“Employee assigned to the contract” means an employee who was hired after Nov. 6, 1986, who is directly performing work, in the U.S., under a contract that is required to include the clause prescribed at 22.1803. An employee is not considered to be directly performing work under a contract if the employee—

  1. Normally performs support work, such as indirect or overhead functions; and
  2. Does not perform any substantial duties applicable to the contract.

Unfortunately, the U.S. Citizenship and Immigration Services (USCIS) has not provided any case examples illustrating the application of this baseline test so that we can distinguish between “support” work and “directly performing” work. One practical approach is to ask your Contracting Officer for guidance; or at least inform them that you are excluding certain classes of employees because they fall under the indirect or overhead category.

Another solution where feasible: accelerate your rollout of E-Verify and complete it for all current workers within the 90 days. This is not as easy as it sounds, given that many older I-9 Forms may not comply with E-Verify standards for inputting into the system and will require new I-9 Forms to be completed. However, it is best to make plans to accelerate the roll-out, particularly if your employees work directly on numerous federal contracts and it is extremely difficult to isolate the ones “assigned” to the FAR EVerify clause contract.

Another solution if you cannot E-Verify everyone within 90 days is to limit the scope of your roll-out for existing employees, where feasible. As mentioned above, your company may have dozens of federal contracts. However, you are only required to E-Verify the employees assigned to the particular contract containing the new FAR E-Verify clause. Thus, if you can distinguish the sub-group, all the others will have 180 days to be verified under E-Verify. If another contract adds the FAR clause, the 90 day clock starts over for its employees.

As you can see from this analysis, the easiest solution is to treat the 180 days deadline as a 90 day deadline and roll-out E-Verify for all existing workers. We would be interested in your real-world experience in rolling-out FAR E-Verify under any of these scenarios as we all gain more experience under this new federal program.

2. Which Subcontracts are Covered by E-Verify?

The Supplemental Guide issued Oct. 21, 2009 by USCIS advises the federal contractor that it must ensure that all “covered subcontracts at every tier” incorporate the FAR E-Verify clause at FAR 52.222- 54, using “whatever means the contractor considers appropriate.” The question remains: how do you tell when a contract is covered by E-Verify?

The definition of subcontract in FAR 52.222-54(a)(2) is quite broad and provides:

“Subcontract” means any contract, as defined in 2.101, entered into by a subcontractor to furnish supplies or services for performance of a prime contract or a subcontract. It includes but is not limited to purchase orders, and changes and modifications to purchase orders.

FAR 52.222-54(e) also provides some specific exclusions to this broad definition of subcontract, primarily for Commercially Off the Shelf (COTS) products:

“(e) Subcontracts. The Contractor shall include the requirements of this clause, including this paragraph (e) (appropriately modified for identification of the parties), in each subcontract that —

1. Is for —

i. Commercial or noncommercial services (except for commercial services that are part of the purchase of a COTS item (or an item that would be a COTS item, but for minor modifications), performed by the COTS provider, and are normally provided for that COTS item); or

ii. Construction;

2. Has a value of more than $3,000; and

3. Includes work performed in the U.S.”

Two questions have come up already in our practice. First, are independent contractors who are self-employed covered by E-Verify? Here, we have a bright line drawn in the sand by USCIS. Selfemployed individuals do not have to fill in I-9s since they are not employees. So they do not have to enroll either in E-Verify. The Supplemental Guide gives the example of Dan Draftsman who provides plans and specifications and blueprints and is self-employed. He is exempt.

The more difficult question is how a contractor can tell when the services are being provided by a subcontractor “for performance” of the contract with the federal government? The case is clear with an IT contract calling for developing software for the Department of Agriculture to monitor crop subsidies and the contractor subcontracts the web-based part of the development work to a specialty software consulting firm. The subcontract is covered by FAR E-Verify and the contractor has an obligation to make sure his subcontractor is enrolling his employees assigned to the subcontract in E-Verify.

A more ambiguous example, however, can arise in the insurance context. Many health care insurers enter into contracts to administer programs for Medicare or for federal employees. The insurers then contract with thousands of providers to render services to the individuals covered under the health plans and reimburses them for the services rendered. Query whether these physicians and other providers are subcontractors subject to EVerify? They are providing services which allow the insurers to fulfill their contractual obligations under their federal contracts. However, in the OFCCP context, the OPM has ruled that the physicians, hospitals and other providers do not provide services that are necessary to the performance of the contractor’s contracts with the federal government and are thus exempt from OFCCP requirements. They do no more than see the patients and render services to them in return for reimbursement under Medicare or Federal Employee Programs administered by the health insurers. See the attached OPM ruling courtesy of Thomas Eron, Esq. Syracuse, New York. For more information on the OFCCP decision, you can email Tom at EronT@bsk.com.

Hopefully, the same common sense interpretation will apply to the words “for performance of the contract.” Otherwise, the administrative burden of ensuring compliance will be extremely costly to federal contractors who literally have thousands of subcontracts. It may be that USCIS or the FAR regulatory council may be called upon to provide further clarification or amend the regulation to limit its scope to only those subcontracts that are necessary for the prime contractor to perform its duties under its federal contract. We remain optimistic that the unintended consequences of the regulations can be avoided. Please stay tuned for further developments.

Conclusion FAR E-Verify has only been in force for a few months. We expect a number of issues to arise in its implementation. We would welcome your input or comments as you begin to apply EVerify to existing employees and subcontractors.