The Office of Federal Contract Compliance Programs (OFCCP) finally has issued a new directive defining the circumstances under which federal contractors and subcontractors may develop Functional Affirmative Action Programs (FAAPs). Directive 296, effective June 14, 2011, replaces the prior FAAP guidelines set forth in Directive 254 from March 2002. Federal contractors and subcontractors who have FAAPs or are interested in developing FAAPs have been awaiting this new guidance, as the agency suspended approval of any new FAAPs more than one year ago.

What is a FAAP?

FAAPs are affirmative action programs (AAPs) based on functional or business units of an organization. Developing FAAPs is an alternative to the more typical establishment-based approach (developing a separate AAP for each establishment with fifty or more employees and including employees from smaller establishments in an appropriate AAP). Some contractors develop FAAPs for the entire workforce, while others utilize a combination of establishment-based AAPs and FAAPs.

Unlike establishment-based AAPs, FAAPs require prior agreement and approval by OFCCP's Director. Directive 296 sets forth the process contractors must take to seek an FAAP agreement effective June 14, 2011.

Functional or Business Unit Defined

Directive 296 defines "Functional or Business Unit" as a "component within an organization that operates autonomously in the ordinary course of the organization's business." Such a unit must have personnel practices or transactional activities (hires, promotions, terminations, compensation decisions) that are distinguishable from other parts of the contractor's organization. They must be defined on the basis of the organization's existing business operations, not created or formed for AAP development purposes.

Under the new Directive, each functional or business unit must (1) currently exist and operate autonomously; (2) include at least fifty employees; (3) have its own managing official; and (4) have the ability to track and monitor its own personnel activity.

FAAP Request & Approval Processes

To request a FAAP agreement, a contractor must submit a written request to the OFCCP Director no later than 120 days prior to the expiration of the current corporate office AAP. The request must include an explanation of why use of a FAAP is most appropriate and a detailed description of how the proposed functions correlate to the contractor's organizational structure. The request also must include a transition plan explaining the timing and process for moving from establishment-based to functional AAPs and providing the name and contact information for the corporate representative responsible for overseeing the request.

OFCCP will acknowledge receipt of the request within ten days. Within thirty days of receiving the request, OFCCP's FAAP Unit will send a letter requesting a conference with the corporate representative. In advance of the conference, the contractor must provide OFCCP with (a) the names and positions of the people representing the contractor during the discussions; (b) a statement how the organization is a covered federal contractor or subcontractor and a copy of the qualifying federal contract or subcontract; (c) copies of the most recent EEO-1 and VETS-100A reports; (d) an organizational chart and workforce analysis; (e) the total number of employees by race and gender in each functional or business unit; (f) major job groups in each FAAP, number of employees by race and gender in each job group, and the relevant recruitment area for each job group; (g) the location where each proposed FAAP will maintain employee personnel records and applicant processing activities; (h) information about establishment-based AAPs the contractor plans to retain; (i) dates of the proposed FAAP year(s); and (j) copies of personnel policies relevant to the unit.

When considering the request, OFCCP will consider the rationale for the FAAP request, the above information and documents, the unit's personnel processes and record retention practices, ongoing or past EEO violations, and samples of past outreach to veterans and disabled individuals. OFCCP also will consider records of past compliance evaluations and whether past violations have been corrected.

Once the contractor and the FAAP Unit have reached an agreement, it will be reviewed by the OFCCP Director, who may have additional questions for the contractor. The Director either will approve the agreement or return it to the FAAP Unit to work with the contractor to address outstanding concerns. The agreement then will be resubmitted to the Director. Once finalized, FAAP agreements may last no longer than three years.

Modifying and Updating Existing FAAPs

Contractors must notify OFCCP of any changes in corporate structure that will alter the functions included in a FAAP within thirty days of the change. The notification must include sufficient information to determine whether the FAAP agreement should be modified or amended. OFCCP may terminate the FAAP agreement if the contractor fails to provide timely notice.

Even in absence of changes in corporate structure, contractors must notify OFCCP annually of minor changes to a FAAP agreement, such as a change of the managing official or contact information, and they must update federal contract information. Such notification must be provided within thirty days of the anniversary of the FAAP agreement.

Termination of FAAP Agreements

FAAP agreements can be terminated by OFCCP or the contractor upon ninety days written notice, and the contractor then has 120 days to develop establishment-based AAPs. OFCCP may terminate the agreement if the contractor fails to account for all employees in an AAP, fails to notify OFCCP of a change in corporate structure, or if the contractor is found to have violated a law enforced by OFCCP. If OFCCP terminates the agreement, the contractor may not reapply for a FAAP agreement for three years.

What Contractors Should Do Now

Contractors or subcontractors who have FAAPs or are considering the development of FAAPs should assess the pros and cons under Directive 293, which imposes increased burdens on contractors. The process for approving a requested FAAP agreement will permit OFCCP to conduct much of the analysis typical during a compliance evaluation and subjects contractors to stricter scrutiny by OFCCP. Consult with legal counsel to determine whether a FAAP structure is most appropriate for your organization and whether existing compliance efforts are sufficient to undergo scrutiny during the FAAP approval process.