It’s been a busy first quarter 2011 for the Office of Federal Contract Compliance Programs (“OFCCP”). With so many changes in the works, we wanted to highlight a few recent agency announcements that have significant implications for federal contractors and subcontractors.

Active Case Enforcement Directive

In December 2010, OFCCP rescinded its Active Case Management Directive, which had been adopted in 2008. In its place, OFCCP issued its new Active Case Enforcement Directive (“ACE”). The focus of ACE is, as the name suggests, clearly on enforcement efforts, consistent with OFCCP’s strategic plan and many recent comments from OFCCP Director Patricia Shiu.

Under ACE, OFCCP will employ all compliance evaluation methodologies (compliance review, compliance check, focused review, and offsite review of records). Significantly, all contractors selected for audit by the Federal Contractor Scheduling System (“FCSS”) will undergo a full desk audit rather than the abbreviated version typical of compliance evaluations prior to 2010. (Under ACM, full desk audits were conducted automatically for every 25th review and otherwise on an as needed basis). Additionally, under ACE, every 25th contractor selected by FCSS will undergo a full compliance review, including an onsite. (Under ACM, onsites were conducted for every 50th review.)

In anticipation of heightened scrutiny during compliance evaluations, contractors should consider conducting self-audits to see how they will fare during the new intensive audits. At a minimum, contractors are advised to ensure that affirmative action programs for women, minorities, veterans and disabled individuals are in place and being followed, local good faith efforts are taken to encourage these groups to apply for employment opportunities, personnel transactions are reviewed for adverse impact, adverse impact findings are investigated and defensibility determined, compensation is equitable, that open jobs are listed with the local state employment office, and that all appropriate postings are in place. Note that OFCCP continues to focus on disability and veterans outreach, generally requiring that each facility have active relationships with local recruiting sources for these candidates.

Corporate Scheduling Announcement Letters

In late 2010, OFCCP decided to continue sending Corporate Scheduling Announcement Letters (“CSALs”) to contractors for fiscal year 2011. A CSAL (or “Advanced Notice Letter”) is a courtesy notice to corporations with two or more locations on the Federal Contractor Selection System (FCSS) list generated for the upcoming scheduling cycle. For more information about CSALs, click here. OFCCP’s spring wave of CSALs began arriving at the end of February 2011.

Contractors should capitalize on the advance notice provided by a CSAL to the full extent possible. We strongly recommend conducting an advance self-audit of equal employment opportunity and affirmative action compliance at the establishments on the CSAL.

Compensation Analysis During Desk Audits

OFCCP has issued a new directive internally tits compliance officers advising them how to evaluate contractor compensation data submitted during a desk audit. Under the new directive, potential compensation discrimination indicators are flagged when the difference in average pay between females and males or minorities and non-minorities is $2,000 or more, or at least two percent (2%). Our experience shows that OFCCP is comparing pay by job title or job classification rather than similarly situated employee groupings (SSEGs) or job groups. At least one high level representative of OFCCP indicated to us that if the $2000/2% test results in an unwieldy number of requests to contractors for additional compensation data, a five percent (5%) difference may be used.

Because the $2000/2% test (or even a 5% test) results in more indicators of disparity than prior approaches (such as the 30-10-3 or “trigger” test previously used), contractors can expect many more requests for additional compensation data during desk audits than in recent years. Contractors should analyze their compensation data using the new threshold test, and if a significant number of job titles are flagged, you should consider conducting an in depth pay equity analysis, including regression analysis and/or cohort analysis.

While we have historically recommended that these analyses be conducted under attorney-client privilege in order to avoid having to produce them to the OFCCP, there is a new urgency to our recommendation. We note a substantial increase in OFCCP requests to review contractors’ compensation analyses. This is different from OFCCP’s past practice, which typically was to request only confirmation that the contractor conducted its own self-audit of compensation and to request the compensation data itself, not the contractor’s analysis of that data. Because OFCCP’s right to request information related to contractors’ compliance is so broad, and because results of analysis often show indicators of issues, having the analyses done under privilege, and asserting that privilege, may be the best way to avoid producing the analyses to the OFCCP.

Compensation Analysis In Depth

On December 30, 2010, OFCCP published a Notice of Proposed Rescission of the Interpretive Standards for Systemic Compensation Discrimination and Voluntary Guidelines for Self-Evaluation of Compensation Practices Under Executive Order 11246. Click here for our prior client publication about the Notice. On March 4, 2011, Seyfarth Shaw’s OFCCP & Affirmative Action practice group submitted comments summarizing the concerns of many of its clients. Click here to review our comments.

In the Notice, OFCCP indicated that it wants to take a more flexible approach to analyzing contactor compensation and may use any number of previously used and new undefined methodologies. OFCCP states that it will “continue [adhering] to the principles of Title VII of the Civil Rights Act of 1964, as amended (Title VII) in investigating compensation discrimination.” Based on comments OFCCP officials have made at several Industrial Liaison Group (ILG) meetings, including the Southern California Regional ILG Conference, it appears that OFCCP will use the $2000 and 2% test as a threshold screen and thereafter will use regression analysis. The officials also confirmed they will use cohort analysis to determine disparities in small groups and may use other methods to be determined. In light of the importance of pay equity, particularly in 2011, contractors should review the methodologies they are now using to ensure they are consistent with OFCCP’s new approach. In particular, be sure your pay equity analysis is screening for $2000 and 2% and that you have the capability to conduct regression analysis, especially if you receive a notice announcing that your establishment will be audited by OFCCP. Also remember the benefits of using attorney-client privilege to shield the analyses from having to be turned over to OFCCP.