Broadly speaking, the proposed rule sets out three key provisions that federal contractors and subcontractors should note:
- Violation Disclosure – Companies bidding on federal contracts for goods and services (including construction) worth more than $500,000 must disclose in their bid submissions the answer to the question whether the bidder has violated any of 14 federal labor laws and their state equivalents. If the bidder answers “yes,” then the procurement officer in combination with a new evaluator, known as an Agency Labor Contract Advisor, will need to collect additional information from the bidder and assess these disclosures to determine whether a contractor has a satisfactory record of integrity and business ethics before awarding the contract. Importantly, prime contractors are required to perform a similar analysis of subcontractor compliance before awarding federal subcontracts that are estimated to exceed $500,000. Successful bidders must update these disclosures every six months during the life of the contract. As of the date of the FAR Council’s proposed rule, we do not know what additional state law equivalents will compel additional disclosure. The DOL has indicated that it will be issuing another guidance on the state laws, but no timeframe has been promised.
- Paycheck Transparency – Companies with federal contracts for goods and services (including construction) worth more than $500,000 must include, in every employee paycheck, the number of hours worked, the number of overtime hours worked (unless employee is FLSA exempt), pay, and any additions to or subtractions from pay (like bonuses, awards and shift differentials). The prime contractor must incorporate this requirement into federal subcontracts worth more than $500,000.
- Arbitration – Companies with federal contracts for goods and services worth more than $1 million will be prohibited from arbitrating Title VII claims, as well as sexual assault and sexual harassment claims, unless the complaining employee agrees to arbitration after the claim arises. The prime contractor must incorporate this requirement into federal subcontracts worth more than $1 million.
Before awarding a federal contract for goods and services (including construction) in excess of $500,000, the contracting officer is required to make a determination of whether the prospective contractor has a satisfactory record of integrity and business ethics. The contracting officer and the Agency Labor Contract Advisor will base this determination on the bidder’s disclosure, the kind of violations, mitigating circumstances, and remedial actions taken by the contractor.
What should the federal contractor disclose?
Per the proposed rule, when a federal contractor first submits its bid for contracts worth $500,000 or more, there will be new certification questions to answer pertaining to violations:
(1)The Offeror [ ] does [ ] does not anticipate submitting an offer for a solicitation with an estimated contract value of greater than $500,000.
(2)If the Offeror checked “does” in paragraph (q)(1) of this provision, the Offeror represents to the best of the Offeror’s knowledge and belief [Offeror to check appropriate block]:
[ ] (i) There has been no administrative merits determination, arbitral award or decision, or civil judgment, rendered against the Offeror within the three-year period preceding the date of the offer for violations of labor laws; or
[ ] (ii) There has been an administrative merits determination, arbitral award or decision, or civil judgment, rendered against the Offeror within the three-year period preceding the date of the offer for violations of labor laws.
If the contractor checks the second box, the procurement officer and the Agency Labor Contract Advisor will determine whether there needs to be a “responsibility determination” made as to the violations before the contract may be awarded. These additional details will include “the labor law that was violated; the case number, inspection number, charge number, docket number, or other unique identification number; the date that the determination, judgment, award, or decision was rendered; and the name of the court, arbitrator(s), agency, board, or commission that rendered it.” This information will be entered into a SAM (System for Award Management) reporting module.
The list of federal laws that the bidder must report on is extensive and includes:
- The Fair Labor Standards Act (FLSA);
- The Occupational Safety and Health Act of 1970 (OSH Act);
- The Migrant and Seasonal Agricultural Worker Protection Act (MSPA);
- The National Labor Relations Act (NLRA);
- The Davis-Bacon Act (DBA);
- The Service Contract Act (SCA);
- Executive Order 11246 (Equal Employment Opportunity);
- Section 503 of the Rehabilitation Act of 1973;
- The Vietnam Era Veterans' Readjustment Assistance Act of 1974 (VEVRAA);
- The Family and Medical Leave Act (FMLA);
- Title VII of the Civil Rights Act of 1964 (Title VII);
- The Americans with Disabilities Act of 1990 (ADA);
- The Age Discrimination in Employment Act of 1967 (ADEA);
- Executive Order 13658 (Establishing a Minimum Wage for Contractors); and
- Equivalent state laws.
What would be considered a violation?
The proposed rule and DOL guidance define “violation” as (i) administrative merits determinations; (ii) awards or decisions from an arbitration; or (iii) civil judgments.
(i) Administrative merit determinations
Administrative merit determinations are defined as those issued by enforcement agencies that administer the federal labor laws. These agencies include, among others, the DOL, the Occupational Safety and Health Review Commission, Equal Employment Opportunity Commission (EEOC), Office of Federal Contract Compliance Programs (OFCCP), and the National Labor Relations Board. A merit determination is a notice or finding (final, or subject to appeal or further review) issued by such agency after a full investigation that indicates the contractor violated any provision of the enumerated labor laws.
For example, if DOL’s Wage and Hour division issues a WH-56 “Summary of Unpaid Wages” or a letter that assesses civil monetary penalties, the bidder would have to report this as a violation. Similarly, if the OFCCP issues a “show cause notice,” or if the EEOC issues a letter of determination stating that reasonable cause exists to believe that an unlawful employment practice has occurred or is occurring, these too would have to be reported. The OFCCP issues Show Cause Notices whenever a contractor does not submit a complete affirmative action plan on the audit submission due date. It is not clear whether these types of Show Cause Notices are reportable. If OFCCP intends to include these types of Show Cause Notices as violations, then because the OFCCP often will not grant reasonable extensions of time for contractors to ensure that their data is well vetted and correct, the contractor community will be rushed to submit data on time to avoid triggering a reportable Show Cause Notice as part of a procurement bid submission. Some contractors will end up submitting wrong data because they will run out of time to get the data corrected before the submission’s due date.
If the OFCCP concludes a routine compliance review with a Notice of Violations, and the contractor agrees to remedy the violations by entering into a conciliation agreement, the Notice of Violations and conciliation agreement would NOT have to be reported. It is likely that OFCCP is going to take a very hard line in the drafting of conciliation agreements because a contractor’s failure to agree to the OFCCP’s language will potentially result in immediate threats to proceed to the Show Cause Notice phase, which becomes a reportable event.
In other words, the proposed rule will require bidders to report many types of administrative determinations that are not final, even where no hearing has been held and no ultimate agency determination has been issued or reviewed by the courts.
(ii) Civil determination
A civil determination would include any judgment or order – including appealable judgments – entered by any federal or state court in which the court determined that the bidder violated any provision of the labor laws, or enjoined or restrained the bidder from violating any provision of the labor laws. The definition covers private suits resolved by jury trial, bench trial, or the granting of summary judgment, as well as preliminary injunctions for labor law violations, consent judgments, and default judgments. A private settlement where the lawsuit is dismissed by the court without any judgment being entered is not a civil judgment.
(iii) Arbitral award or decision
The bidder will be required to report any award or order by an arbitrator or arbitral panel where it was found to have violated labor laws. This includes an award or order that is not final or is subject to being confirmed, modified, or vacated by a court, and also covers arbitral proceedings that were private or confidential. The employer would be relieved from the reporting requirements only if the determination that there was a violation of a labor law has been reversed or vacated.
What kinds of violations are the agencies concerned about?
Per the proposed rule, the agencies are particularly looking for violations that are “serious,” “willful,” “repeated,” or “pervasive.” In fact, a sizeable portion of the DOL guidance is devoted to defining these terms. A violation will be deemed to be “serious” if it involves at least one of the following scenarios:
- An OSH Act or OSHA-approved state plan citation was designated as serious, there was a notice of failure to abate an OSH Act violation, or an imminent danger notice was issued under the OSH Act or an OSHA-approved state plan;
- The affected workers composed 25% or more of the workforce at the worksite;
- Fines and penalties of at least $5,000 were assessed, back wages of at least $10,000 were due, or injunctive relief was imposed by an enforcement agency or a court. Note that the threshold amounts are measured by the amount "assessed" – so even if an administrative merits determination of $7,000 is lowered to a $4,000 settlement, for example, the fine will be considered a "serious" violation;
- The bidder’s conduct violated MSPA or the child labor provisions of the FLSA and caused or contributed to the death or serious injury of one or more workers;
- Employment of a minor who was too young to be legally employed or in violation on a Hazardous Occupations Order;
- The bidder engaged in an adverse employment action (including discharge, refusal to hire, suspension, demotion, or threat) or is responsible for unlawful harassment against one or more workers for exercising any right protected by any of the labor laws;
- The findings of the relevant enforcement agency, court, arbitrator, or arbitral panel support a conclusion that the bidder engaged in a pattern or practice of discrimination or systemic discrimination;
- The findings of the relevant enforcement agency, court, arbitrator, or arbitral panel support a conclusion that the bidder interfered with the enforcement agency's investigation; or
- The bidder breached the material terms of any agreement or settlement entered into with an enforcement agency, or violated any court order, any administrative order by an enforcement agency, or any arbitral award.
- Under the OSH Act, an employer has demonstrated either an intentional disregard for the requirements of the OSH Act or a plain indifference to its requirements;
- For purposes of a citation issued pursuant to the OSH Act or an OSHA-approved state plan, the citation at issue was designated as willful or any equivalent state designation (i.e., "knowing"), and the designation was not subsequently vacated;
- For purposes of the FLSA (including the Equal Pay Act), the administrative merits determination sought or assessed back wages for greater than two years or sought or assessed civil monetary penalties for a willful violation, or there was a civil judgment or arbitral award or decision finding the bidder liable for back wages for greater than two years or affirming the assessment of civil monetary penalties for a willful violation;
- For purposes of the ADEA, the enforcement agency, court, arbitrator, or arbitral panel assessed or awarded liquidated damages;
- For purposes of Title VII or the ADA, the enforcement agency, court, arbitrator, or arbitral panel assessed or awarded punitive damages for a violation where the bidder engaged in a discriminatory practice with malice or reckless indifference to the federally protected rights of an aggrieved individual; or
- For purposes of any of the other labor laws, the findings of the relevant enforcement agency, court, arbitrator, or arbitral panel support a conclusion that the bidder knew that its conduct was prohibited by any of the labor laws or showed reckless disregard for, or acted with plain indifference to, whether its conduct was prohibited by one or more requirements of the labor laws.
A violation will be “pervasive” if the bidder’s actions exhibit a pattern of “serious” or “willful” violations. In other words, there must be multiple violations, although “the number of violations necessarily depends on the size of the employer, because larger employers, by virtue of their size, are more likely to have multiple violations.” For smaller companies, a smaller number of violations may be enough, while larger companies will “typically require either a greater number of violations or violations affecting a significant number or percentage of a company's workforce.” Violations need not have had similar requirements under labor laws, unlike repeated violations. Additionally, pervasive violations can have arisen in the same proceeding or investigation – such as multiple but different OSH Act violations discovered in the same investigation. Violations under many different labor laws are also indicative of pervasiveness.
What will the agency do with the bidder’s disclosure?
Once the bidder makes the requisite disclosure, the proposed rule envisions that the contracting officer will assess this information in coordination with the Agency Labor Compliance Advisor (ALCA). The ALCA will be an agency assigned official whose role is to give consistent guidance on whether the bidder’s action reflects a lack of integrity and/or business ethics. The contracting officer will then make a judgment of contractor responsibility, reviewing the DOL Guidance and the ALCA's recommendation. The contracting officers are also required to report information received through this process to their agency's suspending and debarring official, as required by their agency's procedures.1
Each bidder’s disclosed violations will be “assessed on a case-by-case basis in light of the totality of the circumstances, including the severity of the violation or violations, the size of the contractors, and any mitigating factors. The extent to which a contractor has remediated violations . . . including agreements entered into by contractors with enforcement agencies, will be given particular weight in this regard.” The bidder can provide details of mitigating circumstances and remedial efforts at the same time that it reports violation disclosures.
Remedial efforts may include actions that the bidder has already taken to correct the violations, including steps to prevent their recurrence (including those taken pursuant to any agreements entered into with the relevant enforcement agency), as well as information communicated by the respective enforcement agency itself regarding necessary remedies, compliance assistance, or future corrective actions. Other mitigating factors include recent legal or regulatory changes, good faith efforts, and a significant period of compliance following violations.
The agency will not consider violations that are “inadvertent or minimally impactful.” Additionally, a single violation of one of the labor laws will not give rise to a determination of lack of responsibility.
What post-award obligations does the proposed rule impose?
Successful bidders must update their disclosures every six months during the life of the contract. The updated disclosures must, as in the case of the pre-award disclosures, report whether there have been any administrative merits determinations, arbitral awards or decisions, or civil judgments rendered against the bidders for violations of labor laws.
Using the updated disclosures, as well as “similar information obtained through other sources,” the contracting officer can take remedial measures up to and including contract termination and referral to the agency's suspending and debarring official.
How do these obligations apply to the contractor-subcontractor relationship?
The proposed rule mandates that if a prime contractor were to award a federal subcontract worth more than $500,000, it must perform the same pre-offer analysis of the subcontractor that the contracting agency performed of the prime contractor. In other words, the prime contractor must first determine whether the subcontractor is “a responsible source that has a satisfactory record of integrity and business ethics.” To complete this analysis, the subcontractor must complete the same violations disclosures as the prime contractor.
Review of all subcontractor violations must occur before the award is made. However, if the prime contractor awards the subcontract, or the subcontract becomes effective, within five days of the prime contract execution, the prime can then complete analysis within 30 days of awarding the subcontract.
Qualified subcontractors also have the same semi-annual post offer disclosure obligations as prime contractors.
Paycheck Transparency
Although the DOL's so-called "Right-to-Know" rulemaking remains a separate item on the Department's long-term regulatory agenda, the blacklisting proposed rule effectively applies it to government contractors. Companies with federal contracts for goods and services (including construction) worth more than $500,000 must include, in every employee paycheck, the number of hours and overtime hours worked, the number of overtime hours paid, and any additions to or subtractions from pay (like bonuses, awards and shift differentials. The prime contractor must incorporate this requirement into federal subcontracts worth more than $500,000.
The overtime hours in each paycheck must be broken down to correspond to the period for which the overtime is calculated and paid. If no overtime hours are reported because the employee is “exempt from the overtime compensation requirements of the Fair Labor Standards Act, the contractor must inform the individual of the exempt status.”
Additionally, if an individual is treated as an independent contractor, and “not as an employee, the contractor must provide a document to the individual, informing the individual of that status; the document shall be provided prior to commencement of work or at the time a contract with the individual is established.”
Finally, the proposed rule requires that the paycheck must be provided in “languages other than English if a significant portion of the workforce is not fluent in English.”
The time to determine whether your exempt employees are properly classified is before this proposed rule becomes effective and it should be done under attorney client privilege.
Arbitration of Contractor Employee Claims
Companies with federal contracts for goods and services worth more than $1 million will be prohibited from arbitrating Title VII claims, as well as sexual assault and sexual harassment claims, unless the complaining employee agrees to arbitration after the claim arises. The prime contractor must also incorporate this requirement into federal subcontracts worth more than $1 million.
This prohibition of pre-claim arbitration agreements would not apply in three circumstances:
- If a contractor's or subcontractor’s employees are covered by a collective bargaining agreement that the contractor or subcontractor negotiated with a labor organization.
- If the agreement to arbitrate such claims was signed before the contractor or subcontractor became covered by this provision of the proposed rule (unless the contractor or subcontractor has the ability to change the terms of the contract). This exception would expire "when the contract is renegotiated or replaced.” It is however, unclear, whether the “contract” in these exceptions to the exceptions reference the procurement contract or the applicable independent contract.
- If the contractor or subcontractor is providing commercial items or commercially available off-the-shelf items.
It is clear that the revised procurement process pursuant to the proposed rule will be burdensome to both bidders and agencies. Bidding for federal contracts will now require a time-consuming and highly subjective analysis of complex and specialized legal concepts that appear in each of the 14 federal laws subject to the proposed rules. Importantly, the agency’s analysis may lead to bid rejections, contract cancellations, or contractor suspension based on violations that a contractor may have already resolved or that have not been fully adjudicated. Needless to say, this level of complex analysis will result in high costs, and may skew the process against small contractors, who have more limited resources, and may deter new contractors from choosing to compete for and perform government contracts.
It is also unclear how the awarding agency will make the assessments, without an in-depth study of the congressional intent underlying each federal law whose violation must be assessed, how contractor due process rights will be protected, and how agencies will accomplish all of this in a timely manner without unduly delaying the procurement process. Many contractors are justifiably concerned that the new, yet-to-be-defined guidelines for determining whether past labor law violations impact the contractor's responsibility will result in favoritism and deny due process to contractors who are denied contract eligibility.
Importantly, while the goal of these regulations is to ensure compliance with labor and employment laws, it is likely to exert pressure on federal contractors and subcontractors to settle claims rather than risk an adverse judgment in court, by an arbitrator, or by an administrative law judge.
Next Steps
We encourage you to share your concerns about the proposed regulations. Comments to the proposed rule and DOL guidance are due July 27, 2015. As you note your concerns to the federal regulators, please consider the financial and resource impact that these regulations will have on your company and its ability to provide affordable goods and services to the federal government.
1. “If a contracting officer finds a prospective small business contractor to be nonresponsible, the matter shall be referred to the Small Business Administration (SBA). If SBA concludes that the small business is responsible, SBA will issue a Certificate of Competency.” ?