Administration puts contractors on notice about labor law violations

Friday - 8/1/2014, 5:18am EDT

Jason Miller, Executive Editor, Federal News Radio

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"So over the past few years, my administration has taken steps to make the contracting process smarter. But many of the people who award contracts don't always have the information that they need to make sure contracts go to responsible companies," the President said before signing the order. "And I want to be clear, the vast majority of the companies that contract with our government, they play by the rules. They live up to the right workplace standards. But some don't. And I don't want those who don't to be getting a contract and getting a competitive advantage over the folks who are doing the right thing, right? That's not fair. Because the ones that don't play by the rules, they're not just failing their workers, they're failing all of us. It's a bad deal for taxpayers when we've got to pay for poor performance or sloppy work."

The EO requires prime and subcontractors, whose deal is worth more than $500,000, to report to the government if they've violated one or more of 14 different laws in the last three years.

Among the laws that vendors must report on include the Fair Labor Standards Act, the National Labor Relations Act, the Davis-Bacon Act, the Service Contract Act, the Civil Rights Act and several others.

The EO doesn't apply to commercial items, which, as defined by the Federal Acquisition Regulations (FAR), are any product or service that is widely available in the commercial market.

Vendors will have to self-certify that they have no violations to the Federal Awardee Performance and Integrity Information System (FAPIIS) and update their certification as necessary.

Contracting officers then will use the information in FAPIIS as part of their research process to determine whether the company is worthy of a federal contract.

The General Services Administration, the Labor Department and the FAR Council will play major roles in developing policy and guidance for the EO's implementation.

Impact major, costs expected to rise

This order is the latest in a series of orders aimed at federal contractors where the administration is trying to use the power of government contracting to make change in society.

"I think it's on the larger scale impactwide," said Eric Crusius, a partner with the Centre Law Group. "I think the gay and lesbian one that came out recently was very narrowly tailored, was very well written to have a minimal impact on contractors, and pursued a goal most people share. On the other hand, you had the $10.10 minimum wage one and included very vague language on who it would apply to and the regulations have not helped clear that up. This one is probably right along with that one as far as having a maximum impact on contractors. The reality of the situation is that a lot of contractors undergo Labor Department audits and similar kinds of investigations. The cost of those investigations to a company are very high and this will only add to those costs."

Crusius and others say the White House is using its power of the pen because of the dysfunction of Congress and because there is a broader political aspect to these orders.

While government and industry experts agree that most companies abide by the statutes, there is a growing concern on Capitol Hill and within labor factions that vendors need to be held more accountable.

"There's been growing research by the Government Accountability Office and by the Senate Health, Education, Labor and Pensions (HELP) committee showing a major problem with government contractors violating basic wage and hour and OSHA laws, and continuing to get new government contracts without any additional scrutiny," said David Madland, the managing director of economic policy at the Center for American Progress. "About one-third of the biggest violators of the basic workplace laws get government contracts according to research by GAO and the Senate HELP Committee."

CAP is a big supporter of this and all of the Obama administration's EOs related to labor and worker's rights.

Two reports found problems

The GAO report is from 2010 when auditors analyzed 15 contractors and found all had violated federal labor laws but still received more than $6 billion in contracts.

Additionally, Sen. Tom Harkin (D-Iowa) said his committee's research found that 49 federal contractors were responsible for 58 of the 200 largest enforcement actions resulting from violations of federal labor laws between 2007 and 2012. He said almost 30 percent of the companies receiving the highest penalties or back pay awards for violations of federal labor laws are federal contractors.

Madland said there also is evidence that companies that violate labor laws also tend to cut corners in the products and services they provide.

House lawmakers added provisions to four fiscal 2015 spending bills that would require agencies to withhold funding for new or current contracts to any company who has committed any labor law violation.

Trey Hodgkins, senior vice president for public sector at the Information Technology Alliance for Public Sector, said the EO is a much better approach than the "draconian" language in the Defense, Financial Services and General Government, Housing and Urban Development and Transportation and Energy and Water appropriations bills.

"If the bill would have passed, it would be very disruptive to the capabilities the government depends on," he said. "Our hope is this executive order satisfies the objectives the bill's sponsors have. I think the EO calls attention to wage issues, but our underlying point is that we have mechanisms in place to address these issues. We believe the legislative language is unnecessary and redundant because of this EO."

Madland said CAP also was concerned about the provisions in the spending bills. He said the EO is more workable and provides a process to evaluate severity of workplace violations with the goal of identifying and stopping those companies with a pattern of abuse from getting government contracts.

Reactions are mixed

Even though most believe the EO is better than the congressional provision, Obama's mandate isn't accepted with open arms.

Labor groups and others like CAP believe the EO is a very good thing.

The United Steel Workers, for example, said in a release that the EO shows that people are more important than profits.

Meanwhile contractor groups are concerned about several different and new compliance requirements and how the EO eventually will be put into the FAR.

"The devil will always be in the details. There's going to be a regulatory process, there will be some guidance issued by the Department of Labor establishing what expectations are for compliance and then there will be a FAR Council activity to actually create a clause that will go into contracts for compliance," Hodgkins said. "So some of the things that I see are challenging for compliance even if a company has a stellar record and there is a flow down requirement. So a company that is building a weapons platform is going to be expected to ask a set of questions and compile compliance records about all their suppliers and subcontractors. That's challenging and a very significant paperwork exercise for a company. At the end of the day, it increases the price the taxpayer is paying."

Hodgkins said he hopes during the rulemaking process the FAR Council and Labor rely on existing databases and don't make contractors duplicate information collection efforts.

The Professional Services Council was less positive. It says in a release that Obama continues to micromanage government contractors and the EO elevates enforcement over education, punishment over remediation, and confusion over clarity.

Mary Beth Bosco, a partner in the law firm of Holland and Knight, said there are things vendors need to do to prepare to meet the EO's requirements.

"The first thing you will need to do is look at what your company does and how many of these laws are going to affect your company," she said. "The second thing you are going to have to look at is what systems do you have in place already to track these violations, and how do you make them consistent across the company. You want to avoid the situation where one facility in Arizona doesn't report things up the chain but a facility in Maryland does and so then you have internal inconsistencies within your own corporation that will really come back and haunt you."

Bosco said vendors also will have to ensure training is in place to not only find and fix these problems, but report them up the chain.

Several experts say another broader and long-term concern is that the EO could open another avenue for False Claims Act lawsuits. If a vendor reports to the government it has no violations, but it does and officials didn't know about it, they could be held liable.

Bosco said the EO also could open the door to more and different kinds of bid protests. Unsuccessful bidders may use labor law violation reports as a reason why the government shouldn't have awarded a contract to a certain vendor.

Finally, the biggest impact of the EO may be on small businesses. Centre Law Group's Crusius said they may not have the ability to meet the mandates of the EO, or as they flow down the requirements to large subcontractors, the ability to track and report to the government may be overwhelming.


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