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Government Contractor Compliance & Regulatory Update

New Interim Rule Prohibits Federal Contractors From Retaliating Against Employees Who Discuss Compensation With Colleagues

Posted in Compensation, Federal Contractors, OFCCP

On September 30, 2016, the Department of Defense, General Services Administration, and National Aeronautics and Space Administration issued an interim rule titled “Non-Retaliation for Disclosure of Compensation Information.” The interim rule implements Executive Order 13665 (the “Order”).  The Order, which President Obama signed on April 8, 2014, prohibits federal contractors from retaliating against employees who discuss their compensation.  Our prior blog posts on the Order can be found here and here.  The OFCCP published regulations implementing the Order on September 11, 2015.  Our blog post on those regulations can be found here.

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GAO Releases Detailed Report Criticizing The OFCCP

Posted in Department of Labor, OFCCP

The Government Accountability Office (“GAO”) has released a report critical of the Office of Federal Contractor Compliance Programs (“OFCCP”) and making suggestions for improvement.  The report followed the GAO’s investigation into the OFCCP’s practices, including conducting interviews with 27 industry groups and 24 government contractors.

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BREAKING: DOL Publishes Final Rule Requiring Federal Contractors To Provide Paid Sick Leave To Employees

Posted in Department of Labor, Labor Law

Today, the U.S. Department of Labor (“DOL”) published its final rule implementing Executive Order 13706 (the “Final Rule”), which requires certain federal contractors and subcontractors to provide paid sick leave to their employees.  Our previous blog posts on this development can be found here and here.

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Rule Governing Paid Sick Leave for Federal Contractors Completes OMB Review Process

Posted in Department of Labor, Federal Acquisitions

As reported today in Politico, the rule effectuating Executive Order 13706 (the “Order”), which requires certain federal contractors and subcontractors to provide their workers up to seven days of paid sick leave annually, has completed the Office of Management and Budget (“OMB”) review process.  Our previous blog posts on the subject can be found here and here.

When the OMB completes its review of regulations it generally means one of three things:  (1) the OMB approved the rule for final publication; (2) the OMB made revisions to the rule for review by the implementing agency prior to final publication; or (3) the OMB rejected the rule.  It is unclear what action, if any, the OMB has taken with respect to the rule.

The Order requires the U.S. Department of Labor to publish a final rule implementing the Order by September 30, 2016.  We will continue to monitor this matter for any developments and alert our readers if and when the final rule is published.

Federal Contractor Minimum Wage Increase Announced – Changes Effective January 1, 2017

Posted in Compensation, Department of Labor

Yesterday, the Department of Labor announced an increase in the minimum wage that certain federal contractors must pay to employees.  This comes as part of a planned incremental increase in the federal contractor minimum wage implemented by President Obama’s 2014 Executive Order (the “Order”).

As discussed in our previous blog post on the Order, the minimum wage requirement only applies to certain federal contracts.  Specifically, the Order only applies to:

  • procurement contracts for services or construction;
  • service contracts exceeding $2,500 covered by the Service Contract Act;
  • contracts for concessions; and
  • contracts that are both (a) entered into the with the Federal Government in connection with Federal property or lands and (b) covered by the Fair Labor Standards Act, Service Contract Act, or Davis-Bacon Act.

Beginning January 1, 2017, the minimum wage for covered federal contractors will increase to $10.20 per hour for hourly workers.  For tipped employees, the minimum wage for federal contractors will increase to $6.80 per hour.

Department of Labor Announces “Preassessment” Program For Government Contractors

Posted in Department of Labor, Federal Acquisitions, Labor Law

Loyal readers of this blog are well aware of the Fair Pay and Safe Workplaces Executive Order and corresponding regulations which go into effect next month.  Those looking to learn more about the topic can access our recent webinar and blog post on the “Blacklisting” regulations and what contractors should be doing now to prepare for this new reality in government contracting.

The new Blacklisting regulations require contractors submitting bids for government contracts worth $500,000 or more to disclose violations of 14 federal labor laws (and in the future will be required to disclose violations of these laws’ state equivalents).  These disclosures will be reviewed by Labor Compliance Advisors (“LCAs”) to assess whether the contractor is a responsible entity that the federal government should engage.  In connection with this new assessment process, the Department of Labor (“DOL”) this week announced a new “Preassessment” program.

As announced by the DOL, the new program permits companies to contact the DOL, independent of a specific bid, to request “an assessment of their record of labor law compliance.”  To participate, contractors and prospective contractors (“Contractors”) may fill out a form online providing some basic information.  After the form is submitted, the DOL will follow up to request additional information about the Contractor’s labor law violation history.  Following the receipt of the additional information, the DOL will conduct a responsibility determination which it will share with the Contractor.

The DOL touts the Preassessment Program as having a number of benefits.  First, it will provide Contractors with the opportunity to be assessed on their labor law violation history in advance of an actual bid.  This will permit the Contractor to know whether it has any labor law violations the DOL views as serious, repeated, willful or pervasive that could harm its ability to win future contract bids.

Second, the DOL notes that if problems are found, the program will provide the Contractor an opportunity to develop a “compliance agreement” with the DOL and “start taking steps to mitigate issues before there is a specific acquisition.”  Finally, a preassessment that finds a satisfactory record of labor law compliance can be considered by the LCA when the Contractor submits a future bid (provided the Contractor has not had any additional violations since the preassessment).

This program is available now and will continue to be an option for Contractors, even after the Blacklisting rules go into effect.

The new Blacklisting rules have created a lot of uncertainty for federal contractors.  It is unclear how the labor law assessment process will work in practice, particularly given that LCAs are provided only three days to make their responsibility determinations (unless granted an extension by the Contracting Officer).  The Preassessment Program may be a useful tool for contractors and prospective contractors to get a better sense of how their labor law compliance history will be viewed by LCAs.  For large contractors that are likely to have at least some reportable violations, the Preassessment Program may provide the opportunity to obtain a satisfactory compliance record determination in a process with less intense deadlines.  One can foresee a circumstance where because the LCA has only three days to make a determination, the advisor fails to appreciate the fact that while the prospective contractor has some violations, given its size those violations do not reflect a poor labor law compliance record.  The Preassessment Program could provide a better opportunity to work with DOL to explain such factors and increase the opportunity of obtaining a satisfactory assessment that can be used in future bids.

Conversely, the Preassessment Program can also provide an early warning of labor law violations that could harm a Contractor’s chances of obtaining a large government contract.  Identifying such issues and working with the DOL to address them could help Contractors overcome such problems.  However, because we do not know about how the program will work in practice, it is also possible the DOL will use the Preassessment Program to push compliance agreements that may be burdensome and unnecessary.

Another possible benefit of the Preassessment Program is that it provides a way for prime contractors to vet their subcontractors in advance of bids.  Some prime contractors are concerned that their bids may be rejected not because of their own labor law history, but because of the labor law history of the subcontractors they include in their bids.  Thus, prime contractors may want to consider asking their key subcontractors to participate in the Preassessment Program to determine whether including them in future bids could cost the prime contractor the contract.  Prime contractors would be able to tout in future bids that they have included only subcontractors who have received a stamp of approval from the Preassessment Program (provided the subcontractors have no new violations to report).

In short, the Preassessment Program may provide some benefits to Contractors.  However, because the Preassesment Program, like everything related to the Blacklisting regulations, is new and untested, it is unclear what pitfalls may lurk in the program.  For this reason, government Contractors should think carefully about whether to utilize the program and consult with counsel to weigh the pros and cons of doing so.

If you decide to participate in the Preassessment Program, we would love to hear from you and learn about your experience.  Please email or contact us (our contact information is on the left side of this page) to let us know how the program worked for you and what contractors need to know about it before participating.

Proskauer Hosts Webinar On New “Blacklisting” Regulations

Posted in Department of Labor, Federal Acquisitions, Labor Law

On September 13, 2016, Proskauer Partners Connie Bertram and Guy Brenner hosted “The Final Blacklisting Regulations:  What Contractors Need to Know” webinar as a follow-up to our blog post “FAR Council Issues Final Rule and DOL Issues Final Guidance on Fair Pay and Safe Workplace”.  For those who were unable to attend the webinar, it is available here.

BREAKING NEWS:  FAR Council Issues Final Rule and DOL Issues Final Guidance on Fair Pay and Safe Workplaces (“Blacklisting”) Executive Order, Effective October 25, 2016

Posted in Department of Labor, Federal Acquisitions, Labor Law

Today, the Federal Acquisition Regulations Council (“FAR Council”) and the U.S. Department of Labor (“DOL”) issued its Final Rule and Guidance implementing the Fair Pay and Safe Workplaces Executive Order (the “Order”), commonly referred to as the “blacklisting” rule.  In total, the Final Rule, Guidance, and accompanying commentary totaled nearly 900 pages, responding to nearly 20,000 comments on the Proposed Rule and Guidance released earlier this year.  Some of our previous blog posts on the Order and the Proposed Rule and Guidance can be found here and here.  This post will highlight the notable changes and clarifications made in the Final Rule and Guidance as well as key takeaways for federal government contractors.

Effective Date

The Final Rule is effective on October 25, 2016.  This is earlier than anticipated and dramatically shortens the time for contractors to prepare to comply with the Order and its implementing regulations.  That being said, as discussed below, the Final Rule also phases in a number of the disclosure and compliance obligations, lessening the initial burden of the implementation.

Phase-In of Labor Violation Disclosure Requirements

One of the overarching concerns raised during the notice and comment period was the enormous burden the Order would place on the contracting community.  In an effort to lessen that burden, the Final Rule and Guidance announced a phased implementation of the disclosure obligations.  The phase-in has two key components.

First, the Order and the Proposed Rule contain a three-year look back for covered violations.  Recognizing that contractors have not been cataloging covered labor violations prior to the issuance of the Order, the Final Rule only requires contractors to look back one year for reportable violations when the rule becomes effective.  The look-back period will increase each year by one year until October 2018, when it will become a three-year look back.

Second, the Final Rule also limits which contractors must make labor law violation disclosures in the first six months following the effective date.  Contractors will not be required to disclose labor law violations until April 24, 2017, unless the contractor is responding to a solicitation for a contract valued at $50 million or more after the effective date of the Final Rule.  For most contractors, this provides an additional six-month window to prepare for the implementation of the disclosure obligations.

The phase-in of disclosure obligations does not just impact prime contractors.  The Final Rule also included a lengthier phase-in for subcontractor disclosure obligations.  Subcontractors must begin disclosing labor violations for solicitations issued after October 25, 2017, one year after the effective date.

A Pause on The Disclosure of “State Law Equivalent” Violations

When the Proposed Rule was released, the Proposed Guidance stated that a supplement would follow containing a list of which state-law equivalents for the 14 enumerated federal laws require disclosures of violations under the Order.  To date, no list has been released.  The Final Rule and Guidance acknowledge this and state that the DOL will release a comprehensive list of state laws that are covered by the Order.  This listing will be subject to notice and comment before it becomes effective.  In the meantime, only the 14 federal labor laws listed in the Proposed Rule and in the Order, along with state OSHA plans, are covered by the rule.

Minor Clarifications on Scope of Violations

Overall, despite numerous comments and criticisms, the DOL declined to substantively modify its list of covered labor violations in the Final Guidance.  Thus, the list of administrative merits determinations, arbitral awards, and civil judgments remain exceptionally broad and sweeping.

Although the DOL declined to narrow its definition of a violation, the Final Guidance does contain some minor modifications that broaden the definition of a violation.  For example, the definition of administrative merits determination in the Proposed Guidance did not include violations of the anti-retaliation provisions of the Occupational Safety and Health Act (“OSHA”) or the Fair Labor Standards Act (“FLSA”).  The final rule clarifies that these were unintentionally omitted from the Proposed Guidance and are now included in the Final Guidance.  Additionally, the Proposed Guidance limited “determination letters” from the DOL Wage and Hour Division to letters outlining violations of Sections 6 and 7 of the FLSA (minimum wage and overtime).  In the Final Guidance, the DOL has clarified that this was unintentionally narrow, and that the Final Guidance includes determination letters finding any FLSA violation.

Assessing A Subcontractor’s Responsibility – Removing The Burden From The Prime

One highly controversial aspect of the Proposed Rule was the burden placed on the prime contractor to perform the same type of responsibility determination of covered subcontractors’ labor violations that the government will perform on prime contractors.  In response to numerous comments, the Final Rule has modified the process for assessing a subcontractor’s violations, largely removing the burden from the prime contractor.

Instead, starting October 25, 2017, under the Final Rule, covered subcontractors will submit their list of labor violations to the Agency Labor Compliance Advisor (“ALCA”).  The ALCA will then perform an assessment of the disclosed violations and make a recommendation.  The prime contractor must make the ultimate decision as to responsibility.  If the subcontractor disagrees with the finding of the ALCA, it can raise the dispute with the prime contractor.

Clarification of Assessment Process of The Labor Compliance Advisors

The Proposed Rule and Guidance introduced a new government official into the contracting process, the ALCA.  There was substantial controversy surrounding this new role, particularly the potential disparate application of the Order between agencies and perhaps even within agencies.  The Final Rule and Guidance provides additional details regarding the process by which federal agencies and departments will assess a contractor’s labor violations.  Moreover, the Final Rule and Guidance recognizes the need for guidelines and training for the ALCAs.

The Final Rule and Guidance states that the ALCA will have three days to assess labor violations disclosed by a contractor.  Although the contracting officer is permitted to give the ALCA additional time, the contracting officer may make his or her own assessment of responsibility without the recommendation of the ALCA.  The ultimate responsibility for making a responsibility determination will remain with the contracting officer, not the ALCA.  The ALCA’s role is to “assesses the nature of the violations and provide[] analysis and advice.”

The Final Guidance also clarifies the process the ALCA will follow during his or her assessment.  The ALCA will first review all of the violations to determine if any are “serious, repeated, willful, and/or pervasive.”  Then, the ALCA “weighs any serious, repeated, willful, and/or pervasive violations in light of the totality of the circumstances, including the severity of the violation(s), the size of the contractor, and any mitigating factors that are present.”  Finally, the ALCA provides written analysis to the contracting officer.

Public Dissemination of Disclosures

The Proposed Rule and Guidance noted that information submitted to the contracting agency would be publicly disseminated.  Despite numerous comments criticizing this proposed provision, the Final Rule and Guidance declined to remove this requirement.  However, the Final Rule and Guidance provided clarification as to how this public dissemination will work in practice.  Pursuant to the Final Rule, the following information will be publicly disclosed based upon the contractor’s violation submissions:  (1) the law violated; (2) the case identification number or docket number; (3) the date of the decision finding a violation; and (4) the name of the body issuing the judgment.

The contractor will input this information into the System for Award Management (“SAM”).  From SAM, the information will be made available to the public through the Federal Awardee Performance and Integrity Information System (“FAPIIS”).  The Final Rule clarified that while the four enumerated data points must be made public, the contractor has the choice as to whether any additional documents provided by the contractor to demonstrate its responsibility and mitigation efforts shall be made public.

Key Takeaways

With the Final Rules and Guidance published, it is more important than ever that contractors begin preparing for the implementation of the Order and its regulations.  Contractors have two months before the effective date of the Final Rule, and while certain obligations will be phased-in, contractors will need time to prepare for compliance.

Contractors should start cataloging any violations during the past six months that constitute covered violations as well as any evidence of mitigation efforts taken as a consequence of the violations.  Because complaints and charges alleging violations of the 14 federal laws covered by the Order, a central official of office should be designated to coordinate the collection of this information (concerning both past and future violations) and a central repository for it.  Contractors should view the ability quickly to provide a comprehensive list to the contracting officer as a competitive advantage, as competitors may not be prepared to do so in a timely manner.

Additionally, if the ALCA makes an inquiry concerning the disclosed violations, contractors should be prepared to advocate, with appropriate evidence, why certain violations are not willful, repeated, pervasive or severe.  For instance, the contractor could point to its size or the number of employees in the organization.  It can also identify measures taken by the contractor to address the issues raised in the violation.  It will be important that these disclosures be vetted by a central authority within the organization.

In addition to preparing to report labor violations, contractors should also work internally to reduce and mitigate the risk of future violations.  This can be achieved by: (1) developing and implementing effective policies and training; (2) auditing compliance; (3) adopting a robust internal complaint mechanism; (4) developing alternative dispute resolution processes; and (5) undertaking early case assessment and management.  Taking these proactive measures can help lessen the impact of future compliance by reducing the number of violations that must be reported.

Webinar On The Final Rule and Guidance

Proskauer is hosting a webinar to discuss the Final Rule, practical implications of the Final Rule and what contractors should do to prepare for the Final Rule going into effect.  The webinar is scheduled for September 13, 2016 at 1:00 p.m. EST.  To register for the webinar, click here.