Government Contractor Compliance & Regulatory Update

OFCCP’s Second Opinion Letter: Contractors Can Seek Advance Approval of PAGs, But…

On July 22, 2019, OFCCP issued its second published opinion letter addressing whether “contractors can work with OFCCP to develop a PAG [Pay Analysis Grouping] structure that OFCCP would accept as valid for use in future OFCCP audits.” PAGs are groupings of what should be similarly-situated employees or positions used by OFCCP for compensation analysis purposes. OFCCP will compare employees within PAGs to determine whether there are statistical indicators of discrimination. For obvious reasons, the individuals included or excluded from a particular PAG can impact the outcome of a compensation analysis. In many cases, a contractor’s own PAGs will show no indicators of discrimination, but the same data when examined using OFCCP’s PAGs will lead to different results. As such, it appears the entity that submitted the inquiry sought a method to obtain advance notice of the PAG structure OFCCP would find acceptable so that it could analyze its compensation practices using the same approach and avoid an “audit surprise.”

In the letter, OFCCP responded to the inquiry stating that “contractors [have] the opportunity to submit their PAG structure for review and to receive feedback from OFCCP, which OFCCP would take into account in future compliance evaluations.” It does not say how or to whom such submissions should be made.

But, such a determination would be of little value to a contractor. The opinion letter makes clear that even if a contractor submits its PAG structure for review and receives the OFCCP’s blessing, OFCCP

is unable to conclusively agree that it will rely upon specific, predetermined PAGs in all future compliance evaluations as there may have been material changes to factors considered by OFCCP in its initial evaluation of the contractor’s PAGs. OFCCP must conduct its analyses based on the contractor’s pay systems, functions, and workforce organization as they exist or existed during the period under review, and thus if those have materially changed since OFCCP’s prior review, OFCCP will need to make a new determination as to whether the PAGs are appropriate.

In other words, where a contractor has submitted its PAGs to OFCCP for review and receives OFCCP’s approval of its PAGs, OFCCP will not be bound by its feedback in a subsequent compliance evaluation.

In light of this warning, it is unclear what benefit a contractor would receive from voluntarily submitting PAGs to OFCCP for its review. As such, perhaps the most useful aspect of the opinion letter are the statements it makes concerning Directive 2018-05 and its approach to pay analysis generally. For example, the statement that OFCCP should take into account “any compensation policy or practice that has a disparate impact on a protected group but is job-related and consistent with business necessity,” and that “Directive 2018-05 require[s] OFCCP to attempt to design its compensation analysis based on the contractor’s compensation hierarchy and job structure.” Of course, this letter must be read through the lens of Directive 2019-03 – which created OFCCP’s opinion letter initiative. Specifically, while opinion letters “provide guidance on the application of OFCCP regulations to fact-specific situations” they “do not establish any legally enforceable rights or obligations.”

We encourage our readers to stay informed of OFCCP’s opinion letters. We will continue to report on note-worthy opinion letters as they become available.

OFCCP Publishes New Compliance Assistance Guides

When OFCCP issued its “Town Hall Action Plan ” in May 2018, it stated its commitment to “review and enhance contractor compliance assistance materials.” In furtherance of this commitment, on August 2, 2019, OFCCP announced the publication of a number of new compliance assistance guides for contractors. These new resources are:

    • Posting and Notices Requirements Guide – a guide  focusing on posting and notice requirements for federal contractors. The document is a resource providing contractors with guidance about the information they must include in subcontracts and purchase orders, job advertisements, in the workplace, and to unions, as well as checklists for supply and service and construction contractors to help them manage these requirements. The document helpfully identifies the various contract value thresholds which trigger different notice and posting requirements. Contractors should be aware that this document appears focused solely on OFCCP posting and notice requirements, and that their contracts likely contain other posting requirements not covered by this document.
    • Recordkeeping Guides – OFCCP has created three recordkeeping charts, providing contractors with at-a-glance reference materials regarding their recordkeeping obligations under Executive Order 11246 (race and sex), Section 503 (individuals with disabilities), and VEVRAA (protected veterans). The documents show not only the records that must be maintained, but also the length of time they must be retained.
    • Applicant Tracking Guide and FAQs  – These resources provide basic information regarding the OFCCP’s complex rules regarding how to classify, track and retain information concerning applicants.
    • What Federal Contractors Can Expect – a republication providing contractors with “the general expectations that often guide interactions between federal contractors and OFCCP,” which we wrote about in August 2018.
    • OFCCP At a Glance – a brochure providing an overview of the agency.

OFCCP’s website also indicates OFCCP is working on technical assistance guides for supply and service and construction contractors.

The new materials reflect a tangible step by OFCCP to fulfill one of its Town Hall Action Plan commitments. Contractors should find the materials helpful for answering basic compliance questions.

Proskauer Attends National Industry Liaison Group’s Annual Conference

The National Industry Liaison Group (“NILG”) is holding its annual conference in Milwaukee, Wisconsin this week. The NILG is an employer organization focused on improving interactions with OFCCP and educating its members on OFCCP compliance and diversity issues. Its annual conference brings together hundreds of HR and in-house legal professionals from government contractors, as well as officials from OFCCP and the EEOC. OFCCP Director Craig Leen is attending the conference and is scheduled to address the conference twice.

Proskauer, as always, is in attendance at this year’s conference. On July 30, Proskauer partner Guy Brenner spoke on a panel with S&P Global’s Senior Manager of EEO Compliance, Cherise Robinson, and Resolution Economics Partner Rick Holt. The panel discussed what contractors can do when they are notified via the CSAL process that they have been selected for a compliance evaluation. The panelists provided tips and insights from the in-house diversity professional, outside counsel, and labor economist perspectives to the conference participants. On July 31, Guy Brenner and Rick Holt will be presenting on a panel entitled “Stark Implications of the OFCCP’s 2018 Compensation Directive – A Case Study,” in which they will discuss the practical impact of the compensation directive and what contractors need to know to minimize the risk of an OFCCP compensation audit.

OFCCP news often breaks at the NILG conference, so if anything newsworthy happens we will be sure to share it with our readers. Stay tuned. (And if you are at the conference, look out for Guy and say hello!)

 

 

 

 


Rick Holt, Cherise Robinson and Guy Brenner at the NILG Conference.

OFCCP Revises Proposed Audit Scheduling Letters

Quick Hit: On June 28, 2019 The Office of Management and Budget (“OMB”) published notice that “OFCCP seeks to revise the letters used to schedule compliance evaluations.” As we previously reported, OFCCP proposed changes to its audit scheduling letters in April 2019 and accepted public comments through June 11, 2019. In light of the comments it received, OFCCP has revised its proposed letters and reduced some of the new requirements included in its April 2019 proposal.

Key Takeaway: Although OFCCP has revised some of the changes it proposed to the audit scheduling letters in April 2019, the revised scheduling letters still contain additional reporting burdens for contractors. The new proposed letters still need to be approved by OMB before they are implemented.

Below are some of the proposed changes that have been removed by the latest revisions, and some of the proposed changes that remain.

Proposed changes that have been removed:

  • Sub-minority data: OFCCP’s latest revisions remove requests for sub-minority data including: (i) sub-minority goal calculations; (ii) sub-minority utilization and availability; and (iii) sub-minority placement by group.
  • Analysis of the contractor’s compensation systems: The latest revisions dispense with the proposed requirement for contractors to submit the results of their most recent compensation system analysis.
  • Candidates in the promotion pool: OFCCP is no longer seeking data concerning the pool of candidates from which promotions were selected. Instead, OFCCP’s latest revisions seek the percentage of minority and female employees in the job group from which employees were promoted.
  • Termination data. The latest revisions delete OFCCP’s request for data distinguishing between voluntary and involuntary terminations.
  • Data on AAP plans beyond six months: OFCCP has removed its request for additional data on AAP plans when a contractor receives an audit letter more than six months into an AAP plan year. The April proposed changes would have required contractors to submit data for every completed month of an AAP plan year if a scheduling letter was received more than six months into the year. The latest revisions only require a contractor to submit data on the first six months of the AAP plan when a compliance evaluation scheduling letter is received later than six months into the AAP plan year – consistent with the current requirement.
  • Required electronic submission: OFCCP has removed its April proposal requiring contractors submit responses to a compliance check letter in electronic format. Contractors are now expected to either make the materials available for onsite review or, alternatively, submit the requested materials to OFCCP within 30 days of receiving a Compliance Check scheduling letter.

Proposed changes that remain:

  • Job posting: Contractors are still required to provide examples of job advertisements in response to a Compliance Check scheduling letter.
  • Subcontractor information: OFCCP’s latest revisions still require contractors to submit information concerning certain subcontractors.
  • EEO-1 reporting: The latest revisions require contractors to submit copies, for the last three years, of Component 1 of their EEO-1 reports. It appears that OFCCP will not require submission of Component 2 reports.
  • Audit and reporting system compliance documentation: OFCCP reinserted the requirement that contractors submit documentation of their actions to comply with audit and reporting systems, which was removed in the changes proposed in April 2019.

The deadline to submit comments to OMB concerning the new proposed letters is July 29, 2019. We will continue to monitor this developing story and provide updates as warranted.

OFCCP’s First Published Opinion Letter: Pell Grants Do Not Make Universities Federal Contractors

On May 23, 2019, OFCCP issued its first published opinion letter addressing whether universities and other post-secondary higher educational institutions become covered federal contractors by serving as a “conduit” for Pell Grants. According to the OFCCP, “solely serving as a conduit for Pell Grants does not render a post-secondary higher education institution a covered federal contractor…”

The opinion letter’s conclusion is not surprising, but given the dearth of clear guidance it provides institutions of higher education with a welcome definitive statement of the agency’s current view on the matter. As OFCCP explains in its letter, Pell Grants – federal subsidies awarded as financial aid to low income college students in order to defray the cost of attending school – do not make a university a covered federal contractor because “grants do not constitute federal procurement contracts.” OFCCP noted that its implementing regulations define government contracts as “any agreement or modification thereof between any contracting agency and any person for the purchase, sale or use of personal property or nonpersonal services.” The agency concluded that because Pell Grants are issued “to a recipient in order to further ‘a public purpose of support or stimulation[,]’” they do not constitute a government contract that would confer federal contractor status. Therefore, the opinion letter concludes, “solely serving as a conduit for Pell grants” does not render universities, colleges, or other post-secondary higher educational institutions federal contractors for purposes of OFCCP regulations.

In late 2018, OFCCP announced that it would adopt the practice of issuing opinion letters as part of its ongoing efforts to enhance compliance assistance for contractors. As we reported, OFCCP’s stated goal was to “provide additional compliance assistance and guidance regarding OFCCP’s laws and regulations in a manner that employees and employers can easily access and reasonably rely upon, as they seek to understand their rights and obligations under the law.” The OFCCP’s opinion letter directive provides that “[a]s a matter of prosecutorial discretion, OFCCP also would consider whether a contractor acted consistently with an Opinion Letter … when determining whether to cite a violation for related actions.” As such, even though opinion letters are not legally binding, they do provide contractors some comfort as they attempt to discern the scope of their OFCCP obligations.

Even though OFCCP’s first opinion letter has limited applicability to the contractor community as a whole, we expect future opinion letters to address issues applicable to all contractors. As such, our readers are well advised to stay informed of OFCCP’s opinion letters. We will continue to report on note-worthy opinion letters as they become available.

OFCCP Proposes Changes to Audit Scheduling Letters

Quick Hit: OFCCP recently issued a request to the Office of Management and Budget (“OMB”) seeking approval of changes to its “scheduling letter, compliance check letter, [] Section 503 focused review letter… [and] approval for a new VEVRAA focused review letter.” OFCCP states the revised letters will “provide OFCCP an efficient option to monitor contractor compliance by reaching a greater number of contractors with existing resources with a smaller contractor burden imposed during each check.” Each of the proposed compliance letters are available for review here. The public has until June 11, 2019 to submit comments about the proposed changes.

Key Takeaways:

If approved, the new letters will require contractors to submit significant additional information in response to an audit. Notably, the proposed letters do not extend the deadlines for responding to these information requests. These letters reflect a troubling trend emanating from the OFCCP. After an initial “honeymoon” phase, where the agency took steps aimed at improving relations with the contractor community following a rocky period during the Obama Administration, it appears the agency is ratcheting up its focus on enforcement and the burdens its enforcement activities impose on contractors.

For example, if approved, the establishment compliance evaluation scheduling letter will require contractors to provide additional information not included in the current version of the letter. Key among these are: (1) a list of their three largest subcontractors based on contract value; (2) job group analyses that account for specific racial groups (as opposed to simply identifying and grouping together “minorities”); (3) more detailed information about promotions, specifically the pool of candidates from which promotions were selected; and (4) “[r]esults of the most recent analysis of the” contractor’s “compensation system(s).” OFCCP is also bringing back “compliance checks” – limited reviews aimed at quickly determining if the selected contractor is meeting basic compliance requirements. The letter proposed for these evaluations seeks contractors’ EO 11246, Section 503, and VEVRAA Affirmative Action Programs, as well as detailed information concerning reasonable accommodations (i.e., the requests made and whether they were granted or denied), and examples of job advertisements.

Finally, OFCCP has proposed to revise its Section 503 focus review letter, and seeks approval for a VEVRAA focus review letter. Both proposals seek information far beyond what OFCCP proposed when it first announced focused reviews. Most notably, contractors would have to submit employee-level compensation data that is currently required for regular compliance evaluations, and detailed applicant and employee level information for veterans and individuals with disabilities.

Report From OFCCP Legal Industry Town Hall – Law Firms Beware

On April 10, 2019, in New York City, OFCCP hosted a town hall focused on the “legal industry and related fields.” Guy Brenner of Proskauer attended the event, which had far fewer attendees than the financial sector town hall held the previous day.

The purpose of the town hall was to provide government contractors in the legal sector the opportunity to share their views with OFCCP. To that end, participants engaged in a number of brainstorming sessions, sharing their views on what OFCCP can do to help contractors, as well as ideas to improve diversity and inclusion results.

But, like the prior day’s town hall, the most significant aspect of the event was remarks made by OFCCP Director Craig Leen to the attendees. In addition to sharing a number of the new initiatives that he raised during the financial sector town hall the day before , Director Leen made a number of pointed statements about law firms and OFCCP’s planned efforts with regard to the legal sector.

During his opening remarks, Director Leen stated that law firms “need to get their house in order.” He said that law firms should be examples to the rest of the country with regard to legal compliance, but that National Association for Law Placement (“NALP”) statistics suggest that is not the case. He focused primarily on promotions at law firms and his conclusion that law firms have a “systemic” issue with career advancement of women and individuals with disabilities, citing NALP figures showing roughly 22% of equity partners are women, while only 1% are women of color, and less than 1% are individuals with disabilities. It is Director Leen’s view that OFCCP has a role to play in addressing the lack of women in equity partner positions at law firms.

Director Leen believes one reason for the lack of women in equity partner positions at law firms may stem from parental leave programs. He questioned whether generous leave programs offered by law firms adequately address reintegrating women into the firm after their leave has ended, and whether male associates are discouraged from using their leave benefits.

During the town hall, OFCCP asked participants questions regarding disclosure of equity partner data, which led participants to question whether OFCCP viewed equity partners as employees subject to OFCCP regulations. Director Leen acknowledged the “debate” over that question, and said OFCCP would be issuing guidance on that issue. He said that non-equity partners are, in his view, employees. He also said that OFCCP will seek equity partner information in future audits as part of its analysis of promotions and determining whether promotions to partner may reflect discriminatory bias.

Director Leen also addressed why only a few law firms ended up on this year’s CSAL list. He explained that the methodology used for the 2019 list focused on specific industries and did not focus on law firms. He said the methodology will change each year, and suggested that law firms would be a focus for next year’s audits.

The unmistakable feeling at the end of the town hall was that law firms with government contracts are now a focus of the OFCCP. Law firms should anticipate a greater likelihood they will be selected for audit in 2020 and be aware that a focal point of that examination will be partnership promotion decisions.

OFCCP Shares Some News At Financial Industry Town Hall

On April 9, 2019, in New York City, OFCCP hosted a town hall focused on the “financial industry and related fields.” Guy Brenner of Proskauer attended what was an enlightening and informative event.

The purpose of the town hall was to provide government contractors in the financial sector the opportunity to share their views with OFCCP. To that end, participants engaged in a number of brainstorming sessions, sharing their views on what OFCCP can do to help contractors, as well as ideas to improve diversity and inclusion results.

But the key takeaway from the day was the information shared by OFCCP Director Craig Leen regarding upcoming initiatives. Here are the highlights:

  • Focus on promotions. Director Leen started off the day by sharing that OFCCP is trying to increase the number of women in senior roles at companies. He stated that it was an area “where we can make a big impact.” To that end, OFCCP is going to focus more on promotions during audits, and will create new focused reviews on promotions of women and women of color. Leen shared his view that promotions (or lack thereof) impact pay equity. He also noted concern about the role inequitable parental leave policies may have on opportunities for women to advance in the workplace.
  • AAP Verification Initiative. Leen stated that the AAP verification initiative is already in effect, noting that OFCCP has worked AAP compliance into a number of its processes. For example, during Section 503 Focused Reviews OFCCP will require contractors submit their Executive Order 11246 AAPs in part to ensure they have been prepared. In addition, during establishment compliance reviews, contractors must provide their AAPs within 30 days of the issuance of the scheduling letter and no extensions will be provided. Leen shared that compliance officers will also be checking the SAM database to see how contractors under review have answered the annual AAP preparation inquiry and address any discrepancies between answers provided in SAM with what is observed during audits. Finally, OFCCP is currently working on a new collection effort whereby contractors would be required to certify AAP compliance and even submit AAPs annually to OFCCP through a web portal. Such initiatives would go through notice and public comment, and would need approval of the Office of Management and Budget.
  • Additional Pay Guidance. OFCCP is preparing a new guidance document for contractors focused on how to form pay analysis groups. Leen said the guidance should be issued “very soon.”
  • Reducing the length of audits. Leen believes it takes OFCCP “way too long to do audits.” He aims to reduce the length of audits, and shared that he has already achieved some success. The average length of desk audits is now roughly thirty days, down from over 100 days. Leen appears to now be focused on shortening the time devoted to conciliation efforts. He shared that while the agency is committed to the process, it should not take 2 or 3 years to complete. He suggested that conciliation should last no more than six months.
  • Opinion Letters and Online Help Desk. Leen stated that these resources which were announced in December  would be available “soon.”
  • New Awards Programs. Leen shared that OFCCP is considering some new recognition programs, suggesting that the agency might create an award for contractors with Functional Affirmative Action Programs, as well as recognizing contractors that demonstrate a strong commitment to compliance during audits.

No Let Up. As the points above make clear, OFCCP is and will continue to be quite active in the future.

OFCCP Announces 2019 Veteran Hiring Benchmark

On March 27, 2019 the Office of Federal Contract Compliance Programs (“OFCCP”) released its 2019 Vietnam Era Veterans’ Readjustment Assistance Act (“VEVRAA”) Benchmark. Effective March 31, 2019 the new benchmark is 5.9%, a slight decrease from 2018’s 6.4% benchmark. This is OFCCP’s fifth reduction of the benchmark, which has steadily declined since its inception in 2014.

The VEVRAA Benchmark is the figure which federal contractors must use to assess the effectiveness of their outreach programs for the hiring of veterans. Contractors may either use OFCCP’s national benchmark, or establish their own benchmark using applicable statistics and other metrics set forth in OFCCP’s regulations (41 CFR § 60-300.45(b)(2)).

In announcing the revised benchmark, OFCCP also noted that it “plans to incorporate VEVRAA Focused Reviews into the Corporate Scheduling Announcement List” next fiscal year. As we previously reported, focused reviews are compliance evaluations focusing on one element of OFCCP’s jurisdiction. This year OFCCP introduced Section 503 Focused Reviews, which focus on the OFCCP’s requirements with respect to individuals with disabilities. Contractors should review their processes for compliance with VEVRAA and OFCCP’s VEVRAA-related regulations to ensure they are prepared.

BREAKING: OFCCP Selects Contractors For 2019 Audits

On March 25, 2019 OFCCP posted the 2019 CSAL list on its FOIA website, identifying contractors selected for compliance evaluations.

Contractors should check OFCCP’s FOIA website immediately to confirm if they have been scheduled for a compliance review, a Section 503 Focused Review, or an Affirmative Action compliance check. As we have previously reported, contractors will no longer receive notification that they have been selected for a compliance review through the mail.

If you have any questions or concerns regarding any of the above mentioned forms of review, please feel free to contact Guy Brenner at: Gbrenner@proskauer.com.

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