On November 17, 2022, OFCCP hosted a webinar discussing the changes it made to Directive 2013-01 earlier this year through Revision 3 (the “Directive”). The Directive sets forth the agency’s policies and procedures for federal contractors implementing and maintaining FAAPs.

As many contractors know, FAAPs provide an alternative for federal supply and service contractors to align their Affirmative Action Programs (“AAPs”) with functional or business units, rather than a particular establishment. OFCCP explains that this approach enables a covered contractor “to organize its AAP to reflect how the entity operates functionally rather than where its facilities and people are physically located.” FAAPs may therefore be a preferable and more efficient approach for multi-establishment contractors.

A contractor may choose to utilize both FAAPs and traditional establishment AAPs for different aspects of their organizations. However, a functional or business unit must have: (i) at least 50 employees; (ii) its own managing official; and (iii) the ability to track and maintain its own personnel activity.

Unlike establishment AAPs, FAAPs must be approved in advance by OFCCP. Although FAAPs are not a new option for contractors, OFCCP in recent years has become much more accepting and even encouraging of contractors utilizing FAAPs. Depending on a contractor’s workforce, FAAPs may be an attractive option, but FAAPs have some drawbacks of which contractors should be aware and carefully consider before seeking to transition their establishment AAP(s) to a FAAP.

According to OFCCP, Revision 3 primarily “provides clarification regarding procedural requirements, in addition to minor language and formatting changes, that continue to provide for a FAAP process that is efficient, fluid, and collaborative.”

Although minor, Revision 3 establishes the following changes and clarifications to the Directive:

1. Corporate Headquarters Information. Contractors requesting a FAAP agreement must provide:

(i) the name and address of the contractor’s corporate headquarters overseeing the contractor operations in the U.S.; and

(ii) the name and contact information of the corporate representative in charge of overseeing the agreement.

1. Notification of Changes to the Primary Corporate Contact. In the event of a change to the primary contact listed in a FAAP agreement, the contractor must notify OFCCP within 60 days of the change. The communication must provide the updated information of the new primary corporate contact, including their name, address, and email address.
2. Renewal Procedure. Once established, a FAAP agreement is valid for five years. It may be terminated upon 90 calendar days’ written notice, which must include an explanation and the effective date for the termination. Alternatively, a FAAP agreement can be renewed by following the procedure outlined in Revision 3. A renewal certification must be submitted in writing at least 120 calendar days before the expiration of the existing FAAP agreement.
3. Electronic Submissions. Where possible, all submissions – including requesting, modifying, or terminating a FAAP agreement – must now be submitted electronically to OFCCP. Instructions on electronic submissions can be found here.

The revisions apply to any covered contractor entering, modifying, or renewing an agreement on or after September 21, 2022.

Further information and guidance is available by contacting OFCCP’s Functional Affirmative Action Program Branch via email at OFCCP_FAAP-UNIT@dol.gov or by phone at (202) 693-1125. Answers to FAQs are also available here.

We will continue to monitor and report on further OFCCP developments.

Earlier this year, OFCCP launched its “Contractor Portal,” which “[c]overed federal contractors and subcontractors (“contractors”) must use … to certify, on an annual basis, whether they have developed and maintained an affirmative action program for each establishment and/or functional unit, as applicable.” Contractors were required to certify whether they had developed such AAPs by June 30, 2022.

In a bulletin transmitted on August 29, 2022, OFCCP encourages contractors who have not certified to do so “as soon as possible,” noting that:

Contractors that have not certified will be more likely to appear on OFCCP’s scheduling list than those that have certified their compliance with AAP requirements. Contractors that have not certified compliance include those that have not utilized the Portal to certify whether they are meeting their AAP requirements, as well as those contractors that have certified they have not developed or maintained an AAP.

Even so, OFCCP makes clear it has “not extended the June 30[, 2022] deadline,” suggesting those that certify after the deadline are still subject to increased likelihood of audit selection.  However, it notes contractors that missed the deadline would benefit from certifying now:

[C]ontractors that have not certified compliance by September 1, 2022, will be included on a list provided to federal agency contracting officers. The purpose of this list is to enable contracting agencies to notify contractors of their certification obligations, thereby assisting OFCCP in securing compliance.

Contractors that have not certified should consult with counsel to determine their best next steps.

We previously reported on the certification process here. OFCCP also provides resources on its Contractor Portal website, including a user guide and FAQs. Any technical issues should be submitted to the OFCCP Contractor Portal Technical Help Desk by submitting a request form. The Help Desk can also be reached by telephone at 1 (800) 397-6251.

We will continue to monitor and report on developments on this and other OFCCP-related matters on this blog.

As we previously reported, in March of this year, OFCCP issued its first directive of the Biden Administration – Directive 2022-01 (the “Directive”) – which addressed the issue of contractors’ obligations to conduct analyses of their compensation systems, as well as the agency’s expectations regarding providing those analyses when under audit.  The Directive received a lot of (mostly negative) attention, for appearing to indicate the agency would demand privileged pay equity analyses during audits, as well suggesting that contractors are obligated by regulation to conduct full pay equity analyses.

Now, five months after issuing the Directive, the agency has issued significant revisions to it.  As summarized in its announcement, the Directive has been revised in three main ways:

1. It explicitly reaffirms the agency’s position that it does not require the production of attorney-client privileged communications or attorney work product.
2. It identifies the documentation that OFCCP requires from a contractor to determine that the contractor has satisfied its obligation to perform a compensation analysis.
3. It explains the documentation required from a contractor when its compensation analysis identifies problem areas to demonstrate that it has implemented action-oriented programs.

It also removes references to “pay equity audits,” replacing the phrase with “compensation analysis,” in order to, as OFCCP Director Jenny Yang contends, “avoid any confusion regarding the nature of a contractor’s obligations.”

OFCCP “reaffirms” (or reverses) its position on production of privileged materials.  With respect to production of privileged information, the Directive now states that the “Directive is not intended to encourage waiver of privilege.  Rather, this Directive informs contractors that, where they maintain this information in non-privileged form, making it available can assist OFCCP in conducting a more efficient compliance evaluation.”  While the agency characterizes this as a “reaffirm[ation],” it is clearly an effort to reverse the clear impression that the agency would be demanding privileged information the original Directive generated.

Even so, the agency makes clear that contractors will not be permitted to simply claim their compensation assessments are protected from disclosure during an audit.  The Directive provides that “[c]ontractors will not be found in compliance with their compensation analysis obligations if they simply invoke privilege and provide OFCCP with no or insufficient documentation of compliance.”  As discussed below, OFCCP maintains contractors have methods of confirming compliance without revealing privileged information.

OFCCP details what it expects to see from contractors regarding their compensation assessments.  The Directive contends that contractors are required to conduct analyses of their compensation systems and provide documentation “confirm[ing] that the contractor has evaluated its compensation systems for race-, gender-, or ethnicity-based disparities.”  The agency notes that “the most useful form of documentation is a contractor’s full compensation analysis because it allows OFCCP to understand how the contractor evaluates its compensation systems in practice,” and “encourage[s]” contractors to provide their “full compensation analyses available where OFCCP identifies concerns during a compliance evaluation.”

Where a contractor’s full compensation analysis contains privileged communications or protected work product, the Directive provides that the contractor “may fulfill its regulatory obligations by making available to OFCCP other documentation that it has conducted the [required] compensation analysis.”  The Directive identifies a number of ways this can be accomplished:

1. “[A] contractor may make available a redacted version of its compensation analysis, provided that the non-redacted portions include the required facts” discussed in the Directive.
2. “[A] contractor may conduct a separate analysis during the relevant AAP period that does not implicate privilege concerns and provide that analysis to OFCCP in full.”
3. “[A] contractor may generate a detailed affidavit that sets forth the required facts described [in the Directive] but does not contain privileged material.”

The Directive notes that where compensation evaluation documentation is demanded by the agency, the contractor must

“provide documentation that demonstrates at least the following:

i. when the compensation analysis was completed;

ii. the number of employees the compensation analysis included and the number and categories of employees the compensation analysis excluded;

iii. which forms of compensation were analyzed and, where applicable, how the different forms of compensation were separated or combined for analysis (e.g., base pay alone, base pay combined with bonuses, etc.);

iv. that compensation was analyzed by gender, race, and ethnicity; and

v. the method of analysis employed by the contractor (e.g., multiple regression analysis, decomposition regression analysis, meta-analytic tests of z-scores, compa-ratio regression analysis, rank-sums tests, career-stall analysis, average pay ratio, cohort analysis, etc.).”

Documentation of Action-Oriented Programs To Correct Pay Disparities.  The Directive also addresses the information a contractor must provide during an audit regarding pay disparities discovered during a compensation analysis.  Specifically, the Directive provides that where such disparities are discovered, OFCCP regulations “require the contractor to develop and execute action-oriented programs to correct them.”  As such, “OFCCP may request documentation demonstrating that the contractor did so.”  When it does,

“OFCCP will require documentation that demonstrates, at a minimum:

i. the nature and extent of any pay disparities found, including the categories of jobs for which disparities were found, the degree of the disparities, and the groups adversely affected;

ii. whether the contractor investigated the reasons for any pay disparities found;

iii. that the contractor has instituted action-oriented programs designed to correct any problem areas identified;

iv. the nature and scope of these programs, including the job(s) for which the programs apply and any changes (e.g., pay increases, amendments to compensation policies and procedures) the contractor made to the compensation system; and

v. how the contractor intends to measure the impact of these programs on employment opportunities and identified barriers.”

In her blog post published on August 18, 2022, Director Yang confirms that “[c]ombatting pay discrimination is a top priority for OFCCP” and notes that OFCCP “reviews contractors’ pay data and practices to identify problems that would not otherwise come to light because workers are often unaware of their colleagues’ pay.”

As such, contractors need to understand that notwithstanding the welcome “reaffirmations” contained in the Directive, OFCCP remains focused on pay discrimination issues and will devote significant attention to compensation matters during audits.  Contractors should familiarize themselves with the Directive, as revised, and ensure they are prepared to respond to OFCCP’s inquiries regarding their compensation analyses.