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The GovCon Bulletin™

Jun, 2015

Proposed Rule Requires Government Contractors To Disclose Labor Law Violations

June 2015


It's a great time to be in the Washington, DC area - summer is here, the weather is warm, and (to the chagrin of my beloved Mets) the Nats are leading the NL East! Indeed, as we announced in April, the firm has increased its presence in the metropolitan area by adding a new Bethesda office to better connect with government contractors and businesses along the I-270 technology corridor. The firm's new location is listed below.

In this edition of The Government Procurement Bulletin we review rules recently proposed by the FAR Council that implement an executive order requiring federal government contractors to disclose labor law violations to contracting officers; the proposed rule requires subcontractors, in turn, to disclose labor law violations to their prime contractors. To meet the requirements of the proposed rule, contractors along the federal supply chain, therefore, should begin to conduct comprehensive reviews to determine if they are in compliance with labor and employment laws that are within the scope of the executive order. In addition, contractors and subcontractors should ensure that their payroll practices are in compliance with the proposed rule's pay transparency requirements.

Mark A. Amadeo


Late last month, the Department of Defense (DoD), General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA) issued a proposed rule (the “Proposed Rule”) that implements labor and workplace safety rules announced by President Obama in Executive Order 13673 (“E.O. 13673”), entitled Fair Pay and Safe Workplaces.  E.O. 13673, which President Obama signed on July 30, 2014, promotes a policy that underlies the Federal Acquisition Regulation (“FAR”) “responsibility” requirement, which mandates that before a contracting officer can award a contract, he or she must determine if a contractor is a responsible source to do business with the federal government.  According to E.O. 13673, contractors that consistently adhere to labor laws are more likely to have workplace practices that enhance productivity and to deliver goods and services to the federal government in a timely, predictable, and satisfactory fashion.

E.O. 13673 contains five components that further this purpose: First, E.O. 13673 requires current and prospective government contractors to disclose certain labor law violations to contracting officers and government contracting officers, in turn, to consider these disclosures in their decisions to award or extend a contract.  Second, the executive order requires government agencies to include clauses in government contracts that require subcontractors to make similar disclosures to prime contractors so that prime contractors can determine if their subcontractors are responsible subcontractors.  Third, E.O. 13673 requires that government agencies adopt processes that will assist contractors and subcontractors to come into compliance with labor laws.  Fourth, E.O. 13673 requires contractors and subcontractors to provide individuals with information each pay period regarding how they are paid and to provide notice to workers who are treated as independent contractors that they are so treated.  Lastly, E.O. 13673 addresses mandatory arbitration of certain employee claims.

As explained in more detail below, the Proposed Rule implements each of the five components of E.O. 13673 into FAR. The Proposed Rule also incorporates proposed guidance issued by the U.S. Department of Labor that also implements E.O. 13673.

Disclosure of Labor Law Violations
The Proposed Rule requires contractors bidding on contracts with an estimated valued over $500,000 to disclose whether they have been found to have violated 14 identified federal labor laws and executive orders, or their state law equivalents, during the preceding three years.  The labor laws and executive orders cover wage and hour, safety and health, collective bargaining, family and medical leave, and civil rights protections.  If the contracting officer initiates a responsibility determination in response to a contractor's labor law violation disclosure, the contractor will be required to submit additional specific information about each violation and will be afforded an opportunity to provide information on mitigating circumstances and remedial measures it has taken.  Contractors must update the information provided about their labor law violations semi-annually.

Subcontractor Disclosures
Additionally, under the Proposed Rule, current and prospective contractors are charged with obtaining similar disclosures of labor law violations during the preceding three years from prospective subcontractors for subcontracts with an estimated valued over $500,000 at any tier, with the exception of subcontracts for commercially available off-the-shelf items.  The Proposed Rule provides additional procedures that contractors must follow when making a responsibility determination after a subcontractor discloses labor law violations, including affording the prospective subcontractor with the opportunity to provide additional information to demonstrate its responsibility such as mitigating circumstances and remedial measures taken.  As with prime contractors, subcontractors are required to continue to report labor law violations semi-annually.

Post-Disclosure Compliance
Pre-award evaluation
Before awarding a contract exceeding $500,000, a contracting officer is required to consider a contractor's submitted labor violation record when determining whether a prospective contractor is a responsible source with a satisfactory record of integrity and business ethics.  In making this determination, the contracting officer is assisted by an Agency Labor Compliance Advisor (ALCA), a new agency position created under the Proposed Rule.  The ALCA obtains labor violation documents, uses DOL guidance to evaluate the reported violations and the contractor's remedial actions, and provides written advice and a recommendation to the contracting officer on whether the contractor could be found to (i) have a satisfactory record of integrity and business ethics; (ii) have a satisfactory record of integrity and business ethics if a labor compliance agreement is entered into or enhanced; or (iii) not have a satisfactory record of integrity and business ethics.  

The ALCA's recommendation to the contracting officer must also include the following information that is based on DOL's proposed guidance: (i) whether any violations should be considered serious, repeated, willful, or pervasive; (ii) the number of labor violations; (iii) whether the prospective contractor has initiated its own remedial measures; (iv) the need for, existence of, and whether the prospective contractor is adequately adhering to, labor compliance agreements or other appropriate remedial measures; (v) whether the prospective contractor is still negotiating in good faith a labor compliance agreement that was recommended as necessary; and (vi) such additional supporting information that the ALCA finds to be relevant.

In making its determination of the responsibility of a prospective contractor, the contracting officer using DOL guidance and the ALCA’s advice and recommendations must ensure that the following have been considered: the nature of the labor violations (whether serious, repeated, willful, or pervasive); the number of labor violations; any mitigating circumstances; and remedial measures taken to address labor violations, including existence of and compliance with any labor compliance agreements or whether the prospective contractor is still in good faith negotiating such an agreement.

Post-award evaluation
While performing the contract, a contractor must provide updates semi-annually on the existence of current labor violations and the status of any previously disclosed violations. The ALCA will monitor the appearance of any violations, and if any violations were previously disclosed, the ALCA will monitor the contractor’s progress toward compliance with labor compliance agreements. The ALCA will provide a recommendation to the contracting officer that includes the same information required in a pre-award recommendation and that the contracting officer will use to decide whether the contract will be continued, suspended, or terminated. 

Paycheck Transparency
For contracts exceeding $500,000, the Proposed Rule requires that contractors must provide a wage statement (also known as a pay stub) in every pay period to all individuals working under the contract for which the contractor is required to maintain wage records under the Fair Labor Standards Act (FLSA), Wage Rate Requirements (Construction), Service Contract Labor Standards, and equivalent state laws.  Additionally, contractors on contracts exceeding $500,000 are required to provide a document to individuals treated as independent contractors informing them of that status.

Consent to Arbitration of Certain Employee Claims
The Proposed Rule implements E.O. 13673’s prohibition on mandatory pre-dispute arbitration agreements with regard to certain employment claims.  Specifically, the Proposed Rule mandates, with limited exceptions, that with regard to contracts exceeding $1,000,000, contractors must agree that the decision to arbitrate claims arising under Title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment can only be made with the voluntary consent of employees or independent contractors and only after those disputes arise.   This requirement does not apply to employees covered by a collective bargaining agreement between the contractor and an employee labor organization or to employees or independent contractors who entered into a valid agreement to arbitrate prior to the contractor bidding on a contract that contains a clause implementing E.O. 13673’s prohibition.

Written comments on the Proposed Rule are due by July 27, 2015.

Mark A. Amadeo