Labor, Employment, Benefits & Immigration

Effective March 2, 2015, new anti-human trafficking regulations place significant new burdens on U.S. government contractors and subcontractors, including formal compliance plans for many.  The level of compliance effort required depends on the type, location, and value of specific contracts and subcontracts and can even differ between various “portions” of a contract or subcontract.  The details are reflected primarily in revisions to FAR Clause 52.222-50 (“Combating Trafficking in Persons”).  The impact of these changes will be felt throughout the international supply chain.

New/Revised Requirements for All Contracts

An old version of the “Combating Trafficking in Persons” clause is already present in many U.S. government contracts and subcontracts.  That clause (a) prohibited human trafficking by contractors, subcontractors and their employees; (b) required notification to employees; and (c) required notification to the government if violations were encountered.  However, the new rules make substantial changes.  As revised, the “Combating Trafficking in Persons” clause includes the following key prohibitions and requirements:

1.  Prohibited Activities: All contracts and subcontracts (regardless of size, type, or location) will now prohibit contractors, contractor employees, subcontractors, subcontractor employees, and agents from engaging in an expanded range of trafficking-related activities, including:

• procuring commercial sex acts;

• using forced labor;

• keeping identification papers from employees;

• engaging in fraudulent or misleading recruiting practices, including misrepresenting material conditions of employment such as wages, fringe benefits, living conditions, housing and associated costs, and any costs charged to employees;

• using recruiters that do not comply with local laws;

• charging employees recruiting fees;

• failing to provide return transportation to an employee at the end of employment under certain circumstances;

• providing housing that fails to meet host country housing and safety standards; or

• failing to provide a written employment contract if required by law or contract.

Contractors must take appropriate action, including termination, against employees, agents, or subcontractors that engage in prohibited activities. U.S. regulators may take the position that these rules apply to employees not only during their work hours, but also when they are off duty.

2.  Notification to Employees and Agents: Contractors and subcontractors are now responsible for notifying not only their employees, but also their agents of the prohibited activities and the other requirements under the Combating Trafficking in Persons clause and the consequences for violating the provision.

3.  Notification to the Contracting Officer and the Agency Inspector General: Contractors and subcontractors must immediately notify the applicable contracting officer, and now also the appropriate agency Inspector General, of any credible information it receives from any source alleging that an employee, subcontractor, subcontractor employee or agent engaged in a prohibited activity and describe the steps that have been taken to address the activities at issue.

4.  Cooperation with Government: Contractors must:

• disclose to the contracting officer and Inspector General sufficient information to identify the nature and extent of the offense and the responsible individuals;

• protect all employees suspected of being victims of or witnesses to prohibited activities; and

• cooperate fully in providing access to documents, facilities and staff.

While this requirement does not specifically call for a compliance program, the contractor now needs to have controls in place that will allow for it to be able to monitor its subcontractors, employees and agents.  This can probably only be accomplished by creating a new apparatus that can support such monitoring activities.

5.  Flow down: The Combating Trafficking in Persons revised clause must now be “flowed down” not only to all subcontractors but also to agents.

Contracts/Subcontracts Performed Outside the United States Exceeding $500,000: For federal contracts and subcontracts exceeding $500,000, the following additional obligations now apply to the extent that the contract/subcontract involves either (a) services to be provided outside of the United States or (b) the acquisition of supplies from outside of the United States (other than “commercially-available-off-the-shelf” or “COTS” items):

1. Mandatory Compliance Plans: Contractors and subcontractors must create a compliance plan that is appropriate in light of the size and complexity of the contract or subcontract.  No matter the size or complexity of the contract, if a compliance plan is required, FAR clause 52.222-50 outlines the minimum requirements of the plan.  The compliance plan must include:

   a. an awareness program to educate employees regarding prohibited activities;

   b. a process to report prohibited activities to the federal government without fear of retaliation;

   c. recruitment and wage plans that provide only for trained recruiters, do not allow for recruitment fees to be charge to employees, and comply with local wage laws;

   d. a separate housing plan that meets local housing and safety standards; and

   e. procedures to prevent any subcontractor or agent (at any tier) from engaging in prohibited activities and a plan to monitor those subcontractors and agents (and terminate them if found to be engaged in prohibited activities).

   The additional costs for implementing such a compliance plan are potentially significant.  In particular, it may be difficult to conduct the level of due diligence required to monitor subcontractors and other aspects of the supply chain.

2. Required Notification Regarding Compliance Plan: The compliance plan must be shared with employees by posting at the worksite and on the corporate website or by giving the plan to workers individually if the former options are not practicable.

3. Annual Compliance Certifications: On an annual basis after receiving the contract or subcontract, the contractor or subcontractor must certify that it has implemented the compliance plan and, after “due diligence,” knows of no violations by employees, agents, or subcontractors.  If abuses have been found, the certification must describe the remedial actions that have been taken.  A form of certification is provided in new FAR Clause 52.222.56 (“Certification Regarding Trafficking in Persons Compliance Plan”).

Violation of these provisions exposes contractors to a wide array of potential penalties up to and including criminal sanctions for false statements (based on the certification), false claims, and debarment.  Other lesser penalties include the loss of award fee, contract termination for default, suspension of a contract, or suspension from government contracting.

Conclusion

The objective of this regulatory change is beyond reproach – to help rid the world of unquestionably offensive practices.  However, the new rules raise many questions and place the burden on contractors to figure out what may be required while case law and best practices emerge in this important area.

Nathanael (“Nathan”) Hartland counsels public and private entities on matters involving government contracts, export control laws, U.S. trade sanctions, regulatory compliance, importing, and other matters relating to domestic and international commerce.

Eric S. Crusius represents government contractors in bid protests and other litigation matters before the Court of Federal Claims, Government Accountability Office, boards of contract appeals and other federal agencies.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this post is general in nature and is not offered and cannot be considered as legal advice for any particular situation.