On May 28, 2015, the federal government released proposed regulations (the “Proposed FAR Regulations”) that would implement President Obama’s “Fair Pay and Safe Workplaces” Executive Order (the “EO”) together with proposed guidance (the “DOL Guidance”) from the Department of Labor ( “DOL”).  The public has sixty days to submit comments.

The Proposed FAR Regulations and DOL Guidance, if adopted in their current form, would place significant burdens on nearly every government contractor and subcontractor including substantial new reporting, disclosure, and compliance requirements.  Given these potential obligations, it may be prudent for contractors and subcontractors to evaluate their current labor and government contract compliance systems and have a plan in place to make any appropriate changes to comply with the final regulations.

Overview of Critical New Requirements under the Proposed FAR Regulations

1.  Reporting and Disclosure

• Prospective contractors bidding on contracts valued over $500,000 would be required to report whether they have had any “administrative merits determination,” “arbitral award or decision,” or “civil judgment” rendered against them for violation of any one of fourteen federal labor laws/regulations (or their state equivalents) within three years of the date the bid or proposal is submitted.  See Proposed FAR 22.2002 (note, DOL will be issuing guidance regarding the equivalent state laws at some point in the future).  Reportable violations include restraining orders issued by a court (including consent injunctions), summary judgment decisions in a case, or investigative findings by DOL (such as the issuance of DOL form WH-56).  A DOL investigator issues a WH-56 form anytime he or she is requiring the payment of back wages regardless of whether the contractor is at fault for the “violation.”  For instance, with respect to the McNamara-O’Hara Service Contract Act of 1965 (the “SCA”), sometimes the payment of back wages is triggered by the contracting agency’s failure to include the SCA statute and appropriate wage determination into the contract – a circumstance where a contractor has no fault.  See Proposed FAR 22.2002 (which also refers back to Section III. A. of the DOL Guidance).   
   
• If a contractor’s proposal is considered for award, the prospective contractor would be required to enter the following information regarding the violation into the System for Award Management (“SAM”): the labor law violated, the case number or other unique identifying number, the date rendered, and the agency, panel, or court that issued the decision.  See Proposed FAR 22.2004-2(b)(1)(i).
   
• Contractors chosen for award would be obligated to report new violations on a semi-annual basis.  See Proposed FAR 22.2004-3. 
   
• Similarly, subcontractors are required to report violations to their higher tier contractors prior to award and on a semi-annual basis after award.  See Proposed FAR 22.2004-4.

2.  Responsibility Determinations and SDO Notification

• Contracting agencies, in consultation with their internal agency labor compliance advisors (“ALCA” – a new position created by the Proposed FAR Regulations), would be required to make an affirmative determination prior to awarding a contract in excess of $500,000 as to whether the prospective contractor is a responsible source.  This analysis is in addition to the existing present responsibility analysis under Federal Acquisition Regulation (“FAR”) Part 9.  See Proposed FAR 22.2004-2. 
   
• Prime contractors would also be required to make responsibility determinations regarding their proposed subcontractors if the subcontract is estimated to exceed $500,000 and is not for the supply of Commercial Off The Shelf (“COTS”) items (this requirement is supposed to be passed down to each lower tier subcontractor).  See Proposed FAR 22.2004-1(b).  Prime contractors are encouraged to consult with DOL to help in making responsibility determinations.  In addition, in some circumstances (particularly when a subcontractor with previous violations has not entered into a Labor Compliance Agreement), prime contractors will be required to report an affirmative responsibility determination to the contracting agency. 
   
• Post-award, the ALCA would be required to monitor, evaluate, and make recommendations to the contracting officer regarding updated information on labor violations.  Based on these recommendations, appropriate actions may include notifying the suspension and debarment official (“SDO”): “if there are such serious, repeated, willful or pervasive labor violation(s) that the violation(s) demonstrate a lack of integrity or business ethics . . . .”  See Proposed FAR 22.2004-3(b)(4)(v).

3.  Paycheck Transparency

Contractors performing work on covered contracts and subcontracts would be required to provide employees covered by the Fair Labor Standards Act of 1938, the Davis-Bacon Act of 1931, the SCA, or equivalent state laws, with information concerning the individual’s pay, hours worked, overtime hours, if applicable, and any additions made to or deductions made from the individual’s pay.  Written notice would be required to certain independent contractor employees that they are being classified as independent contractors.  See Proposed FAR 22.2005.

4. Dispute Resolution

For contracts over $1 million, mandatory employer/employee arbitration of 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 would be eliminated (with some exceptions).  See Proposed FAR 22.2006.

5. Consequences of Noncompliance

Contractors that have a sufficient history of noncompliance may be denied an award.  Contractors that have new violations or disclose information during performance may have their contracts terminated or, worse yet, referred to the relevant suspension and debarment official.

The Future of the Proposed FAR Regulations   

1. Comments are Coming

Given the scope of the proposed changes, there is likely to be vigorous participation during the comment period.

2. Impact on GSA and Other Multiple-Award Schedule/Task Order Contracts

The Proposed FAR Regulations do not address their impact on the U.S. General Services Administration (“GSA”) and other multiple-award schedule contracts.  Based on the language in the Proposed FAR Regulations, it is conceivable that the DOL may claim that each new task order award would be subject to the reporting requirements.  Clarification of how the regulations would apply, however, may be forthcoming.

3. Contracting Under the Final Regulations

If the regulations stand as proposed, the new normal may include the following:

• Prime contractors will be responsible for gathering and providing their labor compliance histories for the previous three years.  In many circumstances, prime contractors will also need to make independent determinations as to whether their subcontractors are sufficiently responsible under FAR Part 9 based on the subcontractors’ labor compliance history.  See, e.g., Proposed FAR 52.222-BB(c). 
   
• Agencies under the new regulations will conduct the expanded responsibility determinations.  It is conceivable that those determinations could provide the basis for more bid protests.

Conclusion

The Proposed FAR Regulations contain significant changes and impose major obligations on contractors and subcontractors.  If the Proposed FAR Regulations are implemented, contractors and subcontractors of virtually all sizes will need to re-examine their labor and government contracting compliance systems and put in place mechanisms for reporting and disclosing violations as required by the regulations.  In addition, contractors will need to consider the proposed disclosure obligations as part of strategic decisions made in employment related litigation with government agencies and private parties.

Eric Crusius is Counsel with Miles & Stockbridge and 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.  He is the incoming co-chair of the ABA Public Contract Law Section’s Employment, Safety, & Labor Standards Committee and recently helped the Section respond with comments to the Fair Pay and Safe Workplaces Regulations. He also has appeared on Federal News Radio to comment on this issue.

Suzzanne Decker is a Principal in the firm's Baltimore office. Suzzanne represents businesses in all aspects of employer-employee relations. Suzzanne's litigation experience includes defending employers in matters including wage and hour issues, discrimination and harassment, family medical leave, and ERISA denial of benefits. She has also assisted companies with non-competition agreement enforcement and breach of contract claims.

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