On Wednesday, August 24, 2016, the President’s administration published the Federal Acquisition Regulatory Council’s final rule and the Department of Labor’s guidance implementing the July 31, 2014 “Fair Pay and Safe Workplaces” Executive Order 13673. The “blacklisting” Order and its implementing regulations subject existing and prospective government contractors to a broad new set of record-keeping, reporting and compliance requirements. Failure to fulfill these obligations and exhibit compliance with all applicable federal and state labor laws would expose the contractor to the prospects of disqualification, suspension, or debarment.

What’s In the Final Blacklisting Rule

The final rule closely tracks the proposed rule issued in May 2015, and thus still requires offerors on contracts or subcontracts estimated to exceed $500,000 must disclose “any administrative merits determination, arbitral award or decision, or civil judgment” against the contractor under the following fourteen enumerated federal statutes and Executive Orders (labor law violations), for the three years preceding the contract bid:

  • the Fair Labor Standards Act (FLSA);
  • the Occupational Safety and Health Act of 1970 (OSHA);
  • the Migrant and Seasonal Agricultural Worker Protection Act (MSPA);
  • the National Labor Relations Act (NLRA);
  • the Davis-Bacon Act;
  • the Service Contract Act;
  • Executive Order 11246 (Equal Employment Opportunity);
  • the Rehabilitation Act of 1973;
  • the Vietnam Era Veterans’ Readjustment Assistance Act of 1972 and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974;
  • the Family and Medical Leave Act (FMLA);
  • Title VII of the Civil Rights Act of 1964 (Title VII);
  • the Americans with Disabilities Act of 1990 (ADA);
  • the Age Discrimination in Employment Act of 1967 (ADEA); and
  • Executive Order 13658 (Minimum Wage for Contractors).

The information must be disclosed when submitting the bid, and then every six months during the term of the contract.

The information reported will then be considered by the contracting agency’s contracting officer when making responsibility determinations during the contract award process. The final rule left unchanged the new categories of labor law violations —i.e., “serious,” “repeated,” “willful,” and “pervasive” violations– that may be considered evidence of “a lack of integrity or business ethics” sufficient to disqualify a contractor from consideration for a contract. Covered contractors and subcontractors are required to update all this information every six months during the term of a contract.

As a result, the final rule establishes a standard in which contract awards, disqualification, and suspension can be based entirely on administrative allegations – before those allegations are fairly and fully adjudicated.  For example, contractors will be required to report NLRB complaints issued against them, but NLRB complaints are not final determinations on the merits. Rather, they are merely preliminary findings of probable cause that a violation has occurred, against which employers have the right to defend themselves, including the right to challenge evidence at a hearing and confront witnesses under oath. Indeed, in some instances, the employer has complied with the law but the regional director issues a complaint in an effort to ask the Board to change the law.

Finally, the final rule also requires inclusion of contract language under which the contractor declines to obtain or enforce pre-dispute arbitration agreements for Title VII, sexual assault or harassment claims; and, would require covered contractors and subcontractors to provide certain employees with additional wage and hour information every pay period.

The notable changes from the proposed rule are:

  1. The reporting of violations of “equivalent” state laws, with a few exceptions, is not covered by this rule, but will be addressed in a separate rulemaking.
  2. Instead of requiring subcontractors to report their violations to the prime contractor, the final rule requires subcontractors to disclose details regarding their labor law violations and remedial actions directly to the DOL for review and assessment. The subcontractor then makes a representation back to the prime contractor regarding the DOL’s response to its disclosure. The prime contractor will then consider any response from DOL in evaluating the integrity and business ethics of subcontractors.
  3. The final rule now compels public disclosure of certain information about violations, and provides the contractors the option to publicly disclose mitigating factors.

The Implementation Schedule

The FAR rule and DOL guidance are being phased in pursuant to the following schedule:

  • Week of September 12, 2016: Preassessment begins, through which current or prospective contractors may come to DOL for a voluntary assessment of their labor compliance history, in anticipation of bids on future contracts but independent of any specific acquisition.
  • October 25, 2016: The final rule takes effect. Mandatory disclosure and assessment of labor law compliance begins for all prime contractors under consideration for contracts with a total value greater than or equal to $50 million. The reporting disclosure period is initially limited to one (1) year and will gradually increase to three (3) years by October 25, 2018.
  • January 1, 2017: The Paycheck Transparency clause takes effect, requiring contractors to provide wage statements and notice of any independent contractor relationship to their covered workers.
  • April 25, 2017: The total contract value threshold for prime contracts requiring disclosure and assessment of labor law compliance is reduced to $500,000.
  • October 25, 2017: Mandatory assessment begins for all subcontractors under consideration for subcontracts with a total value greater than or equal to $500,000.

Key Practical Issues Clarified by the Final Rule

  • Not Retroactive: According to the preamble, the final rule has no retroactive application as the rule will not apply to existing contract options for contracts which do not contain the FAR 52.222–59 clause. Companies will be brought into the labor law decision disclosure process with their first new contract issued after this rule is effective, thus there is no reporting requirements for existing contracts.
  • Related Entities: The reporting requirement applies only to the legal entity submitting the bid/offer and that will be legally responsible for performance of the contract. The reporting requirement will not apply to any parent, subsidiary, or other affiliates of the contractor.
  •  Classified Contracts: In response to comments regarding how to make reports on classified contracts, the rule simply states that it “does not compel the disclosure of classified information.”
  • Confidential Arbitrations: Despite comments opposing the requirement that confidential arbitrations must be reported, the final rule reaffirms that the disclosure of all arbitral awards or decisions must be reported without exception. The rule notes that it only requires contractors to publicly disclose four pieces of information: The labor law that was violated, the case number, the date of the award or decision, and the name of the arbitrator(s).


How Can Government Contractors Prepare for Compliance

While there certainly will be litigation challenging the final rule, government contractors should take steps immediately in anticipation of the Rule’s October 25, 2016 effective date. Contractors’ first steps should be to identify which department, group, and/or individual(s) within the organization are responsible for complying with the rule’s requirements. The responsible parties should then begin compiling relevant information regarding any labor law “violations” dating back to October 25, 2015, and develop a process for identifying and tracking future “violations” in a centralized database. The database should also include any mitigating factors and what steps the contractor has or will take to remedy the purported violations that the contractor might want to voluntarily report.

In addition, contractors should then work with their subcontractors to ensure that they understand the requirements of the final rule and to discuss what they can do to minimize delays in the subcontracting process. Contractors should also update their subcontracting agreements to incorporate the disclosure requirements, include any necessary representations, and address the consequences of any adverse responsibility and integrity determinations.