‘Blacklisting’ Order Will Squeeze Contractors

By Allen Smith Oct 2, 2015

A new layer of bureaucracy has federal contractors saying this to Congress: “Enough.”

The Fair Pay and Safe Workplaces Executive Order (E.O. 13673), commonly known as the “blacklisting” executive order, has record-keeping and reporting requirements that will be difficult for federal contractors to meet, testified Debbie Norris, vice president of human resources at Merrick & Company in Colorado, at a House Small Business Subcommittee hearing on Sept. 29.

Under the order, federal contractors that violate federal labor laws and executive orders—or equivalent state laws—are barred from contracting with the federal government. A labor compliance advisor at each federal agency granting a contract provides guidance on whether a contractor’s actions should bar it from future contracts because of a lack of business ethics.

“This order, as written, is unworkable and should be withdrawn,” Norris testified on behalf of the Society for Human Resource Management.

She said federal contractors will have “to create a companywide, centralized electronic record of federal, and eventually state, violations over the past three years.” Contractors have to report violations of labor laws over the past three years.

Norris observed that Merrick has 18 offices in eight states and the District of Columbia, as well as in Canada and Mexico. The proposed implementing regulations would place “an additional burden at headquarters of ensuring that each office is regularly and accurately reporting this information to us,” she noted.

The record-keeping and reporting requirements apply to 14 federal labor laws and executive orders or equivalent state laws:

  • The Age Discrimination in Employment Act.
  • The Americans with Disabilities Act.
  • The Davis-Bacon Act.
  • The Equal Employment Opportunity Executive Order.
  • The Establishing a Minimum Wage for Contractors Executive Order.
  • The Family and Medical Leave Act.
  • The Fair Labor Standards Act.
  • The Migrant and Seasonal Agricultural Worker Protection Act.
  • The National Labor Relations Act.
  • The Occupational Safety and Health Act.
  • Section 503 of the Rehabilitation Act.
  • The Service Contract Act.
  • Title VII of the Civil Rights Act of 1964.
  • The Vietnam Era Veterans’ Readjustment Assistance Act of 1972 and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974.

Norris noted that contractors either will have to use existing staff to handle the new compliance requirements, which may lead to a failure to meet contracting obligations, or will have to hire additional staff, which will wind up making government contracts more expensive.

Subcontractors’ Reporting Obligations

Prime contractors aren’t the only ones who risk being blacklisted; subcontractors are at risk too.

If subcontractors have to report labor law violations to prime contractors, the latter “will learn significant information about a small business subcontractor’s labor compliance history that could then be used as ammunition in bid protests against the company in subsequent competitions,” cautioned Angela Styles, chair of Crowell & Moring in Washington, D.C., in written testimony.

“It is not uncommon for contractors to team on one project, only to be competitors on a separate procurement,” she explained.

Alternatively, the Federal Acquisition Regulatory Council, which is implementing the executive order, has proposed that subcontractors may report their violations to the Department of Labor (DOL), rather than to prime contractors.

“In either reporting scenario, the unintended consequence would be the creation of a ‘blacklist’ for subcontractors, triggering claims by subcontractors against the prime contractor and/or the federal government for improper disqualification for award of a subcontract,” said Theron Peacock, senior principal/president of Woods Peacock Engineering Consultants in Alexandria, Va., testifying on behalf of the American Council of Engineering Companies, in written testimony.

“There is also the risk—acknowledged in the proposed rule—that prime contractors will shy away from doing business with subcontractors with any kind of labor violation, no matter how minor, because it could slow down the award of the potential contract or jeopardize the award of the contract altogether,” Styles added. “This raises the chilling specter of small businesses with minor labor issues being ‘frozen out’ of the marketplace.”

Nonfinal Agency Actions

Norris also expressed concern about reporting nonfinal agency actions, as the executive order requires. “If nonfinal agency actions are considered, companies like mine could lose a contract as a result of cases or investigations that are not yet final or are eventually dismissed,” she remarked.

Administrative determinations that must be reported by federal contractors and subcontractors include:

  • A federal or state court complaint alleging that the contractor violated any labor law provision.
  • Any order or finding by an administrative law judge stating that the contractor or subcontractor has violated labor laws.
  • Any complaint from the DOL’s Wage and Hour Division, Occupational Safety and Health Administration, or Office of Federal Contract Compliance Programs (OFCCP).
  • Any complaint from the Equal Employment Opportunity Commission.

Some investigations last for many months. Norris noted that an OFCCP audit of her company began in September 2014 and still has not been resolved.

As a result of the executive order, “federal contractors will feel pressured to settle a claim or enter into a labor compliance agreement with a federal agency, even if they feel they have done nothing wrong,” she predicted.

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.

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