Contractors Will Need to Ramp Up to Satisfy Final ‘Blacklisting’ Rule

Regulation takes effect Oct. 25 for prime contractors

By Allen Smith, J.D. Aug 24, 2016
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Compliance with the final "blacklisting" regulations will require greater interdepartmental cooperation and perhaps designation of one person at a company to oversee disclosures of labor law violations to compliance advisors at numerous federal agencies.

President Barack Obama signed the Fair Pay and Safe Workplaces order (Executive Order 13673) on July 31, 2014. Now, the order's final rule—also known as the blacklisting rule, which prevents businesses that have broken labor laws from working  as federal government contractors—will be published by the Federal Acquisition Regulatory Council, along with guidance by the U.S. Department of Labor (DOL), in the Aug. 25 Federal Register

"Government procurement should not promote a race to the bottom," said DOL Secretary Tom Perez. "We've known for two decades that companies that violate the laws continue to get contracts." This rule is designed to put a stop to that.

"We expect that larger companies may need to employ someone full time to maintain compliance with the blacklisting rule," said Connie Bertram, co-head of the Whistle-Blowing & Retaliation and Government Contractor Compliance & Relations groups at Proskauer in Washington, D.C. "Contractors should view the ability to quickly provide a comprehensive list [of violations] to the contracting officer as a competitive advantage, as competitors may not be prepared for the application of the rule. Because many of the standards in the proposed rule are subjective, it is important to present the violations in the best—but still accurate—light."

Disclosure Requirement

The final blacklisting rule will require prospective—not current—federal contractors to disclose violations of 14 basic workplace protections. These include any administrative merits determinations, arbitral awards and decisions, or judgments under:

In addition, the executive order provides that federal contractors disclose violations of equivalent state laws.

"Although the initial disclosure will be relatively limited, if the contracting agencies' labor advisor makes an inquiry, contractors should be prepared to advocate, with evidence, why the violations are not pervasive or severe," Bertram said. "For instance, the contractor could point to its size or the number of employees in the organization. It can also identify measures taken by the contractor to address the issues raised in the violation. The challenge is that we anticipate that the various federal departments and agencies will apply the rules differently and will use different procedures to collect information, leading to potentially inconsistent results."

Gradual Implementation

For the first year that the regulations are effective, beginning Oct. 25, 2016, only prime contractors must make disclosures of labor law violations. Subcontractors will not be required to start making disclosures until Oct. 25, 2017. 

For the first six months that the rule is effective, disclosure requirements will be included only in solicitations valued at $50 million or more. Starting on April 25, 2017, disclosure requirements will be included in solicitations valued at $500,000 or more. 

The initial period for which labor violations must be disclosed is one year, and it will gradually increase to three years by Oct. 25, 2018. The requirement that contractors and subcontractors disclose violations of state labor laws equivalent to the 14 federal labor laws will be phased in at a later time, after a separate notice-and-comment period.

Tracking and Reporting

Companies with hundreds of contracts in place at any one time "will find themselves in a state of near-constant tracking and reporting," said Jim Murphy, an attorney with Ogletree Deakins in Washington, D.C. "Contractors will need to consider either consolidating responsibilities for federal labor law compliance or introducing procedures to ensure real-time information-sharing among their contracts, legal and human resources departments. In larger and more complex organizations, the process may need to include labor relations, diversity and workplace safety functions as well," he added.

Keeping track of all violations and updating that information every six months may not be a significant task for small contractors. But, for larger corporations, it will be "extremely burdensome from an administrative standpoint," said Cara Crotty, an attorney with Constangy, Brooks, Smith & Prophete in Columbia, S.C.

The rule "will increase the expense, the uncertainty and the risk of doing business with the government," predicted Linda Jackson, an attorney with Littler in Washington, D.C. She said the executive order "may be used as leverage to exact early premium settlements in order to avoid a potential reportable violation."Any time government contractors have had reportable violations, they should be prepared to send the government the finding itself, whether it's a judge's order, an arbitrator's award, or an administrative agency's findings of fact and conclusions of law, noted Alissa Horvitz, an attorney with Roffman Horvitz in McLean, Va.

"There is going to be a lot of uncertainty surrounding what additional information must be submitted versus should be submitted. Government contractors still will have legitimate concerns about providing enough information to ensure they are eligible to be awarded the contract without divulging confidential information that will inure to the benefit of marketplace competitors or violate company confidentiality concerns," Horvitz said.

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