The best laid schemes o’ mice an’ men gang aft agley (often go awry).
The same is also often true when designing affirmative action plans required
of federal contractors and subcontractors (collectively “contractors”).
Executive Order 11246, Section 503 of the Rehabilitation Act of 1973, and
Section 402 of the Vietnam Era Veterans Readjustment Assistance Act of 1972 each
impose non-discrimination and affirmative action obligations on certain holders
of covered federal government contracts and their subcontractors.
For smaller government contracts and subcontracts (generally $10,000 -
$49,999), these laws require non-discrimination and limited affirmative action
practices, but no written affirmative action plan (AAP). In contrast, the
requirement to implement and maintain a written AAP generally arises for:
- Federal Contractors. A company with 50 or
more employees and that: (a) has a contract of $50,000 or more to supply
goods or services (non-construction) to a covered agency of the federal
government; (b) has government bills of lading which in any 12-month period
total $50,000 or more; (c) serves as a depository of government funds in any
amount; or (d) is a financial institution that is an issuing and paying
agent for U.S. savings bonds and savings notes in any amount.
- Federal Subcontractors. A company with 50 or more employees and a
subcontract of $50,000 or more to supply goods or services
(non-construction) to a covered federal government contractor, provided such
goods or services are, in whole or in part, “necessary” for the performance
of a government contract.
Although this may seem straight forward, many contractors make common plan
design mistakes when initially setting up their AAPs that end up costing their
organizations later during compliance audits.
Not Enough “Family” Members
As a general rule, if a contractor has multiple related legal entities (e.g.,
parent or subsidiary companies) but only some are involved in the delivery of
the federal contract or subcontract, the Office of Federal Contract Compliance
Programs (OFCCP) has historically applied a “single entity” test to determine
which companies in the “family” must have written AAPs.
In analyzing such issues, the OFCCP has generally used a five-factor “actual
control” test as outlined in Liberty Mut. Ins. Co. v. Friedman. Under
this approach, the OFCCP evaluates the ownership, management and operations of
the separate legal entities to determine whether they are so intertwined that
they should be treated as a single enterprise for purposes of OFCCP
jurisdiction. The result is that unless the entities are legally and
operationally distinct with respect to the day-to-day control of employees at
all levels of an organization (e.g., finance, HR, marketing) and meet the other
four parts of the five-factor test, once a legal entity within a family of companies
is deemed to be a federal contractor or subcontractor, the OFCCP will typically
take the position that all of the U.S. legal entities of that “family”
must have written AAPs. This is the case even if only one legal entity actually
holds and performs the federal contract or subcontract.
Not Enough Sites
With some limited exceptions, contractors are required to develop and
maintain a written AAP for each of their establishments that has “50 or more
employees” at such location. See 41 CFR 60-2.1(b)(1). For small “establishments”
with fewer than 50 employees, contractors have a choice. They can include
employees at a small establishment in an AAP that covers:
- Just the small establishment;
- “The location of the personnel function which supports” the small
- “The location of the official to whom they report.”
As an alternative approach, a contractor can design its AAPs based on
functional or business units (i.e., by corporate operational boundaries instead
of by establishment). However, to do so, a contractor is required to petition
the OFCCP for advance approval. See 41 CFR 60.2.1(d)(4).
Not Enough Thought
Although the regulatory requirements summarized above provide a good start
for considering where and how many AAPs to have, contractors are also well-advised to work with counsel to analyze the pros and cons of different design
alternatives. For example:
- Separate and apart from the issue of how many AAPs a contractor must
have, there are numerous rules for which employees get included into which
- Although combining smaller establishments into a larger “master” AAP for
a larger site may be easier from an administrative standpoint, it also
provides a larger data set and liability target when audited by the OFCCP.
- A contractor’s overall statistical profile portrayed by an AAP may look
far better under some AAP designs than others.
For assistance preparing affirmative action plans, implementing data tracking
and document retention programs that comply with OFCCP requirements, or
preparing for or responding to an OFCCP audit, please contact any member of
McGuireWoods’ Federal Contract Compliance Team within the
Labor & Employment Group,