Administration Releases Final Blacklisting Regulations for Government Contractors

August 26, 2016

On August 24, 2016, the Obama administration published the Federal Acquisition Regulatory Council’s final rule and the Department of Labor’s (DOL’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 and subcontractors to a broad new set of burdensome record-keeping, reporting and compliance requirements (and related risks). Failure to fulfill these obligations and exhibit compliance with all applicable federal and state labor laws will now expose contractors to the prospects of contract disqualification, suspension or debarment as well as decreased leverage in addressing and litigating alleged violations with federal enforcement agencies.

“Fair Pay and Safe Workplaces” Background

As we previously reported, on July 31, 2014, President Barack Obama signed the Fair Pay and Safe Workplaces Executive Order. Unprecedented in scope, the executive order requires covered federal contractors periodically to disclose various labor law violations to the government pre- and post-contract award and to collect similar information from subcontractors. The executive order also:

  • sets forth guidelines for how reported violations should be considered by agencies in making contract awards;
  • adds new paycheck “transparency” requirements; and
  • imposes limits on the use of mandatory arbitration for certain employment disputes.

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 federal contracts or subcontracts estimated to exceed $500,000 to disclose “any administrative merits determination, arbitral award or decision, or civil judgment” against the contractor under the following 14 enumerated federal statutes and executive orders (i.e., “labor law violations”) for the three years preceding the contract bid:

  1. The Fair Labor Standards Act (FLSA)
  2. The Occupational Safety and Health Act of 1970 (OSHA)
  3. The Migrant and Seasonal Agricultural Worker Protection Act (MSPA)
  4. The National Labor Relations Act (NLRA)
  5. The Davis-Bacon Act
  6. The Service Contract Act
  7. Executive Order 11246
  8. Section 503 of the Rehabilitation Act of 1973
  9. The Vietnam Era Veterans’ Readjustment Assistance Act of 1972 and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974
  10. The Family and Medical Leave Act (FMLA)
  11. Title VII of the Civil Rights Act of 1964 (Title VII)
  12. The Americans with Disabilities Act of 1990 (ADA)
  13. The Age Discrimination in Employment Act of 1967 (ADEA)
  14. Executive Order 13658 (Minimum Wage for Contractors)

The “violation” information must be disclosed when submitting a federal contract bid. 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”) that may be considered evidence of “a lack of integrity or business ethics” sufficient to disqualify a contractor from consideration for a contract. Further, covered contractors and subcontractors are required to update their violation disclosures every six months during the term of a covered contract.

As a result, the final rule establishes a standard in which federal contract awards, disqualifications and suspensions can be based entirely on administrative allegations – before those allegations are fairly and fully adjudicated. Thus, contractors will be required to report certain violation allegations in contract bid proposals even if a contractor challenges the agency findings, and even though a court or government body may later find the allegations unsubstantiated or overturn the initial government determination.

For example, contractors will be required to report National Labor Relations Board (NLRB) complaints issued against them, but such complaints are not final determinations on the merits. Rather, they are merely preliminary findings of probable cause that an alleged 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.

Similarly, by way of further example, contractors will be required to report other non-final actions such as:

  • Show cause notices from the Office of Federal Contract Compliance Programs (OFCCP).
  • A reasonable cause finding from the Equal Employment Opportunity Commission (EEOC)
  • A citation from the Occupational Safety and Health Administration (OSHA)

A detailed list of reportable “labor law decisions” required to be disclosed under the final rule can be found in Section II.B. of DOL’s guidance.

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.
  • Requires covered contractors and subcontractors to provide certain employees with additional wage and hour information every pay period.

What’s Not in the Final Blacklisting Rule?

A few notable changes from the proposed rule include the following:

  • Equivalent State Laws: The reporting of violations of “equivalent” state laws, with a few exceptions, is not covered by the final rule but will be addressed in a separate rulemaking. As noted in the comments to the final rule:
  • “Consistent with the proposed rule, the final rule limits the scope of initial implementation to decisions concerning violations of the Federal labor laws enumerated in the E.O. and violations of State Plans approved by the Occupational Safety and Health Administration (OSHA). Disclosure and consideration of decisions concerning other equivalent State law violations will not go into effect until DOL and the FAR Council seek public comment on additional Guidance and rulemaking. As a result, the number of labor law decisions that contractors and subcontractors will need to disclose for the immediate future will be significantly reduced and these entities will have additional opportunity to engage with the Federal Government on the best and least burdensome approaches for meeting those requirements before such additional requirements take effect.”
  • Subcontractor Reports to Prime Contractors: Instead of requiring subcontractors to report their violations to the prime contractor, the final rule requires subcontractors to disclose details about 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, in turn, must then consider any response from the DOL in evaluating the “integrity and business ethics” of the subcontractor.
  • Public Disclosure: The final rule now compels public disclosure of certain information about violations and provides contractors with an option to publicly disclose mitigating factors.

Key Practical Issues Clarified by the Final Rule

Other practical issues clarified by the final rule include the following:

  • Not Retroactive: According to the preamble to the final rule, the final rule has no retroactive application, as the rule will not apply to existing contract options for contracts that do not contain the Federal Acquisition Regulation (FAR) 52.222–59 clause. Companies will be brought into the labor law violation disclosure process with their first new contract issued after the final rule is effective, such that there is no reporting requirement for existing contracts.
  • Related Entities: The reporting requirement applies only to the legal entity submitting the federal contract 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 final 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 final rule does, however, note that it only requires contractors to publicly disclose four pieces of information: (1) the labor law that was violated, (2) the case number, (3) the date of the award or decision, and (4) the name of the arbitrator(s).

Traditional Government Contracts Implications

  • More on Employee Arbitration Restrictions: As noted above, the final rule 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. Many federal Department of Defense (DOD) contracts have included this restriction since late 2010, but it will now apply to all contractors with contracts over $1 million.
  • Subcontractor Reporting: As noted above, subcontractors are required to report details of violations to the DOL rather than to their prime contractor. 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. As a practical matter, though, since most government contractors operate routinely and simultaneously as subcontractors and prime contractors, the information disclosed to DOL by subcontractors will presumably be the same information included in the federal System for Award Management (SAM) by those companies.
  • Subcontractor Responsibility Determinations: The new FAR clause regarding Subcontractor Responsibility Matters (FAR 52.222-58) allows companies to rely, in good faith, on representations made by subcontractors about labor law decisions and labor compliance agreements. Contractors should ensure that representations and certifications required from subcontractors adequately address these matters. Many contractors allow subcontractors to certify that their SAM representations and certifications are accurate, but to the extent that subcontractors are reporting violations only to DOL, these certifications may no longer be adequate.
  • SAM / FAPIIS Update: The final rule requires contractors to report new labor law violations and updates to previously reported decisions in SAM at least semi-annually. While the rule suggests the use of the semi-annual anniversary date of contract award, this is not likely to be a practical solution for contractors with multiple covered contracts. Thus, contractors should consider ensuring that SAM and Federal Awardee Performance and Integrity Information System (FAPIIS) updates are completed at a minimum every six months regardless of individual contract award dates.
  • Prime Contractor Responsibility: The implications for government responsibility determinations of prospective prime contractors are potentially far-reaching and will be worth watching carefully as the implementation of the final rules progresses. For example:
    • The lack of objective, consistent definitions for certain key concepts (“serious,” “repeated,” “willful” and “pervasive,” for example) may lead to inconsistent determinations across buying agencies.
    • The lack of expertise among the government contracting corps for evaluating and weighing mitigating factors disclosed by contractors and predicting likely outcomes of administrative merits decisions that are still subject to review or appeal will present challenges.
    • The schedule implications associated with potentially complex responsibility determinations may pressure contracting officials to make determinations prematurely.

All of these issues, among many others, could give rise to legal challenges to responsibility findings based on labor law decisions.

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 year and will gradually increase to three years by October 25, 2018.
  • January 1, 2017: The paycheck transparency clause takes effect, requiring contractors to provide certain 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.

Additional Resources

For copies of the final FAR rule and other resources, please see:

McGuireWoods will be issuing further legal alerts on this topic as we continue to analyze its terms and the related practical implications for federal contractors – both with respect to federal contract award bids / disputes and general labor and employment law compliance / enforcement. Until then, for further information or questions about the final FAR rule and DOL guidance, please contact the authors, your McGuireWoods contact, or other members of the firm’s government contracts, affirmative action, traditional labor, or labor and employment teams.

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