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Federal contractor ‘blacklisting’ rule winds through White House, agencies

Sources: Littler Mendelson P.C., San Francisco; Associated Builders & Contractors, Washington, D.C.; CP staff

The Department of Labor has submitted to the White House Office of Management and Budget (OMB) a proposed rule supporting President Obama’s July 2014 Fair Pay and Safe Workplaces Executive Order (E.O.), provisions in which can bar participation in federal projects if contractors or their subcontractors have violated labor laws in the past three years.

Bidders on contracts exceeding $500,000 must disclose any labor law violations committed in that window, and certify that their major subcontractors meet E.O. “responsibility standards.” Federal agency contracting officers will determine whether the contractor is a "responsible" entity with a satisfactory record of "integrity and business ethics," and therefore eligible to bid. Critics of the White House action note that a contractor may be blacklisted a) based on alleged labor law violations that are later found to lack merit, or b) if they fail to disclose even inadvertent and technical violations.

The E.O. requires each federal agency to designate a senior official to serve as a labor compliance advisor who, with significant discretionary powers, will provide guidance on whether a contract bidder’s mandatory disclosures indicate it is an entity that lacks integrity or business ethics. In advance of the proposed rule's publication, OMB officials issued a memorandum to federal agency heads outlining labor compliance advistor responsibilities, skills, and knowledge levels.

“This order dramatically changes the enforcement mechanisms carefully put in place by Congress and needlessly adds uncertainty, subjectivity and onerous and costly new data collection and reporting requirements for federal contractors,” Associated Builders & Contractors Vice President of Government Affairs Geoff Burr noted in November, as ABC joined a coalition of business groups imploring the White House to withdraw the E.O. “While the Obama administration seeks to add these compliance burdens to federal contractors, it is seemingly ignoring the fact that its own Department of Labor and other federal agencies have violated these same complex and frequently changing federal labor laws.”

“Given its highly subjective enforcement requirements, the Executive Order will inevitably lead to delays in award evaluations, limitations on competition, and a greater number of contract award protests,” the coalition stated in a letter to the Department of Labor and White House officials. “Coupled with the other [orders] specifically targeting federal contractors, the recordkeeping and reporting requirements in this E.O. significantly increase the cost and administrative burden of contracting with the federal government. Ultimately, this will result in fewer companies and organizations, especially smaller ones, that are willing or able to compete for federal contracts. These results directly conflict with the administration’s stated goals of increasing competition, driving efficiencies and savings, reducing barriers to entry for small and innovative employers.”

The proposed rule supporting the Fair Pay and Safe Workplaces E.O. is set for near-term publication in the Federal Register, triggering a 45-day public comment period.