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Government Contractors

New Labor Compliance Requirements Coming Soon

In July 2014, President Obama signed Executive Order 13673, Fair Pay and Safe Workplaces, which is scheduled to go into effect sometime this spring. The goal of the order is to ensure that government contractors who do business with the Federal government comply with required labor laws and promote safe, healthy, fair and effective workplaces.

Prior to the award of a contract for goods and services, including construction where the estimated value will exceed $500,000, an offeror will be required to certify that it is in compliance with a variety of labor laws. Such laws include the Fair Labor Standards Act, the Occupational Safety and Health Act of 1970, the Davis-Bacon and Service Contract Acts, the Family and Medical Leave Act and Executive Order 13658, which established a minimum wage for contractors. A Contracting Officer will give the offeror the opportunity to disclose any violations and steps taken to correct the violation or deficiency in compliance. Compliance will flow down to subcontractors receiving awards greater than $500,000, as well.

In addition to confirming current compliance with labor laws, government agencies will require prime contractors and subcontractors to disclose any labor law violations from the past three years. These violations will center on wage and hour issues, safety and health, collective bargaining, family and medical leave, and civil rights protections. Part of the goal in requiring this disclosure is to limit Federal government contract awards to contractors with the most egregious or frequently occurring violations. Studies from the Government Accountability Office have shown that there is a strong relationship between contractors with a history of labor law violations and performance problems on a contract. Poor workplace conditions, lower productivity, workplace disruptions and high turnover correlates to lower quality products and services, greater risk of project delays, cost overruns and generally unfavorable conditions to the fulfillment of the government contract.

If a contractor is found to be in violation of a labor law after the award of an applicable contract, the Contracting Officer can require some form of remedial measure, compliance assistance to resolve the issue, or take far more serious actions such as choosing to not exercise an option, contract termination, or referral for suspension or debarment. Under applicable contracts, contractors and subcontractors will be required to update their disclosure compliance every six months.

The vast majority of government contractors are in compliance with required labor laws and do not have any federal workplace violations. The theory is that contractors who invest in their employees and in providing safe workplaces should not have to compete with contractors who undercut their employee’s pay and safety requirements in order to provide the lowest offer to the government.

A final piece to this Executive Order will also require contractors to disclose specific information on the employee’s pay stub. Regular hours worked, overtime hours and pay, and any additions to or deductions made from an employee’s pay will be required to be visible on the employee’s pay stub.

Cherry Bekaert is waiting for the final language to be released by the Federal Acquisition Regulatory (“FAR”) Council; however, one of the questions that is as yet undetermined is what constitutes a “serious” violation and who makes that determination. It is expected that a new FAR Subpart 22.20, Fair Pay and Safe Workplaces, will be added, as well as a number of new contract clauses, changes to FAR 9.105 on responsibility determinations, and FAR Part 17, regarding option exercises.

Contractors should evaluate their labor compliance policies and procedures and confirm the appropriate data is recorded on an employee’s pay stub. For assistance in regards to your policies and procedures, or if you have any questions on the topic covered in this blog, please contact one of Cherry Bekaert’s GovCon industry professionals.

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