By Eric J. Conn

Following President Obama’s 2014 “Fair Pay and Safe Workplaces” Executive Order (EO 13673) — commonly referred to as the “Blacklisting” Executive Order by government contractors — this Spring, the Federal Acquisition Regulatory (FAR) Council in conjunction with the Department of Labor (DOL) issued proposed regulations and guidance implementing EO 13673. The companion proposals establish expansive new reporting obligations requiring disclosure of any OSHA citation issued — still just allegations — within the three years prior to bid submission, as well disclosures of all other “administrative merits determinations” issued under 13 other labor laws. The proposals then require regular bi-annual reporting of the same data throughout the life of the contract.

Although the proposals are purportedly designed to identify and prevent “irresponsible” companies from obtaining federal contracts, because they cast such a broad net, based on mere allegations of violations, the rule’s likely effect will be to significantly intensify the scrutiny to which contractors will likely be subjected (and the costs they will need to bear to comply with the rule) without accomplishing the President’s objectives of ferreting out irresponsible contractors.

Specifically, the proposed regulations would require contractors bidding on executive branch contracts with an estimated value exceeding $500,000 to disclose any OSHA citation, regardless of the status of the citation or whether the citation has yet been upheld in the administrative review process afforded employers. All OSHA citations must be reported under the proposals, even citations characterized as “OTS,” or “other-than-serious,” the characterization OSHA applies to minor paperwork violations. The disclosure requirements apply equally to citations issued under the 27 state plan programs administered by state occupational safety and health agencies such as CAL/OSHA.

In addition to the disclosures contractors must make, prime contractors also must collect the same information from every subcontractor who has a contract or bid exceeding the $500,000 threshold (with the exception of subcontractors whose contract is for commercial-off-the-shelf (COTS) goods or services).

The DOL guidance indicates that contracting agencies’ “responsibility” determinations will consider most heavily only those OSHA citations (or other labor law violations) determined to be “serious, willful, repeated, or pervasive.” While this limitation may sound good, applied in the OSHA context, it provides cold comfort to responsible contractors. A review of 2009 – 2013 OSHA enforcement data shows that the vast majority of citations issued — upwards of 85 percent — are initially characterized as serious, repeat, or willful. This means that virtually all OSHA citations fall within the category of labor law violations that the FAR/DOL proposals identify as the type of violations that most seriously threaten the outcome of a responsibility determination, and, therefore result in the loss of a bid or current contract.

DOL’s proposal is fraught with difficulties for current and putative contractors.   Aside from the clear unfairness of a regulation that allows contract bids to be rejected or contracts rescinded based on mere allegations, a bidding company’s basic due process rights will be violated should a contract be lost based on an allegation – the OSHA citation – that may later be withdrawn or overturned in a litigation.

Perhaps even more troubling is the proposal’s creation of a new animal — the “Labor Compliance Agreement” — that would be entered into between OSHA, as the enforcement agency, and the contractor, in order to satisfy the government’s concern about the contractor’s disclosure of an OSHA citation. As currently proposed, these Labor Compliance Agreements will allow OSHA to circumvent an employer’s right to stay abatement pending the outcome of a legal challenge to the citation. Worse, there are no limits on the types of remedial actions that can be required in these agreements. OSHA can use the Labor Compliance Agreement to force contractors to prematurely implement not only OSHA’s suggested abatement, but also a slew of other onerous requirements, such as an injury and illness prevention program (I2P2), ergonomics standards, heat stress programs, etc., none of which are required under OSHA regulations. By essentially holding contractors “over a barrel,” the Labor Compliance Agreements will likely serve as a mechanism to allow OSHA to “back door” in requirements on federal contractors that OSHA has not had the political support to promulgate as mandatory standards.

If the proposed rule takes effect in its present form it will have serious negative consequences for those wishing to do business with the federal government. Federal contractors should involve themselves in the rulemaking process as soon as possible to try to narrow the proposals’ scope and requirements before the rule is finalized. The written comment period expired in August 2015, however, it is possible the agencies will hold public hearings on the proposals to afford additional opportunity to the contracting community to provide feedback. FAR and the DOL have not yet indicated whether the agencies believe hearings are in order.

In addition to engaging in the rulemaking process, contractors should carefully evaluate the proposals’ requirements against their internal systems to begin to prepare for the likely changes. Entirely new administrative systems will need to be developed to identify and track the information required to be disclosed. Preliminary estimates indicate that development of these systems will impose significant costs and administrative burden on contractors, so it is important to begin now to assess the situation in the event a rule is finalized before the expiration of the Obama Administration.

For more information about the FAR and DOL federal contractor Blacklisting rule, here is a link to a webinar we conducted regarding the proposed rule.  Also, here is a link to formal comments we submitted to the rulemaking docket on behalf of a Coalition of Federal Contractors.