United States: Substantial New Rules Implementing "Fair Pay And Safe Workplaces" Executive Order Create Risks For Contractors And Subcontractors

On August 25, 2016, DoD, GSA, and NASA issued a final rule amending the FAR to implement President Obama's Executive Order on "Fair Pay and Safe Workplaces" ("E.O.") The Department of Labor ("DOL") also issued final guidance to assist in the implementation of the E.O. The new FAR rule follows a proposed FAR rule that generated substantial comments. The final rule and guidance represent significant new obligations and risks for contractors and subcontractors, who should start preparing now to address them. This post focuses on the final FAR rule because it imposes specific requirements on contractors and subcontractors. Notably, this post provides only a high-level summary because the new rule, related commentary published in the Federal Register, and DOL's guidance are lengthy and sometimes complex documents. Mayer Brown also published a Legal Update that discusses these developments in greater detail.

The 2014 E.O. sought to increase efficiency and cost savings in work performed by federal contractors by ensuring that they understand and comply with labor laws, noting that contractors that consistently adhere to labor laws are more likely to have workplace practices that enhance productivity and increase the likelihood or satisfactory contract performance. The E.O. specifies that for procurements estimated to exceed $500,000, the offeror must represent whether there has been any administrative merits determination, arbitral award or decision, or civil judgment—terms to be defined in DOL guidance—rendered against the offeror within the preceding three years for violations of 14 Federal labor laws and equivalent State laws (to be defined in the DOL guidance). Contracting officers ("COs") are to use such information ("labor law information") in determining an offeror's responsibility.

The E.O. contains numerous additional requirements. For instance, prime contractors must make similar responsibility determinations for prospective subcontractors for subcontracts at all tiers, provided the subcontracts are estimated to exceed $500,000 and are for other than commercially available off-the-shelf-items.

The new rule implements the responsibility determination requirements in new FAR subpart 22.20 and in related clauses. The rule requires prime contractors to provide labor law information in a Government database. FAR 22.2002 includes definitions of key terms, including "administrative merits determination," "arbitral award or decision," and "civil judgment." Contractors and subcontractors need to be familiar with these definitions because they are the foundation of the labor law violations that must be disclosed. Significantly, each definition recognizes that the defined term includes determinations and/or judgments that are not final. Accordingly, for non-final determinations/judgments, contractors may have to consider submitting, as mitigating factors, substantial information reflecting facts and arguments the contractor may be preparing in connection with an appeal.

The E.O. creates a new position, an agency Labor Compliance Advisor ("ALCA"). Under the new rule, ALCAs have extensive duties, including providing COs with written analyses and advice concerning responsibility determinations of prospective prime contractors. Such analysis and advice may include, for example, a recommendation that a prospective contractor needs to commit, prior to award, to negotiating a labor compliance agreement with an enforcement agency.

The final rule requires covered subcontractors to submit labor law information (including mitigating factors) to DOL—not the prime contractor. Contractors will then consider DOL analysis and advice as they make responsibility determinations on covered prospective subcontractors.

The new rule also requires covered prime contractors and subcontractors to update labor law information after award on a semi-annual basis. For prime contractors, ALCAs provide written analysis and advice to COs concerning this information and applicable information received from other sources, for COs to consider in determining whether a contract remedy is warranted. Covered subcontractors provide their updated information to DOL, and prime contractors consider information provided by DOL in determining whether action is necessary.

Key aspects of the FAR rule will be phased in: (1) From October 25, 2016 through April 24, 2017, the prime contractor disclosure requirements will apply to solicitations estimated at $50 million of more, and resultant contracts; after April 24, 2017, the requirements apply to solicitations estimated to exceed $500,000, and resultant contracts. (2) The requirements apply to subcontractors starting October 25, 2017. (3) The decision disclosure period covers labor law decisions rendered against the offeror from October 25, 2015 to the date of the offer, or for three years preceding the offer, whichever period is shorter.

The FAR rule also includes other provisions, including provisions concerning paycheck transparency.

Contractors and subcontractors will need to take steps to address the new requirements, including procedures to monitor applicable labor law violations, and to ensure the timely and accurate disclosure of such violations in connection with covered solicitations, contracts, and subcontracts. Another important step to minimize risk is working with DOL as part of an early engagement pre-assessment process to obtain compliance assistance.

Again, this article is only a high-level summary of certain aspects of the new FAR rule. That rule, the new DOL guidance, and the associated commentary published in the Federal Register contain a vast amount of information as well as complex requirements. Contractors and subcontractors need to be familiar with the details of these significant new developments.

Originally published September 8, 2016

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Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2016. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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