Dear Ms. Flowers and Ms. Jones:
ZRIN 1290-ZA02, Guidance for Executive Order 13673, "Fair Pay and Safe Workplaces"
On behalf of Business Roundtable, an association of chief executive officers of leading U.S. companies, I am writing in response to FAR Case 2014-025, “Fair Pay and Safe Workplaces,” and the Proposed Guidance issued by the Department of Labor (DOL), “Guidance for Executive Order 13673, Fair Pay and Safe Workplaces,” published on May 28, 2015.
Business Roundtable supports the principles of compliance reflected in the Executive Order (Order) and its overarching goal: to ensure that companies receiving federal contracts comply with applicable labor laws. However, we note that, as the Administration itself has observed, “the vast majority of federal contractors play by the rules.” As a consequence, we question the need for the Order and, more importantly, have serious concerns about the new, complex, overly broad and burdensome reporting scheme envisioned by the proposed DOL Guidance (Proposed Guidance) and FAR Council Proposed Rule (Proposed Rule) to implement the Order.
Business Roundtable agrees strongly that all companies should comply with federal and state labor laws and be held accountable for any violations. However, we are opposed to using the federal acquisition process to monitor those existing laws and enforce remedies. As outlined below, Business Roundtable believes the Order, the Proposed Rule and Proposed Guidance create a complex, costly, duplicative and unnecessary procurement process. This approach undermines due process rights of federal contractors and subcontractors and amounts to executive overreach – all without gaining any real benefit.
While these issues represent just some of our concerns, they are more than enough to lead us to strongly urge the FAR Council and DOL to rescind the Proposed Rule and Proposed Guidance and to encourage the President to rescind the Order. In addition to that general comment, Business Roundtable has identified specific major concerns highlighted below.
Represents Significant Executive Overreach
Business Roundtable believes the Order, the Proposed Rule and Proposed Guidance constitute an example of the Executive Branch’s regulatory overreach, which trespasses on congressional authority. In particular, the Proposed Guidance effectively re-classifies the term “violation” to include, in some cases, employee complaints of a labor law violation, triggering reporting where neither finding of fault nor admission of liability exists. This misclassification effectively creates new penalties under federal labor laws without clear direction from Congress, providing ample concerns over the proper separation of powers.
If the Administration seeks changes to the enforcement of labor laws or new penalties for labor law violations, it should instead work with Congress on ways to improve the process for ensuring compliance with employment laws. Separately, it should work on ways to enable federal contracting officers to better utilize existing data and resources to ensure contractors have a “satisfactory record of integrity and business ethics.”
Creates Duplicative and Costly Regulatory Infrastructure
The stated goal of the Order, as reiterated in the Proposed Guidance and Proposed Rule, is to “increase efficiency and cost savings in the work performed by parties that contract with the Federal Government by ensuring that the parties are responsible and comply with labor laws.”
However, based upon our review of the Proposed Rule and Proposed Guidance, Business Roundtable believes that they would have the opposite effect. For the reasons outlined in greater detail below (and others not stated herein), the Proposed Rule and Proposed Guidance would result in massive overreporting and duplication of reporting, while imposing enormous cost burdens upon contractors and subcontractors seeking to adhere to the Proposed Rule. We believe that if implemented, this new system would further slow the already complex federal procurement system, making it that much more cumbersome for users and creating new barriers to entry to the federal marketplace.
Under the Proposed Rule and Proposed Guidance, companies bidding on federal contracts would have to indicate whether they have had any violations of 14 specified laws and executive orders or state equivalent laws within the last three years. The Proposed Rule would require contractors to capture and report on every possible issuance of a citation, complaint or letter of interest from a federal agency. This is a particularly daunting task for any large, multi-unit company. In fact, not a single Business Roundtable member has indicated the existence of a unified enterprise-wide system capable of tracking and reporting such information, and it would likely take a significant period of time and expense to develop and implement such a system – particularly given that defining “state equivalent laws” was left to future DOL guidance.
Similarly, the federal government does not aggregate all its data regarding labor law compliance into a single database, even though it already collects a vast majority of the information being requested from contractors. For example, the Occupational Safety and Health Administration (OSHA) maintain a database that includes case details for approximately 100,000 OSHA inspections conducted annually. In addition, acquisition officials have access to the Federal Awardee Performance Information and Integrity System (FAPIIS) in order to get the information they need to hold contractors accountable. Additionally, other parts of the DOL, the Equal Employment Opportunity Commission (EEOC) and the National Labor Relations Board (NLRB) also have access to information regarding contractors’ labor compliance records.
To reduce duplicative reporting to the federal government, Business Roundtable believes that contracting officers and Agency Labor Compliance Advisors should utilize the wealth of data already available within government systems to hold contractors accountable. This could entail aggregating the data already submitted by contractors through various agencies into a single database. Such an approach would vastly reduce the cost, complexity and burden that would otherwise result from the proposed new reporting systems – and improve governmental efficiency.
Another troubling aspect of the Proposed Rule and Proposed Guidance is the requirement that contactors collect similar information on labor violations from subcontractors and “consider the information submitted in determining whether the subcontractor is a responsible source.” Such a complex and costly reporting system for subcontractors runs the significant risk of hurting small businesses and driving lower-tier subcontractors out of the federal marketplace altogether.
The supply-chain burden, namely the requirement for prime contractors to track this data and train personnel on evaluative criteria, creates difficulties beyond just costs and effort. For example, subcontracts are often not selected until after a prime contract is awarded; if the contractor is subsequently not able to identify a qualified supplier in the marketplace, it could face a potential breach of contract. Although not fully remedying the significant legal and administrative deficiencies of the Proposed Rule on subcontractor reporting, any rule must include exceptions for sole source subcontracts and commercial items (beyond just commercial off-the-shelf items).
Business Roundtable believes that the $87 million cost estimate included in the Proposed Rule and Proposed Guidance vastly understates the true costs that would result under the proposed expanded reporting system. This gross underestimate is largely a result of not fully taking into account the number of hours it would take for each of the prime contractors to respond to each of the responsibility reports and post-award semi-annual updates required. One Business Roundtable member estimated that the process surrounding investigation and reporting of each “violation” could take nearly 100 hours, and that verifying sub-contractor compliance could take even longer. A more realistic cost estimate could push the actual annual cost into the billions. This cost to contractors is unacceptable; the Proposed Rule should reflect the actual cost.
This situation is particularly troubling when considering the fact that contracting officers already have the authority (and data available) to review labor law violations, and that the federal contracting process has the suspension and debarment process available to deal with bad actors.
Undermines Due Process
Business Roundtable is concerned with many of the proposed definitions of key terms to be used by contracting officers, with assistance from newly established Agency Labor Compliance Advisors, in determining if a contractor has a “satisfactory record of integrity and business ethics.” This is a meaningful part of the Proposed Rule and Proposed Guidance because contractors without a satisfactory record can be disqualified from consideration for a contract.
Administrative Merits Determination
Specifically, DOL proposes a troubling definition of “administrative merits determination,” which is clarified in the Proposed Guidance as follows:
“The administrative merits determinations listed in the definition are issued following an investigation by the relevant enforcement agency. Administrative merits determinations are not limited to notices and findings issued following adversarial or adjudicative proceedings such as a hearing, nor are they limited to notices and findings that are final and unappealable. Thus, administrative merits determinations that must be reported under the Order include an administrative merits determination that the contractor or subcontractor is challenging, can still challenge, or is otherwise subject to further review.” (Emphasis added)
As made clear in the Proposed Guidance, contractors would be required to report on allegations, citations or preliminary findings. Such a low threshold for reporting could include, for example, an employee allegation that a labor law has been broken, without any proof or investigation into whether an alleged violation has actually occurred. Business Roundtable believes that requiring the reporting of violations that are not final merits determinations (unappealable or uncontested) is a fundamental violation of due process, and such provisions should be removed from the Proposed Guidance.
Serious, Repeated, Willful, or Pervasive
Under the Proposed Guidance, contracting agencies must also weigh whether administrative merits determinations were issued for “serious, repeated, willful, or pervasive” violations of 14 identified federal labor laws and executive orders or equivalent state labor laws. Here too, the proposed definitions of these terms are so expansive that they constitute a fundamental violation of due process.
With respect to defining a violation as “serious,” the Proposed Guidance includes adverse employment actions based on employees “exercising” rights under labor laws. The Proposed Guidance lists, as an example of a “severe” violation, an employee complaint about “potential” violations of law. Business Roundtable does not believe that an employee complaint should automatically be deemed a “serious” violation, especially with no credibility test or finding of an actual violation. Such a requirement to report contested allegations as “serious” violations clearly violates a contractor’s due process.
With respect to defining a “repeated” violation, the Proposed Guidance states that in order for an administrative merits determination to serve as a predicate violation (and “render a subsequent violation repeated”), it must have been “adjudicated” or uncontested. The Proposed Guidance specifically states that even if a first violation is adjudicated (and upheld), the second violation will be used to show a “repeated” violation, “even though the second violation is neither adjudicated nor uncontested.” Again, the process allows for a contractor to be penalized for an alleged violation that lacks the weight of a final judgment.
With respect to defining a “pervasive” violation, which is the most serious level of offense, the Proposed Guidance clearly undermines due process by relying on the definition of “repeated” violations, which already allows a contractor to be penalized without a final judgment. Of note, the proposal concedes there is no statutory basis with any of the federal laws cited for a “pervasive” violation. This new evidentiary burden related to preexisting federal employment laws is another case of extrajudicial lawmaking through regulation.
The significant deficiencies in the definitions warrant rescission of the Proposed Rule and Proposed Guidance. At a minimum, Business Roundtable believes each of these definitions must be modified to ensure that only final decisions are used as a basis for reporting violations.
The Proposed Guidance notes that, when assessing violations of labor laws, “all of the facts and circumstances of the violations, as well as any mitigating factors, should be considered.” The Proposed Guidance indicates that the most important mitigating factor is the contractor entering into a Labor Compliance Agreement with the enforcement agency. This emphasis on Labor Compliance Agreements inappropriately forces contractors to forego their statutory and regulatory rights to contest the agency’s finding.
Not only does this tread upon contractors’ due process rights, it also pressures contractors into an admission of wrongdoing when there has been no finding of a fully adjudicated violation under established legal standards. Forcing Labor Compliance Agreements upon contractors during ongoing adjudicatory processes should not be part of the Proposed Guidance.
Alternative Dispute Resolution
The Order and Proposed Rule are also problematic in their prohibition against certain effective and efficient dispute resolution mechanisms. Many Business Roundtable member companies rely on successful alternative dispute resolution programs to provide a cost-effective means of resolving human resource issues. Congress upheld this approach as beneficial to the public when it passed the Federal Arbitration Act, and the Supreme Court has affirmed the benefit of arbitration on several occasions. These programs reduce the strain on the federal judiciary, provide prompt review of concerns at the early stages of development, allow thoughtful resolution of conflict without the cost and public airing of courtroom litigation and deliver tremendous value to the taxpayer by limiting litigation costs for employees and employers. Of particular importance, these issues are all resolved within a framework of due process.
While we recognize the need to provide alternate pathways to resolution in extraordinary cases, we are concerned that the current proposal fails to recognize well-managed programs that uphold employee rights. Treating all arbitration programs the same way will unnecessarily punish right-acting employers, their employees and federal agencies.
In addition to the issues raised above, Business Roundtable believes there would also be many unintended consequences if the Executive Order, its implementing Proposed Rule and Proposed Guidance were to move forward. For example, the application of unspecified state equivalent laws will result in the creation of 50 potentially inconsistent standards. States may lower their labor standards in an effort to attract business, resulting in a “race to the bottom,” and prime contractors could end up avoiding subcontracting in certain states with stringent regulatory environments. In addition, under these policies, foreign competitors would benefit from an enormous competitive advantage because they would not be subject to these same requirements.
While this letter highlights our major concerns with the Executive Order and its implementing Proposed Rule and Proposed Guidance, it does not capture all of our concerns. These issues alone are enough, however, for Business Roundtable to strongly urge the FAR Council and DOL to rescind the Proposed Rule and Proposed Guidance respectively, and to request that the President rescind the Executive Order. Furthermore, if the Administration believes there is a need to improve contractor compliance with labor laws, it should work with Congress and ensure that any legislation increases efficiency and saves money. The current proposal will do little to achieve these goals and will result in huge costs to the federal government, contractors, small businesses and ultimately American taxpayers.