[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
THE BLACKLIST: ARE SMALL BUSINESSES GUILTY
UNTIL PROVEN INNOCENT?
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON CONTRACTING AND WORKFORCE
JOIN WITH THE
SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT AND REGULATIONS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
SEPTEMBER 29, 2015
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 114-023
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HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
TOM RICE, South Carolina
CHRIS GIBSON, New York
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
CARLOS CURBELO, Florida
MIKE BOST, Illinois
CRESENT HARDY, Nevada
NYDIA VELAZQUEZ, New York, Ranking Member
YVETTE CLARK, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRENDA LAWRENCE, Michigan
ALMA ADAMS, North Carolina
SETH MOULTON, Massachusetts
MARK TAKAI, Hawaii
Kevin Fitzpatrick, Staff Director
Stephen Denis, Deputy Staff Director for Policy
Jan Oliver, Deputy Staff Director for Operation
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Richard Hanna............................................... 1
Hon. Crescent Hardy.............................................. 2
Hon. Mark Takai.................................................. 3
Hon. Alma Adams.................................................. 4
WITNESSES
The Hon. Angela B. Styles, Chair and Partner, Crowell & Morning,
Washington, DC................................................. 5
Mr. Theron M. Peacock, P.E., BSCP, Senior Principal/President,
WOODS/PEACOCK Engineering Consultants, Alexandria, VA,
testifying on behalf of the American Council of Engineering
Companies...................................................... 7
Ms. Debbie Norris, Vice President, Human Resources, Merrick &
Company, Greenwood Village, CO, testifying on behalf of the
Society for Human Resource Management.......................... 8
Mr. William J. Albanese, Sr., General Manager, A & A Industrial
Piping, Inc., Fairfield, NJ, testifying on behalf of the
Mechanical Contractors Association of America and the Campaign
for Quality Construction....................................... 10
The Hon. Anne Rung, Administrator, Office of Federal Procurement
Policy, Office of Management and Budget, Washington, DC........ 20
Mr. Lafe Solomon, Senior Labor Compliance Advisor, Office of the
Solicitor, United States Department of Labor, Washington, DC... 21
APPENDIX
Prepared Statements:
The Hon. Angela B. Styles, Chair and Partner, Crowell &
Morning, Washington, DC.................................... 32
Mr. Theron M. Peacock, P.E., BSCP, Senior Principal/
President, WOODS/PEACOCK Engineering Consultants,
Alexandria, VA, testifying on behalf of the American
Council of Engineering Companies........................... 40
Ms. Debbie Norris, Vice President, Human Resources, Merrick &
Company, Greenwood Village, CO, testifying on behalf of the
Society for Human Resource Management...................... 48
Mr. William J. Albanese, Sr., General Manager, A & A
Industrial Piping, Inc., Fairfield, NJ, testifying on
behalf of the Mechanical Contractors Association of America
and the Campaign for Quality Construction.................. 55
The Hon. Anne Rung, Administrator, Office of Federal
Procurement Policy, Office of Management and Budget,
Washington, DC............................................. 72
Mr. Lafe Solomon, Senior Labor Compliance Advisor, Office of
the Solicitor, United States Department of Labor,
Washington, DC............................................. 76
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
ABC - Associated Builders and Contractors, Inc............... 118
PSC - Professional Services Council.......................... 135
THE BLACKLIST: ARE SMALL BUSINESSES GUILTY UNTIL PROVEN INNOCENT?
----------
TUESDAY, SEPTEMBER 29, 2015
House of Representatives,
Committee on Small Business,
Subcommittee on Contracting and Workforce
joint with the
Subcommittee on Investigations, Oversight and
Regulations
Washington, DC.
The Subcommittees met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building. Hon. Richard Hanna
[chairman of the subcommittee on Contracting and the Workforce]
presiding.
Present from Subcommittee on Contracting and the Workforce:
Representatives Hanna, Takai, Rice, Knight, Bost, and Kelly.
Present from Subcommittee on Investigations, Oversight
and Regulations: Representatives Hardy, Adams, and
Clarke.
Chairman HANNA. Thank you for being here. I am sorry I am a
little bit late, so let us get started. I call this hearing to
order.
At a time when small contractors are disappearing from our
industrial base--we have lost over 100,000 since 2013--the
administration continues to place additional burdens on those
that would like to sell their goods and services to the Federal
Government. We should be working to expand the universe of
contractors, not shrink it. However, I feel the
administration's actions will further reduce the number of
small contractors that are participating in the federal
marketplace.
Since 2009, President Obama has issued 13 executive orders
that relate to government contracting, which have resulted in
16 new regulations so far, and there are likely to be more to
come. While some of these mandates may be well intentioned,
they also have cost, and too often costs significantly outweigh
the actual positive effects. In that fact, it is estimated that
compliance with government unique regulations cost almost 30
cents of every contract dollar.
Today, we are going to talk about the Executive Order
13673, which the administration has titled Fair Pay and Safe
Workplaces. As a former small business owner, I support the
idea of fair pay and safe workplaces. I am sure we all do.
Companies with labor law violations that affect their
performance of contracts should be suspended or debarred;
however, the executive order and the resulting proposed
legislation and guidance so far go way beyond that. Instead, it
seems to punish companies for unproven allegations. The
Department of Labor and Federal Acquisition Regulatory Council
have the primary responsibility for implementing Executive
Order 13673. So I am glad that we have key officials from both
agencies here today. I hope they listen to the small businesses
that are testifying and truly consider the significant negative
consequences associated with their proposals. There are valid
concerns that implementation of this executive order will
result in potentially innocent small businesses effectively
being blacklisted from participating in government contracting.
I do not believe that the Obama administration would intend
this to be the result, but as drafted, implementation of
Executive Order 13673 is likely to yield this result. So from
my standpoint, this seems to be an executive order in search of
a problem, but I am here to listen today to those that would be
affected and those that will be implementing this executive
order to determine if there is anything that the administration
could do to make it more workable.
With that, I yield to Chairman Hardy for his opening
remarks. Chairman?
Chairman HARDY. Thank you, Chairman Hanna.
I am please our Subcommittee is holding this hearing to
examine the impact of Executive Order 13673 on small
businesses. In my opinion, this executive order is just another
example of the executive overreach that has become the hallmark
of the Obama administration, and it could have a devastating
impact on small business and government contractors. I agree
that the companies who are considered bad actors in their field
should not be rewarded with federal contracts, but there is
already a process that allows the Federal Government to weed
out these bad actors. Instead of using the existing process,
the Obama administration is going to impose significant new
burdens on all federal contractors, even though it says that
the vast majority of federal contractors play by the rules.
Small businesses do not need to be forced to settle unproven
claims. They should not be forced to disclose commercially
sensitive information to their competitors. And they also
should not be forced to report information that the Federal
Government already has. Most importantly, they should not be
blacklisted from participating in federal contracting based on
the accusations that they were ultimately being proven innocent
for the past labor law violations in which they have already
paid fines or otherwise corrected.
I am particularly concerned that this executive order will
lead to fewer small businesses selling goods and services to
the Federal Government. We need a healthy industrial base with
many small businesses working to provide the government with
the innovative goods and cost-effective services. When fewer
small businesses compete for federal contracts, the outcome
will be less innovation and higher cost to the taxpayer. This
is not good for the United States. I cannot help but think the
additional mandates that have been piled on to the government
contractors by this Obama administration has led some small
businesses to leave the marketplace and discourage others from
entering it. After all, increasing the costs and complexity of
government contracting makes it more difficult for small
businesses to sell goods and services to the Federal
Government.
I would like to thank the witnesses for appearing before
the Subcommittee today, and I look forward to hearing your
concerns of the small government contractors, and I look
forward to discussing their concerns with the representatives
from the Department of Labor and the Federal Acquisition
Regulatory Council. With that I yield back, Mr. Chairman.
Chairman HANNA. Thank you.
Mr. Takai, the ranking member?
Mr. TAKAI. Thank you, Mr. Chairman. Good morning and aloha.
Thank you, Mr. Chairman, for holding this important
hearing. Small business participation in the federal
marketplaces has always been a priority for this Committee and
Congress. When entrepreneurs are able to sell their goods and
services to federal agencies there is a win-win situation.
Taxpayers receive more bank for their bank with the delivery of
quality products and services being supplied by the government.
Meanwhile, many small firms are able to grow, confident that
they have a client and a partner that will provide them with a
steady stream of reliable work.
The federal marketplace continues to constitute a
significant portion of the U.S. economy with government
spending at 447.6 in fiscal year 2014. In the past, Congress
has used its significant financial might to help drive forward
a number of policy goals. We passed legislation, for instance,
aimed at ensuring small businesses get a fair shot at these
projects. Likewise, this Committee has worked in a bipartisan
manner to help women and minority-owned businesses navigate the
procurement process. The fact of the matter is as a large
customer, the Federal Government has the ability to use its
buying power to advance priorities important to our nation as a
whole.
It is in that context that we must view the president's
most recent executive order, which is designed to ensure that
firms that contract with the Federal Government understand and
comply with laws. We should be clear of the businesses that
perform work for the government, the overwhelming majority
comply with labor and safety laws and do right by their
employees while remaining providing excellent goods and
services at competitive prices.
That said, this Committee has heard a number of bad actors
who have skirt the law and continue to receive federal contract
work. Not only is this bad for workers but it puts honest firms
that abide by these rules at a disadvantage. Simply put,
federal agencies should not be rewarding companies with a poor
labor and safety record with additional opportunities at
taxpayer expense. Executive Order 13673 is an attempt to
address this challenge by requiring companies to disclose
previous labor and safety law violations from the past three
years. Even if a contract has such violations on record, firms
would only be denied contracts in the most egregious of
instances. While this is a reasonable goal, all of us want to
see safe workplaces. We must monitor carefully the details of
how it is implemented.
There remains a number of thorny technical questions about
how this new proposal will impact small businesses. For
instance, many small businesses act as subcontractors to larger
companies that bid on federal work. In most cases, the work
they do fulfills the majority of the scope of work under the
contract. Under this new order, prime contractors would be
required to obtain labor law violations certifications from
their subs.
There are reasonable concerns that prime contractors may
avoid doing work with certain subs all together in the event of
any previous problems with labor laws. This raises issues about
whether subcontractors should simply certify directly at the
agency level. These and other issues will need to be addressed
as this Committee examines this executive order. As always, it
will be our challenge to balance small businesses' very real
concerns against the legitimate needs to protect the public
and, in this case, ensure federal dollars are spent in a way
that does not harm workers.
I look forward to hearing the witnesses' perspective on
these important topics, and I yield back. Thank you, Mr.
Chairman.
Chairman HANNA. Thank you.
Ranking Member Adams?
Ms. ADAMS. Thank you, Mr. Chairman.
Each year the Federal Government spends over $400 billion
in taxpayer dollars to provide private companies for goods and
services. And while these funds boost the economy and allow
firms to hire more employees, we have seen instances in which
these same businesses violate safety and wage laws to increase
their profits. According to one report, almost half of the
total initial penalty dollars assessed for occupational safety
and health administration violations in 2012 were against
companies holding federal contracts.
Unfortunately, the safety and labor violations do not stop
there. Multiple employees at some facilities have sustained
injuries and some have even lost their lives. However, rarely
were the businesses where these incidents occurred debarred or
suspended from the federal marketplace as a result of their
unsafe working environments. Labor laws are crucial to a
healthy economy. When workers receive their proper wages, they
participate in the economy as consumers. Additionally,
providing a safe working environment in which injuries are
unlikely allows employees to continue working and employers to
increase their productivity.
Therefore, to ensure that contractors are adhering to these
important laws, President Obama issued the Fair Pay and Safe
Workplaces Executive Order last year. The order is intended to
increase efficiency and cost savings in the work performed by
contractors by ensuring they understand and comply with labor
laws. Under the proposed guidance issued to implement the
order, contractors who are bidding on contracts valued at over
$500,000 will have to disclose their labor law violations that
have occurred within the past three years. Contracting
officers, with the help of labor compliance advisors, will then
use this information to help determine whether or not a
business is responsible. If the regulations fit into the
existing procurement process, the contracting officer will just
have access to additional information regarding contractors'
labor history. Furthermore, the order also provides employees
protections to ensure that they receive accurate wages and have
the opportunity to litigate certain claims in a court rather
than by arbitration.
However, as we hear today, there is some concern that the
executive order will be overly burdensome on small businesses.
Small businesses provide quality goods and services at
affordable prices, meaning a better deal for the government and
the taxpayer. Yet, they have smaller margins and new
regulations can be harder for them to absorb. With small
businesses creating over two-thirds of new jobs, our economy
needs both small businesses and healthy and safe employees to
properly operate.
Therefore, in moving forward with the implementation of
this executive order, it is important that we find a balance in
which small businesses are not overly burdened by complying
with the guidelines while still ensuring that contractors who
habitually put their employees in harm's way are removed from
the contracting process until they have shown progress in
correcting their labor law compliance.
And with that, Mr. Chairman, I would like to thank the
witnesses for testifying today, and I yield back.
Chairman HANNA. Thank you.
If Committee members have an opening statement prepared, I
ask that they submit it for the record.
Just for information--you probably already know this--you
have five minutes. When the light goes yellow, you have one,
but we will be lenient. So with that, our first witness is the
Honorable Angela Styles, who currently serves as chair and
partner of Crowell and Moring, and co-chair of the firm's
Government Contracts Group in Washington, D.C. From 2001 to
2003, Ms. Styles served as the administrator of the Office of
Federal Procurement Policy at the Office of Management and
Budget.
Ms. Styles, in the interest of time, you may begin.
STATEMENTS OF ANGELA B. STYLES, CHAIR AND PARTNER, CROWELL AND
MORING; THERON M. PEACOCK, P.E., BSCP, SENIOR PRINCIPAL/
PRESIDENT, WOODS PEACOCK ENGINEERING CONSULTANTS; DEBBIE
NORRIS, VICE PRESIDENT, HUMAN RESOURCES, MERRICK AND COMPANY;
WILLIAM J. ALBANESE, SR., GENERAL MANAGER, A&A INDUSTRIAL
PIPING, INC.
STATEMENT OF ANGELA B. STYLES
Ms. STYLES. Thank you. Thank you, Chairman Hanna, Chairman
Hardy, Congressman Takai, Congresswoman Adams, and members of
the Subcommittees. I appreciate the opportunity to appear
before you today.
As co-chair of Crowell and Moring's Government Contracts
Group, and as former administrator for Federal Procurement
Policy at the Office of Management and Budget, I have worked
closely with small business contractors throughout my
professional career. I am deeply concerned that the executive
order will undermine the government's longstanding policy of
maximizing contract opportunities for small businesses. If the
EO is aimed only at a small number of bad actors, then surely
there is a more efficient way to accomplish this goal than
imposing requirements that will lead to procurement delays, the
blacklisting of ethical companies, and reduced competition in
the federal marketplace.
My written testimony today highlights the following five
principle concerns. Potentially severe unintended consequences
for small businesses, the high compliance cost that will deter
small businesses from participating in the federal marketplace,
the diversion of federal employees from assisting and growing
our small businesses to collecting data, monitoring compliance,
monitoring enforcement of federal and state labor laws with a
high risk of de facto debarment of companies, a flawed
Regulatory Flexibility Act analysis, and really failure to give
even the most basic rationale for the necessity of this rule.
For a more in-depth analysis of many portions of this rule,
I refer you to the official comments submitted by the National
Association of Manufacturers. They are a client of Crowell and
Moring's and I attached it to my written testimony. We really
worked for months and months with the National Association of
Manufacturers and many companies in industry to really fully
understand this rule and the potential impacts of the rule.
But even then you do not consider everything. I was sitting
last night thinking about the rule itself and really the
hypocrisy of the situation quite striking to me. While on the
one hand you have a relatively new OFPP administrator that is
issuing commendable and forward-thinking memorandum on
efficiency and performance and improvements and cost savings
for taxpayers, and on the other hand you have this
administration issuing the most bureaucratic, far-reaching,
extensive EO and proposed rule that I have seen in my entire
career in federal procurement. You cannot have it both ways.
You cannot have it both ways. You cannot be efficient while at
the same time issuing something that is such a bureaucratic
morass for companies, but really particularly for small
businesses.
I think for me, a significant and wholly unanswered
question is why the Federal Government is creating this
burdensome process in the first place. As Chairman Hanna said,
this is an EO in search of a problem. Each and every labor law
identified in the EO has its own separate penalties for
companies who violate the respective laws, and unlike the EO,
those labors laws and associated penalties were created by
Congress rather than mandated by the executive branch.
The Federal Procurement System also has adequate remedies
to prevent companies with unsatisfactory labor records from
being awarded federal contracts. Specifically, suspension and
debarment officials within every federal agency have broad
discretion to exclude companies from federal contracting based
upon evidence of any cause--this is a quote--``any cause so
serious or compelling in nature that it affects the present
responsibility of a government contractor.'' To the extent that
a contractor's compliance record impacts its present
responsibility, FAR subpart 9.4 sets forth proper channels for
suspension and debarment proceedings. With established and
effective systems in place, it makes no sense to create a new
bureaucracy to review these contracts on a contract-by-contract
basis with a possibility of astoundingly inconsistent decisions
by different agencies and different contracting officers.
Given the scope and complexity, this EO will be
impractical, if not impossible, to implement. The substantial
cost of compliance imposed on federal contractors will likely
lead to higher procurement costs, and I think drive many small
businesses out of the federal marketplace all together. These
costs will be borne disproportionately by companies who can
least afford them, our small businesses. This is an entirely
unacceptable outcome. The goals of the EO are targeting
contractors with the most egregious violations, but it could be
accomplished with the enforcement of existing labor laws and
our existing suspension and debarment system.
This concludes my prepared remarks but I am happy to answer
any questions.
Chairman HANNA. Thank you.
Our next witness, Theron Peacock, the senior principal and
president of Woods Peacock Engineering Consultants, a service-
disabled veteran-owned small business with 16 employees located
in Alexandria, Virginia. Mr. Peacock has 38 years of experience
and cofounder. His present business after 22 years at three
other firms. He is here testifying on behalf of the American
Council of Engineering Companies.
Mr. Peacock?
STATEMENT OF THERON M. PEACOCK
Mr. PEACOCK. Thank you, Mr. Hanna.
Subcommittee Chairman Hanna, Hardy, Ranking Members Takai
and Adams, and members of the Committee, I appreciate the
opportunity to testify before you today about the issues
surrounding the Fair Pay and Safe Workplace Executive Order. My
name is Theron Peacock. I am a senior principal and the
president of Woods Peacock Engineering Consultants located in
Alexandria, Virginia, and we have 16 employees.
Woods Peacock is a service-disabled, veteran-owned small
business that focuses on service to a very broad range of
federal agencies. My firm is an active member of the American
Council of Engineering Companies, the voice of America's
engineering industry. ACEC's over 5,000 member firms represent
hundreds of thousands of engineers and other specialists
throughout the country. They are engaged in a wide range of
engineering works that propel the nation's economy and enhance
and safeguard America's quality of life. Almost 85 percent of
our firms are small businesses.
First, ACEC appreciate the Labor Department and the FAR
Council's efforts to improve labor compliance practices with
federal contracts. However, as Chairmen Chaffetz and Kline have
noted, this guidance is fixing a problem that does not exist.
The Council is concerned that the guidance will make compliance
so difficult that it will drive a significant amount of private
industry, both large and particularly small business, from the
federal market.
There are three broad issues with the guidance that the
Department of Labor and the FAR Council released this past May.
First, the reporting is burdensome and duplicative. Under the
guidance there are 14 federal laws and executive orders that
implicate the law. Are you aware that much of the reporting
data that is requested is already reported to a variety of
federal agencies? For example, annual compliance reports are
required for EEOC, OSHA, and the Rehabilitation Act, and Davis-
Bacon requires weekly reporting. Additionally, all federal
contractors are required to file annual reports in SAM. Why add
another report when the data has already been received?
Let me just give you an example. As a subconsultant, we
have contracts with over 30 prime AEs. If we need to submit
these reports to all 30 primes, who in turn submit the
information to the government, you will be getting the very
same information multiple times and putting it in the same
database. When you consider that each prime needs to have
multiple firms under their contracts, this accumulates into a
very significant duplication of record that will do nothing
more than create confusion.
Second, these regulations will significantly complicate the
relationship between primes and subcontractors and will likely
result in the development of a blacklist for subcontractors,
significantly reducing the number that will quality to do
federal work. Under the guidance at the time of execution,
contractors must require subcontractors to disclose any
administrative merit determinations or other complaints within
the preceding three years. This will force the contractors to
bar any subcontractor that is stuck in any judicial process. In
engineering, roughly 50 percent of prime engineering work is
subcontracted. Primes and subcontractors switch positions
frequently. By requiring primes and subs to share confidential
business information, they are sharing information that can
damage your ability to compete against each other in the
future.
Third, there are due process implications with these
regulations. Under the guidance, claims that have not been
decided or even heard by a judge will obligate the firm to make
a report. This will allow for claims that will not have had the
benefit of a third-party hearing of the dispute to potentially
place the firm in positions to lose their business. It also
places the contracting officer in an untenable position. Under
the guidance, the labor advisor has three days to decide on the
outcome of a report. If the labor advisor does not submit a
report, then the contracting officer will have to make the
decision regarding a firm's labor compliance. The contracting
officer will become the judge in a complaint, and they are not
qualified to do that. Given the risk adverse nature of
contracting, this requirement will force the contracting
officer to disqualify the firm or subcontractor so that they
are not subject to the risk of censure.
ACEC asked the Committee to work with Labor and the FAR
Council on redrafting the rule to make sure that construction
services can succeed in the federal marketplace. These
regulations have the potential to unfairly prohibit my firm and
many of ACEC's member firms from participating in these
opportunities.
Thank you for the opportunity to participate in today's
hearing, and I would be happy to respond to any questions from
the Committee members.
Chairman HANNA. Thank you.
Our third witness is Ms. Debbie Norris, who served as vice
president of Human Resources for Merrick and Company, a federal
contractor based in Greenwood Village, Colorado, which is
located just outside of Denver.
Ms. Norris, you may begin.
STATEMENT OF DEBBIE NORRIS
Ms. NORRIS. Chairman Hanna and Hardy, Ranking Members Adams
and Takai, and distinguished members of the Subcommittees, my
name is Debbie Norris, and I am vice president of Human
Resources at Merrick and Company, a small business federal
contractor located in Colorado. I appear before you today on
behalf of the Society for Human Resource Management (SHRM).
Thank you for the opportunity to testify today on my experience
as a representative of small business competing for and
managing federal contracts.
Mr. Chairman, first, let me make clear that the president's
goal of providing fair pay and a safe workplace is a shared
goal. After all, who would not be for that? In fact, I work to
provide a safe workplace and to help make Merrick an employer
of choice, not just because it is the right thing to do but
because it provides us a competitive advantage in our industry.
Unfortunately, this order as written is unworkable and should
be withdrawn.
In Fiscal Year 2014, my company, Merrick, managed 329
federal contracts, some of which we were prime and some of
which we were sub, for the Department of Defense, Department of
Energy, NNSA, National Science Foundation, among many others.
We have been recognized as a best company to work for in
Colorado on five different occasions. Our internship program
has been recognized as a best practice in the Denver Metro
area. And I mention these awards because despite the fact that
my company invests significant time and resources on compliance
and creating a sought after work environment, we believe the
FAR Council regulations and the DOL guidance to implement the
Fair Pay and Safe Workplace executive order will have a
significant and negative impact on our ability to maintain
current contracts, compete for new ones, as well as attract
employees.
In my testimony today, I will address some of the key
concerns small businesses have with this proposal. First, I am
really concerned about requirements to report nonfinal agency
actions. In my experience, it is not uncommon for companies to
undergo agency investigations and even be issued a notice of a
violation that turns out to be unfounded. If nonfinal agency
actions are considered, companies like mine could lose a
contract as a result of cases or investigations that are not
yet final or eventually dismissed.
I would like to offer one example. As a federal contractor,
Merrick is audited by the OFCCP on a periodic basis. Our
current audit started in September 2014, and we still have not
received a determination from the OFCCP. Not very timely.
We are concerned that unresolved actions like this will
have a negative impact on our ability to compete for future
federal contracts. In addition, federal contractors will feel
pressured to settle a claim or enter into a labor compliance
agreement with a federal agency even if they feel they have
done nothing wrong.
Second, I am very concerned by DOL's proposal to create
powerful new positions called Agency Labor Compliance Advisors.
These advisors insert themselves into an existing relationship
between contractors and contracting officers to provide
guidance on assessing the seriousness of reported violations.
Due to the ambiguity of definitions in the guidance,
inappropriately broad discretion is given to these advisors.
Third, I am also concerned about the recordkeeping and
ongoing reporting burdens placed on small businesses.
Collecting and reporting on information deemed a labor
violation under 14 different laws and unnamed number of state
laws will not be an easy task. Doing so will require
contractors to create a company-wide, centralized electronic
record of federal and eventually state violations over the past
three years.
Merrick has 18 different offices in eight states, as well
as offices in Mexico and Canada. This proposal places an
additional burden at headquarters of ensuring that each office
is regularly and accurately reporting this information to us.
When staff time is directed to responding to compliance
requirements, it takes away from the HR department's focus on
the needs of our employees and meeting our business and
clients' objectives.
Contractors will likely handle this situation in one of two
ways--they either will try to make due with existing staff,
which may result in a failure to meet the contracting
obligations, or they will hire additional staff, which will end
up costing the government more. And a third reason is they may
actually just exit the federal market.
Fourth, this information is already collected. As a
contractor, we already report this information to the
government and they should use the data it already collects.
In closing, SHRM believes that the proposals create an
unworkable system that will cause harm to the federal
contracting process and impose requirements on contractors and
subcontractors that are impractical and hugely expensive,
especially for smaller business.
Mr. Chairman, thank you again for allowing me to share
SHRM's views on the FAR Council and DOL proposals. I welcome
your questions.
Chairman HANNA. Thank you very much.
I now yield to Ranking Member Adams for the introduction of
our final witness.
Ms. ADAMS. Thank you, Mr. Chair.
It is my pleasure to introduce Mr. William Albanese. Mr.
Albanese is the general manager of A&A Industrial Piping in
Fairfield, New Jersey, a business with over 20 years of
experience. Mr. Albanese is testifying today on behalf of the
Campaign for Quality Construction. The campaign represents six
specialty construction employer associations that have over
20,000 members, the vast majority of which are small
businesses. These members perform construction projects in the
public and private construction market as prime contractors and
subcontractors.
Welcome, Mr. Albanese.
STATEMENT OF WILLIAM J. ALBANESE, SR
Mr. ALBANESE. Thank you. Good morning, Chairman Hanna,
Chairman Hardy, Ranking Member--I thought I get an extra couple
minutes.
Good morning, Chairman Hanna, Hardy, Ranking Members Takai
and Adams. Thank you for the opportunity to testify in support
of the goals of President Obama's Fair Pay and Safe Workplaces
Executive Order.
I would like to state upfront that we support the goals of
the executive order and believe that if it is implemented
carefully so that the Labor Department is able to evaluate the
responsibility of prime contractors and subcontractors alike,
as to their legal compliance, it will help achieve the goal of
encouraging law-abiding companies of all sizes to be able to
compete on a level playing field for government contractors.
The Campaign for Quality Construction Groups are the
leading specialty construction groups representing the
subcontracting component of the construction industry, which
comprises nearly 65 percent of the construction industry. That
is by the Bureau of Labor Statistics and Employment Data. It is
20,000 members strong. We are the lion's share of the industry.
General contractors, construction managers, and heavy
construction firms make up the far lesser share of total
employment.
It must be stressed for the purposes of this hearing that
the vast majority of all construction work on building projects
of significant scope is performed by subcontractors. Also, our
member companies have a balanced perspective of federal
procurement issues. As we typically perform public works
projects as either subcontractors or prime contractors, our
views are multidimensional. Likewise, our position benefits
both small businesses and large business competitors in the
federal market.
Competitive bidding and project performance are both
greatly improved when marginal performances are discouraged
from corrupting fair competition in the market, and quality
firms can compete without being undercut by nonresponsible
contractors. Agencies and taxpayers are the beneficiary of
these improved conditions.
So now just a little about me to lay the groundwork for the
summary of our written statement. I have been in the
construction industry all of my adult life. I started out
completing a five-year, federally-approved apprenticeship
program. That was a long time ago. I started the A&A group over
25 years ago. During that period, I served as the president of
the New Jersey Mechanical Contractors. I currently serve as a
member of the New Jersey Economic Development Authority. I
chaired the New Jersey Mechanical Contractors Industry Fund. I
served as a trustee of the Union Pension and Welfare Fund,
along with chairing the MCAA Legislative Committee.
When A&A started with a good deal of hard work and some
luck, we graduated to a firm with an annual value of about 25
million today with our full-service mechanical contracting, HVA
service business, and a separate construction management
division. A&A has performed many direct federal, as well as
state and local public construction jobs on the East Coast at
all contracting levels. We are the mechanical prime on a $4
billion World Trade Center project. Our contract is 60 million
on that project. We were also the mechanical prime on a Dulles
Carter Metro Rail Project and project at the New Jersey
Picatinny Arsenal, just to name a few of the direct federal
grant projects.
We are also agency construction managers for public
entities--municipalities, community colleges, New Jersey school
projects, county projects, and we also are administering three
projects for FEMA. So we bring the general contractor
construction management perspective to these issues also.
We also perform mechanical contracting work for a number of
private owners, including Merck, Stepan Chemical, and other
pharmaceutical firms, and public agencies, including the New
Jersey DPMC, Port Authority New York/New Jersey, New Jersey
Transit. We have a broad perspective of accepted industry
standards for the strict and comprehensive qualification
requirements in the private and public sector, and that should
be germane to the Committee's deliberation on this issue today.
So our balanced perspective on the executive order is as
follow: We support the overall goals of the order--more careful
screening of prospective federal prime contractors in order to
improve competitive conditions and improve federal construction
project performance. Best practices in the private sector prove
that more time and effort invested on project screening and
planning upfront pays off in improved project performance.
Substantially poor legal compliance records may well be the
leading indicator of overall poor business practices and
increased project nonconformance.
In my experience, those who cut corners on law and safety
usually are the ones who are cutting corners on contracting
requirements. We need a level playing field. If the executive
order discourages marginal performance from entering the
market, fair competition standards will be improved. And then
top quality firms will reenter the market.
Second, the provisions of the executive order seeking to
stem work on misclassification are entirely laudable. Rapid
misclassification of employees as independent contractors is
the scourge of fair competition in construction and leads to
other abuse of public laws in both public and private sector.
Chairman HANNA. Mr. Albanese, if you could--you are over
your time, but please continue.
Mr. ALBANESE. Oh, I am sorry.
Chairman HANNA. If you could wrap it up.
Mr. ALBANESE. Let me wrap it up.
Chairman HANNA. If possible.
Mr. ALBANESE. So to conclude, allow me to respectfully
dissent from the title of the hearing. It is neither
blacklisting nor adverse to the best interest of legally
compliant small businesses or any other businesses.
So Co-Chairmen Hanna, Hardy, Ranking Members Takai and
Adams, and the Committee members, thank you for this
opportunity. That concludes my remarks, and I look forward to
your questions.
Chairman HANNA. Thank you.
Mr. ALBANESE. Thank you.
Chairman HANNA. Mr. Albanese, I have not heard anyone here
disagree with you in terms of the goal. What I have heard, and
feel free to correct me, is that this is a very subjective, has
the potential to be extremely arbitrary and capricious, that
the people who are asked to do this work are neither judges nor
juries, that the difficulty associated with outcomes with this
is that people are essentially convicted before they are proven
innocent, that any disgruntled other contractor, someone in
your business could register a complaint with you--about you,
have that hanging over your head, and it is up to you to figure
out how to get rid of it. So I do not think there is anybody
here that argues that people who are bad actors, who are
appropriately litigated in that regard are at issue.
But with that, Ms. Styles, would you like to respond?
Ms. STYLES. I think that is exactly the problem. I mean,
there are adequate remedies already. And if people do not think
that the remedies are adequate in terms of what Congress
decided for the labor laws or how the suspension and debarment
system is working, then that is where we should focus on fixing
this. If those are the goals, you already have too many legal
remedies under labor law and the suspension and debarment
system to really get it right, to make sure that bad actors are
not participating in the federal procurement system.
Chairman HANNA. Okay. So what is driving his?
Ms. STYLES. Why, I assume it is labor interests. I assume
that there are other reasons behind this.
Chairman HANNA. So what would--I mean, if you feel
comfortable saying so, what do you mean by that?
Ms. STYLES. Well, I mean, my presumption is, in part, that
many would prefer that these jobs be done by federal employees.
Many would prefer that private companies with labor unions make
sure that private companies that do not have labor unions are
not benefitted by particular labor laws. I also think it is an
effort to have a mechanism. For example, the term ``compliance
agreement.'' You will not find the term ``compliance
agreement'' in any statute or regulation except for this
proposed rule. If you ask me, it is a way to extort settlements
out of companies on a case-by-case basis where the Department
of Labor wants----
Chairman HANNA. Well, there is an insidious nature to all
of this.
Ms. STYLES. Well, it is certainly--I cannot come up with an
objective rational explanation.
Chairman HANNA. Mr. Peacock, would you like to respond?
Mr. PEACOCK. This is a little difficult as a small business
because, first of all, in the AE industry, we are selected
based upon--I am sure you are familiar with the Brooks Act. We
are selected based upon our qualifications. So it does not
make--we are not going to succeed in a business if we do not
have high-quality people, if we are mistreating our people. I
cannot hire good quality people by not paying them a fair wage,
by not giving them good benefits, and by mistreating them. They
are professionals. They are going to go someplace else.
Chairman HANNA. In your statement you mention that. Most of
this is an anathema to what you would do to run a normal
business that is successful, like your business, Ms. Norris.
Mr. PEACOCK. Absolutely. I have to, you know, when we are
selected based upon qualifications, I have to compete with a
large number of my fellow firms. And in order to do that, I
have to be able to prove that I am better than they are. That I
have more experience. That I am better qualified. That I have
the integrity and the experience to do the project.
Chairman HANNA. You are okay with the punishment; you just
do not like the lack of due process?
Mr. PEACOCK. Absolutely.
Chairman HANNA. Ms. Norris?
Ms. NORRIS. I fully support what Ms. Styles and Mr. Peacock
have said. We do work hard to make our company a place that
people want to come to work. And if I did not pay a fair wage,
if I did not follow safety requirements--we have a huge safety
culture in our company. Every meeting starts with a safety
moment. So we do all the things. And again, we do not have any
violations right now that we could even talk about. It is that
potential of how much it is going to cost us to maintain the
records for that, the things that we have to create, because
there is nothing in place to track all that. It is just--it
does not make sense.
Chairman HANNA. Thank you.
I yield to Ranking Member Takai.
Mr. TAKAI. Thank you, Mr. Chairman.
First question to Mr. Albanese. There are those that argue
that discretion is already given to agency officials to seek
out labor law violations before an award of a contract. In your
experience, how often are contracting officers asking for this
type of information?
Mr. ALBANESE. In my experience working, as I said, for
private agencies, private companies, contractor
prequalification is mandated. It is commonly done. New York
City has VENDEX. The State of New Jersey has DPMC. Port
Authority not only has a very strict qualification requirement
but they have an integrity monitor that is on the job. This is
common business sense. In other words, it makes good business
sense to vet the contractor before he gets the job. It is
common in our industry. We do it all the time, and we do not
see it as being a burden to any legitimate, fair contractor
that is playing by the rules. It is done all the time.
Mr. TAKAI. My question though is how often are the
contracting officers asking for this type of information?
Mr. ALBANESE. Specific contracting officers? When we did
the Dulles job, we did not have very much vetting at all. We
were just awarded the contract.
Mr. TAKAI. Right. So my follow up then is how effective can
this discretion given to contracting officers be if it is
rarely utilized to search for violations defined in the
executive order?
Mr. ALBANESE. This executive order will mandate a fair
level playing field for everybody is involved. That is what
this will do. And there will not be the gap. They give this guy
the job. Let us not check if he has labor violations, or he
does not have labor violations, or he violated Davis-Bacon, or
he has safety issues that were never investigated.
Mr. TAKAI. Okay. So you are advocating that all
subcontractors' responsibility determinations be made by the
agency. What are your concerns with the prime contractor making
these determinations?
Mr. ALBANESE. Well, some of the regulations are so hyper
technical. On the basis of that, I do not think as a prime
contractor, if I was the prime, because we are primes many
times, that we want to get into this hyper technical
evaluation. We feel it would be much better if it would be done
by a government agency, a CO, an LCA, to do that process for
us. FAR right now does have some regulations that are moving in
that direction. That would be a great thing to do.
Mr. TAKAI. Okay. Thank you.
Mr. Peacock, you have addressed concerns regarding the
disclosure of your violation to primes, contending that this
could harm your business relationships, and in some instances,
eliminate the competitive advantage. However, could not some of
these concerns be alleviated if the subcontractors went to the
Department of Labor for the determination as this guidance
allows?
Mr. PEACOCK. Well, I believe what you are asking is should
we be dealing directly with the Department of Labor on these
issues as opposed to running it through our competitors. And
one of our concerns is that sharing a lot of our business
information with our competitors certainly does put us at a
disadvantage. When we have to compete for particularly
personnel, highly qualified personnel, there is a shortage of
good quality engineers out there. And to keep those people, it
is very important for us to treat them fairly and be able to
maintain those. And so for us to go--if you want me to deal--I
would much rather deal with the Labor Department. My analogy is
if we--most of us have security clearances. I deal with the
Department--the Security Department if there is an issue. If I
have an employee who has an issue, I deal directly with them.
They tell me I have to report to them and they tell me what I
have to do as the facility security officer. It should actually
be the same thing. If I have something going on in my company,
then I should be dealing directly with the Labor Department and
solve that problem and not passing it through a million
different people.
Mr. TAKAI. Okay. Great. Thank you.
I yield back.
Chairman HANNA. Mr. Hardy?
Chairman HARDY. Thank you, Mr. Chairman.
Ms. Styles, do you think it is realistic to expect the
labor compliance officers to have the expertise on 14 different
federal labor laws and numerous state requirements and laws? Do
you think people have that expertise or could afford that in
small business?
Ms. STYLES. I think it is impossible. I mean, we cannot
even write my testimony with just me because it takes a
government contractors lawyer and a labor lawyer. I do not know
how one person or even one set of people can really get a
handle on all those laws and how they operate.
Chairman HARDY. Does anybody else care to add to that in
any way, shape, or form?
Go ahead, Mr. Peacock.
Mr. PEACOCK. Well, I would like to comment.
Chairman HARDY. Yes, go ahead.
Mr. PEACOCK. The issue of complying with this, in looking
at the prequalification forms that I fill out, it would take 10
or 15 minutes of looking at the prequalification form to see
that there are questions such as have you had OSHA violations?
Have you had Davis-Bacon violations? Do you have any criminal
action or civil action going on? Your financial status. Do you
owe so much money? These are common, basic items that are
listed in the prequalification. It would be easy to vet on
those specific issues. That would raise the flag, and then you
could go into a deeper analysis of it.
Chairman HARDY. Last year there were over 77,000 pages of
new administrative laws placed out; 3,280 some-odd new
regulations. How many of those do you understand today--have
you read, your company read, and understand today?
Mr. PEACOCK. Honestly, probably zero.
Chairman HARDY. Okay. So with these compliance laws, do you
believe that you can still keep up with that regular order?
I will move on here. Mr. Peacock, let us talk compliance
for a second. They say what it will take to implement this is
probably only about eight hours in the FAR Council, and the
DOSL estimated it will only take eight hours to figure these
rules out. Is that correct?
Mr. PEACOCK. Well, we currently have 24 IDIQ contracts, and
estimate at least another 16 single scope contracts. That is 40
contracts. And if I take--sorry, I am an engineer--if I take 40
and I divided it by eight hours, that gives me 12 minutes to
deal with each one of those contracts, compliance with each one
of those contracts. Now, personal opinion is I am going to,
because I am a subcontractor, I am going to get an email from
my point of contact of the prime. They are going to say, ``Can
you please submit this information to us?'' Realize that not
all of these are going to occur at the same time. They are
going to occur on the anniversary date of the contract, and
every six months after that as it is currently proposed as I
understand it, I am going to get an email. I have to respond to
the email. I have to get my administrative people to pull the
information, put it together. I have to respond back in an
email, and then I am going to get a telephone call saying,
``Oh, could you give me this in a different format?'' You know,
that is just the way it goes. I cannot do all that in 12
minutes. And my estimation is that it is going to take me two
hours at the minimum to deal with each one of those. That gives
me 80 hours on 40 contracts, and I have got to do this twice a
year? I mean, that eight hour estimation is way, way
underestimated. And it is going to vary for every company,
depending on the number of contracts you have.
Chairman HARDY. Ms. Styles, another quick question. As a
contractor, I have been a prime myself for a number of jobs,
and with that, usually, typically sometimes there is upwards of
30 or 40 subs of some kind on major projects. And through that
process should I be required--how can I follow up with all my
subs to make sure that they are in compliance, and any
guestimation what would happen if I am awarded a contract and I
find out that somebody all of a sudden becomes under violation?
Any estimation what might happen there?
Ms. STYLES. Well, it also requires the prime contractors to
become experts on all of these laws and all of these
regulations, and the mitigating circumstances and what should
be done to be compliant by all of the subcontractors that they
have. I mean, even small businesses, and many small businesses
are prime contractors, they will have large business
subcontractors. They will have the largest defense contractors
in our country--the Lockheed Martins, the UTCs, the Boeings
will be their subcontractors. So you are going to have this
small business asking Boeing for all of their labor compliance
information. And then that small business has to assess that
and has to decide whether they are really compliant or not. I
do not know how they do that.
Chairman HARDY. Thank you, Mr. Chairman. I yield back.
Chairman HANNA. Ms. Adams?
Ms. ADAMS. Thank you, Mr. Chairman.
Ms. Norris, you indicated in your testimony that the
disclosures required in the executive order are duplicative as
they are collected by different agencies already. However,
state violations are not reported and the contracting officers
at the various agencies do not have access to the information
at issue. So how would you recommend making these disclosures
available to the contracting officer, if not through the method
proposed through the guidance?
Ms. NORRIS. Well, first off, we do not know what state laws
are going to be required. That has not been spelled out. So
that is a little bit difficult to answer. Let me regroup here.
Because the proposal process asks for this information, it
seems to me that it is already being asked for and that it
seems redundant to have a whole executive order to handle a
process that is already part of the FAR proposal process. And
so I do not know how you would tell the state, other than
through the current process where you list what has been a
violation on the current proposal process. I am sorry, that is
not part that I am familiar with on the state side.
Ms. ADAMS. Ms. Styles, would you like to comment? I think
you also mentioned the duplicative. I believe I heard you say
that.
Ms. STYLES. I did mention the duplicative piece of it but
we cannot say anything about the state piece because they have
not implemented it yet. But the duplication issue is to avoid
de facto debarment of a particular company. So what is
happening is that for each contract over $500,000 and each
subcontract over $5,000, the contracting officer has to receive
all of the information about the violations, including the
mitigating circumstances and evaluate it. And then the guy next
door or at the next agency. So maybe it is a contracting
officer at DoD. The contracting officer at VA has to look at
all of that information again and make their own independent
determination as well. And so even if it is two contracting
officers sitting next to each other in DoD, they cannot talk to
each other about it. They have to make their own independent
determination. And so it is really duplicative collection of
exactly the same information for a prime contractor and exactly
the same information for subcontractors as well. So there is a
reason for it, because they want to avoid de facto debarment of
contractors and subcontractors, but it is a huge collection of
information over and over--the same information over and over
and over again.
Ms. ADAMS. All right. I have another question. The goal of
the executive order is to ensure that the government is not put
at risk as a result of awarding contracts to those who did not
comply with labor laws. Mr. Albanese, do you know if instances
in your business history where marginal performers undercut
more responsible bidders and the public agency ended up with a
bad project as a result?
Mr. ALBANESE. The interesting part about that on say public
agency jobs that we do, all the contractors have gone through
this vetting process. We know that their financial backgrounds
support it. As an example, on the state work, you are allowed,
you are getting an amount of money that you can bid up to or
have an aggregate of work in place. So my experience is that
rarely do we see violations or these violators doing work and
getting away with it because they have already been vetted.
Ms. ADAMS. Okay. Follow-up, Mr. Albanese. Is it not just
good business practice to keep track of the information
required in the executive order?
Mr. ALBANESE. It makes absolute perfect business sense to
vet a contractor before you are going to give him a $5 million
job to make sure--and the list goes on in my prequalification
list. There is no criminal, there is no civil violations, there
is no OSHA violations. That this contractor has paid Davis-
Bacon accurately, and he is not skirting the issues. It makes
perfect business sense.
Ms. ADAMS. Thank you, sir.
Mr. Chair, I yield back.
Chairman HANNA. Mr. Rice?
Mr. RICE. Thank you, Mr. Chairman.
I kind of want to step back and look at this from an even
bigger picture because I think this particular executive order
is just a symptom of a larger problem that this country faces.
Here we sit seven years after the Great Recession and our
economy continues to struggle. We vacillate between zero or
negative growth and 2 percent growth, where most economists
thing we should have had a significant snapback by now. And I
think one of the big problems that is holding our economy back
is this vast mushrooming regulatory burden that all you guys
face.
So the SBA estimates that the cost of federal regulation on
a firm with fewer than 20 employees is $10,585 per employee per
year. The president apparently agrees with me. He constantly
says we must reduce and streamline regulations on small
business. But do not be fooled by what he says; look at what he
actually does. According to a recent study by the Mercado
Center, this administration has issued 120,000 new regulations.
They claim the prize. They have issued more regulations than
any administration since Linden Johnson. And not only that,
they have done it in six years instead of eight. We still have
two more years to go. So when you look at what he says--we need
to reduce regulation--what he actually does, adding all this
regulatory burden like this proposed executive order, we should
not be surprised when the economy is stifled.
Right now, for the first time in 80 years, we have had five
consecutive years where more businesses are dissolved in
America than are formed in America. The first time since the
Great Depression. More Americans have left the workforce than
at any time in the last 35 years. Homeownership in America is
as low as it has been in 50 years. I do not think any of this
is coincidental. I think it is all a direct result of the
mushrooming regulatory burden that we place on small business.
So I have a question for you all. You guys are in the
regulatory business or in small businesses. Can you name for
me--let me ask you this. Ms. Styles, do your clients see a
streamlined and reduced regulatory burden under this
administration?
Ms. STYLES. No, they do not.
Mr. RICE. Okay. I have to go quick.
Mr. Peacock?
Mr. PEACOCK. No, sir. Not at all. We are drowning in
paperwork.
Mr. RICE. Okay, thank you. Thank you.
Ms. Norris?
Ms. NORRIS. No, we do not.
Mr. RICE. Mr. Albanese?
Mr. ALBANESE. No, I do not.
Mr. RICE. Okay, thank you.
Ms. Styles, can you name for me one instance where this
administration has generated a streamlined or reduced
regulatory burden? I am not talking about a minor thing. I am
talking about any meaningful reduction in cost or time on small
business?
Ms. STYLES. Well, I will say that Ms. Rung, who is
testifying after me, did issue a memorandum on efficiency on
December 14th of last year. So to the extent that that is
actually implemented--but I do not see how you implement it----
Mr. RICE. So have your clients seen any benefit yet from
any streamlined or reduced--I am talking about material change?
Ms. STYLES. No.
Mr. RICE. Mr. Peacock?
Mr. PEACOCK. No.
Mr. RICE. Ms. Norris?
Ms. NORRIS. No.
Mr. RICE. Mr. Albanese?
Mr. ALBANESE. No, to that question.
Mr. RICE. So somehow the rhetoric does not match what we
are actually doing here. I think that, you know, it goes back
to the book, The Death of Common Sense. We are drowning in
regulation. If we do not get a hold of this, I think our
economy will continue to suffer. I think it bodes very poorly
for this next generation coming up in America. When you ask
Americans, do you think that your children have a brighter
future than you did, and two-thirds of them say no, that bodes
badly for this country. And I think this is one of the
underlying foundational reasons why Americans feel this way.
I yield back.
Chairman HANNA. I want to thank you all for being here
today.
And for the record, I have 35 years in the Operating
Engineers Union. I support Davis-Bacon. I get it. But it seems
to me that there really is a lot of rules and regulations that
may even be unconstitutional since the regulation was not--
which we will get into in the next hearing, but the whole idea
of a lack of due process and the subjective nature that is
given to a guy whose job it is to manage a project, a
contracting officer, my biggest concern is that it is a race to
defend and protect the behind of that particular person who has
an incentive necessarily to race to the bottom, but yet at the
same time, if that person is not thoroughly qualified or in any
way not open minded about the people who have been low bidder,
then he has an opportunity to find virtually any reason he
likes, or she likes, to put at risk a company that has been
years in business, does great work, may have made a mistake or
two in their lives--and we all do--and summarily, execute them
from a particular job without any formal process.
So with that I want to thank you all for being here. We are
going to go to the next panel. And Mr. Hardy will be taking the
chair. Thank you.
Chairman HARDY. Good morning. We will start with a quick
introduction. I guess I better start the meeting. Thank you for
being here.
I would just like to start with a quick introduction to our
panelists. First, we have Ms. Anne Rung. She is our first
witness on the panel. She is the administrator of the Office of
Federal Procurement and Policy Office of Management and Budget.
Our second witness is Mr. Lafe Solomon. He serves as the senior
labor compliance advisor in the Office of the Solicitor at the
United States Department of Labor.
So with that, Ms. Rung, we will let you have five minutes.
STATEMENTS OF ANNE RUNG, ADMINISTRATOR, OFFICE OF FEDERAL
PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET; LAFE
SOLOMON, SENIOR LABOR COMPLIANCE ADVISOR, OFFICE OF THE
SOLICITOR, UNITED STATES DEPARTMENT OF LABOR
STATEMENT OF ANNE RUNG
Ms. RUNG. Chairman Hanna, Ranking Member Takai, Chairman
Hardy, and Ranking Member Adams, and members of the
Subcommittees, thank you for the opportunity to appear before
you today to discuss the administration's implementation of
Executive Order 13673, Fair Pay and Safe Workplaces. My
comments today will primarily focus on actions being taken by
the Federal Acquisition Regulatory Council, the FAR Council,
which I chair as administrator of the Office of Federal
Procurement Policy (OFPP).
It is important to emphasize at the outset that OFPP and
the FAR Council have been working in close partnership with the
Department of Labor on rules and guidance to implement this
executive order. Our respective organizations are fully
committed to implementing the EO in a clear, fair, and
effective manner, and have been actively seeking feedback from
stakeholders since issuance of the EO more than a year ago. We
did this to ensure that we had sufficient information and
insight from stakeholders, including small businesses, to
achieve these goals.
This EO is designed to improve contractor compliance with
labor laws in order to increase economy and efficiency in
federal contracting. As Section 1 of the EO explains,
contractors that consistently adhere to labor laws are more
likely to have workplace practices that enhance productivity
and deliver goods and services to the Federal Government in a
timely and predictable and satisfactory fashion.
While the vast majority of federal contractors abide by
labor laws, studies conducted by the General Accountability
Office, the Senate Health Education Labor and Pension
Committee, and others, suggest that a significant percentage of
the most egregious labor violations identified in recent years
have been by companies that receive federal contracts. In
addition, studies performed by others have found a nexus
between companies with labor violations and significant
performance problems on government contracts.
As explained in the preamble to the proposed FAR rule and
in my written statement, we have taken a number of steps in the
proposed rule consistent with direction in the EO to minimize
the implementation burden for contractors and subcontractors,
including small businesses. Let me just provide you with a few
examples.
One, the proposed prior rule builds on existing processes
and principles, including the longstanding requirement that a
prospective contractor be a responsible source. Two, many of
the contracts performed by small businesses, including
contracts valued at $500,000 or less and subcontracts for
commercial off-the-shelf items, are exempt from the proposed
FAR rules disclosure requirements.
Further, during listening sessions held by DOL, OMB, and
relevant councils, stakeholders raised concerns regarding the
potential complexity and burden associated with two aspects of
the EO in particular. One, provisions addressing disclosure of
violations of equivalent state laws; and two, provisions
addressing disclosure and evaluation of subcontractor
violations.
In response to what we learned from these sessions,
requirements in the EO addressing the disclosure of violations
of equivalent state laws, with the exception of OSHA state
plans, will be phrased in at a later date. In addition, the FAR
Council has developed alternative proposals that seek to
address concerns at HERD regarding the challenges contractors
might face in evaluating violations disclosed by their
subcontractors. This includes a possible phase-in of
subcontractor disclosure requirements, and the proposed FAR
rule has invited public comment on additional or alternative
approaches to this issue.
Stakeholder feedback has been a very key component in the
development of the proposed FAR rule, and currently, the FAR
Council is carefully reviewing the many and diverse public
comments received in response to the proposed rule published at
the end of May to determine where additional revisions are
needed. In considering comments, the FAR Council seeks to
ensure that the final rule is both manageable and impactful in
achieving the EO's objective of bringing contractors with
significant labor violations into compliance with the law in a
timely manner. Without question, implementation of the EO
requires the government's policy, operational, and technology
officials to address a number of difficult issues head on, and
it is hard work, but work that is critical to the integrity of
our procurement system, ensuring economy and efficiency in
contracting and security the well-being of American workers.
Thank you, and I am happy to answer any questions you may
have.
Chairman HARDY. Thank you, Ms. Rung.
I would like to turn the time over to Mr. Solomon for five
minutes.
STATEMENT OF LAFE SOLOMON
Mr. SOLOMON. Good morning, Chairman Hardy and Hanna, and
Ranking Members Adams and Takai. Thank you for the invitation
to appear before your Subcommittees to speak about DOL's
proposed guidance to implement the Fair Pay and Safe Workplaces
Executive Order.
For the past year, I have led the efforts at DOL to
implement this EO. Although most federal contractors comply
with applicable laws and provide high-quality goods and
services to the government and taxpayers, a small number of
federal contractors have committed a significant number of
labor laws in the last decade. Those contractors who invest in
their workers' safety and maintain a fair and equitable
workplace should not have to compete with contractors who offer
lower bids based on savings from skirting labor laws.
To address this issue, President Obama signed this EO last
year requiring prospective federal contractors on covered
contracts to disclose certain labor law violations, and giving
agencies guidance on how to consider those labor violations
when awarding federal contracts. With this EO, the president
pledged to hold accountable federal contractors to put workers'
safety, hard-earned wages, and basic workplace rights at risk.
The EO builds on the existing procurement system and
changes required by the EO fit into established contracting
practices that are familiar to both procurement officials and
the contracting community. In addition, DOL will provide
support directly to contractors so that they understand their
obligations under the EO and can come into compliance with
federal labor laws without holding up their proposals in
response to specific federal contracting opportunities.
Finally, DOL will work with labor compliance advisors across
agencies to minimize the amount of information that contractors
have to provide and to help ensure efficient, accurate, and
consistent decisions across the government.
The objective of the EO is to help contractors come into
compliance with federal labor laws, not to deny them contracts,
and it encourages compliance, not suspension and debarment. The
processes and tools envisioned by the EO are designed to
identify and help contractors address labor violations and come
into compliance before consideration of suspension and
debarment. The EO does not in any way alter the suspension or
debarment process; however, the expectation is that the
processes and tools envisioned by the EO will drive down the
need for an agency to consider suspension and debarment and
help contractors avoid the consequences of that process. As a
result, this EO, once implemented, will offer contractors an
opportunity to come into compliance and maintain the privilege
of being a federal contractor, unlike the suspension and
debarment process, which could exclude them from receiving
awards.
On May 28th of this year, DOL published proposed guidance.
On that same day, the FAR Council also issued proposed
regulations integrating the EO's requirements and the
provisions of DOL's guidance into the existing procurement
rules.
DOL's proposed guidance would do several things. First, it
would define the terms used in the EO--administrative merits
determinations, civil judgments, and arbitral awards or
decisions, and provide guidance on what information related to
these determinations must be reported by covered contractors
and subcontractors. Second, it would define serious repeated,
willful, and pervasive violations and provide guidance to
contracting officers and labor compliance advisors for
assessing a contractor's history of labor law compliance and
considering mitigating factors, most notably efforts to
remediate any reported labor law violations. Third, it would
provide guidance on the EO's paycheck transparency provisions.
We have received numerous comments and are now reviewing
them. Nothing I say today should be taken as a prejudgment of
any issue as I do not want to prejudge the outcome of that
process. We are working through the comments to produce a
quality guidance document that will better inform federal
procurement decisions, provide contracting officers with the
necessary information to ensure accurate, efficient, and
consistent compliance with labor laws, help contractors meet
their legal responsibilities, and remove truly bad actors from
federal contract consideration, creating a more level playing
field for law-abiding contractors. Most importantly, it will
also ensure that hardworking Americans get the fair pay and
safe workplaces they deserve.
I appreciate the invitation to testify, and will be happy
to take any questions you may have.
Chairman HARDY. Thank you, Mr. Solomon. And with that, I
will yield myself five minutes of time for questioning.
With your statement, Mr. Solomon, it sounds like there's
quite a bit of challenges out there with people needing to be
debarred or suspended. Is that correct? Is that the way I
understand your statement, that there are a lot of issues out
there that we are having with cause and effect that we need to
make sure we are issuing debarments or suspensions?
Mr. SOLOMON. Well, Mr. Chairman, the executive order is not
about suspending and debarment. It is to bring contractors into
compliance so we can avoid having to go through for a
contractor a suspension and debarment process.
Chairman HARDY. That is back to my question. So bring them
into compliance. So is there a lot of noncompliance out there?
Mr. SOLOMON. What we have said is the vast majority of
contractors do play by the rules and do not violate labor laws.
But for the contractors that do violate the labor laws, we
are--that is what the executive order is designed to get at.
Chairman HARDY. So when you were at the NLRB as our
counsel, how many people did you debar or suspend while you
were there?
Mr. SOLOMON. Well, the NLRB has no debarment or suspension
process.
Chairman HARDY. Department of Labor? Okay. How many did you
refer, I guess, is the question.
Mr. SOLOMON. Well, the NLRB, like various enforcement
agencies at DOL, have a jurisdiction that is beyond federal
contractors. So it does not come up in an investigation at the
NLRB as to whether the employer involved is the federal
contractor or not.
Chairman HARDY. Okay. Ms. Styles testified that the
proposed rule was a chance for agencies to extort settlements
from small businesses. What is your opinion on that?
Mr. SOLOMON. I do not think that is a fair statement. What
this executive order does is looking for the most egregious
violations, a pattern of a basic disregard of labor laws. The
executive order is clear that not one violation of a labor law
is going to lead to any problem in the contracting process.
Chairman HARDY. Thank you.
Ms. Rung, the construction contractors commonly state that
they have usually if they are in the general they have more
than seven tiers of subcontractors. In the EO proposal, as a
prime, would I need copies and records of all seven tiers?
Ms. RUNG. I appreciate your question. It was extremely
helpful feedback this morning from a lot of the small
businesses. We have been out meeting with small businesses to
talk about this and other issues. The one issue they have
raised is the flow down piece of this, how primes will sort of
implement this piece of it to track and measure performance by
their subcontractors. And in response to that, we have done a
number of things and put a number of proposals in this rule.
Just to mention one, for example, one alternative in which we
are seeking feedback on would allow subcontractors to take
their information on labor violations and provide it directly
to Department of Labor and work with Department of Labor to
assess those violations. So you would essentially be taking
those prime contractor out of the role of sorting through that
information and evaluating the records provided to them.
Chairman HARDY. Does that individual, that prime, need to
make sure that they monitor those performance also?
Ms. RUNG. So the prime contractor has always been
responsible for ensuring that their subcontractors are
responsible subcontractors, so that role would continue. So
they have always had to ensure that their subcontractors are
performing.
Chairman HARDY. Let us bring in OSHA rules. I, myself, have
an OSHA 40. I am on the site continually when I was working. I
have other officers that have their OSHA 40 and make sure that
things are complied with. It is typically the subcontractor
that you sometimes have a challenge with on that and it puts me
at risk. You know, I can run that individual off, but does that
put me in violation when it is somebody else's employee and we
are doing everything we can to keep on track? Is that a
violation?
Ms. RUNG. Thank you for the question. And certainly, if my
colleague from DOL wants to jump in at any point he can, but we
are really focused on the most egregious violations. So I think
the GAO report from 2010 that cited several examples, gives you
a good indication of what we mean by serious violations. So
when they refer to, for example, a food company that has over
100 OSHA violations that ultimately result in an employee being
killed, that is an example of what we are talking about.
Chairman HARDY. Can I stop you there? My time is running
out. But does that violation--we are talking about violations,
and what happens is it gets stuck, as you heard, in the
process. It is a violation. I might be bidding on another
project, and as long as that is hanging over my head, I am
guilty until proven innocent.
Ms. RUNG. Well, I think there are a couple things. One,
this EO has a number of provisions designed to ensure that we
are not slowing down the process. So one of the key parts of
this is to encourage companies to work with Department of Labor
very early in the process, well before award, to help bring
these companies into compliance.
Chairman HARDY. Thank you. My time is expired.
Ms. Adams? I would like to recognize Ms. Adams for five
minutes.
Ms. ADAMS. Thank you, Mr. Chair.
Ms. Rung, some subcontractors have expressed concern that
prime contractors do not have the requisite knowledge in labor
law to make an informed decision as to their responsibility. Is
there not enough regulatory discretion in the executive order
and in the Federal Acquisition Regulatory Council itself to
justify having the agency contracting officer and the labor
compliance advisor review all covered prime contractors and
subcontractors in the initial responsibility review process?
Ms. RUNG. Thank you for the question. So it has been a
longstanding tenet of the federal procurement system that the
prime contractors are responsible for the performance and
ensuring that their subcontractors are responsible companies.
The LCAs and the contracting officer are responsible for making
that determination of business integrity and ethics for the
primes. And that is the way historically it has worked. In this
case, as I just explained, we very much appreciate and have
heard from a lot of small businesses the concern about primes
tracking the subcontracting piece of this, and as such, we have
laid out a number of alternatives in this proposed rule for
which we seek feedback, including this notion that
subcontractors could go directly to Department of Labor to work
with them on the reporting piece and to have Department of
Labor evaluate that information.
Ms. ADAMS. Thank you. One of the main concerns voiced by
those opposed to the executive order is that they fear that due
to de facto, debarments will occur if contracting officers are
relying on the same recommendation when making a responsibility
determination. So what mechanisms are in place to ensure that
this does not happen?
Ms. RUNG. So we are very much focused on bringing companies
into compliance and not excluding them. And so we are doing a
number of things to ensure that we can achieve that goal. And
one of them is setting up a process within Department of Labor
to have them work with the companies very early in the process
well before the bidding to help bring them into compliance. We
want to create a system where information can be shared among
all the agencies, so we are ensuring that consistent decisions
are being made, and we are also limiting burden to the extent
possible for our contractors in terms of reporting many times.
Ms. ADAMS. Okay. There has been much criticism as to the
inclusion of administrative merit determinations in the
executive order. Mr. Solomon, can you explain why the decision
was made to include these decisions in the disclosure
requirements?
Mr. SOLOMON. Thank you for the question.
I think it is important to start with what administrative
merit determinations are not. And they are not charges that are
filed by workers with the enforcement agency saying that--
alleging that there have been violations of the federal labor
laws. Once the charge is filed, there is a full and thorough
investigation by a neutral government factfinder. They take
into account all evidence presented by both the workers and by
the company. And in my experience, most--there are a
significant number of these charges that are found to be
without merit in all these enforcement agencies. So what an
administrative merit's determination is, is after this
complete, thorough investigation, the agency concludes that
there has been a violation of the labor law. And what we say in
the proposed guidance--and we have a lot of comments on this
portion of the guidance--but the guidance says that the notice
or complaint that is served on the employer by the enforcement
agency is, in fact, the administrative merits determination.
And I would also add that there is a significant percentage of
these administrative merits determinations that, in effect,
become final determinations because they are either settled, or
if they are litigated by the employer, which the employer has
every right to do, the government has a very, very high win
rate of those.
Ms. ADAMS. Okay. I am just about out of time. Mr. Chairman,
I yield back.
Chairman HARDY. The gentlelady yields back.
I would like to recognize Chairman Hanna for five minutes.
Chairman HANNA. Thank you.
If you know who all these violators are and they have
committed all these egregious problems, which, you know, I am
sure they are out there, why not just go after them? Why create
a burden for companies who have--they have hundreds of
subcontractors and the process does not work the way you
described it, I do not think, we do not know--a contractor does
not know who he is going to hire until the day he may bid the
job. So how is he supposed to screen all this stuff and all
these people, use their number which may be low or whatever,
and then rely on that number, put his business at risk, and
hope that you guys go along?
And the other problem I have with this is what does
``egregious'' mean and what does ``significant'' mean? I mean,
those are subjective words that any contract officer or any
judge or jury or person can use in any way they like. So I
wonder if you really have--I mean, if you have a notion of how
you are going to navigate that with some degree of earnest
fairness that produces the outcome you want when apparently you
already know who these people are based on--if it is egregious
and significant, then I guess I could find out who those people
are. But our worry is, my worry, is that this will trickle
downhill depending on who decides what that means and what some
outside force, unhappy other contractor or second bidder, labor
person, you know, union or nonunion, so what do you say to
that?
Ms. RUNG. So let me, perhaps I will address the question
about the information is already out there and then my
colleague can jump in on some of the definitions.
The challenge for us is that the information is not always
available to us. So the current penalty triggers for reporting
violations into the performance system may be higher than the
individual labor violations. And secondly, a contractor is not
required to enter information into the federal awardee,
integrity, and performance system unless it has done more than
$10 million in business. And third, not all violations are
accessible to us. And I think as GAO has emphasized, that our
contracting officers, for whatever reasons, are not using the
information to make accurate responsibility determinations. So
what we are trying to do here is ensure that our contracting
officers have timely and complete and detailed information to
make these responsibility determinations which they are already
required to do.
Chairman HANNA. Not for these jobs. I mean, this contractor
shows up. He or she, the company is low bid. They have hired--
they have based their assumptions on all these different prices
that came in from who knows how many companies. And they do
enter the picture and you say this person and that person is
not qualified. How do you reconcile that in the real world?
Ms. RUNG. I think, you know, what we heard from some of the
panelists this morning is that we are creating a level playing
field by ensuring that only those contractors that play by the
rules are competing in the federal marketplace.
Chairman HANNA. How could it possibly be level if they do
not know in advance who those people are? Is it really a
contractor's problem to get on there when apparently the
information is out there?
Ms. RUNG. The information is not always available, and it
is not always out there, and it is not available in a timely
fashion, and it is not always available in a complete fashion.
And I think the evidence has been borne out by the GAO report.
So the outcomes are showing that we are awarding taxpayer
dollars to companies that commit serious labor violations. And
our goal here is to simply ensure that we protect taxpayer
dollars.
Chairman HANNA. Mr. Solomon?
Mr. SOLOMON. To answer part of your question, I mean, the
intent behind the guidance and the intent behind the creation
of labor compliance advisors throughout the government is to
provide a mechanism for uniform and consistent decision-making
across the government. I think there is an understanding that
contracting officers do not necessarily have the knowledge base
to be able to make decisions over a company's labor law
compliance.
Chairman HANNA. The GAO report did not evaluate whether
federal agencies considered, or should have considered, these
violations in awarding the federal contract. Thus, no
conclusions on the topic can be drawn from this analysis. I
mean, it really seems as though you have got a lot of work
ahead of you to implement this in a way that is in any way
reasonable or fair or provides the outcome that you want.
Ms. RUNG. Well, you know, the part--the most compelling
part of the GAO report to me were the examples of the kind of
companies that are receiving federal taxpayer dollars even
though they have committed serious violations, including OSHA
cited a company for over 100 health and safety violations. And
after an employee was fatally asphyxiated after falling into a
pit containing poultry debris.
Chairman HANNA. Sure, I get that. But I mean, my time has
expired.
Ms. RUNG. That is the kind of violations we are talking
about.
Chairman HANNA. But why is that company even out there? I
mean, if you know who they are, and you do today, why did you
not know yesterday? Why is that not someplace in the public
domain? I swear that it must be.
Ms. RUNG. Yeah.
Chairman HANNA. My time is expired, but thank you. I
apologize for cutting you off.
Chairman HARDY. The gentleman's time has expired. I would
like to recognize Mr. Takai for five minutes.
Mr. TAKAI. Thank you, Chairman.
I am concerned about some of the comments made by the
previous panel about the effects that this executive order may
have on the federal marketplace. So Ambassador Rung, what do
you say about those--what do you say about those arguments made
by them about primes and subcontractors exiting the federal
marketplace if they have to comply with this executive order?
Ms. RUNG. Yeah. Thank you for the question.
I think when the Federal Awardee Performance and
Information Integrity System--I know that is quite a name,
FAPIIS, was introduced per statute in 2010, we heard similar
concerns that by making transparent performance information and
violations we would be keeping good companies out of the
marketplace or, you know, discouraging primes from engaging
with subcontractors. And in the end, we did not see an impact
on the type of companies entering our federal marketplace.
However, I do agree with you that we need to do more to ensure
that we are continuing to bring good companies into the
marketplace. And I think there are a number of reasons why they
are not entering the marketplace today, many of which I
outlined back in a December 4, 2014 memo where I talked about
ways to drive greater economy an efficiency in the federal
marketplace, and not the least of which is I think it is
incredibly challenging for our contractors to navigate through
3,200 separate procurement units across the federal marketplace
with very little collaboration and sharing of information.
Mr. TAKAI. Yeah. I appreciate our efforts to bring more
companies into the federal marketplace. I think the question is
that we currently have companies in the federal marketplace
that we might be pushing out.
So my other question is in regards to providing prime
contractors with the opportunity to work with contracting
officers and the LCAs on disclosures. So will subcontractors
have the opportunity to access the LCAs regarding the
disclosures?
Ms. RUNG. If I could just address your one point about this
driving out companies already in the marketplace, particularly
small businesses. We are taking a number of steps to really
help minimize the burden on companies, and in particular, small
businesses. A couple examples. We are phasing in parts of this
rule over time to give companies a chance to acclimate
themselves to this new rule. And secondly, you know, we have
outlined some alternatives that I have discussed earlier that I
think will help minimize that. The reporting requirements of
subs to primes. We are improving the IT infrastructure. Most
importantly, and I think this really cannot be emphasized
strongly enough, we are limiting this executive order to
contract awards over $500,000. And when you start with a base
of several hundred thousand small businesses in the federal
marketplace and you take away from that companies that are
doing business under the 500,000 threshold for which this EO
would not even apply, and then you take from that the vast
amount of companies that are already complying with labor laws,
you are talking about a very small fraction of companies that
would have any disclosure requirements whatsoever.
Mr. TAKAI. But you are talking about 500,000 for the prime,
or 500,000 for every sub?
Ms. RUNG. The 500,000 limit applies to both primes and
subs.
Mr. TAKAI. Okay. So that could be problematic for subs.
Ms. RUNG. No. This is an advantage to them because what we
are saying in the executive order is if you are awarded a
contract under $500,000 at both the prime or sub level, this
executive order does not apply to you. And for the vast
majority of small business transactions, they fall under the
$500,000 award.
Mr. TAKAI. Okay. Well, if you can get us information
regarding that, that will be helpful.
Okay. So my next question is would a subcontractor who is
deemed nonresponsible by a prime have the same process of
redress that a prime has if it is ruled nonresponsible by the
contracting officer? In other words, yeah, does the subprime
contractor have redress in this particular case?
Ms. RUNG. Yeah. So historically, the performance of the
subcontractor has been the responsibility of the prime. So it
would be the prime that would ensure that there is satisfactory
performance and/or there is business integrity and ethics. And
that is a relationship between the two of them that the sub
would work through with its prime.
Mr. TAKAI. Okay. But if they are being labeled as
nonresponsible by prime, is there recourse at your level? Is
there anything they can do? I have eight seconds.
Ms. RUNG. I am not aware of that.
Mr. TAKAI. All right.
Ms. RUNG. But I am happy to look into it and see if I can
get you a more complete answer.
Mr. TAKAI. Okay. Thank you.
Thank you, Mr. Chairman.
Chairman HARDY. The gentleman yields back.
I would like to recognize Mr. Rice for five minutes.
Mr. RICE. Thank you, Mr. Chairman.
This is all very interesting to me. You heard me talking
earlier, I think, about the fact that for the last five years
the regulatory burden has mushroomed under the federal
government. You also heard me tell the SBA--not just the
Federal Government, the SBA says that for a firm under 20
employees, the federal regulatory burden costs $10,585 per
employee per year. So let me ask you, with respect to small
businesses that have to comply with this new law, is this going
to be free for them or is it going to cost them money?
Ms. RUNG. So we very much recognize that there is a cost to
this proposed rule.
Mr. RICE. So the answer is yes.
Mr. Solomon, do you agree with that?
Mr. SOLOMON. Yes.
Mr. RICE. Okay. We have had more small businesses closing
than we have being formed in this country in the last five
years, the first time that happened since the Great Depression.
I think that has a lot to do with this mushrooming regulatory
burden. Do you think this new rule is going to ease their
regulatory burden or is it going to pile more on their heads?
Ms. RUNG. This is designed to create a more level playing
field for small businesses.
Mr. RICE. Okay. So I will take that as it is going to add
more.
Mr. Solomon, what do you think?
Mr. SOLOMON. I agree with my colleague.
Mr. RICE. Okay. Good.
You know, you were saying that you are trying to protect
taxpayer dollars. I mean, any single transaction that occurs in
commerce, I guess we could look at every single transaction
from a bank deposit to a withdrawal and say there may be a
taxpayer dollar involved so we should get involved in that.
Should the government be involved in every single transaction?
Ms. RUNG. So it has been a longstanding tenet of the
federal procurement system that when we spend taxpayer dollars
we are doing so while we are also ensuring that the contractor
receiving those taxpayer dollars are a responsible source. And
that means that there----
Mr. RICE. Ms. Rung, is this the only regulation that you
oversee?
Ms. RUNG. I oversee the federal acquisition regulations, so
there are several.
Mr. RICE. What have you done? How long have you been with
this department?
Ms. RUNG. I was confirmed a year ago this month.
Mr. RICE. Okay. What have you done that has a material
reduction in small business cost or time in your regulatory
authority?
Ms. RUNG. So there have been a number of successful steps
forward in the small business arena in the past year. One was
creating set-asides for small businesses on task and delivery
orders. One was working into senior management performance
plans, small business goals. And we have also, you know, worked
on a number of other provisions----
Mr. RICE. How much time or money do you think you have
saved small businesses as a result of these?
Ms. RUNG. I think in the end, by doing business with
companies that comply with labor laws and all laws, we ensure a
greater economy and efficiency in federal procurement, and that
has long been understood.
Mr. RICE. So the answer would be none, is that what you are
saying?
Ms. RUNG. The answer is the intent of this executive order
is to ensure that we promote economy and efficiency by ensuring
that we do business with companies that comply with laws.
Mr. RICE. Mr. Solomon, you were at the National Labor and
Relations Board when, I think, in fact, you were the guy who
issued the opinion that Boeing could not move their Dreamliner
production line from Washington to South Carolina; is that
right?
Mr. SOLOMON. I issued the complaint. It was not as you
state. The theory of the case was not as you state. It was not
about the opening of South Carolina.
Mr. RICE. Do you think the government should be able to say
where businesses can open their production lines? Do you think
the Federal Government should be able to dictate where a
business can open its production line?
Mr. SOLOMON. The business of the complaint was not saying
where Boeing could locate its business. The theory of the
complaint was that they would have built this line in Seattle
as they have done all other lines except for the fact that
their employees unionized and would go on strike.
Mr. RICE. All right. So if you believe that the government
has that level of intrusive authority into a business, do you
not think that this new proposed rule could very easily be used
for political purposes to grant government contracts to people
who are favored by the administration? It seems to me like this
rule is rife with potential for corruption.
Mr. SOLOMON. With all due respect, Congressman, I think you
will find nothing in the guidance or the FAR rule that would
lead to that conclusion.
Mr. RICE. All right. I appreciate very much your time and I
yield back.
Chairman HARDY. The gentleman yields back.
Thank you for being here. Thank you for your participation.
I just would like to state a couple of things. Fifty-seven
percent of the Associated Builders and Contractors say that
under this rule they will no longer participate on government
contracts. That is huge. Last year, small businesses received
over 57 billion of noncommercial item contracts. This is nearly
60 percent of the prime contract dollars spent with small
businesses. At a time when the federal contractors are already
struggling, I wish I could say that I am leaving here today
convinced that the administration heard the concerns being
expressed by our small businesses witnesses and are going on to
respond in an appropriate manner. So I hope you really consider
what has been said here today and think about it. I thank you
for being here. I appreciate your testimony. I know it is hard
to come here and stand before people sometimes, and
unfortunately, this happens, but I hope you will reconsider
your thought process, at least at my standpoint, and thank you
for being here.
Mr. SOLOMON. Thank you.
[Whereupon, at 11:46 a.m., Subcommittees were adjourned.]
A P P E N D I X
STATEMENT OF ANGELA B. STYLES
CHAIR, CROWELL & MORING LLP
BEFORE THE HOUSE COMMITTEE ON SMALL BUSINESS
SUBCOMMITTEE ON CONTRACTING AND WORKFORCE
SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT AND REGULATIONS
SEPTEMBER 29, 2015
Chairman Hanna, Chairman Hardy, Congressman Takai,
Congresswoman Adams, and Members of Both Subcommittees I
appreciate the opportunity to appear before you today to
discuss the impact of the proposed Federal Acquisition Rule
(``FAR'') Rule and Department of Labor (``DOL'') Guidance
implementing the Fair Pay and Safe Workplaces Executive Order
(``EO 13673'').\1\
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\1\ Fair Pay and Safe Workplaces Proposed Rule, 80 Fed. Reg. 30,548
(May 28, 2015); Guidance for Executive Order 13673, Fair Pay and Safe
Workplaces, 80 Fed. Reg. 30,574 (May 28, 2015); EO 13673, Fair Pay and
Safe Workplaces 79 Fed. Reg. 45,309 (Aug. 5, 2014).
As Chair of the Crowell & Moring Government Contracts
Group, and as former Administrator for Federal Procurement
Policy at the Office of Management and Budget, I have worked
closely with small business contractors throughout my
professional career. Based upon over two decades of experience
in federal procurement, I am deeply concerned that the EO will
undermine the government's long-standing policy of maximizing
contracting opportunities for small businesses. Certainly, no
one opposes the principles of ``fair pay'' and ``safe
workplaces'' for employees of government contractors, and the
Administration itself has acknowledged that ``the vast majority
of federal contractors play by the rules.'' \2\ But if the EO
is aimed at only a small number of bad actors, then surely
there is a more efficient way to accomplish this goal than
imposing requirements that will lead to procurement delays, the
blacklisting of ethical companies, and reduced competition in
the federal marketplace. My testimony today highlights five
principal concerns about the substance of the EO as it relates
to small businesses:
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\2\ Fact Sheet: Fair Pay and Safe Workplaces Executive Order Jul
31, 2014, http://www.dol.gov/asp/fairpay/FPSWFactSheet.pdf (last
visited July 2, 2015).
Potentially severe unintended consequences
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for small businesses.
High compliance costs that will deter small
businesses from participating in the federal
marketplace.
The diversion of federal employees from
assisting and growing our small businesses to
collecting data, monitoring compliance, and enforcement
of federal and state labor laws with a high risk of de
facto debarment.
A flawed Initial Regulatory Flexibility Act
analysis.
Failure to give even the most basic
rationale for the necessity of this rule.
For a more in-depth analysis of other portions of the
Proposed Rule and the potential effect on the entire
procurement system, I refer you to the official comments to the
Proposed Rule submitted by the National Association of
Manufacturers (``NAM''), a client of Crowell & Moring, and
attached to this testimony. Over the course of several months,
we have been fortunate to assist NAM with an analysis of the
Proposed R7ule and preparation of comments for official
submission. While I am testifying on my own behalf today, I
have worked extensively with industry in understanding and
assessing the potential impact of this rule.
The EO Creates Potentially Severe Unintended Consequences for
Small Businesses
On May 28th, the Administration released a 131-page
Proposed FAR Rule and a 106-page Proposed DOL Guidance to
implement EO 13673. Under the EO, a small business bidding on a
federal prime contract or subcontract valued at more than
$500,000 will be required to disclose ``violations'' of the
fourteen enumerated labor laws and be required to provide
mitigating documentation to the federal government and/or prime
contractors. The collection and provision of documentation on a
wide array of labor compliance issues will cause significant
disruption to small businesses, and forces the delivery of
competitively sensitive information to prime contractors, the
Department of Labor, or both. The notion of providing this
information to prime contractors is especially problematic in
the government contracts marketplace where it is not uncommon
for contractors to team on one project only to be competitors
on a separate procurement. Under the arrangement proposed by
the EO, prime contractors will learn significant information
about a small business subcontractor's labor compliance history
that could then be used as ammunition in bid protests against
the company in subsequent competitions. In other words, the EO
could radically alter the prime/subcontractor relationship that
the government depends on for the delivery of innovative
products and solutions.
There is also the risk--acknowledged in the Proposed Rule--
that prime contractors will shy away from doing business with
subcontractors with any kind of labor violation, no matter how
minor, because it could slow down the award of the potential
contract or jeopardize the award of the contract altogether.
This raises the chilling specter of small businesses with minor
labor issues being ``frozen out'' of the marketplace.
And let us not forget that over twenty percent of federal
procurement dollars are awarded to small businesses as prime
contractors on federal projects. Under the EO, these small
business prime contractors will face a daunting task. In
addition to satisfying the rule's onerous compliance and
reporting requirements with respect to their own corporate
history, they will be charged with collecting, analyzing, and
updating information with respect to their subcontractors. If
any of those subcontractors are large federal contractors--
which is often the case--it is not hard to imagine a small
business being subsumed in paperwork when its large business
subcontractor forks over boxes and boxes of paperwork on its
historical labor compliance, mitigating circumstances, and
other information required under the EO. Instead of delivering
critical services to federal agencies that rely on their
support, small business prime contractors will be forced to re-
allocate precious resources to generate paperwork for
paperwork's sake.
Pricey Compliance Costs will Diminish Small Businesses
Participation in the Federal Marketplace
One fact is crystal clear: compliance with the new
requirements will be incredibly expensive and burdensome. These
costs hit small contractors especially hard, as they have
limited resources to build new compliance infrastructure, track
legal allegations, or even challenge frivolous claims. All of
this comes at a time when the Government is attempting to
encourage more innovative small businesses and commercial item
contractors to enter the government marketplace.
Section 4 of EO 13673 requires the FAR Council to minimize
the burden of complying with the regulation on small
entities.\3\ While the Proposed Rule contains several steps to
minimize the burden such as the possible phasing-in of flow-
down requirements and the exemption of subcontracts for
Commercial Off the Shelf (``COTS'') purchases, the Proposed
Rule introduces a host of new labor law compliance reporting
requirements and creates substantial administrative burdens for
small businesses that want to sell goods and services to the
federal government.
---------------------------------------------------------------------------
\3\ E.O. Sec. 4
For even the largest, most sophisticated government
contractors, the collection of subcontractor labor compliance
data will create an unprecedented data collection and reporting
burden. If compliance will be difficult for large contractors
with in-house personnel and expertise, satisfying the
requirements will be near impossible for small businesses when
they are awarded prime contracts and are therefore required to
make responsibility determinations for their own
subcontractors. Many small businesses lack the staffing or
compliance infrastructure to collect and evaluate information
about labor law violations from subcontractors with hundreds or
even thousands of employees. In all likelihood, small
businesses will be overwhelmed with the task of trying to
collect and evaluate the labor violations of their
subcontractors, and this heavy burden is compounded by the fact
that the process will have to be repeated every six months
---------------------------------------------------------------------------
after award.
Small business contractors are already expending
substantial resources to comply with federal labor laws and
regulations, oftentimes without the benefit of large
administrative staffs, and sophisticated legal counsel. The
additional costs, risks, and compliance requirements associated
with the EO may force some small businesses to exit the federal
marketplace altogether. In the same vein, potential new
entrants to the government contracts market may be deterred by
the up-front investment that will be required to comply with
the EO. I think we can all agree that reducing the number of
companies competing for federal contracts is bad for everyone:
bad for our job-creating small businesses, which will lose
critical contracting opportunities; bad for thegovernment,
which will have greater difficulty meeting statutorily-mandated
socioeconomic contracting goals; and bad for the taxpayers,
because reduced competition will lead to higher prices.
Concerns about the collateral effects of the EO on small
entities is shared by the Small Business Administration
(``SBA'') Office of Advocacy, the federal government's own
small business watchdog. According to public comments submitted
by that Office, the Proposed Rule is ``very burdensome,''
``raises the cost of doing business with the federal
government,'' and could lead to the ``reduction of the number
of small businesses that participate in the federal
marketplace.'' \4\ Notably, the SBA's Office of Advocacy
recommends that the new requirements not apply to small
businesses at least until the subsequent rulemaking when DOL
identifies the state equivalents of the fourteen federal labor
laws.
---------------------------------------------------------------------------
\4\ SBA Office of Advocacy, Regulatory Comment Letter re: Proposed
Regulation to Implement Executive Order 13673 ``Fair Pay and Safe
Workplaces,'' 80 Federal Register 30,547, May 28, 2015, FAR Case 2014-
025, available at https://www.sba.gov/sites/default/files/
2015--08--26--15--20--
33--2.pdf
Diversion of Federal Employee Resources to Data Collection and
---------------------------------------------------------------------------
Enforcement with a Specter of De Facto Debarment
The Proposed Rule and Guidance do not address how the
federal acquisition workforce is expected to divert resources
from guiding and growing small businesses to the collection,
analysis, and enforcement of labor laws in a fair and even-
handed way. As a threshold matter, each of the fourteen federal
laws identified in EO 13673 is extremely complex, and the
caselaw is constantly evolving. There is not a lawyer in
Washington who could claim to be an expert on each of the
fourteen identified federal labor and employment laws, much
less the yet-to-be-identified ``equivalent state laws.'' \5\ So
it is wholly unreasonable to assume that a contracting officer
(``CO'') or agency labor compliance advisor (``ALCA'') will
have a sufficient understanding of the universe of relevant
labor laws to be able to make the required responsibility
determinations, and to make them consistently.
---------------------------------------------------------------------------
\5\ The DOL announced in its Guidance that it will define
``equivalent state laws'' as part of a future rulemaking.
The tasks delegated to COs and ALCAs under EO 13673 and the
Proposed Rule are made more difficult because of the short
window of time in which responsibility determinations must be
made. In order to meet the requirements of the Proposed Rule, a
CO will be required to take the following steps for every
contract award over $500,000 in which an offeror reports a
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labor violation:
First, the CO must check to see if the
contractor has disclosed any violations in the System
for Award Management (``SAM'') as part of the initial
certification;
Second, the CO must request all relevant
information about the administrative merits
determinations, civil judgment, or arbitral award;
Third, the CO must furnish the ALCAs with
all of this information and request that the ALCA
provide written advice and recommendations within three
business days of the request;
Fourth, the CO must review the DOL Guidance
and the ALCA's recommendation;
Fifth, the CO must consider the mitigating
circumstances such as the extent to which the
contractor has remediated the violation or taken steps
to prevent its recurrence;\6\
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\6\ Fair Pay and Safe Workplaces Proposed Rule, 80 Fed. Reg. 30,548
(May 28, 2015) (``The Executive Order (EO) requires that prospective
and existing contractors disclose certain labor violations and that
contracting officers, in consultation with labor compliance advisors,
consider the disclosures, including any mitigating circumstances, as
part of their decision to award or extend a contract.'')
Sixth, the CO must make a responsibility
determination as to whether the contractor is a
responsible source with a satisfactory record of
---------------------------------------------------------------------------
integrity and business ethics;
Lastly, the CO will need to take the tine to
document the various stages of this process in order to
develop a more favorable administrative record in
preparation for bid protests regarding the
responsibility determination.
Of course, the burden on small business contractors,
subcontractors, and the acquisition workforce does not end
there. After contract award, the contractor has to provide
updated information for itself and its subcontractors every six
months.
Given the number of contract actions that will be subject
to this process, these requirements will no doubt result in a
less efficient and more cumbersome procurement process. Due to
the enormous demands on a CO's time, and the complexity of
making responsibility determinations, the requirements of the
Proposed Rule will likely result in conflicting and redundant
decisions by COs.
The most troubling unresolved question is whether these
responsibility decisions could result in de facto debarment
without the due process or the procedural protections embedded
in Subpart 9.4 of the FAR. For instance, one CO may find a
small business to be non-responsible after determining that a
handful of OSHA violations constitute evidence of a
``pervasive'' problem. Another CO, in an effort to reduce her
crushing workload, could understandably decide to follow his or
her colleague's responsibility determination--about the same
underlying facts--without conducting the required independent
analysis. Indeed, such failure would seem much more likely when
a small business is involved, a small business without the
resources to fight back against an arbitrary decision made
without independent analysis. If this were to occur, the
government would have improperly effectuated a de facto
debarment. While small businesses' understand that contracting
with the federal government is a privilege and not a right,
contractors (and particularly small businesses) have a due
process liberty interest in avoiding the damage to their
reputation and business caused by the stigma of broad
preclusion from government contracting.\7\ In sum, the
requirements of the EO create a slippery slope to the
``blacklisting'' of companies--effectively preventing them from
competing for federal contracts--based upon the opinion of one
contracting officer.\8\
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\7\ Reeve Aleutian Airways, Inc. v. United States, 982 F.2d 594,
598 (D.C. Cir. 1993).
\8\ Phillips, et. Al, v. Mabus et. al, Civ. Action No. 11-2021,
2012 WL 476539 (D.D.C.) (``De facto debarment occurs when a contractor
has, for all practical purposes, been suspended or blacklisted from
working with a government agency without due process, namely, adequate
notice and a meaningful hearing.'') citing Trifax Corp. v. Dist. Of
Columbia, 314 F.3d 641, 643-44 (D.C. Cir. 2003).
The EO is grounded in the proposition that a greater
understanding of--and compliance with--labor laws will lead to
increased economy and efficiency in the procurement process.
But rather than ensuring the timely and predicable delivery of
goods and services, the EO and the implementing regulations
divert precious federal resources and inject uncertainty into
the procurement process that will delay critical federal
purchases and side-step the procedural due process rights of
---------------------------------------------------------------------------
contractors.
The FAR Council's Initial Regulatory Flexibility Analysis is
Flawed
In addition to the substantive flaws, the FAR Council's
regulatory analysis \9\ falls short of the obligations imposed
by EO 12866,\10\ the Paperwork Reduction Act,\11\ and the
Regulatory Flexibility Act (``RFA'').\12\ Due to the fact that
the Proposed Rule is likely to have a significant impact on a
substantial number of small businesses, the RFA requires that
the FAR Council prepare an Initial Regulatory Flexibility
Analysis (``IRFA'') describing the impacts of the rule on small
entities. Under the RFA, the IRFA must address a number of
required elements including ``a description of the projected
reporting, recordkeeping and other compliance requirements of
the Proposed Rule,'' and a description of any ``significant
alternatives to the proposed rule which accomplish the stated
objectives of applicable statutes and which minimize any
significant economic impact of the proposed rule on small
entities.'' Here, the FAR Council's IRFA does not adequately
consider these elements and fails to calculate the true impact
that the new requirements will have on small businesses across
the country.
---------------------------------------------------------------------------
\9\ Accompanying the Proposed Rule is a Regulatory Impact Analysis
(``RIA'') that is required under EO 12866 (and, by adoption, EO 13563).
See Federal Acquisition Regulation (FAR) Case 2014-025, Fair Pay and
Safe Workplaces Regulatory Impact Analysis Pursuant to Executive Orders
12866 and 13563.
\10\ EO 12866 directs federal agencies to assess the economic
effects of their proposed significant regulatory actions, including
consideration of reasonable alternatives.
\11\ 44 U.S.C. Sec. Sec. 3501-3521.
\12\ 5 U.S.C. Sec. 605(b).
Absent from the FAR Council's IRFA is any substantive
analysis of the recordkeeping or ongoing compliance
requirements that will be imposed on small businesses. For most
contractors, just the initial step of determining whether their
company has any violations to disclose will be a significant
undertaking. At present, most companies do not have systems in
place to implement the new information collection and reporting
requirements of the EO. In order to comply, contractors will be
required to create new databases and collection mechanisms to
account for information subject to disclosure. Moreover,
contractors would be required to develop new internal policies
and procedures and hire and train new personnel to ensure
---------------------------------------------------------------------------
compliance with the proposed requirements.
Moreover, the IRFA fails to consider alternatives to the
Proposed Rule that could accomplish the same objectives. Had
the FAR Council considered less costly alternatives, the
Council would have concluded that federal dollars would have
been better spent improving existing processes rather than
requiring data collection and self-reporting which will only
increase costs for small businesses.
Under the present system, DOL already reviews federal
contractors' compliance with federal labor laws through the
Wage and Hour Division, the Occupational Safety and Health
Administration, and the Office of Federal Contract Compliance
Programs. DOL collects data from these enforcement agencies and
makes much of it publicly available through its Online
Enforcement Database (``OED''). Rather than requiring
contractors to collect and report data that the government
already has in its possession, the government could improve its
own information-sharing channels so that COs can have the
information they need at their fingertips when making
responsibility determinations.
The EO is Unnecessary and Redundant
Finally, a significant and wholly unanswered question: why
is the federal government creating this burdensome process in
the first place? Each and every labor law identified in the EO
has its own separate penalties for companies who violate the
respective laws. And, unlike the EO, those labor laws and the
associated penalties were created by Congress rather than
mandated by the Executive Branch. The federal procurement
system also already includes adequate remedies to prevent
companies with unsatisfactory labor records from being awarded
federal contracts. Specifically, the suspension and debarment
official (``SDO'') within each federal agency has broad
discretion to exclude companies from federal contracting based
upon evidence of any ``cause so serious or compelling a nature
that it affects the present responsibility of a Government
contractor.'' To the extent that a contractor's labor
compliance record impacts its present responsibility, FAR
Subpart 9.4 sets forth the proper channels for suspension and
debarment proceedings.
With an established and effective system in place, it makes
no sense to create a new bureaucracy to review these issues on
a contract-by-contract basis with the possibility of
astoundingly inconsistent decisions by different agencies and
different COs.
Conclusion
Given its scope and complexity, this EO will be
impractical--if not impossible to implement. The substantial
costs of compliance imposed on federal contractors will likely
lead to higher procurement costs and will likely drive many
small businesses out of the federal marketplace altogether.
Moreover, these costs will be borne disproportionately by
companies who can least afford them--our small businesses. This
is an entirely unacceptable outcome considering that the goals
of the EO--targeting contractors with the most ``egregious
violations''--could be accomplished through the enforcement of
existing labor laws and our existing suspension and debarment
system. As such, the FAR Council and DOL should rescind the
Proposed Rule and Guidance. This concludes my prepared remarks.
I am happy to answer any questions you may have.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Good afternoon, I am Debbie Norris, Vice President of Human
Resources at Merrick & Company, a federal contractor
headquartered in Greenwood Village, Colorado, just outside
Denver. I am pleased to be here today on behalf of the Society
for Human Resource Management, or SHRM, to discuss my
significant concerns with the proposed rule issued by the
Federal Acquisition Regulatory (FAR) Council and guidance
issued by the Department of Labor (DOL) to implement the
Executive Order on Fair Pay and Safe Workplaces.
SHRM and our members have also sent comments to the FAR
Council and to the DOL in response to the proposed rule and
guidance. SHRM's comments were submitted in conjunction with
our affiliate, the Council for Global Immigration (CFGI) and
the College and University Professional Association for HR
(CUPA-HR).
Founded in 1948, SHRM is the world's largest HR membership
organization devoted to human resource management. SHRM has
more than 575 affiliated chapters within the United States and
more than 275,000 members, a significant percentage of whom
work in organizations that currently hold contracts with the
federal government or seek to enter the federal contracting
field.
Merrick & Company is an employee-owned company. We have
been in business for over 60 years and have a broad scope of
services that we provide to federal and commercial clients. Our
primary federal clients are the departments of Defense,
Education, Agriculture and Homeland Security; the National
Science Foundation; and the U.S. Antarctic Program. In Fiscal
Year 2014 we managed 329 federal contracts. Like many in the
contracting community, our company serves as both a prime
contractor and a subcontractor on various contracts.
Let me first make clear that the President's goal of
providing fair pay and a safe workplace is a shared goal--after
all, who isn't for that? In fact, as Vice President of Human
Resources at Merrick, I work to provide a safe workplace and to
help make us an employer of choice--not just because it is the
right thing to do but because it provides us a competitive
advantage in our industry. We have been recognized as a Best
Company to Work for in Colorado on five different occasions. We
have also been recognized nationally as a Best Firm to Work For
through the ZweigWhite conference. Our internship program has
been recognized as a Best Practice in the Denver Metro Area. I
mention these awards because, despite the fact that my company
invests significant time and resources on compliance and
creating a sought-after work environment, we believe the new
FAR rules will have a significant and negative impact on our
ability to maintain current contracts and compete for new ones.
As a small business working in the federal contracting
world, we must track a variety of employee size thresholds just
to determine which federal, state, or local laws and
regulations apply to us. As noted before, we not only try to be
an employer of choice, but we also spend a tremendous amount of
time ensuring that we are in compliance with all applicable
laws. In addition, we are required to meet the current FAR
requirements in all of our contracting activities and are
subject to Defense Contract Audit Agency (DCAA) audits and
pricing requirements. In order to meet DCAA time-keeping
requirements as well as other reporting requirements, Merrick
has invested millions of dollars in a new enterprise system to
track information and meet all of our federal contracting
requirements. The existing standards, in which we have invested
significant resources to ensure compliance, already provide the
government with ample information about our fitness as a
federal contractor.
The proposed regulations and guidance to implement the
Executive Order on Fair Pay and Safe Workplaces raise many
issues for those of us who work as contractors, especially
smaller federal contractors. In my testimony today, I will
address key concerns with the proposals including the role that
the newly-created position of Agency Labor Compliance Advisor
(ALCA) will play in the contracting process; the expansive and
vague definiti8ons used in the proposals; the burden of
recordkeeping and ongoing reporting requirements; and the
damage to relationships between prime and subcontractors and
delay in the contracting process that will result from these
proposals.
First, as described in the DOL guidance, the ALCAs will be
layered onto the existing relationship between Merrick and our
contracting officers in order to provide guidance on ``whether
contractors' actions rise to the level of a lack of integrity
or business ethics'' after reviewing reported violations and
assessing whether those violations are ``serious, repeated,
willful, or pervasive. ...'' The definition of ``violation''
used by DOL is expansive. In addition, the DOL guidance
purports to narrow that expansive definition of violation by
excluding violations that are not considered ``serious,
repeated, willful, or pervasive.'' The problem with these
definitions is that they are vague as applied to specific
situations. On top of what is already required by individual
statutes, DOL has added these terms and definitions and given a
great deal of discretion to the ALCAs to interpret these terms.
For example, under the proposed definition of ``repeated,''
a violation will be deemed a ``repeat'' violation if the
violations are ``substantially similar''--meaning they share
``essential elements in common'' but need not be ``exactly the
same.'' Under this definition, would a Title VII claim for
sexual harassment be considered a repeat violation if the
contractor previously had an Office of Federal Contract
Compliance Programs (OFCCP) show cause notice on a sex-based
hiring discrimination claim? The definitions provide no clear
guidance as to which violations and what number and type of
violations could prevent an employer from contracting with the
government. Contractors are left not knowing with any certainty
what situations will yield a recommendation by the ALCA that a
contractor lacks ``integrity and business ethics'' or a
determination of ``not responsible'' by the contracting officer
based on that recommendation.
In addition, ALCAs, by the nature of their duties, will be
interpreting labor laws at both the federal and state levels.
Assigning federal agency employees the responsibility to not
only interpret federal law but also state law is curious--
particularly given the complexity of the overlapping and
sometimes conflicting state and federal laws. The federal
contractors who are required to interact with the ALCAs are
greatly exposed when they take advice regarding legal
compliance with these laws.
For example, can a contractor rely on the advice that the
ALCA provides for compliance and will such reliance constitute
a good-faith defense? It is unclear from the proposed
regulations whether the enforcement agencies will be bound by
and follow the same interpretation that the ALCAs provide. If
federal contractors are not able to appeal the determinations
of the ALCAs, they are unable to properly present their views
to a neutral body. Small businesses, in particular, will be at
risk since they are less likely to have in-house legal counsel
or access to outside counsel, leaving them completely reliant
on the ALCA's determination, possibly to their great detriment.
I also believe that adding ALCA review and consultation with
contracting officers onto the process will inevitably lead to
delay in contracting, an issue I will discuss in more depth
later.
I am equally, if not more concerned, about the requirement
to report non-final agency actions. The proposal requires
reporting of any ``administrative merits determination, civil
judgment, or arbitral award or decision rendered against [a
federal contractor] during the preceding three-year period for
violations of any of 14 identified Federal labor laws and
executive orders or equivalent State laws,'' although which
state laws are implicated by this proposal is yet undefined.
It is not uncommon for companies to undergo agency
investigations and even be issued a notice of a violation that
turns out to be unfounded. I am concerned that if non-final
agency actions are considered by the ALCA and contracting
officer as part of the responsibility determination, companies
like mine could lose a contract as a result of cases or
investigations that are not yet final or are eventually
dismissed. For example, in fiscal year 2014, the Equal
Employment Opportunity Commission received 88,778 charges. In
that same year, well over half of charges filed were found to
have ``no reasonable cause'' and less than one-half of one
percent of those charges matured into lawsuits.
An unfortunate outcome of considering non-final agency
actions is that federal contractors will feel pressured to
settle a claim, even if they feel they have done nothing wrong.
If a contractor has a big contract award coming up, it will
fear that even an unfounded and unresolved issue could reflect
poorly on it during the decision-making process. In our
experience, government investigations and processes typically
take a long time to resolve complaints or investigations.
I would like to offer one example. As a federal contractor,
Merrick files an annual Equal Employment Opportunity, or EEO-1,
report and Affirmative Action Plan. We are audited by the OFCCP
whenever it deems necessary but not on any regular schedule. We
are currently part of a desk audit that started in September
2014, and we have provided all requested documentation to the
agency. After a year, we have still not received a
determination from the OFCCP.
The desk audit takes weeks of preparation and, depending on
the timing of the audit, we may need to complete a mid-year
Affirmative Action Plan that requires us to spend many more
hours in addition to hiring a consultant for assistance working
on a mid-year affirmative action plan. In the meantime, if the
proposed rule were to go into effect as drafted, it is not
clear to us whether this is a reportable agency action,
although we strongly feel it should not be reportable. We are
concerned that unresolved actions will have a negative impact
on future federal contracts. For these reasons, SHRM believes
that the regulations should only require the reporting of
final, non-appealable adjudications.
Other major areas of concern are the recordkeeping and
ongoing reporting burdens created by the proposals. Collecting
and reporting on information deemed a ``labor violation'' under
14 different federal laws and an as-yet untold number of state
laws will not be an easy task. This is compounded by the need
to oversee the labor law compliance of our subcontractors.
Doing so will require federal contractors to crate a company-
wide, centralized electronic record of federal, and eventually
state, violations over the past three years. Federal
contractors will also have to require their subcontractors to
collect this data, as well. In addition, contractors will have
to determine, in consultation with the DOL contracting officers
and labor compliance officers, whether a subcontractor is a
``responsible source,'' take remedial action when necessary,
and report this information every six months.
Merrick has 18 different offices in eight states and the
District of Columbia as well as offices in Mexico and Canada.
We run our HR department from our headquarters in Colorado,
tracking violations on a corporate-wide basis although other
federal contractors do not currently keep this data in a
centralized place. Even though Merrick collects the information
corporate-wide, the proposal places an additional burden of
ensuring that each office is accurately reporting this
information to us.
Additional compliance and tracking requirements may cause
my company to hire more staff, resulting in costs that will
ultimately be passed on to the federal government. Currently
whenever the OFCCP requests an audit, for example, it means my
employees will work overtime to meet the demanding 30-day
requirement to respond. When staff time is directed to
responding to compliance requirements, it takes away from the
HR department's focus on the needs of our employees and meeting
our business objectives. Federal contractors will likely handle
this situation in one of two ways: They will either try to make
do with existing staff, which may result in a failure to meet
the contracting obligations, or they will hire additional
staff, which will end up costing the government more.
The proposed FAR regulations require an employer that has
been awarded a contract to submit information on violations
every six months during the life of the contract in order to
determine whether to permit the contractor to continue
performing. The proposed regulations, however, do not say when
this six-month reporting requirement begins or whether
contractors can update the information to cover the reporting
requirements for all of their contracts at the same time.
As a federal contractor, Merrick already reports
information to the federal government. Rather than placing
additional and duplicative data collecting and reporting
requirements on federal contractors, the federal government
should seek to use the data is already collects. The additional
and duplicative reporting requirements we will force us to find
another way to manage compliance reporting. I doubt that we
will have the staff in-house to manage this and will instead
have to hire additional staff to meet the requirements. While
it is unlikely we will have any violations since we have not
had any in the past, we still have to track and report against
14 different federal laws plus state laws that have their own
set of compliance standards.
We are also concerned about the significant delays that
these proposals will cause in the procurement process.
Contractors will be required to report violations occurring
within the previous three years along with the contract
proposal, including reports on the subcontractors within their
supply chain. In order to avoid jeopardizing the timeliness of
their bid or proposal, prime contractors will have to start
very early to collect the information needed from
subcontractors. The agencies will also have to factor in time
for the ALCA to review and evaluate the reports being provided
by all competitors in a particular procurement, determine when
to seek mitigating information, assess that information, and
work with the contractor, subs, and other enforcement agencies
to enter into labor compliance agreements and make
recommendations. Given that each contracting agency will have
only one ALCA to evaluate all of the disclosures, the process,
by design, will take significant time.
When we are trying to negotiate a contract through the
contracting officer, it can already take longer than
anticipated to get a working contract. In the meantime, we have
employees who are idle waiting to work. When these employees
are not working on projects, revenue is lost to the
organization.
We also believe that the information requested through the
proposed rule could damage the relationships between prime
contractors and subcontractors. As a company that has been both
a prime and a sub on different federal contracts, we understand
the burdens these proposals crate for both roles. Prime
contractors should not be placed in an enforcement or legal
interpretation role; that should instead be handled directly
between subcontractors and the government. Reporting of a labor
violation could be a competitive advantage to the prime
contractors and lead to blacklisting of subcontractors. On the
other hand, a prime contractor will not want to do business
with a subcontractor with any kind of labor violation, no
matter how minor, because it could slow down the evaluation and
awarding of the potential contract or jeopardize the award of
the contract altogether. For these reasons, SHRM believes that
the final regulations should create a process for
subcontractors to report their violations directly to the
government--hopefully through a process that will not intensify
delay.
In conclusion, SHRM believes that the proposals create a
vague and unworkable system that will harm the federal
contracting process and impose requirements on contractors and
subcontractors that are impractical and hugely expensive. For
these reasons, we believe the Executive Order should be
withdrawn or substantially modified.
Again, I appreciate the opportunity to express my concerns
with the proposed rule on behalf of SHRM and our 275,000
members. The burdens presented by the proposals are
substantial. I hope that the federal government will make
modifications to ensure that businesses, and small businesses
in particular, can afford to remain federal contractors.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
www.whitehouse.gov/omb
TESTIMONY OF ANNE E. RUNG
ADMINISTRATOR FOR FEDERAL PROCUREMENT POLICY
OFFICE OF MANAGEMENT AND BUDGET
BEFORE THE SUBCOMMITTEE ON CONTRACTING AND WORKFORCE AND
INVESTIGATIONS, OVERSIGHT, AND REGULATIONS
COMMITTEE ON SMALL BUSINESS
UNITED STATES HOUSE OF REPRESENTATIVES
September 29, 2015
Chairman Hanna, Ranking Member Takai, Chairman Hardy,
Ranking Member Adams and Members of the Subcommittees, thank
you for the opportunity to appear before you today and discuss
the Administration's implementation of Executive Order (E.O.)
13673, Fair Pay and Safe Workplaces. My comments today will
primarily focus on actions being taken by the Federal
Acquisition Regulatory Council (FAR Council), which I chair as
Administrator of the Office of Federal Procurement Policy
(OFPP).
It is important to emphasize at the outset that OFPP and
the FAR Council have been working in close partnership with the
Department of Labor (DOL) on rules and guidance to implement
E.O. 13673. Our respective organizations are fully committed to
implementing the E.O. in a manner that is clear, fair, and
effective, and have been actively seeking feedback from
stakeholders since issuance of the E.O. more than a year ago.
We did this to ensure that we had sufficient information and
insight from stakeholders, including small businesses, to
achieve these goals. As part of this outreach, my office took
part in a roundtable held this summer by the Small Business
Administration's (SBA) Office of Advocacy to hear the small
business's views on DOL's proposed guidance and the proposed
change to the Federal Acquisition Regulation (FAR) published in
the Federal Register on May 28, 2015.
E.O. 13673 is designed to improve contractor compliance
with labor laws in order to increase economy and efficiency in
Federal contracting. As section 1 of the E.O. explains,
contractors that consistently adhere to labor laws are more
likely to have workplace practices that enhance productivity
and deliver goods and services to the Federal Government in a
timely, predictable, and satisfactory fashion, While the vast
majority of Federal contractors abide by labor laws, studies
conducted by the Government Accountability Office, the Senate
Health, Education, Labor and Pensions Committee, and the Center
for American Progress (CAP) suggest that a significant
percentage of the most egregious labor violations identified in
recent years have been regarding companies that received
Federal contracts. In addition, CAP and studies performed by
others have found a nexus between companies with labor
violations and significant performance problems on Government
contracts.
In recent years, important steps have been taken by this
Administration to better protect taxpayers from the waste and
abuse that comes from doing business with contractors that are
not responsible sources. These steps include the deployment of
the Federal Awardee Performance and Integrity Information
System (FAPIIS) that supports agencies as they evaluate whether
a company has the requisite integrity to do business with the
Government. We have also sought to strengthen agency suspension
and debarment programs to protect the Government from harm.
Despite these steps, many labor violations that are serious,
willful, repeated, or pervasive are not considered in awarding
a contract, in large part because contracting officers are not
aware of them. In addition, even if information regarding labor
violations is made available to the agency, contracting
officers generally lack the expertise and tools to evaluate the
severity of the labor law violations brought to their attention
and therefore cannot easily determine if a contractor's actions
show a lack of business ethics and integrity.
The E.O. requires that prospective and existing contractors
on covered contracts disclose violations of certain labor laws
and that contracting officers, in consultation with labor
compliance advisors (LCAs), consider the disclosure, including
any mitigating circumstances, as part of their decision to
award or extend a contract. DOL and the FAR Council have been
working closely together to create a comprehensive process that
is manageable and avoids the uncertainty that drives up the
cost of contractors doing business with the government. Once
finalized, the FAR rule will provide direction to contracting
officers on how they are to obtain disclosures from contractors
on their labor violations, how to make responsibility
determinations that take into account disclosed labor
violations, and how they will work with LCAs, who will advise
contracting officers in evaluating violations. DOL's guidance
will work hand-in-hand with the FAR rule by addressing how LCAs
should identify from among disclosed violations those serious,
willful, repeated, or pervasive violations that may warrant
heightened attention because of the nature of the non-
compliance. The guidance will also explain how contractors can
obtain compliance assistance from DOL.
In addition to the new requirements to improve labor
compliance, the FAR rule will address requirements in the E.O.
to ensure workers on covered contracts are given the necessary
information each pay period to verify the accuracy of what they
are paid. It will also require that contractors and
subcontractors who enter into contracts for non-commercial
items over $1 million agree not to enter into any mandatory
pre-dispute arbitration agreement with their employees or
independent contractors on any matter arising under Title VII
of the Civil Rights Act, as well as any tort related to or
arising out of sexual assault or harassment.
As explained in the preamble to the proposed FAR rule, we
have take a number of steps in the proposed rule, consistent
with direction in the E.O., to minimize the implementation
burden for contractors and subcontractors, including small
businesses:
The proposed FAR rule builds on existing
processes and principles, including the long-standing
requirement that a prospective contractor be a
responsible source that has a ``satisfactory record of
integrity and business ethics.''
Many of the contracts performed by small
businesses, including contracts valued at $500,000 or
less and subcontracts for commercial-off-the-shelf
items, are exempt from the proposed FAR rule's
disclosure requirements.
The proposed FAR rule preserves and
emphasizes the requirement in the FAR that if a
contracting officer finds a prospective small business
contractor to be nonresponsible, the matter shall be
referred to SBA. If SBA concludes that the small
business is responsible, SBA will issue a Certificate
of Competency.
The focus of the proposed FAR rule is on the
most problematic labor violations that are most likely
to have the greatest bearing on an assessment of a
contractor or subcontractor's record of integrity and
business ethics.
LCAs will provide labor expertise to support
contracting officers in evaluating labor violations.
DOL will work with LCAs to coordinate
evaluations to promote consistency and certainty.
Efforts are underway to develop a single
website to centralize reporting of labor violations by
contractors.
Further, during listening sessions held by DOL, OMB, and
relevant policy councils, stakeholders raised concerns
regarding the potential complexity and burden associated with
two aspects of the E.O. in particular: (1) provisions
addressing disclosure of violations of equivalent State laws,
and (2) provisions addressing disclosure and evaluation of
subcontractor violations. In response to what we learned from
these sessions, requirements in the E.O. addressing the
disclosure of violations of equivalent State laws, with the
exception of OSHA State Plans, will be phased in at a later
date. In addition, the FAR Council has developed alternative
proposals that seek to address concerns it heard regarding the
challenges contractors might face in evaluating violations
disclosed by their subcontractors. This includes a possible
phase-in of subcontractor disclosure requirements. The proposed
FAR rule has invited public comment on additional or
alternative approaches to this issue.
Stakeholder feedback has been a key component in the
development of the proposed FAR rule. Currently, the FAR
Council is carefully reviewing the many and diverse public
comments received in response to the proposed rule published at
the end of May to determine where additional revisions are
needed. In considering comments, the FAR Council seeks to
ensure that the final rule is both manageable and impactful in
achieving the E.O.'s objective of bringing contractors with
significant labor violations into compliance with the law in a
timely manner.
Without question, implementation of the E.O. requires the
Government's policy, operational, and technology officials to
address a number of difficult issues head on. It is hard work,
but work that is critical to the integrity of our procurement
system, ensuring economy and efficiency in contracting, and
securing the well-being of American workers.
Thank you and I am happy to answer any questions you may
have.
Statement of
Lafe Solomon
Senior Labor Compliance Advisor, Office of the Solicitor
U.S. Department of Labor
before the
Subcommittee on Investigation, Oversight and Regulations &
Subcommittee on Contracting and Workforce
Committee on Small Business
U.S. House of Representatives
September 29, 2015
Good morning Chairmen Hardy and Hanna and Ranking Members
Adams and Takai. Thank you for the invitation to appear before
your Subcommittees to speak about the Department of Labor (DOL
or the Department) proposed guidance to implement Executive
Order 13673, the Fair Pay and Safe Workplaces Executive Order
(EO or the Order).
Although most Federal contractors comply with applicable
laws and provide high-quality goods and services to the
government and taxpayers, a small number of Federal contractors
have committed a significant number of labor law violations in
the last decade. In 2010, the Government Accountability Office
issued a report that found that almost two-thirds of the 50
largest wage-and-hour violations and almost 40 percent of the
50 largest workplace health-and-safety penalties issued between
Fiscal Year (FY) 2005 and FY 2009 occurred at companies that
later received government contracts.
Beyond their human cost, these violations create risks to
the timely, predictable, and satisfactory delivery of goods and
services to the Federal Government, and Federal agencies risk
poor performance by awarding contracts to companies with
histories of labor law violations. Poor workplace conditions
lead to lower productivity and creativity, increased workplace
disruptions, and increased workforce turnover. For contracting
agencies, this means receipt of lower quality products and
services, and increased risk of project delays and cost
overruns. Contracting agencies can reduce execution delays and
avoid other complications by contracting with contractors with
track records of labor law compliance--and by helping to bring
contractors with past violations into compliance. Contractors
that consistently adhere to labor laws are more likely to have
workplace practices that enhance productivity and deliver goods
and services to the Federal Government in a timely,
predictable, and satisfactory fashion.
Moreover, by ensuring that its contractors are in
compliance, the Federal Government can level the playing field
for contractors who comply with the law. Those contractors who
invest in their workers' safety and maintain a fair and
equitable workplace should not have to compete with contractors
who offer slightly lower bids--based on savings from skirting
labor laws--and then ultimately deliver poor performance to
taxpayers. By helping contractors improve, the Federal
Government can ensure that taxpayers' money supports jobs in
which workers have safe workplaces, receive the family leave
they are entitled to, get paid the wages they have earned, and
do not face unlawful workplace discrimination.
To address this issue, President Obama signed this EO last
year, requiring prospective Federal contractors on covered
contracts to disclose certain labor law violations and giving
agencies more guidance on how to consider those labor
violations when awarding Federal contracts. With this Order,
the President pledged to hold accountable Federal contractors
that put workers' safety, hand-earned wages, and basic
workplace rights at risk.
The EO builds on the existing procurement system, and
changes required by the Order fit into established contracting
practices that are familiar to both procurement officials and
the contracting community. In addition, the Department will
provide support directly to contractors and subcontractors so
that they understand their obligations under the Order and can
come into compliance with Federal labor laws without holding up
their proposals in response to specific Federal contracting
opportunities. Finally, the Department will work with Labor
Compliance Advisors across agencies to minimize the amount of
information that contractors have to provide and to help ensure
efficient, accurate, and consistent decisions across the
government.
Nothing in the Order displaces the existing authority of
the Small Business Administration to make a definitive
determination of a small business's responsibility to perform a
particular contract. If a contracting officer makes a
determination on non-responsibility involving a small business
apparent successful offeror, the contractor must be given the
opportunity to apply to the Small Business Administration for a
``certificate of competency.'' If SBA grants the certificate of
competency, SBA's determination overrides the responsibility
decision made by the contracting officer--even a decision made
pursuant to this Order.
The objective of the Order is to help contractors come into
compliance with Federal labor laws, not to deny them contracts,
and it encourages compliance, not suspension and debarment. The
processes and tools envisioned by the Order are designed to
identify and help contractors address labor violations and come
into compliance before consideration of suspension and
debarment. The Order does not in any way alter the suspension
or debarment process; however, the expectation is that the
processes and tools envisioned by the Order will drive down the
need for an agency to consider suspension and debarment and
help contractors avoid the consequences of that process. As a
result, this Order, once implemented, will offer contractors an
opportunity to come into compliance and maintain the privilege
of being a Federal contractor, unlike the suspension and
debarment process, which could exclude them from receiving
awards.
The Order also ensures that contractors' employees are
given necessary information to make sure their paychecks are
accurate. It also ensures that more workers who may have had
their civil rights violated or been sexually assaulted can have
their day in court.
On May 28, 2015, the Department published proposed guidance
to assist contracting agencies and the contracting community in
applying the Order's requirements. On that same day, the
Federal Acquisition Regulatory Council (FAR Council) also
issued proposed regulations integrating the Order's
requirements and the provisions of the Labor Department's
guidance into the existing procurement rules.
The Department's proposed guidance would do several things.
First, it would define ``administrative merits determination,''
``civil judgment,'' and ``arbitral award or decision,'' and
provide guidance on what information related to these
determinations must be reported by covered contractors and
subcontractors. Second, it would define ``serious,''
``repeated,'' ``willful,'' and ``pervasive'' violations and
provide guidance to contracting officers (or contractors with
respect to their subcontractors) and Labor Compliance Advisors
(LCAs) for assessing reported violations, including mitigating
factors to consider. Third, it would provide guidance on the
Order's paycheck transparency provisions, including identifying
those States whose wage statement laws are substantially
similar to the Order's wage statement requirement, such that
providing a worker with a wage statement that complies with any
of those State laws satisfies the Order's requirement. It would
also provide a roadmap to contracting officers, Labor
Compliance Advisors, and the contracting community for
assessing contractors' history of labor law compliance and
considering mitigating factors, most notably efforts to
remediate any reported labor law violations.
The Department and representatives of the FAR Council have
been very active in seeking out stakeholder feedback with the
goal of ensuring that the drafters of the guidance and related
FAR rule receive a wide range of views and information so that
the EO is implemented in a manner that is clear, fair, and
effective. For example, on July 22, 2015, representatives from
DOL and the FAR Council attended a public roundtable sponsored
by the Small Business Administration's Office of Advocacy to
hear feedback from small businesses and gain a better
understanding of the types of concerns they can expect to be
raised in comments from this community.
During those sessions, the regulated community stressed the
importance of effective implementation of the order and the
need to streamline the disclosure process and minimize the
burden on contractors. In response to what we learned from the
regulated community in these sessions and in an effort to
ensure that this rule creates a fair, reasonable, and
implementable process, the proposed guidance and Notice of
Proposed Rulemaking (NPRM) would:
1.) Leverage existing Federal acquisition processes
and systems with which contractors are familiar.
Federal contracting officers already must assess a
contractor's record of integrity; however, the
information about a prospective or current contractor's
workplace violations is not readily available to
contracting officials. The regulations and guidance
would propose that contracting officers have access to
additional information to make more informed decisions,
and provide greater transparency for contractors as to
the information that will be considered in making that
determination.
2.) Phase in parts of the rule over time. Contractors
would not be required to disclose violations related to
equivalent State laws immediately (other than
violations of OSHA state plans), which is expected to
significantly reduce the number of violations they will
need to report. Separate guidance and an additional
rulemaking will be pursued at a future date to identify
equivalent State laws, and such requirements will be
subject to notice and comment before they take effect.
In the proposed FAR rule, the regulated community is
also asked to comment on the phased-in subcontractor
reporting requirements.
3.) Provide an alternative proposal, under which
subcontractors would directly report violations to DOL,
rather than to their contractor. If this alternative is
adopted in the final rule, the contractor could then
rely on DOL's review of the subcontractor's violations
in determining whether the subcontractor is
responsible. Moreover, the proposed FAR rule has
invited public comment on additional or alternative
approaches to subcontractor disclosure and reviews of
the disclosures.
We are working through the comments to produce a quality
guidance document that will better inform Federal procurement
decisions; provide contracting officers with the necessary
information to ensure accurate, efficient, and consistent
compliance with labor laws; help contractors meet their legal
responsibilities; and remove truly bad actors from Federal
contract consideration--creating a more level playing field for
law-abiding contractors. Most importantly, it will also ensure
that hardworking Americans get the fair pay and safe workplaces
they deserve.
I appreciate the invitation to testify and will be happy to
take any questions you may have.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Introduction
The Professional Services Council commends the Subcommittee
on Contracting and the Workforce for holding this hearing and
appreciates the opportunity to provide a written statement for
the record.\1\ The issue of today's hearing is an important one
with a long history and its effects must be fully understood
and considered before there should be any consideration of
imposing its requirements on contractors.
---------------------------------------------------------------------------
\1\ For 40 years, PSC has been the leading national trade
association of the government technology and professionals services
industry. PSC's nearly 400 member companies represent small, medium,
and large businesses that provide federal agencies with services of all
kinds, including information technology, engineering, logistics,
facilities management, operations and maintenance, consulting,
international development, scientific, social, environmental services,
and more. Together, the association's members employ hundreds of
thousands of Americans in all 50 states. See www.pscouncil.org.
PSC supports the logical premise that it is unfair that
contractors with repeated, willful, and pervasive violations of
labor laws gain a competitive advantage over the vast majority
of contractors that are acting diligently and responsibly to
comply with a complex web of labor requirements. That said, we
are strongly opposed to Executive Order 13673 signed on July
31, 2014, and its implementation tools, because they go far
beyond the Executive Order's stated intent and are
unnecessarily excessive, largely unworkable and unexecutable.
More specifically, the Executive Order will act as a de facto
blacklisting of well-intentioned, ethical businesses, further
restrict competition for contracts, create procurement delays,
and add to the cost of doing business with the government. And
despite its laudable intent, the Executive Order will also
create significant new implementation and oversight costs for
the government for what even the administration acknowledges is
---------------------------------------------------------------------------
a relatively small problem.
In simple terms, this Executive Order lacks crucial,
fundamental characteristics of fairness, logic, and
objectivity. The same is true about the Executive Order's
implementing tools--a Federal Acquisition Regulation proposed
rule \2\ and Department of Labor (DoL) proposed guidance \3\
issued simultaneously on May 28, 2015. In fact, the DoL
proposed guidance is far more aggressive than what is required
by the Executive Order and in many aspects is incomplete. PSC
commented extensively on the proposed rule and guidance via our
participation in the Council of Defense and Space Industry
Associations (CODSIA), which we have added as an appendix to
this written statement.\4\ If fully implemented, the Executive
Order will have a significant negative affect on law abiding
small businesses already performing in the federal market and
will act as a substantial barrier to any small business seeking
to do business with the Federal government.
\2\ Fair Pay and Safe Workplaces FAR Proposed Rule, 80 Fed. Reg.
30548 et seq, May 28, 2015, available at http://www.gpo.gov/fdsys/pkg/
FR-2015-05-28/pdf/2015-12560.pdf.
\3\ Guidance for Executive Order 13673, ``Fair Pay and Safe
Workplaces'', 80 Fed. Reg. 30574 et seq, May 28, 2015, available at
http://www.gpo.gov/fdsys/pkg/FR-2015-05-28/pdf/2015-12562.pdf.
\4\ CODSIA Comments on Fair Pay and Safe Workplaces proposed
implementing regulations, August 28, 2015, available at
www.pscouncil.org/PolicyIssues/LaborIssues/
Comments--on--Fair--Pay--and
--Safe--Workplaces.aspx.
---------------------------------------------------------------------------
About the Executive Order
Executive Order 13673 (E.O.) seeks to ensure that only
those contractors who abide by a myriad of federal and
``equivalent'' state labor laws are permitted to receive
federal contracts.\5\ The E.O. and its supporting materials
state that the E.O. is necessary because of instances in which
companies have failed to comply with existing laws related to
wage requirements, workplace safety, and employer anti-
discrimination. However, the White House also recognizes that
the ``vast majority of federal contractors play y the rules,''
\6\ which itself raises serious questions about the necessity
of such a sweeping and significant new compliance regime.
---------------------------------------------------------------------------
\5\ To date, there is no federal requirement that imposes a
contractural obligation to comply with state labor laws. The E.O. will
require the Department of Labor to determine when labor laws are
``equivalent.''
\6\ Fact Sheet: Fair Pay and Safe Workplaces Executive Order,
available at http://www.whitehouse.gov/the-press-office/2014/07/31/
fact-sheet-fair-pay-and-safe-workplaces-executive-order.
To achieve its intended goal, the E.O. would require that
federal procurements for goods and services over $500,000
include a provision in the solicitation requiring every
prospective contractor (offeror) to represent, to the best of
the offeror's knowledge and belief, whether there have been any
administrative merits determinations, arbitral award decisions,
or civil judgments--that were undefined in the Executive Order
but are defined in the DoL proposed guidance--rendered against
the offeror within the preceding three year period, for
violations of 14 enumerated federal labor laws and their
equivalent state laws. Examples of the laws that would be
covered by the E.O. include the Fair Labor Standards Act
(FLSA), Occupational Safety and Health Act (OSHA), the National
Labor Relations Act, the David-Bacon Act, and the Service
---------------------------------------------------------------------------
Contract Act.
Based on the information received from offerors, government
contracting officers must make a determination about each
offeror's present responsibility, thus determining whether the
offeror is suitable for a contract award.
If awarded the contract, the awardee must require all of
their subcontractors to also disclose to the awardee any of its
labor-related findings or violations and the awardee must
evaluate every disclosure by a subcontractor and make a
determination regarding whether that subcontractor is a
``presently responsible sources'' with satisfactory records of
integrity and business ethics.
The E.O. would also create a new function within each
agency and require the appointment of a senior agency official
to serve as the ``Labor Compliance Advisor'' (LCA). It tasks
LCAs with assisting agency contracting officers with making
decisions about contractors' compliance with labor laws and
whether contractors are ``presently responsible.'' The LCA is
also to provide assistance to the agency suspension and
debarment official when initiating suspension and debarment
proceedings. Finally, the E.O. requires DoL to assist prime
contractors with making their decisions about their
subcontractors' ``present responsibility.'' To our knowledge,
no mechanism exists today within DoL for providing such
assistance to prime contractors.
History
The Fair Pay and Safe Workplaces Executive Order is similar
in several respects to previous initiatives under the Clinton
administration. PSC is familiar with this history because, at
that time, PSC's President and CEO Stan Soloway was a deputy
undersecretary of defense and served as the primary lead for
DoD on those proposed rules. As Soloway stated during his
February 26, 2015 testimony during a House Education and
Workforce hearing:\7\
---------------------------------------------------------------------------
\7\ Written Statement of Stan Soloway, President and CEO of the
Professional Services Council, before a joint hearing of the Workforce
Protections and Health, Employment, Labor, and Pensions Subcommittees
of the House Education and Workforce Committee, February 26, 2015,
available at http://www.pscouncil.org/PolicyIssues/LaborIssues/
GeneralLaborIssues/
Testimony--on--Fair--Pay--an
d--Safe--Workplaces--Executive--
Order.aspx.
``even at that time, there was a great deal of concern
across the administration about whether that proposed rule was
fair or implementable and whether it would hinder the Defense
Department's (or other agencies') ability to effectively
partner with essential and ``responsible'' private sector
entities. In my view, those concerns remain valid today, as
well, particularly since this E.O. goes well beyond the prior
---------------------------------------------------------------------------
version.''
As you may know, building on a commitment from then-Vice
President Gore in 1996, the Civilian Agency Acquisition Council
and the Defense Acquisition Regulations Council in 2000
published a proposed rule called the ``Contractor
Responsibility Rule.'' \8\ The driving force behind the
proposal was actually a single case, albeit a significant one,
involving a company with scores of labor violations. At stake
was the core question of whether a company could be denied a
federal contract solely on the basis of violations unrelated to
its ability to perform on the contract. Many in the federal
acquisition field believed the concept of ``present
responsibility,'' a fundamental concept of federal acquisition
law then and today, said that the answer to the question was
``yes.'' However, others disagreed and the company was awarded
additional work. As a result, as one of its last regulatory
acts, the Clinton administration issued the final version of
the ``Contractor Responsibility Rule.'' \9\ Then, as now, the
intent was laudable. But then, as now, the rule was poorly
thought-out, overly broad, and completely unexecutable. And, as
you may also know, the final rule was rescinded by the incoming
Bush administration just a few weeks later.
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\8\ 65 Fed Reg 40830, et seq, published on June 30, 2000, available
at http://www.gpo.gov/fdsys/pkg/FR-2000-06-30/pdf/00-16266.pdf.
\9\ 65 Fed Reg 80256, et seq, published on Dec. 20, 2000, available
at http://www.gpo.gov/fdsys/pkg/FR-2000-12-20/pdf/00-32429.pdf.
Since then, however, the issue at the heart of that
debate--the government's ability to deny a contract award on
the basis of broad compliance with federal law--has largely
been settled. Over the last decade, numerous cases, from Enron
to British Petroleum, have repeatedly demonstrated the
government's authority to deny contract awards to companies
with documented, pervasive, and willful violations of law, even
when those violations were entirely unrelated to the company's
performance on a government contract. Nonetheless, the Fair Pay
and Safe Workplaces E.O. shares many of the same attributes as
its Clinton-era predecessor: it is poorly thought-out and
constructed, overly broad and of fundamentally questionable
fairness. It is also unnecessary. There is no debate today
about whether pervasive violations of law, including federal
labor laws, can be used as the reason to deny future federal
contracts to a company through existing suspension and
debarment procedures. And there is no real debate as to whether
the government already has at its disposal any number of tools
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to penalize bad actors.
Challenges
As stated previously, this E.O. and its implementing tools
pose a number of challenges that renders this E.O. unworkable.
They also create a number of unintended consequences, and most
notably, are completely unnecessary. While we learn more about
the adverse effects of the E.O. every day, there are many
aspects that we will not know about until well into
implementation. I hope we do not get to that point because this
E.O. has too many undefined terms, too few objective standards,
and too much potential for adversely affecting the federal
procurement process.
The Executive Order is Unnecessary
There is no evidence of a widespread problem of pervasive,
repeated or willful violations of labor laws by federal
contractors. As the White House Fact Sheet accompanying the
E.O. states, the vast majority of contractors play by the
rules. That is not to say that there are not instances where
contractors have violated labor laws. And some of these
infractions may well have been intentional. The courts have
even found that the U.S. Government has violated the Fair Labor
Standards Act for some of its employees. But the fact is that
the labor laws involved are so complex and challenging to
execute that many companies, sometimes at the direction of the
government itself, take actions that result in honest mistakes.
Yet, each mistake is, technically, a violation of law and these
honest, administrative errors make up the vast bulk of such
``violations.'' Beyond that, there are numerous existing
mechanisms and processes available to federal agencies that are
more suitable and less intrusive than the E.O. for dealing with
those cases in which there has been nefarious intent.
First, contracting officers are already required to
evaluate each offeror to determine whether it is a
``responsible'' contractors, and that evaluation is based on
the totality of the contractor's performance history. FAR 9.104
states that such determination is to include whether the
contractor has a satisfactory record of integrity and business
ethics. To assist contracting officers with making such
determinations, contracting officers are required to review
government maintained databases, including what was called the
Excluded Parties List System (EPLS)--which lists all suspended
or debarred contractors--and the Federal Awardee Performance
Information and Integrity System (FAPIIS), which contains
information about previous non-responsibility determinations,
contract terminations, and any criminal, civil and
administration agreements in which there was a finding or
acknowledgement of fault by a contractor tied to the
performance of a federal contract.
In addition, under FAR 9.4, which outlines the federal
government's suspension and debarment structure, federal
agencies have the authority to suspend or debar a contractor
for a number of enumerated actions, including for ``commission
of any other offense indicating a lack of business integrity or
business honesty that seriously and directly affects the
present responsibility of a government contractor or
subcontractor.'' This catch-all provision provides the
necessary authority for initiating suspension and debarment
action against a contractor for violations of, among other
things, federal labor laws. This authority is also reiterated
in several places on the DoL website, and specifically on DoL's
published fact sheets outlining the penalties for contractor
violations of the Service Contract Act.\10\ In addition to the
FAR suspension and debarment process, the Department of Labor
has independent statutory authority to debar a contractor for
significant federal labor law violations.
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\10\ DoL Fact Sheet #67: The McNamara-O'Hara Service Contract Act
(SCA), July 2009, available at http://www.dol.gov/whd/regs/compliance/
whdfs67.pdf.
Examples of other existing remedies include criminal
presecutions, civil actions, substantial fines, liquidated
damages, and contract terminations. Federal contractors know
these actions are serious as each of them carries significant
consequences. The E.O., however, fails to acknowledge that the
existing remedial actions even exist, let alone are effective,
and instead assumes that only stripping contractors of their
contracts or denying on the president's own assertion that the
vast majority of federal contractors play by the rules, the
existing deterrents and the current system for reviewing and
adjudicating potential violations of labor laws are working
effectively. That said, we recognize that there will be bad
actors. But, based on historical GAO reports and the data in
Senator Harkin's report (discussed in greater detail below), it
is clear that contractors that violate federal labor laws are
already being identified by DoL and the procuring agencies and
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that action is being taken against those that violate the law.
With regard to labor law violations, it is important to
recognize that it is the Department of Labor that initiates
reviews and administers federal contractors' compliance with
federal labor laws through a number of DoL offices, such as the
Wage and Hour Division and the Office of Federal Contract
Compliance Programs. As such, the result of any of their own
reviews, including settlement agreements, penalties, or other
punitive actions, should be known and recorded by the
Department of Labor. If this is not happening, the
administration would be better served by focusing on improving
its own data collection and information sharing efforts rather
than adopting another costly, complex compliance and reporting
regime.
There is little evidence to demonstrate that the above
existing authorities are not, or could not, be effective on
their own, without creating new and significant bureaucracies
as required by the E.O. In fact, much of the information
collection that the E.O. imposes on contractors is information
that the government already has. Rather than creating
duplicative and burdensome reporting requirements, the
government should examine its existing reporting mechanisms and
identify and correct any shortcomings without duplicating that
effort by imposing additional requirements on industry.
The Executive Order is Excessive
Many of the most complicated challenges associated with the
E.O. are created by its expansion of, or redundancy with, the
current compliance regime, while providing very little
additional benefit to the government. For example, the E.O.
fails to limit reporting requirements to findings directly tied
to federal laws only. By expanding the reporting requirements
to include findings related to ``equivalent state laws,'' the
E.O. adds significant and unneeded complexity. First, DoL does
not have jurisdiction over these often disparate state laws.
Second, it is unreasonable to expect that any of the LCAs will
have even marginal knowledge or understanding of even a few,
let alone all 50 states' labor laws, administrative processes,
and/or due process rights afforded to federal contractors who
do business in those states.
Adding to the complexity of the E.O.'s inclusion of state
labor laws is the fact that the E.O. does not limit reporting
of state activity to violations tied to the performance of a
federal contract. It is common for federal contractors to
compete in the commercial marketplace in addition to the work
done for the federal government, but it is also common that
companies separate their federal and commercial business units
for ease of complying with a myriad of other federal
government-unique compliance, oversight and reporting regimes
associated with federal procurements. Because of this expansive
coverage, companies would have to initiate a substantial data
collection effort from all business units, even if the vast
majority of its total revenue is derived from its commercial
business. Additionally, because the E.O. fails to limit
reporting of findings to only those in which there is a finding
or acknowledgement of fault by the contractor, the reporting
burden will be much more intensive than necessary or
appropriate to meet the objectives of the E.O.
Given the E.O.'s inclusion of state labor laws beyond those
tied to a contractors' performance of federal contracts, and
the fact that there need not be a finding or acknowledgement of
fault to trigger a report and review, it is easy to see just
how massive a data collection and reporting effort will need to
be undertaken by those companies simply wishing to bid on a
federal contract. Many will sit out the competition because of
it, even if there are no company violations, particularly
because compliance reporting is required twice per year once a
contract is won.
Ultimately, the E.O. should be focused on federal
contractors, their compliance with federal laws, and on their
performance of federal contracts. It is nonsensical to create a
vast reporting structure that seeks to capture information that
has nothing to do with the performance of federal contracts and
expands well beyond federal labor laws, or in which the company
was neither found to have committed, or admitted to, any
wrongdoing.
Even more troublesome is the fact that the DoL proposed
guidance fails to define any ``equivalent'' state laws beyond
state occupational safety and health laws that are ``OSHA-
approved.'' Yet, the proposed guidance grants DoL the authority
to add state law ``equivalents'' in the future. Thus, the
proposed guidance is incomplete and will result in cumulative,
additional costs for contractors as DoL determines--likely
without significant public input or cost impact assessment--
which other state laws to cover.
In recent years there have been a few reports seeking to
highlight instances in which companies with labor law
violations have received, or continued to perform, federal
contracts. These reports are riddled with flaws that seek to
paint a picture of contractor abuse that is woefully
inaccurate. One such report, published by the office of Senator
Tom Harkin in December 2013, reaches back to 2007 to identify
contractors with OSHA and wage violations even if those
violations had nothing to do with the companies' work under a
federal contract. Also, the report included a listing of top
contractors that were tied to instances in which back wages
were owed to their employees. What the report failed to
highlight is that, in early half of the top 15 cases listed in
the report, the contractor was not at fault for the violations.
Many contract-related cases involving back pay occur because
the contracting agency, i.e. the government, failed to include
required Service Contract Act or Davis-Bacon Act clauses or
correct wage determinations into the contract. While long
viewed as technical or administrative errors, they have never
been objectively considered evidence of willful behavior. Yet
under these circumstances, federal contractors are often
adversely affected by mistakes by the government. Also
concerning is that the report failed to limit its finding to
cases that had been fully resolved, thus falsely inflating the
appearance of contractor violations. PSC has seen time and
again determinations later overturned by administrative bodies
or the courts, but the E.O., like the Harkin Report, fails
entirely to account for such subsequent actions.
The Executive Order is Ambiguous and Unworkable
The E.O. requirement that prime contractors mandate their
subcontractors to report their violations of labor laws will be
exceptionally onerous, if not impossible, for prime contractors
to administer and creates a number of unintended consequences
related to prime and subcontractor relationships.
First, the E.O. requires prime contractors to update their
certification of compliance with labor laws every six months
and requires the same reporting and certification by their
subcontractors at identical intervals. The reporting burden on
prime contractors for just reporting and certifying for their
company is onerous in and of itself as discussed above. Adding
subcontractor reporting adds a significant level of complexity
to the information collection and related mitigating processes
outlined in the E.O. Primarily, prime contractors cannot, and
should not, be tasked with ensuring the labor compliance of
their subcontractors or their entire supply chain on a
recurring basis when such compliance is entirely unrelated to
the federal contract under which the prime and subcontractor
are partnered. Some larger contractors, for example, have
supply chains and subcontracting agreements numbering in the
tens of thousands. Just to review this number of companies is
unexecutable even if only a limited number of companies have a
reported violation of the E.O.'s covered labor laws. But if
one-third of a large companies' supply chain has even a minor
violation of a covered labor law, that could be 10,000 cases
that need to be reviewed by the company and possibly by both
the contracting officer and the yet-to-be created Office of
Labor Compliance within DoL. Not only do the companies not have
the resources to conduct the reviews, the federal government
would also be overwhelmed by responsibility reviews of even
minor cases that would ultimately be cleared.
Second, the E.O.'s subcontractor flow-down requirement
means that subcontractors will be providing sensitive business
compliance information to their prime contractors. But the E.O.
fails to recognize that many companies that subcontract with
each other also compete against each other for other federal
contracting opportunities. This business dynamic raises
legitimate concerns by companies who do not want to provide
information to their prime contractors because the prime
contractor could use even minor infractions to gain a
competitive advantage, or to initiate a contract award protest,
against the company in a future acquisition in which the
companies were competing against each other. Again, why is the
E.O. creating a vast new reporting regime, and placing the
burden on industry, to collect information that the government
already has, or should have, access to through existing
channels?
Third, the E.O. requires a pre-award assessment of labor
compliance on a proposal-by-proposal basis. For companies that
bid on multiple opportunities, these reviews mean that
different contracting officers, and different LCAs, will be
making assessments about a contractor's labor record and may
come to different conclusions about a contractor's
``responsibility'' after reviewing identical information about
a contractor's historical compliance with labor laws. This
subjective analysis means that, in some cases, a contractor
could be determined to be ``presently responsible'' by one
contracting officer but based on identical information found to
be not ``presently responsible'' by another contracting
officer. This lack of consistency creates enormous risk and
uncertainty for both the government and contractors.
Alternatively, once one contracting officer or LCA makes a
determination that a contractor is not a responsible source,
based on their individual subjective analysis, then it is
foreseeable that every other contracting officer will make the
same determination to avoid inconsistency or having to justify
a different conclusion. Contracting officers are not labor law
experts. Since contracting officers are faced with burgeoning
workloads and pressure to get contracts awarded quickly, it is
also foreseeable that a contracting officer would avoid making
any award to a contractor with any labor violation simply to
avoid the time, burden, and delay associated with coordinating
with the LCA or having to justify making such an award. Under
these scenarios, and given the fact that mere allegations would
be considered during reviews, a contractor would be confronted
with a de facto debarment--a ``blacklisting''--without being
afforded the due process that is required to be provided to
contractors under existing federal acquisition regulations.
Fourth, in order for the E.O. to be implemented in a
workable manner, the federal aencies would have to hire a
significant number of new staff to serve as (and support) the
role of the LCAs. Within the Department of Defense alone, the
LCA would be required to support the activities of
approximately 24,000 contracting officers and hundreds of
contracting offices. Additionally, the DoL would need
significant additional resources to support prime contractors
seeking guidance about whether potential subcontractors'
violations warrant a decision by the prime contractor not to
award a subcontract to the entity. As stated above, for some
large prime contractors that have several thousands
subcontractors and suppliers, the requests for assistance to
the DoL could be tremendous. Even if the federal government
could somehow ramp up its capacity to provide DoL and LCAs
resources to the federal agencies and prime contractors, a
significant amount of time would be needed to effectively train
personnel in the new positions to correctly carry out their
duties in a fair and consistent manner. The cost of hiring and
training new personnel will be substantial.
Fifth, the E.O. is riddled with undefined and ambiguous
terms that we feared would result in contractors having to
report non-fully-adjudicated cases of alleged ``violations.''
For example, the E.O. directs contractor disclosure of any
``administrative merits determination, arbitral award or
decision, or civil judgment (as defined in guidance issued by
the Department of Labor)'' against the offeror within the
preceding three year period for violations of any number of
listed federal or ``equivalent state labor laws.'' Our fears
were exceeded when DoL issued its proposed guidance that
defines the above terms in a manner that clearly rob
contractors of due process. In our comments on the proposed
guidance and FAR proposed rule, we focus extensively on the
shortcomings of DoL's definitions of these key terms. But in
summary, it is clear that mere allegations about contractor
violations of labor laws could be taken into consideration by
the federal government. It is also clear that ``violations''
that are ultimately the result of government error would also
be reportable. For example, DoL will issue a Form WH-56 to a
contractor indicating that the contractor has agreed to pay
certain ``back wages'' associated with Service Contract Act
(SCA) requirements. Under the DoL proposed guidance, the
receipt of a WH-56 form is a reportable ``offense,'' yet the
proposed guidance fails to recognize that the issuance of a WH-
56 is often a result of the federal contracting entity failing
to put the required SCA clauses into the contract. Such an
aggressive approach puts contractors in a position where they
are assumed to be guilty of a violation and must take
proactive, tedious actions to prove their innocence. To include
in the definition findings that are not fully adjudicated
raises the risk of situations where an agency prematurely takes
actions detrimental to a company (and the government buyers)
when the allegation may be reviewed and ultimately dismissed.
The terms ``serious, repeated, willful or pervasive nature
of any violation,'' are also broadly defined in the DoL
guidance and would require virtually all allegations or
violation, no matter how minor, to be reported.
The Executive Order will Cause Procurement Delays
The federal contracting process is already widely
criticized for being overly burdensome and too slow. The E.O.
could add significant delays to the federal procurement process
pending resolution of even the smallest of infractions that
would eventually lead to a contracting officer's affirmative
responsibility determination. Such delays may be further
exacerbated by disputes between LCAs and contracting officers
about a contractor's present responsibility. Further questions
must also be addressed regarding how such disputes are to be
resolved. Delays would also be driven by prime contractors
having to delay moving forward with contract performance while
they await support and guidance from DoL about the present
responsibility of any of their subcontractors. Finally, the
increase in procurement award protests because of the E.O.
standard will further lengthen the time of the federal contract
award process.
The Executive Order Will Result in Less Competition for
Federal Contracts and Increased Costs of Doing Business with
the Government
In addition to the substantial reporting and related costs
associated with complying with the E.O., the E.O. will subject
contractors to significant risks. Such risks include increased
liability associated with potential false claims or false
statements accusations because of inaccurate reporting or
certification of compliance under the E.O. Rather than risking
such liability and complying with burdensome and costly
requirements of the E.O., some companies will simply choose not
to do business with the federal government. Ultimately, this
only hurts federal agencies by denying them the ability to
access companies that may be able to offer the best and most
cost-effective solutions. The E.O. will also discourage new
entrants from coming into the federal marketplace because of
the significant business risks and extraordinary requirements
not required in the commercial sector. These effects on the
federal marketplace are particularly concerning because they
are contrary to this administration's separate initiatives
aimed at reducing regulatory burdens and reducing the cost of
doing business with the government in the hope that more
commercial companies, and particularly small businesses, will
compete for federal contracts.
The effects of this Executive Order must also be considered
in conjunction with the other 12 Executive Orders that focus on
federal contractors, and in many cases federal contractors'
labor practices. While some of those orders have the support of
industry--this one certainly does not--the cumulative cost of
implementing and complying with the orders has been
significantly down-played by the government.
Conclusion
This Executive Order fails on so many fronts that it can
never be effectively implemented in its current form. We
believe that more can be done to ensure that intentional
violators of the law do not receive federal contracts. But this
Executive Order is not the right approach. It should be
rescinded and the administration. Congress and industry should
work together to find alternative solutions that rely
considerably on the existing regulatory and statutory
framework. PSC has offered our engagement to key representative
of the Executive Branch. It is essential that Congress also be
engaged in this process, and that is why we commend and thank
you for your attention to this issue and for holding this
hearing. PSC looks forward to working with the Congress and the
administration on needed improvements.
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