Government Contracts Monitor

Federal Lawsuit Challenges Fair Pay and Safe Workplaces Reporting Requirements

October 18, 2016

The Final Rule implementing Executive Order 13673, Fair Pay and Safe Workplaces, is due to take effect on October 25. Jackson Kelly has previously written about the new rule, and many federal contractors are struggling to understand which provisions apply to them and when they will take effect. The reporting requirements mandated by the rule are set to phase in over a two year period and will ultimately require both federal contractors and subcontractors to report “violations” of fourteen enumerated Department of Labor (DoL) regulations. Additionally, the Rule imposes specific requirements on contractors regarding the contents of employees’ pay statements, accounting for overtime, and calculation of wages. The Rule and its implementing regulations have been sharply criticized by government contractors as being too burdensome. Last week, one federal contractors’ association took action by filing a federal lawsuit in the U.S. District Court for the Eastern District of Texas.

The suit, filed by the Southeast Chapter of the Associated Builders and Contractors, seeks an injunction preventing the government from implementing the Rule’s reporting requirements. It also alleges that the Rule will unfairly require contractors to report “alleged violations” prematurely, before they have been fully adjudicated, violating their due process rights. The suit argues that this violation will have a negative impact on fair and open competition in federal contracting.

Additionally, the lawsuit discusses the financial burden that will be incurred by contractors, specifically small businesses, of complying with the Rule’s reporting requirements. Critics of the rule have argued that it will stymie competition by forcing small businesses out of federal contracting, because they are unsure of what exactly they are required to report, what the impact of those reports might be, and the burden of tracking the definitions of each of the violations called out in the Rule will unduly burden these businesses.

While they support the idea that federal contractors should operate with candor and maintain safe workplaces in compliance with applicable federal regulations, the plaintiffs allege that the Executive Order exceeds the President’s authority. More specifically, they contend that the requirement to publicly disclose accusations of wrongdoing—which have not yet resulted in an adjudicated finding of fault on the part of the disclosing contractor—goes too far and will have a negative impact on the discloser’s business opportunities. Additionally, the costs of compliance, which could include hiring new personnel to track the reporting requirements and to properly report the “violations” as they are defined in the Rule could force small contractors away from doing business with the federal government, and increase contract administration costs, both for the contractor itself and the federal government—and that increase would ultimately be passed on to the American taxpayer. Further, to the extent that a contractor and the contracting agency disagree about what constitutes a violation, and whether a reported incident should prevent a contractor from being able to compete for a federal award, the lawsuit expresses concern that the Rule will cause unnecessary, costly, and time consuming litigation, negatively impacting a contracting scheme that is already subject to onerous and time consuming regulatory requirements that can delay critical acquisitions.

In addition to the lawsuit, seven major industry associations submitted a letter on September 27 to the GSA expressing their concerns over implementation of the Executive Order. These groups were the Professional Services Council; the National Defense Industrial Association (NDIA); the Council of Defense and Space Industry Associations (CODSIA); the IT Alliance for Public Sector; the Aerospace Industries Association; the American Council of Engineering Companies; and the U.S. Chamber of Commerce.

A major concern raised by defense sector critics of the Executive Order is that the 2017 National Defense Authorization Act (NDAA) has not yet been passed, and there are currently two versions of the NDAA under consideration, one in the House of Representatives and another in the Senate. Because the differing versions contain inconsistent provisions regarding how the Rule should be implemented in the Department of Defense (DoD), full implementation of the Rule’s provisions for DoD procurements would be difficult, if not impossible, without passage of the NDAA.

Jackson Kelly will continue to monitor and report on developments concerning E.O. 13706.