Just in time for Labor Day, the Labor Department and FAR Council issued a final rule and accompanying “Guidance” to implement the Fair Pay and Safe Workplaces Executive Order.  The new regulations will take effect on October 25, 2016.  The regulations—which run to nearly 900 pages—contain a number of changes from the proposed regulations to demonstrate that the Department listened to stakeholders during the lengthy comment period.

Despite some concessions to industry comments, the final regulations still establish substantial compliance obligations. In light of those burdens, the contracting community is well advised to invest time to understand these provisions.  In this post, we summarize key changes and examine the way ahead for contractors. 

Phase-In Procedures

One of the most welcome changes is a phased implementation schedule to give contractors and subcontractors relief from the most immediate burdens. Subcontractors enjoy a blanket one-year grace period before their disclosure obligations begin.  Prime contractors have more limited relief during the first six months of the rule. During that time (that is, until April 2017), disclosures are only required from prospective prime contractors bidding on solicitations for contracts of $50 million or more. Thereafter, the standard $500,000 threshold will apply.

In response to arguments that the three-year look-back period placed unreasonable burdens on contractors, the Department agreed to phase in the disclosure requirements so contractors are not forced to scour records from the preceding three years immediately upon the effective date.  Under the final rule, contractors must disclose decisions made during “the period beginning on October 25, 2015 [i.e., one year prior to the final rule’s effective date] to the date of the offer, or for 3 years preceding the date of the offer, whichever period is shorter.”

These changes are helpful, but contractors are still well advised to prepare an internal recordkeeping and monitoring system, even if disclosure obligations do not arise until later.  In addition, the Guidance reminds contractors that, although they need not report decisions rendered before October 25, 2015, they may nevertheless have to address conduct that occurred prior to that date, and that resulted in a reportable “decision” within the covered time period.

Subcontractor Reporting

As noted above, subcontractors enjoy a one-year exemption before they are required to make disclosures.  Subcontractors are also directed to submit reports directly to the Labor Department, rather than through a prime contractor.  This change provides relief to primes from the potentially overwhelming requirement to police subcontractor disclosures.  Under the final regulations, subcontractors will file disclosures with the Labor Department and then provide prime contractors with a report of the Labor Department’s assessment.  That assessment is designed to enable the prime to evaluate the subcontractor’s record of integrity and business ethics.

Pre-Assessment Procedures

The revised Guidance establishes a voluntary procedure by which contractors and subcontractors can request a “courtesy review” from the Labor Department before making any disclosures.  Although the Department “strongly encourages” contractors to take advantage of these pre-assessment reviews, we would urge caution.  The process is written to sound like a safe harbor, but the protections it offers are quite limited: “[I]f a contractor whose record have been assessed by the Department subsequently submits a bid, and the contracting officer initiates a responsibility determination of the contractor, the contracting officer and the [Agency Labor Compliance Advisor] may rely on the Department’s assessment that the contractor has a satisfactory record of Labor Law compliance unless additional Labor Law violations have been disclosed.”

The language of the Guidance suggests that the pre-assessment procedure is actually designed to address concerns that the Labor Compliance Advisor’s three-day timeline for reviewing contractors’ records was insufficient.  The additional time available during a pre-assessment could lead to a more thoughtful analysis by the Labor Compliance Advisor, or it could invite unwarranted levels of scrutiny.  We will be monitoring the implementation of the pre-assessment reviews, and recommend that any contractor considering a pre-assessment undertake a close analysis of how the Labor Department uses the pre-assessment process.  Details on the procedures are forthcoming on a dedicated website.

Definitions

The final regulations resolve an open question about what “Equivalent State Laws” would be covered.  Although the proposed regulations suggested that a broad range of state labor laws would be included in the disclosure requirements, the final regulations limit the definition of “Equivalent State Laws” to OSHA-approved State Plans, which are listed  on OSHA’s website.  The Labor Department had been promising to issue supplemental guidance about state laws during the notice and comment period, but it never did so.  Accordingly, the focus of the Fair Pay and Safe Workplaces regime will be on federal labor laws.  At least for now.  The final rule gives a warning about additional rulemaking: “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 public notice and comment before they take effect.”

Contractors received no relief from the requirement to disclose determinations that are appealable or otherwise not finalized.  In particular, as we have discussed before, the definition of “administrative merits determinations” remains worryingly broad.  It continues to include, for instance, the Wage and Hour Division’s WH-56 form (“Summary of Unpaid Wages”), which functions like a complaint.

Next Steps

The contracting community fares better under the final regulations than under the proposed regulations, but the requirements are still significant and the risks considerable.  As a result, preparation should begin now, with the benefit of more clarity about the metes and bounds of the disclosure obligations.  This preparation should include, for instance, a review of internal compliance and disclosure policies, to ensure that the official responsible for “checking the box” on the Fair Pay and Safe Workplaces certification has a clear, complete picture of any matters that may be covered by the disclosure requirements, and that any disclosures are properly and thoroughly vetted.  In addition, contractors should conduct a careful review of labor-related correspondence to determine what documents, if any, constitute “administrative merits determinations,” since that term does not have a familiar, commonly understood meaning outside the Fair Pay and Safe Workplaces context.  This review could benefit from an examination by a “red team” or an “internal Labor Compliance Advisor,” who could adopt the perspective of a Labor Department reviewer.  Finally, contractors should consider whether it makes sense for them to take advantage of the new pre-assessment options.

As we have noted, Congress still has an opportunity to weigh in.  Both the House and Senate Armed Services Committees included carve-outs for defense contractors in the National Defense Authorization Act, so Members and Senators will address those provisions during the conference on that bill.  Stay tuned to this space for additional coverage and analysis.