On April 14, 2010, the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council proposed an amendment to the Federal Acquisition Regulation (FAR) that would limit contractors' allowable expenses for labor-related activities.  75 Fed. Reg. 19345 (Apr. 14, 2010).  Under the proposed revision, with certain limitations, contractors may no longer count as allowable costs any expenses incurred to persuade workers to exercise or not exercise their collective bargaining rights.  Contractors may continue to use federal funds to "maintain satisfactory relations" between the contractor and its employees, such as the cost of labor-management committees and employee publications that are not directed at attempting to persuade employees regarding unionization.

The amendment is brief, adding only a paragraph with four examples to FAR 31.205-21.  The addition renders unallowable costs incurred "to persuade employees, of any entity, to exercise or not to exercise, or concerning the manner of exercising, the right to organize and bargain collectively through representatives of the employees' own choosing."  75 Fed. Reg. at 19346.  Examples given include preparing written materials, hiring outside counsel and planning activities held during work hours.  One example is particularly noteworthy, as it disallows the costs of meetings related to these activities-including the salaries of managerial employees that are allocable to the meeting time.  Id.

The proposed amendment purports to advance two goals but could have different effects than those stated.  First, the amendment continues the White House's efforts to remain neutral in contractors' labor-management disputes.  When taken at face value, the amendment does so by disallowing expenses incurred to persuade employees to exercise or not exercise their collective bargaining rights.  In practice, however, few federal contractors are likely to expend funds encouraging union membership, meaning only that advocacy against collective bargaining will be curtailed.  Second, the amendment is supposed to improve the return on contracting dollars spent by the Government.  Overall spending by the Government should, the proposed rule argues, decline because the Government will no longer pay for these activities that are "unrelated" to performing a Government contract. The amendment does not address the costs of enforcing the rule, though.

Many contracts will be unaffected by the rule.  Contracts awarded on a competitive firm-fixed-price basis, for example, will not be subject to this new cost principle.  Purchases made under simplified acquisition procedures will be similarly exempt from the rule.  This, as the proposal notes, means that most small businesses will not notice any changes that result from the amendment; the proposed rule requests comments on this conclusion, however.  Id.

The proposed amendment implements Executive Order 13494, 74 Fed. Reg. 6101 (Feb. 4, 2009), as amended 74 Fed. Reg. 57239 (Nov. 5, 2009).  Comments may be submitted by June 14, 2010.

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