House Examines Contracting Executive Order

October 14, 2015

pic-hearing-congressOn Sept. 29, the Committee on Small Business Subcommittees on Contracting and the Workforce and Investigations, Oversight and Regulations held a hearing entitled, “The Blacklist: Are Small Businesses Guilty Until Proven Innocent?” The purpose of the hearing was to examine the Executive Order (EO) 13673 entitled Fair Pay and Safe Workplaces, which is intended to promote economy and efficiency in procurement by contracting with responsible sources who comply with labor laws.

According to Subcommittee Chairman Richard Hanna (R-N.Y.), since 2009, President Barack Obama has issued 13 executive orders that relate to government contracting, which have resulted in 16 new regulations so far, and there likely are more to come. While some of these mandates may be well-intentioned, they have costs, and too often the costs significantly outweigh the actual positive effects. In fact, it is estimated that compliance with government-unique regulations costs almost 30 cents of every contract dollar.

On May 28, 2015 the Federal Acquisition Regulatory Council (FARC) and the U.S. Department of Labor (DOL) issued proposed regulations and guidance, respectively, for EO 13673, which was implemented by President Obama on July 31, 2014, requiring prospective federal contractors to disclose labor violations and efforts to correct them.

Citing the need to identify businesses with consistent track records of compliance, the EO requires contractors for the first time to report violations of labor, discrimination, wage and hour, and safety laws to the contracting agency at the pre-award stage. Under the EO, companies that apply for federal contracts will have to disclose any administrative merits determination, arbitration award or decision, or civil judgment rendered against it within the last three years involving labor law violations. The EO also prohibits certain contractors from requiring workers to sign pre-dispute arbitration agreements covering certain civil rights and tort claims.

According to a U.S. Department of Labor estimate, there are roughly 24,000 businesses with federal contracts, employing about 28 million workers. The disclosure provisions in the President’s EO apply only to those employers with new federal procurement contracts for goods and services exceeding $500,000, and certain subcontractors. According to a White House official, the EO will be implemented on new contracts in stages, on a prioritized basis, beginning in 2016.

NSBA has weighed in on the EO and proposed FAR rule and DOL guidance, as they will collectively impose significant reporting and record-keeping obligations on contractors and subcontractors that will require careful planning in anticipation of the final rule. Although certain steps have been taken to minimize the burden on small businesses—such as limiting the disclosure requirements to contracts over $500,000 and excluding commercial-off-the-shelf items, there will certainly be other obligations that small businesses will find burdensome.

NSBA is deeply concerned that implementation of the EO will create widespread disruptions in the federal procurement process and significantly increase costs for both government and industry. Given its highly subjective enforcement requirements, the EO will inevitably lead to delays in award evaluations, limitations on competition, and a greater number of contract award protests.