You Might Be a Federal Government Contractor — Better Check Now

04 September 2018 Labor & Employment Law Perspectives Blog
Author(s): Mark J. Neuberger

If your company:

  • sells goods or services to the federal government; or
  • sells goods or services to companies that use those goods or services in the products they sell to the federal government, you need to read this article.

If you have human resource management responsibility, and you do not know to whom your company sells its products, it is time for you to obtain that information. If you discover that your company does sell to the government in either of the above two ways, your company is likely subject to extensive affirmative action obligations.

Under Executive Order 11246, Section 503 of the Rehabilitation Act of 1973 and the Vietnam War era Veterans’ Readjustment Act of 1974, federal government contractors and first-tier subcontractors are required to comply with a host of regulations that, among other things, require the development and annual updating of written affirmative action programs (AAP).

On August 24, 2018, the Office of Federal Contract Compliance Programs (OFCCP) which is part of the U.S. Department of Labor, issued Directive 2018-07. The Directive announced OFCCP’s intention to crack down on government contractors who do not maintain annually-updated AAPs and all the required reports that go with them. The Directive appears to be the result of OFCCP’s frustration with the fact that government contractors are essentially on the honor system when it comes to AAPs—those contractors are not required to file their AAPs with the government. Therefore, OFCCP relies on government contractors’ voluntary, and unsupervised, compliance unless and until a contractor is specifically targeted for a compliance audit. Given OFCCP’s budgetary and staffing limitations, only a relatively small number of the total general contractor population is ever subjected to a formal compliance review.

In the Directive, OFCCP cites to a U.S. Government Accountability Office study that estimated that up to 85 percent of government contractors do not maintain current AAPs. OFCCP suspects that many contractors engage in “back-end compliance” by waiting to receive notice of a formal OFCCP compliance audit, and only then preparing their AAPs. As a result, the Directive states OFCCP’s intention to establish a program for annual verification of compliance by all government contractors. Among other things, that annual verification process would require all government contractors to sign and file an annual certification. Signing and submitting a false certification to the federal government is a crime punishable by incarceration. Currently, OFCCP’s main way to ensure compliance is to notify a government contractor of a formal compliance audit, and potentially take legal steps to “debar” or cancel government contracts for noncompliant contractors. However, that process is generally so cumbersome that most government contractors will become compliant before the OFCCP’s case even heats up.

The Directive further states that OFCCP is looking at other ways to ensure upfront rather than back-end compliance from government contractors, including establishing a requirement that each contractor file its updated AAP each year. (We hope they have a big warehouse!)

In any event, the key takeaway for employers is that now is the time for HR managers to learn or confirm where their company’s products are going so they can determine if their company is a covered contractor or “first-tier subcontractor.” If it is, now is the time to get your company’s metaphorical house in order, and start preparing and maintaining required AAPs.

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