Federal Acquisition Regulation; Fair Pay and Safe Workplaces

DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 1, 4, 9, 17, 22, 42, and 52

[FAC 2005-90; FAR Case 2014-025; Docket No. 2014-0025, Sequence No. 1]

RIN 9000-AM81

Federal Acquisition Regulation; Fair Pay and Safe Workplaces

AGENCY:

Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA).

ACTION:

Final rule.

SUMMARY:

DoD, GSA, and NASA are issuing a final rule amending the Federal Acquisition Regulation (FAR) to implement Executive Order 13673, Fair Pay and Safe Workplaces, which is designed to increase efficiency and cost savings in Federal contracting by improving contractor compliance with labor laws. The Department of Labor is simultaneously issuing final Guidance to assist Federal agencies in

implementation of the Executive Order in conjunction with the FAR final rule.

DATES:

Effective

October 25, 2016.

FOR FURTHER INFORMATION CONTACT:

Ms. Zenaida Delgado, Procurement Analyst, at 202-969-7207 for clarification of content. For information pertaining to status or publication schedules, contact the Regulatory Secretariat at 202-501-4755. Please cite FAC 2005-90, FAR Case 2014-025.

SUPPLEMENTARY INFORMATION:

This rule comprises the following contents:

I. Table of Contents

II. Overview

A. Background

B. The Proposed FAR Rule

III. Discussion and Analysis of Public Comments

A. Summary of Significant Issues

1. Summary of Significant Changes to the Proposed Rule

a. Phase-in

b. Subcontracting

c. Public Disclosure of Labor Law Decision Information

d. Contract Remedies

e. Regulatory Impact

2. Summary of Changes by Provision

3. Additional Issues

a. Legal Entity

b. Other Equivalent State Laws

B. Analysis of Public Comments

1. Challenges to Legality and Authority of the Executive Order and Implementing Regulatory Action

a. Administrative Procedure Act (APA)

b. Due Process and Procedural Considerations

c. False Claims Act

d. Other Issues

2. Various Alternatives to the Proposed Rule

a. Alternatives That Were Presented in the Proposed Rule

i. Phase-in (of Disclosure Requirements)

• Phase-in of Subcontractor Review

• Phase-in of Subcontractor Disclosures by Subcontracting Tiers

• Phase-in for Small Businesses

• Phase-in for Other-Than-Small Businesses

• Length of Phase-in Period

ii. Subcontractor Disclosures and Contractor Assessments

iii. Contractor and Subcontractor Remedies

b. Alternatives for Implementation of Disclosures That Were Not Presented in the Proposed Rule

c. Recommendations for Use of Existing Data or Employing Existing Remedies

d. Alternatives Suggested for the Threshold for Dollar Coverage for Prime Contracts

e. Threshold for Subcontracts

f. Applicability to Prime Contracts for Commercial Items

g. Miscellaneous Public Comments Concerning Alternatives

3. Requirements for Disclosures of Labor Law Decisions

a. General Comments

b. Semiannual Updates

c. Burden of Disclosing Labor Law Decisions

d. Risk of Improper Exclusion

e. Request for Clarification on Scope of the Reporting Entity

4. Labor Law Decision Disclosures as Relates to Prime Contractors

a. General Comments

b. Public Display of Disclosed Information

c. Violation Documents

d. Use of DOL Database

e. Remedial and Mitigating Information

5. Labor Law Decision Disclosures as Relates to Subcontractors

a. General Comments

b. Definition of Covered Subcontractors

c. Authority for Final Determination of Subcontractor Responsibility

d. Governmental Planning

e. Subcontractor Disclosures (Possession and Retention of Subcontractor Information)

f. Potential for Conflicts When Subcontractors Also Perform as Prime Contractors

g. Not Workable Approach for Prime Contractors To Assess Subcontractors' Disclosures

h. Suggestions To Assess Subcontractor Disclosures During Preaward of the Prime Contractor

i. Suggestion for the Government To Assess Subcontractor Responsibility

j. Miscellaneous Comments About Subcontractor Disclosures

6. ALCA Role and Assessments

a. Achieving Consistency in Applying Standards

b. Public Disclosure of Information

c. Sharing Information Between ALCA and Contracting Officer

d. Respective Roles of Contracting Officers and ALCAs in Making Responsibility Determinations

e. Number of Appointed ALCAs, ALCA Expertise, and ALCA Advice/Analysis Turn-Around Time Insufficient

7. Labor Compliance Agreements

a. Requirements for Labor Compliance Agreements

b. Negotiating Labor Compliance Agreements

c. Settlement Agreements and Administrative Agreements

d. Third Party Input

e. Consideration of Labor Compliance Agreements in Past Performance Evaluations

f. Public Disclosure of Labor Compliance Agreements and Relevant Labor Law Violation Information

g. Labor Compliance Agreement—Suggested Improvements, Including Protections Against Retaliation

h. Weight Given to Labor Compliance Agreements in Responsibility Determinations

i. Concern Regarding Improper Discussions

j. Process for Enforcement of Labor Compliance Agreements

k. Pressure or Leverage To Negotiate a Labor Compliance Agreement

l. False or Without Merit Allegations/Citations

m. Interference With Due Process

8. Paycheck Transparency

a. Wage Statement Provision

i. Rate of Pay

ii. Itemizing Additions Made to and Deductions Taken From Wages

iii. Weekly Accounting of Overtime Hours Worked

iv. Substantially Similar State Laws

v. Request To Delay Effective Date

b. Fair Labor Standards Act (FLSA) Exempt-Status Notification

i. Type and Frequency of the Notice

ii. Differing Interpretations by the Courts of an Exemption Under the FLSA

iii. Request To Delay Implementation of the Exempt-Status Notice

c. Independent Contractor Notice

i. Clarifying the Information in the Notice

ii. Independent Contractor Determination

iii. Frequency of the Independent Contractor Notice

iv. Workers Employed by Staffing Agencies

d. Requirements That Apply to All Three Documents (Wage Statement, FLSA Exempt-Status Notice, Independent Contractor Notice)

i. Translation Requirements

ii. Electronic Wage Statements

9. Arbitration of Contractor Employee Claims

10. Information Systems

a. The Government Should Have a Public Data Base of All Labor Law Violations

b. Data Base for Subcontractor Disclosures

c. Posting Names of Prospective Contractors Undergoing a Responsibility Determination and Contractor Mitigating Information.

d. Method To Protect Sensitive Information Needed

e. Information in System for Award Management (SAM) and Federal Awardee Performance and Integrity Information System (FAPIIS)

f. Contractor Performance Assessment Reporting System (CPARS)

g. Chief Acquisition Officer Council's National Dialogue on Information Technology

h. Difficulty for Contractors To Develop Their own Information Technology System

11. Small Business Concerns

12. State Laws

a. OSHA-Approved State Plans

b. Phased Implementation of Equivalent State Laws

13. DOL Guidance Content Pertaining to Disclosure Requirements

a. General Comments

b. Defining Violations: Administrative Merits Determinations, Arbitral Awards, and Civil Judgments

c. Defining the Nature of Violations

i. Serious, Repeated, Willful, and/or Pervasive Violations

ii. Serious Violations

iii. Repeated Violations

iv. Willful Violations

v. Pervasive Violations

d. Considering Mitigating Factors in Weighing Violations

14. General and Miscellaneous Comments

a. Out of Scope of Proposed Rule

b. Extension Request

c. Miscellaneous

d. General Support for the Rule

e. General Opposition to the Rule

IV. Executive Orders 12866 and 13563

Regulatory Impact Analysis

V. Regulatory Flexibility Act

VI. Paperwork Reduction Act

II. Overview

A. Background

This final rule implements Executive Order 13673, Fair Pay and Safe Workplaces, dated July 31, 2014 (79 FR 45309, August 5, 2014), amended by Executive Order 13683, (December 11, 2014) (79 FR 75041, December 16, 2014) to correct a statutory citation, and further amended by an Executive Order to modify the handling of subcontractor disclosures and clarify the requirements for public disclosure of documents.

A FAR proposed rule was published on May 28, 2015 (80 FR 30548) to implement Executive Order 13683 (hereinafter designated as the “E.O.”). Public comments were due July 27, 2015. The Department of Labor (DOL) also published its proposed Guidance on May 28, 2015 (80 FR 30574).

A first extension of the period for public comments on the FAR rule, to August 11, 2015, was published on July 14, 2015. A second extension, to August 26, 2015, was published on August 5, 2015. There were 927 respondents that made comments on the FAR proposed rule. Including mass mailings, about 12,600 responses were received on the FAR proposed rule. Respondent organizations typically submitted their responses to both DOL and FAR dockets. DOL, DoD, GSA, and NASA worked together and closely coordinated review and disposition of the comments.

The purpose of E.O. 13673 is to improve contractor compliance with labor laws in order to increase economy and efficiency in Federal contracting. As section 1 of E.O. 13673 explains, ensuring compliance with labor laws drives economy and efficiency by promoting “safe, healthy, fair, and effective workplaces. Contractors that consistently adhere to labor laws are more likely to have workplace practices that enhance productivity and increase the likelihood of timely, predictable, and satisfactory delivery of goods and services to the Federal Government.”

It is a longstanding tenet of Federal Government contracting that economy and efficiency is driven, in part, by contracting only with responsible contractors that abide by the law, including labor laws. However, as explained in the preamble to the proposed rule, many labor violations that are serious, repeated, willful, and/or pervasive are not being considered in procurement decisions, in large part because contracting officers are not aware of them. Even if information regarding labor law decisions is made available, contracting officers generally lack the expertise and tools to assess the severity of the labor law violations brought to their attention and therefore cannot easily determine if a contractor's actions show a lack of integrity and business ethics. See 80 FR 30548-49 (May 28, 2015).

While the vast majority of Federal contractors abide by labor laws, a number of studies suggest a significant percentage of the most egregious labor law violations identified in recent years have involved companies that received Federal contracts. In the mid-1990s, the Government Accountability Office (GAO) (then known as the General Accounting Office) issued two reports finding that Federal contracts worth more than 60 billion dollars had been awarded to companies that had violated the National Labor Relations Act (NLRA) and the Occupational Safety and Health Act (the OSH Act). See U.S. General Accounting Office, GAO/HEHS-96-8, Worker Protection: Federal Contractors and Violations of Labor Law, Report to Senator Paul Simon (1995), available at

http://www.gao.gov/assets/230/221816.pdf

; U.S. General Accounting Office, GAO/HEHS-96-157, Occupational Safety and Health: Violations of Safety and Health Regulations by Federal Contractors, Report to Congressional Requesters (1996), available at

http://www.gao.gov/assets/230/223113.pdf

. The GAO stated that contracting agencies already had the authority to consider these violations when awarding Federal contracts under the existing regulations, but were not doing so because they lacked adequate information about contractors' noncompliance. See U.S. General Accounting Office, GAO/T-HEHS-98-212, Federal Contractors: Historical Perspective on Noncompliance With Labor and Worker Safety Laws, Statement of Cornelia Blanchette before the Subcommittee on Oversight and Investigations, Committee on Education and the Workforce, House of Representatives, 2 (July 14, 1998), available at

http://www.gao.gov/assets/110/107539.pdf.

More than ten years later, the GAO again found a similar pattern. As discussed in the preamble to the proposed rule, the GAO found that almost two-thirds of the 50 largest wage-and-hour violations and almost 40 percent of the 50 largest workplace health-and-safety penalties issued between FY 2005 and FY 2009 were made against companies that went on to receive new Government contracts. See U.S. Government Accountability Office, GAO-10-1033, FEDERAL CONTRACTING: Assessments and Citations of Federal Labor Law Violations by Selected Federal Contractors, Report to Congressional Requesters (2010), available at

http://www.gao.gov/new.items/d101033.pdf

. A 2013 report by the Senate Health, Education, Labor, and Pensions (HELP) Committee corroborated these findings. See Majority Staff of Senate Committee on Health, Education, Labor, and Pensions, Acting Responsibly? Federal Contractors Frequently Put Workers' Lives and Livelihoods at Risk, 1 (2013) (hereinafter HELP Committee Report), available at

http://www.help.senate.gov/imo/media/doc/Labor%20Law%20Violations%20by%20Contractors%20Report.pdf

.

Equally important, a number of studies suggest a strong relationship between labor law compliance and performance. One study conducted by the Center for American Progress (“At Our Expense: Federal Contractors that Harm Workers Also Shortchange Taxpayers,” dated December 2013,

https://www.americanprogressaction.org/issues/labor/report/2013/12/11/80799/at-our-expense/

) found that one quarter of the 28 companies with the top workplace violations that received Federal contracts between FY 2005 and FY 2009 had significant performance problems. As cited in the preliminary regulatory impact analysis (RIA), a report by the U.S. Department of Housing and Urban Development's Office of Inspector General, Internal Audit—Monitoring and Enforcement of Labor Standards, January 16, 1985, found a “direct relationship between labor standards violations and construction deficiencies” on the Department of Housing and Urban Development (HUD) projects and revealed that poor quality work contributed to excessive maintenance costs. Similarly, a Fiscal Policy Institute report, which analyzed a random sample of 30 New York City construction contractors, concluded that a contractor with labor law violations is more than five times as likely to receive a low performance rating than a contractor with no labor law violations. See Adler Moshe, “Prequalification of Contractors: The Importance of Responsible Contracting on Public Works Projects,” Fiscal Policy Institute, May 2003. In addition, in the “Background” section of the Preamble to its final Guidance, DOL cites to a number of studies describing how strengthening contractor labor-law compliance policies “can improve the

quality of competition by encouraging bids from more responsible contractors that might otherwise abstain from bidding out of concern about being able to compete with less scrupulous corner-cutting companies.”

E.O. 13673 is designed to address the longstanding deficiencies highlighted in the GAO reports and thereby to increase economy and efficiency in Federal procurement by providing, to Federal contracting officers, additional relevant information and guidance with which to consider that information. To achieve this goal, the E.O. requires that prospective and existing contractors on covered contracts disclose decisions regarding violations of certain labor laws, and that contracting officers, in consultation with agency labor compliance advisors (ALCAs), a new position created by the E.O., consider the decisions, (including any mitigating factors and remedial measures), as part of the contracting officer's decision to award or extend a contract. See sections 2 and 3 of the E.O. In addition, the E.O. creates new paycheck transparency protections, among other things, to ensure that workers on covered contracts are given the necessary information each pay period to verify the accuracy of what they are paid. See section 5 of the E.O. Finally, the E.O. limits the use of predispute arbitration clauses in employment agreements on covered Federal contracts. See section 6 of the E.O.

B. The Proposed FAR Rule

On May 28, 2015, DoD, GSA, and NASA published a proposed rule at 80 FR 30548, to implement E.O. 13673. The proposed rule delineated, through policy statements, solicitation provisions, and contract clauses, how, when, and to whom disclosures are to be made and the responsibilities of contracting officers and contractors in addressing labor law violations. Specifically, a new FAR subpart 22.20 was proposed to provide direction to contracting officers on how they are to obtain disclosures from contractors on labor law decisions concerning their labor law violations; how to consider disclosures when making responsibility determinations, and decisions whether to exercise options; and how to work with ALCAs, who will advise contracting officers in assessing labor law violations, mitigating factors, and remedial measures. New solicitation provisions and contract clauses were proposed in FAR part 52 to incorporate into contracts whose estimated value exceeds $500,000, and into subcontracts over this value, other than subcontracts for commercially available off-the-shelf (COTS) items. Conforming changes were proposed to FAR subpart 9.1 to address the consideration of labor law violation information in the Federal Awardee Performance and Integrity Information System (FAPIIS) during a responsibility determination, to FAR 17.207 to address consideration of labor law decisions, mitigating factors, and remedial measures prior to the exercise of an option, and to FAR subpart 22.1 to address the appointment and duties of ALCAs.

Simultaneously, DOL issued proposed Guidance entitled “Guidance for Executive Order 13673, Fair Pay and Safe Workplaces” that was designed to work hand-in-hand with the FAR rule. DOL's proposed Guidance provided proposed definitions and Guidance regarding labor law decisions; how to determine whether a labor law decision is reportable; what information about labor law decisions must be disclosed; how to analyze the severity of labor law violations; and the role of ALCAs, DOL, and other enforcement agencies in addressing labor law violations. The proposed Guidance defined the term labor compliance agreement as an agreement between a contractor and an enforcement agency, and it identified the existence of such an agreement as an important mitigating factor when an ALCA assesses the contractor's labor law violations. DOL's proposed Guidance at section IV also included discussion of the E.O.'s provisions related to paycheck transparency. These requirements include satisfaction by complying with substantially similar State laws, information to be included on required wage statements, FLSA exempt-status notices, and independent contractor notifications. The proposed FAR rule incorporated DOL's Guidance, including DOL's proposed interpretations of the E.O's reference to serious, repeated, willful, pervasive and other key terms; and, as already discussed, the proposed FAR rule addressed when and how contracting officers are to consider this Guidance.

In addition to the new requirements to improve labor compliance, the proposed FAR rule required contracting agencies to ensure that certain workers on covered Federal contracts receive a wage statement document that contains information concerning that individual's hours worked, overtime hours, pay, and any additions made to or deductions taken from pay. The proposed rule also instructed contractors to inform individuals in writing if the individual is being treated as an independent contractor and not an employee. Finally, the proposed rule required that contractors and subcontractors entering into contracts and subcontracts for non-commercial items over $1 million agree not to enter into any mandatory predispute arbitration agreement with their employees or independent contractors on any matter arising under Title VII of the Civil Rights Act of 1964, as well as any tort related to or arising out of sexual assault or harassment.

For additional background, refer to the preamble for the proposed rule.

III. Discussion and Analysis of Public Comments

The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (the Councils) reviewed the disposition of public comments in the development of the final rule. A discussion of the comments and of the changes made to the rule as a result of those comments is provided below.

A. Summary of Significant Issues

1. Summary of Significant Changes to the Proposed Rule

DoD, GSA, and NASA seek to ensure that this FAR rulemaking, like any other, results in regulatory changes that are clear, manageable, and effective. To this end, in soliciting public comment on the proposed rule, DoD, GSA, and NASA highlighted a number of issues whose shape in the final rule will play a particularly important role in the effective implementation of the E.O. These issues included: (i) How the new requirements might be phased in to give affected parties time to acclimate themselves to their new responsibilities, (ii) how disclosure requirements are best shaped to achieve a balance between transparency and a reasonable environment for contractors to work with enforcement agencies, (iii) how to avoid challenges contractors may face in evaluating labor law violations disclosed by their subcontractors, and (iv) how to craft remedies that create accountability for compliance while providing reasonable time and opportunity for contractors and subcontractors to take action. See 80 FR 30555 to 30557.

Based on the extensive and detailed public comments received in response to the proposed rule (discussed in greater detail below) and additional deliberations, DoD, GSA, and NASA have agreed on the following key actions to minimize burden for contractors and subcontractors, small and large, which include a number of changes to the proposed rule, as follows:

a.

Phase-in.

The final rule provides a measured phase-in process for the

disclosure of labor law decisions to recognize that contractors and subcontractors were not previously required to track and report labor law decisions and to provide the time affected parties may need to familiarize themselves with the rule, set up internal protocols, and create or modify internal databases to track labor law decisions in a more readily retrievable manner.

Accordingly, when the rule first takes effect, the disclosure reporting period will be limited to one year and gradually increase to three years by October 25, 2018. Moreover, no disclosures will be required from prospective prime contractors during the first six months that the rule is effective (from October 25, 2016 through April 24, 2017), except from prospective contractors bidding on solicitations issued on or after October 25, 2016 for contracts valued at $50 million or more. Because of the time typically required for contractors to prepare proposals, the Government to evaluate the proposals, and the Government to select a prospective contractor for major acquisitions of this size, such entities should have adequate time to perform the more limited disclosure representation set forth in the rule.

Subcontractor disclosure is also phased in, and subcontractors will not be required to begin making disclosures until one year after the rule becomes effective. More specifically, subcontractors will be required to report labor law decisions in accordance with this rule if they are seeking to perform covered work for prospective contractors under Federal contracts awarded pursuant to solicitations issued on or after October 25, 2017.

DOL and other enforcement agencies are actively working to upgrade their tracking systems so that the need for contractor disclosures of labor law decisions may be reduced over time. DoD, GSA, NASA, and the Office of Management and Budget (OMB) intend to work closely with DOL, as part of the renewal process required under the Paperwork Reduction Act (PRA), to review progress made on system upgrades and evaluate the feasibility of phasing out disclosure requirements set forth in this rule.

Nothing in the phase-in relaxes the ongoing and long-standing requirement for agencies to do business only with contractors who are responsible sources and abide by the law, including labor laws. Accordingly, if an agency has information indicating that a prospective prime contractor has been found within the last three years to have labor law violations that warrant heightened attention in accordance with DOL's Guidance (

i.e.,

serious, repeated, willful, and/or pervasive violations), the contractor should be prepared to be asked about the violations and expect to be given an opportunity to address any remediation steps it has taken to address the violations. For this reason, entities seeking to do business with the Government are strongly encouraged to work with DOL in their early engagement preassessment process to obtain compliance assistance if they identify covered labor law decisions involving violations that they believe may be serious, repeated, willful, and/or pervasive. This assistance is available to entities irrespective of whether they are responding to an active solicitation. Working with DOL prior to competing for Government work is not required by this rule, but will allow the entity to focus its attention on developing the best possible offer when the opportunity arises to respond to a solicitation.

b.

Subcontracting.

To minimize burden on, and overall risk to, prime contractors and to create a manageable and executable process for both prime contractors and subcontractors, the final rule requires subcontractors to disclose details regarding their labor law violations (the decisions, mitigating factors and remedial measures) directly to DOL for review and assessment instead of to the prime contractor. The subcontractor then makes a statement to the prime contractor regarding DOL's response to its disclosure. The prime contractor will then consider any response from DOL in evaluating the integrity and business ethics of subcontractors. See FAR 22.2004-1(b), 22.2004-4, and 52.222-59(c) and (d) of the final rule. This approach was detailed in the preamble to the proposed rule (at 80 FR 30555 to 30557) as an alternative to the regulatory text addressing this matter. It has now been adopted after careful consideration of concerns raised by numerous respondents which would have required contractors to obtain from subcontractors with whom they have contracts exceeding $500,000 other than COTS items, the same labor compliance information that they must themselves disclose.

Respondents stated that these subcontractor disclosures would be costly, burdensome, and difficult for prime contractors to assess. They explained that contractors do not have sufficient expertise and capacity to assess subcontractor labor law violation disclosures and indicated that subcontractors working for multiple prime contractors may receive inconsistent assessments. They further explained that these disclosures would add to systems costs, both to track and properly protect the information, and could strain business relationships as companies may be reluctant to share information that they may believe is proprietary or otherwise harmful to their competitive interests.

Under the final rule, subcontractors will be required to provide information about their labor law violations to the prime only when the subcontractor is not in agreement with, or has concerns with, DOL's assessment (see FAR 52.222-59(c)(4)(ii)(C)(3)). DoD, GSA, and NASA believe that the flowdown processes set forth in the final rule should minimize the challenges identified with the proposed rule, including the need for prime contractors to obtain additional resources and expertise to track and assess subcontractor labor law violation disclosures. Equally important, DOL's review and assessment of subcontractor labor law decision information, mitigating factors, and remedial measures should help to promote consistent assessments of labor law violations and the need for further action. The E.O. has been amended to adopt this process in lieu of disclosure to the prime contractor to ensure that processes are as manageable and minimally burdensome as possible.

c.

Public Disclosure of Labor Law Decision Information.

The final rule, like the proposed rule, requires prospective prime contractors to publicly disclose certain basic information about covered violations—namely, the law violated, the case identification number, the date of the decision finding a violation, and the name of the body that made the decision. The final rule reiterates that the requirement to provide information on the existence of covered violations applies not only to civil judgments and administrative merits determinations, but also arbitral awards, including awards that are not final or still subject to court review. This is consistent with section 2(a)(i) of the E.O., which specifically requires the disclosure of arbitral awards or decisions without exception. DoD, GSA, and NASA refer readers to the Preamble of DOL's final Guidance, which explains that confidentiality provisions generally have exceptions for disclosures required by law. Moreover, there is nothing particularly sensitive about the four pieces of basic information that contractors must publicly disclose about each violation—the labor law that was violated, the case number, the date of the award or decision, and the name of arbitrator. See FAR 22.2004-2(b)(1)(i). Parties routinely disclose more

information about an arbitral award when they file a court action seeking to have the award vacated, confirmed, or modified.

That said, the final rule does not compel public disclosure of additional documents the prospective contractor deems necessary to demonstrate its responsibility, such as documents demonstrating mitigating factors, remedial measures, and other steps taken to achieve compliance with labor laws. The rule states this information will not be made public unless the Contractor determines that it wants this information to be made public (see FAR 22.2004-2(b)(1)(ii)).

d.

Contract Remedies.

Consistent with the E.O.'s goal of bringing contractors into compliance the final rule adopts additional language regarding use of remedies, with the intent of reinforcing the availability and consideration of remedies, such as documenting noncompliance in past performance or negotiating a labor compliance agreement, prior to the consideration of more severe remedies (

e.g.,

terminating a contract, notifying the suspending and debarring officials).

Of particular note, the final rule enumerates the ALCA's responsibility to encourage prospective contractors and contractors that have labor law violations that may be serious, repeated, willful, and/or pervasive to work with DOL or other relevant enforcement agencies to discuss and address the violations as soon as practicable. See FAR 22.2004-1(c)(1). Early engagement with DOL through the preassessment process can give entities with violations an opportunity to understand and address concerns, as appropriate, before bidding on work so that they may focus their attention on developing the best possible offer during competition. The Office of Federal Procurement Policy (OFPP) is working with DOL, members of the FAR Council (DoD, GSA, NASA, and OFPP) and other acquisition executives, the Small Business Administration (SBA), and the SBA Office of Advocacy to highlight language in DOL's Guidance that explains how entities may avail themselves of assistance at DOL (

i.e.,

Section VI Preassessment) and, more generally, the best ways to promote understanding and early engagement whenever it makes sense.

The rule also amends the policies addressing the assessment of past performance when the contract includes the clause at 52.222-59, to recognize consideration of a contractor's relevant labor law violation information,

e.g.,

timely implementation of remedial measures, and compliance with those remedial measures (including related labor compliance agreements), and the extent to which the prime contractor addressed labor law decisions of its subcontractors. See FAR 42.1502(j). The rule calls on agencies to seek input from ALCAs for these purposes when assessing the contractor's performance. See 42.1503(a)(1)(i). Further, the rule requires contracting officers to consider compliance with labor laws when past performance is an evaluation factor (see FAR 22.2004-2(a)). This language was shaped by public comment received in response to language in the preamble of the proposed rule addressing the consideration of compliance with labor laws in evaluating contractor performance. See 80 FR 30557. DoD, GSA, and NASA note that the Councils opened FAR Case 2015-027, Past Performance Evaluation Requirements, to separately develop regulatory guidance around the consideration of contractor compliance issues more generally.

In addition, the final rule addresses the use of labor compliance agreements. The rule clarifies how the timeframe for developing a labor compliance agreement, which involves parties outside the contracting agency, is intended to interact with the acquisition process. It also speaks to basic obligations between the contractor and the contracting officer where the need for a labor compliance agreement has been identified by the ALCA. Labor compliance agreements are bilateral. Parties to the agreement (

i.e.,

a contractor or subcontractor and the enforcement agency) will need time to negotiate an appropriate agreement—time which ordinarily will go beyond that which a contracting agency would typically give to completing a responsibility determination. The contracting officer notifies the contractor if a labor compliance agreement is warranted, and states the name of the enforcement agency. Unless the contracting officer requires the labor compliance agreement to be entered into before award, the contractor is then required to state an intent to negotiate a labor compliance agreement, or explain why not.

Where a contracting officer has premised a responsibility determination (or exercise of an option postaward) on the prospective contractor's present or future commitment to a labor compliance agreement, the prospective contractor (or existing contractor) must take certain steps; the failure to do so will be taken into account and could have postaward consequences with respect to the instant contract or future contracts.

The rule promotes economy and efficiency by ensuring that the most severe labor law violations that have not yet been adequately remedied (serious, repeated, willful, and/or pervasive violations) are dealt with in a timely manner. Labor compliance agreements are designed to address these severe labor law violations. As section 1 of the E.O. states, “[c]ontractors that consistently adhere to labor laws are more likely to have workplace practices that enhance productivity and increase the likelihood of timely, predictable and satisfactory delivery of goods and services to the Federal Government.” The rule provides a mechanism to allow for the time needed to negotiate an agreement reasonable to both sides. This approach should avoid situations where instant contract actions are unnecessarily delayed or prospective contractors passed over in favor of other offerors before having had reasonable time to work with the enforcement agency to address their problems, while also making sure that the contractor is taking reasonable steps after award to negotiate an appropriate agreement.

Nothing in the rule seeks to limit a contractor's ability to choose how it will remediate labor law violations or to negotiate settlement agreements. To the contrary, the rule and DOL Guidance fully anticipate that contractors will often take action on their own, or enter into settlement agreements, to remediate their labor law violations. For this reason, the rule, as well as DOL's Guidance, emphasize that contracting officers must carefully consider these actions in deciding if a contractor is a responsible source.

It is only in a limited number of situations—where the severity of labor law violations warrants heightened attention and remediation efforts taken to date are inadequate—that a contractor should expect to be advised of the need to enter into a labor compliance agreement. The agreement may address appropriate remedial measures, compliance assistance, steps to resolve issues to increase compliance with labor laws, measures to ensure improved future compliance, and other related matters. Except for unusual circumstances where the ALCA recommends and the contracting officer agrees that the prospective contractor must enter into a labor compliance agreement before award, prospective contractors and existing contractors will be given a reasonable opportunity to negotiate an appropriate agreement. If an entity, at its own choosing, does not take action, through a labor compliance agreement or otherwise, it will be incumbent on the agency to determine

the appropriate action in light of the noncompliance. A nonresponsibility determination or exclusion action would be considered where previous attempts to secure adequate remediation by the contractor have been unsuccessful and it is necessary to protect the Government's interest. With respect to the latter, consistent with long-standing policy and practice, an entity would be given an opportunity to be heard before an agency suspension and debarment official debars the contractor in order to protect the Government's interest.

e.

Regulatory impact.

See the summary of the RIA at Section IV below.

2. Summary of Changes by Provision

The following summary highlights changes made from the proposed to final rule by section:

FAR 22.2002 Definitions

• Added within the definition of “enforcement agency” the agencies associated with each labor law.

• Deleted the definition of “labor violation” and substituted the definition of “labor law decision”.

• Clarified the definition of “pervasive violations”.

FAR 22.2004-1 General

• In paragraph (b) added language on subcontractors disclosing to DOL.

• Added paragraph (c) on duties of the Agency Labor Compliance Advisor (ALCA), such as providing input to the individual responsible for past performance so that the input can be considered during source selection, and making a notation in FAPIIS of the existence of a labor compliance agreement.

FAR 22.2004-2 Preaward Assessment of an Offeror's Labor Law Violations

• In paragraph (a) included contracting officer consideration of compliance with labor laws when past performance is an evaluation factor.

• Added language in paragraph (b)(1)(ii) directing that disclosures of mitigating factors and remedial measures will be made in SAM, and will not be made public unless the contractor determines that it wants this information to be made public.

• Added language in paragraph (b)(3) on the recommendations that the ALCA will make to the contracting officer.

• Clarified language in paragraph (b)(4) that identifies what the ALCA analysis shall contain.

• Added a requirement in (b)(5)(ii) for the contracting officer to document the contract file and explain how the ALCA's written analysis was considered.

• Added language in paragraph (b)(6) that disclosure of a labor law decision does not automatically render the prospective contractor nonresponsible.

• Added procedures in (b)(7) for notifying the prospective contractor if a labor compliance agreement is warranted.

• Added paragraph (c) that the contracting officer may rely on the offeror's representation, unless the contracting officer has reason to question it.

FAR 22.2004-3 Postaward Assessment of a Prime Contractor's Labor Law Violations

• Added language in paragraph (a)(2) to clarify the semiannual update requirement and minimize the disclosure burden.

• Retained wording making the ALCA responsible for monitoring SAM and FAPIIS and identifying updated information that needs to be brought to the contracting officer's attention for consideration.

• Made various conforming changes to align preaward and postaward sections, including that disclosures to the contracting officer of mitigating information in SAM will not be publicly disclosed unless the contractor determines that it wants this information to be made public.

FAR 22.2007 Solicitation Provisions (Two) and Contract Clauses (Three)

• Added date and threshold phase-in language for the FAR 52.222-59 clause. It is inserted in solicitations with an estimated value of $50 million or more, issued from October 25, through April 24, 2017, and resultant contracts, and is inserted in solicitations that are estimated to exceed $500,000 issued after April 24, 2017. (The FAR 52.222-57 and 52.222-58 provisions are not used unless this clause is used.)

• Added date phase-in language for the FAR 52.222-58 clause, which covers subcontractor disclosures. It is inserted in solicitations issued on or after October 25, 2017.

FAR Part 42

• Added text at FAR subpart 42.15 to require consideration of labor law compliance during past performance evaluations.

• Added a new paragraph 42.1503(h)(5) consolidating references to agencies entering information into FAPIIS.

FAR 52.212-3

• Conformed the definitions to changes made in FAR 22.2002, and conformed the rest of the representation to changes made in FAR 52.222-57.

FAR 52.222-57

• Added a paragraph (a)(2) on joint ventures.

• Added date and threshold phase-in language in paragraph (b).

• Added phase-in language for the decision disclosure period in paragraph (c): “rendered against the offeror during the period beginning on October 25, 2015 to the date of the offer, or for three years preceding the date of the offer, whichever period is shorter”.

• Added a new paragraph (f) that the representation whether there are labor law decisions rendered against the offeror will be in FAPIIS

FAR 52.222-58

• Added phase-in language for the decision disclosure period.

• Added paragraph (b)(2) about nonliability for subcontractor misrepresentations, similar to the language at FAR 52.222-59(f).

FAR 52.222-59

• Conformed the definitions to changes made in FAR 22.2002.

• Added language in paragraph (b) to conform to FAR 22.2004-3 on the semiannual update.

• Moved the discussion at former (b)(4) on contract remedies to only be at FAR 22.2004-3(b)(4).

• Revised paragraph (c) to implement the alternative from the proposed rule where the subcontractor discloses to DOL. A description of the steps followed include—

○ Subcontractors make a representation regarding labor law decisions;

○ If the representation was affirmative, disclosures will be made to DOL; the subcontractor will provide information to the contractor regarding DOL's assessment;

○ If the subcontractor disagrees with DOL's assessment, it will inform the prime contractor and provide rationale; if the subcontractor is found responsible, the prime contractor must provide an explanation to the contracting officer; and

○ A similar process is followed for subcontractor updates during contract performance (see paragraph (d)).

• Added a statement in paragraph (c)(2) that disclosure of a labor law decision(s) does not automatically render the prospective subcontractor nonresponsible; the contractor shall consider the prospective subcontractor for award notwithstanding disclosure of a labor law decision. Added language that the contractor should encourage

prospective subcontractors to contact DOL for a preassessment of their record of labor law compliance.

• Added a new paragraph (f) that a contractor or subcontractor, acting in good faith, is not liable for misrepresentations made by its subcontractors about labor law decisions or about labor compliance agreements.

FAR 52.222-60

• Expanded the required elements of the wage statement, FLSA exempt-status notices, and independent contractor notices.

3. Additional Issues

a. Legal entity.

DoD, GSA, and NASA emphasize that the scope of representations and disclosures required by the final rule follows existing general principles and practices. Specifically, the requirement to represent and disclose applies to the legal entity whose name and address is entered on the bid/offer and that will be legally responsible for performance of the contract. The legal entity that is the offeror does not include a parent corporation, a subsidiary corporation, or other affiliates (see definition of affiliates in FAR 2.101). A corporate division is part of the corporation. Consistent with current FAR practice, representation and disclosures do not apply to a parent corporation, subsidiary corporation, or other affiliates, unless a specific FAR provision (

e.g.,

FAR 52.209-5) requires that additional information. Therefore, if XYZ Corporation is the legal entity whose name appears on the bid/offer, covered labor law decisions concerning labor law violations by XYZ Corporation at any location where that legal entity operates would need to be disclosed. The fact that XYZ Corporation is a subsidiary of XXX Corporation and the immediate parent of YYY Corporation does not change the scope of the required disclosure. Only XYZ Corporation's violations must be disclosed. (See also Section III.B.3.e. below).

b. Other Equivalent State Laws

Consistent with the proposed rule, the final rule limits the scope of initial implementation to decisions concerning violations of the Federal labor laws enumerated in the E.O. and violations of State Plans approved by the Occupational Safety and Health Administration (OSHA). Disclosure and consideration of decisions concerning other equivalent State law violations will not go into effect until DOL and the FAR Council seek public comment on additional Guidance and rulemaking. As a result, the number of labor law decisions that contractors and subcontractors will need to disclose for the immediate future will be significantly reduced and these entities will have additional opportunity to engage with the Federal Government on the best and least burdensome approaches for meeting those requirements before such additional requirements take effect.

B. Analysis of Public Comments

1. Challenges to Legality and Authority of the Executive Order and Implementing Regulatory Action

a. Administrative Procedure Act (APA)

Comment:

Several respondents stated that the costs associated with the proposed rule (which the respondents stated are largely unquantified in the proposed rule and which the public had insufficient time to quantify during its public comment period) so greatly outweigh the benefits (which the respondents stated there is insufficient evidence to support) that there is a great decrease in economy and efficiency, and the rulemaking is not a rational exercise of Government power. They asserted that under the APA, an agency action that is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” will be held unlawful and set aside. See 5 U.S.C. 706(2)(A).

Response:

It is a longstanding tenet of Government contracting that economy and efficiency is driven, in part, by dealing only with responsible contractors that abide by the law, including labor laws. As section 1 of E.O. 13673 explains, compliance with labor law drives economy and efficiency by promoting “safe, healthy, fair, and effective workplaces. Contractors that consistently adhere to labor laws are more likely to have workplace practices that enhance productivity and increase the likelihood of timely, predictable, and satisfactory delivery of goods and services to the Federal Government.”

Many labor law violations that are serious, repeated, willful, and/or pervasive are not considered in awarding contracts, in large part because contracting officers are not aware of them. Even if information regarding labor law violations is made available, contracting officers generally lack the expertise and tools to assess the severity of the labor law violations brought to their attention and therefore cannot easily determine if a contractor's actions show a lack of integrity and business ethics. The FAR rule, in concert with DOL's Guidance, is designed to close these gaps so that the intended benefits of labor laws and the economy and efficiency they promote in Federal procurement can be more effectively realized. The Councils acknowledge that many of these benefits are difficult to expressly quantify, but point out that E.O. 13563, Improving Regulation and Regulatory Review, provides that, where appropriate and permitted by law, agencies may consider and discuss qualitative values that are difficult or impossible to quantify, including equity, human dignity, fairness, and distributive impacts.

Respondents assert that the costs that would be imposed by the proposed rule greatly outweigh the benefits and, on this basis, conclude that the rule is arbitrary. The Councils refer respondents to the RIA which was developed, in close consultation with DOL, to evaluate the effect of the rule. As the RIA explains, the Government, consistent with E.O. 13563, has made a reasoned determination that the benefits justify the costs, as the regulation has been tailored to impose the least burden, consistent with achieving the objectives of the Fair Pay and Safe Workplaces E.O.

Of particular note, the final rule, as required by the express provisions of the E.O., limits costs by building processes within the existing Federal acquisition system with which contractors are familiar. The final rule limits the E.O.'s labor law decision disclosure requirements to contracts and subcontracts over $500,000, and excludes flowdown for contracts of COTS items—limitations which will result in excluding the majority of transactions performed by small businesses.

The final rule makes a number of important additional refinements that will work to contain costs and create a compliance process that is manageable and fair. These refinements were made after considering public comments on the proposed rule—including comments addressing specific issues that the Councils highlighted to enable further tailoring of the rule so that it imposes the least burden possible. For example:

• The final rule adopts an alternative proposal outlined in the proposed rule preamble that directs disclosure of subcontractor labor law decision information directly to DOL, rather than to the prime contractor, in order to minimize the burden and business challenges for both prime contractors and subcontractors that might arise through direct disclosure of a subcontractor's violations to the prime.

• The final rule adopts a measured phase-in process for the disclosure of labor law decisions. When the rule first takes effect, the disclosure period will be limited to one year and no disclosure will be required during the first six months, except for contractors bidding on contracts valued at $50 million or more. Subcontractors will not begin making disclosures until one year after the rule becomes effective. These steps will enable affected parties to acclimate themselves to the new processes and develop internal protocols, as necessary, without having to undertake costly measures within tight timeframes to meet compliance requirements.

• The final rule limits the scope of initial implementation to decisions concerning violations of the Federal labor laws enumerated in the E.O. and OSHA-approved State Plans. Disclosure and consideration of decisions concerning other equivalent State law violations will not go into effect until DOL and the FAR Council seek public comment on additional Guidance and rulemaking. As a result, the number of labor law decisions that contractors and subcontractors will need to report for the immediate future will be significantly reduced and these entities will have additional opportunity to engage with the Federal Government on the best and least burdensome approaches for meeting those requirements before such additional requirements take effect.

For a more comprehensive discussion on benefits and costs, see the RIA. For discussions of the publication requirements of the APA see below at Section III.B.2.a.i., at Length of Phase-in Period, and at Section III.B.13.a.

Comment:

Some respondents asserted that the rule is imprecise regarding the way in which contractor labor law violations are to be assessed. The respondents stated that this imprecision invites inconsistent application across agencies, and arbitrary actions by the Government.

Response:

Consistent with well-established contracting principles and practices, the rule requires that determinations regarding a prospective contractor's responsibility be made by the particular contracting officer responsible for the procurement, on a case-by-case basis. This approach helps to ensure that actions are taken in proper context. While contracting officers may reach different conclusions, steps have been taken in the context of this rulemaking that will help to promote consistency in the assessment of labor law violation information by ALCAs and the resultant advisory input to contracting officers and promote greater certainty for contractors. In particular, ALCAs will coordinate with DOL and share their independent analyses for consideration by other ALCAs. This collaboration should help to avoid inconsistent advice being provided to the contractor from different agencies. DOL has developed Guidance to assist ALCAs in meeting their requirements under the E.O. and to further enhance both inter-agency and intra-agency understanding of the process and uniformity in implementation practices. (See also discussion at Section III.B.6.a. below.)

Comment:

Respondents asserted that the regulation requires State law enforcement agencies to dictate whether remediation is properly taking place. According to these respondents, this placement of power in the hands of a State for a Federal procurement is at odds with Federalism principles and improperly places contractor responsibility—a Federal determination—in the hands of a State agency, whose workplace laws may conflict with their Federal counterparts. They concluded that the rulemaking is “contrary to constitutional right, power, privilege, or immunity” and must be held unlawful and set aside. See 5 U.S.C. 706(2)(B).

Response:

The only State enforcement agencies engaged under the rule are the State enforcement agencies for the OSHA-approved State Plans. Under the proposed and final rules, contracting officers, not enforcement agencies, are solely empowered to make responsibility determinations. Contracting officers have broad discretion in making responsibility determinations, and in determining the amount of information needed to make that determination, including whether conduct is being remediated. See

Impresa Construzioni Geom. Domenico Garufi

v.

U.S.,

238 F.3d 1324, 1334-35 (Fed. Cir. 2001). Contractors are already required to report numerous types of improper conduct, including conduct that in some cases violated State laws, and contracting officers must use this information in determining whether a contractor is a responsible source. See FAR 52.209-5(a)(1)(i)(B)-(D). While contracting officers and ALCAs will carefully consider information about remediation from Federal or State enforcement agencies, a contracting officer's responsibility determination is independent of the finding of an enforcement agency—whether Federal or State—regarding whether the labor law violation has been sufficiently remediated.

Comment:

Respondents contended that the FAR Council and DOL, through their regulation and Guidance respectively, are effectively amending Federal labor and employment law by creating a new enforcement scheme, with different classes of violations (

e.g.,

“serious,” “repeated,” “willful,”), and with new punitive sanctions that contravene Congressional intent. They believed this action is “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right,” and must be held unlawful and set aside. See 5 U.S.C. 706(2)(C). They stated that agency action is pre-empted by established statutory schemes. Respondents cited the Davis-Bacon Act and the Service Contract Act, where Congress explicitly made suspension and debarment an available remedy, and did not make this remedy available under any of the other labor laws cited in the rule. They note that labor compliance agreements are not required or authorized for labor law violations.

Response:

Neither the FAR Council's rule nor DOL's Guidance amend any Federal labor and employment laws. Instead, the rule will require contractors and subcontractors to disclose decisions concerning certain violations of some of those laws so that those decisions, if any, can be taken into account to determine whether the contractor or subcontractor has a satisfactory record of integrity and business ethics. Determining whether a contractor is a responsible source is a long-standing tenet of Federal contracting and a prerequisite to receiving a contract award. See 41 U.S.C. 3702(b), 41 U.S.C. 3703(c), and FAR subpart 9.1. Contracting officers already may consider violations of the labor laws and other laws when making responsibility determinations. Indeed, it is the very nature of the existing FAR responsibility determination to assess conduct that may be remediable or punishable under other statutes. The E.O.'s direction to require a prospective contractor to disclose certain labor law decisions so that the contracting officers can more effectively determine if that source is responsible falls well within the established legal bounds of presidential directives regarding procurement policy.

The Federal Property and Administrative Services Act (FPASA) (also known as the Procurement Act), was codified into positive law in titles 40 and 41 of the United States Code. 40 U.S.C. 101 and 121 authorize the President to craft and implement procurement policies that further the statutory goals of that Act of promoting “economy” and “efficiency” in Federal procurement. The Office of Federal Procurement Policy Act (41 U.S.C. 1101)

also has the goal of promoting “economy” and “efficiency” in Federal Procurement.

By asking contractors to disclose past labor law decisions the Government is better able to determine if the contractor is likely to have workplace practices that enhance productivity and increase the likelihood of timely, predictable, and satisfactory delivery of goods and services to the Federal Government. See,

e.g., UAW-Labor Employment & Training Corp.

v.

Chao,

325 F.3d 360, 366 (D.C. Cir. 2003) (affirming authority of the President under the Procurement Act to require Federal contractors, as a condition of contracting, to post notices informing workers of certain labor law rights).

Moreover, contractors are already required to report numerous types of conduct—including fraud, anti-competitive conduct, embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, tax evasion, and receiving stolen property—that is unlawful and separately punishable under existing Federal and State laws. See FAR 52.209-5(a)(1)(i)(B)-(C). Thus, contractors and subcontractors are not being punished twice (or in any manner inconsistent with Congressional intent) for any labor law decisions that they report; instead, the reported decisions, along with other reported information, will be part of the existing responsibility determination process.

Neither the FAR Council's rule nor DOL's Guidance expand or change the availability of suspension or debarment as a statutory remedy under the labor laws. Under the existing FAR subpart 9.4, agencies are given the administrative discretion to exercise suspension and debarment to protect the Government from harm in doing business with contractors that are not responsible sources—without regard for whether other statutes specify suspension or debarment as a consequence. The rule and Guidance require contractors and subcontractors to disclose certain labor law decisions so that those decisions, if any, can be taken into account as part of responsibility determinations. The rule has been constructed to help contractors come into compliance with labor laws, and consideration of suspension and debarment is only considered when previous attempts to secure adequate remediation by the contractor have been unsuccessful and it is necessary to protect the Government's interest. The rule provides for contracting officers to take into consideration a number of mechanisms that contractors may use to come into compliance, including labor compliance agreements, that derive from labor enforcement agencies' inherent authority to implement labor laws and to work with covered parties to meet their obligations under these laws.

b. Due Process and Procedural Considerations

Comment:

Respondents stated that the FAR Council has improperly promulgated labor standards under 41 U.S.C. 1707, by incorporating Guidance from DOL.

Response:

The FAR rule does not promulgate new labor standards, nor does it interpret labor laws or standards. Rather, the FAR rule adopts DOL's interpretation of labor law provided in DOL's Guidance, which interprets the labor terms in the E.O. The FAR rule explains when contracting officers are to consider such guidance and, more importantly, how and when contracting officers are to interact with ALCAs who will be principally responsible for using the Guidance, along with officials from DOL and enforcement agencies, to assess covered contractor violations and provide advice to contracting officers.

Comment:

One respondent stated that the rule would require the contractor to report violations that arose outside of the performance of a Government contract. The respondent stated that additional consideration of these matters has no nexus with traditional contractor responsibility determinations that relate to whether a contractor is responsible for the particular procurement and the performance of a Government contract.

Response:

In issuing E.O. 13673, the President explained the broad nexus that exists between general compliance with labor laws and economy and efficiency:

Labor laws are designed to promote safe, healthy, fair, and effective workplaces. Contractors that consistently adhere to labor laws are more likely to have workplace practices that enhance productivity and increase the likelihood of timely, predictable, and satisfactory delivery of goods and services to the Federal Government. Helping executive departments and agencies to identify and work with contractors with track records of compliance will reduce execution delays and avoid distractions and complications that arise from contracting with contractors with track records of noncompliance.

As explained in the preamble to the proposed FAR rule and the preliminary RIA, a growing body of research supports the conclusion that a relationship exists between labor law violations and performance problems. This includes reports by the GAO, the Senate HELP Committee, and HUD's Inspector General; a Fiscal Policy Institute report; and reports by the Center for American Progress.

Under longstanding tenets reflected in FAR subpart 9.1 contracting officers have long had the discretion to consider violations of law, whether related to Federal contracts or not, for insights into how a contractor is likely to perform during a future Government contract. Evidence of a prospective contractor's past violations of labor laws is a basis to inquire into that contractor's potential for satisfactory labor law compliance; furthermore, how the prospective contractor has handled past violations is indicative of how it will handle future violations. Whether or not a labor law violation arose in connection with or outside of the performance of a Government contract, the contracting officer should consider the impact of that violation and the potential that future noncompliance will have in terms of the agency resources that will be required to monitor the contractor's workplace practices during contract performance.

Comment:

Respondents stated that longstanding Federal procurement statutes and regulations focus contracting officers on final adjudications in determining if a contractor is in compliance with the law, as evidenced by the type of information that Congress requires for inclusion in FAPIIS. In addition, respondents noted that in the final rule implementing FAPIIS (FAR Case 2008-027, 75 FR 14059), the Councils recognized that if information regarding yet-to-be-concluded proceedings were allowed, negative perceptions could unfairly influence contracting officers to find a contractor nonresponsible, even in situations that later end with the contractor being exonerated.

These respondents pointed out that this focus helps to avoid unnecessary complexities and potential unfairness that may arise from the systematic consideration of decisions that are subject to adjudication but have not been fully adjudicated, in particular, administrative merits determinations. Such determinations may not have been approved or supported by an adjudicative body, and in some cases, are only based on an agency's reasonable cause to believe that an unlawful practice has occurred or is occurring. Respondents believed this deviation from well-established practice undermines substantive due process because, among other things, a contractor may be unable to fully

explain itself during a responsibility determination if the basis of a determination is being litigated, as it would potentially require disclosure of privileged information, evidence, litigation strategy and other sensitive information to the contracting officer. Also, a contractor could find itself being denied work even though the determination might be later overturned by a court. These respondents concluded that this type of unfairness could be avoided if the rule were revised to exclude disclosure and consideration of administrative merits determinations.

Response:

The Councils reaffirm their commitment, voiced in FAR Case 2008-027, to avoid the potential perception that contracting officers might be unfairly influenced by nonfinal decisions. We note that the structure of the E.O., this final rule, and particularly the DOL Guidance provide necessary steps for considering nonfinal information. Specifically, the DOL Guidance (1) informs contractors of the fact that the information being nonfinal is a mitigating factor, and (2) explains that ALCAs consider that the decision is nonfinal as a mitigating factor. Additionally, contractors have the opportunity to make mitigating factors public (see FAR 52.222-57(d)(1)(iii), its commercial item equivalent at 52.212-3(s)(3)(i)(C), and 52.222-59(b)(3)).

The Councils refer respondents to DOL's Guidance, which addresses matters relating to the violations that must be disclosed and considered. In particular, attention is directed to DOL's Preamble and the discussion of administrative merits determinations, which states, in pertinent part:

The Department believes that the due process and related critiques of the proposed definition of administrative merits determination are unwarranted. The Order delegates to the Department the authority to define the term. See Order, § 2(a)(i). The proposed definition is consistent with the Order and the authority delegated. The Department limited the definition to a finite number of findings, notices, and documents—and only those issued “following an investigation by the relevant enforcement agency.” 80 FR 30574, 30579.

The definition of administrative merits determination simply delineates the scope of contractors' disclosure obligations—the first stage in the Order's process. Not all disclosed violations are relevant to a recommendation regarding a contractor's integrity and business ethics. Only those that are serious, repeated, willful, or pervasive will be considered as part of the weighing step and will factor into the ALCA's written analysis and advice. Moreover, when disclosing Labor Laws violations, a contractor has the opportunity to submit all relevant information it deems necessary to demonstrate responsibility, including mitigating circumstances and steps taken to achieve compliance with Labor Laws. FAR 22.2004-2(b)(1)(ii). As the Guidance provides, the information that the contractor is challenging or appealing an adverse administrative merits determination will be carefully considered. The Guidance also states that Labor Law violations that have not resulted in final determinations, judgments, awards, or decisions should be given lesser weight. The Department believes that contractors' opportunity to provide all relevant information—including mitigating circumstances—and the guidance's explicit recognition that nonfinal administrative merits determinations should be given lesser weight resolve any due process concerns raised by the commenters.

With respect to the specific concern that a contractor could find itself being denied work even though the determination might be later overturned by a court, DOL has noted in the Preamble to its final Guidance that a very low percentage of administrative merits determinations are later overturned or vacated. For example, only about two percent of all OSHA citations are later vacated. In other words, the likelihood that a contractor could find itself being denied work even though the determination is later overturned by a court is very low.

See also discussions below in Section III.B.13.b. on DOL Guidance Content Pertaining to Disclosure Requirements; Defining Violations: Administrative Merits Determinations, Arbitral Awards, and Civil Judgments.

Comment:

Respondents asserted that the regulation effectively authorizes a

de facto

debarment of contractors by creating a system where a contractor may be found nonresponsible based on the advice of an ALCA or otherwise denied work for not agreeing to enter into a labor compliance agreement when such action is recommended by the ALCA. They further contended that the rule may produce disparate, conflicting, and redundant decisions by Federal contracting officers on the issue of contractor responsibility. Such decisions run the substantial risk of violating constitutional protections of due process that have been consistently applied to combat

de facto

suspension or debarment of contractors.

Response:

Evidence of a prospective contractor's past violations of labor laws is a basis to inquire into that contractor's potential for satisfactory labor law compliance; furthermore, how the prospective contractor has handled past violations is appropriately considered as being indicative of how it will handle future violations. Under longstanding tenets reflected in FAR subpart 9.1, contracting officers have the discretion to consider violations of law, whether related to Federal contracts or not, for insights into how a contractor is likely to perform during a future Government contract. These long-standing tenets also hold that determinations regarding a prospective contractor's responsibility shall be made by the particular contracting officer responsible for the procurement. Requiring that decisions be made on a case-by-case basis helps to ensure that actions are taken in proper context.

While this approach may result in different decisions by different contracting officers, steps have been taken in the context of this rulemaking that will help to promote consistency in the assessment of labor law violations and relevant labor law violation information by ALCAs and the resultant advisory input to contracting officers and will result in greater certainty for contractors. In particular, ALCAs will coordinate with DOL and share their independent analyses for consideration by other ALCAs. This collaboration should help to avoid inconsistent advice being provided to the contractor from different agencies. The ALCA's recommendation to the contracting officer is advisory, and not conclusive on the subject of responsibility. The rule does not supplant or modify suspension and debarment processes, which, consistent with current regulations, is considered in certain extreme cases when previous attempts to secure adequate contractor remediation has been unsuccessful, or otherwise to protect the Government from harm.

Comment:

Respondents suggested that the rule relies on a construct that certain violations must be addressed through a contractor compliance plan. They remarked that this violates basic labor management law, because it prevents contractors from exercising choice of resolution, and hinders the right to negotiate mutually beneficial settlements between parties. The respondents further noted that through this process, DOL would have undue leverage in their enforcement of labor law violations unrelated to the scope of the responsibility determination process.

Response:

The purpose of the E.O., regulation, and Guidance is to improve contractor compliance with labor laws through processes that are reasonable and manageable. Neither the rule nor the Guidance seeks to limit a contractor's ability to choose how it will remediate labor law violations or to negotiate settlement agreements. To the contrary, the rule and Guidance fully anticipate that contractors will often take action on their own, including entering into settlement agreements, to remediate their labor law violations. For this reason, the rule and Guidance both emphasize that contracting officers must carefully consider these actions in deciding if a contractor is a responsible source.

In deciding if additional action is required, the E.O. seeks to avoid unnecessary action by instructing agencies to focus on only those violations that require heightened attention because of the severity of the violations. In addition to helping ALCAs identify those serious, repeated, willful, and/or pervasive violations that warrant heightened attention, DOL's implementing Guidance makes distinctions in the weight to be given to the different types of opinions addressing a contractor's violations. DOL's Guidance provides that violations that have not resulted in a final judgment, determination, or order are to be given less weight in the ALCA's analysis, and therefore also in the contracting officer's consideration during the responsibility determination. In this way, DOL explicitly recognizes that a contractor may still be contesting the findings of an administrative merits determination. And, as already discussed, ALCAs and contracting officers must consider very carefully this information as well as any other information that the contractor calls to their attention. There are no automatic triggers in the rule that compel a contracting officer to make a nonresponsibility determination, even in light of an ALCA's recommendation to do so, or to prevent a contracting officer from exercising an option; nor is there evidence that labor law enforcement actions will be abused to pressure contractors into forfeiting their rights in order to obtain favorable responsibility determinations. In short, it is only in a limited number of situations—where agencies have concluded that contractors have not taken sufficient steps to remediate past violations and prevent future noncompliance—that a contractor should expect to be advised of the need to enter into a labor compliance agreement. Except for unusual circumstances where the ALCA recommends and the contracting officer agrees that the prospective contractor (

i.e.,

those that have been tentatively selected to receive an award and are undergoing a responsibility determination) must enter into a labor compliance agreement before award, the prospective contractor and existing contractors will be given a reasonable opportunity to negotiate an appropriate labor compliance agreement. Such agreements will accomplish the objective of mutually beneficial settlements between enforcement agencies and employers. Put another way, the labor compliance agreement is one additional tool of many, designed to help prevent situations from deteriorating to the point where exclusion becomes necessary. Thus, if an entity, at its own choosing, does not take action, through a labor compliance agreement or otherwise, it will be incumbent on the agency to determine the appropriate action in light of the noncompliance. A nonresponsibility determination or exclusion action would generally be considered only where previous attempts to secure adequate remediation by the contractor have been unsuccessful or otherwise it is necessary to protect the Government's interest. With respect to the latter, consistent with long-standing policy and practice, an entity would be given an opportunity to be heard before an agency suspension and debarment official debars the contractor in order to protect the Government's interest.

c. False Claims Act

Comment:

Several respondents stated that the proposed rule requires the contractor to report a broad range of information including final court decisions and administrative merits determinations, over a three year period during which there was no previous requirement to track. As these violations are now reportable, the respondents contended that the rule creates a significant risk of litigation under the False Claims Act, as (1) contractors may not have had the systems necessary to catalogue that information when the violation occurred, and (2) it may take significant time to develop systems which are capable of tracking information in the manner required by the rule.

Response:

As a general matter, the rule requires only that an offeror represent “to the best of [its] knowledge and belief” that there either has or has not been an “administrative merits determination, arbitral award or decision, or civil judgment for any labor law violation(s) rendered against the offeror”. While knowingly misrepresenting the existence of a determination, decision, or judgment may result in adverse action against the contractor, an inadvertent omission would not result in the same action.

In addition, in response to public feedback explaining the challenges that some contractors may face in getting systems in place (coupled with the fact that tracking was not required when past violations occurred), the final rule provides for a phase-in of the disclosure process, initially limited to a 1-year disclosure period. Specifically, disclosure will be required no earlier than for decisions rendered on October 25, 2015 and cover to the date of the offer, or for the three years preceding the date of the offer, whichever period is shorter. During the six month period after the rule becomes effective, disclosures also will be limited to offerors and prospective contractors on contracts valued at $50 million or more; subcontractor reporting will not begin until one year after the rule's initial effective date. These phase-in mechanisms are intended to give contractors the time they need to evaluate and address their systems needs and avoid placing a covered contractor in a situation where it finds itself unable to collect and report the requisite information.

d. Other Issues

Comment:

Several respondents raised concerns about the relationship between labor compliance agreements and litigation-specific settlements for violations. One respondent, in particular, stated that labor compliance agreements could overlap with and contradict provisions of settlement agreements that are already in place or administrative agreements reached as part of suspension and debarment proceedings.

Response:

Labor compliance agreements, settlement agreements, and administrative agreements have similar objectives in addressing labor law violations and remedial actions; however, they differ in their specific purposes. Settlement agreements are entered into with an enforcement agency to settle a particular case. Administrative agreements that are entered into with suspending and debarring officials may address a number of types of concerns (one of which may be labor law compliance) and are entered into to address present responsibility. Labor compliance agreements may be warranted when the ALCA identifies a pattern of conduct or policies that could be addressed through

preventative action. Where this is the case, the contractor's history of labor law violations demonstrates a risk to the contracting agency of violations during contract performance, but these risks might be mitigated through the implementation of appropriate compliance measures. For a discussion of the relationship between settlement agreements, labor compliance agreements, and administrative agreements resolving suspension and debarment actions the Councils refer respondents to the DOL Guidance which addresses the purpose and use of labor compliance agreements. In particular, attention is directed to DOL's Preamble and the discussion of administrative merits determinations, which states, in pertinent part:

The Department believes that concerns about labor compliance agreements conflicting with existing settlements are unwarranted. Contractors are encouraged to disclose information about existing settlements as a potential mitigating factor in the weighing process. In determining whether a labor compliance agreement is necessary, the ALCA will consider any preexisting settlement agreement—and recommend a labor compliance agreement only where the existing settlement does not include measures to prevent future violations.

In addition, the Department notes that a labor compliance agreement is an agreement between a contractor and an enforcement agency. Enforcement agencies will know if they previously entered into agreements with the contractor and can assure that any labor compliance agreement does not conflict with prior agreements.

Comment:

Several respondents stated that the final rule should not compel disclosure to the Government of the existence or the content of confidential arbitral proceedings that are subject to a nondisclosure agreement. In addition, even if information is shared with the Government, such information should not be disclosed to the public.

Response:

The E.O. specifically requires the disclosure of arbitral awards or decisions without exception, and confidentiality provisions in non-disclosure agreements generally have exceptions for disclosures required by law. Further, the final rule requires contractors to publicly disclose only four limited pieces of information: The labor law that was violated, the case number, the date of the award or decision, and the name of the arbitrator. See FAR 22.2004-2(b)(1)(i). There is nothing particularly sensitive about this information, as evidenced by the fact that parties routinely disclose this information and more when they file court actions seeking to vacate, confirm, or modify an arbitral award. While this information may not be sensitive, disclosing it to the government as part of the contracting process furthers the E.O.'s goal of ensuring that the government works with contractors that have track records of complying with labor laws.

Comment:

Several respondents commented that the proposed rule offered no explanation, or an inadequate explanation, for how a limitation on arbitration agreements would promote economy and efficiency in Federal procurement. Some of these respondents expressed the view that the proposed rule would in fact work against the stated aims of the E.O. One respondent also stated that the limitation had no connection with the Federal procurement process and should be deleted in its entirety.

Response:

The Procurement Act grants the President broad authority to prescribe policies and directives that the President considers necessary to carry out the statutory purposes of ensuring economical and efficient government procurement. The limitation on arbitration agreements is a reasonable and rational exercise of that authority.

In particular, the limitation on arbitration agreements will help bring to light sexual harassment and other Title VII violations, ultimately reducing their prevalence. Allowing parties access to the courts for alleged violations of the law provides employees with the opportunity to file individual, group, or class lawsuits that can raise awareness of and redress such violations. These developments will make it easier for agencies to identify and work with contractors with track records of compliance, consistent with the overall goals of the E.O. In addition, lawsuits, and the attendant publicity they can generate, can also deter other contractors from committing similar infractions. Prohibiting pre-dispute arbitration may also increase employee perceptions of fairness in workplace dispute mechanisms, thereby improving employee morale and productivity.

Finally, DoD, the Federal government's largest contracting agency, is currently subject to a nearly identical (and more restrictive) limitation on mandatory arbitration. The rule would extend similar restrictions to all contractors, helping make regulations more consistent across agencies and thus reducing barriers to operating with the federal government. That, in turn, helps to enhance competition among suppliers, and competition is a well-established mechanism for achieving cost savings. These gains in economy and efficiency would come with limited burdens for contractors, as many are already doing business with DoD, and are thus already subject to these restrictions. Further, nothing in the E.O. or final rule prohibits employers or workers from choosing voluntarily to arbitrate a dispute—the E.O. and rule simply prevent an employer from unilaterally controlling the means of dispute resolution before any disputes arise.

Comment:

Respondents commented that the exception for arbitrations conducted pursuant to collective bargaining agreements improperly penalized contractors without collective bargaining agreements and recommended the exception be removed.

Response:

Unlike mandatory arbitration clauses in employment contracts with individual employees, dispute resolution procedures set forth in a collective bargaining agreement are jointly agreed upon by employers and employees. These dispute resolution procedures are therefore more likely to be perceived as fair, and thus unlikely to undermine employee morale and productivity. Collective bargaining agreements also tend to feature protections for workers coming forward with grievances, which increase the likelihood that sexual harassment and Title VII violations will be brought to light and hence enable agencies to identify and work with contractors with records of compliance. The rationales that generally support banning mandatory arbitration of covered claims thus do not apply in the context of a collective bargaining agreement negotiated between the contractor and a labor organization representing the contractor's employees.

Comment:

Respondents recommended that contractors who retain forced arbitration provisions for employment disputes other than those specifically prohibited by the regulation should be barred from enforcing those remaining forced arbitration provisions in the event disputes arise out of the same set of facts.

Response:

To be consistent with DoD's existing regulations and the requirements of the E.O., this rule does not apply the limitation on mandatory pre-dispute arbitration to aspects of an agreement unrelated to the covered areas. Establishing consistent rules across government agencies helps to enhance competition among suppliers, which is a well-established mechanism for achieving cost savings for the Federal government.

Comment:

Several respondents commented that the proposed rule's coverage on arbitration is invalid and unenforceable because it conflicts with Federal statute, U.S. Supreme Court precedent, current regulation, or should otherwise only be accomplished through Congressional legislation. Respondents provided the following in support of their comments:

Gilmer

v.

Interstate/Johnson Lane Corp.,

500 U.S. 20, 25 (1991) (the Federal Arbitration Act reflects a “liberal federal policy favoring arbitration agreements”)

AT&T Mobility LLC

v.

Concepcion,

563 U.S. 333, 339 (2011) (“The FAA (Federal Arbitration Act) was enacted in 1925 in response to widespread judicial hostility to arbitration agreements.”)

CompuCredit

v.

Greenwood,

565 U.S. 95 (2012), and similar rulings, which uphold the enforceability of arbitration agreements pursuant to the Federal Arbitration Act.

Response:

The Federal Arbitration Act provides for the validity and enforceability of arbitration agreements. The final rule, consistent with the proposed rule, does not alter the validity or enforceability of such agreements; indeed, the E.O. makes clear that it does not disturb existing pre-dispute arbitration agreements unless those agreements are renegotiated or replaced in a process that allows changes to the terms to the contract. Therefore, the final rule does not conflict with the Federal Arbitration Act.

The government does, however, generally have the authority to decide which companies it will contract with and what terms such contracts will contain. The final rule accordingly provides that contracting agencies in their capacity as contracting parties shall not, with some exceptions, enter into contracts with contractors who utilize certain types of mandatory arbitration agreements with their employees. Contractors remain free to require employees to enter into mandatory pre-dispute arbitration agreements of claims that do not arise under Title VII or torts relating to sexual assault or harassment, and may further seek to arbitrate covered disputes when they arise.

Comment:

Respondents argued that failure to include the cost of reporting equivalent State labor law violations circumvents the intent of the Congressional Review Act (CRA), the Small Business Regulatory Enforcement Fairness Act (SBREFA) as part of the Regulatory Flexibility Act (RFA), and E.O. 12866. Respondents indicated that when the cost of a proposed rule is estimated to have a cost impact of more than $100 million on the economy, each of these Federal laws require the agency proposing the rule to undertake additional regulatory review steps.

Response:

The proposed and final FAR rules do not address the cost of reporting violations related to equivalent State laws (other than OSHA-approved State Plans) because the rule and DOL's Guidance do not implement those requirements of E.O. 13673. In response to what the Councils and DOL learned from public comments and public outreach sessions regarding the best way to create a fair, reasonable, and implementable process, the FAR rule and DOL Guidance will phase in parts of the E.O. over time. As part of the phase-in plan, contractors will not be required to disclose labor law decisions related to equivalent State laws immediately (other than for OSHA-approved State Plans), which will significantly reduce the number of labor law decisions that a contractor or subcontractor will need to report. 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. The notice of proposed rulemaking accompanying this subsequent action will address the cost of disclosing labor law decisions concerning violations of equivalent State labor laws and address applicable requirements of the CRA, SBREFA, RFA, and E.O. 12866.

2. Various Alternatives to the Proposed Rule

a. Alternatives That Were Presented in the Proposed Rule

Introductory Summary: The proposed rule asked for consideration of, and comment on, alternatives to three aspects of the rule: (i) Phase-in of subcontractor disclosure requirements, (ii) subcontractor disclosures and contractor assessments, (iii) contractor and subcontractor remedies. The Councils reviewed and considered public comments in development of the final rule and have implemented revisions as follows:

Phase-in (of Disclosure Requirements).

In addition to comments received on subcontractor phase-in, a number of concerns, comments, and additional phase-in options were offered with regard to the ability of prime contractors to comply with the rule immediately on the effective date. In order to best enable compliance with the rule, the Councils have implemented the following phase-in periods for representations and disclosures (see FAR 22.2007, 52.222-57 and its commercial items equivalent at 52.212-3, 52.222-58, 52.222-59):

• Prime Contractor Representations and Disclosures

○ For the first 6 months after the rule's effective date (October 25, through April 24, 2017), representations and disclosures are required for solicitations expected to result in contracts valued at $50 million or more.

○ After the first 6 months (after April 24, 2017), representations and disclosures are required for solicitations expected to result in contracts valued at greater than $500,000.

• Subcontractor Representations and Disclosures

Beginning 12 months after the rule's effective date (October 25, 2017), representations and disclosures are required for solicitations expected to result in subcontracts valued at greater than $500,000 other than COTS.

• Labor Law Decision Preaward Disclosure Period—Prime and Subcontractor

Whenever preaward disclosures are required they must cover decisions rendered during the time period beginning October 25, 2015 to the date of the offer, or for three years preceding the date of the offer, whichever period is shorter.

Subcontractor Disclosures and Contractor Assessments.

The proposed rule offered alternative language for subcontractor disclosures and contractor assessments of labor law violation information; the final rule adopts this alternative approach. In the final rule, at FAR 52.222-58 and 52.222-59(c) and (d), subcontractors disclose details regarding decisions concerning their labor law violations (and mitigating factors and remedial measures) directly to DOL for review and assessment instead of to the prime contractor. The applicability to subcontracts remains unchanged in the final rule,

i.e.,

$500,000 threshold for other than COTS.

Contractor and Subcontractor Remedies.

The proposed rule offered supplemental language regarding remedial measures in order to achieve the dual goals of providing reasonable time for remedial action and accountability for unjustified inaction (FAR 22.2004-5, Consideration of Compliance with Labor Laws in Evaluation of Contractor Performance, at 80 FR 30557). The final rule instead includes language for contracting officers to consider a contractor's compliance with labor laws (including adherence to labor compliance agreements) in their evaluation of past

performance (FAR 42.1502(j)). It also provides for contracting officers to consider whether labor compliance agreements have been timely entered into and complied with, at FAR 22.2004-2(b)(4); 22.2004-3(b)(3).

i. Phase-in (of Disclosure Requirements)

• Phase-In of Subcontractor Review

Comment:

Several respondents recommended phase-in of the subcontractor disclosure requirement. The proposals included (1) allowing 12-18 months for phase-in, (2) delaying or phasing-in subcontractor review requirements, and (3) limiting reporting on violations to only those that arise after the effective date of the proposed rule.

Response:

As stated in the summary above, the Councils agree that phase-in of subcontractor disclosures would benefit both the public and the Government and have updated the rule to provide for a phase-in period.

• Phase-In of Subcontractor Disclosures by Subcontracting Tiers

Comment:

Respondents recommended that the subcontractor disclosure requirement be phased in by subcontractor tiers. Respondents recommended: (1) Applying the rule initially to prime contractors and then, after a phase-in period, expanding application only to first-tier subcontractors, and (2) creating a phase-in schedule to add one year for first-tier subcontracts, one more year for second-tier subcontracts, and one more year for lower-tier subcontracts.

Response:

As stated in the summary above, the Councils have decided to apply a phase-in period to all subcontractor disclosures. This will allow sufficient time for systems and processes to be in place to implement the rule's requirements at the subcontractor level.

• Phase-In for Small Businesses

Comment:

The SBA Office of Advocacy and other respondents recommended (in addition to the phase-in for subcontractors), that the Councils consider providing a phase-in period for small business prime contractors. The SBA Office of Advocacy recommended that this phase-in period be long enough to allow small businesses, who are current contractors or offerors interested in contracting with the Government, to absorb the costs of the rule. Another respondent indicated that a phased approach to implementation is appropriate for small businesses, to afford them sufficient time to develop systems and modify contractual terms, and one respondent recommended that the rule exempt small businesses entirely. However, another respondent cautioned the Councils that, while considering the burden on small businesses, the Councils should avoid inadvertently providing an unfair competitive advantage when small businesses participate in unrestricted procurements.

Response:

As stated in the introductory summary above, the burden for all businesses, including small businesses, under the rule will be greatly reduced by phased-in application of the rule regarding disclosures by prime contractors and subcontractors.

Comment:

A respondent recommended the phase-in apply to all subcontractors and not make distinctions among subcontractor tiers. The respondent proposed two distinct one-year phase-in periods for subcontractor disclosure and for update requirements and provided suggested FAR text changes.

Response:

The Councils concur that a phase-in of application to subcontractors will allow an opportunity for contractors and subcontractors to become acclimated to the tracking, reporting, and reviewing requirements of this rule.

• Phase-In for Other-Than-Small Businesses

Comment:

Several respondents recommended a phase-in or delayed effective date for prime contractors with the most recommended timing for a phase-in being one year. The recommendations included: (1) A significant period for phase-in to develop mechanisms for reporting, collecting, and evaluating information; (2) limiting initial application to prime contractors, specifically those subject to full Cost Accounting Standards compliance requirements; (3) an initial phase-in period for contracts valued over $10,000,000; phase-in for both prime contractors and subcontractors; and a phased approach over at least 5 years.

Response:

The Councils have revised the rule to phase in application of the rule to prime contractors and subcontractors as described in the summary above.

• Length of Phase-In Period

Comment:

Respondents made various recommendations for phase-in of the three year period for disclosures: That it be reduced to six to twelve months; that it begin four years after the rule's effective date; that it be increased to five years consistent with the FAPIIS reporting requirement and to enable contracting officers to conduct more thorough responsibility determinations; that it be a year at a time,

e.g.,

a year after the effective date, contractors report a year of violations; two years out, they report two years; and three years out, they report 3 years of violations.

Response:

The Councils have implemented revisions in the final rule consistent with the disclosure reporting described in the above summary.

Comment:

Respondents expressed concern with implementation phasing. A respondent noted that Section 10 of the E.O. indicated it will apply to solicitations as set forth in the FAR final rule, and that the E.O. Fact sheet stated that the E.O. will be “implemented on new contracts in stages, on a prioritized basis, during 2016.” The respondent was concerned that the proposed rule is silent on the timing of implementation. The respondent stated that this omission is significant as the effective date and implementation strategy will have substantive implications for contractors. The respondent contended that by failing to address this issue, contractors have been deprived of the opportunity to comment on this critical point as required by the APA.

Response:

The statutory publication requirement for FAR rules is found at 41 U.S.C. 1707. The APA publication section at 5 U.S.C. 553 does not apply to FAR procurement regulations. The proposed rule met the requirements of 41 U.S.C. 1707 by requesting public comment on alternatives for implementation phase-in. See paragraph A of Section IV of the proposed FAR rule preamble and paragraph 6 of the Initial Regulatory Flexibility Analysis.

Comment:

One respondent suggested a lengthy phased implementation and enforcement approach, along the following lines: (1) During the first two years after the effective date of the final rule, contracting agencies and DOL would establish ALCA functions by staffing and training employees to implement the rule, and contractors would begin to establish compliance and reporting protocols and mechanisms, and train their employees, (2) During the third and fourth year the final rule should apply to new solicitations and contracts valued over $20,000,000, and $10,000,000 respectively, but only to prime contracts, and (3) During later years the threshold would be reduced and apply to subcontracts.

Response:

The Councils have revised the rule to reflect a phasing as described in the summary above.

ii. Subcontractor Disclosures and Contractor Assessments

Comment:

A respondent took exception to the requirement for primes to “certify” that suppliers and subcontractors are complying with the relevant labor laws and to collect this information every six months.

Response:

There is no requirement for contractors to certify that their subcontractors or suppliers are complying with relevant labor laws. The requirement is for contractors to consider labor law violations when conducting determinations of subcontractor responsibility.

Comment:

One respondent recommended that DOL be tasked with evaluating subcontractors' history of violations and assessing the need for a labor compliance agreement, rather than having the prime contractors carry out that function. The respondent stated that the process of evaluating compliance history and weighing the frequency and gravity of violations should be treated as an inherently governmental function.

Response:

The Councils have adopted the alternative offered in the proposed rule to have DOL assess subcontractor violations. The contractor is still ultimately responsible for evaluating the subcontractor's compliance with labor laws as an element of responsibility. Determining subcontractor responsibility is not an inherently governmental function, and reflects existing policy at FAR 9.104-4(a). There is no transfer of enforcement of the labor laws as a result of the rule; the rule provides for information regarding compliance with labor laws to be considered during subcontractor responsibility determinations and during subcontract performance.

Comment:

Many respondents objected to the role of contractors collecting subcontractor violation information as prescribed in the proposed rule. Several of those respondents expressed some level of support for the alternative presented. Other respondents expressed concerns that: (1) The rules for contractors are not the same or similar to the practice that contracting officers follow; (2) proposed subcontractors do not report directly to the Government; (3) the subcontractor should make a representation back to the contractor regarding any DOL response; (4) contractors should review their subcontractors' compliance on a continual or ongoing basis; (5) if the alternative is implemented, DOL would not be able to respond quickly enough; (6) if the Government were to make a recommended responsibility determination for a proposed subcontractor that the contractor making the responsibility determination might come to a different conclusion; and (7) DOL might issue inconsistent recommendations regarding different proposed subcontracts with one company.

Response:

As described in the summary above, the Councils are implementing the final rule with the alternative whereby the contractor would direct the subcontractor to disclose its labor law decisions (and mitigating factors and remedial measures) to DOL, which will resolve many of the concerns expressed regarding application of the rule to subcontractors. See the full discussion of comments and responses on the subcontractor disclosure alternative below at Section III.B.5.

iii. Contractor and Subcontractor Remedies

Comment:

A number of respondents recommended that the rule enumerate specific remedies or punitive measures that are available for misrepresentations and failures to disclose relevant information.

Response:

FAR representations, including those in this rulemaking, are made to the best of the offeror's knowledge and belief. However, inaccurate or incomplete representations related to this rule, like other representations in the FAR, could constitute a false statement. The rule provides that the representation is a material representation of fact upon which reliance was placed when making award; if it is later determined that the offeror knowingly rendered an erroneous representation, in addition to other remedies available to the Government, the contracting officer may terminate the contract. In addition, there are existing civil and criminal penalties for making false statements to the Government that are applicable to representations and to other information not provided as part of a representation, for example, information disclosed about labor law violations.

Comment:

Two respondents recommended that the representations required of contractors and subcontractors be under oath.

Response:

The Councils do not agree that the representations by contractors and subcontractors should be made under oath as it is inconsistent with how FAR representations are made. Also see prior response regarding the impact of making a representation.

Comment:

Respondents recommended that the remedies specified in the regulation for misrepresentations at the “check the box” representation stage also apply to the contractor or subcontractor's preaward and postaward labor law violation disclosures.

Response:

There are existing civil and criminal penalties for making false statements to the Government, which would be applicable to representations and to other information not provided as part of a representation, for example, information disclosed about labor law violations. With respect to subcontracts, the rule does not discuss the penalties applicable to the prime contractor—subcontractor relationship in this FAR implementation. This is in accord with general FAR practice. Prime contractors have discretion to establish subcontract terms and conditions applicable to their subcontracts. Therefore, the Councils do not consider a change to be necessary.

Comment:

A respondent recommended that the penalties for misrepresentation should apply to subcontractor disclosures and be explicitly communicated to the subcontractor by the prime or higher-tier subcontractor, or the contracting officer through the solicitation.

Response:

The rule does not discuss penalties for misrepresentation by subcontractors in the provision at FAR 52.222-58, Subcontractor Responsibility Matters Regarding Compliance with Labor Laws (Executive Order 13673). However, contractors and subcontractors may draft terms and conditions for their subcontracts that include coverage of misrepresentation penalties.

Comment:

A respondent recommended that the prime contractor should have a rebuttable presumption that it was not responsible for a subcontractor's false disclosure.

Response:

The Councils agree that the prime is not responsible for all subcontractor misrepresentations or false statements and have revised the FAR provision at FAR 52.222-58(b) and clause at 52.222-59(f) to read that “A contractor or subcontractor, acting in good faith, is not liable for misrepresentations made by its subcontractors about labor law decisions or about labor compliance agreements.”

Comment:

A respondent recommended that a mechanism be provided for giving the subcontractor recourse for an erroneous negative determination by the prime contractor of the subcontractor's responsibility.

Response:

Consistent with FAR 9.104-4(a), the prime contractor is generally responsible for determining the responsibility of its prospective subcontractors. Prime contractors must

exercise due diligence when evaluating and selecting among prospective subcontractors. This is existing policy and implementation of the E.O. does not change this construct. The prime contractor is ultimately responsible for deciding with whom to subcontract and how to manage the subcontractor relationship. Implementing the alternative in the final rule provides DOL's subject matter expertise to the review of subcontractor labor law decisions (and mitigating factors and remedial measures) and allows for prime contractor consultation with DOL. The Councils find the existing policies sufficient and decline to establish the new mechanism requested.

Comment:

A respondent recommended that the contracting officer should document a contractor's violation of a labor compliance agreement, or its refusal to enter into one, in its past performance evaluation.

Response:

As described in the summary above, the final rule has been revised to include labor law compliance (including adherence to labor compliance agreements) in information considered by contracting officers in past performance evaluations (see FAR 42.1502(j)).

Comment:

A respondent recommended that the rule more closely align with the contractor performance information process which provides at FAR subpart 42.15 for notice to a contractor, an opportunity for comment, and a review at a level above the contracting officer to address disagreements.

Response:

The contractor performance information process provides that agency evaluations of contractor performance, including both negative and positive evaluations, shall be provided to the contractor as soon as practicable after completion of the evaluation. As described in the summary above, the final rule has been revised to include labor law compliance (including adherence to labor compliance agreements) in information considered by contracting officers in past performance evaluations (see FAR 42.1502(j)).

Comment:

Respondents stated that there could be an increase in Contract Disputes Act appeals. Respondents suggested that reporting of violations could trigger adverse performance evaluations or lead to decisions not to exercise options based on responsibility determinations. Respondents noted that the FAR provides specific processes for responding to and appealing performance evaluations. In addition, where a contracting officer determines that a contractor is not responsible, such that the contract should be terminated for default or options not exercised, there may be grounds to bring claims under the contract, based on claims that the contracting officer acted arbitrarily and capriciously; there is also a right to appeal any final contracting officer decision on these grounds under the Contract Disputes Act.

Response:

The Councils note that the traditional use of options under FAR part 17 involves the exercise of the option being within the discretion of the contracting officer. The intent of the E.O. is to have contractors put their efforts in improving their record of labor law violations, rather than in litigating.

Comment:

A respondent recommended that FAR 22.2004-3(b)(3) be strengthened to specify that an ALCA may consider whether the contractor has entered into a collectively bargained labor compliance agreement and whether the contractor has failed to comply with an existing labor compliance agreement as an aggravating factor.

Response:

The ALCA, pursuant to FAR 22.2004-3(b)(1), is required to verify, consulting with DOL as needed, whether the contractor is making progress toward, or has entered into, the labor compliance agreement. In addition, the ALCA, in developing its assessment using DOL Guidance, will consider whether a labor compliance agreement already in place is being adhered to. Specifying whether the labor compliance agreement is collectively bargained is not required by the E.O.

Comment:

Respondents proposed strengthening the remedies at FAR 22.2004-3(b)(4) to provide for the suspension of payments under a contract until the labor law violation is remedied and/or an enhanced labor compliance agreement is implemented.

Response:

The respondents' recommendation for suspension of payments for labor law violations is not provided for in the E.O., and under current FAR practice, contractors are entitled to be paid for work performed.

Comment:

A respondent recommended that FAR 22.2004-3(b) should be amended to provide that contracting officers and ALCAs must consider all reportable labor law violations of a prime contractor's subcontractors that were committed during the period of contract performance, for those subcontractors that have not been cleared or precleared by DOL. The respondent proposed an alternative process as a remedy to address the violations of subcontractors for whom DOL had not completed an assessment prior to subcontract award. The respondent proposed that ALCAs and contracting officers, in addition to the prime, should review all subcontractor labor law violations committed during the performance period and the prime should face the same remedial action from the contracting officer as if the prime had committed the violation.

Response:

We note that it appears that an underlying assumption to the respondent's comment is that the prime's decision to award or continue the subcontract was inappropriate, and that the prime was not diligently considering the labor law violations. In fact, it may have been the appropriate decision to award or continue the subcontract depending on the totality of the circumstances related to (1) the labor law violation(s), and (2) the circumstances of the particular procurement.

Comment:

A respondent recommended that the FAR should require DOL to inform prime contractors directly when DOL conducts an investigation of a subcontractor and provide specific information about the subcontractor's need for and compliance with a labor compliance agreement to the contracting officer and the prime.

Response:

The E.O. does not provide that DOL must notify prime contractors directly when DOL conducts an investigation of a prospective subcontractor or provide copies of an established labor compliance agreement to the contracting officer and the prime. However, a contracting officer may request a copy of a labor compliance agreement from DOL or an enforcement agency, and the contracting officer is entitled to receive it. In addition, if prime contractors decide to enter into or continue subcontracts with a subcontractor that DOL has advised needs a labor compliance agreement and the subcontractor is in disagreement with DOL, the prime contractor must inform the contracting officer (see FAR 52.222-59(c)(5) and (d)(4)). Also, the FAR text amended at 52.222-58(b)(2) and 52.222-59(f) states that “A contractor or subcontractor, acting in good faith, is not liable for misrepresentations made by its subcontractors about labor law decisions or about labor compliance agreements.”

Comment:

A respondent recommended that the FAR should require a prime contractor to consult with DOL if a subcontractor discloses labor law violations to the prime during contract performance. The respondent indicated that, if the subcontractor does not receive an updated clearance from DOL and the prime continues to retain

the subcontractor, the prime should face the same action by the contracting officer as if the prime had committed the violation.

Response:

The processes for subcontractor disclosures to DOL at FAR 52.222-59(c) and (d) are mandatory; however, the opportunity for a prime contractor to consult with DOL or an enforcement agency at FAR 52.222-59(e) is at the prime's discretion. The prime is responsible for evaluating any information it has, including labor compliance information received from DOL, when determining subcontractor responsibility. FAR 9.104-4(a) does provide that determinations of prospective subcontractor responsibility may affect the Government's determination of the prospective prime contractor's responsibility. The final rule is consistent with this policy. If prime contractors decide to enter into or continue subcontracts with subcontractors that DOL has advised need a labor compliance agreement and the subcontractor is in disagreement with DOL, the prime contractor must inform the contracting officer (see FAR 52.222-59(c)(5) and (d)(4)).

Comment:

A respondent commented that an approach where DOL rather than the prime contractors would make the subcontractor responsibility determination would be equally problematic since the Government would, in effect, determine the subcontractor with whom prime contractors can do business. The respondent suggested that if DOL finds a subcontractor nonresponsible and the subcontractor's work was necessary to the prime contractor's supply chain, then the prime contractor may be forced to go out of business or not do business with the Government.

Response:

The rule requires prospective subcontractors to submit labor law violation information to DOL, and requires DOL to develop an assessment. The DOL assessment assists prime contractors as they determine prospective subcontractor responsibility. Consistent with current practices under FAR 9.104-4(a), prime contractors determine subcontractor responsibility; the Government does not.

Comment:

A respondent indicated that there could be conflicts of interest for DOL advisors when DOL analyzes a labor law decision issued by another part of DOL. This could also be problematic when State laws are implemented. The respondent recommended that the ALCA should be the moderator to avoid these conflicts of interest and the ALCAs should weigh in on recommendations with regards to State law violations.

Response:

The structure of the subcontractor responsibility process does not create a conflict of interest, in and of itself. DOL Guidance clarifies that labor law decision information forthcoming from an enforcement component of DOL will be assessed objectively. Administrative decision makers enjoy a presumption of honesty and integrity. See

Withrow

v.

Larkin

, 421 U.S. 35, 47 (1975).

Comment:

Another respondent suggested that DOL issue subcontractors a certificate of competency for labor law violations, so that prime contractors can be assured that any issues have been reviewed by the most trained and appropriate subject matter experts.

Response:

DOL has the most trained and appropriate subject matter experts and will provide an assessment of a subcontractor's labor law violations. There is no need for the requested certificate of competency. The subcontractor is responsible for communicating the results of the DOL assessment to the prime. The prime may rely on this information in reaching a conclusion as to a subcontractor's responsibility. In addition, DOL encourages companies to work with DOL and other enforcement agencies to remedy potential problems independent of the procurement process so companies can give their full attention to the procurement process when a solicitation of interest is issued (See DOL Guidance Section VI, Preassessment).

Comment:

One respondent agreed with the FAR Council's proposed Supplemental Alternative which required that a contractor's compliance with a labor compliance agreement be factored into the evaluation of a contractor's performance. The respondent indicated this does not go far enough, and should provide that contracting officers and ALCAs must consider such compliance and factor it into both the contractor's future responsibility reviews and its past performance evaluations. In addition, the respondent stated that the contracting officer should not be permitted to credit whether the prospective contractor is still in good faith negotiating such an agreement as a mitigating factor under FAR 22.2004-3(b)(2) or (3)(v) unless such delay is directly attributed to specific Government action or inaction. The respondent stated that this standard would otherwise provide a disincentive for employers to promptly enter into a labor compliance agreement.

Response:

The FAR currently provides a contracting officer with broad discretion in determining the suitability of the prime contractor. In addition, language has been added to the final rule, as described in the summary of this section, to include consideration of labor law violations in past performance evaluations (see FAR 42.1502(j)).

Comment:

Respondents objected to the requirement that contractors must disclose labor law decision information every six months during the life of the contract for the Government to evaluate whether contract performance under an existing contract should continue, and contended that this would be akin to a determination of nonresponsibility. They asserted that current FAR requirements do not provide that the Government will automatically terminate an existing contract when there has been a violation, even where the violation has led to a debarment or suspension of the contractor. Indeed, Government contacts generally continue. Respondents noted that a process that disrupts a contract that is being properly and timely performed would hinder the Government's ability to carry out its mission. They suggested that the approach embodied in the proposed rule marks a significant shift in how the Government procurement process operates, and that such a fundamental shift is neither required nor justified to implement the E.O. and may lead to legal action.

Response:

FAR 52.222-59(b) requires the contractor to update disclosed labor law decision information. An update of the contractor's information does not automatically result in a decision by the contracting officer to terminate the contract. Rather, the updated information is considered by the contracting officer in making contract decisions such as whether contract remedies are warranted or whether to exercise an option (see FAR 22.2004-3(b)(4)). This is consistent with current practice and no change to the rule is warranted.

b. Alternatives for Implementation of Disclosures That Were Not Presented in the Proposed Rule

Comment:

A respondent suggested using existing disclosure and reporting requirements in the FAR to satisfy requirements under the E.O.

Response:

The existing FAR does not require disclosure and reporting requirements for the fourteen labor laws and equivalent State laws in the E.O. The E.O. addresses more than just disclosure and reporting requirements; for clarity, the Councils have

determined to implement the E.O. through a separate subpart in the FAR, consistent with how the Councils have implemented other statutes and E.O.s of this scale.

Comment:

A respondent recommended limiting the rule's disclosure and reporting requirements for subcontracts only to first-tier subcontracts, as defined at FAR 52.204-10, in order to avoid application to a contractor's supplier agreements with vendors. This change would exempt long term arrangements for materials or supplies that benefit multiple contracts and/or related costs that are normally applied to a contractor's general and administrative expenses or indirect costs.

Response:

The Councils decline to limit applicability of disclosure and reporting requirements to only first-tier subcontracts, as that term is defined in FAR 52.204-10. In addition, the Councils decline to exclude long-term supplier agreements. The E.O. provides no exclusion for lower-tier subcontracts, for non-COTS items, or for supplier agreements. However, the exemption for COTS items, and the $500,000 and above threshold, should minimize the number of supplier agreements with small businesses that are covered by the E.O.

Comment:

A respondent stated that contractors should be required to obtain a responsibility recommendation from DOL concerning subcontractors prior to making a subcontractor responsibility determination.

Response:

DOL, as an enforcement agency, does not perform responsibility determinations or make recommendations on the responsibility determination. DOL makes assessments of labor law violations to inform the contractor's consideration of such information when the contractor is making its subcontractor responsibility determinations (FAR 52.222-59(c)(4)(ii)). The final rule, like the proposed rule, provides at FAR 52.222-59(e) that the prime contractor may consult with DOL for advice, as appropriate, regarding assessment of subcontractor labor law violation information.

Comment:

A respondent requested that the Councils establish new affirmative prequalification procedures, or affirmative job-to-job certification standards, for bidders and subcontractors on contracts valued at more than $500,000, that will require offerors to attest that they do not have any of the labor law violations specified by the E.O. in order to qualify to bid or participate on a project. The respondent commented that the disclosure provisions will not effectively remove contractors with substantial histories of labor law violations from the Federal procurement process.

Response:

The Councils view the proposed disclosure provisions as sufficiently rigorous. Having a labor law violation is not an automatic bar from doing business with the Government. The information disclosed will be assessed in accordance with the requirements of this rule and the contracting officer is responsible for making a determination of responsibility before awarding a contract.

Comment:

A respondent expressed concern about subcontractor monitoring by higher-tier contractors and recommended that contractors be required to submit all disclosure information received from potential subcontractors to the contracting officer, who, in consultation with the ALCA, should assess the subcontractor's responsibility as part of the assessment of the prime. Otherwise, the respondent stated, there would be almost no Government oversight of subcontractors' compliance with labor laws.

Response:

The final rule has been revised to require subcontractors at all tiers to disclose labor law decisions to DOL, so that contractors can obtain the advice of DOL on labor law decisions (and mitigating factors and remedial measures) in formulating subcontractor responsibility decisions. The Councils do not support requiring the submission of all labor law violations regarding subcontractors to the contracting officer, as the prime contractor is responsible for determining subcontractor responsibility (see FAR 9.104-4(a)).

Comment:

A respondent recommended that the 3-year reporting period be changed to a less-burdensome, rolling 12-month period under which contractors would be required to report only labor law violations occurring within the preceding 12 months which are serious, repeated, willful and pervasive.

Response:

As stated in the summary, the reporting period for disclosing decisions relating to violations of labor laws is being phased in; the period begins on October 25, 2015 and runs to the date of the offer, or for three years preceding the offer, whichever period is shorter.

Comment:

A respondent recommended a “fast-track” approach for low risk violations that would not activate the E.O.'s remedial process and would permit contracting officer discretion to proceed with a responsibility determination for matters that properly fit into the low risk categories. This approach could involve consulting the ALCA, but without the remedial process being activated.

Response:

Violations must undergo the analysis process to determine whether they are low-risk. The process in the final rule requires the ALCA to assess the labor law violations; the contracting officer considers the ALCA's analysis. No revisions are necessary.

Comment:

Respondents expressed concerns about the proposed rule being applied retroactively to existing contracts. One respondent recommended that the rule prohibit retroactive application of the rule through modification of existing contracts, including multiple year IDIQ contracts with less than 3 years remaining, and prohibit contracting officers from making option exercise contingent on agreement to adopt new clauses.

Response:

The rule will not apply to existing contract options for contracts which do not contain the FAR 52.222-59 clause. As discussed in the summary, the Councils have implemented a phase-in of contract and subcontract disclosure requirements. Neither the E.O. nor the final rule provides for retroactive application of the disclosure requirements to existing contracts. Companies will be brought into the labor law decision disclosure process with their first new contract issued after this rule is effective. There is no need for the Councils to make the rule applicable to contracts awarded before the rule, nor is it necessary to risk voiding the Government's right to exercise a unilateral option by attempting to add these clauses to an existing contract. No changes to the final rule are necessary. The Councils note that companies with a basic disregard for labor laws, without a satisfactory record of integrity and business ethics, may be found nonresponsible, whether or not the disclosure process is in effect.

c. Recommendations for Use of Existing Data or Employing Existing Remedies

Comment:

A respondent, echoing the view of many of respondents, suggested using existing reporting and disclosure systems and processes instead of creating new ones. The respondent commented that the proposed rule is unnecessary to meet the Government's stated objectives of economy and efficiency in procurement because the Government has procedures already in place to ensure that it contracts only with responsible parties, which include the consideration of labor law violations. The respondent stated that the proposed reporting and disclosure

requirements will duplicate information already in the Government's possession thus placing a reporting burden on contractors that outweighs the benefits. Several respondents suggested that Federal agencies use existing, adequate suspension and debarment processes to root out bad firms rather than create a new and burdensome regulatory scheme for that purpose.

Response:

DOL's existing systems were established in the past for a different purpose and do not satisfy the current needs of the Government in meeting the objectives of the E.O. As explained in the Preamble to DOL's Guidance, DOL and other enforcement agencies are actively working to upgrade their current tracking systems for use by the Government in compiling and maintaining enforcement data and contractor-disclosed data for purposes of implementation of the E.O. Enforcement agency databases do not and will not collect labor law decision data on arbitral awards or decisions or civil judgments in private litigation. Thus, disclosure of labor law decisions contemplated under the E.O. will necessarily include some level of disclosure by contractors. Like all information collections, the collections established to meet the requirements of this final rule will be reviewed periodically and revised accordingly when Government systems are better able to meet the terms of the E.O. See the RIA for discussion on costs and benefits of the rule. Also see Section III.B.1. of this publication and DOL Preamble Section V, paragraph D(1), which discusses the explanation for the E.O. meeting the stated objectives of increasing economy and efficiency.

Comment:

A number of respondents objected to the proposed disclosure and reporting requirements as unnecessary because DOL and other agencies already have the authority to take action against violators and track violators. These respondents commented that the proposed rule would shift the burden and expense traditionally borne by the Government to Federal contractors and subcontractors, and asserted that private and public resources should not be spent filing the proposed reports when the Government already has sufficient data on whether offerors have labor law violations. A respondent commented: (1) The protections sought by the proposed rule already exist in statutes and regulations that contain civil and/or criminal penalties for contractors who violate the labor laws and prevent egregious violators from receiving contracts, referencing the FLSA, the OSH Act, Title VII of the Civil Rights Act of 1964, and the debarment authority of labor laws such as the Service Contract Act (SCA) and the Davis-Bacon Act (DBA); (2) the Councils could dispense with the proposed contractor reporting system and instead improve the Government's information collection and dissemination mechanisms and processes because the agencies which enforce the labor laws listed in the E.O. already possess the information that contractors would be required to report and the current process will work more efficiently at a fraction of the cost of the proposed rule; and (3) contracting agencies can gather information about a contractor's Federal labor law compliance history by visiting DOL's Web site and the federal courts' public access docketing viewer (commonly referred to as “PACER”).

Response:

The response to the prior comment addresses the limits of utilizing the existing enforcement agency system capabilities versus requiring contractor disclosure. See also the discussion of economy and efficiency and authority challenges at Section III.B.1. of this publication.

Comment:

Several respondents indicated that the Government has FAPIIS for compiling contractor data for purposes of informed responsibility determinations based on a contractor's satisfactory record of integrity and business ethics, which includes provisions allowing agencies to impose exclusions for labor law violations. Respondents noted that it is a robust system for determining whether to award contracts to entities, including the discretion not to award a contract if the entity has an unsatisfactory labor record. Respondents pointed out that the rule should focus on modifications and improvements to those Federal systems, rather than impose a reporting requirement on Federal contractors.

Response:

The E.O. provides a mechanism, implemented in this final rule, for contracting officers and contractors to gain access to labor law decision information of offerors and prospective subcontractors, including mitigating factors and remedial information, so that it may be considered when making responsibility determinations of offerors and subcontractors. This information is not otherwise available.

Comment:

A respondent stated the proposed rule confuses contracting officers' authority to make determinations of responsibility with Governmentwide exclusion determinations made by suspension and debarment officials, causing duplication of roles and inconsistent treatment under labor laws. The respondent stated that by giving contracting officers tasks that belong to suspension and debarment officials, the proposed rule is inconsistent, incompatible, and duplicative of existing systems, and undermines the fairness and due process protections established within the suspension and debarment process.

Response:

A contracting officer finding of nonresponsibility relates to the contractor's capability of performing a particular procurement. In contrast, the suspension and debarment process is based upon the conclusion that a contractor is so lacking in integrity or business ethics such that no contract award is in the Government's interest. The Councils do not consider a change to be necessary.

Comment:

Many respondents commented that the existing, proven suspension and debarment system should be used in response to contractors who have serious, repeated, willful, and/or pervasive labor law violations instead of creating an overly burdensome and costly additional process. Respondents stated: (1) It is fairer to allow a negative Federal contracting determination only according to the established due process-protected procedures found in the suspension and debarment process; and (2) Federal labor law and Federal procurement practices already strongly support not awarding Federal contracts to employers who deny workers basic rights and Federal agencies have sufficient authority with suspension and debarment-exclusion practices.

Response:

While the Councils agree that suspension and debarment is an appropriate remedy in certain instances when labor law violations occur, it may not be the appropriate vehicle to be used in most instances of contractor labor law violations. A contractor may be able to enter into a labor compliance agreement or otherwise remedy its labor law violations, and still be eligible for future awards.

The final rule also provides that when a contractor discloses labor law decisions, when being considered for contract award, it has the opportunity to provide remedial measures and mitigating factors for Government consideration.

The final rule also provides that the ALCA or the contracting officer may notify agency suspending and debarring officials.

d. Alternatives Suggested for the Threshold for Dollar Coverage for Prime Contracts

The disclosure of labor law decisions by prime contractors applies to prime contracts over $500,000; see FAR 22.2007(a) and (c) and 52.212-3(s). For

paycheck transparency, the application is also to prime contracts over $500,000; see FAR 22.2007(d). For arbitration, the application for prime contracts is over $1,000,000 for other than commercial items; see FAR 22.2007(e).

Comment:

Some respondents stated that the $500,000 applicability threshold is too low and will slow down the contracting process for both the Government and prime contractors, have a disparate impact on small business, and should be modified. In contrast, other respondents believed the individual contract threshold of $500,000 is too high. One wanted more contracts covered to highlight the importance of safety issues. Another respondent cautioned that contractors with significant labor law violations but no single contract or subcontract over the $500,000 threshold will be exempted from the intent of the E.O.

Response:

The $500,000 threshold is explicitly stated in the E.O. Lowering the threshold would further increase the burden on the public. Raising the threshold would eliminate a significant number of prospective contractors and subcontractors from application of the E.O.

Comment:

Respondents commented on the applicability of the rule to task and delivery orders and Federal Supply Schedules (FSS), Governmentwide Acquisition Contracts (GWACs), and Multi-agency Contracts (MACs). One suggested that the rule clarify that it does not apply to the award of task orders and delivery orders. Another asked whether the required notices in FAR 52.222-59(c) and (d) would go to the agency with the contract, or the agency that issued the order.

Response:

While the value of expected task and delivery orders may be relevant for the “estimated value” of a base contract for the purpose of reaching the relevant dollar threshold (

e.g.

, $500,000), the issuing of an individual task or delivery order does not independently trigger any of the E.O.'s requirements. Requirements of the solicitation provision FAR 52.222-57 will apply to solicitations for new base contracts, including indefinite-delivery contracts, FSS, GWACs, and MACs. Representations and disclosures required at the time of determination of responsibility will occur prior to the base contract awards. Representations and disclosures required at the time of determination of responsibility are not required again when a task or delivery order is awarded against an indefinite-delivery base contract. Existing base contracts that do not contain the FAR subpart 22.20 requirements are not subject to the disclosure requirements of this rule; this includes those existing base contracts that pre-date the effective date of the disclosure requirements, but which may have subsequent task and delivery orders issued after the effective date of the disclosure requirements. This practice is standard for application of clauses in the FAR. If the FAR were to specify this practice in one part or subpart, it would create an ambiguity on overall applicability. Therefore, no clarification is needed to the rule. The disclosures required by FAR 52.222-59(c)(5) and (d)(4) are made to the contracting officer for the base contract. Existing contractors gradually will be brought under the rule's requirements as new contracts are awarded.

e. Threshold for Subcontracts

The disclosure of labor law decisions by subcontractors applies to subcontracts over $500,000 for other than COTS items; see FAR 52.222-58 and 52.222-59(g). For paycheck transparency, the application is also to subcontracts over $500,000 for other than COTS; see FAR 52.222-60(f). For arbitration, the application is to subcontracts over $1,000,000 for other than commercial items; see FAR 52.222-61.

Comment:

Some respondents stated that subcontracts for commercial items and COTS should not be exempt from the labor law decision disclosure requirements of the rule, because COTS and commercial item subcontractors are just as prone to labor law violations, and that this exemption will weaken the rule. On the other hand, some respondents believed that subcontracts for commercial items should be exempt in the same manner subcontracts for COTS items are.

Response:

The E.O. limited the subcontractor disclosure exemption to COTS in order to balance the objectives of the E.O. with minimizing the burden it places on contractors. The Councils agree that this approach is an appropriate balance and no change is made to the rule.

Comment:

One respondent objected to the COTS exemption for subcontracts under paycheck transparency (FAR 52.222-60) and the commercial item exemption for arbitration (FAR 52.222-61).

Response:

The E.O. restricted the subcontractor disclosure exemption to COTS in order to balance the objectives of the E.O. with minimizing the burden it places on contractors. The Councils agree that this approach is an appropriate balance and no change is made to the rule.

Comment:

Some respondents stated that applicability of the rule to subcontractors should not be delayed.

Response:

Providing a phase-in period for subcontractors will allow both prime contractors and Government personnel to understand the new requirements, develop processes, and focus resources needed for execution. Therefore the Councils have adopted a one year phased implementation approach (see introductory summary in Section III.B.2.a. above), whereby initial implementation applies to prime contractors, later followed by subcontractors.

Comment:

Several respondents, including the SBA Office of Advocacy, were concerned about the effects that applicability of the rule may have on small businesses. They suggested applicability to subcontracts be minimized, for example, by raising the threshold from $500,000 to $1,000,000, and indexing it to inflation.

Response:

The E.O. considered impacts to small businesses and by design has taken steps to minimize the burden on small businesses, by exempting the majority of Federal contract awards to small businesses, namely, contracts valued under $500,000 and subcontracts for COTS items. Therefore, no change is being made to the rule.

41 U.S.C. 1908 provides for inflation indexing; however, that statute does not provide for increasing E.O. thresholds.

f. Applicability to Prime Contracts for Commercial Items

For prime contractors the disclosure of labor law decisions and coverage of paycheck transparency do not exclude contracts for commercial items or COTS. For arbitration, the application for prime contracts excludes contracts for commercial items. See prescriptions at FAR 22.2007, and see 52.212-3.

Comment:

Respondents expressed opposition to the rule, claiming that the exemption for COTS subcontracts should be extended to COTS prime contracts. In the respondents' view, applying the rule to prime contractors may drive commercial companies out of the Federal marketplace, particularly nontraditional, innovative suppliers. Some respondents would expand the exemption to all contracts for commercial items.

Others expressed the view that the final rule should not contain an exemption for COTS or for commercial item contracts. In their view, the quality of responsibility determinations should not depend on the type of item being purchased.

Response:

The E.O. considered impacts to contractors and subcontractors who provide commercial items and COTS. The E.O. limited the COTS exemption to subcontractor disclosure, in order to minimize the burden it places on subcontractors, while still meeting the objectives of the E.O. The E.O.'s approach is an appropriate balance in applying the exception for COTS to subcontractors and not to prime contractors.

Comment:

A respondent pointed out that the Federal Acquisition Streamlining Act of 1984 (FASA) was designed to make Federal contracts for commercial items more consistent with their commercial counterparts in order to encourage the commercial entities to enter the Federal marketplace and the Government to purchase more commercial items. Citing section 8002 of FASA, the respondent pointed out that “contracts for the acquisition of commercial items must include only those clauses that are required to implement provisions of law or executive orders applicable to acquisitions of commercial items or that are determined to be consistent with customary commercial practice to the maximum extent practicable.” Noting that the FAR contains similar requirements, the respondent inferred that the E.O. is inconsistent with statute to the extent it “deters commercial item contractors from participating in the Government market.”

Response:

The E.O.'s goal is to contract with responsible parties who have a satisfactory record of integrity and business ethics; this is consistent with commercial practices. While there are aspects of the rule that fall outside customary commercial practices (

e.g.

, disclosures of labor law violations), its provisions and clauses fall within FAR 12.301(a)(1) as “[r]equired to implement provisions of law or executive orders applicable to the acquisition of commercial items.” The E.O. was intended to cover commercial item contracts; it specifically exempted COTS subcontracts but not commercial item contracts. As a result, the Councils find the inclusion of the provisions and clauses consistent with law, regulation, and the E.O.

g. Miscellaneous Public Comments Concerning Alternatives

Comment:

Some respondents wanted to retain the disclosure requirement for labor law violations occurring on nonGovernment work. Other respondents wanted coverage limited to work under Government contracts or to business units that do business with the Government. Their rationale for coverage limited to Government contracts was that if the reported labor law violations relate to performance under a Government contract, these matters may be properly addressed under applicable FAR subpart 42.15, Past performance information; there is no need to impose redundant reporting obligations. Additionally, if the reported labor law violations do not relate to past performance under a Government contract, they reasoned that such information would not necessarily be relevant to a contractor's or subcontractor's ability to successfully perform a specific Government contract, and consideration should instead be determined in accordance with the established suspension and debarment procedures set out in FAR subpart 9.4.

Response:

The rule covers the legal entity's full record, including private sector work. The particular information that a contracting officer may need to make a responsibility determination will be specific to the circumstances of a given contract. Rather than predetermine what information a contracting officer must use, the rule provides the information that will allow a contracting officer to make a considered responsibility determination.

Violations of the labor laws listed in Section 2 of the E.O., particularly in instances where the violations are serious, repeated, willful, and/or pervasive, may specifically affect whether a contractor has a satisfactory record of integrity and business ethics, and may also negatively impact a contractor's ability to meet other standards established in FAR 9.104-1. There is a direct nexus between labor law violations and whether a contractor has a “satisfactory record of integrity and business ethics” as required by FAR 9.104-1(d). See,

e.g.

, Gen. Painting Co., B-219449, Nov. 8, 1985, 85-2 CPD ¶ 530.

This nexus is explicitly cited in the E.O. at Section 2(a)(iii): “In consultation with the agency's Labor Compliance Advisor, contracting officers shall consider the information provided . . . in determining whether an offeror is a responsible source that has a satisfactory record of integrity and business ethics. . . .” Further, as stated in Section 1 of the E.O., the President has concluded that “[c]ontractors that consistently adhere to labor laws are more likely to have workplace practices that enhance productivity and increase the likelihood of timely, predictable, and satisfactory delivery of goods and services to the Federal Government. Helping executive departments and agencies . . . to identify and work with contractors with track records of compliance will reduce execution delays and avoid distractions and complications that arise from contracting with contractors with track records of noncompliance.”

Satisfactory record of performance and ability to comply with the required delivery or performance schedule are expressly included among the list of standards in FAR 9.104-1, which a prospective contractor shall meet to be determined responsible.

The E.O. provides that, in making a responsibility determination prior to award, the contracting officer should consider all reported labor law violations in determining whether a prospective contractor is a responsible source that has a satisfactory record of integrity and business ethics. This consideration should not be limited only to reported violations that have occurred during the performance of prior Federal Government contracts, but should also include violations that have occurred outside the performance of Federal Government contracts. Consideration of all reported labor law violations, whether related to Federal contracts or not, provides insight into how the prospective contractor will perform during a future Government contract. Evidence of a prospective contractor's past labor law decisions concerning labor law violations is a basis to inquire into that contractor's potential for satisfactory labor law compliance; furthermore, how the prospective contractor has handled past violations is indicative of how it will handle future violations. When a prospective contractor has a record of noncompliance with labor laws, the contracting officer should consider the impact that likely future noncompliance will have in terms of the agency resources that will be required to monitor the contractor's workplace practices. Also see discussion in Section III.B.1.b. above.

Comment:

Several respondents recommended that the rule provide an exemption or other mechanism for a prime contractor to enter into a contract with a subcontractor, notwithstanding its labor law violation history, in the case of contingency, urgency, compelling need, or an agency-directed subcontract.

Response:

The rule requires contractors to consider a prospective subcontractor's labor law decision information as part of its responsibility determination, but it does not preclude a contractor proceeding with a determination in the case of contingency, urgency, or compelling need, even if the subcontractor has labor

law violations. The FAR text at 52.222-59(c)(2), (c)(5) and (c)(6) has been revised to reflect how some of these circumstances may be handled.

Comment:

A respondent recommended creation of an exemption, for urgent needs, to the rule's requirement for contracting officers to consult with labor compliance advisors.

Response:

There is no need for an exemption for urgent needs because under the existing rule text, the contracting officer can set the timeframe for an ALCA's response and absent a response can move forward with a responsibility determination (see FAR 22.2004-2(b)(2) and (b)(5)(iii)).

Comment:

Respondents commented that the reporting requirement for initial and subsequent semiannual reporting conflicts with information restrictions associated with classified contracts. They recommended that the rule be revised to accommodate classified contracts, and that public comments be requested on this issue. The recommendation was to protect information relating to classified contracts, and classified information. Respondents pointed out that sometimes the identity of the contracting agency and the contractor are classified, and that the issue can arise at prime and subcontract levels.

Response:

The rule does not compel the disclosure of classified information.

3. Requirements for Disclosures of Labor Law Decisions

Introductory Summary:

The Councils received a number of comments related to disclosures associated with the proposed rule. Particular comments related to scope of information provided, potential liability, need for disclosure, public availability of information, semiannual updates, and reporting entity, among others.

The Councils recognize the E.O. and final rule contain a range of new requirements for contractors, subcontractors, and the Government. As such, the Councils have been mindful in attempting to minimize impacts while meeting the objectives of the E.O.

In response to the comments, the Councils have:

• Clarified in the final rule at FAR 52.222-59(b) that the semiannual update does not have to be accomplished on a contract-by-contract basis.

• Clarified in the final rule at FAR 52.222-57(a)(2) that if the offeror is a joint venture that is not itself a separate legal entity, each concern participating in the joint venture must separately comply with the representation and disclosure requirements.

a. General Comments

Comment:

A respondent expressed general support for contractor disclosures of labor law violations, stating that the contractor is in the best position to furnish complete and accurate records about its labor law violations.

Response:

Noted.

Comment:

A respondent recommended that a list of companies (both contractors and subcontractors) that have been precleared or cleared in prior responsibility determinations and the dates of those clearances be made publicly available. The respondent further recommended that a list of companies under ongoing responsibility investigations should be made publicly available and promptly updated so that worker representatives and advocates, community groups, and other relevant interested parties may provide input. The respondent indicated that such publication would assist contractors in choosing precleared subcontractors, enhancing the efficiency and speed of the subcontracting approval process.

Response:

The E.O. and the FAR implementation require public disclosure of labor law decision information in FAPIIS (

i.e.

, labor law violated, case number, date rendered, name of the body that made the determination or decision). For each contract or subcontract award, a responsibility determination is fact-specific and the assessment of integrity and business ethics is but one factor that is taken into consideration. A previous finding of responsibility does not indicate present responsibility for the particular procurement. As such, the Councils decline to adopt a requirement to establish a precleared or cleared process for contractors previously found responsible on other contracts and make such information publicly available. Nevertheless, in accordance with DOL's Guidance, contractors do have the ability to address their labor law compliance with DOL, in advance of any particular procurement, to enhance the efficiency of the procurement process (see DOL Guidance Section VI, Preassessment).

Comment:

Respondents made recommendations to increase transparency when prospective contractors were undergoing responsibility determinations and investigations so that interested parties could provide input. For example, respondents recommended that unions or a contractor's employees be permitted to report labor law violations directly to a contracting agency. To facilitate such reporting, the respondents suggested that a prospective contractor be required to notify unions and its employees at a prospective contract performance location of the opportunity to report violations and of whistleblower protections. Respondents further recommended that a list of companies where there are ongoing responsibility investigations be made publicly available and promptly updated so that worker representatives and advocates, community groups, and other relevant interested parties may provide input.

Response:

Sources having knowledge of labor law violation information are encouraged to provide it to DOL and the enforcement agencies in a timely manner and not wait for agency procurement actions. The Councils decline to make such information public as doing so is outside the scope of the E.O.

Comment:

Respondents recommended changing the scope of required dis

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