Guidance for Executive Order 13673, “Fair Pay and Safe Workplaces”

Federal RegisterAug 25, 2016

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DEPARTMENT OF LABOR

Office of the Secretary

48 CFR Parts 22 and 52

ZRIN 1290-ZA02

Guidance for Executive Order 13673, “Fair Pay and Safe Workplaces”

AGENCY:

Department of Labor.

ACTION:

Final guidance.

SUMMARY:

The Department of Labor (the Department) is publishing final guidance (the Guidance) to assist the Federal Acquisition Regulatory Council (the FAR Council) and Federal contracting agencies in the implementation of Executive Order 13673, Fair Pay and Safe Workplaces. Executive Order 13673 (the Order) contains new requirements designed to increase efficiency and cost savings in the Federal contracting process. By law, Federal agencies already must contract only with “responsible” sources. Among other directives, the Order provides explicit new instructions for Federal contracting officers to consider a contractor's compliance with certain Federal and State labor laws as a part of the determination of contractor “responsibility” that contracting officers presently must undertake before awarding a Federal contract. In addition, the Order directs the FAR Council to propose the rules and regulations necessary to carry out the Order and the Department to develop guidance to help implement the new requirements. In this final Guidance, the Department provides detailed definitions for various terms used in the Order and the FAR rule to categorize and classify labor law violations, and the Department provides a summary of the processes through which contracting agencies will assess a contractor's overall record of labor law compliance and carry out their other duties under the Order.

DATES:

This final Guidance is being published simultaneously with the FAR Council's final rule. The final FAR rule is published elsewhere in this issue of the

Federal Register

and is effective on October 25, 2016. Contractors and Federal agencies may use this Guidance beginning August 25, 2016.

FOR FURTHER INFORMATION CONTACT:

Stephanie Swirsky, Deputy Assistant Secretary for Policy, U.S. Department of Labor, Room S-2312, 200 Constitution Avenue NW., Washington, DC 20210; telephone: (202) 693-5959 (this is not a toll-free number). Copies of this final Guidance may be obtained in alternative formats (large print, Braille, audio tape or disc), upon request, by calling (202) 693-5959 (this is not a toll-free number). TTY/TDD callers may dial toll-free [1-877-889-5627] to obtain information or request materials in alternative formats.

SUPPLEMENTARY INFORMATION:

The Department publishes this final Guidance to assist in the implementation of Executive Order 13673, Fair Pay and Safe Workplaces, dated July 31, 2014 (79 FR 45309, Aug. 5, 2014). Executive Order 13673 was amended by Executive Order 13683, December 11, 2014 (79 FR 75041, Dec. 16, 2014) to correct a statutory citation. The Order was further amended by Executive Order to modify the handling of subcontractor disclosures and clarify the requirements for public disclosure of documents.

Table of Contents

I. Background

A. GAO Studies of Federal Procurement

B. State and Local Responsible-Contracting Policies

II. Summary of the Executive Order

III. Overview of the Final Guidance

IV. Summary of Comments Received

V. Discussion of General Comments

A. Comments Requesting Changes to the Order or the Proposed FAR Rule

B. Comments About Costs and Burdens of the Order

C. Comments About Alternatives and the Need for the Order

D. Comments About the Legal Authority for the Order

Section-By-Section Analysis

I. Purpose and Summary of the Order

II. Preaward Disclosure Requirements (Formerly “Disclosure Requirements”)

A. Covered Contracts (Formerly “Who Must Make Disclosures Under the Order”)

B. Labor Law Decisions (Formerly “What Triggers the Disclosure Obligations”)

1. Defining “Administrative Merits Determination”

2. Defining “Civil Judgment”

3. Defining “Arbitral Award or Decision”

4. Successive Labor Law Decisions Arising From the Same Underlying Violation

C. Information That Must Be Disclosed (Formerly “What Information Must Be Disclosed”)

III. Preaward Assessment and Advice (Formerly “Weighing Violations of the Labor Laws”)

A. Classifying Labor Law Violations

1. Serious Violations

2. Repeated Violations

3. Willful Violations

4. Pervasive Violations

B. Weighing Labor Law Violations and Mitigating Factors (Formerly “Assessing Violations and Considering Mitigating Factors”)

1. Mitigating Factors That Weigh in Favor of a Satisfactory Record of Labor Law Compliance

2. Factors That Weigh Against a Satisfactory Record of Labor Law Compliance

C. Advice Regarding a Contractor's Record of Labor Law Compliance

IV. Postaward Disclosure and Assessment of Labor Law Violations

V. Subcontractor Responsibility

VI. Preassessment

VII. Paycheck Transparency

A. Wage Statement Provisions

1. Rate of Pay

2. Itemizing Additions To and Deductions From Wages

3. Information To Be Included in the Wage Statement

4. Weekly Accounting of Overtime Hours Worked

5. Electronic Wage Statements

6. Substantially Similar State Laws

7. Request to Delay Effective Date

8. FLSA Exempt-Status Notification

B. Independent Contractor Notice

1. Clarifying the Information in the Notice

2. Independent Contractor Determination

3. Frequency of the Independent Contractor Notice

4. Workers Employed by Staffing Agencies

5. Translation Requirements

VIII. Effective Date and Phase-In of Requirements

IX. Other Comments

A. Public Availability of Disclosures and Assessment Information

B. Participation of Third-Parties

C. Anti-retaliation and Whistleblower Protections for Reporting Information

I. Background

Spending on Federal contracts has almost doubled since 2000, and it has substantially increased as a percentage of total Federal spending.

This increase has spurred new attention by Congress and the current administration to address inefficiencies and gaps in oversight of Federal contractors and subcontractors, including through investment in new information-technology systems and guidance for the Federal contracting officers who do the critical day-to-day work of managing billions of dollars in contracts. Executive Order 13673, Fair Pay and Safe Workplaces (the Order), is one of several of such initiatives intended to provide new information, tools, and guidance for contracting officers to better serve in their roles as gatekeepers for and stewards of Federal agency resources.

In 2000, total spending on Federal contracts was $276.9 billion; by 2012, that number had increased to $518.4 billion.

See

Cong. Budget Office, “Federal Contracts and the Contracted Workforce,” Letter from Director Douglas Elmendorff 1, 4 (Mar. 11, 2015), Table 1,

available at

https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/49931-FederalContracts.pdf

The Order reinforces current Federal procurement procedures. Existing law requires Federal agencies to contract

only with “responsible” sources.

To implement this responsibility requirement, an agency contracting officer must make an affirmative determination of a contractor's responsibility before the contracting officer makes any contract award.

Under existing law, a contractor must have “a satisfactory record of integrity and business ethics” to be a responsible source.

To strengthen this requirement, the Order now instructs contracting officers to consider whether a contractor has a history of certain labor law violations within the last three years as a factor in determining if the contractor has such a satisfactory record.

10 U.S.C. 2305(b); 41 U.S.C. 3703. This requirement dates to 1884.

See

Act of July 5, 1884, ch. 217, 23 Stat. 107, 109. The Federal Acquisition Regulation (FAR) contains a similar requirement.

See

FAR 9.103(a). The FAR can be found at title 48 of the Code of Federal Regulations. Citations in this Guidance to the FAR use format FAR [section] instead of 48 CFR [section].

FAR 9.103(b). Agency “contracting officers” are the only Federal officials who can enter into and sign contracts on behalf of the Government.

Id.

1.601. Contracting officers have authority to enter into, administer, or terminate contracts and make related determinations and findings.

Id.

1.602-1(a). They also have the responsibility to ensure that all requirements of law, Executive orders, regulations, and all other applicable procedures, including clearances and approvals, have been met.

Id.

1.602-1(b).

41 U.S.C. 113(4); FAR 9.104-1(d).

See

Order, sections 2(a)(ii) and (iii).

Numerous violations of applicable laws in the course of business operations should raise questions about a contractor's integrity and business ethics. Even the most limited definition of “business ethics” requires a business to obey the law.

Despite this fact, multiple studies conducted over the last two decades suggest that consideration of contractor labor law violations during the Federal procurement process has been the exception rather than the rule.

See

Milton Friedman, “The Social Responsibility of Business is to Increase Its Profits,” New York Times Magazine (Sept. 13, 1970);

see also

Rob Atkinson, “Growing Greener Grass: Looking from Legal Ethics to Business Ethics, and Back,” 1 U. St. Thomas L.J. 951, 969 (2004) (“A great deal of business ethics focuses on precisely this issue: What norms, beyond the minima of obeying the law and making a profit, govern what business managers should do?”). While court cases addressing the relationship between labor violations and “integrity and business ethics” are not common, the Comptroller General has, on occasion, concluded that the violation of various labor-related laws can support a finding of lack of integrity and business ethics.

See, e.g.,

ALM, Inc.,

B-225679 et. al, 87-1 CPD ¶ 493, at 1-2 (Comp. Gen. May 8, 1987) (discussing alleged violations of the Service Contract Act (SCA) in the context of FAR 9.104-1(d));

Gen. Painting Co.,

B-219449, 85-2 CPD ¶ 530 at 4 (Comp. Gen. Nov. 8, 1985) (discussing failure to fulfill minimum wage requirements as a potential basis for nonresponsibility under FAR section 9.104-1(d));

Wash. Moving & Storage Co.,

B-175845, 1973 WL 8012, at 2 (Comp. Gen. Mar. 9, 1973) (upholding NASA's debarment of contractor for failure to comply with labor laws).

A. GAO Studies of Federal Procurement

In the mid-1990s, the congressional General Accounting Office (GAO), now known as the Government Accountability Office, issued two reports finding that Federal contracts worth billions of 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).

The GAO observed 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/HEHS-96-8, “Worker Protection: Federal Contractors and Violations of Labor Law,” Report to Senator Paul Simon (1995) (documenting awards to companies that had violated the NLRA),

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) (documenting awards to companies that had violated safety-and-health regulations),

available at

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

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) (drawing conclusions from the 1995 and 1996 GAO reports cited above in note 8),

available at

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

Over a decade later, with contracting expenditures escalating, the GAO again found a similar pattern. Looking at the companies that had the largest wage violations and workplace health-and-safety penalties from fiscal years 2005 to 2009, the GAO found that a surprisingly high percentage of those companies subsequently received Federal contracts.

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 7-8 (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. That report reviewed violations of the Fair Labor Standards Act (FLSA) and other laws enforced by the Department's Wage and Hour Division (WHD) and Occupational Safety and Health Administration (OSHA) between 2007 and 2012 and found that some 49 Federal contractors were responsible for 1,776 separate violations of these laws and paid $196 million in penalties and back wage assessments.

In 2012, those same companies were awarded $81 billion in Federal contracts.

Looking at the 100 largest wage and OSHA violations, the Committee found that 35 Federal contractors had violated both wage and safety-and-health laws.

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

Id.

at 18.

As the GAO had done 15 years earlier, the HELP Committee Report noted that contracting officers had the legal authority to consider labor law violations during the procurement process, but were not doing so. The Committee noted that contracting officers generally do not seek information regarding responsibility matters outside of the limited databases they are required by law to review.

And, even if they did have access to such information, the report found, contracting officers would be reluctant to act on it because of a lack of guidance regarding when labor law violations add up to an unsatisfactory record of integrity and business ethics.

Id.

at 25.

Id.

at 27-28.

B. State and Local Responsible-Contracting Policies

During the decades in which the GAO and HELP Committee studies of Federal procurement were conducted, many State and local governments responded to similar challenges by incorporating labor standards into contracting policies.

Preaward screening for labor

law violations became standard practice in some State and local jurisdictions in the form of pre-qualification programs.

These programs have “come to be viewed in the public contracting field as a best practice and a key management strategy.”

In North Carolina, for example, contractors must be prequalified to bid on projects for the State's Department of Transportation. As part of this prequalification, contractors have to disclose whether they have received any final or nonfinal repeat or willful OSHA violations within the past 2 years, and they must include copies of those violations with the prequalification application.

See

Paul K. Sonn & Tsedeye Gebreselassie,

The Road to Responsible Contracting: Lessons from States and Cities for Ensuring That Federal Contracting Delivers Good Jobs and Quality Services,

31 Berkeley J. Emp. & Lab. L. 459, 464-87 (2010) (listing examples). In addition, responsible-contractor policies have been increasingly employed by private actors. As one safety consultant for a Fortune 500 company noted, “[i]n the long term, carefully selected contractors are amazingly superior to those chosen based on cost or supposed productivity. The front-end investment for careful selection delivers an ROI far beyond the cost to go through the `dating-engagement-marriage' process.” Mike Williamsen, “Choosing Great Contractors for Your Needs,” Indus. Hygiene News (July/Aug. 2012),

available at

http://www.rimbach.com/cgi-bin/Article/IHN/Number.idc?Number=559

. These sorts of long-term benefits also make responsible-contractor policies attractive to large pension funds, the largest of which, CALPERS, has had a responsible-contractor policy in place for almost 20 years.

See

California Public Employees' Retirement System, “Statement of Investment Policy for Responsible Contractor Program,” 7, 16 (2015),

available at

https://

www.calpers.ca.gov/docs/policy-responsible-contractor-2015.pdf

Daniel D. McMillan, Erich R. Luschei, “Prequalification of Contractors by State and Local Agencies: Legal Standards and Procedural Traps,” Constr. Law., Spring 2007, at 21, 22 (“Public owners in numerous states now view prequalification as a useful, if not essential, element to ensure successful completion of construction projects.”).

Sonn & Gebreselassie,

supra

note 15 at 477.

North Carolina Dep't of Transp., Subcontractor Prequalification Form, 14 (2014),

available at

https://connect.ncdot.gov/business/Prequal/Documents/Subcontractor%20Prequalification%20Form.pdf

. The States of California, Massachusetts, and Connecticut have similar programs applicable to a broad array of public works.

See

Sonn & Gebreselassie,

supra

note 15 at 474-76. Other examples include the Illinois Department of Transportation; the City of Los Angeles; the Los Angeles Unified School District; the Santa Clara County, CA, Valley Transportation Authority; and the statute authorizing the construction of the Atlanta Beltline.

Id.

at 476 (discussing policies of the Illinois Department of Transportation and the City of Los Angeles); McMillan et al.,

supra

note 16 at 22 (discussing the Los Angeles Unified School District program); P'ship for Working Families, “Policy & Tools: Responsible Contracting,”

http://www.forworkingfamilies.org/page/policy-tools-responsible-contracting

(last visited July 11, 2016) (discussing for the Santa Clara and Atlanta examples);

see also

44 Ill. Admin. Code 650.240 (2006) (implementing prequalification for the Illinois Department of Transportation).

Research tracking the results of these State and local efforts and of other similar Federal programs has suggested that responsible-contracting policies—including those policies that require payment of prevailing wages—can have a positive effect on contract performance, at limited cost and without negatively affecting competition. One recent study analyzed State and Federal highway-construction contracts in Colorado between 2000 and 2011 and found no statistically significant difference in the cost of the State projects, despite the additional prevailing-wage regulations on the federally financed projects.

The study found that the Federal regulations were “not associated with reduced bid competition, an important determinant of project cost.”

Similarly, a study of local prevailing wage regulations in California in 2012 showed that the regulations “[did] not decrease the number of bidders nor alter the bidding behavior of contractors relative to the . . . value of the project.”

And a recent study of the use of local responsible-contractor policies across the State of Ohio showed no statistically discernible impact on school construction bid costs.

Kevin Duncan, “The Effect of Federal Davis-Bacon and Disadvantaged Business Enterprise Regulations on Highway Maintenance Costs,” 68 ILR Review 212 (2015).

Id.

Jaewhan Kim et al., “The Effect of Prevailing Wage Regulations on Contractor Bid Participation and Behavior,” 54 Indus. Relations 874 (2012).

C. Jeffrey Waddoups & David C. May, “Do Responsible Contractor Policies Increase Construction Bid Costs?,” 53 Indus. Relations, 273 (2014). Similarly, studies of local living-wage policies have shown “only a modest impact on costs, if any.”

See

Sonn & Gebreselassie,

supra

note 15 at 480. A study of Baltimore's 1994 living-wage policy, for example, found a contract cost increase of just 1.2 percent, lower than the rate of inflation.

See id.

These studies have shown that strengthening procurement labor standards and contractor labor-law compliance policies can play an important role in appropriately managing competition in procurement. When correctly managed, competition between contractors can increase accountability and the quality of services provided.

However, where compliance with legal norms is weak, price competition alone may instead result in an increase in unlawful behavior and poor contract performance.

State and local responsible-contracting policies have shown that contracting agencies can improve the quality of competition by encouraging bids from more responsible contractors that might otherwise abstain from bidding out of concern about not being able to compete with less scrupulous corner-cutting companies.

See

Kate Manuel, Cong. Research Serv., R40516, “Competition in Federal Contracting: An Overview of the Legal Requirements,” 2-3 (2011) (discussing benefits and costs associated with competition in Federal contracting).

See, e.g.,

Melissa S. Baucus & Janet P. Near, “Can Illegal Corporate Behavior Be Predicted? An Event History Analysis,” 34 Acad. Mgmt. J., 9, 31 (1991) (“If a firm's major competitors in an industry are performing well, in part as a result of illegal activities, it becomes difficult for managers to choose only legal actions, and they may regard illegal actions as a standard industry practice.”).

See

Sonn & Gebreselassie,

supra

note 16 at 477, 480;

see also

Maryland Dep't of Legislative Servs., “Impact of the Maryland Living Wage,” 10 (2008),

available at

http://dlslibrary.state.md.us/publications/OPA/I/IMLW_2008.pdf

(finding that the average number of bidders for service contracts increased from 3.7 bidders to 4.7 bidders after Maryland's living-wage law took effect).

In sum, studies of State and local initiatives have shown that—by properly managing competition—responsible-contractor policies can deliver better quality without significant cost increases for government agencies that employ them.

The Fair Pay and Safe Workplaces Order applies lessons learned from these developments in State and local contracting policy, and, by doing so, addresses the longstanding deficiencies highlighted in the GAO reports.

II. Summary of the Executive Order

Executive Order 13673 (the Order) was signed by President Barack Obama on July 31, 2014. The Order contains three discrete parts, each designed to help executive departments and agencies identify and work with contractors who will comply with labor laws while performing Federal contracts.

The first part of the Order directs agency contracting officers to consider contractors' records of labor law violations as the agencies make certain contracting decisions. To assure that contracting officers have sufficient information, the Order requires contractors to disclose their recent labor law violations to contracting officers. Specifically, the Order requires contractors to disclose violations of 14 Federal labor laws and Executive orders and equivalent State laws (collectively, “Labor Laws”). The Order instructs contracting officers to review a contractor's Labor Law violations to assess the contractor's record of Labor Law compliance during the preaward “responsibility” determination and when making postaward decisions such as whether to exercise contract options. The Order also creates a new position—Agency Labor Compliance Advisors (ALCA)—to assist contracting officers.

The first part of the Order also contains parallel requirements that apply to certain subcontractors working on covered contracts. The Order, as amended, and the final FAR rule require these covered subcontractors to disclose their Labor Law violations to the Department, which provides advice regarding subcontractors' records of Labor Law compliance. Contractors then consider this advice from the Department when determining whether their subcontractors are responsible sources.

The second part of the Order creates new paycheck-transparency protections for workers on Federal contracts. This part, section 5 of the Order, contains two separate requirements. It requires contracting agencies to ensure that certain workers on covered Federal

contracts and subcontracts receive a wage statement that that contains information concerning that individual's hours worked, overtime hours, pay, and any additions made to or deductions made from pay. It also instructs covered contractors and subcontractors to inform individuals in writing if the individual is being treated as an independent contractor, and not an employee.

The third part of the Order limits the use of pre-dispute arbitration clauses in employment agreements on covered Federal contracts.

The Order creates detailed implementation roles for the FAR Council, the Department, the Office of Management and Budget (OMB), and the General Services Administration (GSA). The FAR Council has the rulemaking responsibility to amend the Federal Acquisition Regulation (FAR) to implement the Order. Section 7 of the Order provides that the FAR Council will “propose such rules and regulations and issue orders as are deemed necessary and appropriate to carry out this order.”

The Order instructs the Secretary of Labor (the Secretary) to, among other duties, develop guidance that defines certain terms in the Order. The Order directs the Secretary to define the categories of Labor Law violations that contractors must disclose (administrative merits determinations, civil judgments, and arbitral awards or decisions); identify the State laws that are equivalent to the 14 Federal labor laws for which violations must be disclosed; define the terms (serious, repeated, willful, and pervasive) that will be used to assess disclosed violations; consult with ALCAs as they carry out their responsibilities under the Order; and specify which State wage-statement laws are substantially similar to the Order's wage-statement requirement.

The Order also directs the Secretary to develop processes for regular interagency meetings, develop processes by which contracting officers and ALCAs may give appropriate consideration to determinations and agreements made by the Department and other enforcement agencies, develop processes by which contractors may enter into agreements with the Department or other enforcement agencies, and review and improve the Department's data collection systems.

The final Guidance document that follows this

SUPPLEMENTARY INFORMATION

contains a more detailed summary of the Order.

III. Overview of the Final Guidance

Consistent with its obligations under the Order, the Department issued its Proposed Guidance on May 28, 2015, on the same date that the FAR Council issued its proposed rule to implement the Order. See 80 FR 30548 (proposed FAR rule); 80 FR 30574 (Proposed Guidance). Both the Department and the FAR Council solicited public comment, and the initial written comment periods closed on July 27, 2015. In response to requests for additional time to comment, however, the Department and the FAR Council extended the comment periods through August 26, 2015. After reviewing and carefully considering all of the timely submitted comments, the FAR Council and the Department are now simultaneously publishing final versions of the rule and the Guidance.

The Proposed Guidance contained sections addressing the purpose and summary of the Order, including a discussion of the existing FAR framework and the legal authority for the Order; the disclosure requirements; weighing Labor Law violations; the paycheck transparency provisions; an invitation to comment; and next steps. The Department solicited written comments on all aspects of the Proposed Guidance and also invited public comment on a variety of specific issues.

In the final Guidance, the Department has made several significant adjustments to accurately describe the modifications that the FAR Council made to its rule. In addition, in response to the comments about topics specifically tasked to the Department, the Department has clarified various definitions of terms used in the Order and included a more detailed narrative of the process for disclosing, categorizing, and weighing labor law violations.

The final Guidance, which follows this

SUPPLEMENTARY INFORMATION

, has the same basic structure as the Proposed Guidance with some additional sections added for clarity. It contains the following sections: (I) Purpose and summary of the Order, (II) Preaward disclosure requirements, (III) Preaward assessment and advice, (IV) Postaward disclosure and assessment, (V) Subcontractor responsibility, (VI) Preassessment, (VII) Paycheck transparency, and (VIII) Effective date and phase-in of requirements.

This Guidance satisfies most of the Department's responsibilities for issuing guidance, and the Department will publish at a later date a second guidance that satisfies its remaining responsibilities. The second guidance will be, as this Guidance was, submitted for notice and comment, published in the

Federal Register

, and accompanied by a proposed amendment to the FAR rule. The Department will likewise submit for notice and comment and publish any future updates to the Guidance that will have a significant effect beyond the operating procedures of the Department or that will have a significant cost or administrative impact on contractors or offerors. The Department will coordinate with the FAR Council in determining whether updates will have a significant cost or administrative impact.

IV. Summary of Comments Received

The Department received 7,924 comments on the Proposed Guidance from a wide variety of sources. Among these comments, some 7,784 were in the nature of mass mailings expressing general support for the Order, the FAR Council's proposed rule, and the Department's Proposed Guidance (collectively “the Order and the proposals”). Another 30 comments were in the nature of form letters, most of which expressed general opposition to the Order and the proposals. The Department also received an additional 109 individual submissions.

As discussed above, the FAR Council is issuing the implementing regulations for the Order by amending the FAR. The FAR Council published its proposed rule on the same date as the Department published its Proposed Guidance and similarly extended the comment period on the proposed rule to August 26, 2015. The Department and the FAR Council have coordinated efforts to assure the comments submitted that are relevant to the Guidance or to the FAR rule are shared with the appropriate agency, regardless of which agency may have initially received any specific comment.

A wide variety of interested parties submitted comments on the Proposed Guidance. Commenters included Members of Congress; State executive agencies; individual Federal contractor entities; national and State-level employer associations and advocacy organizations; professional associations; labor union federations; worker advocacy organizations; civil rights and human rights advocacy organizations; other non-profit advocacy organizations; and the Small Business Administration's Office of Advocacy, among others.

The Department recognizes and appreciates the value of comments, ideas, and suggestions from all those who commented on the proposal, and the final Guidance was developed only

after consideration of all the material submitted.

V. Discussion of General Comments

This section of the preamble to the final Guidance discusses the general comments that the Department received.

A. Comments Requesting Changes to the Order or the Proposed FAR Rule

Several industry commenters took issue with the text of the Order itself. In promulgating the Guidance and rule, the Department and the FAR Council are guided by the plain language of the Order. For example, several commenters argued that the FAR Council and the Department should change the contract value that will trigger the Order's disclosure requirements. Yet this $500,000 threshold comes from section 2 of the Order itself. Comments such as these are generally not addressed here.

Similarly, several commenters from both industry and worker-advocacy organizations took issue with requirements specific to the FAR Council's proposed rule, and not to the Guidance. The government's response to these comments will appear in the FAR Council's final rule. They are generally not addressed here.

B. Comments About Costs and Burdens of the Order

A number of employers and employer associations expressed concern that the requirements and processes established by the Order and the proposals will impose a heavy compliance burden that will increase their costs and cause delays in Federal contracting. Several of these industry commenters suggested that these potential costs and delays would harm the government and the public by increasing bid prices, discouraging companies from bidding on Federal contracts, or delaying the acquisition of key government goods and services.

Other commenters expressed general support for the Order and the proposals. Several argued that the disclosure requirements do not go far enough. These commenters suggested that contractors should be required to provide more information about each Labor Law violation than proposed by the Department, and argued that all of the information disclosed to contracting agencies should be compiled in a public, searchable database.

The Department recognizes that compliance with the Order's and the proposals' new requirements and processes will involve costs to contractors associated with the required representation and disclosures. These costs and burdens are addressed in the Regulatory Impact Analysis (RIA) that accompanies the final FAR rule. Accordingly, the Department does not specifically list and respond to each comment about costs and burdens in this final Guidance document. Likewise, comments asserting that the RIA in the proposed FAR rule was flawed are addressed by the FAR Council and therefore are not summarized or answered here.

C. Comments About Alternatives and the Need for the Order

Various industry commenters suggested that the Order and its requirements are unnecessary because any problems associated with Labor Law violations by Federal contractors can be addressed through existing rules and processes. Several commenters suggested that problems associated with Labor Law violations should be addressed in the existing suspension-and-debarment process instead of through the preaward responsibility process. Others suggested that the Order's disclosure requirements, specifically, are unnecessary because the government already obtains information about violations under the laws covered by the Order. These commenters argued that enforcement agencies already have the necessary information and that the disclosure requirements are duplicative of other reporting and information-gathering projects already in existence.

While these commenters have raised important issues, the Department does not believe that the Order is unnecessary or duplicative of existing processes. As an initial matter, the Department emphasizes that the purpose of the Order is to increase efficiency in contracting by encouraging compliance during contract performance, not to increase the use of suspension and debarment. The Order's new requirements and processes are designed to identify and help contractors address Labor Law violations and come into compliance before a contracting agency turns to the suspension-and-debarment process. The Order does not in any way alter the suspension-and-debarment process; however, the expectation is that its new requirements and processes will help contractors avoid the consequences of that process.

The Department believes that focusing on the preaward process—in addition to a functional suspension-and-debarment regime—is efficient for the government as well as for those contractors that are given the opportunity to avoid suspension or debarment. Without effective preaward screening, the government faces the difficult decision about whether to expend resources on suspending or debarring a company that may in fact not be planning to subsequently bid on a government contract.

And, as the chief construction inspector for the Los Angeles Bureau of Contract Administration has explained, front-end responsibility screening “is more effective and more beneficial to the public than a reactionary system. When you get a bad contractor on the back end, they've already done the damage, and then it's a costly process of kicking them out.”

See

Yuri Weigel, “Is `Protection' Always in the Best Interests of the Government?: An Argument to Narrow the Scope of Suspension and Debarment,” 81 Geo. Wash. L. Rev. 627, 660-61 (2013) (arguing that suspension and debarment are not always worth the administrative costs); HELP Committee Report,

supra

note 11 at 28-29 (discussing the inefficacies of the suspension and debarment process).

Sonn & Gebreselassie,

supra

note 16, at 476-77.

Moreover, when one Federal agency suspends or debars a contractor, that action applies across the entire Federal Government. The collateral consequences—both for a debarred contractor and for other contracting agencies that may need the services of that contractor—can be severe.

Thus, while the suspension-and-debarment process plays an important role in addressing significant concerns regarding an entity's responsibility and has a broad-reaching impact,

the preaward framework employed by the Order is an equally important tool, one that allows responsibility concerns to be addressed on a procurement-by-procurement basis with attendant benefits to both the government and the contracting community.

See

Robert Stumberg et al., “Turning a Blind Eye: Respecting Human Rights in Government Purchasing,” Int'l Corp. Accountability Roundtable, 39-40 (2014)

available at

http://icar.ngo/wp-content/uploads/2014/09/Procurement-Report-FINAL.pdf

;

see also

John B. Warnock, “Principled or Practical Responsibility: Sixty Years of Discussion,” 41 Pub. Cont. L.J. 881, 914 (2012) (“Government-wide debarment is punitive debarment to the extent that it disregards agencies' individual requirements and abilities to mitigate procurement risks.”).

In some cases, denying access to Federal contracts may in fact “be the only realistic means of deterring contractors from [labor violations] based on a cold weighing of the costs and benefits of non-compliance.”

Janik Paving & Constr., Inc.

Brock,

828 F.2d 84, 91 (2d Cir. 1987) (holding that the Department had authority to debar a contractor over violations of the Contract Work Hours and Safety Standards Act).

Recognition of the benefits of early detection and prevention underlies the existing Federal procurement rules that require disclosure and consideration of various non-labor violations at the preaward stage. A bidder must disclose

information such as tax delinquencies in excess of $3,500 and certain criminal convictions, indictments, civil judgments, and charges (for example, for violations of Federal or State antitrust statutes related to the submission of offers, commission of embezzlement, and making false statements); and a bidder with Federal contracts and grants totaling in excess of $10 million must additionally disclose information such as civil and administrative findings of fault and liability in connection with the award to or performance by the bidder of a Federal contract or grant.

See

FAR 52.209-5, 52.209-7.

By mandating preaward consideration of Labor Law violations, the Order does no more than treat such violations the same as these other existing responsibility red flags. By doing so, the Order will facilitate timely communication, coordination, and cooperation among Government officials—including contracting officers, suspending and debarring officials, and others—regarding responses to Labor Law violations to the fullest extent appropriate to the matter and permissible by law. By working together in this way, Federal Government agencies can better protect the government's interests in efficient contract administration and high-quality contract performance.

The Department also disagrees with the commenters that suggested the Order's disclosure requirements, specifically, are unnecessary and therefore unnecessarily burdensome. The Order's disclosure requirements are carefully tailored: It requires only a limited yes-or-no representation by all bidders and reserves the more detailed disclosure only for bidders for whom the contracting officer is making a responsibility determination—which most often is only the apparent awardee of the contract. The disclosure requirement is thus designed to request information from only those contractors for whom it is necessary in order for the contracting officer to assure that he or she is contracting with a responsible source, as required under existing law.

While some commenters stated that this disclosure requirement was unnecessarily burdensome, others found the Order's disclosure requirement to be appropriate. The National Employment Law Project, for example, argued that the contractor is “best positioned to furnish complete and accurate records about its labor violation.” The Department finds this argument to be persuasive. The Order requires disclosure of various categories of information that the Federal Government does not have in its possession, including information about State law violations, private litigation, and arbitration. Contractors are the best source of this information.

In addition, the Order balances the disclosure requirement with a parallel instruction for the Department to review its own data collection requirements and processes, and to work with the Director of the Office of Management and Budget, the Administrator for the General Services Administration, and other agency heads to improve those processes and existing data collection systems, as necessary, to reduce the burden on contractors and increase the amount of information available to agencies.

See

Order, section 4(a)(iii). As noted in the Initial Regulatory Flexibility Analysis that was part of the proposed FAR rule, this review and the related improvement to Federal databases has been initiated, and the Department is confident that it will ultimately be successful in further reducing the disclosure burden associated with the Order's disclosure requirements.

See

80 FR 30562. Until that time, however, the system of disclosure created under the Order is the most efficient and least burdensome method of making information about labor violations available to contracting officers.

See id.

D. Comments About the Legal Authority for the Order

The Department received a number of comments challenging the legal authority upon which the Order and the proposals were issued. The commenters alleged that several provisions of the Proposed Guidance were contrary to Federal law and constitutional principles. The Department briefly summarizes those arguments and provides the following response:

1. The Procurement Act

Several industry commenters questioned the President's use of the Federal Property and Administrative Services Act (the Procurement Act), 40 U.S.C. 101

et seq.,

as the legal authority for the Order. They argued that the Order and the proposals do not have the nexus to “economy and efficiency” in government procurement that courts have required for Executive action taken under the Procurement Act. The commenters argued that, instead, the Order will lead to higher procurement costs and a more burdensome procurement system. Commenters also questioned whether there is a relationship at all between labor law violations and poor contract performance.

After carefully reviewing these comments and the relevant case law, the Department disagrees with the commenters. The Order, the FAR rule, and this Guidance do not exceed the President's authority under the Procurement Act. 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 requisite nexus exists where the President's explanation for how an Executive order promotes efficiency and economy is reasonable and rational. As the Department discussed in the Proposed Guidance, the overall objective of the Order is to increase the government's ability to contract with companies that will comply with labor laws, thereby increasing the likelihood of timely, predictable, and satisfactory delivery of goods and services. The Department believes that agencies will benefit from additional information—through the new disclosure requirements—to better determine if a potential contractor is a responsible source.

The Order and the FAR rule provide ample basis for concluding that the goals of economy and efficiency in procurement are served. The RIA cites various studies showing a correlation between labor law violations and poor quality construction, low performance ratings, wasteful practices, and other performance problems.

And, by looking at contractors' recent violations of the law, Federal agencies can reasonably predict future behavior. As one academic study found, the existence of three or more prior violations of the law by a corporation is a “highly significant” predictor of subsequent illegal activity.

The President's explanation for how the Order promotes economy and efficiency is reasonable and rational. The final FAR rule and Department Guidance are therefore appropriate under the Procurement Act.

The Department notes that both a correlation and a causal relationship exist between labor law violations and contract performance. In predicting and explaining unlawful corporate behavior, many academic researchers have emphasized the problem, above all, of “top management in tolerating, even shaping, a corporate culture that allows for deviance.” William S. Laufer, “Corporate Liability, Risk Shifting, and the Paradox of Compliance,” 52 Vand. L. Rev. 1343, 1410-11 (1999) (citing various studies). Thus, in many cases, labor law violations and other harmful practices (such as contract fraud)—both of which cause poor contract performance—may all be symptoms of the underlying management failures or malfeasance.

Baucus & Near,

supra

note 25 at 27.

2. Separation of Powers

Several commenters argued that the Order and the proposals impinge on separation-of-powers principles. These arguments were presented in two ways: (1) The Order is preempted by the Labor Laws, and (2) the Order improperly amends Federal laws by creating new categories of violations and imposing new penalties. Several commenters focused specifically on the NLRA, citing court decisions in

Wis. Dep't. of Indus.

Gould, Inc.,

475 U.S. 282 (1986), and

Chamber of Commerce

Reich,

74 F.3d 1322 (D.C. Cir. 1996).

Various commenters also made a separation-of-powers type of argument about the Federal Arbitration Act (FAA) and the Order's limits on certain pre-dispute mandatory arbitration clauses. The Department is not providing guidance regarding that section of the Order and therefore does not address the legal arguments about the FAA. The FAR Council addresses FAA-related legal arguments in the preamble to its final rule.

After careful review of the comments and the law, the Department concludes that the Order does not offend separation-of-powers principles. The Department disagrees with the commenters who suggested that traditional preemption principles apply to Federal Executive actions. Rather, the appropriate question is whether the Executive action under the Procurement Act conflicts with some more specific statute Congress has enacted. An Executive action may not prohibit activity that Congress has explicitly declared permissible, or vice versa. Here, however, the Order and proposals do neither.

The Department also disagrees with the characterization of the Order as creating new categories of violations or a new penalty—the possibility of being found nonresponsible and denied government contract work. The Order does not materially alter the current procurement process. As discussed above in the background section, contracting officers already may consider Labor Law violations when assessing a contractor's responsibility. Other than requiring disclosure of Labor Law violations, the Order does no more regarding the responsibility determination process than provide additional assistance to contracting officers to assist them in carrying out their existing duties.

The purpose of the existing FAR responsibility determination is to evaluate conduct that may be remediable or punishable under other statutes. 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, receiving stolen property, and tax delinquencies, that are unlawful and separately punishable under existing Federal and State laws.

See

FAR 52.209-5(a)(1)(i)(B)-(D). Such reporting and consideration does not create a new penalty under those statutes because the purpose of these FAR provisions is not to penalize a contractor, but rather to assure that the government contracts with responsible parties as it carries out its proprietary business. For the same reason, the Order's express consideration of the Labor Laws does not create new categories of violations or new penalties.

Finally, the Department disagrees that this analysis applies differently to the NLRA than to the other Labor Laws covered under the Order. Courts have upheld various Executive orders absent a direct conflict with the NLRA's statutory provisions. The decisions in

Gould

and

Reich

relied upon by the commenters do not suggest otherwise. Those two decisions involved initiatives that directly targeted only NLRA-covered violations. Moreover, the

Gould

decision did not involve a Federal Executive order, but rather a State law, and one that the Court found to have “the manifest purpose” of enforcing the requirements of the NLRA and which could not even “plausibly be defended as a legitimate response” to local procurement needs. 475 U.S. at 291. The

Reich

decision did involve an Executive order, but one which the court found to have the intent and effect of depriving contractors of the ability to hire permanent replacements during a strike—something that “promise[d] a direct conflict” with the NLRA. 74 F.3d at 1338. In both cases, the courts found that the provisions at issue were intended to affect the relationship between management and organized labor as opposed to seeking to advance a narrow proprietary interest with a close nexus to achieving economy and efficiency in Federal procurement. In contrast, here the Order endeavors only to treat the NLRA no differently than any of the other 13 covered Labor Laws. Thus, unlike in

Gould

and

Reich,

the inclusion of the NLRA in the Order here demonstrates the Order's intent to promote the government's proprietary interest in efficient contracting in an evenhanded manner.

3. Due Process

Many industry commenters expressed concern that that the Order and the proposals do not provide contractors with constitutionally sufficient due process protections. For example, two employer representatives argued that the Order and the proposals could infringe upon protected liberty interests because an adverse responsibility determination could harm a prospective contractor's reputation. Others argued that a contractor's protected property interests may be infringed where postaward violations lead to an adverse action such as the non-renewal of an option, contract termination, or debarment.

The Department agrees that the preaward responsibility determination, the exercise of postaward contract remedies, and the suspension-and-debarment process each require consideration of a contractor's right to due process. However, the Department emphasizes that neither the Order nor the Guidance diminish the existing procedural safeguards already afforded to prospective contractors during the preaward responsibility determination or to contractors after they have been awarded a contract. Moreover, the Order does not infringe upon liberty or property interests because contractors receive notice that the responsibility determination is being made and are offered a pre-decisional opportunity to be heard by submission of any relevant information—including mitigating circumstances related to any Labor Law violation that must be disclosed.

Finally, nothing in the Order diminishes contractors' post-decisional opportunity to be heard through existing administrative processes and the Federal courts.

See

FAR 22.2004-2(b)(1)(ii). Several commenters argued that the definition of administrative merits determination will be costly because it will force contractors to litigate a Labor Law violation in two separate fora—first, in front of the enforcement agency that has made the determination; and, second, by submitting mitigating circumstances to a contracting officer when submitting a bid. While mindful of the additional costs that this process may entail for some contractors, the Department submits that contractors' opportunity to provide relevant information (including mitigating circumstances) during the responsibility determination addresses the due process concerns raised by the employer associations.

Various commenters also challenged the Proposed Guidance's definition of administrative merits determinations, claiming that requiring contractors to report nonfinal and appealable allegations denies them due process. Commenters asserted that a contractor may feel pressured to negotiate or sign a labor compliance agreement and forgo a challenge to a nonfinal administrative merits determination in order to receive a pending contract.

The Department has carefully considered this argument, but does not believe that the specific requirement to

disclose nonfinal administrative merits determinations violates contractors' rights to due process. Though the Order and FAR rule (and therefore the Guidance) place value on a contractor's effort to remediate violations through a settlement or labor compliance agreement, neither contains any requirement that a contractor must settle all open cases in order to be found responsible and receive a contract award—a fact that the Department has emphasized in the final Guidance.

See

Guidance, section III(B)(1)(a). Similarly, the final Guidance also emphasizes that a contractor may enter into a labor compliance agreement while at the same time continuing to contest an underlying Labor Law violation.

See id.

section III(C)(1). Because a contractor is not required to forgo the right to appeal any nonfinal Labor Law violation in order to secure a Federal contract, the requirement to disclose nonfinal violations clearly does not violate due process.

4. The Administrative Procedure Act

Some commenters argued that the Guidance does not comply with the Administrative Procedure Act (APA), 5 U.S.C. 553(b). They asserted that the Guidance is, in effect, a legislative rule that requires notice and comment. The Department has reviewed these comments and finds them to be without merit. The Guidance is not a legislative rule; it does not bind private parties or agency officials, and it does not meet the four-part test for a legislative rule that would require notice and comment.

See Am. Mining Cong.

Mine Safety & Health Admin.,

995 F.2d 1106, 1109 (D.C. Cir. 1993).

First and foremost, the Order provides an independent and adequate basis for enforcement, apart from the Guidance.

See Am. Mining,

995 F.2d at 1112. The Order and the FAR Council rule provide disclosure and process requirements that bind private parties and agency officials. The Guidance only supplies additional clarity to these requirements through the Department's interpretation of certain terms of the Order and narrative description of the process. Second, the Department has not explicitly invoked its general legislative authority.

See id.

Rather, it has acted to create a guidance document at the explicit instruction of the Order itself.

See

Guidance, section I(B). Third, the Guidance does not effectively amend the Order or any regulations; rather, it is consistent with their requirements. An agency action “does not, in this inquiry, become

an amendment merely because it supplies crisper and more detailed lines than the authority being interpreted.”

Am. Mining,

995 F.2d at 1112. Finally, the Guidance will not be published in the Code of Federal Regulations.

See id.

Moreover, even if the Guidance were considered to be a legislative rule, the Department met the APA's procedural requirements by publishing the Proposed Guidance in the

Federal Register

and soliciting and considering comments before issuing the final Guidance.

In another set of comments directed at procedural aspects of the Guidance, a few employer groups raised concerns that the impact of the Guidance could not be properly assessed because the Department decided to identify only a small number of the State laws equivalent to the 14 Federal laws listed in the Order and to leave the remaining State laws for a subsequent guidance document. One commenter also stated that the Proposed Guidance did not contain a sufficient justification for this two-step process, suggesting that the final Guidance cannot be upheld unless the Department provides appropriate reasons for delaying the identification of equivalent laws. The Department has reviewed these comments and finds that they are premature and without merit. The Department has identified in this Guidance that OSHA State Plans are equivalent State laws; but the Department has decided to delay the identification of additional equivalent State laws as part of the phase-in of the Order's requirements that will allow contractors and contracting agencies time to adjust to the new requirements. The comments also do not account for the fact that the additional guidance released in the future will also be submitted as a proposal with an opportunity for comment and accompanied by a proposed amendment to the FAR and a Regulatory Impact Analysis.

Finally, one employer advocacy group commented that the Order directs the Department to issue guidance regarding only a single portion of the paycheck transparency provision, which is the identification of substantially similar State wage-statement laws. This commenter, Equal Employment Advisory Council (EEAC), requested clarification regarding what authority the Department has for issuing the “guidance, binding or not, on the additional provisions of the paycheck transparency provision.” The commenter misunderstands the reason that the Department addressed all aspects of the paycheck-transparency requirements in the Proposed Guidance. The Department intends the Guidance to be a stand-alone document that will be helpful to agency officials and contractors as they implement the requirements in the Order and the FAR rule. Accordingly, the Department has included in the final Guidance a description of the requirements of the Order and the FAR—regardless of whether the Order specifically required the Department to provide guidance on those specific provisions.

Section-by-Section Analysis

In addition to submitting general comments, commenters also commented on specific elements of the Proposed Guidance. The Department appreciates the effort from these commenters to carefully review the Order and the Proposed Guidance. The Department now modifies the final Guidance in response to those comments in a number of areas. The comments, responses, and modifications are summarized below in a section-by-section analysis.

I. Purpose and Summary of the Order

Section I of the Guidance is an introduction that explains the purpose of Executive Order 13673, briefly summarizes the legal authority for the Order and the existing FAR rules to which the Order applies, and recites a summary of the new requirements and processes contained in the Order. The subsection on legal authority specifically identifies the Procurement Act, 40 U.S.C. 101

et seq.,

as providing the statutory authority for the Order.

The Department received a number of comments questioning whether the Order would achieve its stated purpose of increasing economy and efficiency in Federal procurement, and—as a related matter—whether the President was justified in issuing the Order under the Procurement Act. As discussed above, the Department disagrees with those commenters that have questioned the purpose of and authority for the Order. The Department therefore concludes that it is not necessary to amend this section in response to these comments. The Department does, however, amend section I of the final Guidance to include the discussion of the purpose of the Order previously included in another section of the Proposed Guidance, to conform the summary to changes made to the FAR rule, to add language reiterating that the Guidance is not a legislative rule, and to improve its clarity.

II. Preaward Disclosure Requirements (Formerly “Disclosure Requirements”)

During both the preaward and postaward periods, the Order requires contractors and subcontractors

(collectively, “contractors”) to disclose administrative merits determinations, civil judgments, and arbitral awards or decisions rendered for violations of the Labor Laws (collectively, “Labor Law decisions”).

Section II of the Guidance assists agencies in interpreting the preaward disclosure requirements in the Order and the FAR rule.

Because the FAR rule governs the requirements discussed below, the Department has modified the Guidance to parallel changes made in the final FAR rule and has included additional descriptions of the rule's requirements to assist contractors and contracting agencies.

The Department has made several nonsubstantive changes to the Guidance in the disclosure section for clarity. The final Guidance now uses “contractors” to refer to both prime contractors and subcontractors; where relevant, however, the distinction between prime contractors and subcontractors is noted. In addition, the Guidance now refers to a contractor's requirement to provide information as “disclosure” instead of “reporting.” This change is intended only for consistency with the language of the FAR rule.

The Department has summarized the FAR's rules on postaward disclosures and assessment in section IV of the Guidance. The comments regarding the postaward process are discussed in a parallel section below.

Covered Contracts (Formerly “Who Must Make Disclosures Under the Order”)

The first part of section II of the Guidance discusses the types of contracts covered by the Order and the scope of a contractor's requirement to disclose Laboe Law decisions. These types include contracts between Federal agencies and prime contractors that meet certain conditions (covered procurement contracts). And they include subcontracts that meet similar, but not identical, conditions (covered subcontracts). The Guidance uses the term “covered contract” to refer to both covered procurement contracts and covered subcontracts.

The Department received several comments requesting that the definition of the various types of covered contracts be amended. One industry commenter, the Aerospace Industries Association (AIA), suggested that all commercial item contracts—and especially commercial item subcontracts—should be excluded from the Order's disclosure requirements. AIA noted that the Order does expressly exclude subcontracts for commercially available off-the-shelf items (COTS), and it asserted that there is no basis for distinguishing between contracts for COTS items and contracts for commercial items. It noted that there is a “major government initiative” to increase government acquisition of commercial items.

The Department declines to amend the Guidance as suggested. The definition of covered contracts is within the jurisdiction of the FAR Council. As the FAR Council indicates in the preamble to its final rule, the plain language of the Order does not provide for a blanket exclusion of commercial item contracts, which are distinct from COTS contracts in the FAR. The Order expressly excludes contracts for COTS items from covered subcontracts,

see

Order, section 2(a)(iv), and does not specifically address commercial items. Had the Order intended to also exclude contracts for commercial items, it would have done so expressly. The Guidance thus adopts the proposed definitions of “covered procurement contracts,” “covered subcontracts,” and “covered contracts;” and the Department has added additional language to highlight the applicability of the Order to procurement contracts for both COTS and commercial items.

The Department also received multiple comments about the definition of a “contractor” in this section. The Proposed Guidance explained that references to “contractors” include both individuals and entities and both offerors on and holders of contracts. Several employer organizations asked the Department to clarify whether this definition of “contractor” requires parties bidding on or holding covered contracts to disclose the violations of their parent corporations, subsidiaries, or affiliates. One commenter, the U.S. Chamber of Commerce, suggested that the Guidance the term contractor be limited to mean “the entity that legally executes a contract with the Government” and should not include “affiliated legal entities.” Another commenter, the Society for Human Resource Management et al., recommended that disclosure be at the Commercial and Government Entity (CAGE) Code level because it would be less burdensome and because any alternative would not be reasonably related to the responsibility of the “specific entity that will perform the federal contract.” Other industry commenters requested clarity on which entity is obligated to report the violations of affiliated entities after acquisitions, spinoffs, and mergers occur and any violations that occurred at facilities no longer in use.

In contrast, union and worker-advocacy organizations suggested that the Guidance define “contractor” to expressly include a contractor's affiliates and/or recommended that the Guidance otherwise require contractors to report the Labor Law violations of their affiliates. Some recommended that the Guidance use the FAR definition of “affiliates” at FAR 2.101, which defines “affiliates” in the context of direct or indirect control of an entity or business.

The Department declines to amend the definition of “contractor” in the final Guidance. The applicability of the Order's disclosure requirements to a contracting entity's corporate affiliates is within the jurisdiction of the FAR Council. As the FAR Council indicates in the preamble to its final rule, the scope of prime contractor and subcontractor representations and disclosures follows the general principles and practice of the FAR that are the same for other FAR provisions requiring representations and disclosures. 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. Consistent with current FAR practice, representations 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. The Department additionally notes that the Order's disclosure requirements do not amend the existing FAR provisions regarding the relationship between a contractor's affiliates and its responsibility. The FAR continues to require contracting officers to consider all relevant information when reviewing a contractor's responsibility—including the past performance and integrity of a contractor's affiliates when they affect the prospective contractor's responsibility.

See

FAR 9.104-3(c).

The Department also received comments specifically directed at “covered subcontracts.” In the final Guidance, the Department created a new section dedicated specifically to subcontractor responsibility.

See

Guidance, section V. The comments about subcontract coverage are addressed in a parallel section of the section-by-section analysis below.

Labor Law Decisions (Formerly “What Triggers the Disclosure Obligations”)

The second part of section II discusses the categories of Labor Law decisions that contractors must disclose. The Order requires contractors to disclose Labor Law decisions rendered against them within the preceding 3-year period for a violation of the Labor Laws.

See

Order, sections 2(a)(i), 2(a)(iv)(A). The Proposed Guidance interpreted the relevant 3-year period to be the 3-year period preceding the date of the offer, contract bid, or proposal. 80 FR 30574, 30578. Labor Law decisions rendered

during that 3-year period must be disclosed even if the underlying unlawful conduct occurred more than 3 years prior to the date of the report.

See id.

The Proposed Guidance further explained that contractors must disclose Labor Law decisions that were issued during the relevant 3-year period even if they were not performing or bidding on a covered contract at the time of the decision.

Id.

at 30578-79.

Timing of the Initial Representation Requirement

The FAR Council proposed rule provided that, consistent with the Order, all “offerors” must initially represent at the time of their bids whether they have decisions that must be disclosed.

See

80 FR 30552. One industry commenter proposed that only the contractor selected for an award of the contract should have to make the initial representation required by the Order. The FAR rule reasonably creates a two-step process requiring an initial representation equivalent to “yes or no.”

See

FAR 22.2004-1(a). And only contractors for whom a contracting officer will initiate a responsibility determination must make more detailed disclosures.

Id.

This staggered process provides an appropriate balance by requiring detailed disclosures only from offerors for whom the contracting officer is conducting a responsibility determination.

The 3-Year Disclosure Period

Several commenters addressed the 3-year disclosure period. For example, the Aerospace Industries Association (AIA) argued that, at least with respect to administrative merits determinations, “only those determinations based on conduct that occurred or ceased within the prior three years” should be disclosed. However, the Order states that contractors must disclose violations “rendered against” the contractor within the 3-year disclosure period. Order, sections 2(a)(i), 2(a)(iv)(A). This language clearly refers to the date of the Labor Law decision, as opposed to when the underlying conduct occurred. The final Guidance includes an additional example to illustrate this principle.

The Council of Defense and Space Industry Associations (CODSIA) requested that the period of coverage for the disclosure requirements be reduced to 6 or 12 months. The plain language of the Order provides for a 3-year disclosure period,

see

Order, section 2(a)(i); thus it is not possible to permanently reduce the disclosure period. However, as described in section VIII of the Guidance and the corresponding section of the section-by-section analysis below, the final FAR rule phases in the disclosure period so that the full 3-year period will not be fully effective until October 25, 2018.

Proposal To Add Labor Laws

Some commenters suggested requiring disclosures for violations of statutes other than the enumerated Labor Laws. For example, the United Food and Commercial Workers International Union (UFCW) proposed adding “the anti-discrimination provisions of the Immigration and Nationality Act as amended by the Immigration Reform and Control Act of 1986 which are codified at [8 U.S.C. 1324b].” Two labor union commenters urged the Department to require disclosure of safety-and-health violations under statutory authority separate from the OSH Act, such as the Atomic Energy Act, 42 U.S.C. 2282c.

Although the Order does not require the disclosure of violations of other Federal occupational safety-and-health statutes, such violations may be otherwise considered during the contracting process. For example, a contractor may bid on a Department of Energy contract for which the work will be covered by the Atomic Energy Act rather than the OSH Act. Such a contractor, however, may be performing work, or has performed work, that is covered by the OSH Act for another government agency or in the private sector. It is clear from the plain terms of the Order that a contractor, when bidding on a contract, must disclose any violations of the OSH Act, even if the work for which the contractor is bidding will not be covered by the OSH Act.

The Department declines to adopt these proposals. The Order specifically identifies 14 Federal laws and Executive orders for which violations must be disclosed. Order, section 2(a)(i)(A)-(N). The Department cannot alter the list of laws covered by the Order.

Disclosure of Criminal Violations

The Center for American Progress Action Fund (CAPAF) requested clarification as to whether the Order requires disclosure of criminal violations of the Labor Laws, as the FLSA, the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), and the OSH Act provide for criminal sanctions. CAPAF is concerned that, if not, there would be a “significant loophole.”

The Department declines to modify the final Guidance in response to this comment. The Order does not reference criminal violations of the Labor Laws. The Order requires disclosure only of a civil judgment, arbitral award or decision, or administrative merits determination, and a criminal conviction is not encompassed within those terms.

While disclosure of criminal convictions is not required under the provisions of the Order, the Department notes that the FAR does require contractors to disclose criminal convictions in certain circumstances.

See

FAR 52.209-7.

OSHA State Plans

The Order directs the Department to define the State laws that are equivalent to the 14 identified Federal labor laws and Executive orders. Order, section 2(a)(i)(O). The Proposed Guidance stated that OSHA-approved State Plans are equivalent State laws for purposes of the Order's disclosure requirements because the OSH Act permits certain States to administer OSHA-approved State occupational safety-and-health plans in lieu of Federal enforcement of the OSH Act.

See

80 FR 30574, 30579.

Several commenters addressed the inclusion of OSHA-approved State Plans as equivalent State laws. One labor organization commenter agreed that State Plans are equivalent to the OSH Act, as the State Plans function in lieu of the OSH Act in those States, and the National Council for Occupational Safety and Health (National COSH) called it “essential” to the Order's purpose that both the OSH Act and “its state law equivalents” be included.

In contrast, the U.S. Chamber of Commerce argued that the State Plans are not equivalent State laws. The Chamber noted that while State Plans must be “at least as effective” as the Federal OSHA program,

substantial differences nevertheless exist, because some State Plans “impose requirements . . . that are not required by, or differ from, federal law.”

See

Section 18(c) of the OSH Act, 29 U.S.C. 667 (c).

The Department declines to modify this aspect of the Proposed Guidance. As an initial matter, the Department interprets the Chamber's comment to suggest that a State law must be identical to be considered “equivalent” under the Order. The Department notes that other commenters emphasized that “equivalent” does not equate to “identical.” The Department agrees with these commenters; requiring equivalent State laws to be identical would be underinclusive because State laws are rarely if ever identical to Federal laws.

The Department finds State Plans to be equivalent to the OSH Act because they perform the same functions as OSHA—setting standards, conducting enforcement inspections, and issuing citations. OSHA has only limited enforcement authority in those twenty-two States with State Plans, so failing to include OSHA State Plans as equivalent State laws would lead to a gap in disclosure for safety-and-health violations in those States under the Order. Including the State Plans results

in a more level playing field than would excluding them. For these reasons, the Guidance adopts the inclusion of OSHA-approved State Plans as equivalent State laws. The Guidance now also includes additional resources about State Plans and a link to a list of OSHA-approved State Plans on the OSHA Web site.

Disclosure of All Relevant Violations

Several industry commenters objected to disclosing Labor Law violations where the underlying conduct did not occur in the course of performance of a Federal contract. In contrast, several employee-advocacy groups supported requiring contractors to disclose Labor Law violations regardless of whether the violation arose from the performance of a Federal contract.

The Order's disclosure requirement does not distinguish between violations committed during performance of a Federal contract and those that are not.

See

Order, sections 2(a)(i), 2(a)(iv)(A). The Order aims to incorporate the full picture of a contractor's Labor Law compliance into the responsibility determination process. A contractor's past performance—whether in the course of performing a Federal contract or not—is an indicator of the contractor's future performance.

It is also relevant to a determination of the contractor's integrity and business ethics. The existing responsibility determination process already requires contractors to disclose unlawful conduct that may not have occurred during work on government contracts. FAR 52.209-5(a)(1)(i)(B)-(D). Thus, contractors must disclose any Labor Law decision issued for a violation of the Labor Laws, even if the violation was not committed in the performance of work on a Federal Government contract or subcontract. Because some commenters thought this was not clear in the Proposed Guidance, the Department modifies the Guidance for clarity.

This principle is the same one a contractor uses when conducting a review of prospective subcontractors. A contractor would consider any prior misconduct or performance problems by the subcontractor, regardless of where the problems occurred and for which contractor the subcontractor was working at the time they occurred.

Violations Related to Actions or Omissions of a Federal Agency

Several industry commenters suggested that contractors should not be required to disclose Labor Law violations that result from actions or omissions of the contracting agency. For example, two such commenters cited a wage violation resulting from the failure of the contracting agency to include the applicable clause or wage determination in the contract. Furthermore, although one trade association commenter and one advocacy organization commenter acknowledged that the Proposed Guidance would allow contractors to present additional information and mitigating factors along with the disclosed violation, they expressed concern that the information will not be properly evaluated.

The Department declines to adopt the proposed changes to the Guidance. It recognizes that some Labor Law violations may result where a Federal contract did not include a required clause or wage determination. Whatever the reason for the failure to include the required clause or wage determination, a violation still occurred.

See, e.g.,

41 CFR 60-1.4(e) (stating that the Executive Order 11246 equal opportunity clause “shall be considered to be a part of every [covered] contract . . . whether or not it is physically incorporated in such contracts”). Thus, the Department believes the better approach is to take this information into account as a mitigating factor, rather than to make exceptions to the disclosure requirements.

The Proposed Guidance was clear that contractors are encouraged to submit any additional information they believe may be helpful in assessing the violations at issue—particularly mitigating information. The Proposed Guidance stated that mitigating factors can include situations where the findings of the enforcement agency, court, arbitrator, or arbitral panel support a conclusion that the contractor acted in good faith and had reasonable grounds for believing that it was not violating the law. 80 FR 30574, 30591. As discussed below, the Guidance lists “good faith and reasonable grounds” as a mitigating factor that weighs in favor of a recommendation that a contractor has a satisfactory record of Labor Law compliance. That discussion specifically provides the example of a situation where a violation is caused by the failure of a contracting agency to include a required clause in the contract.

Disclosure of “Relatively Minor” Violations

The Association of General Contractors (AGC) suggested that it is “burdensome and unfair” to require the disclosure of “relatively minor violations” that are not serious, repeated, willful, or pervasive as defined by the Department. Because only violations deemed serious, repeated, willful, or pervasive bear on the assessment of the contractor's integrity and business ethics, AGC recommended that only those violations should be disclosed.

The Department declines to adopt AGC's proposal. The Order plainly requires contractors to disclose all violations of the Labor Laws that result in Labor Law decisions. The disclosed violations are then classified as serious, repeated, willful, and/or pervasive—or not.

See

Order, sections 2(a)(i), 2(a)(iv)(A), 4(a)-(b). Only those violations classified as serious, repeated, willful, and/or pervasive will be considered as part of the weighing step and will factor into the ALCA's written analysis and advice. Violations determined by the ALCA to not be serious, repeated, willful, or pervasive will be annotated as such in the analysis that the ALCA provides to the contracting officer.

Disclosure of Violations That Are Subsequently Settled

Jenner & Block LLP commented that it was unfair to require disclosure of violations that have been settled, thus rendering them “potentially sanctionable[ ] event[s].” According to the comment, doing so would cause “the Federal government to violate its own contractual obligations” when there is a non-admission provision in the settlement agreement.

The Department declines to amend the Guidance's treatment of settled violations. The Order requires the disclosure of violations, and the fact that a violation was subsequently settled does not negate the fact that the enforcement agency, after a thorough investigation, found a violation to have occurred.

In some settlements, the enforcement agency may agree as part of the settlement to vacate a prior administrative merits determination. In such a case, the settlement would have the same effect as a court decision reversing or vacating the original violation. As the Guidance notes, in such a circumstance, the contractor does not need to disclose the original Labor Law decision.

See

Guidance, section II(B)(4).

Unless an enforcement agency has agreed to vacate or rescind the underlying violation entirely, however, the contractor must still disclose the related Labor Law decisions when required by the Order, notwithstanding any settlement agreement. A non-admission provision, for example, does not generally involve an enforcement agency's agreement to withdraw any finding of a violation. Thus, a non-admission provision does not affect the

existence of any prior Labor Law decision, and therefore does not change the Order's requirement that a contractor must disclose any Labor Law decision that preceded the settlement. Similarly, an enforcement agency will not include, and an ALCA will not consider, language in a settlement agreement purporting to determine or affect whether a violation or related Labor Law decision must be disclosed under the Order.

Nor will an enforcement agency include, or an ALCA consider, language in a settlement agreement purporting to determine how a violation will be classified under the Order (

e.g.,

language stating that, for the purposes of the Order, the violation was not serious, willful, repeated, or pervasive).

Although settlement agreements will not affect a contractor's disclosure requirements under the Order, a settlement agreement may be an important factor in the ALCA's overall assessment of the contractor's compliance record. The Order requires ALCAs to consider steps taken to correct the violation or improve compliance, and the Guidance accordingly provides that the remediation of a Labor Law violation through a settlement agreement is an important mitigating factor that can weigh in favor of a satisfactory record of Labor Law compliance.

See

Guidance, section III(B)(1).

Comments About Specific Subsections

The Order instructs the Department to define the three categories of Labor Law decisions that must be disclosed: “administrative merits determination,” “civil judgment,” and “arbitral award or decision.” Order, section 2(a)(i).

1. Defining “Administrative Merits Determination”

In the Proposed Guidance, the Department described an administrative merits determination as including

notices or findings—whether final or subject to appeal or further review—issued by an enforcement agency following an investigation that indicates that the contractor or subcontractor violated any provision of the Labor Laws.

80 FR 30574, 30579-80.

The Department defined “enforcement agency” as including the Department and its agencies—OSHA, WHD, and the Office of Federal Contract Compliance Programs (OFCCP). Enforcement agencies also include the Occupational Safety and Health Review Commission (OSHRC); the Equal Employment Opportunity Commission (EEOC); the National Labor Relations Board (NLRB); and certain State agencies.

The Department identified the specific notices and findings issued by these agencies that are administrative merits determinations. The Department provided that administrative merits determinations also include “a complaint filed by or on behalf of an enforcement agency with a Federal or State court, an administrative judge, or an administrative law judge alleging that the contractor or subcontractor violated any provision of the Labor Laws,” and “any order or finding from any administrative judge, administrative law judge, the Department's Administrative Review Board [(ARB)], the [OSHRC] or State equivalent, or the [NLRB] that the contractor or subcontractor violated any provision of the Labor Laws.” 80 FR 30574, 30579-80. This list of notices, findings, and documents was an exhaustive one.

a. Inclusion of Nonfinal and Appealable Decisions

A number of industry commenters objected on due process and related grounds to the inclusion of nonfinal and appealable decisions in the definition of “administrative merits determination.” These commenters characterized such determinations as “allegations.” One form comment submitted by various employers and employer groups asserted that requiring disclosure of nonfinal agency actions could cause contractors to lose a contract because of cases that are not yet fully adjudicated. The form comment stated that this would infringe upon Federal contractors' due process rights.

These commenters also argued that the notices, findings, and documents identified as administrative merits determinations in the Proposed Guidance often reflect mistakes by the enforcement agencies and/or are often reversed or settled, and that requiring disclosure of nonfinal and appealable determinations assumes that contractors are guilty until proven innocent. One form comment asserted that a number of the proposed administrative merits determinations are “routinely overturned once the initial determination is challenged.” A few of these commenters asserted that the disclosure of “nonfinal allegations” may cause economic and reputational harms to contractors, particularly if the reported violation is later reversed.

For these commenters, administrative merits determination should include only final and adjudicated agency decisions. Jenner & Block, in a representative comment, suggested that only “final decision[s] of administrative bodies with quasi-judicial authority” should be administrative merits determinations. These commenters suggested that such a limit might include only decisions of administrative bodies such as OSHRC or the ARB, and those decisions of individual administrative law judges that are not appealed and therefore become final agency actions.

Several commenters, including the Society for Human Resource Management, the Council for Global Immigration, and the College and University Professional Association for Human Resources, also noted that the FAR Council's “Contractor Responsibility” rulemaking in 2000 ,

which was later rescinded, would have required the reporting of “adverse decisions by federal administrative law judges, boards or commissions” but not “preliminary agency assessments.” One industry commenter asserted that the FAR Council previously rejected the notion that nonfinal allegations should influence the procurement process.

Federal Acquisition Regulation; Contractor Responsibility, Labor Relations Costs, and Costs Relating to Legal and Other Proceedings, 65 FR 80256 (Dec. 20, 2000).

In contrast, union and worker-advocacy commenters supported the scope of agency determinations included in the proposed definition of administrative merits determination. For example, Change to Win (CTW) emphasized its strong support for including initial agency findings in the responsibility inquiry because, otherwise, violations would go undisclosed while “awaiting the outcome of potentially and often frivolous employer challenges to such findings and orders.” Another commenter, North America's Building Trades Unions (NABTU), explained that:

[t]he fact that a government enforcement agency has decided, after conducting an investigation, to pursue a citation, complaint or other action against a contractor is a signal of potential serious problems that could go unreported if the contractor were permitted to wait until the case is completely adjudicated—a process that can take years[.]

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, section 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.

If the Department limited its definition of administrative merits determination solely to findings of an ALJ, board, or commission, then thousands of uncontested enforcement agency determinations that Labor Laws have been violated would go undisclosed. For example, most WHD determinations that the FLSA's minimum wage and/or overtime provisions have been violated are never contested before an adjudicative body; rather, they are resolved prior to any litigation by the employer agreeing to pay the back wages reflected in a WH-56 form. Likewise, 89.1 percent of citations issued by OSHA between October 1, 2012 and September 30, 2015 were not contested or were settled using OSHA's informal settlement agreements or expedited informal settlement agreements.

And, at the NLRB, the settlement rate for meritorious unlawful labor practices cases was 92.4 percent in fiscal year 2015.

This information and additional information below regarding OSHA citations were compiled from citations issued by Federal OSHA offices (as opposed to by State agencies under OSHA-approved State Plans) and recorded in OSHA's Information System.

NLRB, “NLRB FY 2015 Performance and Accountability Report” 36,

https://www.nlrb.gov/sites/default/files/attachments/basic-page/node-1674/14445%20NLRB%20PAR%202015%20v2_508.pdf

Moreover, a narrower definition of administrative merits determination would also exclude all those initial agency determinations that a contractor is actively contesting. Excluding these determinations would in many cases result in a particularly long delay between the prohibited conduct and the obligation to disclose. For example, contested OSHA citations frequently take years to become final. In the interim, a contractor with many OSHA citations could secure Federal contracts without any consideration of those citations. In addition, the assertion by some commenters that administrative merits determinations are routinely overturned is not the case. For example, in fiscal year 2015 the NLRB's litigation success rate before ALJs and the Board was 88 percent, and 80 percent of Board decisions were enforced in whole or in part by courts of appeals.

An even smaller percentage of all OSHA citations—less than 2 percent—are later vacated.

Id.

at 36, 58.

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 Labor Law decisions are relevant to a recommendation regarding a contractor's integrity and business ethics. Only those that involve violations classified as serious, repeated, willful, and/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 Law decisions, 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.

See

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.

In addition, contractors are encouraged to disclose the subsequent reversal or modification of Labor Law decisions, which will reduce the potential impact of any erroneous administrative merits determination.

b. Specific Categories of Administrative Merits Determinations

In the Proposed Guidance, the Department enumerated an agency-by-agency list of notices, findings, and documents that will be considered to be administrative merits determinations. A number of commenters commented about these agency-specific lists.

WH-56 Summary of Unpaid Wages Form

The Proposed Guidance identified several types of documents issued by WHD, including a WH-56 “Summary of Unpaid Wages” form (WH-56 form), as administrative merits determinations.

See

80 FR 30574, 30579. Several industry commenters objected to the inclusion of the WH-56 form as an administrative merits determination. For example, one commenter, SAIC, stated that a WH-56 form is “not an admission of liability” but “a mechanism of settlement to resolve conflicts arising out of the investigation, and has been used as a practical and effective means of resolving complaints short of the litigation process.” Another commenter, Jenner & Block, argued that a WH-56 form is “not a `merits determination' at all,” “includes solely a list of names, dates, and dollars owed,” and “contains no description of the purported violation, and no findings regarding any investigation that may have preceded its issuance.” And another commenter, Jackson Lewis LLC, asserted that WH-56 forms are regularly issued “before the employer has been provided a full opportunity to refute the basis of alleged violations and/or back pay calculated by the DOL in connection with the alleged violation,” and are issued in a “speculative and inconsistent” manner.

One commenter, Littler's Workplace Policy Institute, stated that the Department “would require a contractor to report as an `administrative merits determination' a FLSA letter determination from the Wage and Hour Division, yet the agency has vigorously argued that such letters do not constitute final agency action that a company can challenge.” However, the Order does not indicate that the required disclosures be defined by reference to the Administrative Procedure Act. Rather, the Order requires the disclosure of “administrative merits determinations” and authorizes the Department to define that term.

The Department retains the WH-56 form as an administrative merits determination in the Guidance. WH-56 forms reflect WHD's determination that an employer violated one or more wage-and-hour laws and owes back wages. The WH-56 forms contain the specific amount of back wages due to each employee, the statute(s) violated, and the date(s) of the violation(s). WHD issues WH-56 forms only after an investigation—during which employers are given the opportunity to provide relevant information and articulate their legal position. Moreover, WHD's policy is to issue a WH-56 form only after the employer has been informed of the investigation findings, has been provided an opportunity to explain the reasons for the violation(s), has been advised of how to comply with the law(s) at issue, and, most importantly, has agreed to fully comply with the law(s) going forward. In almost every case when WHD issues a WH-56 form, there is no further violation determination by WHD, a court, or an ALJ; the WH-56 is almost always the final assessment of an employer's back wage liability. In 88.2 percent of cases concluded in fiscal years 2013 through 2015 in which WHD issued a WH-56 form after determining that a Labor Law was violated, the employer paid all or some (usually all) of the back wages due on the form.

This information was compiled from data recorded in the Wage and Hour Investigative Support and Reporting Database maintained by WHD. When the employer does not pay back wages due, it may be because it is unable to pay or refuses

to pay, or for some other reason. When the employer does not pay, the Department may pursue further action, including litigation.

OSHA Citations

The Proposed Guidance identified several types of documents issued by OSHA, including citations, as administrative merits determinations.

See

80 FR 30574, 30579. Some industry commenters opposed the use of OSHA citations as administrative merits determinations. For example, Jenner & Block, citing OSHA's regulations at 29 CFR 1903.14(a)-(b) and 1903.15(a), argued that “an OSHA citation is merely an `alleged violation,' not a merits determination,” and “is issued merely if an OSHA Area Director ‘

believes

’ that an employer has violated an OSHA law or regulation, not after a `determination' has been made” (emphasis in original). This comment emphasized that “when a contractor receives a citation, the employer has received very limited information about the enforcement agency's facts and legal position regarding the alleged violation . . . a citation is merely an allegation of violation of specified or general duty OSHA standards.” Associated Builders and Contractors asserted that “most OSHA citations are routinely changed after investigation and negotiation between the employer and the investigating agency, resulting in a lesser fine or type of citation.”

The Department retains the OSHA citation as an administrative merits determination in the Guidance. OSHA issues citations only after conducting inspections during which OSHA affords employers the opportunity to put forth their position. The OSHA regulations cited above simply recognize that, under the applicable administrative scheme, citations are not “final,” may be contested, and are “alleged” until they are made final—either by OSHRC adjudication or because they were not contested.

See

29 U.S.C. 659(a), (c). That does not mean that citations are not reasoned agency determinations that an OSH Act violation has occurred. Moreover, as the Supreme Court has recognized, OSHA citations can be entitled to deference:

The Secretary's interpretation of OSH Act regulations in an administrative adjudication, however,

agency action, not a

post hoc

rationalization of it. Moreover, when embodied in a citation, the Secretary's interpretation assumes a form expressly provided for by Congress.

Martin

OSHRC

, 499 U.S. 144, 157 (1991) (citing 29 U.S.C. 658) (emphasis in original).

Furthermore, contrary to some commenters' claims, OSHA citations are rarely overturned. Of citations issued between October 1, 2012 and September 30, 2015, 89.1 percent were not formally contested and either became final under 29 U.S.C. 659(a) or were settled using OSHA's informal settlement agreements or expedited informal settlement agreements. Of those that were contested, over one-half (58.7 percent) have settled, and the vast majority (82 percent) of those settlements upheld at least part of the citation. Of those that did not settle, the citation was upheld in the vast majority (81.6 percent) of contested cases that have been resolved by an ALJ, OSHRC, or a court as of April 2016 (some contested cases from the time period are ongoing), more often than not without any reduction in penalty. Less than 2 percent of all of the citations issued during the time period have been vacated.

OFCCP Show Cause Notices

The Proposed Guidance identified “a show cause notice for failure to comply” issued by OFCCP as an administrative merits determination.

See

80 FR 30,574, 30,579. OFCCP uses such notices to enforce the affirmative action and nondiscrimination rules in Executive Order 11246 and other laws.

Some industry commenters argued that OFCCP show cause notices should not be considered administrative merits determinations. For example, one commenter, Roffman Horvitz, objected to the inclusion of show cause notices because they are not “final agency determinations reviewable in the Federal courts under the Administrative Procedures Act.” According to this comment, OFCCP issues show cause notices to contractors at the outset of audits if the contractor does not provide the requested information within an initial 30-day period. The commenter alleged that OFCCP “has become extremely reluctant to grant extensions of time” of that period and “approaches conciliation with a take-it-or-leave-it attitude.”

Another commenter, DirectEmployers Association, stated that a show cause notice generally contains “alleged violations related to highly technical Affirmative Action Program drafting and recordkeeping issues, or a failure to engage in adequate outreach and recruitment of women and/or minorities.” This commenter asserted that a “very small minority of the [show cause notices] that OFCCP issues may also contain allegations of unlawful discrimination (typically fewer than in 2 percent of all OFCCP audits).”

The same commenter also stated that “routine” show cause notices are issued “

prior

to . . . completion of the investigatory phase of the audit” and “prior to considering the contractor's response to the agency's preliminary investigative conclusions” (emphasis in original). According to this commenter, “oftentimes the alleged violations raised in [a show cause notice] are voluntarily withdrawn by OFCCP,” “are resolved through conciliation, or are later dismissed by an administrative court.”

The Department retains the OFCCP show cause notice as an administrative merits determination. OFCCP issues a show cause notice when it determines that a contractor has violated one or more of the laws under OFCCP's jurisdiction.

See

Federal Contract Compliance Manual, ch. 8D01 (Oct. 2014). OFCCP issues fewer than 200 show cause notices per year, and issues them after a substantial process. OFCCP typically issues show cause notices after it has investigated, made findings, issued a notice of violation,

given the contractor an opportunity to respond, considered any response from the contractor, and attempted to resolve the issue through conciliation. OFCCP may issue a show cause notice if a contractor fails, after being requested by OFCCP, to submit the affirmative action plans or other information that it is required by law to maintain. Contrary to the commenter's assertion, OFCCP gives a contractor multiple chances, including extensions of time, to provide the requested information; and it gives a contractor the opportunity to explain its position before issuing a show cause notice. OFCCP must, if other efforts are unsuccessful, issue show cause notices in those few circumstances when contractors refuse to comply with their legal obligations to provide information. These obligations are crucial to OFCCP's ability to enforce its laws and investigate potential violations. Indeed, OFCCP cannot determine whether there was in fact unlawful discrimination until it receives the plans or other information that the contractor is required by law to maintain and provide.

Notices of violations are not administrative merits determinations under the Order.

EEOC Letters and Actions

The Proposed Guidance identified “a letter of determination that reasonable cause exists to believe that an unlawful employment practice has occurred or is occurring” issued by the EEOC and “a civil action filed on behalf of the EEOC” as administrative merits determinations.

See

80 FR 30574, 30579.

Several industry commenters objected. Some argued that reasonable cause letters are a preliminary action

and are not based on sound proof that a violation actually occurred. Some asserted that few reasonable cause findings result in a court complaint or an eventual judgment. Others noted that reasonable cause findings are often excluded as evidence in subsequent litigation because their prejudicial value outweighs their probative value.

The Department retains reasonable cause letters as a type of administrative merits determination. An EEOC reasonable cause determination reflects an assessment of a charge's merits: “that there is reasonable cause to believe that the charge is true,” 42 U.S.C. 2000e-5(b), based on information obtained in the investigation, including that provided by the employer,

see

EEOC, “What You Can Expect After a Charge is Filed,”

http://www.eeoc.gov/employers/process.cfm

. In fiscal year 2015, about 3.5 percent of charges filed with the EEOC resulted in reasonable cause determinations.

After making a reasonable cause determination, the agency transitions from its investigatory, fact-finding role to its role as a conciliator and, if conciliation efforts fail, the agency becomes a potential litigant with authority to file a lawsuit to protect the public interest, including to obtain relief for individuals harmed by the discriminatory practices on which reasonable cause was found. The agency does not revisit the reasonable cause determination in conciliation. Rather, the EEOC must try to “eliminate” the “alleged unlawful employment practice” through conciliation before it can sue. 42 U.S.C. 2000e-5(b).

The EEOC data in this paragraph and the following paragraph are available on the EEOC's Web site at

http://www.eeoc.gov/eeoc/statistics/enforcement/all.cfm

That the EEOC decides to sue in a relatively small percentage of cases in which it has found reasonable cause has little to no bearing on the determinations' merits. A large portion of reasonable cause determinations are conciliated.

See

42 U.S.C. 2000e-5(b) (describing the conciliation process). For example, in fiscal years 2014 and 2015 combined, the EEOC successfully conciliated 41 percent of its reasonable cause determinations. Because of limited resources, EEOC can file lawsuits in only a small proportion of cases where it finds reasonable cause. Rather, the EEOC decides which cases to litigate based on a range of factors, including “the wider impact the lawsuit could have on EEOC efforts to combat workplace discrimination.” EEOC, “Litigation Procedures,”

http://www.eeoc.gov/eeoc/litigation/procedures.cfm

. Thus, the Department concludes that it is appropriate to include EEOC reasonable cause letters as administrative merits determinations.

As mentioned above, the Proposed Guidance also included as an EEOC administrative merits determination “a civil action filed on behalf of the EEOC.” 80 FR 30574, 30579. This was unnecessary because the Proposed Guidance generally identified complaints filed by or on behalf of enforcement agencies with courts as administrative merits determinations. The Department eliminates this redundancy in the final Guidance.

NLRB Complaints

The Proposed Guidance identified “a complaint issued by any Regional Director” of the NLRB as an administrative merits determination. 80 FR 30574, 30579. Several industry commenters opposed this proposal, arguing that such complaints are only allegations. For example, one such commenter, the Littler Workplace Policy Institute, characterized such complaints as being based on “investigatory findings without judicial or quasi-judicial safeguards.” This commenter further argued that “[e]ven the [NLRB]'s own determinations are not self-enforcing, as section 10 of the NLRA makes clear, because only a court of appeals can enforce orders of the Board.”

Industry commenters also asserted that a relatively low percentage of complaints issued by NLRB Regional Directors result in NLRB determinations, and that even fully litigated NLRB decisions are often overturned by courts of appeals. And commenters stated that the NLRB sometimes pursues legal theories that have been rejected by some U.S. Courts of Appeals, meaning a contractor could be forced to disclose a decision involving conduct that some courts have ruled does not amount to a violation. Others argued that they must purposefully violate the NLRA in certain circumstances in order to test the validity of the NLRB's certification of a representation election in Federal court.

The Department retains the definition of administrative merits determinations for NLRA violations as proposed. The Department disagrees with the premise of the industry commenters' comments. As discussed above, the fiscal year 2015 NLRB settlement rate was 92.4 percent, the litigation success rate of General Counsel complaints before ALJs and the Board was 88 percent, and 80 percent of Board decisions were enforced in whole or in part by Courts of Appeals. The Department also disagrees that NLRB complaints should not be disclosed because some employers may purposefully violate the NLRA to “test” the validity of an election. Disclosure is only the first step in the Order's process; when disclosing Labor Law decisions, contractors are encouraged to submit all relevant information, including mitigating factors.

Some labor organizations suggested that the definition of “administrative merits determination” should be expanded. These commenters advocated including as administrative merits determinations those NLRB General Counsel findings in which the General Counsel notifies employers that it will issue a complaint absent settlement. The Department considers this addition to be unwarranted. If the General Counsel does issue a complaint, the complaint itself will be an administrative merits determination that must be disclosed. Accordingly, the Department maintains the definition as proposed.

Complaints Filed With Courts or Administrative Agencies

The list of administrative merits determinations in the Proposed Guidance included “a complaint filed by or on behalf of an enforcement agency with a Federal or State court, an administrative judge, or an administrative law judge alleging that the contractor or subcontractor violated any provision of the Labor Laws.” 80 FR 30574, 30579.

Several industry commenters criticized this category. One commenter, Jenner & Block, stated that a civil action “can

only

represent a set of allegations and can never be viewed as a determination on the merits” (emphasis added). Another commenter questioned whether the Department was justified in distinguishing between a government agency's complaint and a private litigant's complaint—as the latter was not included as an administrative merits determination.

The Department retains the Guidance as proposed. The distinction between complaints filed by an enforcement agency and complaints filed by private parties to initiate lawsuits is valid. Agencies pursue litigation only after fully investigating the case, soliciting the adverse party's position, and making efforts to resolve the matter. Thus, the filing of a complaint by an enforcement agency in court or before an administrative agency is an agency determination that the relevant law has been violated.

Moreover, the inclusion

of court complaints filed by or on behalf of enforcement agencies is necessary because some of the most egregious violations of the Labor Laws found by agencies may be enforced only through court actions depending on the particular Labor Law's enforcement scheme.

Jenner & Block asserted that including “civil actions as reportable events directly conflicts with

the terms of the Order, which requires only `civil

judgments'

to be reported.” (emphasis added). However, the Order separately requires “administrative merits determinations” to be disclosed, and for the reasons explained above, a complaint filed by an enforcement agency in court or before and administrative agency is an administrative merits determination even though it is not a civil judgment.

Finally, while it is true that not every complaint filed by an enforcement agency succeeds, the Department reiterates that the definition of administrative merits determination is relevant only to the initial disclosure requirement. The definition simply determines the scope of contractors' disclosure obligations—the first step in the Order's process. Not all disclosed violations are relevant to contractors' integrity and business ethics; only those that are serious, repeated, willful, and/or pervasive will be considered as part of the weighing step and will factor into the ALCA's written analysis and advice.

Retaliation Violations

Several commenters representing labor and worker advocacy organizations advocated that the definition of “administrative merit determinations” include notices or findings of violations of the anti-retaliation provisions of the OSH Act, 29 U.S.C. 660(c) (“Section 11(c)”), and the FLSA, 29 U.S.C. 215(a)(3) (“Section 15(a)(3)”). These anti-retaliation provisions are vital components to the enforcement of the OSH Act and the FLSA, and the Department did not intend to exclude them. The relevant administrative merits determination for these anti-retaliation violations is a complaint filed on behalf of the agency in court. As discussed above, such complaints are included in the Guidance's definition of “administrative merits determination.”

This would also cover the OSHA-approved State Plans that enforce their equivalents to section 11(c) through State courts. To the extent some State Plans enforce their anti-retaliation provisions through administrative processes, the relevant administrative merits determinations will be identified in the second guidance to be issued by the Department identifying the State laws that are equivalent to the Federal Labor Laws.

In addition to such court actions, WHD also may issue determination letters finding retaliation in violation of FLSA section 15(a)(3). The Proposed Guidance incorrectly limited the residual category of administrative merits determinations to “a letter indicating that an investigation disclosed a violation of sections six or seven of the FLSA . . .”

To assure that WHD letters finding a retaliation violation will be disclosed, the Department has revised the Guidance to remove the phrase “of sections six or seven.” Thus, a WHD determination letter finding

any

FLSA violation—not just minimum wage and overtime violations—is an administrative merits determination.

Sections six and seven refer to the FLSA's minimum wage and overtime provisions, 29 U.S.C. 206, 207.

One commenter expressed concern that violations of the anti-retaliation provisions of the statutes enforced by the EEOC may not meet the definition of administrative merits determinations because it is possible that retaliation is not an “unlawful employment practice.” The Department and the EEOC consider the phrase “unlawful employment practice” to include unlawful retaliation.

False Statement Violations Under the OSH Act

One commenter requested that the Guidance include violations of section 17(g) of the OSH Act, 29 U.S.C. 666(g), which prohibits knowingly making false statements in reports or other documents required to be maintained by the OSH Act, as violations that must be disclosed under the Order. False statement violations have only criminal sanctions under the OSH Act.

See id.

As discussed above, criminal convictions of the Labor Laws are not reflected in the administrative merits determinations, civil judgments, or arbitral awards or decisions that must be disclosed. The Department therefore declines to amend the Guidance as requested.

c. Settlements

Several commenters representing labor and worker advocacy organizations urged the Department to define administrative merits determination to expressly include settlements reached with an enforcement agency before the institution of legal proceedings, which would mean that contractor would be required by the Order to disclose any such settlements as “Labor Law decisions.” Commenters argued that their proposal would address a concern that employers might repeatedly negotiate preemptive settlements with an enforcement agency during an investigation, and thus avoid the issuance of a Labor Law decision that would otherwise have to be disclosed. In such situations, according to these commenters, these employers' apparently clean records would not reflect their repeated unlawful conduct. Another commenter agreed that settlements should not be considered reportable findings of violation, but argued that they should nevertheless be disclosed as part of a responsibility determination. Another sought clarification whether a settlement reached prior to a complaint being filed must be disclosed under the Order.

The Department maintains the Guidance as proposed. Settlements are not administrative merits determinations, and therefore contractors are not required by the Order to disclose them. The Department believes that the inclusion of settlements as administrative merits determinations could serve as a disincentive against settlements. Settlements at the earliest possible stage of a dispute are often the ideal outcome for both employers and their employees and the most efficient outcome for contracting agencies, as early settlements generally include improved compliance with the Labor Laws. The Department also notes that most settlements of agency investigations or enforcement actions follow or are accompanied by a notice or finding from the agency that meets the definition of an administrative merits determination. For example, OSHA settlements usually include the affirmation of citations. Those citations are

themselves

administrative merits determinations that must be disclosed. Likewise, settlements of FLSA investigations are often accompanied by a WH-56 form indicating WHD's determination that back wages are due because of an FLSA violation. The WH-56 form is an administrative merits determination and must be disclosed. However, any settlement agreement itself is not an administrative merits determination and therefore need not be disclosed.

Although settlement agreements are not administrative merits determinations, a settlement including remediation of violations is considered to be a mitigating factor that the contractor may choose voluntarily to disclose. As a result, in cases where a settlement accompanies or follows a Labor Law decision that must be disclosed, the Department anticipates that contractors will voluntarily disclose the settlement because it is in the contractor's interest to show that it has remedied the violation. As discussed in the preaward assessment and advice section of the Guidance, remediation of a violation is the most important mitigating factor in the weighing

process before an ALCA recommendation.

See

Guidance, section III(B).

In sum, the Department considers the addition of settlements themselves as a type of administrative merits determination to be unwarranted.

2. Defining “Civil Judgment”

The Proposed Guidance defined “civil judgment” as

any judgment or order entered by any Federal or State court in which the court determined that the contractor or subcontractor violated any provision of the Labor Laws, or enjoined or restrained the contractor or subcontractor from violating any provision of the Labor Laws.

80 FR 30574, 30580. The Proposed Guidance discussed the types of court judgments or orders that meet the definition of “civil judgment” and explained that a “private settlement where the lawsuit is dismissed by the court without any judgment being entered is not a civil judgment.”

Id.

The Proposed Guidance provided that “civil judgment” includes a judgment or order that is not final or is subject to appeal.

Id.

A number of industry commenters who objected to the inclusion of nonfinal agency determinations in the definition of administrative merits determination had similar concerns about the definition of civil judgment. They objected to defining civil judgments to include court judgments that are either nonfinal or still subject to appeal, and they were concerned that they could lose a contract as a result of a judgment that is later reversed. For these commenters, a civil judgment should include only final orders or judgments where all appeals have been exhausted or not pursued. In addition, several industry commenters objected to including preliminary injunctions.

The Department has carefully considered all of these comments and declines to limit the definition of civil judgment. The Proposed Guidance defined civil judgment to include some nonfinal and subject-to-appeal court judgments for the same reasons that it defined administrative merits determinations to include nonfinal agency determinations. In addition to those reasons, which the Department incorporates here as well, the Department notes that it would make little sense to exclude Federal court judgments that follow a full discovery process under the Federal rules simply because these judgments still may be subject to appeal or have been appealed to a Federal court of appeals.

The Department also reiterates that the Guidance's definition of civil judgment does not include all court decisions that are nonfinal. The Guidance's definition is limited to those judgments or orders in which the court “determined” that there was a Labor Law violation or “enjoined or restrained” a violation. This means that, for example, a court order denying an employer's motion to dismiss a complaint about an alleged Labor Law violation or an order denying an employer's motion for summary judgment would not be “civil judgments.” In both of those examples, the court has found only that it is possible that the complainant may be able to succeed later at trial; it has not made a determination that a Labor Law has been violated.

As several commenters noted, a type of nonfinal court order that the Department explicitly included as a civil judgment in the Proposed Guidance is a preliminary injunction that “enjoins or restrains a violation of the Labor Laws.” 80 FR 30574, 30580. Preliminary injunctions issued in Federal court are not considered to be “final” orders. However, enforcement agencies may pursue injunctive relief when faced with the most egregious violations of the Labor Laws (for example, imminent danger actions under the OSH Act or 10(j) injunctions under the NLRA), and courts grant preliminary injunctions only in extraordinary circumstances and after a strong showing of a likelihood of success. Accordingly, the Department concludes that the granting of such relief may be relevant to the assessment of a contractor's respect for legal obligations and workplace conditions. It is therefore appropriate to require disclosure.

Finally, the Department reiterates that the definition of “civil judgment” simply determines the scope of contractors' disclosure obligations—the first stage in the Order's process. Not all disclosed violations are relevant to contractors' integrity and business ethics. Only those that are later determined to be serious, repeated, willful, and/or pervasive will be considered as part of the weighing step and will factor into the ALCA's written analysis and advice. Moreover, contractors have an opportunity to submit any additional information—including mitigating information—that they believe may be helpful in assessing their overall record of compliance. In sum, court judgments and orders that meet the definition of “civil judgment” must be disclosed—even where nonfinal or still subject to appeal.

While the Department is not changing the definition of civil judgment, two clarifications are necessary. One commenter, the Equal Employment Advisory Council (EEAC), expressed concern that the definition of civil judgment would include temporary restraining orders (TROs). The Proposed Guidance did not intend to include TROs under the definition of civil judgment. TROs are distinct from preliminary injunctions under the Federal Rules of Civil Procedure and can, in certain circumstances, be issued without notice to the adverse party.

Compare

Fed. R. Civ. Proc. 65(a) (preliminary injunctions)

with

Fed. R. Civ. Proc. 65(b) (TROs). To avoid any confusion, the Guidance has been revised to clarify that TROs are not civil judgments for the purposes of the Order, and need not be disclosed.

Another commenter, National Security Technologies, LLC, requested that the Department limit the definition of civil judgements to exclude judgments entered pursuant to accepted Offers of Judgment under Federal Rules of Civil Procedure 68, which are “in the nature of settlements.” The Department agrees that accepted offers of judgment under Rule 68 are akin to settlements and are not “civil judgments” for the purposes of the Order. The Guidance has been revised accordingly.

3. Defining “Arbitral Award or Decision”

The Proposed Guidance defined “arbitral award or decision” as

any award or order by an arbitrator or arbitral panel in which the arbitrator or arbitral panel determined that the contractor or subcontractor violated any provision of the Labor Laws, or enjoined or restrained the contractor or subcontractor from violating any provision of the Labor Laws.

80 FR 30580. The Proposed Guidance stated that arbitral awards and decisions must be disclosed “even if the arbitral proceedings were private or confidential.”

Id.

It further provided that “arbitral award or decision” includes an award or order that is not final or is subject to being confirmed, modified, or vacated by a court.

Id.

Several industry commenters objected to disclosing arbitral awards or decisions that are confidential or private. The AARP, on the other hand, supported the disclosing of private or confidential arbitration awards and decisions. Industry commenters contended that disclosing awards may have a chilling effect on arbitration, that disclosure may require the breaking of arbitration or labor contracts, and that the confidentiality of arbitration is provided by some State laws. One commenter, the Aerospace Industries Association, suggested excluding

arbitral awards from confidential or private arbitrations conducted under arbitration agreements executed before the effective date of any final rule implementing the Order.

The Department declines to narrow its interpretation of the disclosure requirement to exclude confidential or private arbitrations. The Order specifically requires the disclosure of arbitral awards or decisions without exception,

see

Order, section 2(a)(i), and 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 arbitral award or decision—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.

In addition to the commenters discussed above who object generally to disclosing any nonfinal determinations or judgments, some industry commenters specifically objected to disclosing nonfinal arbitration awards or decisions. The Department declines to modify the Guidance in response to these comments. The disclosure of arbitral awards that are nonfinal or still subject to court review is appropriate for all of the same reasons discussed above supporting the Department's inclusion of administrative merits determinations and civil judgments that are nonfinal or subject to appeal. Furthermore, the Department notes that the Federal Arbitration Act provides a very high standard that must be met for a court to vacate or modify an arbitral award.

See

9 U.S.C. 10 (standard for vacating award); 9 U.S.C. 11 (standard for modifying award).

The AARP supported the proposed definition of arbitral award or decision, but proposed broadening the definition to include awards and decisions where the employee has succeeded “on any significant issue or receives even some of the benefits sought.” Under this proposal, an award or decision would have to be disclosed, “even if there was no formal determination of a legal violation.” The Department declines to modify the Guidance in response to this comment. The Order requires disclosure of arbitral awards or decisions rendered against the contractor “for violations of any of the [Labor Laws].” Order, section 2(a)(i). The Department believes that this requires a finding that a Labor Law was violated in order to trigger the Order's disclosure requirement.

Two industry commenters requested clarification about arbitral decisions that involve both a collective bargaining agreement (CBA) and one of the Labor Laws. One asserted that the Guidance's disclosure requirements should expressly exclude arbitral decisions finding CBA violations that do not amount to statutory violations. The other commenter, the Association of General Contractors of America (AGC), stated that arbitral decisions involving CBAs are often unclear about whether their rulings are “on a matter of law, contract, or both.” The Department agrees that an arbitrator's decision finding only a CBA violation does not trigger the disclosure requirement. However, where the arbitrator does make an express finding that there was a violation of one of the Labor Laws, then the decision or award must be disclosed, regardless of whether the same conduct also violated the CBA.

4. Successive Labor Law Decisions Arising From the Same Underlying Violation

The Proposed Guidance addressed and gave examples regarding how contractors should disclose successive administrative merits determinations, civil judgments, and/or arbitral awards or decisions that arise from the same underlying violation.

See

80 FR 30580-81. One commenter, Jackson Lewis LLC, stated that this discussion would have been “unnecessary” had the Department not required disclosure of “alleged violations.” According to this comment, “[n]othing in the already dense DOL Guidance is more complex than sorting what successive determinations must be reported and what need not be reported.” After considering this comment, the Department modifies this section of the Guidance for improved readability—but does not make any substantive changes. The Department believes that the examples provided, including a new example, will help contractors meet their disclosure obligations under the Order.

C. Information That Must Be Disclosed (Formerly “What Information Must Be Disclosed”)

The Order itself contains guidance for what information a contractor must disclose.

See

Order, section 2(a). And the FAR rule includes specific disclosure requirements and processes.

See

FAR 22.2004-1(a). This section of the Proposed Guidance directly tracked the language of the proposed FAR rule. Where the FAR Council has modified relevant language in its final rule, the Department has modified the final Guidance accordingly. In addition, in one nonsubstantive change to this section of the Guidance, the Department has created a separate subsection to highlight the process for contracting officers to give contractors the opportunity to submit any additional relevant information (including mitigating factors) about Labor Law violations. Several commenters submitted concerns or suggestions about this section; however, because comments took issue with the content of the FAR rule, the FAR Council has addressed those comments, and the comments are not summarized or discussed here.

Specific Disclosure Requirements

The Proposed Guidance included the requirements from the proposed FAR rule about the specific information that a contractor must disclose, at the time of the responsibility determination, about each Labor Law decision. It provided that, for each decision, the contractor disclose: (1) The Labor Law that was violated; (2) the case number, inspection number, charge number, docket number, or other unique identification number; (3) the date of the determination, judgment, award, or decision; and (4) the name of the court, arbitrator(s), agency, board, or commission that rendered it.

See

80 FR 30574, 30581.

Several labor unions and employee advocacy organizations suggested requiring disclosure of more information than the four types of information listed above. The Department retains the Guidance as proposed. The specific disclosure requirements are promulgated in the final FAR rule, FAR 22.2004-2(b)(1)(i), and they are included in the Guidance only for completeness. Moreover, the Department notes that contracting officers have an existing duty under the FAR to obtain such additional information as may be necessary to be satisfied that a contractor has a satisfactory record of integrity and business ethics,

see

FAR 9.105-1(a), and the FAR rule requires contracting officers to request Labor Law decision documents from contractors where the ALCA is otherwise unable to obtain them,

see

FAR 22.2004-2(b)(2)(iii). While the Department has not amended the list of specific disclosure requirements, it has added to the final Guidance a list of the relevant unique identification numbers for each category of violation.

Accuracy of Contractor Disclosures

One group of worker-advocacy organizations expressed concern that the Guidance does not instruct contracting officials to verify the accuracy of the information that a contractor submits. The comment noted that a new Labor Law violation might be found against a contractor after the contractor's initial representation about its record. In such a case, the comment suggested, a contractor that responds negatively at the initial representation stage should be required at the subsequent preaward stage to provide an update about any new violations (assuming that a responsibility determination is undertaken at that point).

Several unions and worker-advocacy groups applauded the proposed FAR rule and the Proposed Guidance for significantly improving reporting requirements and public disclosures; however, they also expressed concerns that the penalties for contractors who misrepresent or omit information when disclosing Labor Law violations should be strengthened. Several of these commenters argued that disclosures regarding Labor Law violations should be provided under oath and/or under penalty of perjury. Another commenter, the AARP, suggested that the FAR Council should clearly state that “failure to report violations will lead to a determination of nonresponsibility.”

The Department does not believe that contractor representations regarding Labor Law matters should be treated differently than other representations related to responsibility. Under the FAR, a contractor who fails to furnish a certification related to responsibility matters or to furnish such information as may be requested by the contracting officer related to that contractor's responsibility shall be given an opportunity to remedy the deficiency.

See

FAR 9.104-5. Ultimately, failure to furnish the certification or such information “may render the offeror nonresponsible.”

Id.

In addition, well-established penalties already exist for bad faith and material misrepresentations regarding responsibility matters.

A contractor may be disqualified, the award canceled, or the contract terminated if the misrepresentation is made in bad faith or has materially influenced the agency's responsibility determination.

See Impresa Construzioni Geom. Domenico Garufi

United States,

238 F.3d 1324, 1339-40 (Fed. Cir. 2001). Where the award is canceled, the contractor can be precluded from bidding on a reprocurement contract.

See Northrop Grumman Corp.

United States,

50 Fed. Cl. 443, 468 (2001). Moreover, under appropriate circumstances, a contractor may also be suspended or debarred, or held liable under the False Claims Act, among other available remedies.

See

31 U.S.C. 3730; 18 U.S.C. 1001.

The Department does recognize that a substantial period of time may pass between the contractor's initial representation and the date of the award. In particular, as the commenter referenced above suggested, a contractor may initially represent that it has no Labor Law decisions to disclose, but a Labor Law decision may be rendered against it after that initial representation prior to the date of an award. Contractors have a duty to provide an update to the contracting officer prior to the date of an award if the contractor's initial representation is no longer accurate. Thus, the final FAR rule now provides that if a new Labor Law decision is rendered or the contractor otherwise learns that its representation is no longer accurate, the contractor must notify the contracting officer of an update to its representation.

See

FAR 52.222-57(e). This means that if the contractor made an initial representation that it had no Labor Law decision to disclose, and since the time of the offer the contractor has a Labor Law decision to disclose, the contractor must notify the contracting officer. The reverse is also true: If, for example, an offeror made an initial representation that it has a Labor Law decision to disclose, and since the time of the offer that Labor Law decision has been vacated by the enforcement agency or a court, the contractor must notify the contracting officer.

Postaward Disclosure Updates

The disclosure section of the Proposed Guidance included a description of the Order's requirement that contractors update their disclosures postaward, during performance of a covered procurement contract.

See

80 FR 30574, 30581. The Department has reorganized the final Guidance to consolidate discussion of postaward disclosure and assessment issues in a new section (Section IV). Comments about the postaward disclosure are addressed in a parallel section of this preamble section-by-section analysis, below.

Subcontractor Disclosures

The disclosure section of the Proposed Guidance also included an explanation of the Order's subcontractor disclosure provisions.

See

80 FR 30574, 30582. The Department has reorganized the final Guidance to consolidate discussion of subcontractor issues in a new section (Section V). Comments about the subcontractor disclosure provisions are addressed in a parallel section of this preamble section-by-section analysis, below.

III. Preaward Assessment and Advice (Formerly “Weighing Violations of the Labor Laws”)

Section III of the Guidance explains the process by which ALCAs classify, weigh, and provide advice about a contractor's violations of the Labor Laws during the preaward period. Based on the comments received, the Department believes that the separate steps in this process may not have been emphasized clearly enough in the Proposed Guidance. Several commenters, for example, appeared to conflate the determination that a contractor had committed a serious, repeated, willful, and/or pervasive violation with a finding of nonresponsibility.

In response to these comments, the final Guidance clarifies that the ALCA's preaward assessment of a contractor's Labor Law violations and the contracting officer's responsibility determination are separate process points, performed by two separate individuals: The ALCA assesses the nature of the violations and provides analysis and advice; the contracting officer, informed by the ALCA's analysis and advice, makes the responsibility determination—the determination of whether the contractor is a responsible source to whom a contract may be awarded. Contracting officers consider assessments provided by ALCAs consistently with advice provided by other subject matter experts during the responsibility determination.

The final Guidance also clarifies that the ALCA's role involves a three-step process. First, an ALCA reviews all of the contractor's violations to determine if any are serious, repeated, willful, and/or pervasive. Second, the ALCA then weighs any serious, repeated, willful, and/or pervasive violations in light of the totality of the circumstances, including the severity of the violation(s), the size of the contractor, and any mitigating factors that are present. Third, after this holistic review, the ALCA provides written analysis and advice to the contracting officer regarding the contractor's record of Labor Law compliance, and whether a labor compliance agreement or other action is warranted.

As noted above, the final Guidance clarifies that it is the contracting officer who makes the final determination of whether a contractor is, or is not, a responsible source.

The assessment of violations postaward, during the performance of the contract, is now addressed separately in section IV of the Guidance.

Similarly, the assessment of subcontractor violations is addressed separately in section V of the Guidance.

The Department has modified Appendix E to reflect changes in the final Guidance's description of the PreAward Assessment and Advice process.

Classifying Labor Law Violations (Step One)

The first step in this process is the classification of Labor Law violations as serious, repeated, willful, and/or pervasive. The Order specifically directs the Department to develop guidance to assist agencies in making these classification determinations. Order, section 4(b)(i). The Order specifies that the Department's Guidance should “incorporate existing statutory standards for assessing whether a violation is serious, repeated, or willful” where they are available.

Id.

In addition, the Order provides the Department with parameters for developing standards where none are provided by statute.

Id.

Subjectivity of Classification Criteria

A number of industry commenters argued that the Proposed Guidance's definitions of serious, repeated, willful, and pervasive violations are too subjective and do not provide enough direction for contractors to determine whether their violations could put them at risk of losing Federal contracts. Some commenters expressed concern that whether a violation is serious, repeated, or willful may depend in some cases on an exercise of discretion by the official or investigator at the enforcement agency that issued the underlying administrative merits determination. In contrast, many worker-advocacy organizations and labor unions expressed support for the flexibility of these classification criteria and the Department's overall approach to weighing violations and assessing mitigating factors.

While the Department acknowledges that some of the criteria for classifying Labor Law violations require closer analysis, the Department notes that many of the definitions set out objective criteria that leave little, if any, room for ambiguity. For example, whether a violation involves at least $10,000 in back wages or $5,000 in fines or penalties (one of the criteria for classifying serious violations), or whether a violation occurs within 3 years of a prior violation (one of the criteria for classifying repeated violations) are straightforward matters. Furthermore, the Department expects that ALCAs will develop substantial expertise in administering the Order and will be well-positioned to classify and weigh each violation. In some cases, as set forth below, the Department has modified criteria that were not sufficiently clear.

Moreover, the Department disagrees that the contracting officer's responsibility determination will be arbitrary if it includes consideration of the ALCA's assessment of Labor Law enforcement actions that themselves involve the exercise of prosecutorial discretion, such as an enforcement agency's decision as to how much of a fine or penalty to assess, or whether to find one violation or multiple violations. The Department believes that the legitimate exercise of such discretion is inherent in prosecuting Labor Law violations—just as it is for prosecuting violations of fraud, tax, and other laws that are already expressly considered in the responsibility determination under the FAR—and does not undermine the contracting officer's consideration of Labor Law enforcement actions under the Order.

Furthermore, ALCAs are advisors to the contracting officer on one aspect of responsibility: Integrity and business ethics with regard to labor law compliance. Contracting officers consider the information provided by advisors such as ALCAs, as well as advice from other experts in fields such as audit, law, engineering, information security, and transportation.

Relationship of Classification Criteria to Disclosure Requirements

A few commenters representing employers also expressed concern that they would be uncertain as to which violations must be disclosed due to perceived ambiguities in the definitions of serious, repeated, willful, and pervasive violations. Such comments misapprehended the role that these definitions play in the implementation of the Order. All Labor Law decisions must be disclosed, whether or not they involve violations that are serious, repeated, willful, or pervasive. As described above, the definitions of these four terms are used by ALCAs during the classification process to screen out minor infractions that have been disclosed, not by contractors to determine whether the decisions must be disclosed in the first place. The Department clarifies this point in the final Guidance.

Standard for Determining Application of Classification Criteria

One industry commenter questioned what quantum of evidence will be necessary to support a determination that a Labor Law violation meets one of the criteria for establishing that a violation is serious, repeated, willful, or pervasive. In this regard, the commenter focused on language in the Proposed Guidance stating that a violation would meet one of the classification criteria if the Labor Law decision “support[s] a conclusion” that the criterion in question had been met, and the commenter expressed concern that this standard suggested that contractors could be found to have committed a serious, repeated, willful, or pervasive violation based on only scant evidence in the record supporting such a classification.

The Department has clarified in the Guidance that to serve as the basis for a determination that a violation is serious, repeated, willful, and/or pervasive, the relevant criteria must be readily ascertainable from the Labor Law decision itself. This means that ALCAs should not second-guess or re-litigate enforcement actions or the decisions of reviewing officials, courts, and arbitrators. It also means that a contractor will not be deemed to have committed a serious, repeated, willful, or pervasive violation based on a minimal or arguable showing. While ALCAs and contracting officers may seek additional information from the enforcement agencies to provide context, they should rely on only the information contained in the Labor Law decisions themselves to determine whether violations are serious, repeated, willful, or pervasive.

Subcontractor Violation Classification

Some of the comments by employer groups voiced additional concern about the way the Proposed Guidance described the process for a prime contractor to classify and weigh its subcontractors' Labor Law violations. These commenters asserted that many prime contractors, especially small businesses, will not have access to labor law experts or legal counsel familiar with the intricacies of the fourteen Labor Laws, and that these prime contractors would not be well-equipped to evaluate whether violations are serious, repeated, willful, or pervasive.

The Guidance now contains a separate section addressing subcontractor responsibility (Section V). The Department addresses comments related to subcontractor responsibility in a parallel section of the preamble section-by-section analysis, below.

Scope of Classification Criteria

Many commenters representing employer groups argued that the criteria for serious, repeated, willful, and pervasive violations were too broad and

would encompass too many violations, which would increase the burden of the Order by subjecting more contractors to scrutiny. These commenters expressed concern that a prospective contractor would be found nonresponsible based on, for example, a pair of violations that were inadvertent but nonetheless met the criteria for repeated violations; or one or two OSH Act violations that, while meeting the statutory criteria for serious violations, caused no harm and were addressed swiftly. Some feared that even a single serious violation would necessarily lead to a nonresponsibility determination.

The Department believes that this fear is misplaced. Below, in parts 1 through 4 of this subsection, the Department responds to commenters' specific concerns regarding the criteria used to classify violations as serious, repeated, willful, or pervasive. In some cases, as explained below, the definitions have been narrowed in response to concerns of over-inclusiveness.

The Department believes the final Guidance appropriately defines its criteria, given their use in the classification and weighing process. It is important to note that the classification of a contractor's violation as serious, repeated, willful, or pervasive does not mean that the contractor loses an award. Rather, as noted in the Guidance, one of the purposes of classifying violations as serious, repeated, willful, and pervasive is to screen out many violations that may be inadvertent or less likely to have a significant impact. These classifications limit consideration of a contractor's violations to those that may merit closer examination. After the initial screening, ALCAs will conduct a review of these more significant violations, taking into account the totality of the circumstances, including any mitigating factors. In this weighing phase, the serious, repeated, willful, and pervasive classifications provide a useful framework for analysis and help ensure government-wide consistency. In the final Guidance, the Department clarifies the description of this process and has reiterated that classifying a violation as serious, repeated, willful, or pervasive does not automatically result in a finding that a contractor lacks integrity and business ethics.

In sum, the Department believes the criteria set forth in the final Guidance for determining whether violations are serious, repeated, willful, or pervasive are fair, appropriate, and administrable.

Classification of Violations Involving Retaliation

Some commenters representing employee interests expressed concern that the definitions of serious, repeated, and willful violations did not sufficiently account for violations involving retaliation. In general, it is the intent of the Guidance that violations of the Labor Laws that involve retaliation must be reported and assessed under the Order. The Department has made a number of modifications to the Guidance—discussed further below in the separate sections on serious, repeated, and willful violations—to ensure that this is the case. As stated in both the proposed and final Guidance, all violations involving retaliation are considered serious violations under the Order.

Effect of Reversal or Vacatur of Basis for Classification

Some commenters expressed concern that under the Proposed Guidance, a violation could be classified as serious, repeated, willful, and/or pervasive based on a determination by an agency, arbitrator, or court that was later reversed, vacated, or otherwise rescinded. For example, some of these commenters expressed concern that a contractor could be found to have committed a serious violation based on an OSHA citation that was originally classified as “serious” and later changed to “other than serious” or withdrawn entirely.

In response to these comments, the final Guidance clarifies that if a Labor Law decision or portion thereof that would otherwise cause a violation to be classified as serious, repeated, willful, and/or pervasive is reversed or vacated, the violation will not be classified as such under the Order. Just as a Labor Law decision that is reversed or vacated in its entirety need not be disclosed, so too, if a Labor Law decision is modified such that the underlying basis for the violation's classification as serious, repeated, willful, or pervasive has been reversed or vacated, the classification no longer applies.

The sections below discuss comments received regarding the criteria for classifying violations as serious, repeated, willful, or pervasive and the changes that the Department has made to the Guidance in response to these comments. In addition to the changes discussed below, where necessary, the Department has also made conforming changes to the examples in the four appendices listing examples of the four categories of violations.

1. Serious Violations

The Proposed Guidance set forth several classification criteria for determining whether a violation is serious under the Order. As an initial matter, some commenters indicated that the Proposed Guidance was unclear as to whether a violation needs to meet only one of the listed criteria in order to be considered serious. The Department believes that the Proposed Guidance was clear on this point in that it stated that a Labor Law violation that meets “at least one” of the listed classification criteria for seriousness will be considered a serious violation. To provide additional clarity, the final Guidance states that a violation involving “any one” of the listed criteria will be classified as serious. The Guidance also further clarifies that separate criteria apply to OSH Act violations enforced through citations, as discussed in the section below.

a. OSH Act and OSHA-Approved State Plan Violations Enforced Through Citations and Equivalent State Documents (Formerly “OSH Act”)

In the Proposed Guidance, the Department stated that a violation is serious under the Order if OSHA or an OSHA-approved State Plan issued a citation that it designated as serious, issued a notice of failure to abate, or issued an imminent danger notice. The Proposed Guidance also listed several criteria under which violations of any of the Labor Laws can be classified as serious. The Department received several comments regarding the classification of violations under the OSH Act and OSHA-approved State Plans.

Classification of Non-Citation OSHA Violations

Several commenters requested clarification about the classification of OSH Act and OSHA-approved State Plan violations that are not enforced through citations—such as retaliation, false-statement violations, notices of failure to abate, and imminent danger notices (“non-citation OSHA violations”). These commenters noted that such violations are enforced not through citations but through notices or through complaints filed in court. Thus, for these violations, OSHA and State Plan agencies never make a designation of “serious,” as they do with OSH Act and State Plan violations enforced by citation (“citation OSHA violations”). These commenters suggested that the Guidance should be clarified to ensure that non

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