The passage of the American Recovery & Reinvestment Act (ARRA) of 2009 created a large pool of funds for various projects to "stimulate" the economy, and many companies are now considering entering into contractual relationships with the federal government as contractors or subcontractors. While federal contracts can provide a stable and significant source of income for companies, federal contractors and subcontractors are required to comply with a number of federal laws to which the companies would not otherwise be subject absent a contract with the federal government.
The duties and obligations of federal contractors and subcontractors under these federal laws, which include prevailing wage and affirmative action requirements, are substantial, and navigating the applicable statutes can be onerous. In addition, the government has ramped up enforcement efforts to catch and punish contractors that fail to meet all legal requirements. Accordingly, companies entering into federal contracts or companies already operating under federal contracts should be especially diligent in ensuring that they are compliant with all requirements.
Keeping in mind that these statutes and regulations are complex and cannot be fully outlined here, the following is a brief summary of some of the laws that your company may be required to follow upon entering into a contract with the federal government.
Davis Bacon Act (DBA)
The DBA normally applies to all construction projects in excess of $2,000. For projects funded under the ARRA, there is no dollar limitation for applicability of the DBA. The DBA requires that "laborers and mechanics" be paid the prevailing wage rate for the geographic area in which the particular project is to be completed. The Department of Labor publishes "wage determinations" which set the prevailing wage rate that must be paid for every hour worked by a qualifying laborer or mechanic, and these wage determinations must be incorporated into the contract. The prevailing wage may be met by paying cash or fringe benefits, and the statute sets forth detailed requirements for which benefits may be considered bona fide fringes. Moreover, the DBA requires meticulous record keeping and reporting to the Department of Labor, the requirements for which also are fully detailed in the statute's regulations, making DBA compliance for subject contractors and subcontractors a substantial administrative burden.
Service Contract Act (SCA)
The SCA is similar to the DBA, but it applies to contracts or subcontracts involving the provision of services to the federal government. The SCA applies to contracts in excess of $2,500. Like the DBA, the SCA establishes area wage determinations that must be incorporated into the contract. The wage determinations apply to any "service employee" who engages in performing services on a covered contract other than a bona fide executive, administrative or professional employee.
Contract Work Hours & Safety Act (CWHSA)
The CWHSA applies to DBA and SCA covered contracts in excess of $100,000. Like the Fair Labor Standards Act, which is also applicable to federal contractors, it requires overtime payments at 1 ½ times the regular rate. The CWHSA also prohibits unsanitary, hazardous or dangerous working conditions on federal and federally financed and assisted construction projects.
Copeland "Anti Kickback" Act
This Act prohibits inducing an employee to give up any part of the compensation to which he or she is entitled under his or her employment contract, such as kickbacks of wages and back wages, and applies to contracts covered by the DBA and related acts. It also requires weekly "statements of compliance" and regulates deductions an employer is permitted to make from paychecks.
Office of Federal Contract Compliance (OFCCP)
OFCCP requirements are derived from Executive Order 11246, the Rehabilitation Act of 1973 and the Vietnam Era Veterans' Readjustment Assistance Act of 1974. Taken together, these laws ban discrimination and require federal contractors and subcontractors to take affirmative action to ensure that all individuals have an equal opportunity for employment. Some of the requirements include:
- filing an EEO-1 report annually;
- maintaining a written affirmative action program or demonstrating good faith efforts to meet affirmative action goals;
- posting EEO notices on the job site, in employee contracts and in job postings; and
- allowing OFCCP access to the companies' records.
Note that these OFCCP requirements vary based on the contractor's status as a supply and service contractor or a construction contractor and the contract's monetary value.
Executive Order 12989
Another notable recent law includes the Department of Homeland Security's E-Verify federal contractor rule, which implements Executive Order 12989 signed by President Bush on June 6, 2008. It requires, as a condition of each future federal contract, certain federal contractors and subcontractors to register for and use the federal government's Internet-based electronic immigration status verification system called E-Verify.
Other Recent Executive Orders
President Obama also signed three executive orders into law in early 2009, two of which extend union rights for employees of federal contractors. The first, Executive Order 13495, expressly revoked President Bush's Beck Order which required federal contractors to inform employees of their right to refuse to pay union dues for non-collective bargaining activities. The second, Executive Order 13496, prohibits federal contractors and subcontractors from being reimbursed for the costs of activities undertaken to persuade or dissuade employees from exercising or not exercising their rights to organize and bargain collectively. Finally, Executive Order 13497 mandates that all contracts falling under the SCA contain a clause which requires contractors and subcontractors to offer the right of first refusal to employees under a predecessor contract if the contractor or subcontractor is awarded a contract that succeeds a contract for the same or similar services at the same location.
In sum, federal contractors and subcontractors must engage in company- and project-specific analyses to determine with which federal laws they must comply and the corresponding duties and obligations under the applicable laws. With enhanced government enforcement efforts looming, this analysis is more important than ever.