Executive Orders Require Vendors’ Attention

Executive orders have been getting a lot of attention lately, and for good reason. The administration has expressed a willingness to use executive power expansively and recent experience shows it is doing just that.

As the government contracting community is keenly aware, many recent executive orders have been aimed squarely at government contractors and demonstrate the president’s ability to use federal procurement to implement social and economic policies that go well beyond the contracting process. Therefore, while the use of executive orders and the federal procurement process to implement non-procurement policy are not new phenomena, contractors should consider these issues with renewed focus.

There are some basic questions about executive orders and how contractors should account for them in their ethics and compliance programs. Contractors and others can attempt to shape the policy changes these orders set in motion. The recent Executive Order 13673, “Fair Pay and Safe Workplaces,” also known as the “Labor Reporting Order” issued July 31 illustrates a number of points.

The order establishes a new self-disclosure requirement for contractors and subcontractors. Companies will have to report whether, within the preceding three-year period, there have been “any administrative merits determination, arbitral award or decision, or civil judgment” involving the violation of 15 categories of labor and health and safety laws. The order also requires contractors to provide “transparent” paychecks to workers covered by the Fair Labor Standards Act, Davis Bacon Act, Service Contract Act, and equivalent state laws. Finally, the order prohibits contractors and subcontractors with contracts for noncommercial items of more than $1 million from imposing pre-dispute arbitration agreements for claims under Title VII of the Civil Rights Act or for sexual harassment or assault.

So what is an executive order and how is it implemented? They are directives signed by the president and have the force and effect of law.  They can be effective by their own terms and they often state they are effective immediately. However, as a legal and practical matter, additional steps are usually necessary before they are fully effective. In some cases, executive orders direct the government to promulgate regulations to implement the order’s terms. Their requirements often do not become applicable to government contracts until they are formally added to a contract’s terms and conditions either through modification of an existing contract or through a solicitation for a new contracts. In most cases, the government also must take additional practical steps to facilitate the implementation of the order.

Each of these features is present in the Labor Reporting Order. First, it directs that regulations, including changes to the Federal Acquisition Regulation, be promulgated. This creates the opportunity for input by the contracting community.

Next, many of the aspects of the Labor Reporting Order will require contract modifications before new terms and conditions become effective on government contractors. In most cases these would not issue until a FAR rule-making has concluded. However, there is some precedent for the use of temporary, interim FAR clauses prior to receipt of public comment on the rule, and contractors should be on the lookout for them.

Finally, practical issues must be addressed. The order creates a new labor advisor position within contracting agencies, and government reporting sites must also be modified to accommodate the new reports mandated by the order.

So, should contractors be taking this order into account in their compliance efforts now? Yes, because good ethics requires adapting compliance practices to changing laws. There are a number of things contractors should do when confronted with new executive orders, including the Labor Reporting Order.

First, contractors should assess how they will comply with its stated terms, which are far-reaching and may impact strategy in handling labor issues. Internally, contractors should consider how their ethics and compliance function interfaces with their human resources and legal function to ensure a basis for proper reporting.

Contractors should also evaluate their third-party agreements in the context of the order. It applies to certain subcontractors, and primes should consider “flow down” provisions and other protections to ensure subcontractor compliance and the prime’s ability to hold subcontractors accountable. The order also contains provisions, such as prohibiting mandatory arbitration provisions in employment agreements, which warrant an examination of employment contracts and policies.

Second, even though the requirements have not yet been incorporated into the FAR or existing contracts, the reports required by the order will have a three-year look back. Therefore, labor compliance matters that were recently resolved or are underway today will likely be susceptible to the reporting requirement. Contractors should consider how the outcomes of pending labor proceedings may impact their future reports and the government’s assessment of their present responsibility.

Third, executive orders are strong indicators of enforcement and oversight priorities. While certain terms of the Labor Reporting Order require additional action, contractors should keep in mind that the government already has tools to carry out many of its broad purposes. Even absent the order, an agency suspension and debarment officer could consider repeated labor law violations to indicate a lack of integrity and business ethics.

Also, the rulemaking process necessary to implement the Labor Reporting Order will give affected companies an opportunity to provide input into the regulations, including data and perspectives that may not have been considered in assembling the order.

Contractors should stay informed about executive orders and implementing actions including regulations. They should consider what contractor associations and related groups may be doing in response.

They should also strongly consider filing comments on proposed rules, both directly and by supporting associations that may do the same.  Among other things, contractors should consider using the information and impacts they identify in their internal compliance assessments to inform the comments they and their trade associations provide to the government.

Finally, contractors and their associations should develop plans for addressing aggressive new policies through our government’s system of checks and balances, including Congress and the courts.

Bob Tompkins and Mary Beth Bosco are partners in Holland & Knight’s government contracts practice based in Washington, D.C.  Kara Ariail is a partner in Holland & Knight’s labor and employment practice based in Tysons Corner, Virginia.

Topics: Defense Contracting, Defense Department