All Government Contractors Subject to New Human Trafficking Rule

By Bruce J. Casino
Effective March 2, a new federal government rule concerning human trafficking went into effect, directly impacting all 300,000 plus government contractors and many more subcontractors.

Under the rule all contractors must promulgate a new human trafficking policy. Furthermore, in many cases certification of compliance after due diligence must be done for contracts awarded after the effective date. In addition, the Defense Department has published its own rule on the subject. Many contractors are still unaware of the new rules as the new measures were only finalized Jan. 29. Because of the implementation date, government contractors are scrambling and playing catch-up to comply with these complex rules.

Human trafficking — obtaining labor or sex acts through force, fraud or coercion — is a modern day version of slavery. Its elimination has become a major priority of the Obama administration. More than 20 million persons worldwide are believed to have been the victims of trafficking in the past year.

The new rule imposes significant burdens. First, all federal government contractors must adopt a policy that has numerous “thou shalt nots.” 

These include: Engage in trafficking in persons; procure commercial sex acts; use forced labor in the performance of any contract; deny access by an employee to their passports or similar identity or immigration documents; use misleading or fraudulent recruiting practices; use recruiters that do not comply with local labor laws of the country in which the recruiting takes place; charge employees recruitment fees; fail to provide return transportation upon the end of employment; or provide or arrange housing that fails to meet host country housing and safety standards.

Contractors are required to inform all employees of the new policy and include related language in all contracts with subcontractors or agents.

The rules must be enforced with contractor disciplinary action for violations. Any violation of the rules could result in subcontract termination, reduction in benefits or termination of employment.  Additionally, from the government end, violations could result in contract termination, suspension or debarment, a False Claims Act case and criminal sanctions.

Contractors also must turn themselves in to the government “immediately” if there is “credible information” from any source regarding a potential violation of the policy, whether by an employee, subcontractor, subcontractor employee or agent. Even the draconian mandatory disclosure rule, which applies to all government contract fraud, does not require immediate disclosure and has a higher evidentiary standard before reporting is required. Unlike the general mandatory disclosure rule, in the case of human trafficking there is no time for a thorough investigation prior to reporting, which must occur if there is even “credible information” concerning a violation.

Certain contractors and subcontractors must go even further. Under the rule, for any portion of a contractor’s federal contract or subcontract for supplies acquired outside the United States or services to be performed outside of the United States, with an estimated value that exceeds $500,000, the contractor or subcontractor must develop and maintain a compliance plan and submit certifications of compliance. Commercial off-the-shelf supplies are not included in the $500,000 calculation.

The compliance plan must include several components, including an awareness program to inform employees working on the contract or subcontract about the government’s policy prohibiting trafficking-related activities.

It must also include a process for employees to report, without fear of retaliation, activity inconsistent with the policy prohibiting trafficking in persons, including making available to all employees the company’s hotline and the government’s global human trafficking hotline.

Also, there must be procedures to prevent employees, agents and subcontractors “at any tier and at any dollar value” from engaging in trafficking in persons and to monitor, detect and terminate any agents, subcontracts or subcontractor employees that have engaged in such activities.
The compliance plan’s complexity can depend on the dollars involved and the context but must include the above elements.

Contractors and subcontractors required to develop a compliance plan must certify that they have conducted due diligence “to ensure compliance and, to the best of their knowledge and belief” neither it nor its agents, subcontractors or their agents are engaged in prohibited activities. If abuses relating to any of the prohibited activities have been found, the contractor must certify that it or its subcontractor has taken the appropriate remedial and referral actions. It must also certify that it has implemented a compliance plan to prevent any prohibited activities and to monitor, detect and terminate any agent, subcontract or subcontractor employee engaged in prohibited activities.

A prime contractor is required to obtain from a subcontractor, prior to the award of any federal subcontract, submission of a certification if the subcontractor meets the same requirements discussed above.

Given the deadline involved, it will often be difficult for contractors to set up an entire compliance program in time. Indeed a government funded model compliance program is not expected to be published until early May. Yet models are already including the new Federal Acquisition Regulation provision.

There are also numerous tensions that will almost certainly arise. Contractors must be vigilant with respect to subcontractors lest they are found to have an inadequate compliance plan. Yet those subcontractors are unlikely to welcome visibility into their operations.  Indeed, while one company may be a prime with respect to one contract, the situation may be reversed in another contract, or the two contractors may be competitors who do not want others digging into their supply chains.

There are also questions concerning how due diligence is to be accomplished. How, for instance, does one determine that none of a subcontractor’s employees have engaged in commercial sex acts?

The Defense Department Jan. 29 amended the Defense Federal Acquisition Regulation to include new requirements for contractors. They must display the department’s combating trafficking in persons and whistle blower posters in common work areas. Subcontractors over $5 million — except for “commercial” items — have the same requirement.

By submitting its offer, a defense contractor indicates that it will not engage in trafficking, has procedures to protect the rights of its employees and those of its subcontractors, and has notified its employees and subcontractors that they must report violations by the contractor or its employees or subcontractors’ employees “at any tier.”

Finally, the defense contractor must ensure that contractor employees are aware of their rights and the rights are posted. The contractor must also enforce the rights.

These include the right to hold their own passports, drivers licenses or other identifying documents; receive agreed upon wages on time; take lunch and work breaks; terminate employment; file grievances without reprisal; have a copy of their employment contract in a language they understand; receive at least the minimum wage of the host country; and be notified of wage and rights prior to signing an employment contract. If housing is provided, it must meet host-country housing and safety standards.

The harsh deadline and extensive efforts required by the new rules impose a significant obligation on all government contractors. A number of government spokespersons have stated that the harsh deadlines will not be immediately enforced, but the Department of Justice has not been heard from on the subject. Nor is there any guarantee that as time goes by, bid protestors and qui tam relators will not bring litigation for failure to comply. 

Bruce J. Casino is a partner at the Government Contracts, Investigations and International Trade Group, Sheppard Mullin Richter & Hampton LLC, The views expressed in this article are his own and do not reflect those of the law firm or its clients.

Topics: Defense Contracting, Defense Contracting

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