Federal Contractor Rules Likely to Repel Construction Firms

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By Elliott T. Dube

Sept. 7 — Building firms are backing away from the federal contracting marketplace because the Obama administration’s recently finalized reporting rules have created too much risk for them, major construction contractor groups say.

The final rules have created an “entirely new, very subjective, very vague program,” Brian Turmail, the executive director of public affairs for Associated General Contractors of America (AGC), told Bloomberg BNA Sept. 1.

The administration Aug. 24 issued final rules and guidance implementing the president’s Fair Pay and Safe Workplaces executive order (EO 13,673). The order will require contractors to disclose any violations of 14 federal labor and employment laws and comparable state laws for the previous three years to be eligible for federal contracts worth more than $500,000. It allows agencies to deny contracts based on the disclosures.

For instance, Turmail pinpointed the order’s creation of the new position of agency labor compliance advisor (ALCA), who will review the nature of a contractor’s labor law violations. There is too much potential for ALCAs to assess violations inconsistently and recommend different outcomes for contractors that have committed similar infractions, Turmail said.

A construction contractor “boils down to a business that engages in risk management,” and such a company needs firm ideas about both the risks it is taking on and potential consequences and costs, Turmail said. He added that the final rules create a “Kafkaesque nightmare” full of uncertainty for firms contemplating federal contracting work.

“The smaller the firm, the harder it is to account for that risk, the more you’re putting on the line and the less likely you are to work for the federal government,” Turmail said.

This executive order, combined with other federal contractor rules the administration has recently implemented, is “starting to have a big effect,” Ben Brubeck, vice president of regulatory, labor and state affairs for Associated Builders and Contractors Inc. (ABC), told Bloomberg BNA Sept. 6.

Many ABC members have indicated that they will start focusing less on federal contracting opportunities and increasingly on the private and state-level contracting marketplaces, Brubeck said. The reduced number of firms vying for federal contracts will have a negative impact, he said. “Everyone knows less competition means higher costs.”

But it is “disingenuous” for contractors to say the rules will discourage them by making their work too uncertain, as responsible firms will “jump at the chance to win large contracts,” James Boland, president of the Bricklayers & Allied Craftworkers, said in a Sept. 7 statement.

“Federal contractors are awarded contracts with the expectation that they are putting in fair bids, and accounting for paying prevailing wages; so for those who are already following the rules, this should only create a limited divergence from the process they are accustomed to,” Boland said.

AGC represents more than 26,000 contractors, and ABC has almost 21,000 members.

Contractors’ Core Concerns Remain

The executive order’s creation of ALCAs continues to be a point of criticism for business groups. After examining contractors’ labor law violations, ALCAs will make recommendations to agency contracting officers, who determine whether contractors are responsible sources to whom the government may award contracts.

Turmail expressed concern that ALCAs might feel pressure from superiors to favor or disfavor contractors based on political, social or labor-related positions the companies have taken.

“When you start putting large amounts of discretion and power in the hands of unelected bureaucrats who are working for political appointees, you unfortunately introduce room for mischief,” Turmail said.

Another source of business distress that the final rules have retained is a requirement that contractors report allegations of labor law violations that haven’t been fully adjudicated.

Both Turmail and Brubeck said the contracting community would have been more comfortable with tweaks to the already-existing system for suspending and debarring federal contractors.

Problematic Despite Late Changes

In a significant change from the proposed rule, the final version requires subcontractors to submit information on labor law violations directly to the Labor Department for assessment instead of to prime contractors.

Prime contractors will appreciate not having to make their own complicated determinations about subcontractors’ disclosures, Brubeck said. But both types of firms will likely discover that the federal government doesn’t have enough personnel to evaluate every company properly, he said. “So that will probably lead to more delays and increased costs as well.”

Turmail noted that AGC sought the subcontractor disclosure change. “There’s really nothing positive about this rule, but that makes it less awful,” he said.

In another new development, the administration will implement the executive order in phases. Starting Oct. 25, prime contractors bidding on contracts valued at $50 million or more will be subject to the reporting requirements. After April 24, 2017, that monetary threshold will drop to $500,000.

Subcontractors won’t begin reporting until Oct. 25, 2017. During this initial implementation period, they and prime contractors will need to disclose violations only from the previous one year. The requirement won’t expand to violations from the previous three years until Oct. 25, 2018.

Brubeck downplayed the effectiveness of these phase-in periods in addressing contractor concerns. A $50 million contract is “not a big construction contract these days,” meaning that many firms are scrambling to understand the new obligations in a short period, he said.

“You might see those big contractors sit out a procurement cycle because they don’t have their systems in place,” Brubeck said. “They don’t want to submit a certification that they’ve disclosed all their violations until they know for sure. Otherwise, they could get nailed with a False Claims Act charge, and that could really jeopardize their federal contracting beyond what we’re already talking about.”

However, Boland said in his statement that the multi-phase implementation will give contractors “time to get accustomed to the new process.”

“Contractors will go where the work is, and that's the nature of capital,” Boland said. “If there's money in federal contracts, people will bid on those contracts—period.”

Educating Members Is Key

A coalition of contractor associations called the Quality Construction Alliance has been more supportive of the executive order than AGC and ABC have. The coalition called the executive order “sound contract administration proprietary policy” while expressing some reservations in a February 2015 statement to the House Committee on Education and the Workforce.

The coalition consists of FCA International, the International Council of Employers of Bricklayers and Allied Craftworkers, the Mechanical Contractors Association of America, the National Electrical Contractors Association (NECA), the Sheet Metal and Air Conditioning Contractors’ National Association and the Association of Union Constructors (TAUC). Together, these groups represent more than 20,000 employers.

Now that the final rules have come out, what’s clear is that they’re complex and will have a huge impact on NECA members, Marco Giamberardino, the association’s executive director of government affairs, told Bloomberg BNA Sept. 1. The association now has hard work to do in educating members that are contemplating federal contracting work on how best to comply with the new requirements, he said.

Besides labor law violation disclosures, Brubeck said he is receiving ABC members’ questions about two other sets of requirements the final rules impose. Beginning Oct. 25, companies with federal contracts of at least $1 million will be barred from forcing employees to arbitrate sexual assault or civil rights claims. Starting Jan. 1, 2017, contractors must give workers wage statements under new paycheck transparency mandates.

To contact the reporter on this story: Elliott T. Dube in Washington at edube@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

For More Information

Text of the final rule is available at http://src.bna.com/hZm and the guidance at http://src.bna.com/hZn.

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