On March 6, federal agencies charged with carrying out the Fair Pay and Safe Workplaces Executive Order (EO) submitted their proposed rule to the Office of Management and Budget (OMB) for review, signaling its imminent release. The so-called “blacklisting” EO provides that employers can be denied federal contracts if they or their subcontractors violated or allegedly violated a host of federal labor laws within the past three years. This EO will impose new and significant obligations on contractors and subcontractors.

In general, contractors bidding for contracts worth more than $500,000 must disclose any labor law violations committed within the past three years, and certify that their major subcontractors meet the EO’s new responsibility standards. Based on these disclosures, the contracting officer at the federal agency will determine whether the contractor is a “responsible” entity with a satisfactory record of “integrity and business ethics,” and therefore eligible to bid. As discussed during a House of Representatives joint subcommittee hearing held last month, one problem with this requirement is that a contractor may be blacklisted based on alleged labor law violations that are later found to lack merit. Contractors that failed to disclose even inadvertent and technical violations could find themselves debarred from the federal procurement process.

In addition, several hearing panelists flagged as problematic the new requirement that each federal agency designate a senior agency official to serve as a labor compliance advisor (LCA). Under the EO, the contracting officer will consult with the LCA, whose job it is to provide guidance on whether the contract bidder’s mandatory disclosures indicate it is an entity that lacks integrity or business ethics. This analysis is highly subjective, giving the LCAs significant discretion over the contract award process.  In advance of the proposed rule’s publication, OMB officials issued a memorandum to federal agency heads outlining the responsibilities, skills, and knowledge the future LCAs should have.

Following the proposal’s publication in the Federal Register – which could happen within weeks –  interested parties will have an opportunity to submit comments before the rule is finalized. Contractors and subcontractors with a stake in the outcome of this rule are advised to promptly review the proposal when issued.