What Every Government Contractor Should Know About the Labor Obligations Attached to Federal Stimulus Funds

March 2009Alerts Labor & Employment Alert

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The American Recovery and Reinvestment Act (ARRA or Federal Stimulus Package) presents significant opportunities for companies to compete for $787 billion in new federal funding and tax cuts. Economic realities are compelling entities that have had little or no public-sector involvement to look to the federal government as a new business partner.

Construction contractors, in particular, are poised to benefit. It is estimated that nearly 40 percent of the package, or $311 billion, is allocated to federal appropriations, with $130 billion going toward federal construction projects, including transportation and infrastructure, water and environmental infrastructure, building infrastructure, and energy efficiency and technology. Preference will be given to quick start projects, i.e., those contracted out within 120 days of ARRA's enactment (by June 17, 2009).

Government business, particularly on the labor front, can be a trap for the unwary. The Stimulus Package, and related enactments, add a new layer of obligations to the existing conditions governing wage rates, benefits, affirmative action, unionization, immigration controls and whistleblower protections. Employers should enter the public-private partnership with eyes wide open. They need to develop a compliance plan and take the cost of that plan into consideration. Contractors must also understand the long-term impact of these obligations on their workforce. Failure to follow the rules of the game could result in contractors being barred from playing in the "stimulus lottery."

1. Affirmative Action

Entities that receive ARRA stimulus monies via contracting with the federal government may unwittingly be subjecting themselves to affirmative action obligations. Generally speaking, any contractor with at least 50 employees that has a government contract/subcontract of $50,000/year must prepare an annual affirmative action plan (AAP) for each worksite employing at least 50 employees. Covered entities are subject to audit by the Office of Federal Contract Compliance Programs.

2. Prevailing Wage Rates

The ARRA specifically provides that all laborers and mechanics employed by contractors and subcontractors (whether or not unionized) on projects funded by stimulus funds, are required to be paid prevailing wages. This expansion of prevailing wage rates means that nonunion contactors accessing stimulus funds cannot gain an unfair bidding advantage by paying wages below the union rate.

3. Project Labor Agreements Favored

Although not part of the ARRA, contractors should be aware of an Executive Order signed by President Obama on February 6, 2009. That Order encourages federal agencies to use project labor agreements (PLAs) on construction projects valued at $25 million or above. A PLA governs the terms and conditions of all unions and employers working on the construction project. It allocates work among the building trades, applying the terms of the area union agreements. Use of PLAs is consistent with President Obama's support for organized labor. The overwhelming likelihood is that most projects involving $25 million or more, ARRA or otherwise, will be unionized under PLAs.

4. Preference for Fixed-Price Contracts

The ARRA contains a provision stating that, to the maximum extent possible, all contracts funded under the Act must be awarded as fixed-price (as opposed to cost-reimbursement) contracts through the use of competitive procedures. Contracts that are not awarded in this fashion are required to be posted on a government website.

5. Whistleblower Protections

The ARRA contains very broad whistleblower protections that apply to any private, state or local government entity that receives a contract, grant or payment from stimulus funds. Under the provisions, such an employer cannot take negative action against an employee who reports evidence of:

  • gross mismanagement of a contract or grant
  • gross waste of stimulus funds
  • substantial and specific danger to public health or safety related to the implementation of stimulus funds
  • an abuse of authority related to the implementation of stimulus funds
  • a violation of law, rule or regulation related to a contract awarded as part of the stimulus

Employers receiving stimulus funds are required to post a notice of these whistleblower rights and remedies.

6. Notification of Employee Rights Under Federal Labor Laws

Contractors with at least $100,000 in annual government contracts need to take heed of a January 2009 Obama Executive Order that requires federal contractors (with certain exceptions) to post notices of the rights workers have under the National Labor Relations Act (NLRA) to join unions and engage in collective bargaining.

If the Employee Free Choice Act (EFCA), which was re-introduced in Congress on March 10, 2009, is enacted, this Executive Order will take on increased importance since the EFCA would require recognition of unions based on the private and uncontested signing of authorization cards, and this Executive Order implicitly encourages organizational activity.

7. Non-Displacement of QualifiedWorkers Under Service Contracts

This January 2009 Obama Executive Order requires (with minor exemptions) that a successor service contractor must offer jobs to qualified employees (other than managerial and supervisory employees) of the former contractor when it assumes the contract. If contractors violate this Order, they can be ordered to employ the affected individuals and pay them lost wages. In the case of willful violations, they may be debarred from contracting with the federal government for up to three years. The manifest purpose of this Order, although unstated, is to preclude a new contractor from displacing a unionized workforce, and in many instances the result will be higher costs and a less efficient operation. For more information regarding this Executive Order, please see our Alert, "President Obama SignsThree Pro-Labor Executive Orders Governing Federal Contractors. "

8. E-Verify

E-Verify is a program administered by the Department of Homeland Security (DHS) and Social Security Administration (SSA), that enables employers to verify the work eligibility of employees by checking information provided by employees on the Form I-9 against DHS and SSA computer databases.

Although not part of the ARRA, by virtue of a 2008 Presidential Executive Order, federal contractors are required to use E-Verify. However, implementation of that Executive Order is on hold, following the filing of a lawsuit in December 2008 challenging its enforcement. The current implementation date is May 21, 2009. For more information regarding the current status of E-Verify, please see our Alert, "E-Verify for Federal Contractors Now Postponed Until May 21, 2009."

9. Economy in Government Contracting/Prohibition Against Federal Reimbursement of Activities Undertaken to Oppose Unionization

Contractors should also be aware of yet another pro- Labor Executive Order, signed by President Obama in January 2009, that prohibits governmental reimbursement for federal contractor expenses designed to influence workers’ decisions to form unions or engage in collective bargaining, such as expenses associated with preparing and distributing educational materials, paying employees who attend meetings held during working hours to explain why the employer opposes unionization and paying counsel when faced with union organizing. For more information regarding this Executive Order, please see our Alert, "President Obama SignsThree Pro-Labor Executive Orders Governing Federal Contractors. "

10. Presidential Freedom of Information Act (FOIA) Memorandum

President Obama issued a Presidential Memorandum on January 21, 2009, dictating that FOIA responses should be prompt and that all Federal agencies should adopt a presumption in favor of disclosure. An expansive interpretation of FOIA means that contractors will more readily be able to access information in the various federal agencies’ possession that might assist them in making bids (i.e., what are the subsurface conditions at a construction site?), including bids for stimulus fund projects. On the other hand, information regarding the identity of federal contractors, and their contracts, will more likely be readily available in the public domain.

Fox Rothschild can assist your company in understanding the implications of these various rules and in developing a plan to ensure compliance. For more information about this Alert, contact Ian Siminoff at 973.994.7507 or [email protected] , or any member of our Labor & Employment Department.