In February 1997, Vice President Gore promised the AFL-CIO that the Administration would amend the Federal Acquisition Regulation ("FAR") to prevent contractors with "unsatisfactory labor records" from receiving federal contracts. He also promised that the federal contractors' cost of defending themselves against charges of either labor or employment law violations would no longer be treated as allowable costs. No immediate action was taken to fulfill those promises. However, with the Presidential election growing nearer, promises to key support groups tend to be remembered. Last July, the Federal Acquisition Regulatory Council published proposed rules that appear to deliver on these promises. One of the key rules was termed as a clarification of the kinds of contractor activities that support "an unsatisfactory record of integrity and business ethics" for purposes of pre-award responsibility determinations under Federal Acquisition Regulation Part 9.
The proposed regulation would amend FAR Section 9.104-1 (d), the regulation that addresses responsibility determinations of prospective contractors, to read as follows:
(d) Have a satisfactory record of integrity and business ethics (examples of an unsatisfactory record may include persuasive evidence of the prospective contractor's lack of compliance with tax laws, or substantial noncompliance with labor laws, employment law, environmental laws, antitrust laws or consumer construction protection laws);
(emphasis added)
The proposed regulations contain no definition of "persuasive evidence" or "substantial noncompliance." However, they clearly empower the contracting officer to make determinations regarding the contractor's compliance or noncompliance with a broad variety of federal laws and topics. The scope of this new proposed authority should be particularly troublesome to contractors since the determination of compliance with these laws is often a highly technical question requiring specialized knowledge and extensive experience. It is questionable whether the contracting officers have the time or the training to make truly knowledgeable decisions in these areas independent of some adjudicatory decision by a court or board authorized by statute to make final and binding determinations under one or more of these laws.
While not addressed in the proposed regulations, an effort to obtain a review of a contracting officer's determination of nonresponsibility is extremely difficult. Traditionally, the Comptroller General of the United States (GAO) has refused to entertain challenges to responsibility determinations unless there is an allegation of fraud or there is some basis demonstrating that the determination was arbitrary and capricious.
Consequently, the administration's proposed revision to the FAR not only gives contracting officers authority and power to review contractor "compliance" with well over a half a dozen federal laws related to labor relations, environmental protection, tax and antitrust laws, etc. This authority coupled with the traditional deference afforded agency determinations of responsibility or non-responsibility in the procurement process means that a contractor could have little or no practical means of challenging a contracting officer's determination that it is nonresponsible due to alleged noncompliance with one or more of the socioeconomic policies, antitrust laws, tax laws, or consumer protection laws.
While the comments to the proposed regulation state that it was the FAR Council's conclusion that the proposed regulation was not a "significant" regulatory action, the practical effect of these proposed regulations is obviously significant for all contractors who compete for the award of Federal Government contracts. The comment period for this proposed regulation ends on November 9th, 1999. Comments regarding this regulation should be addressed to the following:
General Services Administration, FAR Secretariat (NVR), 1800 F Street, N.W., Room 4035, Washington, DC, 20405, Attention: Laurie Duarte.
The Clinton Administration appears to be fully committed to this proposed revision of the FAR regulation on responsibility. Once adopted, this regulation could prove to be a difficult provision to amend, particularly in an election year. Therefore, letters and/or telegrams to your U.S. Senators and member of the U.S. House of Representatives may be more effective than even comments directly to the FAR Council.
In addition to the proposed regulation broadening the basis for determining the responsibility of a contractor, the Clinton Administration has also proposed changes to the cost principles found in FAR Part 31. Although costs incurred by a contractor in maintaining satisfactory labor relations would continue to be allowable under FAR §31.205-21, the proposed cost regulation would prevent contractors from recovering costs incurred for activities related to influencing employees' decisions regarding unionization. Again, the contracting officer will be placed in the position of determining whether the contractor's cost was incurred to maintain satisfactory relations with employees or to "influence" employees' decisions regarding unionization. This is likely to stimulate disputes as costs are disallowed under this cost principle. Nothing in the regulation or its accompanying comments explains to the contracting officer or the agency audit staff how to distinguish these costs.
These proposed regulations warrant immediate attention if your firm performs work for the Federal Government. If you need further information as you consider communications to your Congressional representatives, please feel free to contact us.