New Rules for Federal Contractors: Can Small Businesses Bear the Load?

New Rules for Federal Contractors: Can Small Businesses Bear the Load?

Federal contractors have become the guinea pigs for testing out labor and social policies. Since 2009, federal contractors (and subcontractors) have been the target of some 13 Executive Orders and 16 related federal regulations.  While the intent of many of these policies is arguably good, the compliance requirements and related costs make it harder to do business with the government. This is the case especially for small companies.  The cost of regulatory compliance in general is 36% higher for small firms, and therefore affects their ability to compete in the federal marketplace. (See blog:  Small Business Regulatory Watch)

It may be acceptable to require companies doing business with the Federal government to meet higher standards.  At the same time, it is in the public interest to ensure true competition in federal procurement as a means to getting the best product or service at the best price.  (See blog: A Fair Shake for Small Businesses: Five Federal Contracting Reforms)  The public benefits gained by creating more hoops and hurdles should be weighed against the compliance costs that could push more and more contractors out of the marketplace.  Since 2013, more than 100,000 companies have stopped doing business with the federal government.  To balance the public goods of higher standards and greater competition in federal procurement, new requirements for contractors should be thoughtfully tailored to meet their desired goals in the least burdensome way. That is the challenge for regulators and lawmakers.

New Requirements for Federal Contractors

Paid Sick Leave

The most recent Executive Order (EO) announced by the President on Labor Day would require federal contractors to offer their employees up to seven days of paid sick leave per year beginning with new contracts in 2017.  For every 30 hours worked, employees will earn one hour of paid sick leave to be used for themselves or to care for a loved one (some other circumstances also qualify — domestic violence, sexual assault, stalking).  Contractors may already have a such a policy, but now they will need to implement, track and report it the way the Federal government deems acceptable.

Minimum Wage

At the beginning of 2015, the minimum wage paid to employees of federal contractors was increased from $7.25 to $10.10 an hour, which will be updated by the Department of Labor in each subsequent year. The final rule issued by the Department of Labor clarifies that the minimum wage requirment applies to four types of contracts: contracts for construction covered by the Davis-Bacon Act, service contracts covered by the Service Contract Act, concessions contracts, and contracts in connection with Federal property or lands and related to offering services for Federal employees.

Labor Law Compliance or “Blacklisting”

Executive Order 13,673 requires that for contracts valued at more than $500,000, prime and sub contractors will be required to disclose any “violations” of 14 different federal labor laws (or equivalent state laws) during the preceding three years (even mere allegations of unproven violations) and document mitigation efforts to the government or prime contractor.  These reporting requirements are expected to become effective in 2016.

These are only three examples on the list of growing requirements for federal contractors.  Others include rules around workplacee discrimination; displacement of qualified workers, pay secrecy, notification of employee rights under labor laws, and more.  For contractors, understanding and implementing these workplace policies and business practices is only the first step, there are also numerous reporting requirements to prove compliance.

For each contractor, the point at which the load becomes too much to bear will be different, but for small businesses — often the ones offering innovation and lower costs to the government and taxpayers — the tipping point is likely to come before that of their large competitors.  And, for some businesses contemplating a foray into federal contracting, the price of admission may just be too high.