Rep. Cresent Hardy, R-Nev., says “Small businesses should not be forced to settle unproven claims."

Rep. Cresent Hardy, R-Nev., says “Small businesses should not be forced to settle unproven claims." J. Scott Applewhite/Associated Press

Obama Officials Defend Fair Pay Rule Against ‘Blacklist’ Charges

Contractors, GOP lawmakers warn of record-keeping burden.

Facing a barrage of criticism stemming from President Obama’s fair pay, safe workplace executive order, White House and Labor Department officials on Tuesday appeared at a House subcommittee hearing to defend the plan against industry charges that it would “blacklist” innocent contractors and stifle small business competition through burdensome record-keeping.

Executive Order 13673, which Obama signed in July 2014, requires prospective federal contractors to disclose any labor law violations and tasks agencies with giving greater consideration to such violations in contract awards.

But Rep. Richard Hanna, R-N.Y., chairman of the House Small Business Contracting and Workforce Subcommittee, assembled an array of business representatives who attacked the order’s ongoing implementation by the Labor Department and the Federal Acquisition Regulation Council. “There are valid concerns that the implementation of this executive order will result in potentially innocent small businesses effectively being blacklisted from participating in government contracting,” Hanna said.

Calling the plan “an executive order in search of a problem,” Hanna argued that the administration’s uses of adjectives such as “significant” and “egregious” to describe contractor labor law violations was “too subjective.”

Rep. Cresent Hardy, R-Nev., chairman of the Investigations, Oversight, and Regulations Subcommittee, said, “Small businesses should not be forced to settle unproven claims, they should not be forced to disclose commercially sensitive information to their competitors, and they also should not be forced to report information that the federal government already has.”

Attorney Angela Styles, a former White House administrator for Federal Procurement Policy and now a partner with Crowell & Morning, warned of “severe unintended consequences for small businesses,” including high compliance costs that will deter them from participating in the federal marketplace. She warned of new powers being given to a new federal position called “agency labor compliance adviser” and blasted the Obama team for a “failure to give even the most basic rationale for the necessity of this rule.”

Anne Rung, the current Administrator of the Office of Federal Procurement Policy, stressed the Obama team’s commitment to implementing the order “in a manner that is clear, fair, and effective.” Agencies have been actively seeking feedback from stakeholders since Obama signed the order, she said.

The rationale “is that contractors that consistently adhere to labor laws are more likely to have workplace practices that enhance productivity and deliver goods and services to the federal government in a timely, predictable, and satisfactory fashion,” Rung said.

She cited reports from the Government Accountability Office and congressional committees documenting “egregious violations by companies that win repeated federal contracts, and which have performance problems.” One food company had been cited for 100 violations of Occupational Safety and Health Administration regulations, resulting in several deaths.

Rung promised to minimize the burden and acknowledged that “there will be a cost.” Too often, information on companies’ labor law violations isn’t widely available, agencies aren’t using it or are not aware of it, she said. The rule has not had “impact on the type of companies entering the marketplace,” Rung said. But as a result of stakeholder feedback, the administration is planning to phase in required disclosure of past violations of state laws. Another adjustment would relieve the reporting burden on prime contractors by allowing subcontractors to negotiate directly with the Labor Department.

Her colleague Lafe Solomon, the Labor Department’s senior labor compliance adviser, testified that “contractors who invest in their workers' safety and maintain a fair and equitable workplace should not have to compete with contractors who offer slightly lower bids—based on savings from skirting labor laws—and then ultimately deliver poor performance to taxpayers.” After a company is charged with a violation, he said, “there is a full and thorough investigation by a neutral adjudicator, and a significant number are found to be without merit.”

The administration would prefer that companies talk to the Labor Department before a contract is awarded to “drive down the need for suspension and debarment,” Solomon said. The overall goal is to provide a uniform decision-making mechanism in government.”

The Professional Services Council, which represents some 400 contractors, submitted testimony asking that the executive order be rescinded. “Despite its laudable intent, the executive order will act as a de facto blacklisting of well-intentioned, ethical businesses, will restrict competition for contracts, will create procurement delays, and will add to the cost of doing business with the government,” said PSC President and CEO Stan Soloway.

Rung was asked by Rep. Tom Rice, R-S.C., to give an example of how the administration’s regulatory look-back has reduced compliance costs for business. She said only that “in the end, compliance with labor laws saves money and promotes efficiency.”

Chairman Hardy ended by saying, “I hope you will reconsider your thought process.”