What Obama’s new executive order means for federal contractors

Companies that violate labor laws will now have a tougher time doing business with the government.

President Obama’s recent executive order prevents federal contractors who have violated labor laws from competing for certain types of work and gives agencies greater guidance on how to take those violations into account while awarding contracts. It also expands labor protections for contractor employees.

What’s new about this measure is the requirement that contractors have to keep tabs of their own mistakes. As part of the order, businesses will have to self-report their labor violations and provide government agencies an update every six months. What’s more, prime contractors will also be responsible for checking whether subcontractors have clean records.

“This is a remarkable change from the status quo,” said Lawrence Prosen, a partner at law firm Thompson Hine who represents contractors. “Now you’re shifting the burden to contractors to comply with another bureaucratic step.”

The measure is Obama’s second executive order related to federal contractors in recent weeks and his fourth one this year. His earlier measure prevented companies from discriminating against workers based on their sexual orientation. But unlike that move, which contractors viewed as a formality given that they already have similar policies in place, the labor order has sparked heated reactions from industry groups.

“This order actually adds more complexity and confusion to the federal contracting process,” Alan Chvotkin, executive vice president and counsel of the Professional Services Council, said in a statement.

The International Franchise Association, a trade group, said it “holds American businesses to an unreasonable standard of perfection.”

Contractors argue that the order unfairly singles them out for stricter oversight, and potentially bars them from receiving government work even though their violations may be unintentional.

But supporters of the measure say the requirements were long overdue and necessary in the face of multiple reports that showed how contractors who didn’t comply with the law still received lucrative work.

“We think that disclosing labor violations is a good thing for the public and for government,” said Neil Gordon, an investigator for the Project on Government Oversight, a nonprofit.

The order is effective immediately, but the White House expects it to be implemented by 2016. That’s because it calls for many changes in the current oversight structure. The General Services Administration is tasked with setting up a Web site that will serve as a single entry point for contractors to report whether they’re compliant. In addition, the Federal Acquisition Regulatory Council will have to draft new regulatory guidance for government agencies and seek public comment before finalizing them.

Other provisions of the order:

Contractors have to provide employees information that will help them verify the accuracy of their paychecks.

Employees have the right to settle disputes related to sexual harassment or assault in front of a judge rather than an arbitrator, for contracts that exceed $1 million.

Government agencies have to designate one official the Labor Compliance Officer to help them determine if a contractor is displaying a “lack of integrity or business ethics.”