By: Paul Davis on February 29th, 2016

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The Top Regulations You Need to Know as a Government Contractor

Risk Management

Avoid the Cost of Non-Compliance & Mitigate Your Risk

It's likely that you are already well aware of a variety of state employment law regulations, but did you know that if you receive funding from the US federal government, it places additional requirements (and corresponding penalties for non-compliance) on your company?

Luckily, there are steps you can take to mitigate your risk and ensure compliance with federal contracts.

Whether organizations are covered by these regulations typically depends on their headcount, and the size and type of (service, construction, etc.) their contracts. Based on this, the best approach for any government contractor regarding compliance is to first start by determining which regulations cover their organization. For this article, I’ve chosen the five regulations specific to federal contractors that I receive the most questions about from my clients.

The following three regulations require some separate actions, such as reporting, but all are covered under the enforcement umbrella of the Office of Federal Contract Compliance Programs (OFCCP).

The cost and penalties for non-compliance with federal contracts can include:

  • Back pay and other ‘make whole’ relief for aggrieved individuals identified during an OFCCP audit, and;
  • Contract-related penalties involving the government withholding payment, terminating a contract, and debarment in extreme cases.
  • Section 503 of the Rehabilitation Act of 1973: prohibits discrimination and requires affirmative action in the employment of qualified individuals with disabilities.
  • Executive Order 11246: prohibits discrimination and requires affirmative action to ensure that all employment decisions are made without regard to race, color, religion, sex or national origin.
  • The Vietnam Era Veterans' Readjustment Assistance Act (VEVRAA) of 1974: prohibits discrimination against specified categories of veterans protected by the Act and requires affirmative action in the employment of such veterans.

As described by the OFCCP, the associated regulations cover a variety of mandatory requirements including:

  • Hiring benchmarks
  • Data collection
  • Invitation to self-identify
  • Incorporation of the equal employment clause regarding subcontracts
  • Job postings
  • Records access
  • Posting an EEO poster
  • Recurring reports
  • Affirmative Action Plans

In addition to the two laws and Executive Order (EO) mentioned above, there are wage and hour laws that cover government contractors. Two of them in particular are going to be called out here due to the large number of government contracts that they cover.

  • The McNamara-O’Hara Service Contract Act (SCA)The McNamara-O'Hara Service Contract Act (SCA) applies to every contract entered into by the United States or the District of Columbia, the principal purpose of which is to furnish services to the United States through the use of service employees. The SCA requires contractors and subcontractors performing services on covered federal or District of Columbia contracts in excess of $2,500 to pay service employees in various classes no less than the monetary wage rates and to furnish fringe benefits found prevailing in the locality, or the rates (including prospective increases) contained in a predecessor contractor's collective bargaining agreement.

There are many intricacies employers with contracts covered by the SCA need to be aware of. Some useful information from the Department of Labor can be found here, but this act can be difficult to navigate for even experienced HR professionals.

  • The Davis Bacon and Related ActsDavis Bacon (DC) is very similar to the SCA except that it is specific to federal contractors with construction, alteration, or repair (including painting and decorating) contracts over $2,000. Davis Bacon also requires contractors pay their covered employees the prevailing wages for the locality. Please note that after the renumbering of Wage Determinations in 2013, the DOL recommends a search by state, county, and type of construction to find the correct Wage Determination currently in effect.

Penalties and sanctions for noncompliance with the SCA or DB can include:

  • Withholding of contract payments in sufficient amounts to cover wage and fringe benefit underpayments
  • Costs of legal action to recover underpayments
  • Contract termination and associated liability for resulting costs to the government, and debarment in extreme cases

These regulations are just the tip of the iceberg regarding employment-related compliance that businesses have to contend with. While the effort and complexity required for effective compliance may seem daunting, remember to start by identifying what regulations cover your business. And this is a relatively easy first step.

For additional information regarding compliance, my colleague, Kim Moshlak, has written a great article that also touches on a number of related topics.