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[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]

                THE BLACKLIST: ARE SMALL BUSINESSES GUILTY 
                         UNTIL PROVEN INNOCENT?

=======================================================================

                                HEARING

                               BEFORE THE

               SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

                             JOIN WITH THE 

       SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT AND REGULATIONS

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                           SEPTEMBER 29, 2015

                               __________

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 
                               

            Small Business Committee Document Number 114-023
              Available via the GPO Website: www.fdsys.gov
              
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                         U.S. GOVERNMENT PUBLISHING OFFICE
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman
                            STEVE KING, Iowa
                      BLAINE LUETKEMEYER, Missouri
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                        TOM RICE, South Carolina
                         CHRIS GIBSON, New York
                          DAVE BRAT, Virginia
             AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                        STEVE KNIGHT, California
                        CARLOS CURBELO, Florida
                          MIKE BOST, Illinois
                         CRESENT HARDY, Nevada
               NYDIA VELAZQUEZ, New York, Ranking Member
                         YVETTE CLARK, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                       BRENDA LAWRENCE, Michigan
                       ALMA ADAMS, North Carolina
                      SETH MOULTON, Massachusetts
                           MARK TAKAI, Hawaii

                   Kevin Fitzpatrick, Staff Director
            Stephen Denis, Deputy Staff Director for Policy
            Jan Oliver, Deputy Staff Director for Operation
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director
                            
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Richard Hanna...............................................     1
Hon. Crescent Hardy..............................................     2
Hon. Mark Takai..................................................     3
Hon. Alma Adams..................................................     4

                               WITNESSES

The Hon. Angela B. Styles, Chair and Partner, Crowell & Morning, 
  Washington, DC.................................................     5
Mr. Theron M. Peacock, P.E., BSCP, Senior Principal/President, 
  WOODS/PEACOCK Engineering Consultants, Alexandria, VA, 
  testifying on behalf of the American Council of Engineering 
  Companies......................................................     7
Ms. Debbie Norris, Vice President, Human Resources, Merrick & 
  Company, Greenwood Village, CO, testifying on behalf of the 
  Society for Human Resource Management..........................     8
Mr. William J. Albanese, Sr., General Manager, A & A Industrial 
  Piping, Inc., Fairfield, NJ, testifying on behalf of the 
  Mechanical Contractors Association of America and the Campaign 
  for Quality Construction.......................................    10
The Hon. Anne Rung, Administrator, Office of Federal Procurement 
  Policy, Office of Management and Budget, Washington, DC........    20
Mr. Lafe Solomon, Senior Labor Compliance Advisor, Office of the 
  Solicitor, United States Department of Labor, Washington, DC...    21

                                APPENDIX

Prepared Statements:
    The Hon. Angela B. Styles, Chair and Partner, Crowell & 
      Morning, Washington, DC....................................    32
    Mr. Theron M. Peacock, P.E., BSCP, Senior Principal/
      President, WOODS/PEACOCK Engineering Consultants, 
      Alexandria, VA, testifying on behalf of the American 
      Council of Engineering Companies...........................    40
    Ms. Debbie Norris, Vice President, Human Resources, Merrick & 
      Company, Greenwood Village, CO, testifying on behalf of the 
      Society for Human Resource Management......................    48
    Mr. William J. Albanese, Sr., General Manager, A & A 
      Industrial Piping, Inc., Fairfield, NJ, testifying on 
      behalf of the Mechanical Contractors Association of America 
      and the Campaign for Quality Construction..................    55
    The Hon. Anne Rung, Administrator, Office of Federal 
      Procurement Policy, Office of Management and Budget, 
      Washington, DC.............................................    72
    Mr. Lafe Solomon, Senior Labor Compliance Advisor, Office of 
      the Solicitor, United States Department of Labor, 
      Washington, DC.............................................    76
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    ABC - Associated Builders and Contractors, Inc...............   118
    PSC - Professional Services Council..........................   135

 
   THE BLACKLIST: ARE SMALL BUSINESSES GUILTY UNTIL PROVEN INNOCENT?

                              ----------                              

                      TUESDAY, SEPTEMBER 29, 2015

                  House of Representatives,
               Committee on Small Business,
          Subcommittee on Contracting and Workforce
                                     joint with the
     Subcommittee on Investigations, Oversight and 
                                        Regulations
                                                    Washington, DC.
    The Subcommittees met, pursuant to call, at 10:00 a.m., in 
Room 2360, Rayburn House Office Building. Hon. Richard Hanna 
[chairman of the subcommittee on Contracting and the Workforce] 
presiding.
    Present from Subcommittee on Contracting and the Workforce: 
Representatives Hanna, Takai, Rice, Knight, Bost, and Kelly.
    Present from Subcommittee on Investigations, Oversight
    and Regulations: Representatives Hardy, Adams, and
    Clarke.
    Chairman HANNA. Thank you for being here. I am sorry I am a 
little bit late, so let us get started. I call this hearing to 
order.
    At a time when small contractors are disappearing from our 
industrial base--we have lost over 100,000 since 2013--the 
administration continues to place additional burdens on those 
that would like to sell their goods and services to the Federal 
Government. We should be working to expand the universe of 
contractors, not shrink it. However, I feel the 
administration's actions will further reduce the number of 
small contractors that are participating in the federal 
marketplace.
    Since 2009, President Obama has issued 13 executive orders 
that relate to government contracting, which have resulted in 
16 new regulations so far, and there are likely to be more to 
come. While some of these mandates may be well intentioned, 
they also have cost, and too often costs significantly outweigh 
the actual positive effects. In that fact, it is estimated that 
compliance with government unique regulations cost almost 30 
cents of every contract dollar.
    Today, we are going to talk about the Executive Order 
13673, which the administration has titled Fair Pay and Safe 
Workplaces. As a former small business owner, I support the 
idea of fair pay and safe workplaces. I am sure we all do. 
Companies with labor law violations that affect their 
performance of contracts should be suspended or debarred; 
however, the executive order and the resulting proposed 
legislation and guidance so far go way beyond that. Instead, it 
seems to punish companies for unproven allegations. The 
Department of Labor and Federal Acquisition Regulatory Council 
have the primary responsibility for implementing Executive 
Order 13673. So I am glad that we have key officials from both 
agencies here today. I hope they listen to the small businesses 
that are testifying and truly consider the significant negative 
consequences associated with their proposals. There are valid 
concerns that implementation of this executive order will 
result in potentially innocent small businesses effectively 
being blacklisted from participating in government contracting.
    I do not believe that the Obama administration would intend 
this to be the result, but as drafted, implementation of 
Executive Order 13673 is likely to yield this result. So from 
my standpoint, this seems to be an executive order in search of 
a problem, but I am here to listen today to those that would be 
affected and those that will be implementing this executive 
order to determine if there is anything that the administration 
could do to make it more workable.
    With that, I yield to Chairman Hardy for his opening 
remarks. Chairman?
    Chairman HARDY. Thank you, Chairman Hanna.
    I am please our Subcommittee is holding this hearing to 
examine the impact of Executive Order 13673 on small 
businesses. In my opinion, this executive order is just another 
example of the executive overreach that has become the hallmark 
of the Obama administration, and it could have a devastating 
impact on small business and government contractors. I agree 
that the companies who are considered bad actors in their field 
should not be rewarded with federal contracts, but there is 
already a process that allows the Federal Government to weed 
out these bad actors. Instead of using the existing process, 
the Obama administration is going to impose significant new 
burdens on all federal contractors, even though it says that 
the vast majority of federal contractors play by the rules. 
Small businesses do not need to 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. Most importantly, they should not be 
blacklisted from participating in federal contracting based on 
the accusations that they were ultimately being proven innocent 
for the past labor law violations in which they have already 
paid fines or otherwise corrected.
    I am particularly concerned that this executive order will 
lead to fewer small businesses selling goods and services to 
the Federal Government. We need a healthy industrial base with 
many small businesses working to provide the government with 
the innovative goods and cost-effective services. When fewer 
small businesses compete for federal contracts, the outcome 
will be less innovation and higher cost to the taxpayer. This 
is not good for the United States. I cannot help but think the 
additional mandates that have been piled on to the government 
contractors by this Obama administration has led some small 
businesses to leave the marketplace and discourage others from 
entering it. After all, increasing the costs and complexity of 
government contracting makes it more difficult for small 
businesses to sell goods and services to the Federal 
Government.
    I would like to thank the witnesses for appearing before 
the Subcommittee today, and I look forward to hearing your 
concerns of the small government contractors, and I look 
forward to discussing their concerns with the representatives 
from the Department of Labor and the Federal Acquisition 
Regulatory Council. With that I yield back, Mr. Chairman.
    Chairman HANNA. Thank you.
    Mr. Takai, the ranking member?
    Mr. TAKAI. Thank you, Mr. Chairman. Good morning and aloha.
    Thank you, Mr. Chairman, for holding this important 
hearing. Small business participation in the federal 
marketplaces has always been a priority for this Committee and 
Congress. When entrepreneurs are able to sell their goods and 
services to federal agencies there is a win-win situation. 
Taxpayers receive more bank for their bank with the delivery of 
quality products and services being supplied by the government. 
Meanwhile, many small firms are able to grow, confident that 
they have a client and a partner that will provide them with a 
steady stream of reliable work.
    The federal marketplace continues to constitute a 
significant portion of the U.S. economy with government 
spending at 447.6 in fiscal year 2014. In the past, Congress 
has used its significant financial might to help drive forward 
a number of policy goals. We passed legislation, for instance, 
aimed at ensuring small businesses get a fair shot at these 
projects. Likewise, this Committee has worked in a bipartisan 
manner to help women and minority-owned businesses navigate the 
procurement process. The fact of the matter is as a large 
customer, the Federal Government has the ability to use its 
buying power to advance priorities important to our nation as a 
whole.
    It is in that context that we must view the president's 
most recent executive order, which is designed to ensure that 
firms that contract with the Federal Government understand and 
comply with laws. We should be clear of the businesses that 
perform work for the government, the overwhelming majority 
comply with labor and safety laws and do right by their 
employees while remaining providing excellent goods and 
services at competitive prices.
    That said, this Committee has heard a number of bad actors 
who have skirt the law and continue to receive federal contract 
work. Not only is this bad for workers but it puts honest firms 
that abide by these rules at a disadvantage. Simply put, 
federal agencies should not be rewarding companies with a poor 
labor and safety record with additional opportunities at 
taxpayer expense. Executive Order 13673 is an attempt to 
address this challenge by requiring companies to disclose 
previous labor and safety law violations from the past three 
years. Even if a contract has such violations on record, firms 
would only be denied contracts in the most egregious of 
instances. While this is a reasonable goal, all of us want to 
see safe workplaces. We must monitor carefully the details of 
how it is implemented.
    There remains a number of thorny technical questions about 
how this new proposal will impact small businesses. For 
instance, many small businesses act as subcontractors to larger 
companies that bid on federal work. In most cases, the work 
they do fulfills the majority of the scope of work under the 
contract. Under this new order, prime contractors would be 
required to obtain labor law violations certifications from 
their subs.
    There are reasonable concerns that prime contractors may 
avoid doing work with certain subs all together in the event of 
any previous problems with labor laws. This raises issues about 
whether subcontractors should simply certify directly at the 
agency level. These and other issues will need to be addressed 
as this Committee examines this executive order. As always, it 
will be our challenge to balance small businesses' very real 
concerns against the legitimate needs to protect the public 
and, in this case, ensure federal dollars are spent in a way 
that does not harm workers.
    I look forward to hearing the witnesses' perspective on 
these important topics, and I yield back. Thank you, Mr. 
Chairman.
    Chairman HANNA. Thank you.
    Ranking Member Adams?
    Ms. ADAMS. Thank you, Mr. Chairman.
    Each year the Federal Government spends over $400 billion 
in taxpayer dollars to provide private companies for goods and 
services. And while these funds boost the economy and allow 
firms to hire more employees, we have seen instances in which 
these same businesses violate safety and wage laws to increase 
their profits. According to one report, almost half of the 
total initial penalty dollars assessed for occupational safety 
and health administration violations in 2012 were against 
companies holding federal contracts.
    Unfortunately, the safety and labor violations do not stop 
there. Multiple employees at some facilities have sustained 
injuries and some have even lost their lives. However, rarely 
were the businesses where these incidents occurred debarred or 
suspended from the federal marketplace as a result of their 
unsafe working environments. Labor laws are crucial to a 
healthy economy. When workers receive their proper wages, they 
participate in the economy as consumers. Additionally, 
providing a safe working environment in which injuries are 
unlikely allows employees to continue working and employers to 
increase their productivity.
    Therefore, to ensure that contractors are adhering to these 
important laws, President Obama issued the Fair Pay and Safe 
Workplaces Executive Order last year. The order is intended to 
increase efficiency and cost savings in the work performed by 
contractors by ensuring they understand and comply with labor 
laws. Under the proposed guidance issued to implement the 
order, contractors who are bidding on contracts valued at over 
$500,000 will have to disclose their labor law violations that 
have occurred within the past three years. Contracting 
officers, with the help of labor compliance advisors, will then 
use this information to help determine whether or not a 
business is responsible. If the regulations fit into the 
existing procurement process, the contracting officer will just 
have access to additional information regarding contractors' 
labor history. Furthermore, the order also provides employees 
protections to ensure that they receive accurate wages and have 
the opportunity to litigate certain claims in a court rather 
than by arbitration.
    However, as we hear today, there is some concern that the 
executive order will be overly burdensome on small businesses. 
Small businesses provide quality goods and services at 
affordable prices, meaning a better deal for the government and 
the taxpayer. Yet, they have smaller margins and new 
regulations can be harder for them to absorb. With small 
businesses creating over two-thirds of new jobs, our economy 
needs both small businesses and healthy and safe employees to 
properly operate.
    Therefore, in moving forward with the implementation of 
this executive order, it is important that we find a balance in 
which small businesses are not overly burdened by complying 
with the guidelines while still ensuring that contractors who 
habitually put their employees in harm's way are removed from 
the contracting process until they have shown progress in 
correcting their labor law compliance.
    And with that, Mr. Chairman, I would like to thank the 
witnesses for testifying today, and I yield back.
    Chairman HANNA. Thank you.
    If Committee members have an opening statement prepared, I 
ask that they submit it for the record.
    Just for information--you probably already know this--you 
have five minutes. When the light goes yellow, you have one, 
but we will be lenient. So with that, our first witness is the 
Honorable Angela Styles, who currently serves as chair and 
partner of Crowell and Moring, and co-chair of the firm's 
Government Contracts Group in Washington, D.C. From 2001 to 
2003, Ms. Styles served as the administrator of the Office of 
Federal Procurement Policy at the Office of Management and 
Budget.
    Ms. Styles, in the interest of time, you may begin.

STATEMENTS OF ANGELA B. STYLES, CHAIR AND PARTNER, CROWELL AND 
    MORING; THERON M. PEACOCK, P.E., BSCP, SENIOR PRINCIPAL/
   PRESIDENT, WOODS PEACOCK ENGINEERING CONSULTANTS; DEBBIE 
 NORRIS, VICE PRESIDENT, HUMAN RESOURCES, MERRICK AND COMPANY; 
   WILLIAM J. ALBANESE, SR., GENERAL MANAGER, A&A INDUSTRIAL 
                          PIPING, INC.

                 STATEMENT OF ANGELA B. STYLES

    Ms. STYLES. Thank you. Thank you, Chairman Hanna, Chairman 
Hardy, Congressman Takai, Congresswoman Adams, and members of 
the Subcommittees. I appreciate the opportunity to appear 
before you today.
    As co-chair of Crowell and Moring's Government Contracts 
Group, and as former administrator for Federal Procurement 
Policy at the Office of Management and Budget, I have worked 
closely with small business contractors throughout my 
professional career. I am deeply concerned that the executive 
order will undermine the government's longstanding policy of 
maximizing contract opportunities for small businesses. If the 
EO is aimed only at a small number of bad actors, then surely 
there is a more efficient way to accomplish this goal than 
imposing requirements that will lead to procurement delays, the 
blacklisting of ethical companies, and reduced competition in 
the federal marketplace.
    My written testimony today highlights the following five 
principle concerns. Potentially severe unintended consequences 
for small businesses, the high compliance cost that will deter 
small businesses from participating in the federal marketplace, 
the diversion of federal employees from assisting and growing 
our small businesses to collecting data, monitoring compliance, 
monitoring enforcement of federal and state labor laws with a 
high risk of de facto debarment of companies, a flawed 
Regulatory Flexibility Act analysis, and really failure to give 
even the most basic rationale for the necessity of this rule.
    For a more in-depth analysis of many portions of this rule, 
I refer you to the official comments submitted by the National 
Association of Manufacturers. They are a client of Crowell and 
Moring's and I attached it to my written testimony. We really 
worked for months and months with the National Association of 
Manufacturers and many companies in industry to really fully 
understand this rule and the potential impacts of the rule.
    But even then you do not consider everything. I was sitting 
last night thinking about the rule itself and really the 
hypocrisy of the situation quite striking to me. While on the 
one hand you have a relatively new OFPP administrator that is 
issuing commendable and forward-thinking memorandum on 
efficiency and performance and improvements and cost savings 
for taxpayers, and on the other hand you have this 
administration issuing the most bureaucratic, far-reaching, 
extensive EO and proposed rule that I have seen in my entire 
career in federal procurement. You cannot have it both ways. 
You cannot have it both ways. You cannot be efficient while at 
the same time issuing something that is such a bureaucratic 
morass for companies, but really particularly for small 
businesses.
    I think for me, a significant and wholly unanswered 
question is why the Federal Government is creating this 
burdensome process in the first place. As Chairman Hanna said, 
this is an EO in search of a problem. Each and every labor law 
identified in the EO has its own separate penalties for 
companies who violate the respective laws, and unlike the EO, 
those labors laws and associated penalties were created by 
Congress rather than mandated by the executive branch.
    The Federal Procurement System also has adequate remedies 
to prevent companies with unsatisfactory labor records from 
being awarded federal contracts. Specifically, suspension and 
debarment officials within every federal agency have broad 
discretion to exclude companies from federal contracting based 
upon evidence of any cause--this is a quote--``any cause so 
serious or compelling in nature that it affects the present 
responsibility of a government contractor.'' To the extent that 
a contractor's compliance record impacts its present 
responsibility, FAR subpart 9.4 sets forth proper channels for 
suspension and debarment proceedings. With established and 
effective systems in place, it makes no sense to create a new 
bureaucracy to review these contracts on a contract-by-contract 
basis with a possibility of astoundingly inconsistent decisions 
by different agencies and different contracting officers.
    Given the scope and complexity, this EO will be 
impractical, if not impossible, to implement. The substantial 
cost of compliance imposed on federal contractors will likely 
lead to higher procurement costs, and I think drive many small 
businesses out of the federal marketplace all together. These 
costs will be borne disproportionately by companies who can 
least afford them, our small businesses. This is an entirely 
unacceptable outcome. The goals of the EO are targeting 
contractors with the most egregious violations, but it could be 
accomplished with the enforcement of existing labor laws and 
our existing suspension and debarment system.
    This concludes my prepared remarks but I am happy to answer 
any questions.
    Chairman HANNA. Thank you.
    Our next witness, Theron Peacock, the senior principal and 
president of Woods Peacock Engineering Consultants, a service-
disabled veteran-owned small business with 16 employees located 
in Alexandria, Virginia. Mr. Peacock has 38 years of experience 
and cofounder. His present business after 22 years at three 
other firms. He is here testifying on behalf of the American 
Council of Engineering Companies.
    Mr. Peacock?

                 STATEMENT OF THERON M. PEACOCK

    Mr. PEACOCK. Thank you, Mr. Hanna.
    Subcommittee Chairman Hanna, Hardy, Ranking Members Takai 
and Adams, and members of the Committee, I appreciate the 
opportunity to testify before you today about the issues 
surrounding the Fair Pay and Safe Workplace Executive Order. My 
name is Theron Peacock. I am a senior principal and the 
president of Woods Peacock Engineering Consultants located in 
Alexandria, Virginia, and we have 16 employees.
    Woods Peacock is a service-disabled, veteran-owned small 
business that focuses on service to a very broad range of 
federal agencies. My firm is an active member of the American 
Council of Engineering Companies, the voice of America's 
engineering industry. ACEC's over 5,000 member firms represent 
hundreds of thousands of engineers and other specialists 
throughout the country. They are engaged in a wide range of 
engineering works that propel the nation's economy and enhance 
and safeguard America's quality of life. Almost 85 percent of 
our firms are small businesses.
    First, ACEC appreciate the Labor Department and the FAR 
Council's efforts to improve labor compliance practices with 
federal contracts. However, as Chairmen Chaffetz and Kline have 
noted, this guidance is fixing a problem that does not exist. 
The Council is concerned that the guidance will make compliance 
so difficult that it will drive a significant amount of private 
industry, both large and particularly small business, from the 
federal market.
    There are three broad issues with the guidance that the 
Department of Labor and the FAR Council released this past May. 
First, the reporting is burdensome and duplicative. Under the 
guidance there are 14 federal laws and executive orders that 
implicate the law. Are you aware that much of the reporting 
data that is requested is already reported to a variety of 
federal agencies? For example, annual compliance reports are 
required for EEOC, OSHA, and the Rehabilitation Act, and Davis-
Bacon requires weekly reporting. Additionally, all federal 
contractors are required to file annual reports in SAM. Why add 
another report when the data has already been received?
    Let me just give you an example. As a subconsultant, we 
have contracts with over 30 prime AEs. If we need to submit 
these reports to all 30 primes, who in turn submit the 
information to the government, you will be getting the very 
same information multiple times and putting it in the same 
database. When you consider that each prime needs to have 
multiple firms under their contracts, this accumulates into a 
very significant duplication of record that will do nothing 
more than create confusion.
    Second, these regulations will significantly complicate the 
relationship between primes and subcontractors and will likely 
result in the development of a blacklist for subcontractors, 
significantly reducing the number that will quality to do 
federal work. Under the guidance at the time of execution, 
contractors must require subcontractors to disclose any 
administrative merit determinations or other complaints within 
the preceding three years. This will force the contractors to 
bar any subcontractor that is stuck in any judicial process. In 
engineering, roughly 50 percent of prime engineering work is 
subcontracted. Primes and subcontractors switch positions 
frequently. By requiring primes and subs to share confidential 
business information, they are sharing information that can 
damage your ability to compete against each other in the 
future.
    Third, there are due process implications with these 
regulations. Under the guidance, claims that have not been 
decided or even heard by a judge will obligate the firm to make 
a report. This will allow for claims that will not have had the 
benefit of a third-party hearing of the dispute to potentially 
place the firm in positions to lose their business. It also 
places the contracting officer in an untenable position. Under 
the guidance, the labor advisor has three days to decide on the 
outcome of a report. If the labor advisor does not submit a 
report, then the contracting officer will have to make the 
decision regarding a firm's labor compliance. The contracting 
officer will become the judge in a complaint, and they are not 
qualified to do that. Given the risk adverse nature of 
contracting, this requirement will force the contracting 
officer to disqualify the firm or subcontractor so that they 
are not subject to the risk of censure.
    ACEC asked the Committee to work with Labor and the FAR 
Council on redrafting the rule to make sure that construction 
services can succeed in the federal marketplace. These 
regulations have the potential to unfairly prohibit my firm and 
many of ACEC's member firms from participating in these 
opportunities.
    Thank you for the opportunity to participate in today's 
hearing, and I would be happy to respond to any questions from 
the Committee members.
    Chairman HANNA. Thank you.
    Our third witness is Ms. Debbie Norris, who served as vice 
president of Human Resources for Merrick and Company, a federal 
contractor based in Greenwood Village, Colorado, which is 
located just outside of Denver.
    Ms. Norris, you may begin.

                   STATEMENT OF DEBBIE NORRIS

    Ms. NORRIS. Chairman Hanna and Hardy, Ranking Members Adams 
and Takai, and distinguished members of the Subcommittees, my 
name is Debbie Norris, and I am vice president of Human 
Resources at Merrick and Company, a small business federal 
contractor located in Colorado. I appear before you today on 
behalf of the Society for Human Resource Management (SHRM). 
Thank you for the opportunity to testify today on my experience 
as a representative of small business competing for and 
managing federal contracts.
    Mr. Chairman, first, let me make clear that the president's 
goal of providing fair pay and a safe workplace is a shared 
goal. After all, who would not be for that? In fact, I work to 
provide a safe workplace and to help make Merrick an employer 
of choice, not just because it is the right thing to do but 
because it provides us a competitive advantage in our industry. 
Unfortunately, this order as written is unworkable and should 
be withdrawn.
    In Fiscal Year 2014, my company, Merrick, managed 329 
federal contracts, some of which we were prime and some of 
which we were sub, for the Department of Defense, Department of 
Energy, NNSA, National Science Foundation, among many others. 
We have been recognized as a best company to work for in 
Colorado on five different occasions. Our internship program 
has been recognized as a best practice in the Denver Metro 
area. And I mention these awards because despite the fact that 
my company invests significant time and resources on compliance 
and creating a sought after work environment, we believe the 
FAR Council regulations and the DOL guidance to implement the 
Fair Pay and Safe Workplace executive order will have a 
significant and negative impact on our ability to maintain 
current contracts, compete for new ones, as well as attract 
employees.
    In my testimony today, I will address some of the key 
concerns small businesses have with this proposal. First, I am 
really concerned about requirements to report nonfinal agency 
actions. In my experience, it is not uncommon for companies to 
undergo agency investigations and even be issued a notice of a 
violation that turns out to be unfounded. If nonfinal agency 
actions are considered, companies like mine could lose a 
contract as a result of cases or investigations that are not 
yet final or eventually dismissed.
    I would like to offer one example. As a federal contractor, 
Merrick is audited by the OFCCP on a periodic basis. Our 
current audit started in September 2014, and we still have not 
received a determination from the OFCCP. Not very timely.
    We are concerned that unresolved actions like this will 
have a negative impact on our ability to compete for future 
federal contracts. In addition, federal contractors will feel 
pressured to settle a claim or enter into a labor compliance 
agreement with a federal agency even if they feel they have 
done nothing wrong.
    Second, I am very concerned by DOL's proposal to create 
powerful new positions called Agency Labor Compliance Advisors. 
These advisors insert themselves into an existing relationship 
between contractors and contracting officers to provide 
guidance on assessing the seriousness of reported violations. 
Due to the ambiguity of definitions in the guidance, 
inappropriately broad discretion is given to these advisors.
    Third, I am also concerned about the recordkeeping and 
ongoing reporting burdens placed on small businesses. 
Collecting and reporting on information deemed a labor 
violation under 14 different laws and unnamed number of state 
laws will not be an easy task. Doing so will require 
contractors to create a company-wide, centralized electronic 
record of federal and eventually state violations over the past 
three years.
    Merrick has 18 different offices in eight states, as well 
as offices in Mexico and Canada. This proposal places an 
additional burden at headquarters of ensuring that each office 
is regularly and accurately reporting this information to us. 
When staff time is directed to responding to compliance 
requirements, it takes away from the HR department's focus on 
the needs of our employees and meeting our business and 
clients' objectives.
    Contractors will likely handle this situation in one of two 
ways--they either will try to make due with existing staff, 
which may result in a failure to meet the contracting 
obligations, or they will hire additional staff, which will end 
up costing the government more. And a third reason is they may 
actually just exit the federal market.
    Fourth, this information is already collected. As a 
contractor, we already report this information to the 
government and they should use the data it already collects.
    In closing, SHRM believes that the proposals create an 
unworkable system that will cause harm to the federal 
contracting process and impose requirements on contractors and 
subcontractors that are impractical and hugely expensive, 
especially for smaller business.
    Mr. Chairman, thank you again for allowing me to share 
SHRM's views on the FAR Council and DOL proposals. I welcome 
your questions.
    Chairman HANNA. Thank you very much.
    I now yield to Ranking Member Adams for the introduction of 
our final witness.
    Ms. ADAMS. Thank you, Mr. Chair.
    It is my pleasure to introduce Mr. William Albanese. Mr. 
Albanese is the general manager of A&A Industrial Piping in 
Fairfield, New Jersey, a business with over 20 years of 
experience. Mr. Albanese is testifying today on behalf of the 
Campaign for Quality Construction. The campaign represents six 
specialty construction employer associations that have over 
20,000 members, the vast majority of which are small 
businesses. These members perform construction projects in the 
public and private construction market as prime contractors and 
subcontractors.
    Welcome, Mr. Albanese.

              STATEMENT OF WILLIAM J. ALBANESE, SR

    Mr. ALBANESE. Thank you. Good morning, Chairman Hanna, 
Chairman Hardy, Ranking Member--I thought I get an extra couple 
minutes.
    Good morning, Chairman Hanna, Hardy, Ranking Members Takai 
and Adams. Thank you for the opportunity to testify in support 
of the goals of President Obama's Fair Pay and Safe Workplaces 
Executive Order.
    I would like to state upfront that we support the goals of 
the executive order and believe that if it is implemented 
carefully so that the Labor Department is able to evaluate the 
responsibility of prime contractors and subcontractors alike, 
as to their legal compliance, it will help achieve the goal of 
encouraging law-abiding companies of all sizes to be able to 
compete on a level playing field for government contractors.
    The Campaign for Quality Construction Groups are the 
leading specialty construction groups representing the 
subcontracting component of the construction industry, which 
comprises nearly 65 percent of the construction industry. That 
is by the Bureau of Labor Statistics and Employment Data. It is 
20,000 members strong. We are the lion's share of the industry. 
General contractors, construction managers, and heavy 
construction firms make up the far lesser share of total 
employment.
    It must be stressed for the purposes of this hearing that 
the vast majority of all construction work on building projects 
of significant scope is performed by subcontractors. Also, our 
member companies have a balanced perspective of federal 
procurement issues. As we typically perform public works 
projects as either subcontractors or prime contractors, our 
views are multidimensional. Likewise, our position benefits 
both small businesses and large business competitors in the 
federal market.
    Competitive bidding and project performance are both 
greatly improved when marginal performances are discouraged 
from corrupting fair competition in the market, and quality 
firms can compete without being undercut by nonresponsible 
contractors. Agencies and taxpayers are the beneficiary of 
these improved conditions.
    So now just a little about me to lay the groundwork for the 
summary of our written statement. I have been in the 
construction industry all of my adult life. I started out 
completing a five-year, federally-approved apprenticeship 
program. That was a long time ago. I started the A&A group over 
25 years ago. During that period, I served as the president of 
the New Jersey Mechanical Contractors. I currently serve as a 
member of the New Jersey Economic Development Authority. I 
chaired the New Jersey Mechanical Contractors Industry Fund. I 
served as a trustee of the Union Pension and Welfare Fund, 
along with chairing the MCAA Legislative Committee.
    When A&A started with a good deal of hard work and some 
luck, we graduated to a firm with an annual value of about 25 
million today with our full-service mechanical contracting, HVA 
service business, and a separate construction management 
division. A&A has performed many direct federal, as well as 
state and local public construction jobs on the East Coast at 
all contracting levels. We are the mechanical prime on a $4 
billion World Trade Center project. Our contract is 60 million 
on that project. We were also the mechanical prime on a Dulles 
Carter Metro Rail Project and project at the New Jersey 
Picatinny Arsenal, just to name a few of the direct federal 
grant projects.
    We are also agency construction managers for public 
entities--municipalities, community colleges, New Jersey school 
projects, county projects, and we also are administering three 
projects for FEMA. So we bring the general contractor 
construction management perspective to these issues also.
    We also perform mechanical contracting work for a number of 
private owners, including Merck, Stepan Chemical, and other 
pharmaceutical firms, and public agencies, including the New 
Jersey DPMC, Port Authority New York/New Jersey, New Jersey 
Transit. We have a broad perspective of accepted industry 
standards for the strict and comprehensive qualification 
requirements in the private and public sector, and that should 
be germane to the Committee's deliberation on this issue today.
    So our balanced perspective on the executive order is as 
follow: We support the overall goals of the order--more careful 
screening of prospective federal prime contractors in order to 
improve competitive conditions and improve federal construction 
project performance. Best practices in the private sector prove 
that more time and effort invested on project screening and 
planning upfront pays off in improved project performance. 
Substantially poor legal compliance records may well be the 
leading indicator of overall poor business practices and 
increased project nonconformance.
    In my experience, those who cut corners on law and safety 
usually are the ones who are cutting corners on contracting 
requirements. We need a level playing field. If the executive 
order discourages marginal performance from entering the 
market, fair competition standards will be improved. And then 
top quality firms will reenter the market.
    Second, the provisions of the executive order seeking to 
stem work on misclassification are entirely laudable. Rapid 
misclassification of employees as independent contractors is 
the scourge of fair competition in construction and leads to 
other abuse of public laws in both public and private sector.
    Chairman HANNA. Mr. Albanese, if you could--you are over 
your time, but please continue.
    Mr. ALBANESE. Oh, I am sorry.
    Chairman HANNA. If you could wrap it up.
    Mr. ALBANESE. Let me wrap it up.
    Chairman HANNA. If possible.
    Mr. ALBANESE. So to conclude, allow me to respectfully 
dissent from the title of the hearing. It is neither 
blacklisting nor adverse to the best interest of legally 
compliant small businesses or any other businesses.
    So Co-Chairmen Hanna, Hardy, Ranking Members Takai and 
Adams, and the Committee members, thank you for this 
opportunity. That concludes my remarks, and I look forward to 
your questions.
    Chairman HANNA. Thank you.
    Mr. ALBANESE. Thank you.
    Chairman HANNA. Mr. Albanese, I have not heard anyone here 
disagree with you in terms of the goal. What I have heard, and 
feel free to correct me, is that this is a very subjective, has 
the potential to be extremely arbitrary and capricious, that 
the people who are asked to do this work are neither judges nor 
juries, that the difficulty associated with outcomes with this 
is that people are essentially convicted before they are proven 
innocent, that any disgruntled other contractor, someone in 
your business could register a complaint with you--about you, 
have that hanging over your head, and it is up to you to figure 
out how to get rid of it. So I do not think there is anybody 
here that argues that people who are bad actors, who are 
appropriately litigated in that regard are at issue.
    But with that, Ms. Styles, would you like to respond?
    Ms. STYLES. I think that is exactly the problem. I mean, 
there are adequate remedies already. And if people do not think 
that the remedies are adequate in terms of what Congress 
decided for the labor laws or how the suspension and debarment 
system is working, then that is where we should focus on fixing 
this. If those are the goals, you already have too many legal 
remedies under labor law and the suspension and debarment 
system to really get it right, to make sure that bad actors are 
not participating in the federal procurement system.
    Chairman HANNA. Okay. So what is driving his?
    Ms. STYLES. Why, I assume it is labor interests. I assume 
that there are other reasons behind this.
    Chairman HANNA. So what would--I mean, if you feel 
comfortable saying so, what do you mean by that?
    Ms. STYLES. Well, I mean, my presumption is, in part, that 
many would prefer that these jobs be done by federal employees. 
Many would prefer that private companies with labor unions make 
sure that private companies that do not have labor unions are 
not benefitted by particular labor laws. I also think it is an 
effort to have a mechanism. For example, the term ``compliance 
agreement.'' You will not find the term ``compliance 
agreement'' in any statute or regulation except for this 
proposed rule. If you ask me, it is a way to extort settlements 
out of companies on a case-by-case basis where the Department 
of Labor wants----
    Chairman HANNA. Well, there is an insidious nature to all 
of this.
    Ms. STYLES. Well, it is certainly--I cannot come up with an 
objective rational explanation.
    Chairman HANNA. Mr. Peacock, would you like to respond?
    Mr. PEACOCK. This is a little difficult as a small business 
because, first of all, in the AE industry, we are selected 
based upon--I am sure you are familiar with the Brooks Act. We 
are selected based upon our qualifications. So it does not 
make--we are not going to succeed in a business if we do not 
have high-quality people, if we are mistreating our people. I 
cannot hire good quality people by not paying them a fair wage, 
by not giving them good benefits, and by mistreating them. They 
are professionals. They are going to go someplace else.
    Chairman HANNA. In your statement you mention that. Most of 
this is an anathema to what you would do to run a normal 
business that is successful, like your business, Ms. Norris.
    Mr. PEACOCK. Absolutely. I have to, you know, when we are 
selected based upon qualifications, I have to compete with a 
large number of my fellow firms. And in order to do that, I 
have to be able to prove that I am better than they are. That I 
have more experience. That I am better qualified. That I have 
the integrity and the experience to do the project.
    Chairman HANNA. You are okay with the punishment; you just 
do not like the lack of due process?
    Mr. PEACOCK. Absolutely.
    Chairman HANNA. Ms. Norris?
    Ms. NORRIS. I fully support what Ms. Styles and Mr. Peacock 
have said. We do work hard to make our company a place that 
people want to come to work. And if I did not pay a fair wage, 
if I did not follow safety requirements--we have a huge safety 
culture in our company. Every meeting starts with a safety 
moment. So we do all the things. And again, we do not have any 
violations right now that we could even talk about. It is that 
potential of how much it is going to cost us to maintain the 
records for that, the things that we have to create, because 
there is nothing in place to track all that. It is just--it 
does not make sense.
    Chairman HANNA. Thank you.
    I yield to Ranking Member Takai.
    Mr. TAKAI. Thank you, Mr. Chairman.
    First question to Mr. Albanese. There are those that argue 
that discretion is already given to agency officials to seek 
out labor law violations before an award of a contract. In your 
experience, how often are contracting officers asking for this 
type of information?
    Mr. ALBANESE. In my experience working, as I said, for 
private agencies, private companies, contractor 
prequalification is mandated. It is commonly done. New York 
City has VENDEX. The State of New Jersey has DPMC. Port 
Authority not only has a very strict qualification requirement 
but they have an integrity monitor that is on the job. This is 
common business sense. In other words, it makes good business 
sense to vet the contractor before he gets the job. It is 
common in our industry. We do it all the time, and we do not 
see it as being a burden to any legitimate, fair contractor 
that is playing by the rules. It is done all the time.
    Mr. TAKAI. My question though is how often are the 
contracting officers asking for this type of information?
    Mr. ALBANESE. Specific contracting officers? When we did 
the Dulles job, we did not have very much vetting at all. We 
were just awarded the contract.
    Mr. TAKAI. Right. So my follow up then is how effective can 
this discretion given to contracting officers be if it is 
rarely utilized to search for violations defined in the 
executive order?
    Mr. ALBANESE. This executive order will mandate a fair 
level playing field for everybody is involved. That is what 
this will do. And there will not be the gap. They give this guy 
the job. Let us not check if he has labor violations, or he 
does not have labor violations, or he violated Davis-Bacon, or 
he has safety issues that were never investigated.
    Mr. TAKAI. Okay. So you are advocating that all 
subcontractors' responsibility determinations be made by the 
agency. What are your concerns with the prime contractor making 
these determinations?
    Mr. ALBANESE. Well, some of the regulations are so hyper 
technical. On the basis of that, I do not think as a prime 
contractor, if I was the prime, because we are primes many 
times, that we want to get into this hyper technical 
evaluation. We feel it would be much better if it would be done 
by a government agency, a CO, an LCA, to do that process for 
us. FAR right now does have some regulations that are moving in 
that direction. That would be a great thing to do.
    Mr. TAKAI. Okay. Thank you.
    Mr. Peacock, you have addressed concerns regarding the 
disclosure of your violation to primes, contending that this 
could harm your business relationships, and in some instances, 
eliminate the competitive advantage. However, could not some of 
these concerns be alleviated if the subcontractors went to the 
Department of Labor for the determination as this guidance 
allows?
    Mr. PEACOCK. Well, I believe what you are asking is should 
we be dealing directly with the Department of Labor on these 
issues as opposed to running it through our competitors. And 
one of our concerns is that sharing a lot of our business 
information with our competitors certainly does put us at a 
disadvantage. When we have to compete for particularly 
personnel, highly qualified personnel, there is a shortage of 
good quality engineers out there. And to keep those people, it 
is very important for us to treat them fairly and be able to 
maintain those. And so for us to go--if you want me to deal--I 
would much rather deal with the Labor Department. My analogy is 
if we--most of us have security clearances. I deal with the 
Department--the Security Department if there is an issue. If I 
have an employee who has an issue, I deal directly with them. 
They tell me I have to report to them and they tell me what I 
have to do as the facility security officer. It should actually 
be the same thing. If I have something going on in my company, 
then I should be dealing directly with the Labor Department and 
solve that problem and not passing it through a million 
different people.
    Mr. TAKAI. Okay. Great. Thank you.
    I yield back.
    Chairman HANNA. Mr. Hardy?
    Chairman HARDY. Thank you, Mr. Chairman.
    Ms. Styles, do you think it is realistic to expect the 
labor compliance officers to have the expertise on 14 different 
federal labor laws and numerous state requirements and laws? Do 
you think people have that expertise or could afford that in 
small business?
    Ms. STYLES. I think it is impossible. I mean, we cannot 
even write my testimony with just me because it takes a 
government contractors lawyer and a labor lawyer. I do not know 
how one person or even one set of people can really get a 
handle on all those laws and how they operate.
    Chairman HARDY. Does anybody else care to add to that in 
any way, shape, or form?
    Go ahead, Mr. Peacock.
    Mr. PEACOCK. Well, I would like to comment.
    Chairman HARDY. Yes, go ahead.
    Mr. PEACOCK. The issue of complying with this, in looking 
at the prequalification forms that I fill out, it would take 10 
or 15 minutes of looking at the prequalification form to see 
that there are questions such as have you had OSHA violations? 
Have you had Davis-Bacon violations? Do you have any criminal 
action or civil action going on? Your financial status. Do you 
owe so much money? These are common, basic items that are 
listed in the prequalification. It would be easy to vet on 
those specific issues. That would raise the flag, and then you 
could go into a deeper analysis of it.
    Chairman HARDY. Last year there were over 77,000 pages of 
new administrative laws placed out; 3,280 some-odd new 
regulations. How many of those do you understand today--have 
you read, your company read, and understand today?
    Mr. PEACOCK. Honestly, probably zero.
    Chairman HARDY. Okay. So with these compliance laws, do you 
believe that you can still keep up with that regular order?
    I will move on here. Mr. Peacock, let us talk compliance 
for a second. They say what it will take to implement this is 
probably only about eight hours in the FAR Council, and the 
DOSL estimated it will only take eight hours to figure these 
rules out. Is that correct?
    Mr. PEACOCK. Well, we currently have 24 IDIQ contracts, and 
estimate at least another 16 single scope contracts. That is 40 
contracts. And if I take--sorry, I am an engineer--if I take 40 
and I divided it by eight hours, that gives me 12 minutes to 
deal with each one of those contracts, compliance with each one 
of those contracts. Now, personal opinion is I am going to, 
because I am a subcontractor, I am going to get an email from 
my point of contact of the prime. They are going to say, ``Can 
you please submit this information to us?'' Realize that not 
all of these are going to occur at the same time. They are 
going to occur on the anniversary date of the contract, and 
every six months after that as it is currently proposed as I 
understand it, I am going to get an email. I have to respond to 
the email. I have to get my administrative people to pull the 
information, put it together. I have to respond back in an 
email, and then I am going to get a telephone call saying, 
``Oh, could you give me this in a different format?'' You know, 
that is just the way it goes. I cannot do all that in 12 
minutes. And my estimation is that it is going to take me two 
hours at the minimum to deal with each one of those. That gives 
me 80 hours on 40 contracts, and I have got to do this twice a 
year? I mean, that eight hour estimation is way, way 
underestimated. And it is going to vary for every company, 
depending on the number of contracts you have.
    Chairman HARDY. Ms. Styles, another quick question. As a 
contractor, I have been a prime myself for a number of jobs, 
and with that, usually, typically sometimes there is upwards of 
30 or 40 subs of some kind on major projects. And through that 
process should I be required--how can I follow up with all my 
subs to make sure that they are in compliance, and any 
guestimation what would happen if I am awarded a contract and I 
find out that somebody all of a sudden becomes under violation? 
Any estimation what might happen there?
    Ms. STYLES. Well, it also requires the prime contractors to 
become experts on all of these laws and all of these 
regulations, and the mitigating circumstances and what should 
be done to be compliant by all of the subcontractors that they 
have. I mean, even small businesses, and many small businesses 
are prime contractors, they will have large business 
subcontractors. They will have the largest defense contractors 
in our country--the Lockheed Martins, the UTCs, the Boeings 
will be their subcontractors. So you are going to have this 
small business asking Boeing for all of their labor compliance 
information. And then that small business has to assess that 
and has to decide whether they are really compliant or not. I 
do not know how they do that.
    Chairman HARDY. Thank you, Mr. Chairman. I yield back.
    Chairman HANNA. Ms. Adams?
    Ms. ADAMS. Thank you, Mr. Chairman.
    Ms. Norris, you indicated in your testimony that the 
disclosures required in the executive order are duplicative as 
they are collected by different agencies already. However, 
state violations are not reported and the contracting officers 
at the various agencies do not have access to the information 
at issue. So how would you recommend making these disclosures 
available to the contracting officer, if not through the method 
proposed through the guidance?
    Ms. NORRIS. Well, first off, we do not know what state laws 
are going to be required. That has not been spelled out. So 
that is a little bit difficult to answer. Let me regroup here. 
Because the proposal process asks for this information, it 
seems to me that it is already being asked for and that it 
seems redundant to have a whole executive order to handle a 
process that is already part of the FAR proposal process. And 
so I do not know how you would tell the state, other than 
through the current process where you list what has been a 
violation on the current proposal process. I am sorry, that is 
not part that I am familiar with on the state side.
    Ms. ADAMS. Ms. Styles, would you like to comment? I think 
you also mentioned the duplicative. I believe I heard you say 
that.
    Ms. STYLES. I did mention the duplicative piece of it but 
we cannot say anything about the state piece because they have 
not implemented it yet. But the duplication issue is to avoid 
de facto debarment of a particular company. So what is 
happening is that for each contract over $500,000 and each 
subcontract over $5,000, the contracting officer has to receive 
all of the information about the violations, including the 
mitigating circumstances and evaluate it. And then the guy next 
door or at the next agency. So maybe it is a contracting 
officer at DoD. The contracting officer at VA has to look at 
all of that information again and make their own independent 
determination as well. And so even if it is two contracting 
officers sitting next to each other in DoD, they cannot talk to 
each other about it. They have to make their own independent 
determination. And so it is really duplicative collection of 
exactly the same information for a prime contractor and exactly 
the same information for subcontractors as well. So there is a 
reason for it, because they want to avoid de facto debarment of 
contractors and subcontractors, but it is a huge collection of 
information over and over--the same information over and over 
and over again.
    Ms. ADAMS. All right. I have another question. The goal of 
the executive order is to ensure that the government is not put 
at risk as a result of awarding contracts to those who did not 
comply with labor laws. Mr. Albanese, do you know if instances 
in your business history where marginal performers undercut 
more responsible bidders and the public agency ended up with a 
bad project as a result?
    Mr. ALBANESE. The interesting part about that on say public 
agency jobs that we do, all the contractors have gone through 
this vetting process. We know that their financial backgrounds 
support it. As an example, on the state work, you are allowed, 
you are getting an amount of money that you can bid up to or 
have an aggregate of work in place. So my experience is that 
rarely do we see violations or these violators doing work and 
getting away with it because they have already been vetted.
    Ms. ADAMS. Okay. Follow-up, Mr. Albanese. Is it not just 
good business practice to keep track of the information 
required in the executive order?
    Mr. ALBANESE. It makes absolute perfect business sense to 
vet a contractor before you are going to give him a $5 million 
job to make sure--and the list goes on in my prequalification 
list. There is no criminal, there is no civil violations, there 
is no OSHA violations. That this contractor has paid Davis-
Bacon accurately, and he is not skirting the issues. It makes 
perfect business sense.
    Ms. ADAMS. Thank you, sir.
    Mr. Chair, I yield back.
    Chairman HANNA. Mr. Rice?
    Mr. RICE. Thank you, Mr. Chairman.
    I kind of want to step back and look at this from an even 
bigger picture because I think this particular executive order 
is just a symptom of a larger problem that this country faces. 
Here we sit seven years after the Great Recession and our 
economy continues to struggle. We vacillate between zero or 
negative growth and 2 percent growth, where most economists 
thing we should have had a significant snapback by now. And I 
think one of the big problems that is holding our economy back 
is this vast mushrooming regulatory burden that all you guys 
face.
    So the SBA estimates that the cost of federal regulation on 
a firm with fewer than 20 employees is $10,585 per employee per 
year. The president apparently agrees with me. He constantly 
says we must reduce and streamline regulations on small 
business. But do not be fooled by what he says; look at what he 
actually does. According to a recent study by the Mercado 
Center, this administration has issued 120,000 new regulations. 
They claim the prize. They have issued more regulations than 
any administration since Linden Johnson. And not only that, 
they have done it in six years instead of eight. We still have 
two more years to go. So when you look at what he says--we need 
to reduce regulation--what he actually does, adding all this 
regulatory burden like this proposed executive order, we should 
not be surprised when the economy is stifled.
    Right now, for the first time in 80 years, we have had five 
consecutive years where more businesses are dissolved in 
America than are formed in America. The first time since the 
Great Depression. More Americans have left the workforce than 
at any time in the last 35 years. Homeownership in America is 
as low as it has been in 50 years. I do not think any of this 
is coincidental. I think it is all a direct result of the 
mushrooming regulatory burden that we place on small business.
    So I have a question for you all. You guys are in the 
regulatory business or in small businesses. Can you name for 
me--let me ask you this. Ms. Styles, do your clients see a 
streamlined and reduced regulatory burden under this 
administration?
    Ms. STYLES. No, they do not.
    Mr. RICE. Okay. I have to go quick.
    Mr. Peacock?
    Mr. PEACOCK. No, sir. Not at all. We are drowning in 
paperwork.
    Mr. RICE. Okay, thank you. Thank you.
    Ms. Norris?
    Ms. NORRIS. No, we do not.
    Mr. RICE. Mr. Albanese?
    Mr. ALBANESE. No, I do not.
    Mr. RICE. Okay, thank you.
    Ms. Styles, can you name for me one instance where this 
administration has generated a streamlined or reduced 
regulatory burden? I am not talking about a minor thing. I am 
talking about any meaningful reduction in cost or time on small 
business?
    Ms. STYLES. Well, I will say that Ms. Rung, who is 
testifying after me, did issue a memorandum on efficiency on 
December 14th of last year. So to the extent that that is 
actually implemented--but I do not see how you implement it----
    Mr. RICE. So have your clients seen any benefit yet from 
any streamlined or reduced--I am talking about material change?
    Ms. STYLES. No.
    Mr. RICE. Mr. Peacock?
    Mr. PEACOCK. No.
    Mr. RICE. Ms. Norris?
    Ms. NORRIS. No.
    Mr. RICE. Mr. Albanese?
    Mr. ALBANESE. No, to that question.
    Mr. RICE. So somehow the rhetoric does not match what we 
are actually doing here. I think that, you know, it goes back 
to the book, The Death of Common Sense. We are drowning in 
regulation. If we do not get a hold of this, I think our 
economy will continue to suffer. I think it bodes very poorly 
for this next generation coming up in America. When you ask 
Americans, do you think that your children have a brighter 
future than you did, and two-thirds of them say no, that bodes 
badly for this country. And I think this is one of the 
underlying foundational reasons why Americans feel this way.
    I yield back.
    Chairman HANNA. I want to thank you all for being here 
today.
    And for the record, I have 35 years in the Operating 
Engineers Union. I support Davis-Bacon. I get it. But it seems 
to me that there really is a lot of rules and regulations that 
may even be unconstitutional since the regulation was not--
which we will get into in the next hearing, but the whole idea 
of a lack of due process and the subjective nature that is 
given to a guy whose job it is to manage a project, a 
contracting officer, my biggest concern is that it is a race to 
defend and protect the behind of that particular person who has 
an incentive necessarily to race to the bottom, but yet at the 
same time, if that person is not thoroughly qualified or in any 
way not open minded about the people who have been low bidder, 
then he has an opportunity to find virtually any reason he 
likes, or she likes, to put at risk a company that has been 
years in business, does great work, may have made a mistake or 
two in their lives--and we all do--and summarily, execute them 
from a particular job without any formal process.
    So with that I want to thank you all for being here. We are 
going to go to the next panel. And Mr. Hardy will be taking the 
chair. Thank you.
    Chairman HARDY. Good morning. We will start with a quick 
introduction. I guess I better start the meeting. Thank you for 
being here.
    I would just like to start with a quick introduction to our 
panelists. First, we have Ms. Anne Rung. She is our first 
witness on the panel. She is the administrator of the Office of 
Federal Procurement and Policy Office of Management and Budget. 
Our second witness is Mr. Lafe Solomon. He serves as the senior 
labor compliance advisor in the Office of the Solicitor at the 
United States Department of Labor.
    So with that, Ms. Rung, we will let you have five minutes.

   STATEMENTS OF ANNE RUNG, ADMINISTRATOR, OFFICE OF FEDERAL 
   PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET; LAFE 
    SOLOMON, SENIOR LABOR COMPLIANCE ADVISOR, OFFICE OF THE 
          SOLICITOR, UNITED STATES DEPARTMENT OF LABOR

                     STATEMENT OF ANNE RUNG

    Ms. RUNG. Chairman Hanna, Ranking Member Takai, Chairman 
Hardy, and Ranking Member Adams, and members of the 
Subcommittees, thank you for the opportunity to appear before 
you today to discuss the administration's implementation of 
Executive Order 13673, Fair Pay and Safe Workplaces. My 
comments today will primarily focus on actions being taken by 
the Federal Acquisition Regulatory Council, the FAR Council, 
which I chair as administrator of the Office of Federal 
Procurement Policy (OFPP).
    It is important to emphasize at the outset that OFPP and 
the FAR Council have been working in close partnership with the 
Department of Labor on rules and guidance to implement this 
executive order. Our respective organizations are fully 
committed to implementing the EO in a clear, fair, and 
effective manner, and have been actively seeking feedback from 
stakeholders since issuance of the EO more than a year ago. We 
did this to ensure that we had sufficient information and 
insight from stakeholders, including small businesses, to 
achieve these goals.
    This EO is designed to improve contractor compliance with 
labor laws in order to increase economy and efficiency in 
federal contracting. As Section 1 of the EO explains, 
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 and predictable and satisfactory fashion.
    While the vast majority of federal contractors abide by 
labor laws, studies conducted by the General Accountability 
Office, the Senate Health Education Labor and Pension 
Committee, and others, suggest that a significant percentage of 
the most egregious labor violations identified in recent years 
have been by companies that receive federal contracts. In 
addition, studies performed by others have found a nexus 
between companies with labor violations and significant 
performance problems on government contracts.
    As explained in the preamble to the proposed FAR rule and 
in my written statement, we have taken a number of steps in the 
proposed rule consistent with direction in the EO to minimize 
the implementation burden for contractors and subcontractors, 
including small businesses. Let me just provide you with a few 
examples.
    One, the proposed prior rule builds on existing processes 
and principles, including the longstanding requirement that a 
prospective contractor be a responsible source. Two, many of 
the contracts performed by small businesses, including 
contracts valued at $500,000 or less and subcontracts for 
commercial off-the-shelf items, are exempt from the proposed 
FAR rules disclosure requirements.
    Further, during listening sessions held by DOL, OMB, and 
relevant councils, stakeholders raised concerns regarding the 
potential complexity and burden associated with two aspects of 
the EO in particular. One, provisions addressing disclosure of 
violations of equivalent state laws; and two, provisions 
addressing disclosure and evaluation of subcontractor 
violations.
    In response to what we learned from these sessions, 
requirements in the EO addressing the disclosure of violations 
of equivalent state laws, with the exception of OSHA state 
plans, will be phrased in at a later date. In addition, the FAR 
Council has developed alternative proposals that seek to 
address concerns at HERD regarding the challenges contractors 
might face in evaluating violations disclosed by their 
subcontractors. This includes a possible phase-in of 
subcontractor disclosure requirements, and the proposed FAR 
rule has invited public comment on additional or alternative 
approaches to this issue.
    Stakeholder feedback has been a very key component in the 
development of the proposed FAR rule, and currently, the FAR 
Council is carefully reviewing the many and diverse public 
comments received in response to the proposed rule published at 
the end of May to determine where additional revisions are 
needed. In considering comments, the FAR Council seeks to 
ensure that the final rule is both manageable and impactful in 
achieving the EO's objective of bringing contractors with 
significant labor violations into compliance with the law in a 
timely manner. Without question, implementation of the EO 
requires the government's policy, operational, and technology 
officials to address a number of difficult issues head on, and 
it is hard work, but work that is critical to the integrity of 
our procurement system, ensuring economy and efficiency in 
contracting and security the well-being of American workers.
    Thank you, and I am happy to answer any questions you may 
have.
    Chairman HARDY. Thank you, Ms. Rung.
    I would like to turn the time over to Mr. Solomon for five 
minutes.

                   STATEMENT OF LAFE SOLOMON

    Mr. SOLOMON. Good morning, Chairman Hardy and Hanna, and 
Ranking Members Adams and Takai. Thank you for the invitation 
to appear before your Subcommittees to speak about DOL's 
proposed guidance to implement the Fair Pay and Safe Workplaces 
Executive Order.
    For the past year, I have led the efforts at DOL to 
implement this EO. Although most federal contractors comply 
with applicable laws and provide high-quality goods and 
services to the government and taxpayers, a small number of 
federal contractors have committed a significant number of 
labor laws in the last decade. Those contractors who invest in 
their workers' safety and maintain a fair and equitable 
workplace should not have to compete with contractors who offer 
lower bids based on savings from skirting labor laws.
    To address this issue, President Obama signed this EO last 
year requiring prospective federal contractors on covered 
contracts to disclose certain labor law violations, and giving 
agencies guidance on how to consider those labor violations 
when awarding federal contracts. With this EO, the president 
pledged to hold accountable federal contractors to put workers' 
safety, hard-earned wages, and basic workplace rights at risk.
    The EO builds on the existing procurement system and 
changes required by the EO fit into established contracting 
practices that are familiar to both procurement officials and 
the contracting community. In addition, DOL will provide 
support directly to contractors so that they understand their 
obligations under the EO and can come into compliance with 
federal labor laws without holding up their proposals in 
response to specific federal contracting opportunities. 
Finally, DOL will work with labor compliance advisors across 
agencies to minimize the amount of information that contractors 
have to provide and to help ensure efficient, accurate, and 
consistent decisions across the government.
    The objective of the EO is to help contractors come into 
compliance with federal labor laws, not to deny them contracts, 
and it encourages compliance, not suspension and debarment. The 
processes and tools envisioned by the EO are designed to 
identify and help contractors address labor violations and come 
into compliance before consideration of suspension and 
debarment. The EO does not in any way alter the suspension or 
debarment process; however, the expectation is that the 
processes and tools envisioned by the EO will drive down the 
need for an agency to consider suspension and debarment and 
help contractors avoid the consequences of that process. As a 
result, this EO, once implemented, will offer contractors an 
opportunity to come into compliance and maintain the privilege 
of being a federal contractor, unlike the suspension and 
debarment process, which could exclude them from receiving 
awards.
    On May 28th of this year, DOL published proposed guidance. 
On that same day, the FAR Council also issued proposed 
regulations integrating the EO's requirements and the 
provisions of DOL's guidance into the existing procurement 
rules.
    DOL's proposed guidance would do several things. First, it 
would define the terms used in the EO--administrative merits 
determinations, civil judgments, and arbitral awards or 
decisions, and provide guidance on what information related to 
these determinations must be reported by covered contractors 
and subcontractors. Second, it would define serious repeated, 
willful, and pervasive violations and provide guidance to 
contracting officers and labor compliance advisors for 
assessing a contractor's history of labor law compliance and 
considering mitigating factors, most notably efforts to 
remediate any reported labor law violations. Third, it would 
provide guidance on the EO's paycheck transparency provisions.
    We have received numerous comments and are now reviewing 
them. Nothing I say today should be taken as a prejudgment of 
any issue as I do not want to prejudge the outcome of that 
process. We are working through the comments to produce a 
quality guidance document that will better inform federal 
procurement decisions, provide contracting officers with the 
necessary information to ensure accurate, efficient, and 
consistent compliance with labor laws, help contractors meet 
their legal responsibilities, and remove truly bad actors from 
federal contract consideration, creating a more level playing 
field for law-abiding contractors. Most importantly, it will 
also ensure that hardworking Americans get the fair pay and 
safe workplaces they deserve.
    I appreciate the invitation to testify, and will be happy 
to take any questions you may have.
    Chairman HARDY. Thank you, Mr. Solomon. And with that, I 
will yield myself five minutes of time for questioning.
    With your statement, Mr. Solomon, it sounds like there's 
quite a bit of challenges out there with people needing to be 
debarred or suspended. Is that correct? Is that the way I 
understand your statement, that there are a lot of issues out 
there that we are having with cause and effect that we need to 
make sure we are issuing debarments or suspensions?
    Mr. SOLOMON. Well, Mr. Chairman, the executive order is not 
about suspending and debarment. It is to bring contractors into 
compliance so we can avoid having to go through for a 
contractor a suspension and debarment process.
    Chairman HARDY. That is back to my question. So bring them 
into compliance. So is there a lot of noncompliance out there?
    Mr. SOLOMON. What we have said is the vast majority of 
contractors do play by the rules and do not violate labor laws. 
But for the contractors that do violate the labor laws, we 
are--that is what the executive order is designed to get at.
    Chairman HARDY. So when you were at the NLRB as our 
counsel, how many people did you debar or suspend while you 
were there?
    Mr. SOLOMON. Well, the NLRB has no debarment or suspension 
process.
    Chairman HARDY. Department of Labor? Okay. How many did you 
refer, I guess, is the question.
    Mr. SOLOMON. Well, the NLRB, like various enforcement 
agencies at DOL, have a jurisdiction that is beyond federal 
contractors. So it does not come up in an investigation at the 
NLRB as to whether the employer involved is the federal 
contractor or not.
    Chairman HARDY. Okay. Ms. Styles testified that the 
proposed rule was a chance for agencies to extort settlements 
from small businesses. What is your opinion on that?
    Mr. SOLOMON. I do not think that is a fair statement. What 
this executive order does is looking for the most egregious 
violations, a pattern of a basic disregard of labor laws. The 
executive order is clear that not one violation of a labor law 
is going to lead to any problem in the contracting process.
    Chairman HARDY. Thank you.
    Ms. Rung, the construction contractors commonly state that 
they have usually if they are in the general they have more 
than seven tiers of subcontractors. In the EO proposal, as a 
prime, would I need copies and records of all seven tiers?
    Ms. RUNG. I appreciate your question. It was extremely 
helpful feedback this morning from a lot of the small 
businesses. We have been out meeting with small businesses to 
talk about this and other issues. The one issue they have 
raised is the flow down piece of this, how primes will sort of 
implement this piece of it to track and measure performance by 
their subcontractors. And in response to that, we have done a 
number of things and put a number of proposals in this rule. 
Just to mention one, for example, one alternative in which we 
are seeking feedback on would allow subcontractors to take 
their information on labor violations and provide it directly 
to Department of Labor and work with Department of Labor to 
assess those violations. So you would essentially be taking 
those prime contractor out of the role of sorting through that 
information and evaluating the records provided to them.
    Chairman HARDY. Does that individual, that prime, need to 
make sure that they monitor those performance also?
    Ms. RUNG. So the prime contractor has always been 
responsible for ensuring that their subcontractors are 
responsible subcontractors, so that role would continue. So 
they have always had to ensure that their subcontractors are 
performing.
    Chairman HARDY. Let us bring in OSHA rules. I, myself, have 
an OSHA 40. I am on the site continually when I was working. I 
have other officers that have their OSHA 40 and make sure that 
things are complied with. It is typically the subcontractor 
that you sometimes have a challenge with on that and it puts me 
at risk. You know, I can run that individual off, but does that 
put me in violation when it is somebody else's employee and we 
are doing everything we can to keep on track? Is that a 
violation?
    Ms. RUNG. Thank you for the question. And certainly, if my 
colleague from DOL wants to jump in at any point he can, but we 
are really focused on the most egregious violations. So I think 
the GAO report from 2010 that cited several examples, gives you 
a good indication of what we mean by serious violations. So 
when they refer to, for example, a food company that has over 
100 OSHA violations that ultimately result in an employee being 
killed, that is an example of what we are talking about.
    Chairman HARDY. Can I stop you there? My time is running 
out. But does that violation--we are talking about violations, 
and what happens is it gets stuck, as you heard, in the 
process. It is a violation. I might be bidding on another 
project, and as long as that is hanging over my head, I am 
guilty until proven innocent.
    Ms. RUNG. Well, I think there are a couple things. One, 
this EO has a number of provisions designed to ensure that we 
are not slowing down the process. So one of the key parts of 
this is to encourage companies to work with Department of Labor 
very early in the process, well before award, to help bring 
these companies into compliance.
    Chairman HARDY. Thank you. My time is expired.
    Ms. Adams? I would like to recognize Ms. Adams for five 
minutes.
    Ms. ADAMS. Thank you, Mr. Chair.
    Ms. Rung, some subcontractors have expressed concern that 
prime contractors do not have the requisite knowledge in labor 
law to make an informed decision as to their responsibility. Is 
there not enough regulatory discretion in the executive order 
and in the Federal Acquisition Regulatory Council itself to 
justify having the agency contracting officer and the labor 
compliance advisor review all covered prime contractors and 
subcontractors in the initial responsibility review process?
    Ms. RUNG. Thank you for the question. So it has been a 
longstanding tenet of the federal procurement system that the 
prime contractors are responsible for the performance and 
ensuring that their subcontractors are responsible companies. 
The LCAs and the contracting officer are responsible for making 
that determination of business integrity and ethics for the 
primes. And that is the way historically it has worked. In this 
case, as I just explained, we very much appreciate and have 
heard from a lot of small businesses the concern about primes 
tracking the subcontracting piece of this, and as such, we have 
laid out a number of alternatives in this proposed rule for 
which we seek feedback, including this notion that 
subcontractors could go directly to Department of Labor to work 
with them on the reporting piece and to have Department of 
Labor evaluate that information.
    Ms. ADAMS. Thank you. One of the main concerns voiced by 
those opposed to the executive order is that they fear that due 
to de facto, debarments will occur if contracting officers are 
relying on the same recommendation when making a responsibility 
determination. So what mechanisms are in place to ensure that 
this does not happen?
    Ms. RUNG. So we are very much focused on bringing companies 
into compliance and not excluding them. And so we are doing a 
number of things to ensure that we can achieve that goal. And 
one of them is setting up a process within Department of Labor 
to have them work with the companies very early in the process 
well before the bidding to help bring them into compliance. We 
want to create a system where information can be shared among 
all the agencies, so we are ensuring that consistent decisions 
are being made, and we are also limiting burden to the extent 
possible for our contractors in terms of reporting many times.
    Ms. ADAMS. Okay. There has been much criticism as to the 
inclusion of administrative merit determinations in the 
executive order. Mr. Solomon, can you explain why the decision 
was made to include these decisions in the disclosure 
requirements?
    Mr. SOLOMON. Thank you for the question.
    I think it is important to start with what administrative 
merit determinations are not. And they are not charges that are 
filed by workers with the enforcement agency saying that--
alleging that there have been violations of the federal labor 
laws. Once the charge is filed, there is a full and thorough 
investigation by a neutral government factfinder. They take 
into account all evidence presented by both the workers and by 
the company. And in my experience, most--there are a 
significant number of these charges that are found to be 
without merit in all these enforcement agencies. So what an 
administrative merit's determination is, is after this 
complete, thorough investigation, the agency concludes that 
there has been a violation of the labor law. And what we say in 
the proposed guidance--and we have a lot of comments on this 
portion of the guidance--but the guidance says that the notice 
or complaint that is served on the employer by the enforcement 
agency is, in fact, the administrative merits determination. 
And I would also add that there is a significant percentage of 
these administrative merits determinations that, in effect, 
become final determinations because they are either settled, or 
if they are litigated by the employer, which the employer has 
every right to do, the government has a very, very high win 
rate of those.
    Ms. ADAMS. Okay. I am just about out of time. Mr. Chairman, 
I yield back.
    Chairman HARDY. The gentlelady yields back.
    I would like to recognize Chairman Hanna for five minutes.
    Chairman HANNA. Thank you.
    If you know who all these violators are and they have 
committed all these egregious problems, which, you know, I am 
sure they are out there, why not just go after them? Why create 
a burden for companies who have--they have hundreds of 
subcontractors and the process does not work the way you 
described it, I do not think, we do not know--a contractor does 
not know who he is going to hire until the day he may bid the 
job. So how is he supposed to screen all this stuff and all 
these people, use their number which may be low or whatever, 
and then rely on that number, put his business at risk, and 
hope that you guys go along?
    And the other problem I have with this is what does 
``egregious'' mean and what does ``significant'' mean? I mean, 
those are subjective words that any contract officer or any 
judge or jury or person can use in any way they like. So I 
wonder if you really have--I mean, if you have a notion of how 
you are going to navigate that with some degree of earnest 
fairness that produces the outcome you want when apparently you 
already know who these people are based on--if it is egregious 
and significant, then I guess I could find out who those people 
are. But our worry is, my worry, is that this will trickle 
downhill depending on who decides what that means and what some 
outside force, unhappy other contractor or second bidder, labor 
person, you know, union or nonunion, so what do you say to 
that?
    Ms. RUNG. So let me, perhaps I will address the question 
about the information is already out there and then my 
colleague can jump in on some of the definitions.
    The challenge for us is that the information is not always 
available to us. So the current penalty triggers for reporting 
violations into the performance system may be higher than the 
individual labor violations. And secondly, a contractor is not 
required to enter information into the federal awardee, 
integrity, and performance system unless it has done more than 
$10 million in business. And third, not all violations are 
accessible to us. And I think as GAO has emphasized, that our 
contracting officers, for whatever reasons, are not using the 
information to make accurate responsibility determinations. So 
what we are trying to do here is ensure that our contracting 
officers have timely and complete and detailed information to 
make these responsibility determinations which they are already 
required to do.
    Chairman HANNA. Not for these jobs. I mean, this contractor 
shows up. He or she, the company is low bid. They have hired--
they have based their assumptions on all these different prices 
that came in from who knows how many companies. And they do 
enter the picture and you say this person and that person is 
not qualified. How do you reconcile that in the real world?
    Ms. RUNG. I think, you know, what we heard from some of the 
panelists this morning is that we are creating a level playing 
field by ensuring that only those contractors that play by the 
rules are competing in the federal marketplace.
    Chairman HANNA. How could it possibly be level if they do 
not know in advance who those people are? Is it really a 
contractor's problem to get on there when apparently the 
information is out there?
    Ms. RUNG. The information is not always available, and it 
is not always out there, and it is not available in a timely 
fashion, and it is not always available in a complete fashion. 
And I think the evidence has been borne out by the GAO report. 
So the outcomes are showing that we are awarding taxpayer 
dollars to companies that commit serious labor violations. And 
our goal here is to simply ensure that we protect taxpayer 
dollars.
    Chairman HANNA. Mr. Solomon?
    Mr. SOLOMON. To answer part of your question, I mean, the 
intent behind the guidance and the intent behind the creation 
of labor compliance advisors throughout the government is to 
provide a mechanism for uniform and consistent decision-making 
across the government. I think there is an understanding that 
contracting officers do not necessarily have the knowledge base 
to be able to make decisions over a company's labor law 
compliance.
    Chairman HANNA. The GAO report did not evaluate whether 
federal agencies considered, or should have considered, these 
violations in awarding the federal contract. Thus, no 
conclusions on the topic can be drawn from this analysis. I 
mean, it really seems as though you have got a lot of work 
ahead of you to implement this in a way that is in any way 
reasonable or fair or provides the outcome that you want.
    Ms. RUNG. Well, you know, the part--the most compelling 
part of the GAO report to me were the examples of the kind of 
companies that are receiving federal taxpayer dollars even 
though they have committed serious violations, including OSHA 
cited a company for over 100 health and safety violations. And 
after an employee was fatally asphyxiated after falling into a 
pit containing poultry debris.
    Chairman HANNA. Sure, I get that. But I mean, my time has 
expired.
    Ms. RUNG. That is the kind of violations we are talking 
about.
    Chairman HANNA. But why is that company even out there? I 
mean, if you know who they are, and you do today, why did you 
not know yesterday? Why is that not someplace in the public 
domain? I swear that it must be.
    Ms. RUNG. Yeah.
    Chairman HANNA. My time is expired, but thank you. I 
apologize for cutting you off.
    Chairman HARDY. The gentleman's time has expired. I would 
like to recognize Mr. Takai for five minutes.
    Mr. TAKAI. Thank you, Chairman.
    I am concerned about some of the comments made by the 
previous panel about the effects that this executive order may 
have on the federal marketplace. So Ambassador Rung, what do 
you say about those--what do you say about those arguments made 
by them about primes and subcontractors exiting the federal 
marketplace if they have to comply with this executive order?
    Ms. RUNG. Yeah. Thank you for the question.
    I think when the Federal Awardee Performance and 
Information Integrity System--I know that is quite a name, 
FAPIIS, was introduced per statute in 2010, we heard similar 
concerns that by making transparent performance information and 
violations we would be keeping good companies out of the 
marketplace or, you know, discouraging primes from engaging 
with subcontractors. And in the end, we did not see an impact 
on the type of companies entering our federal marketplace. 
However, I do agree with you that we need to do more to ensure 
that we are continuing to bring good companies into the 
marketplace. And I think there are a number of reasons why they 
are not entering the marketplace today, many of which I 
outlined back in a December 4, 2014 memo where I talked about 
ways to drive greater economy an efficiency in the federal 
marketplace, and not the least of which is I think it is 
incredibly challenging for our contractors to navigate through 
3,200 separate procurement units across the federal marketplace 
with very little collaboration and sharing of information.
    Mr. TAKAI. Yeah. I appreciate our efforts to bring more 
companies into the federal marketplace. I think the question is 
that we currently have companies in the federal marketplace 
that we might be pushing out.
    So my other question is in regards to providing prime 
contractors with the opportunity to work with contracting 
officers and the LCAs on disclosures. So will subcontractors 
have the opportunity to access the LCAs regarding the 
disclosures?
    Ms. RUNG. If I could just address your one point about this 
driving out companies already in the marketplace, particularly 
small businesses. We are taking a number of steps to really 
help minimize the burden on companies, and in particular, small 
businesses. A couple examples. We are phasing in parts of this 
rule over time to give companies a chance to acclimate 
themselves to this new rule. And secondly, you know, we have 
outlined some alternatives that I have discussed earlier that I 
think will help minimize that. The reporting requirements of 
subs to primes. We are improving the IT infrastructure. Most 
importantly, and I think this really cannot be emphasized 
strongly enough, we are limiting this executive order to 
contract awards over $500,000. And when you start with a base 
of several hundred thousand small businesses in the federal 
marketplace and you take away from that companies that are 
doing business under the 500,000 threshold for which this EO 
would not even apply, and then you take from that the vast 
amount of companies that are already complying with labor laws, 
you are talking about a very small fraction of companies that 
would have any disclosure requirements whatsoever.
    Mr. TAKAI. But you are talking about 500,000 for the prime, 
or 500,000 for every sub?
    Ms. RUNG. The 500,000 limit applies to both primes and 
subs.
    Mr. TAKAI. Okay. So that could be problematic for subs.
    Ms. RUNG. No. This is an advantage to them because what we 
are saying in the executive order is if you are awarded a 
contract under $500,000 at both the prime or sub level, this 
executive order does not apply to you. And for the vast 
majority of small business transactions, they fall under the 
$500,000 award.
    Mr. TAKAI. Okay. Well, if you can get us information 
regarding that, that will be helpful.
    Okay. So my next question is would a subcontractor who is 
deemed nonresponsible by a prime have the same process of 
redress that a prime has if it is ruled nonresponsible by the 
contracting officer? In other words, yeah, does the subprime 
contractor have redress in this particular case?
    Ms. RUNG. Yeah. So historically, the performance of the 
subcontractor has been the responsibility of the prime. So it 
would be the prime that would ensure that there is satisfactory 
performance and/or there is business integrity and ethics. And 
that is a relationship between the two of them that the sub 
would work through with its prime.
    Mr. TAKAI. Okay. But if they are being labeled as 
nonresponsible by prime, is there recourse at your level? Is 
there anything they can do? I have eight seconds.
    Ms. RUNG. I am not aware of that.
    Mr. TAKAI. All right.
    Ms. RUNG. But I am happy to look into it and see if I can 
get you a more complete answer.
    Mr. TAKAI. Okay. Thank you.
    Thank you, Mr. Chairman.
    Chairman HARDY. The gentleman yields back.
    I would like to recognize Mr. Rice for five minutes.
    Mr. RICE. Thank you, Mr. Chairman.
    This is all very interesting to me. You heard me talking 
earlier, I think, about the fact that for the last five years 
the regulatory burden has mushroomed under the federal 
government. You also heard me tell the SBA--not just the 
Federal Government, the SBA says that for a firm under 20 
employees, the federal regulatory burden costs $10,585 per 
employee per year. So let me ask you, with respect to small 
businesses that have to comply with this new law, is this going 
to be free for them or is it going to cost them money?
    Ms. RUNG. So we very much recognize that there is a cost to 
this proposed rule.
    Mr. RICE. So the answer is yes.
    Mr. Solomon, do you agree with that?
    Mr. SOLOMON. Yes.
    Mr. RICE. Okay. We have had more small businesses closing 
than we have being formed in this country in the last five 
years, the first time that happened since the Great Depression. 
I think that has a lot to do with this mushrooming regulatory 
burden. Do you think this new rule is going to ease their 
regulatory burden or is it going to pile more on their heads?
    Ms. RUNG. This is designed to create a more level playing 
field for small businesses.
    Mr. RICE. Okay. So I will take that as it is going to add 
more.
    Mr. Solomon, what do you think?
    Mr. SOLOMON. I agree with my colleague.
    Mr. RICE. Okay. Good.
    You know, you were saying that you are trying to protect 
taxpayer dollars. I mean, any single transaction that occurs in 
commerce, I guess we could look at every single transaction 
from a bank deposit to a withdrawal and say there may be a 
taxpayer dollar involved so we should get involved in that. 
Should the government be involved in every single transaction?
    Ms. RUNG. So it has been a longstanding tenet of the 
federal procurement system that when we spend taxpayer dollars 
we are doing so while we are also ensuring that the contractor 
receiving those taxpayer dollars are a responsible source. And 
that means that there----
    Mr. RICE. Ms. Rung, is this the only regulation that you 
oversee?
    Ms. RUNG. I oversee the federal acquisition regulations, so 
there are several.
    Mr. RICE. What have you done? How long have you been with 
this department?
    Ms. RUNG. I was confirmed a year ago this month.
    Mr. RICE. Okay. What have you done that has a material 
reduction in small business cost or time in your regulatory 
authority?
    Ms. RUNG. So there have been a number of successful steps 
forward in the small business arena in the past year. One was 
creating set-asides for small businesses on task and delivery 
orders. One was working into senior management performance 
plans, small business goals. And we have also, you know, worked 
on a number of other provisions----
    Mr. RICE. How much time or money do you think you have 
saved small businesses as a result of these?
    Ms. RUNG. I think in the end, by doing business with 
companies that comply with labor laws and all laws, we ensure a 
greater economy and efficiency in federal procurement, and that 
has long been understood.
    Mr. RICE. So the answer would be none, is that what you are 
saying?
    Ms. RUNG. The answer is the intent of this executive order 
is to ensure that we promote economy and efficiency by ensuring 
that we do business with companies that comply with laws.
    Mr. RICE. Mr. Solomon, you were at the National Labor and 
Relations Board when, I think, in fact, you were the guy who 
issued the opinion that Boeing could not move their Dreamliner 
production line from Washington to South Carolina; is that 
right?
    Mr. SOLOMON. I issued the complaint. It was not as you 
state. The theory of the case was not as you state. It was not 
about the opening of South Carolina.
    Mr. RICE. Do you think the government should be able to say 
where businesses can open their production lines? Do you think 
the Federal Government should be able to dictate where a 
business can open its production line?
    Mr. SOLOMON. The business of the complaint was not saying 
where Boeing could locate its business. The theory of the 
complaint was that they would have built this line in Seattle 
as they have done all other lines except for the fact that 
their employees unionized and would go on strike.
    Mr. RICE. All right. So if you believe that the government 
has that level of intrusive authority into a business, do you 
not think that this new proposed rule could very easily be used 
for political purposes to grant government contracts to people 
who are favored by the administration? It seems to me like this 
rule is rife with potential for corruption.
    Mr. SOLOMON. With all due respect, Congressman, I think you 
will find nothing in the guidance or the FAR rule that would 
lead to that conclusion.
    Mr. RICE. All right. I appreciate very much your time and I 
yield back.
    Chairman HARDY. The gentleman yields back.
    Thank you for being here. Thank you for your participation. 
I just would like to state a couple of things. Fifty-seven 
percent of the Associated Builders and Contractors say that 
under this rule they will no longer participate on government 
contracts. That is huge. Last year, small businesses received 
over 57 billion of noncommercial item contracts. This is nearly 
60 percent of the prime contract dollars spent with small 
businesses. At a time when the federal contractors are already 
struggling, I wish I could say that I am leaving here today 
convinced that the administration heard the concerns being 
expressed by our small businesses witnesses and are going on to 
respond in an appropriate manner. So I hope you really consider 
what has been said here today and think about it. I thank you 
for being here. I appreciate your testimony. I know it is hard 
to come here and stand before people sometimes, and 
unfortunately, this happens, but I hope you will reconsider 
your thought process, at least at my standpoint, and thank you 
for being here.
    Mr. SOLOMON. Thank you.
    [Whereupon, at 11:46 a.m., Subcommittees were adjourned.]
                            
                            A P P E N D I X

                 STATEMENT OF ANGELA B. STYLES

                  CHAIR, CROWELL & MORING LLP

          BEFORE THE HOUSE COMMITTEE ON SMALL BUSINESS

           SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

   SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT AND REGULATIONS

                       SEPTEMBER 29, 2015

    Chairman Hanna, Chairman Hardy, Congressman Takai, 
Congresswoman Adams, and Members of Both Subcommittees I 
appreciate the opportunity to appear before you today to 
discuss the impact of the proposed Federal Acquisition Rule 
(``FAR'') Rule and Department of Labor (``DOL'') Guidance 
implementing the Fair Pay and Safe Workplaces Executive Order 
(``EO 13673'').\1\
---------------------------------------------------------------------------
    \1\ Fair Pay and Safe Workplaces Proposed Rule, 80 Fed. Reg. 30,548 
(May 28, 2015); Guidance for Executive Order 13673, Fair Pay and Safe 
Workplaces, 80 Fed. Reg. 30,574 (May 28, 2015); EO 13673, Fair Pay and 
Safe Workplaces 79 Fed. Reg. 45,309 (Aug. 5, 2014).

    As Chair of the Crowell & Moring Government Contracts 
Group, and as former Administrator for Federal Procurement 
Policy at the Office of Management and Budget, I have worked 
closely with small business contractors throughout my 
professional career. Based upon over two decades of experience 
in federal procurement, I am deeply concerned that the EO will 
undermine the government's long-standing policy of maximizing 
contracting opportunities for small businesses. Certainly, no 
one opposes the principles of ``fair pay'' and ``safe 
workplaces'' for employees of government contractors, and the 
Administration itself has acknowledged that ``the vast majority 
of federal contractors play by the rules.'' \2\ But if the EO 
is aimed at only a small number of bad actors, then surely 
there is a more efficient way to accomplish this goal than 
imposing requirements that will lead to procurement delays, the 
blacklisting of ethical companies, and reduced competition in 
the federal marketplace. My testimony today highlights five 
principal concerns about the substance of the EO as it relates 
to small businesses:
---------------------------------------------------------------------------
    \2\ Fact Sheet: Fair Pay and Safe Workplaces Executive Order Jul 
31, 2014, http://www.dol.gov/asp/fairpay/FPSWFactSheet.pdf (last 
visited July 2, 2015).

           Potentially severe unintended consequences 
---------------------------------------------------------------------------
        for small businesses.

           High compliance costs that will deter small 
        businesses from participating in the federal 
        marketplace.

           The diversion of federal employees from 
        assisting and growing our small businesses to 
        collecting data, monitoring compliance, and enforcement 
        of federal and state labor laws with a high risk of de 
        facto debarment.

           A flawed Initial Regulatory Flexibility Act 
        analysis.

           Failure to give even the most basic 
        rationale for the necessity of this rule.

    For a more in-depth analysis of other portions of the 
Proposed Rule and the potential effect on the entire 
procurement system, I refer you to the official comments to the 
Proposed Rule submitted by the National Association of 
Manufacturers (``NAM''), a client of Crowell & Moring, and 
attached to this testimony. Over the course of several months, 
we have been fortunate to assist NAM with an analysis of the 
Proposed R7ule and preparation of comments for official 
submission. While I am testifying on my own behalf today, I 
have worked extensively with industry in understanding and 
assessing the potential impact of this rule.

 The EO Creates Potentially Severe Unintended Consequences for 
                        Small Businesses

    On May 28th, the Administration released a 131-page 
Proposed FAR Rule and a 106-page Proposed DOL Guidance to 
implement EO 13673. Under the EO, a small business bidding on a 
federal prime contract or subcontract valued at more than 
$500,000 will be required to disclose ``violations'' of the 
fourteen enumerated labor laws and be required to provide 
mitigating documentation to the federal government and/or prime 
contractors. The collection and provision of documentation on a 
wide array of labor compliance issues will cause significant 
disruption to small businesses, and forces the delivery of 
competitively sensitive information to prime contractors, the 
Department of Labor, or both. The notion of providing this 
information to prime contractors is especially problematic in 
the government contracts marketplace where it is not uncommon 
for contractors to team on one project only to be competitors 
on a separate procurement. Under the arrangement proposed by 
the EO, prime contractors will learn significant information 
about a small business subcontractor's labor compliance history 
that could then be used as ammunition in bid protests against 
the company in subsequent competitions. In other words, the EO 
could radically alter the prime/subcontractor relationship that 
the government depends on for the delivery of innovative 
products and solutions.

    There is also the risk--acknowledged in the Proposed Rule--
that prime contractors will shy away from doing business with 
subcontractors with any kind of labor violation, no matter how 
minor, because it could slow down the award of the potential 
contract or jeopardize the award of the contract altogether. 
This raises the chilling specter of small businesses with minor 
labor issues being ``frozen out'' of the marketplace.

    And let us not forget that over twenty percent of federal 
procurement dollars are awarded to small businesses as prime 
contractors on federal projects. Under the EO, these small 
business prime contractors will face a daunting task. In 
addition to satisfying the rule's onerous compliance and 
reporting requirements with respect to their own corporate 
history, they will be charged with collecting, analyzing, and 
updating information with respect to their subcontractors. If 
any of those subcontractors are large federal contractors--
which is often the case--it is not hard to imagine a small 
business being subsumed in paperwork when its large business 
subcontractor forks over boxes and boxes of paperwork on its 
historical labor compliance, mitigating circumstances, and 
other information required under the EO. Instead of delivering 
critical services to federal agencies that rely on their 
support, small business prime contractors will be forced to re-
allocate precious resources to generate paperwork for 
paperwork's sake.

    Pricey Compliance Costs will Diminish Small Businesses 
            Participation in the Federal Marketplace

    One fact is crystal clear: compliance with the new 
requirements will be incredibly expensive and burdensome. These 
costs hit small contractors especially hard, as they have 
limited resources to build new compliance infrastructure, track 
legal allegations, or even challenge frivolous claims. All of 
this comes at a time when the Government is attempting to 
encourage more innovative small businesses and commercial item 
contractors to enter the government marketplace.

    Section 4 of EO 13673 requires the FAR Council to minimize 
the burden of complying with the regulation on small 
entities.\3\ While the Proposed Rule contains several steps to 
minimize the burden such as the possible phasing-in of flow-
down requirements and the exemption of subcontracts for 
Commercial Off the Shelf (``COTS'') purchases, the Proposed 
Rule introduces a host of new labor law compliance reporting 
requirements and creates substantial administrative burdens for 
small businesses that want to sell goods and services to the 
federal government.
---------------------------------------------------------------------------
    \3\ E.O. Sec. 4

    For even the largest, most sophisticated government 
contractors, the collection of subcontractor labor compliance 
data will create an unprecedented data collection and reporting 
burden. If compliance will be difficult for large contractors 
with in-house personnel and expertise, satisfying the 
requirements will be near impossible for small businesses when 
they are awarded prime contracts and are therefore required to 
make responsibility determinations for their own 
subcontractors. Many small businesses lack the staffing or 
compliance infrastructure to collect and evaluate information 
about labor law violations from subcontractors with hundreds or 
even thousands of employees. In all likelihood, small 
businesses will be overwhelmed with the task of trying to 
collect and evaluate the labor violations of their 
subcontractors, and this heavy burden is compounded by the fact 
that the process will have to be repeated every six months 
---------------------------------------------------------------------------
after award.

    Small business contractors are already expending 
substantial resources to comply with federal labor laws and 
regulations, oftentimes without the benefit of large 
administrative staffs, and sophisticated legal counsel. The 
additional costs, risks, and compliance requirements associated 
with the EO may force some small businesses to exit the federal 
marketplace altogether. In the same vein, potential new 
entrants to the government contracts market may be deterred by 
the up-front investment that will be required to comply with 
the EO. I think we can all agree that reducing the number of 
companies competing for federal contracts is bad for everyone: 
bad for our job-creating small businesses, which will lose 
critical contracting opportunities; bad for thegovernment, 
which will have greater difficulty meeting statutorily-mandated 
socioeconomic contracting goals; and bad for the taxpayers, 
because reduced competition will lead to higher prices.

    Concerns about the collateral effects of the EO on small 
entities is shared by the Small Business Administration 
(``SBA'') Office of Advocacy, the federal government's own 
small business watchdog. According to public comments submitted 
by that Office, the Proposed Rule is ``very burdensome,'' 
``raises the cost of doing business with the federal 
government,'' and could lead to the ``reduction of the number 
of small businesses that participate in the federal 
marketplace.'' \4\ Notably, the SBA's Office of Advocacy 
recommends that the new requirements not apply to small 
businesses at least until the subsequent rulemaking when DOL 
identifies the state equivalents of the fourteen federal labor 
laws.
---------------------------------------------------------------------------
    \4\ SBA Office of Advocacy, Regulatory Comment Letter re: Proposed 
Regulation to Implement Executive Order 13673 ``Fair Pay and Safe 
Workplaces,'' 80 Federal Register 30,547, May 28, 2015, FAR Case 2014-
025, available at https://www.sba.gov/sites/default/files/
2015--08--26--15--20--
33--2.pdf

Diversion of Federal Employee Resources to Data Collection and 
---------------------------------------------------------------------------
        Enforcement with a Specter of De Facto Debarment

    The Proposed Rule and Guidance do not address how the 
federal acquisition workforce is expected to divert resources 
from guiding and growing small businesses to the collection, 
analysis, and enforcement of labor laws in a fair and even-
handed way. As a threshold matter, each of the fourteen federal 
laws identified in EO 13673 is extremely complex, and the 
caselaw is constantly evolving. There is not a lawyer in 
Washington who could claim to be an expert on each of the 
fourteen identified federal labor and employment laws, much 
less the yet-to-be-identified ``equivalent state laws.'' \5\ So 
it is wholly unreasonable to assume that a contracting officer 
(``CO'') or agency labor compliance advisor (``ALCA'') will 
have a sufficient understanding of the universe of relevant 
labor laws to be able to make the required responsibility 
determinations, and to make them consistently.
---------------------------------------------------------------------------
    \5\ The DOL announced in its Guidance that it will define 
``equivalent state laws'' as part of a future rulemaking.

    The tasks delegated to COs and ALCAs under EO 13673 and the 
Proposed Rule are made more difficult because of the short 
window of time in which responsibility determinations must be 
made. In order to meet the requirements of the Proposed Rule, a 
CO will be required to take the following steps for every 
contract award over $500,000 in which an offeror reports a 
---------------------------------------------------------------------------
labor violation:

           First, the CO must check to see if the 
        contractor has disclosed any violations in the System 
        for Award Management (``SAM'') as part of the initial 
        certification;

           Second, the CO must request all relevant 
        information about the administrative merits 
        determinations, civil judgment, or arbitral award;

           Third, the CO must furnish the ALCAs with 
        all of this information and request that the ALCA 
        provide written advice and recommendations within three 
        business days of the request;

           Fourth, the CO must review the DOL Guidance 
        and the ALCA's recommendation;

           Fifth, the CO must consider the mitigating 
        circumstances such as the extent to which the 
        contractor has remediated the violation or taken steps 
        to prevent its recurrence;\6\
---------------------------------------------------------------------------
    \6\ Fair Pay and Safe Workplaces Proposed Rule, 80 Fed. Reg. 30,548 
(May 28, 2015) (``The Executive Order (EO) requires that prospective 
and existing contractors disclose certain labor violations and that 
contracting officers, in consultation with labor compliance advisors, 
consider the disclosures, including any mitigating circumstances, as 
part of their decision to award or extend a contract.'')

           Sixth, the CO must make a responsibility 
        determination as to whether the contractor is a 
        responsible source with a satisfactory record of 
---------------------------------------------------------------------------
        integrity and business ethics;

           Lastly, the CO will need to take the tine to 
        document the various stages of this process in order to 
        develop a more favorable administrative record in 
        preparation for bid protests regarding the 
        responsibility determination.

    Of course, the burden on small business contractors, 
subcontractors, and the acquisition workforce does not end 
there. After contract award, the contractor has to provide 
updated information for itself and its subcontractors every six 
months.

    Given the number of contract actions that will be subject 
to this process, these requirements will no doubt result in a 
less efficient and more cumbersome procurement process. Due to 
the enormous demands on a CO's time, and the complexity of 
making responsibility determinations, the requirements of the 
Proposed Rule will likely result in conflicting and redundant 
decisions by COs.

    The most troubling unresolved question is whether these 
responsibility decisions could result in de facto debarment 
without the due process or the procedural protections embedded 
in Subpart 9.4 of the FAR. For instance, one CO may find a 
small business to be non-responsible after determining that a 
handful of OSHA violations constitute evidence of a 
``pervasive'' problem. Another CO, in an effort to reduce her 
crushing workload, could understandably decide to follow his or 
her colleague's responsibility determination--about the same 
underlying facts--without conducting the required independent 
analysis. Indeed, such failure would seem much more likely when 
a small business is involved, a small business without the 
resources to fight back against an arbitrary decision made 
without independent analysis. If this were to occur, the 
government would have improperly effectuated a de facto 
debarment. While small businesses' understand that contracting 
with the federal government is a privilege and not a right, 
contractors (and particularly small businesses) have a due 
process liberty interest in avoiding the damage to their 
reputation and business caused by the stigma of broad 
preclusion from government contracting.\7\ In sum, the 
requirements of the EO create a slippery slope to the 
``blacklisting'' of companies--effectively preventing them from 
competing for federal contracts--based upon the opinion of one 
contracting officer.\8\
---------------------------------------------------------------------------
    \7\ Reeve Aleutian Airways, Inc. v. United States, 982 F.2d 594, 
598 (D.C. Cir. 1993).
    \8\ Phillips, et. Al, v. Mabus et. al, Civ. Action No. 11-2021, 
2012 WL 476539 (D.D.C.) (``De facto debarment occurs when a contractor 
has, for all practical purposes, been suspended or blacklisted from 
working with a government agency without due process, namely, adequate 
notice and a meaningful hearing.'') citing Trifax Corp. v. Dist. Of 
Columbia, 314 F.3d 641, 643-44 (D.C. Cir. 2003).

    The EO is grounded in the proposition that a greater 
understanding of--and compliance with--labor laws will lead to 
increased economy and efficiency in the procurement process. 
But rather than ensuring the timely and predicable delivery of 
goods and services, the EO and the implementing regulations 
divert precious federal resources and inject uncertainty into 
the procurement process that will delay critical federal 
purchases and side-step the procedural due process rights of 
---------------------------------------------------------------------------
contractors.

 The FAR Council's Initial Regulatory Flexibility Analysis is 
                             Flawed

    In addition to the substantive flaws, the FAR Council's 
regulatory analysis \9\ falls short of the obligations imposed 
by EO 12866,\10\ the Paperwork Reduction Act,\11\ and the 
Regulatory Flexibility Act (``RFA'').\12\ Due to the fact that 
the Proposed Rule is likely to have a significant impact on a 
substantial number of small businesses, the RFA requires that 
the FAR Council prepare an Initial Regulatory Flexibility 
Analysis (``IRFA'') describing the impacts of the rule on small 
entities. Under the RFA, the IRFA must address a number of 
required elements including ``a description of the projected 
reporting, recordkeeping and other compliance requirements of 
the Proposed Rule,'' and a description of any ``significant 
alternatives to the proposed rule which accomplish the stated 
objectives of applicable statutes and which minimize any 
significant economic impact of the proposed rule on small 
entities.'' Here, the FAR Council's IRFA does not adequately 
consider these elements and fails to calculate the true impact 
that the new requirements will have on small businesses across 
the country.
---------------------------------------------------------------------------
    \9\ Accompanying the Proposed Rule is a Regulatory Impact Analysis 
(``RIA'') that is required under EO 12866 (and, by adoption, EO 13563). 
See Federal Acquisition Regulation (FAR) Case 2014-025, Fair Pay and 
Safe Workplaces Regulatory Impact Analysis Pursuant to Executive Orders 
12866 and 13563.
    \10\ EO 12866 directs federal agencies to assess the economic 
effects of their proposed significant regulatory actions, including 
consideration of reasonable alternatives.
    \11\ 44 U.S.C. Sec. Sec. 3501-3521.
    \12\ 5 U.S.C. Sec. 605(b).

    Absent from the FAR Council's IRFA is any substantive 
analysis of the recordkeeping or ongoing compliance 
requirements that will be imposed on small businesses. For most 
contractors, just the initial step of determining whether their 
company has any violations to disclose will be a significant 
undertaking. At present, most companies do not have systems in 
place to implement the new information collection and reporting 
requirements of the EO. In order to comply, contractors will be 
required to create new databases and collection mechanisms to 
account for information subject to disclosure. Moreover, 
contractors would be required to develop new internal policies 
and procedures and hire and train new personnel to ensure 
---------------------------------------------------------------------------
compliance with the proposed requirements.

    Moreover, the IRFA fails to consider alternatives to the 
Proposed Rule that could accomplish the same objectives. Had 
the FAR Council considered less costly alternatives, the 
Council would have concluded that federal dollars would have 
been better spent improving existing processes rather than 
requiring data collection and self-reporting which will only 
increase costs for small businesses.

    Under the present system, DOL already reviews federal 
contractors' compliance with federal labor laws through the 
Wage and Hour Division, the Occupational Safety and Health 
Administration, and the Office of Federal Contract Compliance 
Programs. DOL collects data from these enforcement agencies and 
makes much of it publicly available through its Online 
Enforcement Database (``OED''). Rather than requiring 
contractors to collect and report data that the government 
already has in its possession, the government could improve its 
own information-sharing channels so that COs can have the 
information they need at their fingertips when making 
responsibility determinations.

              The EO is Unnecessary and Redundant

    Finally, a significant and wholly unanswered question: why 
is the federal government creating this burdensome process in 
the first place? Each and every labor law identified in the EO 
has its own separate penalties for companies who violate the 
respective laws. And, unlike the EO, those labor laws and the 
associated penalties were created by Congress rather than 
mandated by the Executive Branch. The federal procurement 
system also already includes adequate remedies to prevent 
companies with unsatisfactory labor records from being awarded 
federal contracts. Specifically, the suspension and debarment 
official (``SDO'') within each federal agency has broad 
discretion to exclude companies from federal contracting based 
upon evidence of any ``cause so serious or compelling a nature 
that it affects the present responsibility of a Government 
contractor.'' To the extent that a contractor's labor 
compliance record impacts its present responsibility, FAR 
Subpart 9.4 sets forth the proper channels for suspension and 
debarment proceedings.

    With an established and effective system in place, it makes 
no sense to create a new bureaucracy to review these issues on 
a contract-by-contract basis with the possibility of 
astoundingly inconsistent decisions by different agencies and 
different COs.

                           Conclusion

    Given its scope and complexity, this EO will be 
impractical--if not impossible to implement. The substantial 
costs of compliance imposed on federal contractors will likely 
lead to higher procurement costs and will likely drive many 
small businesses out of the federal marketplace altogether. 
Moreover, these costs will be borne disproportionately by 
companies who can least afford them--our small businesses. This 
is an entirely unacceptable outcome considering that the goals 
of the EO--targeting contractors with the most ``egregious 
violations''--could be accomplished through the enforcement of 
existing labor laws and our existing suspension and debarment 
system. As such, the FAR Council and DOL should rescind the 
Proposed Rule and Guidance. This concludes my prepared remarks. 
I am happy to answer any questions you may have.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 

    Good afternoon, I am Debbie Norris, Vice President of Human 
Resources at Merrick & Company, a federal contractor 
headquartered in Greenwood Village, Colorado, just outside 
Denver. I am pleased to be here today on behalf of the Society 
for Human Resource Management, or SHRM, to discuss my 
significant concerns with the proposed rule issued by the 
Federal Acquisition Regulatory (FAR) Council and guidance 
issued by the Department of Labor (DOL) to implement the 
Executive Order on Fair Pay and Safe Workplaces.

    SHRM and our members have also sent comments to the FAR 
Council and to the DOL in response to the proposed rule and 
guidance. SHRM's comments were submitted in conjunction with 
our affiliate, the Council for Global Immigration (CFGI) and 
the College and University Professional Association for HR 
(CUPA-HR).

    Founded in 1948, SHRM is the world's largest HR membership 
organization devoted to human resource management. SHRM has 
more than 575 affiliated chapters within the United States and 
more than 275,000 members, a significant percentage of whom 
work in organizations that currently hold contracts with the 
federal government or seek to enter the federal contracting 
field.

    Merrick & Company is an employee-owned company. We have 
been in business for over 60 years and have a broad scope of 
services that we provide to federal and commercial clients. Our 
primary federal clients are the departments of Defense, 
Education, Agriculture and Homeland Security; the National 
Science Foundation; and the U.S. Antarctic Program. In Fiscal 
Year 2014 we managed 329 federal contracts. Like many in the 
contracting community, our company serves as both a prime 
contractor and a subcontractor on various contracts.

    Let me first make clear that the President's goal of 
providing fair pay and a safe workplace is a shared goal--after 
all, who isn't for that? In fact, as Vice President of Human 
Resources at Merrick, I work to provide a safe workplace and to 
help make us an employer of choice--not just because it is the 
right thing to do but because it provides us a competitive 
advantage in our industry. We have been recognized as a Best 
Company to Work for in Colorado on five different occasions. We 
have also been recognized nationally as a Best Firm to Work For 
through the ZweigWhite conference. Our internship program has 
been recognized as a Best Practice in the Denver Metro Area. I 
mention these awards because, despite the fact that my company 
invests significant time and resources on compliance and 
creating a sought-after work environment, we believe the new 
FAR rules will have a significant and negative impact on our 
ability to maintain current contracts and compete for new ones.

    As a small business working in the federal contracting 
world, we must track a variety of employee size thresholds just 
to determine which federal, state, or local laws and 
regulations apply to us. As noted before, we not only try to be 
an employer of choice, but we also spend a tremendous amount of 
time ensuring that we are in compliance with all applicable 
laws. In addition, we are required to meet the current FAR 
requirements in all of our contracting activities and are 
subject to Defense Contract Audit Agency (DCAA) audits and 
pricing requirements. In order to meet DCAA time-keeping 
requirements as well as other reporting requirements, Merrick 
has invested millions of dollars in a new enterprise system to 
track information and meet all of our federal contracting 
requirements. The existing standards, in which we have invested 
significant resources to ensure compliance, already provide the 
government with ample information about our fitness as a 
federal contractor.

    The proposed regulations and guidance to implement the 
Executive Order on Fair Pay and Safe Workplaces raise many 
issues for those of us who work as contractors, especially 
smaller federal contractors. In my testimony today, I will 
address key concerns with the proposals including the role that 
the newly-created position of Agency Labor Compliance Advisor 
(ALCA) will play in the contracting process; the expansive and 
vague definiti8ons used in the proposals; the burden of 
recordkeeping and ongoing reporting requirements; and the 
damage to relationships between prime and subcontractors and 
delay in the contracting process that will result from these 
proposals.

    First, as described in the DOL guidance, the ALCAs will be 
layered onto the existing relationship between Merrick and our 
contracting officers in order to provide guidance on ``whether 
contractors' actions rise to the level of a lack of integrity 
or business ethics'' after reviewing reported violations and 
assessing whether those violations are ``serious, repeated, 
willful, or pervasive. ...'' The definition of ``violation'' 
used by DOL is expansive. In addition, the DOL guidance 
purports to narrow that expansive definition of violation by 
excluding violations that are not considered ``serious, 
repeated, willful, or pervasive.'' The problem with these 
definitions is that they are vague as applied to specific 
situations. On top of what is already required by individual 
statutes, DOL has added these terms and definitions and given a 
great deal of discretion to the ALCAs to interpret these terms.

    For example, under the proposed definition of ``repeated,'' 
a violation will be deemed a ``repeat'' violation if the 
violations are ``substantially similar''--meaning they share 
``essential elements in common'' but need not be ``exactly the 
same.'' Under this definition, would a Title VII claim for 
sexual harassment be considered a repeat violation if the 
contractor previously had an Office of Federal Contract 
Compliance Programs (OFCCP) show cause notice on a sex-based 
hiring discrimination claim? The definitions provide no clear 
guidance as to which violations and what number and type of 
violations could prevent an employer from contracting with the 
government. Contractors are left not knowing with any certainty 
what situations will yield a recommendation by the ALCA that a 
contractor lacks ``integrity and business ethics'' or a 
determination of ``not responsible'' by the contracting officer 
based on that recommendation.

    In addition, ALCAs, by the nature of their duties, will be 
interpreting labor laws at both the federal and state levels. 
Assigning federal agency employees the responsibility to not 
only interpret federal law but also state law is curious--
particularly given the complexity of the overlapping and 
sometimes conflicting state and federal laws. The federal 
contractors who are required to interact with the ALCAs are 
greatly exposed when they take advice regarding legal 
compliance with these laws.

    For example, can a contractor rely on the advice that the 
ALCA provides for compliance and will such reliance constitute 
a good-faith defense? It is unclear from the proposed 
regulations whether the enforcement agencies will be bound by 
and follow the same interpretation that the ALCAs provide. If 
federal contractors are not able to appeal the determinations 
of the ALCAs, they are unable to properly present their views 
to a neutral body. Small businesses, in particular, will be at 
risk since they are less likely to have in-house legal counsel 
or access to outside counsel, leaving them completely reliant 
on the ALCA's determination, possibly to their great detriment. 
I also believe that adding ALCA review and consultation with 
contracting officers onto the process will inevitably lead to 
delay in contracting, an issue I will discuss in more depth 
later.

    I am equally, if not more concerned, about the requirement 
to report non-final agency actions. The proposal requires 
reporting of any ``administrative merits determination, civil 
judgment, or arbitral award or decision rendered against [a 
federal contractor] during the preceding three-year period for 
violations of any of 14 identified Federal labor laws and 
executive orders or equivalent State laws,'' although which 
state laws are implicated by this proposal is yet undefined.

    It is not uncommon for companies to undergo agency 
investigations and even be issued a notice of a violation that 
turns out to be unfounded. I am concerned that if non-final 
agency actions are considered by the ALCA and contracting 
officer as part of the responsibility determination, companies 
like mine could lose a contract as a result of cases or 
investigations that are not yet final or are eventually 
dismissed. For example, in fiscal year 2014, the Equal 
Employment Opportunity Commission received 88,778 charges. In 
that same year, well over half of charges filed were found to 
have ``no reasonable cause'' and less than one-half of one 
percent of those charges matured into lawsuits.

    An unfortunate outcome of considering non-final agency 
actions is that federal contractors will feel pressured to 
settle a claim, even if they feel they have done nothing wrong. 
If a contractor has a big contract award coming up, it will 
fear that even an unfounded and unresolved issue could reflect 
poorly on it during the decision-making process. In our 
experience, government investigations and processes typically 
take a long time to resolve complaints or investigations.

    I would like to offer one example. As a federal contractor, 
Merrick files an annual Equal Employment Opportunity, or EEO-1, 
report and Affirmative Action Plan. We are audited by the OFCCP 
whenever it deems necessary but not on any regular schedule. We 
are currently part of a desk audit that started in September 
2014, and we have provided all requested documentation to the 
agency. After a year, we have still not received a 
determination from the OFCCP.

    The desk audit takes weeks of preparation and, depending on 
the timing of the audit, we may need to complete a mid-year 
Affirmative Action Plan that requires us to spend many more 
hours in addition to hiring a consultant for assistance working 
on a mid-year affirmative action plan. In the meantime, if the 
proposed rule were to go into effect as drafted, it is not 
clear to us whether this is a reportable agency action, 
although we strongly feel it should not be reportable. We are 
concerned that unresolved actions will have a negative impact 
on future federal contracts. For these reasons, SHRM believes 
that the regulations should only require the reporting of 
final, non-appealable adjudications.

    Other major areas of concern are the recordkeeping and 
ongoing reporting burdens created by the proposals. Collecting 
and reporting on information deemed a ``labor violation'' under 
14 different federal laws and an as-yet untold number of state 
laws will not be an easy task. This is compounded by the need 
to oversee the labor law compliance of our subcontractors. 
Doing so will require federal contractors to crate a company-
wide, centralized electronic record of federal, and eventually 
state, violations over the past three years. Federal 
contractors will also have to require their subcontractors to 
collect this data, as well. In addition, contractors will have 
to determine, in consultation with the DOL contracting officers 
and labor compliance officers, whether a subcontractor is a 
``responsible source,'' take remedial action when necessary, 
and report this information every six months.

    Merrick has 18 different offices in eight states and the 
District of Columbia as well as offices in Mexico and Canada. 
We run our HR department from our headquarters in Colorado, 
tracking violations on a corporate-wide basis although other 
federal contractors do not currently keep this data in a 
centralized place. Even though Merrick collects the information 
corporate-wide, the proposal places an additional burden of 
ensuring that each office is accurately reporting this 
information to us.

    Additional compliance and tracking requirements may cause 
my company to hire more staff, resulting in costs that will 
ultimately be passed on to the federal government. Currently 
whenever the OFCCP requests an audit, for example, it means my 
employees will work overtime to meet the demanding 30-day 
requirement to respond. When staff time is directed to 
responding to compliance requirements, it takes away from the 
HR department's focus on the needs of our employees and meeting 
our business objectives. Federal contractors will likely handle 
this situation in one of two ways: They will either try to make 
do with existing staff, which may result in a failure to meet 
the contracting obligations, or they will hire additional 
staff, which will end up costing the government more.

    The proposed FAR regulations require an employer that has 
been awarded a contract to submit information on violations 
every six months during the life of the contract in order to 
determine whether to permit the contractor to continue 
performing. The proposed regulations, however, do not say when 
this six-month reporting requirement begins or whether 
contractors can update the information to cover the reporting 
requirements for all of their contracts at the same time.

    As a federal contractor, Merrick already reports 
information to the federal government. Rather than placing 
additional and duplicative data collecting and reporting 
requirements on federal contractors, the federal government 
should seek to use the data is already collects. The additional 
and duplicative reporting requirements we will force us to find 
another way to manage compliance reporting. I doubt that we 
will have the staff in-house to manage this and will instead 
have to hire additional staff to meet the requirements. While 
it is unlikely we will have any violations since we have not 
had any in the past, we still have to track and report against 
14 different federal laws plus state laws that have their own 
set of compliance standards.

    We are also concerned about the significant delays that 
these proposals will cause in the procurement process. 
Contractors will be required to report violations occurring 
within the previous three years along with the contract 
proposal, including reports on the subcontractors within their 
supply chain. In order to avoid jeopardizing the timeliness of 
their bid or proposal, prime contractors will have to start 
very early to collect the information needed from 
subcontractors. The agencies will also have to factor in time 
for the ALCA to review and evaluate the reports being provided 
by all competitors in a particular procurement, determine when 
to seek mitigating information, assess that information, and 
work with the contractor, subs, and other enforcement agencies 
to enter into labor compliance agreements and make 
recommendations. Given that each contracting agency will have 
only one ALCA to evaluate all of the disclosures, the process, 
by design, will take significant time.

    When we are trying to negotiate a contract through the 
contracting officer, it can already take longer than 
anticipated to get a working contract. In the meantime, we have 
employees who are idle waiting to work. When these employees 
are not working on projects, revenue is lost to the 
organization.

    We also believe that the information requested through the 
proposed rule could damage the relationships between prime 
contractors and subcontractors. As a company that has been both 
a prime and a sub on different federal contracts, we understand 
the burdens these proposals crate for both roles. Prime 
contractors should not be placed in an enforcement or legal 
interpretation role; that should instead be handled directly 
between subcontractors and the government. Reporting of a labor 
violation could be a competitive advantage to the prime 
contractors and lead to blacklisting of subcontractors. On the 
other hand, a prime contractor will not want to do business 
with a subcontractor with any kind of labor violation, no 
matter how minor, because it could slow down the evaluation and 
awarding of the potential contract or jeopardize the award of 
the contract altogether. For these reasons, SHRM believes that 
the final regulations should create a process for 
subcontractors to report their violations directly to the 
government--hopefully through a process that will not intensify 
delay.

    In conclusion, SHRM believes that the proposals create a 
vague and unworkable system that will harm the federal 
contracting process and impose requirements on contractors and 
subcontractors that are impractical and hugely expensive. For 
these reasons, we believe the Executive Order should be 
withdrawn or substantially modified.

    Again, I appreciate the opportunity to express my concerns 
with the proposed rule on behalf of SHRM and our 275,000 
members. The burdens presented by the proposals are 
substantial. I hope that the federal government will make 
modifications to ensure that businesses, and small businesses 
in particular, can afford to remain federal contractors.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 

                   EXECUTIVE OFFICE OF THE PRESIDENT

                    OFFICE OF MANAGEMENT AND BUDGET

                         WASHINGTON, D.C. 20503

                         www.whitehouse.gov/omb

                       TESTIMONY OF ANNE E. RUNG

              ADMINISTRATOR FOR FEDERAL PROCUREMENT POLICY

                    OFFICE OF MANAGEMENT AND BUDGET

        BEFORE THE SUBCOMMITTEE ON CONTRACTING AND WORKFORCE AND

               INVESTIGATIONS, OVERSIGHT, AND REGULATIONS

                      COMMITTEE ON SMALL BUSINESS

                 UNITED STATES HOUSE OF REPRESENTATIVES

                           September 29, 2015

    Chairman Hanna, Ranking Member Takai, Chairman Hardy, 
Ranking Member Adams and Members of the Subcommittees, thank 
you for the opportunity to appear before you today and discuss 
the Administration's implementation of Executive Order (E.O.) 
13673, Fair Pay and Safe Workplaces. My comments today will 
primarily focus on actions being taken by the Federal 
Acquisition Regulatory Council (FAR Council), which I chair as 
Administrator of the Office of Federal Procurement Policy 
(OFPP).

    It is important to emphasize at the outset that OFPP and 
the FAR Council have been working in close partnership with the 
Department of Labor (DOL) on rules and guidance to implement 
E.O. 13673. Our respective organizations are fully committed to 
implementing the E.O. in a manner that is clear, fair, and 
effective, and have been actively seeking feedback from 
stakeholders since issuance of the E.O. more than a year ago. 
We did this to ensure that we had sufficient information and 
insight from stakeholders, including small businesses, to 
achieve these goals. As part of this outreach, my office took 
part in a roundtable held this summer by the Small Business 
Administration's (SBA) Office of Advocacy to hear the small 
business's views on DOL's proposed guidance and the proposed 
change to the Federal Acquisition Regulation (FAR) published in 
the Federal Register on May 28, 2015.

    E.O. 13673 is designed to improve contractor compliance 
with labor laws in order to increase economy and efficiency in 
Federal contracting. As section 1 of the E.O. explains, 
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, While the vast 
majority of Federal contractors abide by labor laws, studies 
conducted by the Government Accountability Office, the Senate 
Health, Education, Labor and Pensions Committee, and the Center 
for American Progress (CAP) suggest that a significant 
percentage of the most egregious labor violations identified in 
recent years have been regarding companies that received 
Federal contracts. In addition, CAP and studies performed by 
others have found a nexus between companies with labor 
violations and significant performance problems on Government 
contracts.

    In recent years, important steps have been taken by this 
Administration to better protect taxpayers from the waste and 
abuse that comes from doing business with contractors that are 
not responsible sources. These steps include the deployment of 
the Federal Awardee Performance and Integrity Information 
System (FAPIIS) that supports agencies as they evaluate whether 
a company has the requisite integrity to do business with the 
Government. We have also sought to strengthen agency suspension 
and debarment programs to protect the Government from harm. 
Despite these steps, many labor violations that are serious, 
willful, repeated, or pervasive are not considered in awarding 
a contract, in large part because contracting officers are not 
aware of them. In addition, even if information regarding labor 
violations is made available to the agency, contracting 
officers generally lack the expertise and tools to evaluate the 
severity of the labor law violations brought to their attention 
and therefore cannot easily determine if a contractor's actions 
show a lack of business ethics and integrity.

    The E.O. requires that prospective and existing contractors 
on covered contracts disclose violations of certain labor laws 
and that contracting officers, in consultation with labor 
compliance advisors (LCAs), consider the disclosure, including 
any mitigating circumstances, as part of their decision to 
award or extend a contract. DOL and the FAR Council have been 
working closely together to create a comprehensive process that 
is manageable and avoids the uncertainty that drives up the 
cost of contractors doing business with the government. Once 
finalized, the FAR rule will provide direction to contracting 
officers on how they are to obtain disclosures from contractors 
on their labor violations, how to make responsibility 
determinations that take into account disclosed labor 
violations, and how they will work with LCAs, who will advise 
contracting officers in evaluating violations. DOL's guidance 
will work hand-in-hand with the FAR rule by addressing how LCAs 
should identify from among disclosed violations those serious, 
willful, repeated, or pervasive violations that may warrant 
heightened attention because of the nature of the non-
compliance. The guidance will also explain how contractors can 
obtain compliance assistance from DOL.

    In addition to the new requirements to improve labor 
compliance, the FAR rule will address requirements in the E.O. 
to ensure workers on covered contracts are given the necessary 
information each pay period to verify the accuracy of what they 
are paid. It will also require that contractors and 
subcontractors who enter into contracts for non-commercial 
items over $1 million agree not to enter into any mandatory 
pre-dispute arbitration agreement with their employees or 
independent contractors on any matter arising under Title VII 
of the Civil Rights Act, as well as any tort related to or 
arising out of sexual assault or harassment.

    As explained in the preamble to the proposed FAR rule, we 
have take a number of steps in the proposed rule, consistent 
with direction in the E.O., to minimize the implementation 
burden for contractors and subcontractors, including small 
businesses:

           The proposed FAR rule builds on existing 
        processes and principles, including the long-standing 
        requirement that a prospective contractor be a 
        responsible source that has a ``satisfactory record of 
        integrity and business ethics.''

           Many of the contracts performed by small 
        businesses, including contracts valued at $500,000 or 
        less and subcontracts for commercial-off-the-shelf 
        items, are exempt from the proposed FAR rule's 
        disclosure requirements.

           The proposed FAR rule preserves and 
        emphasizes the requirement in the FAR that if a 
        contracting officer finds a prospective small business 
        contractor to be nonresponsible, the matter shall be 
        referred to SBA. If SBA concludes that the small 
        business is responsible, SBA will issue a Certificate 
        of Competency.

           The focus of the proposed FAR rule is on the 
        most problematic labor violations that are most likely 
        to have the greatest bearing on an assessment of a 
        contractor or subcontractor's record of integrity and 
        business ethics.

           LCAs will provide labor expertise to support 
        contracting officers in evaluating labor violations.

           DOL will work with LCAs to coordinate 
        evaluations to promote consistency and certainty.

           Efforts are underway to develop a single 
        website to centralize reporting of labor violations by 
        contractors.

    Further, during listening sessions held by DOL, OMB, and 
relevant policy councils, stakeholders raised concerns 
regarding the potential complexity and burden associated with 
two aspects of the E.O. in particular: (1) provisions 
addressing disclosure of violations of equivalent State laws, 
and (2) provisions addressing disclosure and evaluation of 
subcontractor violations. In response to what we learned from 
these sessions, requirements in the E.O. addressing the 
disclosure of violations of equivalent State laws, with the 
exception of OSHA State Plans, will be phased in at a later 
date. In addition, the FAR Council has developed alternative 
proposals that seek to address concerns it heard regarding the 
challenges contractors might face in evaluating violations 
disclosed by their subcontractors. This includes a possible 
phase-in of subcontractor disclosure requirements. The proposed 
FAR rule has invited public comment on additional or 
alternative approaches to this issue.

    Stakeholder feedback has been a key component in the 
development of the proposed FAR rule. Currently, the FAR 
Council is carefully reviewing the many and diverse public 
comments received in response to the proposed rule published at 
the end of May to determine where additional revisions are 
needed. In considering comments, the FAR Council seeks to 
ensure that the final rule is both manageable and impactful in 
achieving the E.O.'s objective of bringing contractors with 
significant labor violations into compliance with the law in a 
timely manner.

    Without question, implementation of the E.O. requires the 
Government's policy, operational, and technology officials to 
address a number of difficult issues head on. It is hard work, 
but work that is critical to the integrity of our procurement 
system, ensuring economy and efficiency in contracting, and 
securing the well-being of American workers.

    Thank you and I am happy to answer any questions you may 
have.
                          Statement of

                          Lafe Solomon

    Senior Labor Compliance Advisor, Office of the Solicitor

                    U.S. Department of Labor

                           before the

   Subcommittee on Investigation, Oversight and Regulations &

           Subcommittee on Contracting and Workforce

                  Committee on Small Business

                 U.S. House of Representatives

                       September 29, 2015

    Good morning Chairmen Hardy and Hanna and Ranking Members 
Adams and Takai. Thank you for the invitation to appear before 
your Subcommittees to speak about the Department of Labor (DOL 
or the Department) proposed guidance to implement Executive 
Order 13673, the Fair Pay and Safe Workplaces Executive Order 
(EO or the Order).

    Although most Federal contractors comply with applicable 
laws and provide high-quality goods and services to the 
government and taxpayers, a small number of Federal contractors 
have committed a significant number of labor law violations in 
the last decade. In 2010, the Government Accountability Office 
issued a report that found that almost two-thirds of the 50 
largest wage-and-hour violations and almost 40 percent of the 
50 largest workplace health-and-safety penalties issued between 
Fiscal Year (FY) 2005 and FY 2009 occurred at companies that 
later received government contracts.

    Beyond their human cost, these violations create risks to 
the timely, predictable, and satisfactory delivery of goods and 
services to the Federal Government, and Federal agencies risk 
poor performance by awarding contracts to companies with 
histories of labor law violations. Poor workplace conditions 
lead to lower productivity and creativity, increased workplace 
disruptions, and increased workforce turnover. For contracting 
agencies, this means receipt of lower quality products and 
services, and increased risk of project delays and cost 
overruns. Contracting agencies can reduce execution delays and 
avoid other complications by contracting with contractors with 
track records of labor law compliance--and by helping to bring 
contractors with past violations into compliance. 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.

    Moreover, by ensuring that its contractors are in 
compliance, the Federal Government can level the playing field 
for contractors who comply with the law. Those 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. By helping contractors improve, the Federal 
Government can ensure that taxpayers' money supports jobs in 
which workers have safe workplaces, receive the family leave 
they are entitled to, get paid the wages they have earned, and 
do not face unlawful workplace discrimination.

    To address this issue, President Obama signed this EO last 
year, requiring prospective Federal contractors on covered 
contracts to disclose certain labor law violations and giving 
agencies more guidance on how to consider those labor 
violations when awarding Federal contracts. With this Order, 
the President pledged to hold accountable Federal contractors 
that put workers' safety, hand-earned wages, and basic 
workplace rights at risk.

    The EO builds on the existing procurement system, and 
changes required by the Order fit into established contracting 
practices that are familiar to both procurement officials and 
the contracting community. In addition, the Department will 
provide support directly to contractors and subcontractors so 
that they understand their obligations under the Order and can 
come into compliance with Federal labor laws without holding up 
their proposals in response to specific Federal contracting 
opportunities. Finally, the Department will work with Labor 
Compliance Advisors across agencies to minimize the amount of 
information that contractors have to provide and to help ensure 
efficient, accurate, and consistent decisions across the 
government.

    Nothing in the Order displaces the existing authority of 
the Small Business Administration to make a definitive 
determination of a small business's responsibility to perform a 
particular contract. If a contracting officer makes a 
determination on non-responsibility involving a small business 
apparent successful offeror, the contractor must be given the 
opportunity to apply to the Small Business Administration for a 
``certificate of competency.'' If SBA grants the certificate of 
competency, SBA's determination overrides the responsibility 
decision made by the contracting officer--even a decision made 
pursuant to this Order.

    The objective of the Order is to help contractors come into 
compliance with Federal labor laws, not to deny them contracts, 
and it encourages compliance, not suspension and debarment. The 
processes and tools envisioned by the Order are designed to 
identify and help contractors address labor violations and come 
into compliance before consideration of suspension and 
debarment. The Order does not in any way alter the suspension 
or debarment process; however, the expectation is that the 
processes and tools envisioned by the Order will drive down the 
need for an agency to consider suspension and debarment and 
help contractors avoid the consequences of that process. As a 
result, this Order, once implemented, will offer contractors an 
opportunity to come into compliance and maintain the privilege 
of being a Federal contractor, unlike the suspension and 
debarment process, which could exclude them from receiving 
awards.

    The Order also ensures that contractors' employees are 
given necessary information to make sure their paychecks are 
accurate. It also ensures that more workers who may have had 
their civil rights violated or been sexually assaulted can have 
their day in court.

    On May 28, 2015, the Department published proposed guidance 
to assist contracting agencies and the contracting community in 
applying the Order's requirements. On that same day, the 
Federal Acquisition Regulatory Council (FAR Council) also 
issued proposed regulations integrating the Order's 
requirements and the provisions of the Labor Department's 
guidance into the existing procurement rules.

    The Department's proposed guidance would do several things. 
First, it would define ``administrative merits determination,'' 
``civil judgment,'' and ``arbitral award or decision,'' and 
provide guidance on what information related to these 
determinations must be reported by covered contractors and 
subcontractors. Second, it would define ``serious,'' 
``repeated,'' ``willful,'' and ``pervasive'' violations and 
provide guidance to contracting officers (or contractors with 
respect to their subcontractors) and Labor Compliance Advisors 
(LCAs) for assessing reported violations, including mitigating 
factors to consider. Third, it would provide guidance on the 
Order's paycheck transparency provisions, including identifying 
those States whose wage statement laws are substantially 
similar to the Order's wage statement requirement, such that 
providing a worker with a wage statement that complies with any 
of those State laws satisfies the Order's requirement. It would 
also provide a roadmap to contracting officers, Labor 
Compliance Advisors, and the contracting community for 
assessing contractors' history of labor law compliance and 
considering mitigating factors, most notably efforts to 
remediate any reported labor law violations.

    The Department and representatives of the FAR Council have 
been very active in seeking out stakeholder feedback with the 
goal of ensuring that the drafters of the guidance and related 
FAR rule receive a wide range of views and information so that 
the EO is implemented in a manner that is clear, fair, and 
effective. For example, on July 22, 2015, representatives from 
DOL and the FAR Council attended a public roundtable sponsored 
by the Small Business Administration's Office of Advocacy to 
hear feedback from small businesses and gain a better 
understanding of the types of concerns they can expect to be 
raised in comments from this community.

    During those sessions, the regulated community stressed the 
importance of effective implementation of the order and the 
need to streamline the disclosure process and minimize the 
burden on contractors. In response to what we learned from the 
regulated community in these sessions and in an effort to 
ensure that this rule creates a fair, reasonable, and 
implementable process, the proposed guidance and Notice of 
Proposed Rulemaking (NPRM) would:

          1.) Leverage existing Federal acquisition processes 
        and systems with which contractors are familiar. 
        Federal contracting officers already must assess a 
        contractor's record of integrity; however, the 
        information about a prospective or current contractor's 
        workplace violations is not readily available to 
        contracting officials. The regulations and guidance 
        would propose that contracting officers have access to 
        additional information to make more informed decisions, 
        and provide greater transparency for contractors as to 
        the information that will be considered in making that 
        determination.

          2.) Phase in parts of the rule over time. Contractors 
        would not be required to disclose violations related to 
        equivalent State laws immediately (other than 
        violations of OSHA state plans), which is expected to 
        significantly reduce the number of violations they will 
        need to report. Separate guidance and an additional 
        rulemaking will be pursued at a future date to identify 
        equivalent State laws, and such requirements will be 
        subject to notice and comment before they take effect. 
        In the proposed FAR rule, the regulated community is 
        also asked to comment on the phased-in subcontractor 
        reporting requirements.

          3.) Provide an alternative proposal, under which 
        subcontractors would directly report violations to DOL, 
        rather than to their contractor. If this alternative is 
        adopted in the final rule, the contractor could then 
        rely on DOL's review of the subcontractor's violations 
        in determining whether the subcontractor is 
        responsible. Moreover, the proposed FAR rule has 
        invited public comment on additional or alternative 
        approaches to subcontractor disclosure and reviews of 
        the disclosures.

    We are working through the comments to produce a quality 
guidance document that will better inform Federal procurement 
decisions; provide contracting officers with the necessary 
information to ensure accurate, efficient, and consistent 
compliance with labor laws; help contractors meet their legal 
responsibilities; and remove truly bad actors from Federal 
contract consideration--creating a more level playing field for 
law-abiding contractors. Most importantly, it will also ensure 
that hardworking Americans get the fair pay and safe workplaces 
they deserve.

    I appreciate the invitation to testify and will be happy to 
take any questions you may have.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 

    Introduction

    The Professional Services Council commends the Subcommittee 
on Contracting and the Workforce for holding this hearing and 
appreciates the opportunity to provide a written statement for 
the record.\1\ The issue of today's hearing is an important one 
with a long history and its effects must be fully understood 
and considered before there should be any consideration of 
imposing its requirements on contractors.
---------------------------------------------------------------------------
    \1\ For 40 years, PSC has been the leading national trade 
association of the government technology and professionals services 
industry. PSC's nearly 400 member companies represent small, medium, 
and large businesses that provide federal agencies with services of all 
kinds, including information technology, engineering, logistics, 
facilities management, operations and maintenance, consulting, 
international development, scientific, social, environmental services, 
and more. Together, the association's members employ hundreds of 
thousands of Americans in all 50 states. See www.pscouncil.org.

    PSC supports the logical premise that it is unfair that 
contractors with repeated, willful, and pervasive violations of 
labor laws gain a competitive advantage over the vast majority 
of contractors that are acting diligently and responsibly to 
comply with a complex web of labor requirements. That said, we 
are strongly opposed to Executive Order 13673 signed on July 
31, 2014, and its implementation tools, because they go far 
beyond the Executive Order's stated intent and are 
unnecessarily excessive, largely unworkable and unexecutable. 
More specifically, the Executive Order will act as a de facto 
blacklisting of well-intentioned, ethical businesses, further 
restrict competition for contracts, create procurement delays, 
and add to the cost of doing business with the government. And 
despite its laudable intent, the Executive Order will also 
create significant new implementation and oversight costs for 
the government for what even the administration acknowledges is 
---------------------------------------------------------------------------
a relatively small problem.

    In simple terms, this Executive Order lacks crucial, 
fundamental characteristics of fairness, logic, and 
objectivity. The same is true about the Executive Order's 
implementing tools--a Federal Acquisition Regulation proposed 
rule \2\ and Department of Labor (DoL) proposed guidance \3\ 
issued simultaneously on May 28, 2015. In fact, the DoL 
proposed guidance is far more aggressive than what is required 
by the Executive Order and in many aspects is incomplete. PSC 
commented extensively on the proposed rule and guidance via our 
participation in the Council of Defense and Space Industry 
Associations (CODSIA), which we have added as an appendix to 
this written statement.\4\ If fully implemented, the Executive 
Order will have a significant negative affect on law abiding 
small businesses already performing in the federal market and 
will act as a substantial barrier to any small business seeking 
to do business with the Federal government.

    \2\ Fair Pay and Safe Workplaces FAR Proposed Rule, 80 Fed. Reg. 
30548 et seq, May 28, 2015, available at http://www.gpo.gov/fdsys/pkg/
FR-2015-05-28/pdf/2015-12560.pdf.

    \3\ Guidance for Executive Order 13673, ``Fair Pay and Safe 
Workplaces'', 80 Fed. Reg. 30574 et seq, May 28, 2015, available at 
http://www.gpo.gov/fdsys/pkg/FR-2015-05-28/pdf/2015-12562.pdf.

    \4\ CODSIA Comments on Fair Pay and Safe Workplaces proposed 
implementing regulations, August 28, 2015, available at 
www.pscouncil.org/PolicyIssues/LaborIssues/
Comments--on--Fair--Pay--and
--Safe--Workplaces.aspx.

---------------------------------------------------------------------------
    About the Executive Order

    Executive Order 13673 (E.O.) seeks to ensure that only 
those contractors who abide by a myriad of federal and 
``equivalent'' state labor laws are permitted to receive 
federal contracts.\5\ The E.O. and its supporting materials 
state that the E.O. is necessary because of instances in which 
companies have failed to comply with existing laws related to 
wage requirements, workplace safety, and employer anti-
discrimination. However, the White House also recognizes that 
the ``vast majority of federal contractors play y the rules,'' 
\6\ which itself raises serious questions about the necessity 
of such a sweeping and significant new compliance regime.
---------------------------------------------------------------------------
    \5\ To date, there is no federal requirement that imposes a 
contractural obligation to comply with state labor laws. The E.O. will 
require the Department of Labor to determine when labor laws are 
``equivalent.''
    \6\ Fact Sheet: Fair Pay and Safe Workplaces Executive Order, 
available at http://www.whitehouse.gov/the-press-office/2014/07/31/
fact-sheet-fair-pay-and-safe-workplaces-executive-order.

    To achieve its intended goal, the E.O. would require that 
federal procurements for goods and services over $500,000 
include a provision in the solicitation requiring every 
prospective contractor (offeror) to represent, to the best of 
the offeror's knowledge and belief, whether there have been any 
administrative merits determinations, arbitral award decisions, 
or civil judgments--that were undefined in the Executive Order 
but are defined in the DoL proposed guidance--rendered against 
the offeror within the preceding three year period, for 
violations of 14 enumerated federal labor laws and their 
equivalent state laws. Examples of the laws that would be 
covered by the E.O. include the Fair Labor Standards Act 
(FLSA), Occupational Safety and Health Act (OSHA), the National 
Labor Relations Act, the David-Bacon Act, and the Service 
---------------------------------------------------------------------------
Contract Act.

    Based on the information received from offerors, government 
contracting officers must make a determination about each 
offeror's present responsibility, thus determining whether the 
offeror is suitable for a contract award.

    If awarded the contract, the awardee must require all of 
their subcontractors to also disclose to the awardee any of its 
labor-related findings or violations and the awardee must 
evaluate every disclosure by a subcontractor and make a 
determination regarding whether that subcontractor is a 
``presently responsible sources'' with satisfactory records of 
integrity and business ethics.

    The E.O. would also create a new function within each 
agency and require the appointment of a senior agency official 
to serve as the ``Labor Compliance Advisor'' (LCA). It tasks 
LCAs with assisting agency contracting officers with making 
decisions about contractors' compliance with labor laws and 
whether contractors are ``presently responsible.'' The LCA is 
also to provide assistance to the agency suspension and 
debarment official when initiating suspension and debarment 
proceedings. Finally, the E.O. requires DoL to assist prime 
contractors with making their decisions about their 
subcontractors' ``present responsibility.'' To our knowledge, 
no mechanism exists today within DoL for providing such 
assistance to prime contractors.

    History

    The Fair Pay and Safe Workplaces Executive Order is similar 
in several respects to previous initiatives under the Clinton 
administration. PSC is familiar with this history because, at 
that time, PSC's President and CEO Stan Soloway was a deputy 
undersecretary of defense and served as the primary lead for 
DoD on those proposed rules. As Soloway stated during his 
February 26, 2015 testimony during a House Education and 
Workforce hearing:\7\
---------------------------------------------------------------------------
    \7\ Written Statement of Stan Soloway, President and CEO of the 
Professional Services Council, before a joint hearing of the Workforce 
Protections and Health, Employment, Labor, and Pensions Subcommittees 
of the House Education and Workforce Committee, February 26, 2015, 
available at http://www.pscouncil.org/PolicyIssues/LaborIssues/
GeneralLaborIssues/
Testimony--on--Fair--Pay--an
d--Safe--Workplaces--Executive--
Order.aspx.

    ``even at that time, there was a great deal of concern 
across the administration about whether that proposed rule was 
fair or implementable and whether it would hinder the Defense 
Department's (or other agencies') ability to effectively 
partner with essential and ``responsible'' private sector 
entities. In my view, those concerns remain valid today, as 
well, particularly since this E.O. goes well beyond the prior 
---------------------------------------------------------------------------
version.''

    As you may know, building on a commitment from then-Vice 
President Gore in 1996, the Civilian Agency Acquisition Council 
and the Defense Acquisition Regulations Council in 2000 
published a proposed rule called the ``Contractor 
Responsibility Rule.'' \8\ The driving force behind the 
proposal was actually a single case, albeit a significant one, 
involving a company with scores of labor violations. At stake 
was the core question of whether a company could be denied a 
federal contract solely on the basis of violations unrelated to 
its ability to perform on the contract. Many in the federal 
acquisition field believed the concept of ``present 
responsibility,'' a fundamental concept of federal acquisition 
law then and today, said that the answer to the question was 
``yes.'' However, others disagreed and the company was awarded 
additional work. As a result, as one of its last regulatory 
acts, the Clinton administration issued the final version of 
the ``Contractor Responsibility Rule.'' \9\ Then, as now, the 
intent was laudable. But then, as now, the rule was poorly 
thought-out, overly broad, and completely unexecutable. And, as 
you may also know, the final rule was rescinded by the incoming 
Bush administration just a few weeks later.
---------------------------------------------------------------------------
    \8\ 65 Fed Reg 40830, et seq, published on June 30, 2000, available 
at http://www.gpo.gov/fdsys/pkg/FR-2000-06-30/pdf/00-16266.pdf.

    \9\ 65 Fed Reg 80256, et seq, published on Dec. 20, 2000, available 
at http://www.gpo.gov/fdsys/pkg/FR-2000-12-20/pdf/00-32429.pdf.

    Since then, however, the issue at the heart of that 
debate--the government's ability to deny a contract award on 
the basis of broad compliance with federal law--has largely 
been settled. Over the last decade, numerous cases, from Enron 
to British Petroleum, have repeatedly demonstrated the 
government's authority to deny contract awards to companies 
with documented, pervasive, and willful violations of law, even 
when those violations were entirely unrelated to the company's 
performance on a government contract. Nonetheless, the Fair Pay 
and Safe Workplaces E.O. shares many of the same attributes as 
its Clinton-era predecessor: it is poorly thought-out and 
constructed, overly broad and of fundamentally questionable 
fairness. It is also unnecessary. There is no debate today 
about whether pervasive violations of law, including federal 
labor laws, can be used as the reason to deny future federal 
contracts to a company through existing suspension and 
debarment procedures. And there is no real debate as to whether 
the government already has at its disposal any number of tools 
---------------------------------------------------------------------------
to penalize bad actors.

    Challenges

    As stated previously, this E.O. and its implementing tools 
pose a number of challenges that renders this E.O. unworkable. 
They also create a number of unintended consequences, and most 
notably, are completely unnecessary. While we learn more about 
the adverse effects of the E.O. every day, there are many 
aspects that we will not know about until well into 
implementation. I hope we do not get to that point because this 
E.O. has too many undefined terms, too few objective standards, 
and too much potential for adversely affecting the federal 
procurement process.

    The Executive Order is Unnecessary

    There is no evidence of a widespread problem of pervasive, 
repeated or willful violations of labor laws by federal 
contractors. As the White House Fact Sheet accompanying the 
E.O. states, the vast majority of contractors play by the 
rules. That is not to say that there are not instances where 
contractors have violated labor laws. And some of these 
infractions may well have been intentional. The courts have 
even found that the U.S. Government has violated the Fair Labor 
Standards Act for some of its employees. But the fact is that 
the labor laws involved are so complex and challenging to 
execute that many companies, sometimes at the direction of the 
government itself, take actions that result in honest mistakes. 
Yet, each mistake is, technically, a violation of law and these 
honest, administrative errors make up the vast bulk of such 
``violations.'' Beyond that, there are numerous existing 
mechanisms and processes available to federal agencies that are 
more suitable and less intrusive than the E.O. for dealing with 
those cases in which there has been nefarious intent.

    First, contracting officers are already required to 
evaluate each offeror to determine whether it is a 
``responsible'' contractors, and that evaluation is based on 
the totality of the contractor's performance history. FAR 9.104 
states that such determination is to include whether the 
contractor has a satisfactory record of integrity and business 
ethics. To assist contracting officers with making such 
determinations, contracting officers are required to review 
government maintained databases, including what was called the 
Excluded Parties List System (EPLS)--which lists all suspended 
or debarred contractors--and the Federal Awardee Performance 
Information and Integrity System (FAPIIS), which contains 
information about previous non-responsibility determinations, 
contract terminations, and any criminal, civil and 
administration agreements in which there was a finding or 
acknowledgement of fault by a contractor tied to the 
performance of a federal contract.

    In addition, under FAR 9.4, which outlines the federal 
government's suspension and debarment structure, federal 
agencies have the authority to suspend or debar a contractor 
for a number of enumerated actions, including for ``commission 
of any other offense indicating a lack of business integrity or 
business honesty that seriously and directly affects the 
present responsibility of a government contractor or 
subcontractor.'' This catch-all provision provides the 
necessary authority for initiating suspension and debarment 
action against a contractor for violations of, among other 
things, federal labor laws. This authority is also reiterated 
in several places on the DoL website, and specifically on DoL's 
published fact sheets outlining the penalties for contractor 
violations of the Service Contract Act.\10\ In addition to the 
FAR suspension and debarment process, the Department of Labor 
has independent statutory authority to debar a contractor for 
significant federal labor law violations.
---------------------------------------------------------------------------
    \10\ DoL Fact Sheet #67: The McNamara-O'Hara Service Contract Act 
(SCA), July 2009, available at http://www.dol.gov/whd/regs/compliance/
whdfs67.pdf.

    Examples of other existing remedies include criminal 
presecutions, civil actions, substantial fines, liquidated 
damages, and contract terminations. Federal contractors know 
these actions are serious as each of them carries significant 
consequences. The E.O., however, fails to acknowledge that the 
existing remedial actions even exist, let alone are effective, 
and instead assumes that only stripping contractors of their 
contracts or denying on the president's own assertion that the 
vast majority of federal contractors play by the rules, the 
existing deterrents and the current system for reviewing and 
adjudicating potential violations of labor laws are working 
effectively. That said, we recognize that there will be bad 
actors. But, based on historical GAO reports and the data in 
Senator Harkin's report (discussed in greater detail below), it 
is clear that contractors that violate federal labor laws are 
already being identified by DoL and the procuring agencies and 
---------------------------------------------------------------------------
that action is being taken against those that violate the law.

    With regard to labor law violations, it is important to 
recognize that it is the Department of Labor that initiates 
reviews and administers federal contractors' compliance with 
federal labor laws through a number of DoL offices, such as the 
Wage and Hour Division and the Office of Federal Contract 
Compliance Programs. As such, the result of any of their own 
reviews, including settlement agreements, penalties, or other 
punitive actions, should be known and recorded by the 
Department of Labor. If this is not happening, the 
administration would be better served by focusing on improving 
its own data collection and information sharing efforts rather 
than adopting another costly, complex compliance and reporting 
regime.

    There is little evidence to demonstrate that the above 
existing authorities are not, or could not, be effective on 
their own, without creating new and significant bureaucracies 
as required by the E.O. In fact, much of the information 
collection that the E.O. imposes on contractors is information 
that the government already has. Rather than creating 
duplicative and burdensome reporting requirements, the 
government should examine its existing reporting mechanisms and 
identify and correct any shortcomings without duplicating that 
effort by imposing additional requirements on industry.

    The Executive Order is Excessive

    Many of the most complicated challenges associated with the 
E.O. are created by its expansion of, or redundancy with, the 
current compliance regime, while providing very little 
additional benefit to the government. For example, the E.O. 
fails to limit reporting requirements to findings directly tied 
to federal laws only. By expanding the reporting requirements 
to include findings related to ``equivalent state laws,'' the 
E.O. adds significant and unneeded complexity. First, DoL does 
not have jurisdiction over these often disparate state laws. 
Second, it is unreasonable to expect that any of the LCAs will 
have even marginal knowledge or understanding of even a few, 
let alone all 50 states' labor laws, administrative processes, 
and/or due process rights afforded to federal contractors who 
do business in those states.

    Adding to the complexity of the E.O.'s inclusion of state 
labor laws is the fact that the E.O. does not limit reporting 
of state activity to violations tied to the performance of a 
federal contract. It is common for federal contractors to 
compete in the commercial marketplace in addition to the work 
done for the federal government, but it is also common that 
companies separate their federal and commercial business units 
for ease of complying with a myriad of other federal 
government-unique compliance, oversight and reporting regimes 
associated with federal procurements. Because of this expansive 
coverage, companies would have to initiate a substantial data 
collection effort from all business units, even if the vast 
majority of its total revenue is derived from its commercial 
business. Additionally, because the E.O. fails to limit 
reporting of findings to only those in which there is a finding 
or acknowledgement of fault by the contractor, the reporting 
burden will be much more intensive than necessary or 
appropriate to meet the objectives of the E.O.

    Given the E.O.'s inclusion of state labor laws beyond those 
tied to a contractors' performance of federal contracts, and 
the fact that there need not be a finding or acknowledgement of 
fault to trigger a report and review, it is easy to see just 
how massive a data collection and reporting effort will need to 
be undertaken by those companies simply wishing to bid on a 
federal contract. Many will sit out the competition because of 
it, even if there are no company violations, particularly 
because compliance reporting is required twice per year once a 
contract is won.

    Ultimately, the E.O. should be focused on federal 
contractors, their compliance with federal laws, and on their 
performance of federal contracts. It is nonsensical to create a 
vast reporting structure that seeks to capture information that 
has nothing to do with the performance of federal contracts and 
expands well beyond federal labor laws, or in which the company 
was neither found to have committed, or admitted to, any 
wrongdoing.

    Even more troublesome is the fact that the DoL proposed 
guidance fails to define any ``equivalent'' state laws beyond 
state occupational safety and health laws that are ``OSHA-
approved.'' Yet, the proposed guidance grants DoL the authority 
to add state law ``equivalents'' in the future. Thus, the 
proposed guidance is incomplete and will result in cumulative, 
additional costs for contractors as DoL determines--likely 
without significant public input or cost impact assessment--
which other state laws to cover.

    In recent years there have been a few reports seeking to 
highlight instances in which companies with labor law 
violations have received, or continued to perform, federal 
contracts. These reports are riddled with flaws that seek to 
paint a picture of contractor abuse that is woefully 
inaccurate. One such report, published by the office of Senator 
Tom Harkin in December 2013, reaches back to 2007 to identify 
contractors with OSHA and wage violations even if those 
violations had nothing to do with the companies' work under a 
federal contract. Also, the report included a listing of top 
contractors that were tied to instances in which back wages 
were owed to their employees. What the report failed to 
highlight is that, in early half of the top 15 cases listed in 
the report, the contractor was not at fault for the violations. 
Many contract-related cases involving back pay occur because 
the contracting agency, i.e. the government, failed to include 
required Service Contract Act or Davis-Bacon Act clauses or 
correct wage determinations into the contract. While long 
viewed as technical or administrative errors, they have never 
been objectively considered evidence of willful behavior. Yet 
under these circumstances, federal contractors are often 
adversely affected by mistakes by the government. Also 
concerning is that the report failed to limit its finding to 
cases that had been fully resolved, thus falsely inflating the 
appearance of contractor violations. PSC has seen time and 
again determinations later overturned by administrative bodies 
or the courts, but the E.O., like the Harkin Report, fails 
entirely to account for such subsequent actions.

    The Executive Order is Ambiguous and Unworkable

    The E.O. requirement that prime contractors mandate their 
subcontractors to report their violations of labor laws will be 
exceptionally onerous, if not impossible, for prime contractors 
to administer and creates a number of unintended consequences 
related to prime and subcontractor relationships.

    First, the E.O. requires prime contractors to update their 
certification of compliance with labor laws every six months 
and requires the same reporting and certification by their 
subcontractors at identical intervals. The reporting burden on 
prime contractors for just reporting and certifying for their 
company is onerous in and of itself as discussed above. Adding 
subcontractor reporting adds a significant level of complexity 
to the information collection and related mitigating processes 
outlined in the E.O. Primarily, prime contractors cannot, and 
should not, be tasked with ensuring the labor compliance of 
their subcontractors or their entire supply chain on a 
recurring basis when such compliance is entirely unrelated to 
the federal contract under which the prime and subcontractor 
are partnered. Some larger contractors, for example, have 
supply chains and subcontracting agreements numbering in the 
tens of thousands. Just to review this number of companies is 
unexecutable even if only a limited number of companies have a 
reported violation of the E.O.'s covered labor laws. But if 
one-third of a large companies' supply chain has even a minor 
violation of a covered labor law, that could be 10,000 cases 
that need to be reviewed by the company and possibly by both 
the contracting officer and the yet-to-be created Office of 
Labor Compliance within DoL. Not only do the companies not have 
the resources to conduct the reviews, the federal government 
would also be overwhelmed by responsibility reviews of even 
minor cases that would ultimately be cleared.

    Second, the E.O.'s subcontractor flow-down requirement 
means that subcontractors will be providing sensitive business 
compliance information to their prime contractors. But the E.O. 
fails to recognize that many companies that subcontract with 
each other also compete against each other for other federal 
contracting opportunities. This business dynamic raises 
legitimate concerns by companies who do not want to provide 
information to their prime contractors because the prime 
contractor could use even minor infractions to gain a 
competitive advantage, or to initiate a contract award protest, 
against the company in a future acquisition in which the 
companies were competing against each other. Again, why is the 
E.O. creating a vast new reporting regime, and placing the 
burden on industry, to collect information that the government 
already has, or should have, access to through existing 
channels?

    Third, the E.O. requires a pre-award assessment of labor 
compliance on a proposal-by-proposal basis. For companies that 
bid on multiple opportunities, these reviews mean that 
different contracting officers, and different LCAs, will be 
making assessments about a contractor's labor record and may 
come to different conclusions about a contractor's 
``responsibility'' after reviewing identical information about 
a contractor's historical compliance with labor laws. This 
subjective analysis means that, in some cases, a contractor 
could be determined to be ``presently responsible'' by one 
contracting officer but based on identical information found to 
be not ``presently responsible'' by another contracting 
officer. This lack of consistency creates enormous risk and 
uncertainty for both the government and contractors. 
Alternatively, once one contracting officer or LCA makes a 
determination that a contractor is not a responsible source, 
based on their individual subjective analysis, then it is 
foreseeable that every other contracting officer will make the 
same determination to avoid inconsistency or having to justify 
a different conclusion. Contracting officers are not labor law 
experts. Since contracting officers are faced with burgeoning 
workloads and pressure to get contracts awarded quickly, it is 
also foreseeable that a contracting officer would avoid making 
any award to a contractor with any labor violation simply to 
avoid the time, burden, and delay associated with coordinating 
with the LCA or having to justify making such an award. Under 
these scenarios, and given the fact that mere allegations would 
be considered during reviews, a contractor would be confronted 
with a de facto debarment--a ``blacklisting''--without being 
afforded the due process that is required to be provided to 
contractors under existing federal acquisition regulations.

    Fourth, in order for the E.O. to be implemented in a 
workable manner, the federal aencies would have to hire a 
significant number of new staff to serve as (and support) the 
role of the LCAs. Within the Department of Defense alone, the 
LCA would be required to support the activities of 
approximately 24,000 contracting officers and hundreds of 
contracting offices. Additionally, the DoL would need 
significant additional resources to support prime contractors 
seeking guidance about whether potential subcontractors' 
violations warrant a decision by the prime contractor not to 
award a subcontract to the entity. As stated above, for some 
large prime contractors that have several thousands 
subcontractors and suppliers, the requests for assistance to 
the DoL could be tremendous. Even if the federal government 
could somehow ramp up its capacity to provide DoL and LCAs 
resources to the federal agencies and prime contractors, a 
significant amount of time would be needed to effectively train 
personnel in the new positions to correctly carry out their 
duties in a fair and consistent manner. The cost of hiring and 
training new personnel will be substantial.

    Fifth, the E.O. is riddled with undefined and ambiguous 
terms that we feared would result in contractors having to 
report non-fully-adjudicated cases of alleged ``violations.'' 
For example, the E.O. directs contractor disclosure of any 
``administrative merits determination, arbitral award or 
decision, or civil judgment (as defined in guidance issued by 
the Department of Labor)'' against the offeror within the 
preceding three year period for violations of any number of 
listed federal or ``equivalent state labor laws.'' Our fears 
were exceeded when DoL issued its proposed guidance that 
defines the above terms in a manner that clearly rob 
contractors of due process. In our comments on the proposed 
guidance and FAR proposed rule, we focus extensively on the 
shortcomings of DoL's definitions of these key terms. But in 
summary, it is clear that mere allegations about contractor 
violations of labor laws could be taken into consideration by 
the federal government. It is also clear that ``violations'' 
that are ultimately the result of government error would also 
be reportable. For example, DoL will issue a Form WH-56 to a 
contractor indicating that the contractor has agreed to pay 
certain ``back wages'' associated with Service Contract Act 
(SCA) requirements. Under the DoL proposed guidance, the 
receipt of a WH-56 form is a reportable ``offense,'' yet the 
proposed guidance fails to recognize that the issuance of a WH-
56 is often a result of the federal contracting entity failing 
to put the required SCA clauses into the contract. Such an 
aggressive approach puts contractors in a position where they 
are assumed to be guilty of a violation and must take 
proactive, tedious actions to prove their innocence. To include 
in the definition findings that are not fully adjudicated 
raises the risk of situations where an agency prematurely takes 
actions detrimental to a company (and the government buyers) 
when the allegation may be reviewed and ultimately dismissed.

    The terms ``serious, repeated, willful or pervasive nature 
of any violation,'' are also broadly defined in the DoL 
guidance and would require virtually all allegations or 
violation, no matter how minor, to be reported.

    The Executive Order will Cause Procurement Delays

    The federal contracting process is already widely 
criticized for being overly burdensome and too slow. The E.O. 
could add significant delays to the federal procurement process 
pending resolution of even the smallest of infractions that 
would eventually lead to a contracting officer's affirmative 
responsibility determination. Such delays may be further 
exacerbated by disputes between LCAs and contracting officers 
about a contractor's present responsibility. Further questions 
must also be addressed regarding how such disputes are to be 
resolved. Delays would also be driven by prime contractors 
having to delay moving forward with contract performance while 
they await support and guidance from DoL about the present 
responsibility of any of their subcontractors. Finally, the 
increase in procurement award protests because of the E.O. 
standard will further lengthen the time of the federal contract 
award process.

    The Executive Order Will Result in Less Competition for 
Federal Contracts and Increased Costs of Doing Business with 
the Government

    In addition to the substantial reporting and related costs 
associated with complying with the E.O., the E.O. will subject 
contractors to significant risks. Such risks include increased 
liability associated with potential false claims or false 
statements accusations because of inaccurate reporting or 
certification of compliance under the E.O. Rather than risking 
such liability and complying with burdensome and costly 
requirements of the E.O., some companies will simply choose not 
to do business with the federal government. Ultimately, this 
only hurts federal agencies by denying them the ability to 
access companies that may be able to offer the best and most 
cost-effective solutions. The E.O. will also discourage new 
entrants from coming into the federal marketplace because of 
the significant business risks and extraordinary requirements 
not required in the commercial sector. These effects on the 
federal marketplace are particularly concerning because they 
are contrary to this administration's separate initiatives 
aimed at reducing regulatory burdens and reducing the cost of 
doing business with the government in the hope that more 
commercial companies, and particularly small businesses, will 
compete for federal contracts.

    The effects of this Executive Order must also be considered 
in conjunction with the other 12 Executive Orders that focus on 
federal contractors, and in many cases federal contractors' 
labor practices. While some of those orders have the support of 
industry--this one certainly does not--the cumulative cost of 
implementing and complying with the orders has been 
significantly down-played by the government.

    Conclusion

    This Executive Order fails on so many fronts that it can 
never be effectively implemented in its current form. We 
believe that more can be done to ensure that intentional 
violators of the law do not receive federal contracts. But this 
Executive Order is not the right approach. It should be 
rescinded and the administration. Congress and industry should 
work together to find alternative solutions that rely 
considerably on the existing regulatory and statutory 
framework. PSC has offered our engagement to key representative 
of the Executive Branch. It is essential that Congress also be 
engaged in this process, and that is why we commend and thank 
you for your attention to this issue and for holding this 
hearing. PSC looks forward to working with the Congress and the 
administration on needed improvements.
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