Federal Contracting: Assessments and Citations of Federal Labor Law Violations by Selected Federal Contractors
Published: 2010-09-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In fiscal year 2009, the federal government obligated over $500 billion on government contracts. Some in Congress are concerned that private companies may be awarded federal contracts even though they had been cited for violating federal laws that are meant to ensure that employees receive proper wages, have the right to bargain collectively, and are not subject to work-site hazards. GAO was asked to (1) investigate the extent to which companies that received federal contracts during fiscal year 2009 had been assessed the 50 largest monetary penalties for closed inspections of occupational safety, health, and wage regulations for fiscal years 2005 through 2009, and (2) develop case studies of federal contractors that have been assessed occupational safety, health, wage, and collective bargaining penalties. To perform this work, GAO obtained and analyzed concluded wage and health and safety inspections from the Department of Labor's Wage and Hour Division (WHD) and Occupational Safety and Health Administration (OSHA) for fiscal years 2005 to 2009. GAO also obtained labor union organization and bargaining violations from the National Labor Relations Board (NLRB). To determine the value of contracts awarded to GAO's case-study companies, GAO analyzed Federal Procurement Data System-Next Generation (FPDS-NG) data for fiscal year 2009
section_title: What GAO Found
paragraphs: The federal government awarded contracts to companies that previously had been cited for violating wage regulations enforced by WHD and health and safety regulations enforced by OSHA. GAO did not evaluate whether federal agencies considered or should have considered these violations in the awarding of federal contracts, thus no conclusions on that topic can be drawn from this analysis. Of the 50 largest WHD wage assessments during fiscal years 2005 through 2009, 25 wage assessments were made against 20 companies that received federal contracts in fiscal year 2009. From GAO's analysis of OSHA data, GAO also found that 8 of the 50 largest workplace health and safety penalties assessed during the same time frame of fiscal years 2005 through 2009 were assessed against 7 other companies that received federal contracts in fiscal year 2009. Because OSHA and WHD databases do not contain Data Universal Numbering System numbers, GAO's analysis was limited to the 50 largest WHD assessments and OSHA penalties, which GAO manually searched. Because of this, the full extent of the federal government's contracts awarded to companies cited for labor violations is not known. GAO investigated 15 federal contractors cited for violating federal labor laws enforced by WHD, OSHA, and NLRB. The federal government awarded these 15 federal contractors over $6 billion in government contract obligations during fiscal year 2009. Several of these companies also had other types of violations, such as hiring undocumented workers, violating environmental standards, and fraudulently billing Medicare and Medicaid.

section_title: Letter
paragraphs: In fiscal year 2009, the federal government obligated over $500 billion on  government contracts. Some in Congress are concerned that private  companies may be awarded federal contracts even though they have  violated federal laws that are meant to ensure that employees receive  proper wages, have the right to bargain collectively, and are not subject to  work-site hazards that could result in physical injury or death.
On the basis of your concerns regarding the federal government awarding  contracts to companies with past large labor penalties and assessments, as  requested we (1) investigated the extent to which companies that received  federal contracts during fiscal year 2009 had been assessed the 50 largest  monetary penalties for closed inspections of occupational safety, health,  and wage regulations for fiscal years 2005 through 2009, and (2) developed  case studies of federal contractors that have been assessed occupational  safety, health, wage, and collective-bargaining penalties. As part of your  request, we also determined whether these case-study firms provide health  insurance to their employees.
To determine the number of large penalties involving citations for  violating occupational safety and health regulations that had been  assessed in fiscal years 2005 through 2009 against federal contractors that  received contracts during fiscal year 2009, we obtained from the  Department of Labor (Labor) a listing of all occupational safety and health  penalties that had been assessed and closed by the Occupational Safety  and Health Administration (OSHA) for fiscal years 2005 through 2009. We  also obtained from Labor a listing of all wage assessments made by  Labor’s Wage and Hour Division (WHD) for this same period. For each of  these listings, we identified the 50 largest monetary penalty assessments  made by OSHA and the 50 highest monetary back-wage assessments made  by WHD. The National Labor Relations Board (NLRB) does not issue fines  or assessments against companies that violate collective bargaining laws.  As such, we could not perform this analysis on the largest violations of  collective bargaining laws. To determine whether those companies with  violations received federal contracts during fiscal year 2009, we searched  the contract data using the company’s name from the Federal  Procurement Data System–Next Generation (FPDS-NG) to determine  whether those companies received federal contracts. However, the name- matching process was sometimes imprecise because contractor names can  vary widely due to such factors as name combinations and  parent/subsidiary relationships. Nevertheless, this was generally the only  viable method available for identifying contractors involved in these cases  because Data Universal Numbering System (DUNS) numbers were not  available. Therefore, due to name variations, we likely did not identify all  of the contractors involved in the cases in the databases maintained by  WHD and OSHA. To ensure that the federal contracts were significant, we  excluded companies that received obligations of $100,000 or less during  fiscal year 2009.
For our case studies, we identified 15 cases that represent the types of  labor-law violation citations that occur in various industries. To develop  case studies, we analyzed fiscal year 2005 through fiscal year 2009 wage,  health, and safety data from Labor and also obtained labor union  organization and bargaining violations data from NLRB. We restricted our  analysis to those cases that have been settled or adjudicated and where  the company had received over $100,000 in federal contract obligations  during fiscal year 2009. In addition, we restricted our analysis to those  WHD assessments of at least $100,000 and OSHA fines of at least $25,000.  For our nine cases that have OSHA settlement agreements, because there  was no adjudication and because these agreements generally contain  language whereby the company denies violating labor standards, there is  no adjudicated violation. For each case study, we reviewed inspections,  settlement agreements, and other relevant documents that are related to  the cited violations. We also searched public records and other sources to  determine whether there have been any other citations for potential  criminal or civil activities. We also interviewed management officials from  those companies to determine the extent to which employees receive  health insurance. We did not make inquiries with contracting officers to  determine the extent to which labor law violation citations were  considered or should have been considered in the award of federal  contracts because it was beyond the scope of this investigation.
Our analysis and investigations did not include companies with labor  citations that had not been closed by OSHA, WHD, or NLRB through fiscal  year 2009. For example, OSHA had proposed fines of over $55 million for a  large petroleum company for cases opened between fiscal years 2005 and  2009. A large portion of the fines were assessed as a result of OSHA’s  safety and health inspections in 2005 after a massive refinery explosion  where there were 15 deaths and almost 200 injuries. The firm’s parent  company received over $2 billion in federal contract obligations during  fiscal year 2009. In addition, OSHA had also proposed fines of about $8.7  million as a result of inspections at a sugar refining company that were  opened in fiscal year 2008. Five million dollars of these fines are related to  a refinery factory explosion where there were 14 deaths and injuries to  dozens of other workers. The federal government obligated about $6.5  million on federal contracts with this firm during fiscal year 2009.
We analyzed OSHA and WHD databases and determined they were  sufficiently reliable for purposes of our audit and investigative work. To  determine the reliability of the databases, we analyzed selected case-file  information to ensure that specific data elements matched those found in  the databases. We also performed electronic testing to determine the  reasonableness of specific data elements in the databases that we used to  perform our work. We also determined that the FPDS-NG was sufficiently  reliable for this review by confirming the companies had federal contracts  with selected company officials and other sources.
We conducted the work for this investigation from April 2010 through  September 2010 in accordance with the standards prescribed by the  Council of Inspectors General on Integrity and Efficiency (CIGIE).
subsections: section_title: Background
paragraphs: The Department of Labor and the National Labor Relations Board (NLRB)  are responsible for enforcing many of the country’s most comprehensive  federal labor laws ranging from occupational health and safety to  minimum wage, overtime pay, and the rights of employees to bargain  collectively with their employers.
Most private sector firms—regardless of whether they are federal  contractors—must comply with safety and health standards issued under  the Occupational Safety and Health Act. The act was meant “to assure  safe and healthful working conditions for working men and women.” The  Secretary of Labor established OSHA in 1970 to carry out a number of  responsibilities under the act, including developing and enforcing safety  and health standards, educating workers and employers about workplace  hazards, and establishing responsibilities and rights for both employers  and employees for the achievement of better safety and health conditions.
OSHA is authorized to conduct workplace inspections to determine  whether employers are complying with safety and health standards, and to  issue citations and assess penalties when an employer is not in  compliance. OSHA characterizes violations as serious, willful, repeat, and  other-than-serious, with civil penalties in specified amounts for these  various types of violations. Table 1 describes the different violations and  their associated penalties.
WHD works to enhance the welfare and protect the rights of the nation’s  workers through enforcement of the federal minimum wage, overtime pay,  record keeping, and child labor requirements of the Fair Labor Standards  Act; the Family and Medical Leave Act; and employment standards and  worker protections provided in certain other laws. Additionally, WHD  administers and enforces the prevailing wage requirements of the Davis- Bacon Act (DBA), the Service Contract Act (SCA), and other statutes  applicable to federal contracts for construction and for the provision of  goods and services.
When WHD finds violations during enforcement actions, it computes and  attempts to collect and distribute back wages owed to workers and, where  permitted by law, also imposes penalties and other remedies. If  employers refuse to pay the back wages and any penalties assessed, WHD  officials, with the assistance of attorneys from Labor’s Office of the  Solicitor, may pursue the cases in court. When WHD finds violations under  the Government Contract statutes, which includes the SCA, DBA, and  Contract Work Hours and Safety Standards Act, the agency may pursue  administrative action to recover wage and benefit payments and to debar  the contractor from future federal contracts.  WHD may also request that  the federal agency withhold contract payments to protect the back wages  and benefits and may request that the federal agency terminate a contract.
The National Labor Relations Act (NLRA) is the primary federal law  governing relations between labor unions and employers in the private  sector and is administered by the NLRB. Under Section 8 of the act, it is  illegal for employers to interfere with workers’ right to organize or bargain  collectively or for employers to discriminate in hiring, tenure, or condition  of employment in order to discourage membership in any labor  organization, and such behavior is defined as an unfair labor practice.  After concluding that a violation has been committed, the board typically  requires firms to cease and desist the specific conduct for which an unfair  labor practice is found. The board may order a variety of remedies,  including requiring the firm to reinstate unlawfully fired workers or  restore wages and benefits to the bargaining unit. In some cases, the board  will also issue a broad cease and desist order prohibiting the firm from  engaging in a range of unlawful conduct. If an employer to whom the  federal government owes money (such as a federal contractor) has failed  to comply with an order by the board to restore wages or benefits, the  government has the option of withholding from any amount owed to that  employer (including payments under a federal contract) any equal or  lesser amount that the contractor owes under the board order.
By statute, federal agencies are required to award contracts only to  “responsible” sources. This statutory requirement has been implemented  in the Federal Acquisition Regulation (FAR). The FAR establishes “a  satisfactory record of integrity and business ethics” as one of the general  standards a prospective contractor must meet to be responsible. Also,  contracting officers are required to query the excluded parties list system  (EPLS) to determine whether the prospective contractor has been  debarred or suspended from federal contracts.
section_title: Federal Government Awards Contracts to Companies with Wage Assessments and Health and Safety Citations
paragraphs: The federal government has awarded contracts to companies that had  been cited for large back-wage liabilities by Labor. Restricting our analysis  to the 50 largest WHD assessments from fiscal year 2005 through fiscal  year 2009, we found that over 60 percent of these assessments were made  against companies that subsequently received contracts in fiscal year 2009.  Specifically, we found that 25 out of the 50 largest WHD assessments were  charged to 20 federal contractors. WHD assessed these 20 federal  contractors for over $80 million in back wages. According to FPDS-NG,  the federal government awarded over $9 billion in federal contract  obligations to these 20 contractors during fiscal year 2009. None of the 20  federal contractors had been debarred or suspended from federal  contracts. Further, we do not know the extent, if any, that contracting  officers considered WHD assessments in the awarding of the federal  contracts.
The federal government has also awarded contracts to companies that  Labor has assessed large fines against for violating health and safety  regulations. From our analysis of the 50 largest OSHA fines for health and  safety violations for closed investigations from fiscal year 2005 through  fiscal year 2009, we found that almost 40 percent of these fines were made  against companies that subsequently received federal contracts in fiscal  year 2009. Specifically, we found that 8 of the 50 largest OSHA fines were  made against 7 other federal contractors for safety violations. Further,  these 7 companies accounted for about $3.7 million in OSHA fines.  According to FPDS-NG, the federal government obligated approximately  $180 million in federal contracts to these contractors during fiscal year  2009. None of the 7 federal contractors had been debarred or suspended  from federal contracts. Further, we do not know the extent, if any, that  contracting officers considered OSHA fines in the awarding of the federal  contracts.
Currently, the inspection databases maintained by OSHA, WHD, and NLRB  do not contain DUNS numbers for all their cases. The OSHA and WHD  data primarily identify companies by their names and, for WHD, employer  identification numbers, when they were available. These firms may incur  violation citations under multiple names due to the existence of multiple  subsidiaries and corporate mergers. As such, the full extent of the federal  government’s contracts awarded to companies with wage, health and  safety, and collective bargaining violations is unknown.
section_title: Examples of Federal Contractors That Were Cited for Violating Federal Labor Laws
paragraphs: Each of the 15 companies we reviewed were cited for failing to follow  wage, health and safety, or collective bargaining laws enforced by WHD,  OSHA, and NLRB, respectively. Seven of these companies also had other  types of violations, such as hiring undocumented workers, violating  environmental standards, fraudulently billing Medicare and Medicaid, and  billing for services not rendered. Most of these 15 federal contractors had  contracts with the Department of Defense (DOD), the largest contracting  agency. Other federal agencies that contracted with these companies  include the Departments of Agriculture, Homeland Security, and Justice;  General Services Administration (GSA); and National Aeronautics and  Space Administration (NASA). According to FPDS-NG, these 15  companies received over $6 billion in federal contract obligations in fiscal  year 2009. See table 2 below for detailed information on our 15 cases.
section_title: Agency Comments
paragraphs: We provided a draft of this report to NLRB and Labor.  NLRB did not have  any comments on the draft report.  We received technical comments from  Labor, which we incorporated as appropriate.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 14 days from the  report date. At that time, we will send copies to interested congressional  committees, the Secretary of Labor, and the Chairman of the NLRB. The  report also will be available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staff members have any questions about this report, please  contact me at (202) 512-6722 or kutzg@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report.