As surprising as it may seem, many companies do not realize that they are considered government contractors and are subject to certain federal regulations. This often happens because government contracting is a relatively small part of their business or is handled by a separate division of the company. Or else, businesses that do not directly contract with the federal government do not realize that they are subject to federal regulations that apply to subcontractors.
When people hear “government contractor,” they tend to think of large defense and technology companies, which receive billions in contracting funds each year. However, there are a wide variety of businesses that aren’t typically thought of as government contractors — sporting goods and game stores, barber shops and salons, even amusement parks.
A government contractor is defined as a company that contracts with the federal government for the purchase, sale or use of personal property or non-personal services. In essence, it is a company that provides goods and services to the government. A subcontractor is a business that enters into an agreement with a prime contractor for the purchase, sale or use of personal property or non-personal services that are necessary to the performance of a government contract, or under which any portion of the prime contractor’s obligations are performed.
Having just one government contract could subject a business to additional government regulations. Even if your company is not a prime contractor with the federal government, it can be subject to numerous regulations if it is subcontracting with a government contractor. In order to determine the applicable regulations, a company will need to examine its individual contracts, which lay out the regulations it must follow.
Executive Order 11246 prohibits government contractors from discriminating against employees or applicants based on their race, color, religion, sex, sexual orientation, gender identity or national origin. It generally applies to federal contractors and subcontractors with contracts exceeding $10,000, as well as federally assisted construction contracts.
You may be thinking that employers are already prohibited from employment discrimination under Title VII of the Civil Rights Act of 1964, which applies to all employers with 15 or more employees, but the Executive Order has additional requirements. In addition to prohibiting discrimination, it requires government contractors and first-tier subcontractors with 50 or more employees to provide compliance reports on their affirmative action efforts annually. Supply and service contractors and subcontractors that have at least 50 employees and a contract of $50,000 or more also must develop and maintain affirmative action programs to help them monitor and examine their employment decisions and compensation systems to ensure equal opportunity and the employment and advancement of women and minorities.
Federal contractors also must keep personnel and employment records relating to all aspects of employment from hiring to termination, including affirmative action programs as well as requests for reasonable accommodation and records identifying job seekers who were contacted. The Executive Order also prohibits contractors from firing or otherwise discriminating against employees or applicants for discussing or disclosing their compensation or another employee’s compensation, with exceptions for individuals who have access to other employees’ compensation information as part of their essential job function.
Federal contractors and subcontractors may have to comply with Section 503 of the Rehabilitation Act of 1973, which prohibits discrimination against individuals with disabilities and requires employers to take affirmative action to ensure equal opportunity for such individuals. Section 503 contains anti-discrimination requirements beyond the Americans with Disabilities Act. It applies to any federal contractors and subcontractors who have contracts in excess of $15,000 for the procurement of personal property and non-personal services, including construction. While the aforementioned contractors and subcontractors must take affirmative steps to employ and advance individuals with disabilities, companies with at least 50 employees and contracts of at least $50,000 also must prepare and maintain an affirmative action program. Businesses also are required to keep personnel and employment records.
The U.S. Department of Labor’s Office of Contract Compliance Programs (OFCCP) has established a utilization goal of seven percent for the employment of individuals with disabilities in each job group in an employer’s workforce or in the workforce as a whole. The goal is not a quota. It is a benchmark against which contractors measure the level of representation of disabled individuals within their workforce.
The Vietnam Era Veterans Readjustment Assistance Act prohibits federal contractors and subcontractors with contracts of at least $150,000 from discriminating against covered veterans and requires them to take affirmative action to employ and advance veterans. As with the Executive Order and Section 503, it requires certain contractors — those with more than 50 employees and a contract of $150,000 or more — to prepare and maintain an affirmative action program for veterans, as well as record-keeping requirements. In addition, it requires contractors to establish benchmarks for the hiring of veterans.
The OFCCP is responsible for ensuring contractors abide by these employment regulations. Violations of the anti-discrimination regulations may be referred to the Solicitor of Labor for enforcement proceedings or the Department of Labor for judicial proceedings. Failure to abide by the regulations can result in the government withholding payments, termination of contracts and debarment from federal contracting.
Contractors also may be subject to other regulations, such as the Walsh-Healey Public Contracts Act or the Davis-Bacon Act, requiring the payment of minimum wages and local prevailing wages as well as overtime pay. Contractors and subcontractors also may need to participate in E-Verify, a web-based system that employers use to confirm whether their employees are eligible to work in the United States. They should carefully review their contracts to see if these additional provisions apply.
Federal contracting differs dramatically from commercial contracting with respect to wining and dining clients. It is common in the commercial world to treat clients to entertainment and send them holiday presents, but extending what you consider to be a customary token of appreciation to government customers can get you in significant trouble.
Executive branch employees typically cannot accept gifts that have an aggregate market value of more than $20 per occasion, or that exceed a $50 market value in a calendar year. Each contractor is a singular entity, so if one employee gives a government employee a gift worth $20 on one occasion, all other employees would be limited to giving that government employee gifts totaling no more than $30 during the rest of the calendar year.
The federal bribery statute also prohibits contractors from giving, offering or promising anything of value to federal employees with the intent to influence an official act, or to induce federal employees into any act in violation of their lawful duty. Therefore, contractors cannot give gifts to government employees in the hopes of currying favors and winning business.
Companies that are new to federal contracting or that handle a mix of commercial and government work must make sure that they train their employees on these important prohibitions and put policies and procedures in place to prevent violations.
All federal prime contractors are required to register in the System for Award Management (SAM), the government’s primary repository for government contractors’ information. SAM profiles contain information about a company’s location, points of contact, type and size of the business, and the primary industries in which it operates. Contractors are required to annually review and update their information to ensure it is current, accurate and complete. SAM also contains a list of contractors that have been suspended or debarred from government contracting.
This article provides an overview of major government contracting regulations. Federal contracts and subcontracts are often lengthy documents that incorporate numerous other regulations. Prime contractors are required to flow many of these provisions down to their subcontractors, and incorporate them by reference into their subcontracts. Even if a regulation is not set forth in your contract, it could apply under the Christian Doctrine, which holds that certain regulations are incorporated into contracts even when they are not explicitly stated if they express a significant or deeply ingrained public procurement policy.
When companies enter into government contracting, they must ensure that they understand what is required, and institute training and compliance policies so they do not run afoul of the requirements. Failure to abide by the requirements can lead to harsh consequences, including suspension and debarment from federal contracting, and significant civil, and even criminal, liability. If they are unsure whether regulations apply to them, it is prudent to seek legal counsel with expertise in government contracting laws.
By Ambika J. Biggs, Hirschler