The federal contracting community has been abuzz the past several months over the Obama administration's controversial, but still unannounced, "High Road" contracting policy, which would require agencies to favor contractors that pay higher wages and benefits to their employees. Reminiscent of the so-called blacklisting rules issued by the Clinton administration nearly 10 years ago, the new plan has the potential to materially alter the way contractors are evaluated in federal procurements.
As first reported by The New York Times in late February, the "High Road" procurement policy would give an edge to contractors in federal procurements that offer higher levels of pay, health coverage, pensions and other benefits. Although the White House has yet to make any official announcements regarding the proposal, early reports indicate that the administration intends to use a central office to assign scores to prospective contractors based on how they treat their employees. This office would likely be located within the Department of Labor or the Office of Management and Budget (OMB), and would assess the wages and benefits paid to a contractor's entire workforce, not just the employees working on federal contracts. Agencies may also be required to create a new position for a labor standards evaluator. Modeled after the federal small and disadvantaged business officers, this individual would be responsible for reviewing offerors' wage and benefits practices, and may have the power to vary the assigned score.
Many have compared the "High Road" plan to the blacklisting rules issued by the Clinton administration. In December 2000, the Federal Acquisition Regulation (FAR) was amended to require contracting officers to take into account a company's compliance with tax, labor and employment, environmental, antitrust and consumer protection laws when determining whether a contractor is "responsible" to perform a particular contract. 65 Fed. Reg. 80,256 (Dec. 20, 2000). A consortium of business groups, led by the U.S. Chamber of Commerce and represented by Wiley Rein LLP, challenged the rule in federal court. The rule was ultimately vacated by the Bush administration soon after taking office.
The new proposal has been met with sharp criticism by business groups and contractors. Some have suggested that the Obama administration intends to use the plan as a way to shape social policy and lift more families into the middle class. Others have argued that the plan favors organized labor, as it would likely provide an edge to companies that offer wage and benefits packages designed by labor unions. Many in the contracting community argue the policy would have a detrimental impact on small businesses, which do not provide rich benefits, and that it may increase overall contract costs as contractors pass these additional costs on to the government. Several industry groups have also noted that the government already has sufficient tools at its disposal to ensure that federal contractor employees are paid a fair wage, including the Service Contract Act, Davis-Bacon Act and Walsh-Healey Act, all of which require that federal contractors pay their employees certain minimum wages and benefits.
Although the specific details of the plan are still being ironed out behind closed doors, the "High Road" procurement policy is something that should have all federal contractors' attention. Whether the policy is ultimately implemented as part of a responsibility determination or an additional evaluation factor, it appears likely that the wage and benefits packages they provide will soon be viewed by agencies as more than simply a recruitment and retention tool. Contractors would be wise to begin looking at how they stack up against their competitors in this area, as it could very well be the difference between winning and losing future contract awards.
Rand L. Allen is Chair of Wiley Rein's Government Contracts Practice. He represents clients, ranging from "middle market IT" and professional services firms to the nation's largest aerospace and defense contractors, in every aspect of government contracting, including bid protests, disputes, commercial litigation, terminations, mergers and acquisitions, "procurement fraud"/False Claims Act investigations, suspension/debarment and regulatory issues. Mr. Allen can be reached at (202)719-7329.
John R. Prairie is an Associate in the Government Contracts Practice at Wiley Rein. He counsels and represents government contractors and subcontractors on a broad range of government contracts matters, including contract claims and disputes, bid protests, teaming and subcontracting issues, government investigations and audits, compliance with ethics and procurement integrity laws, suspension/debarment proceedings and small business issues. Mr. Prairie can be reached at (202) 719-7167.