Legal compliance certifications by federal contractors set to take effect on October 25 (for prime contracts of $50 million or more) are enjoined from taking effect nationally in a temporary restraining order issued by Judge Marcia A. Crone of the U.S. District Court for the Eastern District of Texas in the Associated Builders and Contractors of Southeast Texas et al v. Anne Rung, Administrator of the Office of Federal Procurement Policy et al (Civil Action No. 1:16-CV-425) court case.
The court’s decision to grant the nationwide preliminary injunction against implementation of the regulations centered on the Executive Order’s (EO) terms and regulations that require covered direct federal prime contractors and subcontractors to include federal and labor law enforcement agency “administrative merits determinations” among the reportable events in the required three-year (updated every six months) legal compliance certification of covered firms.
The court detailed how often and frequently NLRB, EEOC, OFCCP and OSHA and Wage and Hour Division initial enforcement and preliminary findings of violations are overturned later in further agency review or appeals or court challenges to initial preliminary findings. Because of the tenuous nature of these preliminary findings, and the lack of any direct connection to substantiate a non-responsibility determination under the Federal Acquisition Regulation (FAR) contractor responsibility determination process, the court held that the EO’s requirements were an arbitrary and capricious exercise of authority under procurement rulemaking procedures and violated subject firms’ First Amendment rights (not to disclose potential injurious non-material, non-final rulings) and Fifth Amendment Due Process protection for the same reasons.
In essence, the court said federal contractors cannot be forced to disclose publicly potentially injurious information in the federal contracting process that may be ultimately misleading. The firms have a constitutional right to protect their business reputation from misleading information that could be injurious to their business reputation in the end without final substantiation. The court also struck down the EO’s ban on employer requirements for mandatory acceptance of arbitration procedures for certain Title VII sex discrimination claims and sexual assault charges in the workplace, even before any dispute or challengeable event occurs. The court let stand the parts of the EO that require federal contractors to advise workers of their classification as independent contractors on covered projects.
MCAA had supported the broad outlines of the EO’s requirement for more consistent procedures reviewing legal compliance in the contractor responsibility determination process. MCAA succeeded in having the Labor Department review whatever compliance certifications were required of subcontractors, rather than leaving that issue to the prime contractors to determine at the time the subcontracts are signed, as was originally proposed. MCAA had argued in written comments and in the final regulatory review meeting at the Office of Management and Budget that the regulations should drop the requirements of disclosing mere “administrative merits determinations” as a way to mitigate the problem with non-final reportable events and to shore up the defensibility of the EO.
This entire episode recapitulates the Contractor Responsibility Regulations issued in the final days of the Clinton Administration. Those regulations were issued in the form of FAR regulatory proposals, not an EO, but were very similar in scope and procedure to the EO13673 regulations. The issues and legal challenges were the same. Issued in late 2000, and set to go into effect on January 19, 2001, the regulations were quickly put on hold by the incoming Bush Administration and then rescinded in the formal regulatory process later in 2001. So, the political nature of the process and the proposal begins to repeat itself.
In summary, one view states that sound procurement policy requires greater and more particular contracting agency cognizance of potential firms’ legal track records. The opposing view states that current procedures require general review of legal compliance with respect to just past public contracts is sufficient to protect the taxpayers’ interest against federal contract problems stemming from awarding federal contracts to demonstrably non-responsible firms. It would seem that given the slow outcome of the issue in the courts, and the breadth of the District Court’s holding striking down the EO – the fate of these latest “responsible contractor” rules will be left to the new Administration taking office in January.
Read court’s opinion here.