New Compliance Requirements for Federal Contractors: April 1, 2009

1. Labor & Employment Women Executives Networking BriefingOFCCP, Federal Contractors & The Obama Administration The New Compliance Requirements April 1, 2009 Washington, D.C. Presenters: Constance A. Wilkinson, Esq. John Ki, Esq.

2. Nondiscrimination and Affirmative Action Federal government contractors subject to Executive Order 11246, Section 503 of the Rehabilitation Act of 1973, Vietnam Veterans’ Readjustment Act of 1974 (all as amended) Taken together, these laws prohibit discrimination and require Federal contractors and subcontractors to take affirmative action to ensure that all individuals have an equal opportunity for employment, without regard to race, color, religion, sex, national origin, disability or status as a Vietnam era or special disabled veteran. Enforced by the Office of Federal Contract Compliance Programs (OFCCP)

3. FY 2008 • During Fiscal Year (FY) 2008, the OFCCP recovered a record $67,510,982 in back pay and salary and benefits on behalf of 24,508 individuals • The FY 2008 financial recovery is a more than 20% increase over the amount recovered in FY 2007 ($51,680,950) and a 133% increase over the amount recovered in FY 2001 ($28,975,000) • 99% was recovered in cases of systemic discrimination or those involving a significant number of workers or applicants subjected to discrimination because of an unlawful employment practice or policy

4. Not Your Father’s Affirmative Action • Specifically prohibits quota and preferential hiring and promotions under the guise of affirmative action numerical goals (41 CFR 60-2.12(e), 60-2.30 and 60-2.15) • “No quotas” mantra was emphasized under Bush administration

5. Affirmative Action Plans Goal Setting Reports Workforce Analysis or Organizational Profile Job Group Analysis Availability Analysis and Backup Census Data Utilization (Comparison of Incumbency to Availability) Goals Personnel Activity Reports Placement Activity Report Narrative Discussion of Prior Years’ Goals Impact Ratio Analysis • Adverse Impact Analysis • Overall Selection Rate Analysis • Two Standard Deviation Analysis Compensation Analysis

6. Special Rules • Internet Applicant Rule • Racial categories (two or more races) • Focus on statistical analysis: impact-ratio analysis

7. What Now? • What do you do with your written AAP? • Self-Analysis • Identification of Problem Areas • Proactive Approach

8. OFCCP Audits • “Contracts First” • Corporate Scheduling Announcement Letters (CSAL) • 30-Days from receipt of letter to submit AAP

9. Audit Review • “Active Case Management” (ACM) • Priority review – looking for statistical indicators of adverse impact • Desk audit vs. On site audit • 1 in every 50 will be subject to full on-site review

10. Best practices • NO RED FLAGS • Ensure that underlying data is accurate and reliable • If red flags appear, address them “as much as possible” before submitting the AAP

11. Consequences • Conciliation Agreement • Monetary penalties, including fines • Back pay • Debarment • Ongoing scrutiny

12. What to look forward to. . . • Continued focus on statistical indicators, but expect a pullback from “single-minded focus” on statistical back to other aspects of AAPs • Online filing of AAPs • Compensation analysis • More enforcement

13. Obama Executive Orders "Notification of Employee Rights Under Federal Labor Laws” Requires employers that contract with the federal government to formally notify employees of their rights under the NLRA Until now, employers have generally not been required to affirmatively post notices advising employees of their rights under the NLRA.

14. Obama Executive Order • "Nondisplacement of Qualified Workers Under Service Contractors" • Requires contractors, when they replace another contractor, to offer employment to the previous contractor’s employees on that job (other than managerial and supervisory personnel) — giving the workers a so-called “right of first refusal.”

15. Obama Executive Order "Economy in Government Contracting“ Prohibits government agencies from considering as "allowable costs" those costs and expenses incurred by federal contractors to influence workers in deciding whether to form unions and/or engage in collective bargaining.

16. Final Rule: Federal Ethics • Contractor Business Ethics Compliance Program and Disclosure Requirements, 73 Fed. Reg. 67064-67093 (Nov. 12, 2008), effective Dec. 12, 2008 • Revised FAR 52.203-13 to impose more stringent compliance and reporting requirements • For all contractors: • Mandatory disclosure • Code of business ethics and conduct • For other than small business or commercial items: • Business ethics awareness and compliance program • Internal control system • Subcontract flow down (if >$5M, 120 days term)

17. Mandatory Disclosure • WHAT? Timely disclose “credible evidence” of -- • “Significant overpayments”, under FAR • Federal criminal law violations, including fraud, conflict of interest, bribery, improper gratuities • Civil False Claims Act violations • In connection with contract/subcontract award, performance, closeout • BY WHOM? Include conduct of the contractor’s principal, employee, agent or subcontractor • TO WHOM? Disclose to the agency OIG, copy the Contracting Officer

18. Mandatory Disclosure • WHEN? “Timely” is undefined • “Credible evidence” standard is undefined but requires “preliminary examination of the evidence to determine its credibility” • Conduct internal investigation of allegations • Determine whether “credible evidence” of a violation exists, based on the facts, the legal standards, and expert advice, as necessary • Document the investigation and the basis for the decision whether or not to disclose

19. Mandatory Disclosure • STARTING WHEN? Multi-year contracts may include FAR 52.203-13 (December 2007), but • Mandatory disclosure requirement, effective 12/12/08, is driven by statute • FAR subjects contractors to penalty for noncompliance with mandatory disclosure requirement, “whether or not the clause at 52.203–13 is applicable,” by providing that a contractor may be suspended and/or debarred for knowing failure by a principal to timely disclose credible evidence of the referenced violations • Three-year “look-back” period is based on “final payment” under closed contacts • Prior contracts may be subject to reporting obligations depending on timing of audit/closeout

20. Implications for Federal Contractors • Cost accounting and charging • Certifications • Certificate of Current Cost or Pricing Data • Certification of Final Indirect Costs • Certification and Disclosure of Payments to Influence Certain Federal Transactions • COI certifications • Reports • EEO, Small Business Subcontracting Plan

21. Comparison to 2007 Rule • Awareness-compliance program expressly requires an “effective training program” • “Reasonable steps to communicate periodically and in a practical manner” the contractor’s standards and procedures • Extends to “principals” and subcontractors and agents, as appropriate • Internal control system requires screening of principals and periodic review of program to assess effectiveness and risk

22. Compliance Strategies • List contracts within scope of reporting obligation • Identify “principals” • Principal means an officer, director, owner, partner, or a person having primary management or supervisory responsibilities within a business entity • Intended to be construed broadly • Survey and obtain disclosure statements

23. Compliance Strategies • Assess/supplement training materials to ensure appropriate coverage of legal standards • False Claims Act, conflict of interest, procurement integrity • Review adequacy of internal procedures to identify and assess possible violations for determination of “credible evidence” • Coordination by CCO or others? • Need for revision of subcontract/teaming agreements to flow-down disclosure requirements and permit investigation and disclosure of business partner violations • Consider appropriate level of legal involvement in internal investigation and deliberation • Process, but not underlying violation, may be subject to attorney-client communication and attorney work-product privileges • Mark written disclosures with restrictive legend • Confidential and Proprietary - Exempt from release under FOIA

24. Open Issues/Questions • Agency-specific requirements for content/form of disclosure • Effect of consideration of disclosures in past performance and responsibility determinations • Need to reconcile the “adequate evidence” standard for suspension decisions (FAR 9.407-1(B)(1) with the “credible evidence” standard for mandatory disclosures • Timeframe for incorporating DEC 2008 version of clause into current contracts • Modification with consideration? • Extension of time for implementation?