Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
It was all very well to say ‘Drink me,’ but the wise little Alice was not going to do that in a hurry. ‘No, I’ll look first,’ she said, ‘and see whether it’s marked “poison” or not’; for […] she had never forgotten that, if you drink much from a bottle marked ‘poison,’ it is almost certain to disagree with you, sooner or later.
—Lewis Carroll, Alice in Wonderland, Chapter 1, Down the Rabbit Hole
On December 2, 2021 the Office of Federal Contract Compliance Programs (OFCCP) issued an announcement introducing its new contractor portal. OFCCP describes the portal as a “platform where covered contractors must certify whether they are meeting their requirement to develop and maintain annual AAPs [affirmative action programs].” In its December 2 announcement, OFCCP stated that beginning on March 31, 2022, contractors will be able to utilize the certification feature in the portal to certify their AAP compliance and that existing contractors “must” certify whether they have developed and maintained an affirmative action program for each of their establishments or functional units by June 30, 2022.
These new requirements will significantly impact government contractors. Some contractors may benefit from them, but almost all will incur substantial new costs. As discussed below, from a public policy perspective, the benefits are very unlikely to justify the imposition of these significant new costs. Had OFCCP engaged in formal rulemaking with regard to these new requirements, there would have been an opportunity for OFCCP to learn about and try to address problems with the portal. Having, instead, sought to avoid the scrutiny that would have come with rulemaking, OFCCP is now proceeding with requirements that are not only deeply flawed, but also potentially unenforceable.
Because of the importance of these new requirements and their questionable validity, we will go into some detail here in explaining what OFCCP is purporting to require, why it matters, and what covered contractors may want to do.
Background and Context
Employers that enter into contracts with the federal government or certain covered subcontracts are subject to three laws regarding equal employment opportunity and affirmative action. These laws are Executive Order 11246, as amended, which prohibits discrimination against women and minorities; Section 503 of the Rehabilitation Act of 1973, which prohibits discrimination against individuals with disabilities and requires the reasonable accommodation of disabilities; and the Vietnam Era Veterans Readjustment Assistance Act of 1974 (VEVRAA), which prohibits discrimination against protected veterans.
These three laws are enforced by OFCCP, an agency within the United States Department of Labor. OFCCP enforces these laws by conducting compliance reviews of covered contractors. OFCCP is required to select employers for these audits by means of a neutral process. As part of an audit, OFCCP reviews the employer’s compliance with the agency’s technical requirements and looks for evidence of discrimination, primarily by reviewing data on applications, selections, terminations, and compensation.
OFCCP audits are often long, drawn-out affairs.1 They are often conducted inefficiently and can be very expensive to defend. Additionally, there tend to be significant inconsistencies in OFCCP’s approach from one audit to another and the agency has a reputation for claiming to find discrimination and seeking substantial monetary damages in situations in which neither the facts nor the law support such claims. Congressional oversight of OFCCP has been extremely limited.2
Because litigation with OFCCP is so time-consuming and expensive, many employers choose to settle weak or even frivolous claims asserted by the agency as the least burdensome option. Having to occasionally agree to a settlement with OFCCP is reasonably seen by some contractors as an unavoidable cost of doing business with the government.
These circumstances explain why many federal contractors do not trust OFCCP and would prefer to avoid being audited even though these contractors very much support equal employment opportunity and workplace diversity, and work hard to fully comply with the letter and the spirit of the law.
Existing Certification Requirements
Until now, OFCCP has never purported to require certifications from contractors. Instead, an employer’s obligation to represent to the government that it is a federal contractor arises in three well established circumstances.
First, as part of the process of entering into a government contract or subcontract, an employer may be required to represent its current status and willingness to comply with the laws that OFCCP enforces. The obligation to require such representations and the language that must be used are derived from the Federal Acquisition Regulations (FAR). The FAR System was established, pursuant to statute, for the codification and publication of uniform policies and procedures for acquisition by all executive agencies.3
In particular, FAR 22.810(d) and 52.222-25 require contracting officers to include the following language in covered contracts, to be answered by the contractor:
The offeror represents that—
(a) It □ has developed and has on file, □ has not developed and does not have on file, at each establishment, affirmative action programs required by the rules and regulations of the Secretary of Labor (41 CFR 60-1 and 60-2); or
(b) It □ has not previously had contracts subject to the written affirmative action programs requirement of the rules and regulations of the Secretary of Labor.
EEO-1 and VETS-4212 Reporting
Second, in preparing annual EEO-1 reports, employers are required to respond to the following question:
Does the company or any of its establishments (a) have 50 or more employees AND (b) is not exempt as provided by 41 CFR 60-1.5, AND either (1) is a prime government contractor or first-tier subcontractor, and has a contract, subcontract, or purchase order amounting to $50,000 or more, or (2) serves as a depository of Government funds in any amount or is a financial institution which is an issuing and paying agent for U.S. Savings Bonds and Savings Notes?
The purpose of this question is to determine whether the employer is required to file an EEO-1 report. The Equal Employment Opportunity Commission’s authority to require employers to file these reports is found in Section 709(c) of Title VII of the Civil Rights Act of 1964, which requires every employer subject to Title VII to make and keep certain records and “make such reports therefrom as the Commission shall prescribe by regulation or order, after public hearing.” The EEOC requires reporting by all employers subject to Title VII with 100 or more employees.
The extension of the reporting obligation to federal contractors with 50 or more employees was established by the Office of Federal Contract Compliance (OFCC) – the OFCCP’s predecessor – through formal rulemaking.4
All of the OFCCP’s authority to require reporting from federal contractors arises out of 41 CFR § 60-1.7 and is limited to EEO-1 reporting. The rule is very clear that any other certification of compliance must be obtained by the other executive agencies.5 OFCCP has no regulatory authority to collect such information on its own.
Certain federal contractors are also required to file an annual report related to the hiring and employment of protected veterans, the VETS-4212 Report. This requirement was established by Congress as part of the VEVRAA and has been implemented through formal rulemaking by the Department of Labor’s Veterans’ Employment and Training Service.6
The System for Award Management
To implement the FAR and consistent with OFCCP’s rule at 41 CFR § 60-1.7(b), the General Services Administration (GSA) collects and maintains information from contractors regarding their compliance with the laws that OFCCP enforces through the System for Award Management (SAM).
In OFCCP’s April 28, 2021 Statement to OMB in support of its request to create a new reporting requirement, OFCCP acknowledges that the data that GSA is lawfully collecting now is duplicative of the data that OFCCP is now looking to collect. OFCCP states that it had contacted GSA to initiate a process of sharing the certification data that GSA collects through SAM, but that the two agencies were not able to come to an agreement on sharing the data. OFCCP is now seeking to take over the collection of this data from GSA and
To eliminate duplication of effort, DOL recommends that GSA remove its affirmative compliance question from the SAM portal. In the spirit of inter-governmental cooperation, DOL would share an AAP verification data file with GSA.7
The Affirmative Action Program Verification Interface (AAP-VI)
In September 2016, the United States Government Accountability Office (GAO) issued a report to Congress finding that “OFCCP’s weak compliance evaluation selection process, reliance on voluntary compliance, and lack of staff training create several challenges to its enforcement efforts.” Among other things, the GAO reported noted:
[b]y signing a qualifying federal contract, covered contractors are required to develop an AAP within 120 days of contract commencement and update it annually. However, OFCCP has no process for ensuring that the tens of thousands of establishments that have signed a qualifying federal contract have developed an AAP within 120 days of the commencement of the contract, or updated it annually. Standards for internal control in the federal government state that internal control activities help ensure that management’s directives are carried out and that they be effective and efficient in accomplishing the agency’s control objectives. Because OFCCP does not have a mechanism to ensure that these contractors are implementing this requirement, it has no assurance that this agency objective is being accomplished. Implementing a mechanism, such as by allowing contractors to submit their AAPs electronically or certify that they have completed annual updates, could provide OFCCP reasonable assurance that contractors are complying with this requirement, which is a central component of OFCCP’s efforts to prevent discrimination and ensure covered contractors take affirmative action to ensure equal employment opportunities for protected workers.8
OFCCP points to the concerns identified by the GAO in the report as providing the impetus for developing a system to be used by contractors to certify compliance and to facilitate the transfer of compliance related documentation.
In August 2018, OFCCP’s then-Acting Director Craig Leen issued a Directive committing the agency to developing a program to verify that federal contractors are complying with AAP obligations on a yearly basis. As described in this Directive 2018-07, the program would include:
- Development of a process whereby contractors would certify on a yearly basis compliance with AAP requirements.
- Inclusion of a criterion in the neutral scheduling methodology increasing the likelihood of compliance reviews for contractors that have not certified compliance with the AAP requirements.
- Compliance checks to verify contractor compliance with AAP requirements.
- Requesting proffer of the AAP by contractors when requesting extensions of time to provide support data in response to a scheduling letter.
- Development of information technology to collect and facilitate review of AAPs provided by federal contractors.
In September 2019, GAO’s Director, Education Workforce and Income Security, Cindy Brown Barnes, testified before the House Subcommittee on Civil Rights and Human Services with regard to progress made on the GAO recommendations. In her testimony, Ms. Barnes indicated that, according to agency officials, OFCCP had developed the necessary information collection request to obtain approval from OMB to collect all contractors’ AAPs annually.
On September 14, 2020, OFCCP published in the Federal Register a notice soliciting comments concerning its proposal to implement what it was calling the Affirmative Action Program Verification Interface (AAP-VI). In particular, OFCCP stated that it was seeking authorization for:
An annual Affirmative Action Program online certification process for federal contractors and for a secure method for federal contractors to submit AAPs electronically to OFCCP when they are scheduled for a compliance evaluation.
OFCCP received only a handful of comments in response to this notice, perhaps due to the notice period coinciding with a presidential election and then a change in administration.
OFCCP’s New Certification Requirement
OFCCP identified to the Office of Management and Budget two documents it was seeking to have approved for the information collection. The AAVI User Guide and the OFCCP AAVI Admin Guide. We do not know the extent to which these documents reflect OFCCP’s ultimate plans for the portal, but these documents and the limited information on OFCCP’s Contractor Portal website is all that contractors have to go on for now.
According to OFCCP’s website, contractors will be able to begin registering their companies on February 1, 2022. The certification period will then open on March 31, 2022 and close on June 30, 2022.
According to the AAVI User Guide, contractors will be required to represent that
- It has developed and maintained affirmative action programs at each establishment, as applicable, or for each functional or business unit.
- It has been party to a qualifying federal contract or subcontract for 120 days or more and has not developed and maintained applicable affirmative action programs at each establishment, as applicable.
- It became a covered federal contractor or subcontractor within the past 120 days and therefore has not yet developed applicable affirmative action programs.
The contractor must then further “affirm” a declaration that:
I certify that the information that has been provided as a part of our Affirmative Action Plan (AAP) certification is true and correct to the best of my knowledge. I also understand that any attempt to refuse to submit an AAP certification, alteration, or falsification of required records or information and any substantial or material violation or the threat of substantial or material violation may result in the institution of administrative or judicial enforcement proceedings.
I also understand that I will not be able to edit my Affirmative Action Plan(s) after I click the submit button.
So, What’s the Problem?
OFCCP’s own rules describe an affirmative action program as
a management tool designed to ensure equal employment opportunity. . . . Affirmative action programs contain a diagnostic component which includes a number of quantitative analyses designed to evaluate the composition of the workforce of the contractor and compare it to the composition of the relevant labor pools. Affirmative action programs also include action-oriented programs. If women and minorities are not being employed at a rate to be expected given their availability in the relevant labor pool, the contractor's affirmative action program includes specific practical steps designed to address this underutilization. Effective affirmative action programs also include internal auditing and reporting systems as a means of measuring the contractor's progress toward achieving the workforce that would be expected in the absence of discrimination.9
This purpose can be effectively fulfilled through sampling techniques and estimates that demonstrate the extent to which an employer is fulfilling its commitments to equal employment opportunity and diversity and identify potential barriers to equal employment opportunity.10 In other words, rough estimates of availability are generally sufficient to determine whether an employer should be setting goals and raw data is generally sufficient to identify potential adverse impact in some employment process. Attempting to maintain and use perfectly accurate data is not only extremely difficult and expensive, but at the margin, unlikely to provide greater insights than reasonably accurate data.
OFCCP, however, no longer reviews affirmative action plans for the purposes of confirming an employer’s good-faith efforts to support equal employment opportunity and diversity but is, instead, trying to find statistical disparities that the agency can use as the basis for claiming discrimination and recovering alleged monetary damages.
Knowing that OFCCP will focus a great deal of attention on even the smallest and most inconsequential discrepancies, contractors must regularly and carefully review and correct all of the data relating to an audited plan before sharing that data with OFCCP. This is true even for an employer with a very robust and effective affirmative action program. When faced with an OFCCP audit, such an employer will still need to carefully review and probably make revisions to the plan before providing that plan to OFCCP.
There is nothing untoward about this. Such careful review is simply not useful in the ordinary course of business. For a large company with a large workforce, receiving timely estimates regarding workforce demographics, applicant flow, and selections is cost-effective and sufficient. To try to maintain in the ordinary course of business the level of accuracy that OFCCP demands in the context of an audit would be prohibitively expensive and interfere with the timely presentation of information.
Under OFCCP’s rules, an employer is a government contractor if it is (1) providing personal property or nonpersonal services that are “necessary to the performance” of a government contract or subcontract or (2) assuming some other contractor’s obligations under a government contract or subcontract.11
Determining whether an employer is a government subcontractor subject to OFCCP jurisdiction is very often surprisingly difficult. Higher-tier contractors are often not sure which of their vendors or subcontractors are providing services necessary to the performance of a government contract and such a determination is even harder for the vendors and subcontractors that have less information than their customers.12
Putting employers that are reasonably and unavoidably uncertain regarding their status vis-à-vis the laws that OFCCP enforces into the position of having to self-identify as a contractor is unreasonable. If the employer in good faith incorrectly self-identifies as a contractor, it will be unnecessarily subjected to the burdens that apply to federal contractors. And if the employer in good faith does not recognize its status as a federal contractor, then it is subject to the consequences of failing to comply.
Clearly, before imposing any reporting requirements on subcontractors, OFCCP needs to implement reasonable processes to make it easier for employers to identify covered subcontracts.
The Department of Labor’s Fall 2021 Unified Agenda of Regulatory and Deregulatory Actions states that OFCCP intends to propose adding “provision(s) to the regulations implementing Executive Order 11246 requiring contractors to provide notice to OFCCP when they award supply and service subcontracts. The notice would include information currently unavailable to OFCCP, enabling it to schedule supply and service subcontractors for compliance evaluations.”
We applaud OFCCP’s intention to address this issue through rulemaking but note that any requirement that employers certify subcontractor status to OFCCP should await rulemaking on the more fundamental problems relating to the identification of covered subcontractors.
Duplication of Effort
Contractors are already required to separately file EEO-1 reports, VETS-4212 Reports, and representations with the System for Award Management. The certification that OFCCP is now purporting to require is entirely duplicative of pre-existing requirements. Part of OMB’s job is to prevent this kind of duplication. Based on the OFCCP’s description of its failure to reach an agreement with GSA to share information, one may assume that either GSA or OFCCP was behaving unreasonably or that GSA reasonably understood that OFCCP is not legally entitled to the information it was seeking. In either event, the appropriate resolution to such intragovernmental feuding should not involve burdening contractors with duplicative reporting requirements.
There is reason to be concerned that OFCCP ultimately intends to require contractors to submit affirmative action plans through the portal on a regular basis outside of an audit context. Contractors that have experience with those few states and local government units that have similar requirements have generally found compliance to be costly and burdensome and have reasonable concerns regarding the security of the confidential information that gets filed. Unfortunately, to our knowledge, there has never been any meaningful effort by any state or local government to demonstrate that the routine collection of information from contractors – that is, not in connection with an actual audit – serves any purpose that would justify the burden associated with its collection.
Even those contractors that are not concerned with the certification requirement as it is being rolled out now, should be concerned about where the agency is heading. Failing to require OFCCP to follow the law now and engage in rulemaking with regard to the AAP-VI could make it easier for OFCCP to dispense with this process when seeking to impose far more burdensome requirements on contractors. Congress adopted the Administrative Procedure Act for very good reasons. OFCCP should be required to follow its requirements whenever they apply.
What Should OFCCP Do Next?
It is hoped that rather than pursue this proposal, OFCCP instead proceeds with formal rulemaking to adopt a process that will be fair and effective. As part of that rulemaking, OFCCP should take into account all of the following areas of opportunity for the agency.
OFCCP’s rules for preparing affirmative action plans need to be reviewed and revised. Among other things, the rules need to better take into account the increased importance of remote employees and contingent workers. OFCCP should simplify the process for adopting functional affirmative action plans and adopt audit selection processes that do not penalize contractors that choose to create functional plans with more frequent audits.
Contractors that already fully comply with OFCCP’s rules would welcome a change in the audit selection procedure that ends the agency’s current propensity to repeatedly audit the same large contractors, while never auditing a large majority of federal contractors. The mere adoption of the AAP-VI, however, does not mean that this is going to change. OFCCP needs to adopt and explain how its audit selection procedures will be made more meaningful.
OFCCP’s rules are so burdensome, and compliance is so expensive, that many potential contractors decline to even consider doing business with the federal government. This limits opportunities for many small businesses, increases the government’s costs, and may reduce the quality of the supplies and services available to the government. OFCCP should either adopt simplified compliance requirements for smaller contractors or the president should amend Executive Order 11246 to increase the threshold for jurisdiction from the current level of $50,000.
What Should Contractors Do Next?
Like Alice, in the quote at the beginning of this Insight, contractors should “look first” to consider whether these new requirements are legally valid. Contractors that either believe that the requirements are lawful or else simply do not want to risk getting into a fight with OFCCP, will still want to consider how the new requirements apply to their specific circumstances.
Contractors interested in challenging the requirements will, of course, want to consult legal counsel. As for those contractors that simply do as asked without thinking through these important issues at all? Well, they have perhaps forgotten that if you drink much from a bottle marked ‘poison,’ it is almost certain to disagree with you, sooner or later.
1 An OFCCP Directive published in April 2020 stated that “In FY 2018, the average time to close a compliance evaluation was 516 days.” Directive (DIR) 2020-02, https://www.dol.gov/agencies/ofccp/directives/2020-02.
2 In December 2011, when Congress passed legislation apparently designed to reject OFCCP's position on a particular issue, the agency's then-director, Patricia Shiu, famously responded that "this is not over yet," and continued to pursue the position that Congress had rejected. See David Goldstein, OFCCP Scores Surprising Victory in its Continuing Battle for Jurisdiction Over Healthcare Providers Based on TRICARE Participation, Littler Insight (July 29, 2013). In a congressional committee hearing in which the author of this article testified, members of both parties acknowledged OFCCP’s disregard of congressional direction. See Ilyse Schuman and Michael J. Lotito, Littler Shareholder David Goldstein Explains Attempts at OFCCP Healthcare Overreach During House Subcommittee Hearing, Littler ASAP (Mar. 13, 20214).
3 FAR 1.101.
4 See 41 Fed. Reg. 49240, 49244 (Oct. 20, 1978), 41 CFR § 60-1.7(a).
5 41 CFR § 60-1.7(b).
6 41 CFR Part 61-300.
7 Supporting Statement A, p. 8.
8 2016 GAO Report, p. 19.
9 41 CFR § 60-2.10(a).
10 As just one example, the Uniform Guidelines on Employee Selection Procedures explicitly recognize that records concerning impact “may be retained on a sample basis, provided that the sample is appropriate in terms of the applicant population and adequate in size.”
11 41 CFR § 60-1.3.
12 Of course, the burden of proving OFCCP has jurisdiction over an employer as a government contractor or subcontractor rests with OFCCP.