On December 2, 2021, the Department of Labor’s Office of Federal Contractor Compliance Programs (“OFCCP”) announced the creation of a new Contractor Portal.  Starting next year, federal prime contractors and subcontractors will be required to register on the portal and submit a formal certification, on an annual basis, as to whether they have developed and maintained an Affirmative Action Program (“AAP”) in accordance with OFCCP requirements.  If selected by OFCCP for a compliance review, contractors will use the same portal to upload their AAPs in addition to any other requested information.  The Contractor Portal is expected to open for registrations on February 1, 2022, with the certification features available March 31, 2022.  By June 30, 2022, all existing contractors and subcontractors must certify compliance with the AAP requirements.

Background

The OFCCP administers and enforces three equal employment opportunity laws: (1) Executive Order 11246; (2) Section 503 of the Rehabilitation Act of 1973, as amended; and (3) Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (“VEVRAA”), as amended.  These authorities prohibit employment discrimination and require federal contractors to, among other things, implement and maintain AAPs to ensure equal opportunity for covered classes of candidates and employees.  Federal contractors are subject to these requirements provided they meet certain employee and contract award thresholds.[1]

The Contractor Portal and the new certification requirement were prompted by a priority recommendation from a 2016 Government Accountability Office Report.  The report recommended that the Director of OFCCP develop a mechanism to monitor AAPs from covered federal contractors on a regular basis.  In September 2021, the OFCCP solicited comments on its proposed Affirmative Action Program Verification Interface (“AAP-VI”).

New Certification Requirements and Portal Features

Current regulations require contractors to develop written AAPs within 120 days of entering into a covered prime contract or subcontract and to update the AAPs annually.  Under the prior policy, covered contractors would confirm that they have an affirmative action plan in place through the government’s System for Award Management (“SAM”).  Under the newly announced OFCCP policy, supply and service contractors and subcontractors will be required to use the Contactor Portal to register and certify their AAP compliance.[2]  OFCCP’s Directive 2018-07, which sets forth OFCCP’s plans and objectives for the AAP-VI program, states that the certification will allow OFCCP to incorporate AAP certification information as a criterion in its methodology for scheduling compliance evaluations, such that entities that have not developed and maintained AAPs are more likely to be scheduled for compliance reviews.  The Directive also forecasts that the annual certification requirements “could later take the form of annual submission of AAPs to OFCCP for review.”

Contractors may begin registering for the Contractor Portal starting February 1, 2022.  Existing contractors and subcontractors must certify compliance in the Contractor Portal from March 31, 2022 to June 30, 2022, including an attestation that they have developed and maintained their AAPs.  New contractors and subcontractors that have not previously been subject to the AAP requirements must register and certify compliance in the Contractor Portal within 90 days of developing their AAPs, which as noted above must be done within 120 days of receiving a covered contract or subcontract.

Key Considerations for Prime Contractors and Subcontractors

OFCCP’s new policy is specifically intended to enhance oversight and enforcement of contractor compliance with equal employment and affirmative action requirements.  These requirements are detailed and highly technical, and maintaining a compliant AAP requires diligent attention to various record keeping and reporting obligations.  OFCCP’s announcement does not change these underlying regulatory obligations for federal prime contractors and subcontractors, but it has the effect of potentially raising the stakes of compliance in three important ways.

First, the Contractor Portal will make compliance information more accessible to regulators.  The 2016 Government Accountability Office Report indicated that despite the existing SAM certification requirement, OFCCP had “no process for ensuring that . . . [contractors] have developed an AAP within 120 days of the commencement of the contract, or updated it annually.”  Previously, any given contractor had only a small chance of being audited by OFCCP.  After all, OFCCP has jurisdiction over an estimated 120,000 contractors but has performed less than 1,200 compliance evaluations per year over the past five years.  The newly announced Contractor Portal is designed to enhance the agency’s oversight of contractor compliance by allowing for more — and more targeted — audits and compliance reviews.  In the words of OFCCP, the new policy will therefore “help ensure there are no ‘free riders’ that benefit from participating in the federal procurement process while not bearing the corresponding costs of AAP compliance.”

Second, the Contractor Portal will require registration and certification by a broader universe of entities.  Subcontractors are not required to be registered in SAM, but supply and service subcontractors will be required to register and certify their AAP compliance through the Contractor Portal.[3]  This introduces an entirely new compliance consideration for certain entities, and the absence of prior certification history could be considered a flag that increases the likelihood of OFCCP audit.  Meanwhile, for contractors already registered in SAM, OFCCP’s new Contractor Portal introduces the potential for inconsistent representations, especially given that the actual language of the new certification remains an open question.

Third, by requiring a formal written certification, the new policy raises the specter of False Claims Act (“FCA”) liability under a false certification theory.  If a contractor formally certifies compliance with the AAP requirements through the Contractor Portal, only to have an audit reveal compliance shortcomings, the prospect of a referral for FCA enforcement action — and its attendant treble damages plus statutory penalties — becomes a very real possibility.  Moreover, given the substantial financial incentives to report alleged false certifications, whistleblowers (and enterprising plaintiffs’ lawyers) also could trigger such actions independent of any audit.

For all of these reasons, federal contractors should take careful notice of this new certification requirement.  While the potential compliance implications are sobering, the good news is that the phased roll-out of the new Contractor Portal will give companies several months to confirm that they have their house in order.  There are a number of best practices that contractors can take to ensure their compliance, but at a minimum, companies engaged in federal business should confirm that their existing AAPs have been reviewed this year and are in strict compliance with applicable requirements prior to the certification deadline in June 2022.

In the meantime, we expect further guidance from OFCCP regarding the development and implementation of the new Contractor Portal and related certification requirement.  We will continue to monitor further developments in this area and provide future updates in this space.

 

[1] Executive Order 11246’s basic coverage applies to federal prime contractors and subcontractors and to federally assisted construction contractors with a government contract in excess of $10,000, or government contracts that can reasonably be expected to have an aggregate total value exceeding $10,000 in a 12-month period.  Executive Order 11246’s AAP requirements apply to prime contractors and subcontractors with 50 or more employees and a contract of $50,000 or more.  Similarly, Section 503 applies to prime contractors and subcontractors with contracts in excess of $15,000, and its AAP coverage applies to prime contractors and subcontractors with 50 or more employees and a contract of $50,000 or more.  VEVRAA applies to prime contractors and subcontractors with contracts of $150,000 or more, and its AAP coverage applies to prime contractors and subcontractors with 50 or more employees and a contract of $150,000 or more.

[2] OFCCP defines the term “subcontractor” broadly to mean any entity or person holding an agreement with a prime contractor or higher-tier subcontractor (a) for the purchase, sale or use of personal property or nonpersonal services which, in whole or in part, is necessary to the performance of any prime contract or (b) where any portion of the prime contractor’s obligation is “performed, undertaken, or assumed.” 41 C.F.R. § 60-1.3.

[3] For the time being, construction contractors that are not also supply or service contractors are not required to register for the portal or certify compliance.