Proposed Rules for Establishing Paid Sick Leave for Federal Contractors - Part 2

Last Friday we discussed newly proposed regulations that will require Government contractors to begin offering paid sick leave up to seven days a year or one hour for every 30 hours worked. If you missed that post, you can go back and read it by clicking here. The proposed regulations are quite voluminous and will require contractors to read, understand, and implement corresponding policies and procedures and hopefully stay out of trouble.

Following are a few more highlights of the proposed regulations.

Paid sick leave shall be provided upon the oral or written request of an employee that includes the expected duration of the leave, and is made at least seven calendar days in advance where the need for leave is foreseeable, and in other cases as soon as is practicable. The latter would include employees calling in sick.

Contractors may require employees to provide certification or documentation regarding the use of leave for absences of three or more consecutive workdays. Contractors are required to maintain confidentiality of verification information regarding domestic abuse, sexual assault, or stalking.

Contractors are not required to make a financial payment to an employee upon a separation from employment for unused accrued sick leave. However, as discussed last Friday, unused sick leave is subject to reinstatement if the employee is rehired by a "covered" contractor within a year of separation.

The new regulations apply to solicitations issued after January 1, 2017. This could result in implementation complexities as contractors will initially have a mix of covered and non-covered employees.

Paid sick leave will apply to all contracts and any subcontracts of any tier, whether negotiated or advertised, including any procurement actions, lease agreements, cooperative agreements, provider agreements, intergovernmental service agreements, service agreements, licenses, permits, or any other type of agreement, regardless of nomenclature, type, or particular form and whether entered into verbally or in writing. Additionally, it applies to notices of awards, job orders or task letters issued under basic ordering agreements, letter contracts, and orders such as purchase orders. In short, it applies to just about everything except Federal grants.

Tomorrow we will continue unpacking the proposed sick leave requirements.

Proposed Rules for Establishing Paid Sick Leave for Federal Contractors - Part 1

Last September, the President signed an executive order that will require Government contractors and subcontractors to provide a minimum of seven days of paid sick leave per year (see Establishing Paid Sick Leave for Federal Contractors). These new benefits are scheduled to become effective in January 2017 and is estimated to impact about 300,000 employees. That is a small subset of the employees working on Government contracts because most contractors already have sick leave policies that exceed the Executive Order minimums.

Yesterday, the Labor Department published draft regulations to implement the Executive Order. The proposed rule (i) describes the categories of contracts and employees the Order covers and excludes from coverage, (ii) sets forth requirements and restrictions governing the accrual and use of paid sick leave, (iii) prohibits interference with or discrimination for the exercise of rights under the executive order, (iv) describes the obligations of contracting agencies, the Department of Labor, and contractors, and (v) establishes the standards and procedures for complaints, investigations, and remedies, and administrative enforcement proceedings related to alleged violations of the Order.

This is a fairly extensive set of regulations so we will take a couple of days to summarize and pluck out the salient points that will affect small business Government contractors. First, we'll discuss the types of absences for which the seven days can be used.

Paid sick leave under the proposed regulations may be used by an employee for absence resulting from a variety of conditions and situations. These are about as broad as anyone can make them.

1. a physical or mental illness, injury, or medical condition
2. obtaining diagnosis, care, or preventive care from a health care provider
3. caring for a child, a parent, a spouse, a domestic partner, or any other individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship who has any of the conditions or needs for diagnosis, care, or preventive care described above or is otherwise in need of care
4. domestic violence, sexual assault, or stalking, if the time absent from work is for the purpose of obtaining counseling, seek relocation, seek assistance from a victim services organization, or take related legal action, including preparation for or participation in any related civil or criminal legal proceeding or to assist an individual related to the employees as described in item 3 above.

Unused sick leave carries over from one year to the next (with limitations we'll discuss later) and reinstated by a "covered" contractor if rehired within twelve months after a job separation. Use of sick leave cannot be contingent upon finding a replacement to cover any work missed. Sick leave required by these new regulations are in addition to a contractor's obligations under the Service Contract Act (SCA) and Davis-Bacon Act (DBA) and contractors may not receive a "credit" toward their prevailing wage or fringe benefit obligations under those Acts for any paid sick leave provided under these regulations.

We will continue this discussion next week.

Government Uses Wrong "Standard" to Measure Damages

In 2013, the Department of Transportation awarded a contract to reconstruct 10 miles of highway and install utility conduits for six of those mile in a National Park. The contract included the "Differing Site Conditions" clause (see FAR 52.236-2).

When the contractor began work on the utility trench, it encountered what it considered to be a differing site condition. While attempting to excavate the utility trench, it encountered numerous large boulders which significantly slowed down work on the project. According to the contractor, the unusual size and concentration of the obstructions were unanticipated at the time of the bid. The Government did not agree that the unexpected boulders constituted a differing site condition.

Ultimately, contractor filed an equitable adjustment proposal for an additional $81 thousand for what it considered to be extra work associated with the unanticipated boulders. The contracting officer denied the claim on the basis that the unexpected boulders did not constitute a differing site condition. The contractor appealed the final decision to the Civilian Board of Contract Appeals (CBCA).

During discovery, it was learned that the contractor's actual cost was less than its anticipated cost for the utility trench work. Upon learning this, the Government moved to dismiss the appeal, arguing that even if a differing site condition was encountered, the contractor is not entitled to recover because it failed to demonstrate that it experienced an increase in costs due to "alleged" differing site conditions. The Government asserted that the contractor must show that it experienced an increase in cost due to the physical conditions of the site and that the contractors actual costs were less than either its bid amount or its anticipated cost for the work.

The contractor countered that the appropriate way to measure damages is the additional costs incurred due to the differing site condition, not whether the project was still profitable despite encountering the condition. The contractor maintained that it is entitled to recover the additional costs directly attributable to the differing site condition regardless of whether those costs increaced the originally estimated cost of the project. Moreover, the contractor argued that its ability to perform for less than its bid price for the project and obtain a profit is not a basis to deny it the right to claim compensation for damages associated with the differing site condition.

The CBCA agreed with the contractor. It stated that the appropriate measure of damages for a differing site condition is the additional cost incurred by the contractor as a result of the differing site condition. More specifically, the equitable adjustment for a differing site condition is the difference between what it cost it to do the work and what it would have cost if the unforeseen conditions had not been encountered. The CBCA specifically ruled that the Government was using the wrong standard to measure damages.

You can read the full text of the CBCA decision here.

Be Sure That You're Paying Your Subcontractors and Vendors in a Timely Manner

Contractors need to examine their contracts to determine when they can bill for payments made to subcontractors and for material purchases. Typical contract clauses allow contractors to seek reimbursement for accrued expenses as long as those expenses are paid in the normal course of business, "usually 30 days". It is not the Government's policy or intent to provide all of a contractor's working capital. Contractors need to have some skin in the game as well.

Yesterday the Department of Justice issued a press release concerning a contractor who tried to skirt the billing rules. A company hired to renovate warehouses at a Naval facility hired 17 subcontractors to work on the project. The work began in May. The following month and the month after that, the company submitted progress payment requests to the Navy for work performed. Attached to the progress payment requests were signed certifications stating that all of the subcontractors had been paid for their work. Relying on the contractor's representations, the Navy paid the contractor $1.2 million for the two progress payment requests.

There should have been a red flag right away. To liquidate 25 percent ($1.2 million out of a $4.4 million contract value) of a construction project in the first two months of performance would be highly unusual. But the Navy did not make any inquiries. The Navy realized something was amiss in September (four months into the project) when all of the subcontractors walked off the job. Turns out that none of the subcontractors had been paid for anything.

The contractor plead guilty to making a false statement and is now awaiting sentencing which carries a maximum sentence of five year in prison and a $250 thousand fine. In all likelihood, it will be much less than that. In addition, the contractor agreed to make restitution to victims in the amount of $1.2 million.

You can read the full DOJ press release here.

"Late is late" for This Proposal Submitter

Last week we posted an article on the Court of Claims overturning a GAO bid protest decision that didn't go in the company's favor. The case involved a proposal received after the deadline established for proposal submission. The GAO essentially took the position that "late is late" and the bidder should have followed up to ensure that the Government receive its proposal (See Court of Claims Overturns GAO Late Proposal Decision). The U.S. Court of Federal Claims found that GAO did not have all the facts when rendering its decision. It found the Government's email systems had some fundamental flaws that prevented quite a few proposals from reaching their intended recipient.

Another "late is late" decision hit the streets today; this one also from the U.S. Court of Federal Claims but the results were different. The offeror did not prevail in this case as the Court determined that it was the offerors fault that the proposal was not received on time (see Johnson Controls v. United States).

The process of submitting a proposal in the "FedConnect" electronic system involved two steps. First, the user must upload the file and second, when the upload is complete, the user must click the "submit" button. In the latest case, the Johnson Controls employee responsible for submitting the proposal was not aware of the two step process. When the upload started and a message was returned that indicated the upload was in progress, the employee took no further action. The employee should have hung around until after the upload was complete and clicked the "submit" button.

FAR 52.215-1 provides an exception permitting consideration of an otherwise late proposal, so long as four conditions are met: (i) the proposal must be received before award is made, (ii) the contracting officer must determine that accepting the late offer would not unduly delay the acquisition, (iii) if submitted electronically, it must be received at the initial point of entry to the Government infrastructure not later than 5:00 p.m. one day before the date specified for receipt of proposals and (iv) there must be acceptable evidence that the proposal was under Government control prior to the time set for receipt of offerors. Government control in this context occurs when the offeror relinquishes control over the proposal such that the offeror can no longer modify the proposal.

Johnson Controls argued that its proposal was in Government control since it had been entered into the FedConnect system. The Court ruled that the Government had no way of knowing a proposal existed or accessing the proposal until someone clicked the "submit" button. Therefore, to contend that the Government had control is "stretching the language of the FAR beyond reason".

Offerors must read and understand how to submit quotes using FedConnect or any other electronic portal specified by the terms of the solicitation and make sure that the steps necessary for delivery of a proposal are taken precisely.

Cost of Political Campaign Activities at Contractor Facilities

Election season is upon us (and has been forever, it seems) and so it would be a good time to review the allowability of costs associated with candidate campaign stops at contractor facilities.

Political candidates pose at diners to show their ordinariness and ability to mingle with common folk, on college campuses among throngs of energetic student bodies to demonstrate their youthful appeal, and at rallies among throngs of diverse sign-waving supporters to show their broad-based appeal. Candidates have even been know to show up at Government contractor facilities. Such visits take up resources in time and money. Are such costs allowable under Government contracts? Does it matter whether the candidate was invited to attend or asked to visit?

The Federal Acquisition Regulations (FAR) do not address such activities directly. However, the Government, namely contracting officers and contract auditors, have taken strong positions against allowing such costs be charged to Government contracts.

DCAA's (Defense Contract Audit Agency) audit guidance on this matter follows:

Costs associated with political campaign activities, such as candidates' appearances and speeches at contractor facilities, are unallowable in accordance with FAR 31.205­ 22(a)(1), Legislative Lobbying Costs, when such activities are clearly an attempt by the contractor to influence the outcome of an election by soliciting votes. The key considerations in this determination are how the candidate is portrayed by the contractor and the subject matter of the candidate's speech. When questioning such an event all costs associated with these activities including applicable burdens should be questioned (see DCAA Audit Manual 7-1102.5)

We're not quite sure how a visit by a "presidential" candidate fits into the "Legislative Lobbying" cost principle but don't expect contract auditors to try and make such a distinction. In the Government's view, the only reason a candidate would be invited to a contractor facility is to influence the outcome of an election.

In one case involving a political candidate and the assembling of contractor employees, the auditors were very aggressive in tallying up unallowable costs. They asked for a listing of every employee who attended and the time it took for them to drive to the event. In some cases, a 30 minute event turned into two hours of down-time. The auditors also asked the contractor to compile the administrative costs for hosting the activities including publicizing and disseminating the event, refreshments, protocols, and clean-up and tear-down.