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5 Reasons President Obama Should Hold Accountable the Law-Breaking Contractors Who Harm Workers and Shortchange Taxpayers

President Barack Obama signs an executive order

SOURCE: AP/Jacquelyn Martin

Surrounded by workers, President Barack Obama signs an executive order to raise the minimum wage for federal contract workers to $10.10 per hour during a ceremony at the White House in Washington, February 12, 2014.

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Federal contract and concession workers gathered today at Union Station to protest unfair working conditions. The protestors complained that too often their employers cheat them out of the meager wages they are legally owed. These are the same workers who benefited from President Barack Obama’s executive order, signed earlier this year, to raise the minimum wage to $10.10 per hour for federal contract and concession workers. Yet they argue that if the order is not adequately enforced, it will not fulfill its promise to raise the pay of hundreds of thousands of workers. These workers are calling on President Obama to sign an executive order that would, among other things, ensure that only companies that comply with federal workplace laws are able to receive federal contracts.

The federal government spends hundreds of billions of dollars each year contracting out everything from janitorial services to the design and manufacture of sophisticated weapons systems. More than one in five American workers is employed by a firm that contracts with the federal government. Yet the review process to ensure that only responsible companies receive these contracts is very weak. Too often, the contracting process resembles a race to the bottom—one that supports bad jobs and poor value for taxpayers—and awards contracts to companies with long track records of breaking workplace laws.

Recent reports from Sen. Tom Harkin (D-IA), the Center for American Progress Action Fund, and the Government Accountability Office help shine a light on this problem.

President Obama can adopt contracting reforms through executive action to:

  • Ensure that law-breaking companies clean up their acts before receiving government contracts
  • Improve the quality of services provided to the government
  • Prevent waste of taxpayer dollars

Here are five key reasons President Obama should reform the federal contracting system.

1. Nearly 1 in 3 companies with the worst safety and wage violations are federal contractors

Law-breaking companies that do not pay their employees the wages they are owed or that violate health and safety rules continue to receive government contracts with no strings attached. Sen. Harkin’s 2013 report found that government contractors are often among the worst violators of workplace safety and wage laws. The report reviewed the 100 largest penalties and assessments for violations of both workplace wage and safety laws between fiscal years 2007 and 2012, finding that nearly 30 percent of the top violators continued to receive federal contracts. They were cited for 1,776 separate violations of these laws and paid $196 million in penalties and assessments during this time period.

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2. Law-breaking government contractors shortchanged their workers out of $82 million

Wage theft is a pervasive problem, and tax dollars should not be spent to reward companies that do not pay their employees the wages owed to them. Federal contractors with the worst wage-law violations shortchanged their workers out of $82 million in back wages assessed between FY 2007 and FY 2012, according to Sen. Harkin’s report. Looking at only the violators that publically report on executive pay, 20 companies owed their workers $49 million during the study period, but the CEOs of these companies earned a combined $240 million in pay in FY 2012. These companies earned $52 billion in operating income that same year. (see note at the bottom of this column)

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3. At least 42 workers have died at the contracting companies with the worst safety violations

Employees of federal contractors should be able to enjoy a safe workplace. But at least 42 people have died from workplace accidents and injuries at companies with the highest penalties issued between FY 2007 and FY 2012, according to Sen. Harkin’s report. The victims range from a 46-year-old father of four killed while trying to clear a clothes jam in an industrial dryer, to 13 workers killed in a sugar refinery explosion sparked by combustible dust, to workers at two separate companies killed in oil refinery explosions. Despite these fatalities, only one of these law-breaking contractors—BP Products North America, Inc.—has been suspended or debarred.

GovContractors-names

4. Law-breaking companies with the worst workplace violations received $81 billion in federal contracts in 2012

The government is supposed to ensure that contractors have a satisfactory record of performance, integrity, and business ethics. However, existing tools to make sure this actually happens are woefully inadequate. Of the nearly $518 billion in federal contracts awarded in FY 2012, $81 billion made its way to contractors with the worst records. This accounted for nearly 16 percent of all spending on federal contracts in FY 2012.

GovContractors-fig3

5. One in four companies that committed the worst workplace violations and later received contracts had significant performance problems

Contracting with companies that have egregious records of workplace violations also frequently results in poor contract performance—wasting taxpayer dollars and delivering low-quality services to the government—according to the 2013 CAPAF report. Twenty-five percent of the companies that committed the top workplace violations from FY 2005 to FY 2009 and later received federal contracts had significant performance problems. According to the same report, “These performance problems ranged from contractors submitting fraudulent billing statements to the federal government; to cost overruns, performance problems, and delays during the development of a major weapons system that cost taxpayers billions of dollars; to contractors falsifying firearms safety test results for federal courthouse security guards; to an oil rig explosion that spilled millions of barrels of oil into the Gulf of Mexico.”

Conclusion

Despite spending hundreds of billions of dollars every year on contracts, the federal government does not have strong checks in place to ensure that law-breaking companies clean up their acts before they receive federal contracts. President Obama can make a considerable difference for the more than one in five American workers currently employed by companies receiving federal contracts by using his executive authority to adopt responsible contractor reforms.

Karla Walter is Associate Director of the American Worker Project at the Center for American Progress Action Fund.

Note: CEO compensation and operating-income figures are derived from parent-company reporting when applicable. For the majority of companies included in this total, these figures reflect their operating incomes and CEO compensations earned during the fiscal year that ended in December 2012. However, four companies in this sample reported these figures in a different month. Consequently, their operating incomes and CEO pay totals do not cover the same time frame. For these companies, the fiscal year that covered the largest portion of 2012 was chosen for this calculation. Financial information for publically held foreign companies is included when data are available for both CEO compensation and operating income. However, there is slight variation in how the foreign companies report CEO pay. Also, these companies reported their operating incomes and CEO pay in a currency other than U.S. dollars. These companies’ operating incomes were converted into U.S. dollars using the relevant average exchange rate for 2012 as provided by the Internal Revenue Service. Privately held companies and nonprofits have been excluded from this calculation, as financial information for many of these entities is not publically available or is reported in different fashions and as the earnings of nonprofits do not constitute financial gains in the same manner as the operating incomes earned by for-profit companies. The figures included in these calculations also reflect any revisions made by companies to their operating-income totals following their initial submission of their 10-K forms that have been recorded by Morningstar. More details on methodology and assumptions are on file with the author. Operating-income and CEO-pay figures are taken from individual Morningstar company financial profiles and public filings found at Morningstar, “Home,” available at http://www.morningstar.com/ (last accessed June 2014). Three foreign companies did not provide CEO compensation figures to Morningstar and the figures were not contained in their public filings on the site, but the public reports containing their CEO compensation totals are on file with the author. Average exchange rates for 2012 used to convert compensation and net income figures reported in foreign currencies into U.S. dollars can be found at Internal Revenue Service, “Yearly Average Currency Exchange Rates: Translating foreign currency into U.S. dollars,” available at http://www.irs.gov/Individuals/International-Taxpayers/Yearly-Average-Currency-Exchange-Rates (last accessed June 2014).

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