5 Reasons Why the Fair Pay and Safe Workplaces Regulations Will Raise Standards for Workers, Taxpayers, and Businesses

President Barack Obama shakes hands with workers and advocates after signing the Fair Pay and Safe Workplaces executive order on July 31, 2014.

Today, the Federal Acquisition Regulatory Council and the U.S. Department of Labor released final regulations and guidance to implement the Fair Pay and Safe Workplaces executive order, which will help ensure that all federal contractors comply with workplace laws, including health and safety standards, wage laws, and civil rights laws. The order promises to help protect taxpayers, law-abiding businesses, and the more than 1 in 5 Americans who are employed by companies that do business with the federal government. Once implemented, the regulations will allow the government to identify companies with egregious records of violating the law and ensure that those companies remediate problems before receiving any new contracts.

The Fair Pay and Safe Workplaces order is one of a number of actions that President Barack Obama has taken to ensure that contractors respect their workers. The Center for American Progress Action Fund has advocated for these reforms since 2008—releasing its first report on the topic the month before President Obama took office. Today’s release of final regulations will allow the Obama administration to start working to implement the order before the end of the president’s term.

Yet in a last ditch effort to gut the order, Republicans in the U.S. House of Representatives and U.S. Senate have included language in the National Defense Authorization Act for Fiscal Year 2017 to effectively exempt U.S. Department of Defense, or DOD, contracts from coverage under the order. These military contracts account for approximately two-thirds of all government contracts. Lawmakers in both houses of Congress are now working with the Obama administration to ensure that the language excluding these DOD contracts is removed from the final version of the legislation during conference committee.

CAP Action has written extensively in columns, testimony, and reports about the regulations’ benefits for millions of workers. Here are the five key reasons why the final regulations will raise standards for workers, ensure that taxpayers receive good value for their investment, and allow the vast majority of contractors that obey workplace laws to compete on an even playing field.

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

A 2013 report by the Senate Health, Education, Labor, and Pensions, or HELP, Committee majority staff found that government contractors are often among the top violators of workplace laws. The report reviewed the 100 largest penalties and assessments for both wage and safety law violations over a five-year period, finding that nearly 30 percent of the worst violators of workplace laws continued to receive federal contracts.

According to the same report, of the nearly $518 billion in federal contracts awarded in fiscal year 2012, $81 billion made its way to the contractors with the worst records.

2. Companies that commit the worst workplace violations and later received contracts provide a poor value to taxpayers.

According to a 2013 CAP Action report, contracting with companies that have egregious records of workplace violations also frequently results in poor contract performance. This wastes taxpayer dollars and delivers low-quality services to the government. 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 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.

3. The regulations to implement the Fair Pay and Safe Workplaces executive order will create a fair and consistent process that will protect law abiding companies.

The regulations create a fair and consistent process by which the federal government can help ensure that all federal contractors are responsible and respect their workers. Opponents have argued that the new system will create an undue burden on private companies that will increase compliance costs. However, the new system will simply require law-abiding companies to check a box to certify legal compliance with laws that are designed to ensure that workers are safe on the job; are paid what they are owed; and are not discriminated against in the workplace due to their race, age, gender, or disability status.

This is no different from how these firms currently report on a number of responsibility matters, including tax delinquency and contract fraud. Only contractors with lengthy and egregious records of law-breaking will be subject to a heightened review process and the potential costs associated with adopting measures to ensure future compliance with the law.

Moreover, implementation costs are very low compared with the hundreds of billions of taxpayer dollars that contractors receive every year. For every $100 the government gives to contractors, contractors will spend about 10 cents in order to ensure compliance.*

4. The Fair Pay and Safe Workplaces executive order will level the playing field for law-abiding businesses.

The executive order will help encourage law-abiding companies to bid for federal contracts by ensuring that they are not put at a competitive disadvantage compared with bad actors, including those that reduce costs by paying wages lower than required by law and cut corners on workplace safety. After Maryland implemented a contractor living wage standard, the average number of bids for state contracts increased by nearly 30 percent. Nearly half of contractors interviewed by the state government said that the new standards encouraged them to bid because they leveled the playing field.

Furthermore, many law-abiding businesses support the order because they believe it will help them compete without presenting an undue burden on their company. At a House Small Business Committee hearing in September 2015, construction contractor Bill Albanese concluded, “It makes good business sense to vet the contractor before he gets this job. It’s common in our industry; we do it all the time, and we don’t see it as being a burden to any legitimate fair contractor that’s playing by the rules.”

5. Responsible bidder policies have a proven track record of protecting workers and improving the quality of contractors at all levels of government and even in the private sector.

Many states—including California, Connecticut, Illinois, Massachusetts, Minnesota, and New York—as well as the District of Columbia and other major cities, such as Los Angeles and New York City, have responsible bidder programs. Such programs have improved contractor quality by identifying companies with long track records of committing fraud, wasting taxpayer funds, and violating workplace laws. Some federal contracting programs even use a thorough responsibility review process. The DOD conducts a pre-award safety survey on all department ammunition and explosives contracts.

These laws allow officials to ensure that the public receives a good value for their tax dollars and can give private sector companies an opportunity to clean up their acts. For example, New York State Comptroller Thomas P. DiNapoli approved a $4.7 million painting contract in 2014 but only after the state transportation agency appointed an independent integrity monitor to ensure that the contractor complied with wage laws. The comptroller—who reviews contracts for state agencies—had previously rejected the contractor due to an apparent connection to companies that were debarred for wage violations.

Requiring contractors with legal violations to disclose their workplace records before they are able to receive a contract is increasingly common in the private sector as companies find that it is a cost effective way to ensure future compliance. A number of industry associations recommend evaluating the safety record of companies bidding for contracts. And recent analysis from CAP Action shows that at least 8 of the top 10 DOD contractors have experience doing so.

Raytheon Company—the fourth largest federal contractor in FY 2015—requires companies with which it enters into contracts to adhere to safety requirements and report on any safety citations “from any U.S. Government, city, or local entity for the past ten years.” So too do smaller companies—such as family-owned construction contractor Lawrence Building Corp—which requires bidders to report if they have had a safety citation in the past three years.

Conclusion

Today’s release of final regulations for the Fair Pay and Safe Workplaces executive order will ensure that the Obama administration is able to implement the rules before January, when a new administration will take office. Supporters of the order range from major civil rights groups, good government groups, and worker organizations to AARP and organizations advocating for the rights of people with disabilities to veterans groups and a coalition of 20,000 employers.

By publishing final rules today, the Obama administration is building on the best practices in government at all levels and even in the private sector. By implementing these reforms, the government will help raise standards for workers, provide better value to taxpayers, and ensure that law-abiding companies are able to compete on an even playing field.

Note: The government estimates that contractors and subcontractors will spend about $458 million in order to comply with all of the requirements of the Fair Pay and Safe Workplaces executive order in the first year after implementation. This represents 0.1 percent of the approximately $439 billion that the federal government awarded to contractors in FY 2015. The government produced this cost analysis, included in the final regulations, in compliance with Executive Orders 12866 and 13563. The analysis includes compliance with all aspects of the order, including initial representation of labor law violations, record keeping and updating requirements, paycheck transparency requirements, and review of the regulations during the first year of implementation.

Karla Walter is Director of the American Worker Project at the Center for American Progress Action Fund. David Madland is a Senior Fellow and the Senior Advisor to the American Worker Project at CAP Action.