The Fox OFCCP Report

Welcome to the first edition of “The Fox OFCCP Report.” This will be a monthly column commentary on the latest developments at the Office of Federal Contract Compliance Programs (“OFCCP”).

While I have been a reporter and a news editor at various times in my pre-law career, I have never been a columnist. This will be a new venture for me.

A columnist is different from a news reporter in that s/he does not simply neutrally report the news. Rather, a columnist also has a point of view. My point of view will not be as Democrat or Republican or Libertarian or Green, or from any political point of view. Rather, my point of view will be that of a federal contractor advocate: What does OFCCP’s action (or failure to act) mean to the federal contracting/subcontracting community?

For my first column, I want to write about “the year that was” for OFCCP. What a whirlwind! Right? Calendar 2011 was the biggest period of policy change for OFCCP in its now storied 46 year history, even while the agency operationally stepped down the number of audits and also apparently shrank back pay collections from the levels in prior years.

Amid all the hoopla of new and far-ranging policy developments, the most important development at OFCCP in 2011, I thought, was the change of relationship between OFCCP and the contractor community. 2011 brought with it a return, after a hiatus of 30 years, of a clear and growing sense of “we-them” mentality (last seen in the Carter Administration) between contractors and OFCCP and as the institutional mentality at OFCCP became one of the “ends justifies the means”: we are doing a righteous thing here, so we can do anything we want to do. Ah, déjà vu all over again. This is very reminiscent of the administrative philosophy of the now discredited Nixon Administration (and later, and aberrational in the Reagan administration, of Ollie North who found that the Executive Branch of government could somewhat easily exercise power, even in the absence of legal authority to do so). When one assumes the “ends justifies the means”, the “Rule of Law” and Due Process gets trampled in the rush forward to perceived righteous action. And, indeed, even in those instances in which the end result may be correct and desirable, trampling the process also tramples important rights of contractors…and the precious relationships between OFCCP and the contractor community built over decades of time.

OFCCP punctuated the year with many exciting and thoughtful policy developments, including at least these major actions:

• replaced the so-called “ACM Directive” (which OFCCP had withdrawn December 2, 2010) with the so-called “ACE Directive” (“Active Case Enforcement”) and thus allowing OFCCP investigators (effective January 1, 2011) to go “On-Site” in Supply and Service Audits whenever they chose to do so and no longer following a preliminary finding that the contractor’s Desk Audit submission revealed a prima facie violation of one or more of OFCCP’s regulations;
• deployed (beginning in January), without notice to the contractor community or OMB approval, new audit procedures for Supply and Service contractors focusing heavily on compensation contractors are paying their employees (and ushering in, essentially, the very changes OFCCP would later seek permission from OMB to inaugurate as part of the overhaul of OFCCP’s Supply and Service contractor audit Scheduling Letter–still not OMB approved as of this writing, as noted below);
• deployed (beginning in January), without notice to the contractor community or OMB approval, new audit procedures for Supply and Service contractors basically dismantling the Clinton Administration’s “tiered review process” by moving to the “Desk Audit” phase of audits many investigative actions previously undertaken during the later and more privacy-protected “On-Site” phase of the audit;
• without Notice to, or Comment from, the contractor community, OFCCP started in January to suddenly find contractor Affirmative Action Plan-required “outreach” efforts to the Disabled and Protected Veteran communities to be insufficient, even though the Clinton and Bush Administrations had approved of the very same outreach efforts the contractor had been undertaking for almost two decades;
• bally-hooed throughout the year greater “Inter-Agency Cooperation” with the EEOC, Department of Justice and other agencies within the Department of Labor (none of which has thus far come to fruition or altered the existing operations of either OFCCP or contractors);
• quietly changed OFCCP’s Press Release policy to (a) much more aggressively publicize increasingly smaller dollar-value settlements, Solicitor Office litigation victories and even the filing of fresh Complaints, and (b) changed the tone of OFCCP Press Releases to make them harsh and vituperative;
• hired new Compliance Officers (LOTs of them) to bring OFCCP’s workforce size back up to the staffing level in the last year of the Clinton Administration, even while OFCCP’s audit production and back pay collections fell below those of the smaller Bush Administration OFCCP;
• proposed controversial VEVRAA regulations provoking contractor community concerns about burden, cost, usefulness and the wisdom of so-called “benchmarks” for Protected Veterans, even while engendering support for doing something positive for Protected Veterans (April 26, 2011);
• sought (in August) authority and permission from OMB to publish a new “Scheduling Letter” to commence Supply and Service audits, including a vastly revised attached “Itemized Listing” gathering all of a contractor’s “employee-level” compensation data—which OFCCP had nonetheless already been routinely and almost uniformly gathering during the Desk Audit phase of audits since January, even in the absence of OMB permission to do so (the new Scheduling Letter for Supply and Service contractors is still not approved or in use as of this writing);
• sought quietly (in August) from OMB authority and permission to publish a new “Scheduling Letter” to commence construction contractor audits (OMB approved a new letter OFCCP put in use as of 12/31/11);
• published an “Advanced Notice of Proposed Rulemaking to inaugurate a so-called “Compensation Data Collection Tool” (August 10, 2011); and
• proposed controversial Section 503 regulations provoking contractor community concerns about burden, cost, usefulness and the wisdom of a 7% hiring quota for the Disabled, even while engendering support for doing something positive for the Disabled (December 9, 2011).

Throughout the year, OFCCP ran late (as every OFCCP Administration has before this one) on the “due dates” of its promised policy initiatives. This Administration is running much later and slower than prior Administrations (usually there is a 4-6 month lag between promised delivery date and actual delivery date in this Administration), primarily because it has bitten off so much to chew, it is (still) understaffed in Washington D.C. (in my view) and has many new employees still trying to discover how to navigate the truly and always confusing hallways of government. Thus, OFCCP also heralded in 2011 the following policy initiatives which did not occur in 2011, in fact, but which are nonetheless in the pipeline (and which I have not already discussed above):

• a promised Notice of Proposed Rulemaking updating OFCCP’s 34 year old construction contractor regulations (promised for publication in the Federal Register “by” November 2011—but still not published as of this writing);
• a promised revision (due in “the Fall” of 2011 and to be published “imminently”) to OFCCP’s venerable 1988 Compliance Manual (and its collection of dozens of pre-word processing/pre-Internet Directives—which today could be seamlessly edited into an on-Manual rather than to edit by accreting documents striking out selected pages and lines by reference to the 24 year old Manual); AND
• a promised revision (to be published “by” February 2012—meaning Summer, at best, 2012) Notice of Proposed Rulemaking updating OFCCP’s almost 40 year old sex discrimination regulations (which still do not make pregnancy discrimination unlawful).

All in all, 2011 was a very ambitious year for policy initiatives at OFCCP, as you can see from the above lists, and was the year of the single greatest change of OFCCP functioning in its history. OFCCP’s 2011 frenetic policy activity surpassed even the Carter Administration activity in the years following the October 1, 1978 “consolidation” of 11 federal agencies into the then “OFCC” (“Office of Federal Contract Compliance”) and forming what we today call the OFCCP (“Office of Federal Contract Compliance Programs”). What has been lost this year, however, is the trust and confidence many federal contractors had in OFCCP to announce policy changes transparently to them and to engage them in active debate about the pros and cons of proceeding in new directions—as each new OFCCP Director is wont to do. Contractors also were surprised that OFCCP continues to hold secret a June 4, 2010 Directive changing audits of Supply and Service contractors in a way which imposes great costs on them to defend the compensation paid to literally every employee in the contractor facility under audit. Both the stealth of the activity and the high costs ensuing from these new style “compensation drag-net” audits has very deeply troubled and offended the contractor community. On average, OFCCP’s compensation drag-net audits are now costing contractors on average between $30,000-$50,000 more to defend run-of-the-mill non-problematic audits than in the immediate past.

In addition, OFCCP’s “costs to comply” estimates for its VEVRAA and (recently) its Section 503 regulations have truly “ripped the fabric” of trust and credibility within the contractor community. Contractors have greeted with incredulity, fusing to anger and dismay, OFCCP’s cost estimates of $407 per contractor to comply with the proposed VEVRAA changes and $473 per contractor establishment to comply with OFCCP’s proposed Section 503 changes. I have rarely seen my e-mail server and Voicemail box fill up with as many inquiries from exercised contractors as they have in reaction to OFCCP’s publication of these projected compliance costs. The possible exception to that statement might have been the Clinton Administration’s efforts to impose the EO Survey on all contractors. Many contractors have concluded as a result of the vastly understated OFCCP compliance cost estimates that either OFCCP is just outright distorting the true costs or is terribly naïve about the true costs of private sector compliance. I think the explanation actually lies in a third direction: federal agencies, and OFCCP is no different, have grown accustomed over the last 20 years of feeding OMB pabulum cost figures acceptable to OMB in lieu of estimating true regulatory costs in the way that a cost accountant would measure them. And, for decades, this has sufficed. But now, in a challenged economy, contractors are not nearly so ready to just “look the other way” and accept uncritically the pabulum OFCCP is trying to feed the public. And adding fuel to that fire, contractors almost to a company, do not see the value of either set of proposed regulations. As a result, the exorbitant costs contractors have calculated to comply seem unnecessary and seem to be wasted money. More compelling proposals might have garnered OFCCP more tolerance on its costs, but the collision of high perceived costs in a down economy and proposals not compelling to address the challenge have left contractors in an ugly mood about OFCCP as the New Year dawns.

So, fasten your seat belts for another exciting year at OFCCP. The agency is not done yet with its ambitious policy agenda, as many 2011 initiatives will now go to final and other promised ones come (eventually) to fruition. And, it is an election year…which leads to some interesting timing.

PREDICTION 1: OFCCP will take the VEVRAA proposed regulations to final in the weeks before the November Presidential election.

PREDICTION 2: If President Obama loses in November, OFCCP will publish its Section 503 regulations in December. If The President wins re-election in November, OFCCP will relax, take its time and publish the Section 503 regulations in final in the winter of 2013 (and absent Republican control of both houses of Congress).

ENJOY the ride in 2012! Thanks. John

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