The Office of Federal Contract Compliance Programs (OFCCP) has made several announcements, including Directives, Notices, and Proposals in their quest to embark on initiatives that significantly impact federal contractors’ affirmative action obligations. These changes contemplate substantive changes to regulations and existing interpretations of the regulations but are cloaked in terminology such as “guidance” and a proposal to OMB to renew data collection. Many of these initiatives obligate regulated parties to undertake additional significant compliance burdens under the threat of enforcement actions. This blog post, part 1, will discuss two of the changes and the resulting challenges faced by federal contractors: 1) OFCCP’s new interpretation of federal contractors’ obligation to evaluate compensation systems as described in Directive 2022-01 and 2022-01 Revision 1, and 2) the contractor portal. Other changes will be addressed in Part 2 of this series.
The Administrative Procedure Act (APA) limits a federal agency’s right to force regulated parties to comply with substantive changes to regulations and new interpretations of existing rules without proper publication in the Federal Register, the provision of notice, the opportunity of the public to comment, and a delayed effective date. Despite the substantive changes imposed by the Directive 2022 and its Revision 1 as well as implications arising from the use of the Contractor Portal, OFCCP has not followed APA procedures.
The changes discussed below indicate more aggressive enforcement actions are intended. Consequently, federal contractors must determine how they will approach compliance in light of the OFCCP announcements and be prepared to challenge OFCCP overreach.
I. Directives 2022-01 and 2022 Revision 1: Evaluation of Compensation Systems under 60-3.17(b)(3)
In 2022, the OFCCP issued Directive 2022-01 and Directive 2022-01 Revision 1 regarding federal contractors’ obligation to evaluate compensation systems. The Directive and Revision 1 attempt to change OFCCP’s interpretation of the obligation to evaluate compensation systems under 41 CFR 60-3.17(b)(3) and shift enforcement to require “in-depth analyses” with a recommendation that a statistical analysis of a federal contractor’s compensation systems is prepared.
OFCCP Directives though are guidance to OFCCP staff and provide insight to federal contractors on enforcement policy, but a Directive lacks the force and effect of law and cannot bind regulated parties. Any substantive change in federal regulations or imposition of obligations arising from new interpretations of existing rules requires the rulemaking agency to comply with the rulemaking procedures delineated under the Administrative Procedure Act, before imposing new substantive obligations on regulated parties. OFCCP did not follow the APA’s rulemaking process of providing notice and an opportunity to comment and a delayed effective date regarding their new interpretation of the obligations imposed on federal contractors under 60-3.17(b)(3).
OFCCP’s position on contractor’s obligations under 60-3.17(b)(3)
Directive 2022-01 Revision 1 walked back some OFCCP assertions in Directive 2022-01. Specifically, OFCCP clarified that it “will not require production of attorney-client privileged communications or attorney work product.” However, OFCCP continues to assert that federal contractors are required under 60-3.17(b)(3) to prepare detailed “in-depth” compensation analyses to determine whether pay disparities exist and are based on gender, race or ethnicity as part of the AAP process. OFCCP provides a list of minimum documentation that contractors will be expected to provide in an audit:
1) the date the compensation analysis was completed;
2) the number of employees included, and the number and categories of employees excluded from the compensation analysis;
3) the forms of compensation analyzed and how different forms of compensation were separated or combined for analysis;
4) that compensation was analyzed by gender, race, and ethnicity; and
5) the method of analysis used to evaluate compensation.
The takeaways for federal contractors
- Contractors must engage in some process on an annual basis to evaluate their compensation systems to ensure that pay disparities are not based on gender, race or ethnicity. The type of evaluation should be determined by the contractor in consultation with their legal counsel.
- The laws and regulations do not require contractors to engage in in a sophisticated, detailed compensation analysis as described in OFCCP’s recent directives.
- In an audit, OFCCP appears determined to demand production of internal analyses the contractor conducted to evaluate its compensation systems to comply with OFCCP regulations.
- OFCCP is not entitled to privileged communications and work products.
- Contractors are within their right to contest OFCCP’s right to pay analyses without sufficient cause during an audit.
- Contractors should anticipate and be prepared to provide non-privileged documentation to support their evaluation of compensation systems.
II. OFCCP Supply and Service Contractor Portal
Beginning in 2022, OFCCP launched an “Affirmative Action Program Verification Interface” now referred to as the OFCCP Contractor Portal, through which federal service and supply contractors and subcontractors must register and certify on an annual basis Affirmative Action Plan (AAP) compliance for each establishment or functional business unit. Directive 2202-02, states “…when contractors use OFCCP’s Contractor Portal, they are certifying that they are developing and maintaining complete AAPs.” As Directive 2022-02 makes abundantly clear, the Contractor Portal aids the OFCCP in its enforcement actions.
Elimination of extensions to comply with Itemized Listing in a compliance audit
According to Directive 2202-02, since federal contractors must annually certify the development of complete AAPs with supporting data through the Contractor Portal, in the event of a compliance audit, OFCCP will no longer grant extensions to the 30-day deadline as it had in the past. Instead, OFCCP will only provide contractors with 30 days to submit AAPs and all itemized listing data contained in the Supply and Service Scheduling Letter and Itemized Listing. (More on OFCCP’s Proposed Changes to Supply and Service Contractor’s Scheduling Letter in Part II of the blog series.) Extensions of time will only be granted for “extraordinary circumstances” which include extended medical absences of or death in the immediate family of key personnel, and disasters affecting company records such as flood, fire or computer virus.
Elimination of delay in scheduling audits for contractors identified in CSAL
Similarly, Directive 2022-02 also dispenses with the practice under Directive 2018-08 to delay scheduling, for a period of 45 days, audits for contractors who are identified in the OFCCP Corporate Scheduling Announcement List (CSAL) as selected to undergo a compliance audit. Instead, OFCCP may begin scheduling contractors upon publication of the CSAL.
Targeting of contractors who fail to certify in Contractor Portal
It also is clear that contractors that fail to certify in the Contractor Portal have been targeted for audit. On January 20, 2023, OFCCP released the CSAL list. In its “Methodology for Developing the Supply & Service Scheduling List” OFCCP disclosed that “ For this scheduling list, OFCCP selected federal contractors and subcontractors that were required to maintain an Affirmative Action Program (AAP) but did not complete their mandatory annual certification in the OFCCP Contractor Portal as of December 1, 2022. OFCCP created this list by downloading federal contracts valued at $50,000 or more from the USA spending database. OFCCP further refined this list by retaining contractor and subcontractor establishments with at least 200 employees…”
The requirement to certify via the Contractor Portal with the imposition of an enforcement action as a penalty for failing to certify within the prescribed time period and the added burdens imposed on contractors to provide documentation constitute significant burdens under the threat of enforcement actions. Expect to see legal challenges to OFCCP’s authority to impose such sanctions without engaging in rulemaking as required by the APA. In the meantime, contractors should prepare and maintain AAPs in accordance with OFCCP regulations.
As a reminder for 2023, we anticipate that similar to last year, access to the Contractor Portal to certify compliance will begin on March 31, with a certification deadline of June 30th.