U.S. Chamber Comments on FAR Council Pay Transparency Rule

April 1, 2024

Mr. William F. Clark, Director
Office of Government-wide Acquisition Policy
Office of Acquisition Policy
Office of Government-wide Policy

Office of Federal Procurement Policy

Federal Acquisition Regulatory Council

By electronic submission: www.regulations.gov

Re: Office of Federal Procurement Policy; Federal Acquisition Regulation: Pay Equity and Transparency in Federal Contracting; Proposed Rule; FAR Case 2023-021; Docket No. FAR-2023-021; Sequence No. 1; 89 Fed. Reg. 5843, (January 30, 2024)

Dear Mr.Clark, theOffice of Federal Procurement Policy,and theFederal Acquisition Regulatory Council:

The U.S. Chamber is dedicated to promoting, protecting, and defending America's free enterprise system.Our membership includes many of the largest companies in the country, most of which are involved in federal contracting and would therefore be affected by this Proposed Rule.In addition, more than 96 percent of Chambermember companies have fewer than100 employees, and a significant number of these members also participate in federal contracts.

The Chamber has a long history of supporting equal pay¹and unequivocally believes that employees with similar qualifications and roles are to be paid equally. However, the Proposed Rule exceeds statutory authority, conflicts with various well­ established contractingrequirements, and would not benefit employees.For these andother reasons detailed below,theChamber believestheProposed Rulemust be withdrawn.If it proceeds, it must be substantially revised to cure the many flaws identified herein.

I. Summary of Proposed Rule

TheFAR Councilissued aproposed ruleentitled "PayEquity andTransparency in Federal Contracting" ("Proposed Rule") onJanuary 30, 2024.The Proposed Rule would:

1. prohibit contractors and subcontractors from seeking and considering information about job applicants' compensation history when making employment decisions about personnel working on or in connection with a government contract; and
2. require contractors and subcontractors to disclose, in all advertisements for job openings involving work on or in connection with a government contract placed by or on behalf of the contractor or subcontractor, the compensation to be offered to the hired applicant, for any position to perform work on or in connection with the contract.

89 Fed. Reg. 5843.The Proposed Rule also requires contractors and subcontractors toprovide toapplicantsa"notificationofrights"thatis more than 275wordsand would have tobe tailored to each job opening.Contractors and subcontractors would berequired,undertheProposedRule, tobeprovidethelengthynotification,in writing, in each and every "job announcement"or "applicationprocess."

II. The Proposed Rule Exceeds the Government's Authority Under the Procurement Act

This Proposed Ruleexceeds thegovernment's authority under the Procurement Act because the FAR Council's pursuit of goals beyond economic and efficient contractingexceeds itslegal authority.While the FAR Councilcan promulgate specific, output-related standards to help ensure that the government acquires the goods and services it needs at appropriate prices,the FAR Council has no authority to use government contracts as a vehicle for furthering social policies, or as a backdoor way for the administration to achieve throughfederalcontractingpolicies whatit cannot get enacted through Congress.The FAR Council's attempt to do that here not only exceeds the FAR Council's statutory authorization, but also raises significant Constitutional questions.

The Procurement Act authorizes the President to "prescribe policies and directives...necessary to carry out" the ProcurementAct, i.e., to direct the procurementagencies tomake the federal contractingsystem "less duplicative and inefficient."Kentucky v. Biden, 57 F.4th 545, 553 (6th Cir. 2023) (internal quotation marks and citation omitted).While the President is charged with managing federal contractingto advanceeconomyand efficiency, the ProcurementAct doesnot give the President unfettered discretion to use federal procurement to advance unrelated policygoals.SeeLouisianav.Biden,55F.4th1017,1023n.17(5th Cir.2022)(observing that "the statementofpurpose acts as a set of guidelineswithin which" any policies directed by an executive order "must reside"); accord Am. Fed'n of Lab.&Cong. of Indus.Org.v.Kahn,618 F.2d784,793 (D.C.Cir.1979) (stating the ProcurementAct is not a "blank checkforthePresidenttofill inathis will").

ThegoalsofthisProposedRulearenotwithintheauthorityprovidedbythe ProcurementAct.Inshort,theFARCouncillacksstatutoryauthorizationtopursue antidiscriminationgoals,nomatterhowlaudabletheymaybe,throughmechanisms suchastheProposedRule.And,thegoaloftheProposedRuleisclear:topromote pay equity and "demonstrate a commitment to fairness" for contractors' employees, in accordancewithExecutiveOrder(E.O.)14069.ThatExecutiveOrder,perthe ProposedRule,"established anadministrationpolicyofeliminating discriminatory paypractices"amongstFederalcontractors.PayEquityandTransparencyinFederal Contracting,89Fed.Reg.5843,5844(Jan.30,2024).

While the FAR Council presents several explanations for how this Proposed Rule may promote efficiency and economy, none hold water.First, the FAR Council emphasizes that salary range disclosures may help workers negotiate, positing that this "may reduce the costs for Federal contracting."Id.at 5848.Notably, the FAR Council does not explain how this supposed additional negotiating power would reducecosts to the government.Second, the FAR Council asserts that salary range disclosures "may lower recruiting costs" and notes that applicants are more likely to respond to job advertisements containinga salary range.Id.But, again, the FAR Council does not connect this to increased economy or efficiency.Indeed, if these practices truly did lower recruiting costs, data would suggest that businesses would have voluntarily implemented them, but that has not been the case.

TheProposedRulealsoraisesConstitutionalconsiderations.Inadditiontothe ProcurementAct,PresidentBidenreliedon"theauthorityvestedinmeasPresident bytheConstitution" tojustifyExecutiveOrder14069.But,theOrder(andthe requirementsresultingfromtheFinalRule)findnosupportinthePresident'sinherent authorityunderArticleIIof theU.S.Constitution, andthusarealsoin violationof Article II.As established by Article II,the function of the President is-through his subordinate officers andagencies-to execute the dulyenacted laws of the United States.ThePresidenthasbroadinherentauthoritytomanagethefunctioning ofthe ExecutiveBranchandcarryouttheotherfunctionsassignedtotheOfficebyArticleII, suchascommandingthearmedforcesandengaging ininternational diplomacy.But inexecuting the lawsenacted byCongress,the Executive Branch-includingthe President-isnecessarilycabinedby what those laws say.Put plainly, Article II does not grant the President authority to execute the laws in a manner not authorized by those laws.SeeYoungstown Sheet &Tubev.Sawyer, 343 U.S.579, 635-40 (1952) (Jackson, J., concurring).

This Proposed Ruleexceeds thegovernment's authority under theProcurement Act and the Constitution.The FAR Council'sjustifications for how itcould be shoehorned into that authority do not salvage the Proposed Rule.

III. Government Contracts Considerations

A. The Proposed Rule Conflicts with Other Federal Requirements Regarding Consideration of Compensation History

Despiteits laudablegoals,theProposedRulewillhaveasignificant detrimentaleffectongovernmentcontractorsandsubcontractors.Mostimportantly, if implemented, the Proposed Rule will put contractors and subcontractorsin a no-win situation by forcing them to choose between complyingwith conflictingrequirements. Primaryamongthese conflictingrequirementsare the provisionsofFederal Acquisition Regulation (FAR) 52.222-46, Evaluation of Professional Employee Compensation.

As the Court of FederalClaims has noted, the provisionsofFAR 52.222-46 were"designedtomirrorthoseaffordedtootherworkersunder the McNamara­ O'Hara Service Contract Act (SCA), 41U.S.C. § 6702(a)."Sparksoft Corp. v.United States,141Fed.Cl.609, 624(2019) (quotingCRAssociates,Inc.v.United States, 95 Fed.Cl.357,369-70 (2010)) (cleaned up).Because of theFederal Government's tremendous purchasingpower, federal government contractors and subcontractors face unique challenges as compared to commercial contractors.As the Government has long recognized, theSCA(and byextension,theprovisions of FAR 52.222-46) are "intended to protect Governmentcontractor employees from 'wage busting,"' which is the practice of "lowering employee wages and fringe benefits by incumbent or successorcontractors, in an effort to become the low bidders or offerors on Governmentservice contracts, when the employees continue to perform the same jobs."GAO, Statement of R. Keller, Deputy Comptroller General of the United States Before the Subcommittee on Federal Spending Practices and Open Government, Senate Committee onGovernmental Affairs on the Office of Federal Procurement Policy, March 2,1979.²Thatis, becauseof the federal government'spurchasing power (as the world's largest purchaser), employees working for federal contractors - particularly those currentlyperformingon incumbentcontracts -were too often faced with situations in which their wage rates were suppressed by companies vying to takeoversuccessorcontractsby offeringa lowercontractprice to the government.

SeeSparksoft Corp.,141Fed.Cl.at 624.FAR 52.222-46 specifically calls out these dangers: "[r]ecompetitionof service contracts may in some cases result in lowering the compensation (salaries and fringe benefits) paid or furnished professional employees.This lowering can be detrimental in obtaining the quality of professional services needed for adequate contract performance."FAR 52.222-46(a).

In connectionwith achievingitsgoal ofprotectingemployeesofcontractors and ensuring that the government continues to obtain high quality work, FAR 52.222- 46 specificallyenvisions that contractorswill considera job applicant's compensation history in determining their prospective compensation.In this regard, FAR 52.222- 46(b) cautions contractors that "compensation levels lower than those of predecessor contractors for the same work will be evaluated on the basis of maintainingprogram continuity, uninterruptedhigh-quality work, and availability of required competent professionalservice employees."The provisionwarns that "Offerorsare cautioned that lowered compensation for essentially the same professionalwork may indicate lack of sound managementjudgmentand lack of understandingof the requirement." Id.

In many procurements, this will require contractors to consider the incumbent compensation paid to specific job applicants.This is because many procurements instruct offerors to identify "Key Personnel" in their proposals, i.e., named individuals who will serve in key positions under the contract.Frequently, multiple contractors competingin a procurementwill propose the same individual for a position-often the individual currently in that position under the incumbent contract.Pursuant toFAR 52.222-46, companies in that situation will be required to consider the individual's compensation under the predecessorcontract.If they fail to considerthe applicant's incumbent compensation when setting the applicant's compensation, their proposals could be downgraded or eliminated from the procurement.If the Proposed Rule were enacted,contractorswouldviolatetheProposedRuleby complyingwith thisaspect of FAR 52.222-46 -a result the FAR Council has apparently not considered.

Indeed,insomesituations,theGovernment couldfinditself participating in andencouragingviolationoftheProposedRule.Specifically,theProposedRule prohibits not only "soliciting" butalso "considering" information regarding compensation history.Withrespecttoincumbent "keypersonnel" identifiedina contractor'sproposal,oftentheGovernmentwillconducta"costrealism"analysisof contractorproposalstodeterminewhetherspecificcostelementsarerealisticforthe worktobeperformed.Inconnectionwithsuchananalysis,theGovernment may engage in"discussions" inwhichit informsofferorsofanyconcerns withrespect to therealismoftheircostelements.Withrespecttotherealismofakeyindividual's compensation, suchcommunicationsoftenincludeinformation regarding the compensation historyforthepositionundertheincumbent contract.Inthecommon situationinwhichanofferor hasproposedto retainthesameindividualinthekey position, theGovernment's discussions could result in a requirement that the companyconsiderthe compensationhistory ofan applicantfor the position.

Although the conflict with the provisions of FAR 52.222-46 may be the most glaring,this isnot theonlyprovisionwithwhichtheProposedRuleconflicts.The DOL final rule implementingExecutive Order (E.O.) 14055, Nondisplacement of Qualified Workers under Service Contracts (and any forthcomingFAR provisions implementingthe corresponding requirements) requires contractors to give service employeesfrom a predecessorcontracta bona fide right of first refusal for employment under new Service Contract Act (SCA)-coveredcontracts, contract-like instruments, or subcontracts for the same or similar work. These bona fide offers to serviceemployees-asdefinedby the SCA-mustbemadebeforethecontractor makes offers to other workers.Importantly, in order for an offer to be "bona fide," different employment terms and conditions may not be offered to discourage the employeefromacceptingtheoffer.Thisincludesofferswith changestopay, benefits, or terms and conditions.This provision inherently requires contractors to considerapplicants'compensation history when crafting an offer to ensure that the offer can beconsidered "bona fide."Assuch,similar to the provisions of FAR 52.222- 46, contractors are required to consider compensation history in order to comply with these government contracting provisions.

Federal contractors should not be putin the position of having to choose with which legal requirementthey will comply, when complyingwith one will result in violating the other.Moreover, requiringfederal contractors to comply with this ProposedRulewill exposethem tosignificantrisk that, in the eventthey are awarded a contract, theywill be subjecttoa bid protestallegingthat they failed to complywith the provisions requiring consideration of compensation history.

B. The Proposed Rule Is Inconsistent with Hiring Requirements under DOL's PERM Program

Many Chambermemberswho participate in federal contractingare also covered by immigration law requirements. This proposed rule is inconsistent with the permanentlabor certification program (or PERM) run by the U.S. Departmentof Labor's Employmentand Training Administration(ETA).³ This proposed rule has two conflicts. First, the PERMregulationsdo not require that a pay range be includedin Job Postings.Second, when including a pay range on Labor Market Testing Job Postings, the PERM regulations require employers to obtain and utilize the "prevailing wage",⁴ which can and often does vary from the "good faith" estimate of wages the employerbelieveswill be paid for the position under this proposedregulation.89 Fed.Reg.5852-53. Accordingly, we request thatJob Advertisementsfor the PERM LaborMarket testingbe explicitly excluded from the final rule.

C. The Proposed Rule Will Have a Detrimental Impact on Employees of Federal Contractors and Subcontractors

Inaddition toconflicting withtheterms of various provisions governing the conduct of contractors and subcontractors, the Proposed Rule also will likely have the oppositeeffectonemployeesfromthatintended.TheProposedRulenotesthatone ofthegoalsoftheruleistohelp"workersfeelthattheyarevaluedandtheirpayis fair."ThenarrativeaccompanyingtheProposedRuleclaimsthatcompensation historybanshavebeenfoundto"reducepaygapsthatdisadvantagecertain populations,includingwomen,workersofcolorandworkersenteringthelabormarket duringrecessions."89Fed.Reg.at5843.However,thisstatementfailstoconsider thesignificant differences betweenprivateindustryandgovernmentcontracting.As discussedabove,employeesofgovernmentcontractorsareinauniquesituationthat isnotcomparabletoemployeesinprivateindustry.Commonlyingovernment contracting,companiesarerequiredtore-competefortheirworkeveryfiveyears. Often, a company's contract with the government is awarded to a different contractor, and the employees who had been working on the contract suddenly find themselves jobless.Such employees are then atthe mercy of the newly-awarded contractor: their position with their former employerhas been eliminatedand they are given the option of either becomingunemployed, or acceptingwhatever compensation the new awardee offers them.

Provisions such as FAR 52.222-46 and E.O.14055 serve to protect employees of governmentcontractors from the unfair loweringof their wages.Unlike in private industry, the considerationof an applicant's compensationhistory is required in order toprotect the employee from the disadvantagesthey will suffer if"wage busting" is permitted to occur.Employees of government contractors therefore benefit from provisions such as FAR 52.222-46and E.O.14055, which mandate the consideration ofan applicant's compensationhistory when settingtheir compensation.

In short, the justification for the Proposed Rule rests upon the incorrect assumptionthat strategies effective in private industrywill be similarlyeffectivein the realmofgovernmentcontracting.However,thisassumptionfailsto considerthe manycomplexitiesandinfluencesuniquetogovernmentcontractingthatinvalidate the justificationforthe ProposedRule.As aresult, we urge the FARCouncilto removetheprohibitionon solicitingor consideringcompensationhistory,as this aspect of the rule will do more harm than good to governmentcontractoremployees.

D. The Proposed Rule Will Have a Detrimental Impact on the Government's Ability to Retain an Experienced Workforce and Receive Informed and Realistic Proposals

In the normal course of re-competitions for government contracts, particularly those for which the services are performed on government facilities, the government expects benefits from the experienced workforce remaining with the contract, regardless of any change in the prime contractor.This retention of knowledge and expertise, as well as the continuity of personnel, is highly valued and incentivized through evaluationcriteria in most solicitations.This is all the more essential for service contracts at government bases and facilities in remote locations.The Proposed Rule would have theunintended likely consequence of removing essential knowledge andconsideration of the minimum compensation levels necessary for the government to maintain its skilled contractor workforce.

Further, the governmentbenefits from competitions based on informed and realistic proposals.Proposals developed without insight into compensation history essential to retain and maintain a workforce poses both evaluation and performance risks for the government.Unrealistic proposals may require elimination, thereby reducingthe beneficialeffects ofcompetition.And, dependingon the cost structure of the contract, either the contractoror the governmentwill shoulder the added cost burdens of the minimum levels of compensation necessary to continue effective contract performance.

These detrimental impacts directly counter the purported efficiencies and benefits promised by the Proposed Rule.

IV. Key Provisions of the Proposed Rule Are Flawed

Just as the Proposed Rule ignores competing and conflicting regulations imposed on government contractors, the Proposed Rule ignores other important realities of the hiring process for governmentcontractors and subcontractors and fails to provide sufficient clarity as tocertain requirements.

A. The Proposed Rule Fails to Account for Common Practices in Acquisitions

The Proposed Rule, as drafted, applies an across-the-board rule that would prohibit contractorsand subcontractors from "considering"compensationhistory when setting the pay of employees who perform work in connection with a covered contract.The Proposed Rule makes noexception for instances in which a contractor ("Buyer") is acquiring another entity ("Seller") via a corporate transaction.In that context, the Buyer routinely receives, as part of the due diligence process, compensationdata relatingto the Seller's employees.The Buyer then typically will make offers of employment to theSeller's employees at their existing wage rates. This practice would,under the Proposed Rule, beunlawful.Totheextent theFAR Council proceeds with the Proposed Rule, it should specifically exempt from the requirementsinstances in which the contractor or subcontractoris relying on compensation data provided by another entity in the context of a corporate transaction.

B. The Proposed Rule Fails to Account for Common Practices Involving Deferred Compensation

The FAR Council ignores a second common practice that would be deemed unlawfulunderthe ProposedRule: the practicewherebya contractormakes an offer to an employee of another contractor and takes into account deferred and/or unpaid compensation from that employee's current employer. Many corporations provide deferred compensation to employees, either in the form of stock awards that vest over a period of time or deferredmonetarybonuses paid at the end ofa performance period.When employees with unvested stock awards or as-yet-unpaidperformance bonuses areconsidering moving to another employer, the prospective employer often asks about (or the employee volunteers) any such elements of pay and then the prospective employer "buys out" those amounts as part of its offer to theemployee, to ensure theemployee does not lose sucheconomicrewards.That practice, too, would be unlawfulunder the ProposedRule.To the extent the FAR Councilproceedswith the Proposed Rule, it should specifically exempt this common practice from the prohibitions of the Proposed Rule.

C. Extending the Salary Range Posting Requirements to All Who Will Perform Work "in Connection With" a Covered Contract Is Impractical

TheProposedRulewouldrequirecontractorsandsubcontractorstoprovide salaryrangeinformation toapplicants foranyrolethatperformswork"onorin connection with" a covered contract. 89 Fed. Reg. at 5850. This requirement appears to draw upon Executive Order 13706 and its implementing rule, issued in 2016, requiringprovisionofpaidsickleavebycontractorstoemployeeswhoperformwork "onorinconnectionwith"acoveredcontract.TheProposedRuledefines"workonor in connection withthecontract" as"workcalledfor bythecontract or workactivities necessary to theperformance ofthecontract butnotspecificallycalledfor bythe contract."89Fed.Reg. at 5853.

Extending the salary range posting requirements to all positions that perform work "on or inconnectionwith" a coveredcontractis impracticalfor two reasons. First, unlike the paid sick leave requirements, which pertain to existing employees whom the contractorknows are (or are not) performingwork on a federal contract, the ProposedRule assumes that employers will know, when postinga position, whether the selectedapplicantwill perform workon a federalcontract.That assumptionis false.For instance, many federal contractorspost roles that will be filled by college students upon graduation -an event that may be months or even years away.Those contractors do not know, when posting the position, precisely what team the selected individualmaybe assignedtoand the workhe or shemayperform.Forinstance, large technology companies hire hundreds of software developers each year, straight from college. They often make job offers after a summerinternship or in the fall of the applicant's senior year-a year or more before the individual may start work.Thosetechnology companies, at the time they make the offer, do not know which part of the business the new hire may join, much less whether the new hire will perform work that supports purely commercial parts of the business or government contractingparts of thebusiness.Simplyput,incorporatingintothepre-hire/recruitingcontexta coverage concept -those who "work on...a contract" -that was developedand utilized as to existing employees is flawed and unworkable.

Second, extending coverage to posting for roles that perform work "in connection with" a covered contract, as that term is currently defined, is likewise unworkable.Simply definingthe phrase "or in connection with" to mean "work activities necessary to the performanceof the contract" -without any further explanation -is unhelpful and creates unmanageable ambiguity.For instance, the Proposed Rule fails to explain whether indirect support such as Human Resources, Finance, or Legal personnel who provide advice andsupportto employees performing work on a contract are engagedin "work activities necessary to the performance of" the contract.Indeed, this definition leaves wholly unclear whether overhead or "back office" functions,which may, on occasion, touch on the covered contract or just supportthe operationsofthe companyallowingittofulfill the governmentcontract, fall within the scope of the Proposed Rule.

If this rule moves forward, it should follow the approach taken in the implementingregulationforE.O.14026 for the federalcontractorminimumwage whichexcludesworkerswhospendlessthan20percentoftheirworkweek performing in connection with the governmentcontract from being covered.Doing so would allow most managementand administrative positions tobe excludedand provide some amountof clarity to how to implement this regulation.

D. The Required "Notice of Rights" Provision Is Overly Burdensome

The Proposed Rule requires that covered applicants be given notice of the Rule's provisions and includes required notification language that is more than 275 words long.This extensive and mandatory notification language is unnecessarily burdensome, due both to its length and mandated specificity.The notification languageincludesnot justnotice ofthe prior-salaryprohibitionsand compensation disclosure requirements, but also a lengthy description of how to file a complaint. ComplyingwiththenotificationprovisionoftheProposedRulewillrequire contractorsto craft individualized notices specifictoeach coveredposition because thecomplaintproceduresectionmustinclude"[t]heagencythatissuedthe solicitationor awarded the contract or order on which this applicant would primarily work."Thisrequirescontractorsto identify, in each notice, anywherefrom one to thirty-eight (38) different federal agencies, dependingupon what contracts the particular position may support.This is untenable because, as explained above, a contractormay not know at the time of recruitmentwhat contract or agency a role will support, or a position could support work for multiple agencies.Indeed, because the Rule coversnotjustpositionsdirectlyassignedtoacontract,but alsoroles"working in connection with" a contract, a back-officeposition potentially covered by the ProposedRule may support contracts in dozens of agencies,requiringthe contractor to include a laundry list of agencies in each postingfor such roles.

Furthermore,thenotificationincludeslanguageregardinghowan applicant can submit a discrimination complaint to the Office of Federal Contract Compliance Programs (OFCCP), thus addressing discrimination complaints not covered by the Proposed Rule and notification to an agency that otherwise has no connection to the Proposed Rule.This additional language is wholly unnecessary.The "Know YourRights: Workplace Discrimination is Illegal" poster that must be provided to all applicants already details how an applicant or employee can file a complaintwith the OFCCP.There isno need to shoehorn suchnotice intothisProposed Rule as well.To the extent the FAR Council continues to include a notice provision, itshould be succinct and genericso that contractorscan more easily incorporate it into their job postingsor applicationprocess.At aminimum,anyrevisednoticeprovision should not include the identification ofthe agency that issuedthe solicitationor awarded the contract.

E. The Complaint Process Does Not Protect a Contractor's Due Process Rights

The process for an applicanttofile a complaintmentionedin the required notice and further described in proposed FAR Subpart 22.XX03 provides no opportunity for a contractor to object or have any due process rights.The procedure spelled out in FAR Subpart 22.XX03(b)(1) ismerely that "...thecontracting agency will review the complaint, consult with the complainant as necessary to confirm the complainantis a covered applicant and take action as appropriate."89 Fed, Reg. 5852.There is no provision for the contractor alleged to have committed a violation to respond or provide an explanation,nor is the contractingagency directed to consult withthe contractor.Asthese comments have made clear, provisions of this Proposed Rule conflictwith already existingcontractingrequirements.A contractoraccusedof a violation(s) must have anopportunity to present their views and their due process rights must be protected.

Furthermore, contractors should not be held liable for the way the contractor's job postingsare postedby third party websites such as Indeed, LinkedIn, etc. Chamber members have reported that they have often seen third party job posters scrape info from their company job postings website, and selectively edit or otherwise misrepresentjob openinginformationwhen postingthe openingon their own websites. Contractors ought not be held accountable for how independent job search websites handle their information.

F. The FAR Council's Failure to Define Subcontractor Creates Further Uncertainty for Employers

TheProposedRuleappliesnotonlytoprimecontractors, buttoall "subcontractors,"regardlessoftier.However,"subcontractor"isnotadefinedterm, creatingfurtherconfusionforemployersregardingtheProposedRule'sapplication. Theterms"subcontract"and"subcontractor"appearinmultipleFARprovisionsand aredefinedinmanydifferentsubparts.CombiningtheCodeofFederalRegulations andtheU.S.Code,therearemorethan50definitionsofthoseterms.⁵ TheFAR Council's failuretoevendefinetheterm"subcontractor"hereleavescontractors withoutanyideaofwhichdown-streamarrangementsmaybeconsidered "subcontracts."Indeed,eachagencymayhaveitsowndefinition.

FAR Subpart 44,SubcontractingPolicies and Procedures, defines a "subcontract" as follows:

[A]ny contract, as defined in FAR subpart 2.1, entered into by a subcontractor to furnish supplies or services for performance of the prime contract or a subcontract. It includes, but is not limited to, purchase orders, and changes and modifications to purchase orders; FAR 44.101.

That same provision defines a "subcontractor" as "any supplier, distributor, vendor, or firmthatfurnishessupplies orservices to orforaprimecontractor oranother subcontractor."Id.

Anotherdefinition,inFARSubpart 19.7,TheSmallBusinessSubcontracting Pragram,definesa "subcontract" asfollows:

[A]ny agreement (other than one involving an employer-employee relationship) entered into by a Government prime contractor or subcontractor calling for supplies and/or services required for performance of the contract, contract modification, or subcontract. FAR 19.701.

Moreover,eventhesetwooutofmanyexamplesofFAR-baseddefinitionsarequite different thanthewaytheOFCCP defines a"subcontract":

[A]ny agreement or arrangement between a contractor and any person (in which the parties do not stand in the relationship of an employer and an employee) (i) For the purchase, sale or use of personal property or nonpersonal services which, in whole or in part, is necessary to the performance of any one or more contracts; or (ii) Under which any portion of the contractor's obligation under any one or more contracts is performed, undertaken, or assumed. 41 C.F.R. § 60-1.3.

Not only are the definitions different, but the OFCCP also exempts from its subcontract definition "an agreement between a health care provider and a health organization under which the health care provider agrees to provide health care servicesorsuppliestonaturalpersonswhoarebeneficiariesunderTRICARE."Id.

Otherexisting definitions of theterm "subcontract" do not contain suchan exemption.Are such TRICAREagreementscoveredby this ProposedRule?The uncertaintycausedbythelackofanydefinitionherecreatesconfusionandwilllikely generateinconsistentapplicationoftheterm.IftheFARCouncilproceedswiththe Proposed Rule,it shouldspecificallydefinetheterms"subcontract" and "subcontractor"inamanner thatiseasily understood bycontractors and subcontractors.

G. The Proposed Rule's Definition of Compensation, to Include Particular "Benefits," Is Overly Broad and Ambiguous

The Proposed Rule requires that contractors not only provide salary information in every job posting, but also "a general description of the benefits and other forms of compensation applicable to the job opportunity.""Benefits" is undefined in the Proposed Rule and could cover anything from health insurance to childcare subsidies, tofreedrinksinthebreakroom.Thisambiguitywillyieldinconsistentpractices across contractors that will only serve toconfuse, rather than better inform, job applicants.Furthermore, the Proposed Rule's extremely broad definition of "compensation" includesnotonly"benefits"butalso"vacationandholidaypay," "stockoptionsandawards,""profitsharing, andretirement."Requiringcontractorsto includeinformationregarding theseelementsineveryjobposting wouldbeunduly burdensome.Moreimportantly, requiring contractorstoincludeinformation regarding theseelementsofcompensationdoesnothingtofurtherthepurported intentoftheProposedRuletoreducepayinequitiesbecausesuchbenefitstypically donotdifferfromemployeetoemployeewithinarole.Rather,thesebenefitsare typicallyofferedacrossthecompanyor,atleast,toeveryoneinaparticularposition. Assuch,thesecomponentsarenotdrivinganypaydisparities,andthereisnoneedto detailallofthemineveryjobpostinginordertoachievetheProposedRule'sstated goal.ShouldtheFARCouncilproceedwiththeProposedRule,"compensation" shouldbemorenarrowlytailoredtoincludeonlybasepay,notbenefits.

Inaddition,therearemanyfactorsthatgointopayandbenefits,and strategically,theremaybereasonswhyabusinessneedstowaittosharepay informationaboutapositionuntilthemoststrategic opportunitytodosoduring the recruitingprocess.Theproposedruletakesawaythisbusinessjudgmentandforces anemployer to sharepayinformationatapresettimethatfailstoaccount forthe nuancesof recruiting andexecutionof businessstrategy.

H. The Obligation to Detail Predicted Commission, Bonus and Overtime Pay in Every Job Posting Is Unwarranted

The Proposed Rule further requires that "[w]here at least half of the expected compensation for the advertised position is derived from commissions, bonuses, and/or overtime pay, the Contractor must specify the percentage of overall compensation or dollar amount, or ranges thereof, for each form of compensation, as applicable,that it in good faith believeswill be paid for the advertisedposition."This requirement is simply untenable for most positions.

First, many of these elements are unknown at the time a position is advertised. How muchasalesperson willearnin commissions may bewholly or largely dependent upon how much they sell or theterritory to which they are ultimatelyassigned. Overtime pay could be minimal or a significant portion of an employee's compensation depending upon how much overtime theyare able to work.⁶Bonuses may be based in whole or in part on company performance or other factors that are likely unknown at the time of hire. Employers cannot realistically be expected to be able to estimate all these elementsat the beginningof the recruitmentprocess.

Second, these elements of pay are often not discretionary,but rather are either mandated by law(e.g.,the FLSA requires payment of time and a half for overtime), or formulaically applied (e.g., commissionsor bonuses paid pursuant to an established commission or bonus plan applicable to all incumbents in a role).Similar to the benefits discussed above, these elements of compensation are not based on subjective decision making and are not the genesis of pay disparities.As such, includingthem in the ProposedRule does not further the FAR Council's stated goal.

Third, the Proposed Rule does not include any exception for job postings for senior leadershippositions.The bonus structure for such positions is often highly confidential and propriety information.Such bonuses are also usually highly individualized and may include components such as deferred compensation, as discussed above.It isunreasonable to expect contractors to be able to quantify these amounts in each job posting.

Forallthesereasons,totheextenttheFARCouncilproceedswith the ProposedRule,"compensation"shouldbelimitedtobasepay.

I. The Proposed "Severability" Provision Is Meaningless

In Section VI, the FAR Council claims that "both the proposed compensation history ban and compensation disclosure requirement, separately and independently," wouldpromoteefficiencyin theprocurementprocessand, on thatbasis, assertsthat "if any portion of the proposed policy or implementingrule were held to be invalid or unenforceable ...that portion shall be severable from the remainderof the policy or rule."89 Fed. Reg. at 5849-50.The FARCouncilshoulddelete thatprovision from any Final Rulebecause severabilityis a questionfor the courts, not the FARCouncil, to decide, nor would any court be bound by a FAR Council declaration.

V. The "Identified Costs" for this Proposed Rule Are Fatally Flawed 

The "Identified Costs" for this Proposed Rule used to underpin the Paperwork Reduction Act analysis are based on faulty assumptions regarding the time contractors will spend ensuring compliance, the wage rates of the individual employeeswho will need to dedicate that time, and the repeat nature of the efforts that contractorsmust undertake.They also do not account for the time contractors will need to spend de-tangling this Proposed Rule's requirements with the requirements of other, conflicting provisions.

A. The Identified Costs Do Not Account for Time Spent Attempting to Reconcile the Rule with Conflicting Provisions

As discussed in Section Illabove, there are multiple situations in which the requirementsofthe ProposedRule could create a directconflictwith the requirements of FAR 52.222-46 and E.O.14055.Contractors and subcontractors will berequired to analyze thesecompeting provisions onacase-by-case basisto assess theextenttowhicheachindividualsituationcreatesaconflictbetweenthe Proposed Rule and one or more other provisions applicable to government contractors.This analysis could include obtaining the advice and assistance of counsel with respect to navigating the conflictingprovisions, and would likely also require the involvement of company executives who will be required to make business decisions regarding the provisionswith which the company will comply, in situationswhere itis impossible to comply with both.

In situations where a new contractor is preparing a proposal in hopes of winninga follow-oncontract, the contractorwill be requiredtoconsultwith counsel todeterminehow, andtowhatextentitmay-ormust-seekto recruitincumbent employees, and howtodo so while stillcomplyingwiththe Proposed Rule as well as conflicting provisions of FAR 52.222-46 and E.O.14055.

Afteraward,contractorsmayfacethesignificantadditionalcostsoflitigation in situations where the company's award is challengedon the basis of itsdecision to comply with the ProposedRule and failure to comply with FAR 52.222-46.Indeed, even if the contractor has found a way to navigate both provisions to allow for simultaneous compliance, other disappointed offerors are likely to nevertheless raise protests alleging anapparent failure to comply with FAR 52.222-46 based solely upon the facialconflictbetweenthe two provisions.In such situations, the costsof defendingagainst such a protest could be well over $100,000 per procurement.Such costswillberecurring,aseachprocurementwillinvolveadifferentsetoffactsand will provide anotheropportunity for a competitorto raise these arguments.On this basis alone, the significant costs imposed by this proposed rule cannot be considered reasonable.

B. Estimated Hours Estimates Are Unrealistic

TheProposedRuleestimatesthateachActiveSAMRegistrant⁷willspend one (1) hour "on general familiarization with the rule," two (2) hours on "review and modification of policies," and "three (3) hours on "preparation and training."89 Fed. Reg. at 5848-49.In short, the FAR Council estimates that contractors will spend a total ofjust six (6) hours complyingwith the requirementsofthe ProposedRule.Id.

These estimates grossly underestimate thetime contractors will need to spend preparingfor, and ensuringon a go-forward basis, compliancewith this Proposed Rule.Under this Proposed Rule, the contemplated compensation disclosure must include severaldatapoints-including the expectedsalary or salaryrange, a description of benefits, and, where applicable, an estimate of any commissions, bonuses, and/or overtime pay.Performing the analyses required to develop these estimates will require significantlymore than the six (6) total hours estimated by the Proposed Rule,particularly for small businesses, which may not haveestablished pay scales, and for contractorswith highly diversifiedworkforceswhich will need to performsignificantanalyses toensure that pay ranges are accuratefor a large number of positions.

Inaddition,mostcompaniesnowhaveautomatedapplication systems. Requiring employers to place salary ranges would require another change managementprocess just to implement the technology fix, which is only done after a company spends the more than six hours to determine how best to implement the requirements.Finally, there is no estimation of the ongoing time required to ensure future requisitions are accurate given that wages and benefits will be constantly changing.This would require new coding every time changes need to be made to wages.

C. The Proposed Rule Uses Inaccurate Wage Rates

In conducting its analyses of Identified Costs, the FAR Council improperly assumes that each of these review tasks will be performed by personnel in the "Office and administrative support occupations," alone, without any internal or external assistance, and without any consideration of overhead costs associated with those personnel, and therefore assigns an hourly rate of $32.38.This is a deeply flawed assumption and is contradicted by employer experience.Analysis of any Final Rule, reviewandmodificationofpolicies,andimplementation ofthosemodifiedpolicies (i.e. "preparationand training")will not be performedby administrative supportstaff, but will in fact be performed by Legal, Compliance, and Human Resources professionals.As theprecedingsectionsofthese commentsindicate, compliance with this Rule would not be a passive, one-time endeavor by contractors; instead, contractors will need to navigate a complex set of interconnected and at times conflictingobligations,likely in consultationwith both in-houseand outside counsel. Because theFARCouncil has notincluded the wage rates of senior human resources, HRIS and information technology personnel, or legal professionals in the compliance process, the assumption that the wage rate of an Administrative Support personnel alone is required, is flawed.The FAR Council's additional failure to consider overhead costs only undermines further its PRA analysis.

D. Costs Associated with The Proposed Rule Will Be Recurring

The Proposed Rule contemplates that each of these Identified Costs will be a one-time investment by contractors.This assumption is faulty.To the contrary, because this Proposed Rule would create an ongoing obligation, a contractor will necessarily incur costs each and every time it creates and posts a new open position. AstheProposedRulenotes,a"disclosuremust indicatethesalary orwages,or range thereof, that the contractorin good faith believesthat itwill pay for the advertised positionandmayreflect,asapplicable,the contractor'spayscaleforthatposition, the range of compensation for those currently working in similar jobs, or the amount budgeted for the position."89 Fed. Reg.5845.Those underlyingfactors are fluid, as contractors' workforces change, budgets adjust, and wages fluctuate based on the market.Accordingly,compliancewith this obligationwill require contractorsto perform real-time analyses for every new open position, because the salary range identifiedmust, ingoodfaith,bebasedon thepositionopenedatthe time the position is opened.For many contractors, ensuring ongoing compliance with these obligations would likely require significant, near-constantattention from experienced HR and legal professionals.That level of effort and cost is severely underestimated by the FAR Council's estimate.*

For the reasons set forth above, the Chamber urges that the FAR Council rescind theProposed Ruleor,ataminimum, overhaul theProposed Ruleto account for all the defects noted above.

Sincerely,

Marc Freedman
Vice President, Workplace Policy
Employment Policy Division
U.S. Chamber of Commerce

Outside Counsel

Kris Meade
Rebecca Springer
Jillian Ambrose
Amy Laderberg O'Sullivan
Cherie Owen
Crowell & Moring LLP
1001 Pennsylvania Avenue NW
Washington, DC 20004

¹ At the outset, the Chamber notes the distinction between "pay equity" in the title of this rulemaking, and "equal pay" as the Chamber supports. The two terms are not interchangeable. "Equity" is commonly understood as a broader term than equal pay, accounting for whether certain identified demographic groups are advancing economically relative to the majority population, rather than just whether they are being paid the same amount for the same job, when accounting for legitimate, non­ discriminatory factors that impact pay. Furthermore, "equity" evokes the more amorphous concept of "comparable worth" where dissimilar jobs are compared with the intent of giving them the same value.

² Available at https:/ /www.gao.gov/assets/108684.pdf.

³ An overview of the PERM process is located here: https://www.dol.govlag encies/eta /foreign-labor/programs/ permanent

⁴https://flag.dol.gov/programs/prevailingwages

⁵ Neither "subcontract" nor "subcontractor" is defined in FAR 2.101, which includes the general definitional provisions applicable to the entire FAR. The National Defense Authorization Act ("NOAA") for Fiscal Year 2016 "Section 809 Panel" identified "27 separate, sometimes overlapping, definitions" for "subcontract" and "subcontractor" - ultimately recommending back in 2018 that a uniform definition of subcontract be established in both the U.S. Code and the FAR. That has still not happened.

⁶ With the Department of Labor now engaged in a rulemaking to raise the salary threshold defining who will qualify for overtime pay, many more employees could be eligible for overtime pay, making this requirement that much more unworkable.

⁷ Notably, the Proposed Rule applies to other entities that are not registered in SAM, so the FAR Council's estimate of the overall costs of compliance are understated because it ignores the compliance time required of those entities.

About the author

Marc Freedman

Marc Freedman is vice president of workplace policy at the U.S. Chamber of Commerce. He develops and advocates the Chamber’s response to OSHA matters; FLSA issues such as overtime, minimum wage, and independent contractors; paid leave issues; EEOC, and other labor and workplace issues.

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