Reasons Why the Clinton/Gore Administration's Proposed Federal Procurement "Blacklisting" Regulation is Bad Law and Policy

Wednesday, August 4, 2010 - 8:00pm

The proposed regulation, issued on June 30, 2000 of this year, would effectively "blacklist" companies from eligibility to receive government contracts if they do not have "satisfactory compliance with federal laws including tax laws, labor and employment laws, environmental laws, antitrust laws, and consumer protection laws." (See 65 Fed. Reg. 40833). This issue is of great concern to the business community for many reasons, as discussed below, but particularly because its standards for compliance, covering numerous and enormously complex laws, are so broad and vague as to be meaningless—effectively empowering government agents with virtually unlimited discretion to deem which contractor will, or will not be, favored with a government contract. The regulation, not surprisingly given its political history, also has the potential for use as a weapon by unions against businesses that contract to provide services and products to the federal government. The proposed regulation threatens not only the loss of jobs, but also to upset the delicate balance of federal government neutrality in the labor/employer context. (Note: A prior similar proposal was issued on July 9, 1999.)

It's All About Politics and Not Substance
Vice President Gore announced the Administration's intent to enact these regulations at a Feb. 18, 1997 meeting of the AFL-CIO Executive Committee. The AFL-CIO quickly followed with a memorandum to its membership, searching for support for the announced initiative. The interest of organized labor in this proposal is not coincidental and even a Gore spokesman has noted that the vice president "has paid a great deal of attention to (the proposal) because it will help labor in its efforts to continue organizing."

The blacklisting regulation would arm unions with another weapon with which to target and attack specific employers. For example, organized labor often files frivolous charges with government agencies during organizing drives against employers to put pressure on those employers to recognize, without an employee election, the union. The Clinton/Gore proposal will increase that pressure because pending allegations still under review could now be used by government agents to disqualify employers from government contracts.

Back Door Attempt to Usurp Congress' Authority
Only Congress possesses the authority to amend the employment, tax, environment, antitrust and other laws of the land, and the Clinton/Gore Administration's proposed regulation is an attempt to circumvent the legislative process by adding, through regulation, a new, major draconian penalty—disqualification from government contracts—to those laws. Any changes to the laws should receive full consideration by the Congress, rather than through the back door of the administrative agencies.

Regulation Language is Subjective and Vague
The draft blacklisting regulation will permit federal agency contracting officers to determine, on a case-by-case basis, which contractors get contracts and which do not. These contracting officers, managed by political appointees, will be judge and jury in deciding who has a satisfactory record of compliance with federal laws. What constitutes satisfactory compliance with the law is unclear, and what "record" would be looked at under the numerous complex laws listed is unclear, leaving open the door to subjective, conflicting, and unfair interpretation by political appointees and agency bureaucrats. Agency procurement officers are hardly equipped to make that determination.

Contractors May be Presumed Guilty: Unproven, Pending Allegations Enough
Under the proposed regulations, government contracting officers would have the power to deny federal contracts to companies based on pending, unproven alleged violations of employment, tax, antitrust, environment and other laws. A charge need not even be finally adjudicated before being considered as part of an employer's record to be reviewed. For example, complaints pending with the NLRB, OSHA charges, IRS and EPA allegations, as well as other allegations, can all be considered even before a final determination of guilt or innocence is made. (For example, a complaint issued by the National Labor Relations Board or a decision by an OSHA or environmental administrative law judge still on appeal could be enough.) Punishment before violations are even proven is hardly fair.

Even the Best-intentioned Employer Can Get Caught in the Vast Maze of Confusing and Often Conflicting Agency Rules and Regulations
The universe of law and regulation to which employers are subject is vast, covering almost every conceivable topic. For example, employers must comply with employment, tax, environmental, anti-trust, and many other areas of law and regulation in the course of running a business. The expanse of employment law and regulation alone is enormous—covering areas such as wage and hour, pension, affirmative action, immigration, safety and health, plant closing, labor relations, and discrimination, to name but a few. The Code of Federal Regulations relating just to employment laws cover over 4,000 pages of fine print, environmental regulations cover over 14,000 pages and the complexity of tax and anti-trust laws are legendary. Even the federal government, with its legions of agencies and specialists with expertise in every nuance of the law, seems confused by what is or is not required by the workplace laws. A 1994 report by the General Accounting Office (GAO/HEHS-94-138) revealed that not only do agencies often not know the answer to employer inquiries, they often give conflicting responses as to what is required of employers. The GAO Report noted that "the magnitude, complexity, and dynamics of workplace regulation pose a challenge for employers of all sizes."

The difficulty of achieving total compliance with the impenetrable thicket of federal law and regulation is aptly illustrated by the Clinton/Gore Administration's own experience. For example, the federal agencies' record of compliance with employment laws is far from perfect. In fact, if the federal government were held accountable under the standards of the Clinton/Gore Administration's own proposed regulation (which, of course, it is not), it would likely be ineligible for government contracts in many instances. Note the following recent statistics on federal agency violations of federal law:

Equal Employment Opportunity (EEO) Charges
The total number of EEO charge complaints filed against the federal government in FY98 was 28,147. However, the agency's inventory of complaints, representing previous years' cases and those filed in FY98 was much larger, at 36,333. Of the charges resolved in FY98, 7.2% were found to be meritorious.

Federal Labor Charges
The total number of unfair labor practice (ULP) charges filed against the federal government in FY98 was 5,702. At the end of the calendar year, 1998, 2,122 charges were pending against the federal government.

Occupational Safety and Health Administration (OSHA) Complaints
There were 767 OSHA inspections of federal government agencies in FY98, which resulted in 2,274 cited violations.

Environmental Violations
In FY98 alone, EPA imposed 55 penalties for environmental violations against federal agencies ranging from the Department of Defense, the Department of Energy, the U.S. Postal Service, the Bureau of Indian Affairs, the General Services Administration, the U.S. Forest Service, the Corps of Engineers, the Department of Interior, the Federal Law Enforcement Training Center, the U.S. Department of Agriculture, and the Department of the Treasury. Federal agencies have violated hazardous waste laws at over 2,000 sites, including 150 of the worst hazardous waste cleanup sites in the nation.

Regulations Would Turn Back the Clock on Streamlining of Federal Procurement Process
Congress since 1984 has enacted several measures designed to streamline and simplify the federal contracting process in order to increase efficiency and lower costs. These efforts will be significantly diminished if the Clinton/Gore Administration's blacklisting regulation is permitted to become law. In addition to raising the costs of doing business with the federal government, the proposed blacklisting regulations will introduce an additional layer of bureaucracy and red tape into the contracting process.

Further, there has been no showing that the proposed regulation will lead to more efficient government contracting by the federal government. It is the taxpayer who will suffer as more red tape and consideration of vague subjective factors extraneous to determining the best possible product at the lowest cost to the government are introduced into the procurement process.

23 Million American Workers' Jobs Could be at Risk
GAO estimates that companies with federal contracts and subcontracts employ 23 million American workers. A federal contracting officer's decision to deny a company a federal contract based on subjective and unfair interpretations of the blacklisting regulation could put that company and its employees out of business.

The Impact of the Proposed Regulation is Not Limited to Large Businesses
It should be emphasized that it is not only large businesses that will suffer the consequences of "blacklisting" under the proposed regulation. To the contrary, if implemented, the proposed regulation will have a large, profound effect on small business. For example, 20%—over $41 billion in 1997—of all government contracts are awarded to small businesses. Yet it is the small business that is least capable of implementing new government regulations—it costs small businesses twice as much as large businesses to do so. In addition, small businesses, more frequently than large, find themselves in inadvertent violation of various federal paperwork requirements. Such minor violations would end up on a firm's record of compliance for purposes of the proposed regulation and would inhibit their ability to qualify for federal contracts.