Fox and Chambers Discussed OFCCP in Transition & What It Means for Federal Contractors
Due to delays in budgeting and the reduction in agency funding levels (see our story here), OFCCP Deputy Director Tina Williams was not able to appear as originally planned. Consequently, DE Executive Director Candee Chambers and Attorney John C. Fox of Fox, Wang & Morgan P.C. provided an update regarding recent OFCCP activities and their implications for federal contractors.
I. What Is the Latest on OFCCP Audits of Supply & Service Contracts?
John began by reporting the buzz that OFCCP will release a new Corporate Scheduling Announcement List (“CSAL”) for Supply & Service (“S&S”) contractors in May. “That is a lot earlier than anybody thought,” he said. “We thought that that would probably be closer to the fiscal year coming up in September, but they are running out of audit fuel.”
OFCCP released its most recent previous S&S CSAL in September 2023 (see our story here). Many establishments dropped off this list because they turned out not to be covered federal contractors, John reported. “They are also trying to audit establishments that were closed years ago,” Candee added.
In any event, “they are doing far fewer audits and so your likelihood of being selected is diminishing,” John told the audience.
Policy shift: OFCCP now auditing by type of contract, rather than contractor type. Next, the presenters discussed the OFCCP’s policy and operations shift (departing from 50 years of policy and practice) – announced last September via quietly published, extensive updates to its Frequently Asked Questions (“FAQs”) section covering CSALs – from auditing by “the type of contractor” a company is (Supply & Service Contractor v Construction Contractor) to auditing a company by the “type of contract” it signs. Accordingly, an S&S contractor with an S&S contract that is also signatory to a covered federal government construction contract could be subject to an audit of its S&S contract AND separately of its construction contract. (For more details on this policy change, see our story here.) Vice-versa, this also means that if an S&S contractor signs a “construction” contract, it must comply with OFCCP’s Construction Rules (16 Affirmative Action Steps listed at 41 CFR 60-4.3 (a) 7 (a-k)) as to its onsite construction employees and not OFCCP’s Rules for S&S contractors.
Prior to this policy change, a federal contractor was either an S&S contractor or a construction contractor, but “never both,” John explained. As a result of this change, OFCCP policy now expects many federal S&S contractors to comply with OFCCP’s Construction Rules (about which they are unlikely familiar) no matter how small a percentage of their business may involve a federal construction contract, and vice-versa.
Importantly, OFCCP made this policy shift absent the legally required Administrative Procedure Act public notice and comment procedures, Candee pointed out.
Moreover, putting aside OFCCP’s regulations, Executive Order 11246 itself is written so that once a company has one contract, it is obligated nationwide. This situation leaves contractors with a choice “to either comply or resist,” John said. “OFCCP is routinely rejecting the pleas of companies that say: “No, we are a construction contractor, we don’t want to do supply and service,” he reported.
“I would never go into an audit today without at least talking to [an] attorney ahead of time,” Candee observed, noting the complexity of the legal issues surrounding audits at this time.
Implications of new audit Scheduling Letter & Itemized Listing. The anticipated S&S CSAL coming up in May will be “the first time that everybody in the CSAL will be audited subject to OFCCP‘s new audit Scheduling Letter,” John pointed out. OFCCP’s latest, controversial revisions to its Supply & Service audit Scheduling Letter and Itemized Listing took effect on August 24, 2023. (See our stories here, here, and here for details on the changes to the Scheduling Letter and Itemized Listing).
The new OFCCP audit Scheduling Letter places greater emphasis on discrimination data collections at the Desk Audit stage of an investigation and increases a contractor’s response burden to the Itemized Listing (attached to the audit Scheduling Letter) by (according to OFCCP’s own admission) 25 percent (to almost 40 hours), but it is more likely by hundreds of hours, the presenters said. Despite this burden increase, contractors will still only have the 30 days to respond and supply the data demands. Accordingly, contractors who are on the CSAL will need to look at the current S&S audit Scheduling Letter and estimate how much time and resources it will take to respond.
Another layer of difficulty is that OFCCP is no longer operating under its long-standing policy of waiting 45 days after a CSAL announcement to begin sending audit Scheduling Letters. John reported that this became evident based on experiences with his clients and that OFCCP has not made any public announcement of this change in audit practice, but which change OFCCP is entitled to make.
John reminded the audience that during the Desk Audit stage of an OFCCP Compliance Audit, OFCCP is only entitled to obtain the information and data specified in the audit Scheduling Letter and Itemized Listing. “That is all they get. They do not have the right to send you an email asking for more stuff, nor does OFCCP have the right to call you on the phone and ask you for more stuff,” he said. Therefore, it is a policy choice for each contractor to decide whether they want to comply with OFCCP’s additional unauthorized requests at the Desk Audit stage.
However, not providing this additional information might put a contractor at risk of OFCCP moving on to the Onsite Investigation stage. No contractor wants that, Candee remarked. But OFCCP rarely comes onsite anymore, John reported.
II. What Is the Latest on OFCCP Audits of Construction Contracts?
Moving on to audits of Construction Contracts, the presenters again mentioned the OFCCP policy shift of OFCCP now auditing by contract type, rather than by type of contractor. As a result, OFCCP asserts that construction contractors with an S&S contract must now comply with OFCCP’s non-construction (i.e., S&S) Affirmative Action Rules as to the contractor’s employees who are not onsite construction employees. That includes developing written Affirmative Action Plans (“AAPs”) and conducting discrimination analyses.
Disposition Codes. As part of conducting discrimination analyses now newly applicable to construction contractors via OFCCP’s new construction contractor audit Scheduling Letter and Itemized Listing (and no longer applicable to just Supply & Service contractors), construction contractors should now begin to develop and implement Disposition Codes, John advised. These Codes document the employer’s legitimate non-discriminatory reasons for an adverse hiring/promotion selection decision. For construction contractors which OFCCP has not routinely subjected to scorched-earth systemic discrimination hiring and promotion analyses (like those to which the agency has historically subjected Supply & Service contractors), they “will now have to pony up a lot of data” that they currently do not have available, John warned. It will take these contractors about a year to devise, develop, implement, and load useful Disposition Codes systems, John estimated. Candee noted that information on devising and implementing useful Disposition Codes is one of the most popular topics DE Members request.
The presenters also reported that, similar to the new S&S audit Scheduling Letter and Itemized Listing, OFCCP, in February 2024, published a proposal to revise its audit Scheduling Letter and Itemized Listing for Construction Contractors. (Our story here details that pending proposal.) As with the new S&S Scheduling Letter, OFCCP’s proposed Construction Contractor Scheduling Letter, if implemented, would place a greater emphasis on discrimination data collections at the Desk Audit stage of an investigation. In contrast to S&S audits, OFCCP “will also likely come on site a lot more frequently, I predict, as to construction contractors, because they are accustomed for the last 50 years to do a construction audit by immediately going on-site and never having the desk audit. And that will be a hard habit for OFCCP to lose,” John predicted.
Also, of note in the proposed Construction Contractor Scheduling Letter changes is its focus on tracking disparities in overtime. “Almost none of you document [overtime] at the end of every shift,” John cautioned the audience. At least develop a written policy of how overtime is to be administered in the field so your managers may be able to defend audits by noting their adherence to the policy to explain why a manger denied an onsite construction employee the privilege of working overtime on any particular shift during OFCCP’s two-year period of review prior to the date of its audit Scheduling Letter.
III. What does the new OMB Directive 15 (SPD-15) Mean for Federal Contractors?
At the end of March, the White House Office of Management and Budget (“OMB”) released its finalized revisions to its Statistical Policy Directive No. 15: Standards for Maintaining, Collecting, and Presenting Federal Data on Race and Ethnicity (“SPD 15”). SPD 15 contains common definitions to allow the federal government to compare race and what OMB calls “ethnicity” data across federal agencies. Federal contractors use SPD 15 primarily to identify the races and national origins of applicants and employees for use in AAPs and discrimination analyses. OMB directed the applicable federal agencies to implement program changes over the next 18 months, i.e., by the beginning of FY 2026 on October 1, 2025. (Our story here details those changes).
One Reporting Category OMB added was the Middle Eastern or North African (“MENA”) as a minimum reporting category, separate and distinct from the White category, Candee said, noting it will be interesting to see how many workers who have previously self-identified as White will use this new category instead.
While “[s]ome of those reporting categories are also protected groups,” contractors must be careful to not confuse “Reporting Categories” with “Protected Groups” for the purpose of AAPs and disparity discrimination analyses,” John cautioned. For example, “Two or More Races” and “MENA” are reporting categories, but NOT “Protected Groups.”
No “Protected Groups” have changed (that would take Congress passing a new statute), so nothing changes the columns and rows in contractor AAPs and Goals analyses, John advised. However, the revised SPD 15 has changed the definition of who fits into the specified racial categories a bit, he observed.
IV. What the New OFCCP Budget Means for Federal Contractors?
On March 23, President Biden signed a partial budget package to finalize funding for six federal government agencies, including the U.S. Department of Labor/OFCCP through the end of Fiscal Year (“FY”) 2024 (i.e., September 30, 2024). (See our story here for the details.) As to the federal civilian agencies, the FY2024 budget funding delivered a “flatline” budget approximately equal to last year’s FY2023 budget, the presenters explained. For next year’s FY2025 budget (beginning October 1, 2024), the Congress and the President also agreed that no federal civilian agencies will receive more than a 1% increase in its FY2025 budget above its FY2024 budget, and only if the agency can justify special needs to grow its FY2025 budget that 1% extra.
Consequently, OFCCP will have fewer employees over the course of the next 18 months due to increased payroll costs and inflation costs which collectively total over 10% in additional costs for both FY2024 and FY2025 which must be paid for out of the agency’s 24-month flat-lined budgets, John pointed out. It may also have to cut programs. The agency will have to attrit almost 20 employees by September 30, 2024, and attrit an additional approximately 50 employees to fit within these flatline budget allocations, he estimated.
“[It] will mean a lot fewer audits,” John predicted, “because they are not going to have the kind of horsepower they thought they had or were going to have.” Furthermore, in their budget justification for FY2025 (our story is here), OFCCP told the Congress that the reason they were so slow to close audits was because they have been hiring new staff and retraining existing staff, “and this high turnover was bleeding a lot of the agency’s resources,” John said. Now they are going to have to cut down on all this staffing, he added.
V. The Coming Presidential Election Could Have Meaning For OFCCP
“We will see a monstrous change one way or the other this coming January, and it will all be about the budget,” John said. All 435 seats in the House of Representatives are up for grabs as well as 33 Senate seats (currently held by 20 Democrats and 10 Republicans). “In fiscal year 2026, that 2023 budget deal freezing budgets for two years (for FY2024 and FY2025) for the federal non-defense agencies will be off the table. The President or whoever is sitting in [the Oval] Office may then suggest a higher or lower budget. Then we will have to see what Congress is willing to agree with,” he added.
Regardless of who wins the White House, the party that controls the House and the Senate will determine who will control the federal budget and whether the “rugby scrum” of the last four years will continue, John noted. He explained that the budget is the key to successful agency policy programs, and it has been the vehicle to change policy by what does, or does not, get funded. (Also see our stories here and here.)
Also factoring into these budget concerns are three reports issued by the U.S. Government Accountability Office (“GAO”) in mid-February (our detailed story is here). The GAO concluded that the national debt is “unsustainable,” and “there is no economist that thinks this can go on,” John pointed out. Therefore, budget cuts and tax increases will be major issues regardless of who is in the White House or Congress.
Notably, two key Senators – Democrat Joe Manchin (WV) and Independent Krysten Sinema (AZ) – “have elected to not join the political scrum this year” (i.e., they are not running for reelection), Candee observed.
With declining resources, “OFCCP is a vulnerable agency at this point,” John stated. “It is a very tiny agency in the scheme of things, and they are about as thin as they can go.” Accordingly, budget determinations are vital to the agency’s existence.