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Senate Investigation Exposes Widespread Labor Law Violations By Federal Contractors And Could Lead To False Claims Act Lawsuits

Not long before the close of 2013, the Senate Health, Education, Labor, and Pensions (HELP) Committee released an alarming report detailing widespread labor law violations by major government contractors.  A copy of the full report (the “Report”) may be found here.  Each year, the federal government contracts with private companies to the tune of over $500 billion dollars.  Taxpayers would expect that, before handing out such huge sums to money to the private sector, the federal government would ensure that the recipients are responsibly complying with federal wage and safety laws.  Unfortunately, HELP’s investigation showed just the opposite.

For instance, the Report found:

  • Eighteen federal contractors were recipients of one of the largest 100 penalties issued by the Occupational Safety and Health Administration (OSHA) of the Department of Labor between 2007 and 2012.
  • Almost half of the total initial penalty dollars assessed for OSHA violations were against companies holding federal contracts in 2012.
  • Forty-two American workers died during this period as a result of OSHA violations by companies holding federal contracts in 2012.
  • Thirty-two federal contractors received back wage assessments among the largest 100 issued by the Wage and Hour Division of the Department of Labor between 2007 and 2012.
  • Thirty-five of these companies violated both wage and safety laws.
  • Overall, the 49 federal contractors responsible for large violations of federal labor laws were cited for 1,776 separate violations of these laws and paid $196 million in penalties and assessments.  In fiscal year 2012, these same companies were awarded $81 billion in taxpayer dollars.[1]

Why have these violations gone unnoticed?  Or, more specifically, why have these companies been awarded such lucrative deals if they are not obeying important federal labor laws?

According to the Report, there are two primary answers to this question.  First, contracting officers tasked with reviewing bids and awarding contracts are required to determine whether the bidder is “responsible” – meaning that the bidder is not barred from receiving government work and has “satisfactory record of integrity and business ethics.”  Information gaps in the databases that contracting officers use to make these determinations make it very difficult to ensure accurate answers.

For instance, in determining whether a given company is sufficiently ethical, contracting officers generally look to a company’s past performance on other government projects.  See Report, at 6.  But, that information does not typically include information on labor law violations.  Id.  And, although there is one federal database, the Federal Awardee Performance & Integrity Information System (FAPIIS), that is supposed to provide contracting officers with this crucial information, limitations on the data that is collected in that database render it fairly ineffective.  See Report, at 23-25.  The information in FAPIIS is based only on contractor self-reporting and is not audited.  Id.  Contractors must only self-report violations if they occurred in the performance of a state or federal contract in the past five years, and only if there was a formal finding of fault.  Id.  And, finally, reporting is only required if the company has more than $10 million in total federal contracts, and if the violation occurs on an individual contract worth more than $500,000.  Id.

Due to these data limitations (and assuming that contractors actually self-report – an untested assumption), significant amounts of crucial information slips through the cracks.  By way of example, the Report notes that there is not a single misconduct entry in FAPIIS for BP, even though the company held $2 billion in federal contracts in 2012 and entered into billion dollar settlements related to the Deep Water Horizon explosion, a disaster which caused numerous deaths, injuries, and huge environmental damage.

According to the Report, unethical contractors also continue to get federal work despite violating labor laws due to serious problems in the debarment process.  See Report, at 28-29.  Although agencies are permitted to exclude companies from contracting with the Government altogether if they, amongst other things, are found “civilly liable for a lack of business integrity”, id., there is no standard protocol across federal agencies for making those determinations.  Further, agencies have the discretion to waive a company’s exclusion if the agency determines that there is “a compelling reason” to do so.  Yet, there is no definition or standard for what constitutes such a “compelling reason.”  Id.  Consequently, a given contractor may enter into a multi-million dollar contract with one government agency while, at the same time, be entirely prohibited from contracting with another.

The serious problems outlined in HELP’s Report could provide important avenues for False Claims Act litigation.  For instance, government contractors who violate the Davis-Bacon Act and/or the Service Contract Act – the two primary federal laws directed at ensuring that workers on government contracts are paid prevailing wages – may be prosecuted for falsely certifying their compliance with those laws as part of the contract reporting process.   In light of the False Claims Act’s treble damages provision, unethical contractors face significant penalties should they duck these fundamental wage laws.  In other words, the False Claims Act may be an important tool in holding unscrupulous contractors accountable where, as the HELP Report found, the current federal checks and balances have largely failed.


[1] See Report, at 1.