Final Rule on Human Trafficking Prevention Set to Take Effect and Require Additional Compliance Actions for Certain Contractors

This post was written by Lorraine M. Campos and Nkechi A. Kanu.

Starting the first week of March , federal contractors will be subject to new prohibitions and obligations related to human trafficking. These new requirements stem from a final rule issued January 29, 2015, that significantly strengthens the Federal Acquisition Regulation’s (FAR) existing provisions to prevent trafficking in persons. The new rule goes into effect March 2, 2015, and will apply to all new contracts, as well as future orders under existing indefinite delivery, indefinite quantity (IDIQ) contracts.


The final rule prohibits government contractors and their employees from undertaking certain actions related to:

  • Engaging in severe forms of human trafficking during the period of performance of the contract
  • Procuring commercial sex acts during the period of performance of the contract
  • Using forced labor in the performance of the contract
  • Destroying, concealing, confiscating or otherwise denying employees’ access to identity or immigration documents
  • Engaging in fraudulent or misleading recruitment practices
  • Employing recruiters who violate the labor laws of the country where the recruitment takes place
  • Charging recruiting fees
  • Failing to provide return transportation to an employee who is not a national of the country where the work is to take place, subject to limited exceptions
  • Providing housing, if required, that fails to meet host country safety or housing laws, or
  • Failing to provide a written work document, if required

Contractor Obligations

The new rule also requires government contractors to undertake the following actions to combat trafficking in persons:

  • Inform employees and agents of the human trafficking requirements and the possible repercussions if violations occur
  • Disclose information to the relevant contracting officers concerning human trafficking offenses
  • Cooperate in investigations into human trafficking offenses
  • Protect victims and witnesses of human trafficking offenses

Compliance and Certification

A key component of the new rule is the requirement that certain government contractors implement a compliance plan and certification requirements. If any part of a government contract with an estimated value of more than $500,000 is for supplies acquired overseas or services to be performed overseas, the offeror must certify that: (1) it has implemented an anti-human trafficking compliance plan and procedures to prevent human trafficking violations; and (2) it has performed due diligence on its agents and subcontractors, and taken necessary remedial actions.

Government contractors should review their compliance plans to ensure that they have adequate mechanisms in place to comply with the new rule’s more robust requirements, and to monitor and evaluate the extent to which their suppliers are in compliance with the new requirements. A violation of these regulations may result in suspension of contract payments, termination of a contract, or suspension or debarment, as well as False Claims Act and other liability.

And the Government Strikes Again: New Proposed FAR Rule To Expand Reporting of Nonconforming Items

This post was written by Lorraine M. Campos & Leslie A. Monahan.

A month after the U.S. Department of Defense issued a final rule (“DoD rule”) that impacted the defense supply chain by requiring certain contractors to detect and report counterfeit electronic parts (discussed here), the Federal Acquisition Regulation (“FAR”) Council published a new proposed rule to greatly expand counterfeit reporting obligations.  The proposed rule sets forth sweeping requirements for contractors and subcontractors to report nonconforming items.

Unlike the DoD rule, which is specific to electronic parts and CAS-covered contractors, the proposed rule extends beyond electronic parts and specific contractors.  Because the problem of counterfeit and nonconforming parts is far-reaching and can impact the mission of all government agencies, the proposed rule is designed to effect all contracts for acquisition of supplies or services that include supplies. 
Under the proposed rule, contractors and subcontractors at all tiers must screen the Government-Industry Exchange Program (“GIDEP”) as part of their quality control processes.  Further, the proposed rule requires reporting in GIDEP of any items purchased that (1) are “counterfeit,” “suspect counterfeit,” or contain “major nonconformance” or “critical nonconformance”; (2) are “common items”; and (3) constitute a “quality escape” that has impacted more than one customer.  In addition, contractors must notify Contracting Officers, in writing, when they become aware that “any end item, component, subassembly, part or material contracted in supplies purchased by the government” is counterfeit or suspect counterfeit.

While it may be challenging for contractors to argue against the reason for the rule, they should request clarity on and some easement of the burden of this regulation. For example, while the proposed rule provides definitions, whether an item meets the criteria for reporting is in the eye of the beholder.  One contractor may view a nonconformance as “major” for its purposes, while another may view a nonconformance as not triggering reporting as it applies to the specific project at hand. 

Another example of how the proposed rule could become more manageable concerns reporting counterfeit or suspect counterfeit items.  Under the proposed rule, contractors with multiple contracts would need to report to every Contracting Officer.  Contractors who would find this exercise to be a large administrative burden may want to request that the government utilize a more centralized procedure to address this issue.

Written comments on the proposed rule are due by August 11, 2014.  We expect and encourage government contractors across industries to request a less broad and burdensome application of the proposed rule.

Government Contractor Successfully Defends Its Senior Executive Compensation Costs

This post was written by Stephanie E. Giese.

The issue of senior executive compensation limits continues to be a contentious one for the federal government and its contractors. This may explain why the limit has not been raised since 2010 from the current amount of $693,951. In fact, the Obama administration has proposed lowering senior executive compensation limits to $200,000, the level it caps salaries for its own executives. Given the administration’s focus, this is an area where we are likely to see more litigation. The Appeals of J.F. Taylor, Inc., ASBCA Nos. 56105, 56322 (January 18, 2012) (“JFT”) is an example of such litigation that was recently decided in favor of the contractor.

The JFT decision is relevant to contractors subject to Federal Acquisition Regulation (“FAR”) 31.205-6(p), the federal limitation on the allowability of compensation for senior executives. This benchmark limitation is the maximum amount a contractor may seek reimbursement for under its government contracts, but does not limit the compensation an executive may earn. Further, the limit that applies to small-to-midsize government contractors may actually be lower than the benchmark limitation. Regardless of the size of the contractor, a contractor subject to FAR 31.205-6(p) must show that the executive compensation costs it charged the government are reasonable in order for the government to reimburse those costs. To evaluate reasonableness, Defense Contract Audit Agency (“DCAA”) conducts a statistical analysis considering factors such as industry, company revenue relative to other companies in the same industry, geographic location, and the executive position being evaluated.

The JFT decision offers arguments that may allow a contractor to resolve disputes with DCAA in annual Executive Compensation Reviews (“ECRs”) and to avoid potential litigation. In its JFT decision, the Armed Services Board of Contract Appeals held that DCAA’s methodology was “fatally flawed statistically”:

(a) as a matter of basic statistical analysis,

(b) because the method market priced JFT’s executive compensation at the median without adequate consideration of the company’s superior performance,

(c) because DCAA failed to evaluate the compensation of the JFT vice presidents based on the revenues of the whole company even though each vice president had companywide responsibilities for the success of the company, and

(d) because the method used does not yield auditable and reliable results.

Thus, JFT was not required to repay the government approximately $600,000 in disallowed executive compensation costs. A contractor should consider the fatal flaws cited by the Board as potential arguments to defend its own executive compensation costs.

Proposed Rule Seeks To Prevent Future Contractor Leaks of Personally Identifiable Information - The WikiLeaks Response

This post was written by Melissa E. Beras.

On October 14, 2011, just one week after the release of the "WikiLeaks Order," the Department of Defense (DoD), the General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA) proposed a rule that would require certain contractors to complete training that addresses the protection of privacy and the handling and safeguarding of personally identifiable information (PII). Specifically, the rule requires contractors who access government records, handle PII, or design, develop, maintain, or operate a system of government records on behalf of the government, to undergo training upon award of a contract and at least annually thereafter. Further, according to the rule, contractors would have recordkeeping requirements for documents indicating that employees have completed the mandatory training and would be required to produce those records upon government request.

In addition, the proposed Federal Acquisition Regulation (FAR) text provides that the required privacy training must, at a minimum, address seven mandatory elements. Those elements include training on privacy protection in accordance with the Privacy Act of 1974, restrictions on the use of personally owned equipment that implicates PII, breach notification procedures, and other “agency-specific” training requirements. The proposed FAR text also provides alternative language for instances where an agency would prefer that the contractor create the privacy training package, as opposed to attending an agency-developed privacy training. Additional alternative language is proposed for instances where the government determines it is in its best interest for the agency itself to conduct the training. Moreover, the clause requires that it be flowed down to any subcontractors who: (1) have access to government records; (2) handle PII; or (3) design, develop, maintain, or operate a system of records on behalf of the government.

The proposed rule is a part of a broader effort to enhance cyber security. It follows the “WikiLeaks Order,” an executive order issued October 7, 2011, and formally titled “Structural Reforms to Improve the Security of Classified Networks and the Responsible Sharing and Safeguarding of Classified Information,” which directs governmental change to ensure that classified information is shared responsibly and safeguarded on computer networks in a manner consistent with appropriate protections for privacy and civil liberties. The order expressly states that agencies bear “the primary responsibility for meeting these twin goals.” The proposed rule also comes shortly after the DoD requested the extension of a pilot program through November 2011, which helps protect the networks of its prime defense contractors by sharing intelligence about threats to their data with these contractors.

Contractors interested in sharing their views on the proposed rule have the opportunity to comment. Written comments are due by December 13, 2011.

No Contractor Left Behind: The Proposed Standardization of Contractor Past-Performance Evaluations

This post was written by Leslie A. Monahan.

A proposed rule issued by the Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration on June 28, 2011 proposes to amend the Federal Acquisition Regulation (“FAR”) to provide a single set of standards for contract officers reviewing contractor past performance. In 2010, agencies were required to transition their various information systems for storing performance reviews into the Contractor Performance Assessment Reporting System (“CPARS”), which would serve as a single performance feeder system governmentwide. Now, regulators seeks to continue implementing streamlining procedures by standardizing the evaluation factors and rating scales in past performance reviews.

The proposed changes stem from a 2009 Government Accountability Office report on the need for better performance information in making contract award decisions. The basis for the proposed rule also gained momentum with the issuance of an Office of Federal Procurement Policy memorandum concerning strategies for improving the assessment of contractor past performance.

Under the proposed rule, regulators plan to implement a five-point scale to standardize the contractor past performance evaluation process. In particular, contractors will be evaluated based on rating definitions found in CPARS guidance that range from exceptional to unsatisfactory. All evaluations are intended be tailored to the contract type, size, content, and complexity of contractual requirements.

According to regulators, while the proposed rule may be new, it only intends to codify in the FAR existing guidelines and practices, Further, the proposed language for the amended FAR provisions is language already used by Federal agencies. Contractors interested in commenting on the proposed rule must submit their comments by August 29, 2011.