Franken amendment threatens to take funds from contractors

Contractors, particularly large defense companies, are ill-prepared for a provision of the 2010 Defense Appropriations Act that stops funds from going to companies that require employees sign arbritation clauses.

Known as the Franken amendment for its sponsor Sen. Al Franken (D-Minn.), the provision gets the federal government more deeply involved in the employer-employee relationship at defense contractors and other companies.

The amendment, which went into effect Feb. 17, prohibits a contractor or subcontractor from receiving any government money in fiscal 2010 if they require employees or independent contractors to sign arbitration clauses. The amendment also bans defense companies from enforcing any existing agreements.

Arbitration is a process by which two parties, such as an employer and an employee, go to a third party to resolve a conflict. It’s a step away from a lawsuit.

Based on a memo regarding the Franken amendment issued Feb. 17, Defense Department’s contracting officers have to change existing contracts for orders worth more than $1 million that will use fiscal 2010 appropriated dollars. The contracts include orders against an indefinite-delivery, indefinite-quantity contract, a General Services Administration Multiple Award Schedule contract, and a contract modified after Feb. 17 where DOD will spend more than $1 million in fiscal 2010 money, according to the memo. Furthermore, defense companies must certify by June that their subcontractors won’t enter into arbitration agreements with their employees either.

The memo also notes that the rule doesn’t apply to the sale of commercial items or commercially available off-the-shelf (COTS) items to the government.

Alan Chvotkin, executive vice president and counsel of the Professional Services Council, said many companies are unprepared to apply the guidance that DOD issued Feb. 17, which is also the law’s deadline for contracting officers to modify contracts.

The memo describes exactly how DOD will address the arbitration provision, and, until it was released, companies were unsure of what was expected of them, he said.

Experts said the changes likely will affect the larger companies in the defense industry, which are more likely to enter such agreements than smaller firms. Larger companies also often work with tiers of subcontractors, which have arbitration rules to meet, too.

“This is a major burden on companies,” said Trey Hodgkins, vice president for national security and procurement policy for the TechAmerica industry group.

Congress didn’t consider that some employees like arbitration, he said. Some people see it as a way to get a fair hearing of a complaint when the company has money for lawyers, Hodgkins said. Moreover, the company often covers the cost of the arbitration process.

“The legislation doesn’t take that into account,” he said.

The appropriations law applies to fiscal 2010 money, which places another burden on the government and contractors. Both parties will have to single out the fiscal 2010 funds and consider the arbitration law for those companies using those funds, Chvotkin and Hodgkins said. Fiscal 2010 dollars may either be spent within the year for service maintenance contracts, while being stretched out over numerous years for major projects, such as modernization programs. Officials will have to take the same approach as agencies have done to single out the Recovery Act funds.

Although the provision currently only relates to DOD spending fiscal 2010 dollars, Chvotkin and Hodgkins expect similar provisions for future years. Congress adopted the arbitration law, and the Obama administration included it in its fiscal 2011 budget proposal. Hodgkins said future provision would likely move to an authorization bill instead of an appropriations bill.

Last October, Franken said his amendment was based on women who have been victims of sexual assault and rape in Iraq and forced to arbitrate their cases. The Senate approved the amendment by a vote of 68 to 30.

However, industry experts said the provision lumps upstanding companies with the unethical firms.

“All industry was painted very negatively with a very broad brush,” Hodgkins said.