The Not So Fair “Fair Pay” Rule

“At last, the government has devised a means to better protect American workers and ensure that companies obey the law.” So writes the Editorial Board of the New York Times in its praise for the final rules issued August 25 to implement the Fair Pay and Safe Workplace Executive Order. At last, indeed. After all, there can be no debate as to whether the government ought to do business with companies that thumb their nose at labor or other laws.

There’s just one problem. The government has, and has long had, plenty of means by which to ensure that it doesn't do business with crooks. And it has been increasingly using that authority. In fact, well intentioned as it may be, the Fair Pay Executive Order is actually likely to create far more confusion and unnecessary disruption without measurably improving the picture.

Let’s start with the “at last…” comment. Proponents of the Executive Order complain that despite having clear authority to suspend or debar companies, the process is, according to the Center for American Progress (CAP), burdensome and subject to appeal, and is thus rarely invoked. But the statistics suggest otherwise. Suspensions actually grew by 142% between 2009 and 2014 and debarments grew by 188% (to nearly 2000 actions) during the same time period. In addition, proposed debarments shot up nearly 200%. Are Tysons Food or BP (two of the most popular targets of the Order’s proponents) serial lawbreakers? If so, there is nothing to stop the government from suspending or debarring them now.

That’s also why the proponents’ argument that the new rules are needed to ensure both a level playing field for law abiding companies and to ensure high quality performance on behalf of the taxpayer, is substantively correct but also a bit of a red herring.

Again, the government has all the authority it needs to take action against companies that behave badly; and it has, by its own admission, the data needed to assess whether such a case can be made. Moreover, one reason the private sector generally supports the Service Contract Act is precisely because it levels the playing field and prevents companies from balancing their competitive position on the backs of their employees’ wages and benefits. Instead, the government essentially dictates what the wage levels and benefits for a job must be.’

As for the appeal issue, is someone actually going to argue that the accused should have no right of appeal? Then again, since this Executive Order actually would allow companies to be debarred merely on the basis of allegations or administrative settlements, perhaps the idea of due process doesn't seem all that relevant to some.  But it is to most.

Beyond that, however, even government officials acknowledge that the information contractors will be required to certify to under the new rules is already contained in one or more federal databases. How else did the rule’s proponents get the data they use to make their case? Remarkably, though, despite mandates to do so dating back to 2008, the government simply hasn’t yet modernized those systems so they actually talk to each other—a point stressed by administration officials as a part of their rationale for the Executive Order. Well here’s a quaint notion: why don’t we actually fix the IT systems rather than create a massive new regulatory regime, particularly one that raises such fundamental questions of fairness?

In addition, CAP and others like to point out that government contractors account for one-third of the worst violators of federal labor statutes, based in part on an analysis of fines paid. That’s interesting on two levels. First, the administration has repeatedly said that the order would only impact a “small fraction, maybe one tenth of one percent” of contractors; that the vast majority were good corporate citizens. That’s far different than the one in three the proponents cite. Further, the statistic itself is wildly distorted by the inclusion of a couple of major incidents, most prominently the BP Horizon disaster, the fines for which dwarfed any other case—by 20x or more.

Further, the analysis covered every known “violation” of the Service Contract Act or Davis-Bacon Act, even though it is widely accepted, inside and outside of government, that the laws are extraordinarily complex and difficult to execute. That’s why the vast majority of “violations” are considered technical or administrative in nature. Many even result from mistakes the government makes, for which the contractor is still liable for back wages. On a large contract, that can amount to a lot of money and scores of individual “violations.” That is a crucial nuance no database captures and which can all too easily be misinterpreted and/distorted.

When the Executive Order was first issued, the administration asked for help in finding a way to implement it in a fair and reasonable manner. But rule makers are limited in the scope of what they can do because the implementing rules must adhere to the letter of the initial Executive Order. That’s why in meetings with senior Administration officials early on in the debate, many of us suggested that the order itself would obviate their ability to achieve a fair and reasonable path to implementation. Good intentions and a few changes notwithstanding, the proof of that assertion remains in the final rule.