Being a contractor or subcontractor at the federal level comes with plenty of benefits especially from a financial perspective. From 2013 to 2015, the federal government awarded $1.34 trillion in contracts and always pay their bills, so chasing down open invoices typically isn’t a concern.
But, there are always two sides to a coin.
Being a federal contractor or subcontractor also carries significant legal obligations that include nondiscrimination and affirmative action requirements that are set and enforced by the Office of Federal Contractor Compliance Programs (OFCCP). Not meeting the requirements comes with potentially costly consequences. However, having a government contract does not automatically make you one.
So, what is the criteria?
Commonly, determining whether a business is a contractor at the federal level is not complicated; the OFCCP states that any company that is a party to a government contract with an aggregate value that, in any 12-month period, exceeds $10,000, which is called a “covered government contract,” is one. But, determining if your business is a federal subcontractor can be a little bit muddled.
The OFCCP defines that federal subcontractors are companies that enter into a subcontract–any agreement for the purchase, sale or use of personal property or non-personal services that are, in whole or in part, necessary to the performance of a covered government contract–with an aggregate value that, in any 12-month period, exceeds $10,000. It seems straight-forward, but determining what is “necessary” can become subjective.
The OFCCP, Office of Administrative Law Judges and courts have taken extensive steps to determine whether a subcontract is necessary to the performance of a covered government contract, including ruling in OFCCP v. Monongahela Railroad Company that “it should not make any difference whether the contribution to the government contract is large or small, significant or insignificant.”
Furthermore, the OFFCP acknowledges that your not knowing if your company is a contractor or subcontractor at the federal level, even when the prime contractor fails to disclose its status as a federal contractor to its subcontractors, is not an acceptable defense if your company is selected by the OFCCP for a compliance audit, making it essential to always review contracts and perform an informed analysis.
It is also important to note that a company with no direct connections to federal government contracts may still qualify as a contractor or subcontractor at the federal level if it is part of a single entity with a parent, subsidiary or affiliate company that is one.
And, although being a contractor or subcontractor at the federal level triggers basic nondiscrimination compliance requirements, the size of the company–those that employ more than 50 employees–and the value of its contracts– in excess of $50,000–can trigger additional requirements such as preparing affirmative action plans and maintaining detailed application and employment related records concerning applicants’ and employees’ race, gender, disability status and veteran status.
To avoid the costly consequences of noncompliance–back pay based on alleged patterns or practices of discrimination, reconciliation agreements mandating increased oversight and disqualification from participating in or benefiting from covered government contracts for an indefinite or set time period–companies should begin by ascertaining whether they are subject to the OFCCP’s jurisdiction by conducting reviews to evaluate whether they are a federal contractor or subcontractor and consider outsourcing to gain an expert perspective.