Insight Is Your Company a Federal Subcontractor (and Affirmative Action Employer)?

The answer to this question may not be as clear as you think. Although your company may not directly contract with a federal agency to supply goods or services, it may nevertheless be considered a federal subcontractor by virtue of the nature and volume of goods or services you provide to a federal prime contractor.  And the stakes are high.

While virtually all private sector employers must comply with various antidiscrimination laws, additional obligations apply to the federal government as an employer as well as any company contracting with the federal government at a threshold dollar level. Certain federal prime contractors­­ must comply with the employment obligations of affirmative action, a program governed by three separate federal laws, two of which were substantially updated in 2014.  Affirmative action obligations require employers to take steps to improve the pool of qualified applicants for hiring and promotion of certain protected statuses, including women, minorities, individuals with disabilities, and protected veterans. Complying with various tracking systems, formalizing written plans, and preparing for occasional audits by the government can be quite burdensome and, as such, when a private sector employer considers contracting with the federal government, these obligations must be considered as a part of the business decision to become a federal contractor. For certain service and supply providers, such as a financial institution or utility company, compliance with these laws is an inherent part of doing business.

However, a company down the chain from the prime contractor can also be subject to these laws, where it enters into an arrangement with a federal contractor for the purchase, sale or use of personal property or non-personal services, which in whole or in part, is necessary to the performance of any one or more government contracts. The same goes for an arrangement that assumes, undertakes, or promises performance of any portion of the federal contractor’s obligation under one or more government contract. See Federal Contract Compliance Manual, p. 304 (“Government Contract”) and 321 (“Subcontract”), October 2014.  Understandably, one federal court has remarked that this definition of a subcontractor “is hardly a model of clarity.” Liberty Mut. Ins. Co. v. Friedman, 639 F.2d 164, 167 (4th Cir. 1981).  In any event, the phrase is interpreted broadly to assume coverage as a subcontractor and ignorance of the fact that a company is a covered subcontractor is no excuse.

For instance, a medical equipment vendor providing supplies to a prime federal contractor or a staffing agency providing temporary employees to a prime federal contractor may step into the shoes of that prime contractor and be subject to these obligations.  However, even when a company provides goods or services necessary to the performance of a prime federal contract, it must still satisfy various threshold materiality requirements before becoming subject to the various affirmative action obligations of these laws.

Each of these applicable affirmative action laws requires the federal prime contractor to provide notice to the supplier or subcontractor of these potential obligations through the following EEO notice in any contract or purchase order:

“This contractor and subcontractor shall abide by the requirements of 41 CFR §§ 60-1.4(a), 60-300.5(a), and 60-741.5(a). These regulations prohibit discrimination against qualified individuals based on their status as protected veterans or individuals with disabilities, and prohibit discrimination against all individuals based on their race, color, religion, sex, or national origin. Moreover, these regulations require that covered prime contractors and subcontractors take affirmative action to employ and advance in employment individuals without regard to race, color, religion, sex, national origin, protected veteran status or disability.”

Additional rule changes in 2014 now require the prime contractor to send annual written notification of the company’s policy on equal employment opportunity and affirmative action obligations to all subcontractors, including vendors and suppliers, and “request appropriate action on their part.” While it remains less than clear what that “appropriate action” might be, it is clear there is a renewed interest by the federal government to make sure companies down the supply chain are on notice of these obligations.

Upon receipt of notification from a federal contractor for which a company supplies personal property or non-personal services, the company must determine whether it too is considered a federal contractor.  Ultimately, should your company receive notice indicating that it may well be a federal contractor subject to these rules, you now understand why, and we welcome any inquiry as to the applicability of those laws to your company.

For more information contact our Employment Group or call 208.344.6000