Over the past several years, the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) has been inching towards requiring all covered federal contractors to annually verify whether they have prepared their written affirmative action plan(s) (AAP)[1] And recently, the OFCCP moved one step closer to implementing this initiative when it posted on its website a new page entitled “Affirmative Action Plan Verification Interface” and indicated that it was “Coming Soon.”

This page explains that the “Affirmative Action Plan Verification Interface (AAVI) is a secure web-based interface created to improve communication and the transfer of Affirmative Action Plan data, between Federal Contractors and the Office of Federal Contract Compliance Programs.” As such, it appears all covered federal contractors should now be moving to ensure they are in compliance with their AAP requirements.

The OFCCP wants to implement a verification program because it believes that tens of thousands of covered federal contractors have not been fulfilling their duty to develop and maintain AAP’s annually. “Close to 85 percent of contractor establishments did not submit a written AAP within 30 days of receiving a scheduling letter,” according to OFCCP Directive 2018-07 (citing U.S. Gov’t Accountability Off., GAO-16-750, 18 (Sept. 22, 2016)).

To address the ongoing problems with the current “honor system,” (which requires contractors to produce their AAP’s only upon being audited by the OFCCP), the OFCCP believes that requiring contractors to verify that they are complying with their AAP obligations annually either through an electronic acknowledgment or actual plan submission will result in significantly increased compliance with federal AAP obligations. If either of these options (or a variation) is implemented, the OFCCP expects that covered federal contractors will be much more motivated to comply with their AAP obligations as they will be placed between a rock and a hard place.

That is, if a contractor fails to prepare a plan but certifies that they are compliant, they will be making a material misrepresentation to the government. Knowingly making such a misrepresentation and accepting payment from the government opens a contractor up to possible liability, including qui tam whistleblower civil actions (which would include treble damages) or even criminal consequences under the False Claims Act.

On the other hand, if the contractor simply fails to complete the annual verification, their risk of being selected for an AAP audit will increase exponentially as the OFCCP will likely use this as a factor in the future to identify which contractors could be shirking their AAP obligations. As a result, federal contractors will undoubtedly feel increased pressure to come into compliance.

Based on the likelihood that the AAVI system will become operational in some form shortly, federal contractors should determine now whether they are subject to AAP obligations.

Specifically, federal contractors should determine whether they are a covered contractor by determining if they have a contractual relationship with a federal department, agency or program or if they are a federal subcontractor. If so, they should then ask if the prime or sub contract is worth $50,000 or more annually and determine if they employ more than 50 employees. If the answers to these questions are “yes,” then the contractor is likely covered by the AAP obligations and should commence preparation.

In order to determine whether a business has a contractual relationship subject to the AAP obligations, aka a “government contract”[2], they should ask whether:

• They have an agreement or modification thereof with any contracting agency[3] for the purchase, sale, or use of personal property[4] or nonpersonal services[5].
• They have a current agreement (whether in writing or not) directly with the United States government or any of its departments or agencies (“federal entity”). If so, they should identify the federal entity that they have the agreement with, the services or supplies provided under the agreement and the dollar amount of the agreement.
• They have a current agreement (whether in writing or not) with a federal contractor that has a direct contract with the United States government or any of its departments or agencies (“federal entity”). If so, they should identify the federal entity and the prime federal contractor that they have the agreement with, the services or supplies provided under the agreement and the dollar amount of the agreement.
• They have entered into a covered subcontract[6] and act as a subcontractor (whether in writing or not) to a federal contractor that provides the United States government or any of its departments or agencies (“federal entity”) with supplies or services. If so, they should identify the federal entity and the prime federal contractor that they have the agreement with, the services or supplies provided under the agreement, and the dollar amount of the agreement.
• They have a “bill of lading” (which is a document evidencing receipt of goods for shipment) issued by a federal entity. If so, they should identify the federal entity that they have the bill of lading with, the services or supplies provided under the bill of lading and the dollar amount of the agreement.
• They have a current agreement or bill of lading directly with any federal program such as Medicaid Parts C or D, or the Federal Employee Health Benefits Program. If so, they should identify the federal program that they have the agreement with, the services or supplies provided under the agreement and the dollar amount of the agreement.
• They have entered into any agreement with a federal entity or program to provide their members or beneficiaries with any services, administrative support (claims and data processing), customer service, marketing, medical savings plans/flexible spending plans, health insurance or a combination of these services.
• They have a purchase order or other paperwork from any federal entity or program. If so, they should identify the federal program that they have the agreement with, the services or supplies provided under the agreement and the dollar amount of the agreement.
• They have submitted reimbursement forms to be reimbursed/paid for any supplies or services to any federal entities or programs. If so, they should identify the federal entity or program and review a copy of the reimbursement forms.
• They have any documents or agreements indicating that they participate in any federal entity’s or program’s provider network.
• They have any provider claim numbers that enable them to be reimbursed by or participate in any federal entity’s or program’s provider network. If so, they should identify the federal entity or program and review a copy of the reimbursement forms or numbers.
• They have any documents or agreements indicating any reimbursement guidelines or rates paid to them that were issued by a federal entity or program. If so, they should identify them.

By asking the foregoing questions, businesses that are doing work for the federal government can determine whether they are a covered federal contractor or subcontractor and are thus required to prepare an annual AAP. Failing to make this inquiry now could have serious implications once the AAVI becomes fully operational. While the creation of an AAP may seem like a simple self-analysis, that is not the case. Rather, preparing a compliant AAP requires not only complex statistical analyses of a contractor’s (i) demographic composition of its workforce, (ii) employment activities and (iii) compensation practices, but also a thorough examination of its outreach and recruitment activities. This examination is intended to shed light on a contractor’s employment practices and may require further development of policies to address any disparate treatment or impact findings. Contractors, therefore, should not procrastinate once they recognize the need to develop an AAP.

When a business is unsure if they are a covered federal contractor or subcontractor, they should seek experienced legal counsel because, as the old adage goes, “an ounce of prevention is worth a pound of cure.”

[1] The plans are required pursuant to Executive Order 11246, Section 503 of the Rehabilitation Act, as amended, and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974, as amended and their respective regulations (collectively the “AAP obligations”).

[2] The term “government contract” does not include:

1. Agreements in which the parties stand in the relationship of employer and employee; and
2. Federally assisted construction contracts. 41 C.F.R. § 60-1.3(3).

[3] The term “contracting agency” means any department, agency, establishment, or instrumentality in the executive branch of the U.S. government, including any wholly owned government corporation which enters into government contracts. 41 C.F.R. § 60-1.3.

[4] The term “personal property” includes supplies and contracts for the use of real property (such as lease agreements). 41 C.F.R. § 60-1.3.

[5] The term “nonpersonal services” includes, but is not limited to, to the following services: utilities, construction, transportation, research, insurance and fund depository. 41 C.F.R. § 60-1.3.

[6] The term “subcontract” is defined as any agreement or arrangement between a contractor and any person (in which the parties do not stand in the relationship of the employer and an employee):

1. For the purchase, sale or use of personal property or nonpersonal services which, in whole or in part, is necessary to the performance of any one or more contracts;
2. Under which any portion of the contractor’s obligation under any one or more contracts is performed, undertaken or assumed. 41 C.F.R. § 60-1.3.

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