Groundbreaking Change to Rules for Federal Contractors Aims to Stamp Out Human Trafficking Up and Down the Supply Chain

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Introduction

Companies that contract with the federal government will soon be subject to new rules aimed to stamp out human trafficking (see discussion of some of the existing rules and regulations here and here).  The just-released Federal Acquisition Regulation (FAR) provisions, arising out of President Barack Obama’s 2012 Executive Order 13627 (which you can read about here), mandate that all federal contractors take certain actions to combat human trafficking and slavery in their companies and in their supply chains.  The new FAR provisions will have an immediate and significant impact on contractors, subcontractors and lower-tier subcontractors to the U.S. government, the world’s largest consumer of goods and services.  Our flow chart deconstructs the new FAR provisions.

More than 300,000 companies and organizations do business with the U.S. government and want to continue to do business with the government.  There also are hundreds of thousands of companies around the world that, as federal subcontractors, provide supplies and services to these prime contractors.  The compliance reality for all of these companies has changed, and many must now play catch-up or risk severe penalties.

What are the new requirements for federal contractors?

On January 29, 2015, the Federal Acquisition Regulatory Council, in coordination with various agencies, promulgated detailed rules calibrated to put into action the zero-tolerance objective.  These rules will take effect on March 2, 2015.  The just-promulgated (and much-anticipated) rules fundamentally alter a federal contractor's compliance calculus.  Consider, for example, that the rules require a government contractor and subcontractor to, among other things:

  • Prevent severe forms of trafficking and forced labor[1] by taking concrete, preventive steps to ensure employees do not engage in trafficking-related activities.
  • Cooperate with, and provide access to, enforcement agencies investigating compliance with anti-trafficking and forced labor laws.
  • Mandatorily Disclose (or self-report) if it receives any credible information from any source that alleges a contractor employee, subcontractor, or subcontractor employee has engaged in conduct that violates the new FAR provisions.
  • Develop and maintain a detailed compliance plan for contracts for supplies.
  • Annually certify that, when applicable, it has implemented a compliance plan, and that neither it nor its employees engaged in any trafficking-related activities, or, if violations were identified, it has taken appropriate remedial and referral action.

The mandatory self-reporting of a company’s awareness of trafficking-related conduct, and the potential initiation of suspension or debarment actions, will—or, at least, should—leave even the most ardent anti-trafficking advocate surprised.  

If the company does any business with the government, that business may be impacted by the just-released rules. 

Compliance plan and certification exemption for certain contracts

Some companies, however, will be exempt from two key obligations in the rule.  Only those companies that provide services or supplies overseas, with an estimated contract value in excess of $500,000, will have to maintain compliance plans and annually certify.  In addition, the compliance plan and certification requirements will not apply to companies providing commercially available off-the-shelf supplies. 

What happens to federal contractors not in compliance?

Businesses that do not take the new rules seriously do so at their own considerable peril:

  • Termination for default of the contract
  • Suspension/debarment: A potential business death knell.
  • Imprisonment: “Knowing and willful” false certification is a crime.  Consequences include up to five years’ imprisonment and a $250,000 fine.
  • False Claims Act: Government fraud.  Includes qui tam actions encouraging whistleblowers.  Typically provides for 15 percent to 25 percent of damages recovered (31 U.S.C. § 3729).
  • Class actions: Deceptive advertising. Consumers complain that they would not have purchased a product if they knew it was tainted by trafficking (consider recent “cruelty-free” class actions).
  • Consumer boycotts: Few consumers want products that are made by children or trafficked/forced laborers.  Trafficking is today’s consumer hot topic.
  • Advocacy group pressure: Hundreds of advocacy groups worldwide stand ready to target businesses accused of violating anti-trafficking laws and regulations.

What should your company do?

Today, an estimated 27 million people worldwide are subject to human trafficking, and a significant portion of this trafficking takes place in the form of forced/trafficked/slave labor.  Forced labor in the private economy is estimated to generate $150 billion in illegal revenue each year.  With the far reach of the federal government, there is a very real possibility that somewhere on its supply chain, a large number of subcontractors run the risk of violating the Executive Order.

The new FAR provisions notably raise the bar by requiring companies to ensure that their entire supply chains are free from human trafficking.  With these new provisions in place, it is important that your company takes action to ensure compliance:

  • Contact counsel to help determine whether the new FAR provisions apply to your business and, if they do, how to achieve compliance.
  • Experienced counsel can also assist in preparing the required training materials and certifications, drafting compliance plans, devising due diligence and vetting procedures, and, as necessary, conducting internal audits and investigations into allegations of non-compliance.

Additional Information

You can find the full text of the new FAR provisions at https://www.federalregister.gov/articles/2015/01/29/2015-01524/federal-acquisition-regulation-ending-trafficking-in-persons.


 [1] The FAR defines "severe forms of trafficking" as "(1) Sex trafficking in which a commercial sex act is induced by force, fraud, or coercion, or in which the person induced to perform such act has not attained 18 years of age; or (2) The recruitment, harboring, transportation, provision, or obtaining of a person for labor or services, through the use of force, fraud, or coercion for the purpose of subjection to involuntary servitude, peonage, debt bondage, or slavery." (FAR 52.222-50). "Forced labor" means "knowingly providing or obtaining the labor or services of a person—(1) By threats of serious harm to, or physical restraint against, that person or another person; (2) By means of any scheme, plan, or pattern intended to cause the person to believe that, if the person did not perform such labor or services, that person or another person would suffer serious harm or physical restraint; or (3) By means of the abuse or threatened abuse of law or the legal process." (FAR 52.222-50).

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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