High road contracting policy comes into focus

For months, few concrete details have emerged about the Obama administration's controversial, but as yet unannounced High Road contracting policy, which would allow agencies to favor labor-friendly firms when evaluating bid proposals.

But documents obtained last week by Government Executive could shed some light on the proposed initiative. The documents detail how the policy change could be implemented and its implications for the federal acquisition environment. It is not clear if administration officials or an outside advocacy group authored the memos.

One document, dated June 25, 2009, states positive weight in the source selection process would be given to bidders based on the labor standards for their workforce. The criteria would include whether the bidder pays a livable wage, provides "quality, affordable health insurance," an employer-funded retirement plan and paid sick leave. Other factors would include the company's record in complying with tax and labor laws.

The labor and employment information would be systematically collected from all contractors and be made available through a public database, according to a second, undated memo.

"These policies will create an incentive for federal contractors to improve compensation and benefits across their entire workforce, a universe which could include as many as 26 million people, according to the [Department of Labor's Office of Federal Contract Compliance Programs]," the June 2009 memo states. "This is a significant step toward rebuilding a middle class and sets a powerful example for state and local procurement authorities, which may be inspired to take similar action."

But critics suggest High Road is merely a thinly veiled attempt by the administration to reengineer private sector compensation.

The plan, as described in the documents, would apply not only to employees working on government contracts but also to all company staffers. Several large corporations, such as Exxon Mobil and General Electric, contract with the government but earn an overwhelming majority of their revenue from nonfederal sources.

"This is a social policy goal," said Glenn Spencer, executive director of the Workforce Freedom Initiative at the U.S. Chamber of Commerce. "The objective is to impact wages nationwide using the backdoor of contracting."

Office of Management and Budget spokesman Thomas Gavin said the administration has not made any final decision on the High Road policy and much of the speculation regarding the plan is "premature."

"High Road procurement reform is one of various policy initiatives that we are reviewing in our continuing efforts to reform government contracting," Gavin said. "Any policy in this area will support the president's agenda to reform government contracting in ways that will save taxpayers money while protecting workers and ensuring that we do business only with firms that follow tax, labor and environmental regulations."

According to the June memo, the High Road initiative would be run out of a central office, possibly at OMB, which would collect information on the labor records of potential bidders. Based on this information, each employer would be assigned a numerical score using a standardized formula. Contracting agencies then would receive this score and determine the minimum grade necessary for bidding eligibility.

Each agency's labor standards evaluator -- a new position created through the policy that would be modeled after federal small and disadvantaged business officers -- would have the authority to vary this score to a reasonable extent, "taking into account bidders' credible commitments to implement good labor standards on the contract in question and/or to address the deficiencies [that] reduced the original score," the document said.

A "labor standards evaluation factor" would be mandatory for all competitive source selections, according to the memo. Agencies already consider a contractor's price, technical ability and past performance when evaluating bid proposals.

An advisory council would be appointed to help guide implementation of the policy and would include representatives from business, labor, government, local communities, and experts in employment and contracting policy, documents said.

The June memo acknowledges, "some part of the resulting increase in labor costs is likely to be passed on to the government in the form of higher bid prices. ... In addition, modest staff increases may be necessary to administer the policy. However, these increases would be substantially offset by public cost savings, productivity gains through reduced turnover, and increased price competition between bidders as more 'high road' bidders enter the market. Higher wages will also stimulate economic demand."

A third memo, titled "Draft High Road Contracting Policy," notes the plan could be implemented by executive order. One source familiar with the proposal, however, said attorneys at OMB have expressed concerns with that approach.

Perhaps sensing that implementing the High Road policy could face legal, procedural or political hurdles, the June memo argues there is precedent for including socioeconomic goals in the bid evaluation process. The document notes that to be eligible for prime contracts, firms must submit a plan for subcontracting with small and disadvantaged businesses and prove they comply with nondiscrimination regulations.

In December 2000, the Clinton administration suggested a change to the Federal Acquisition Regulation requiring contracting officers to take into account a firm's compliance with tax, labor and employment, environmental, antitrust, and consumer protection laws before awarding a contract. The proposed rule produced more than 1,800 comments, including many critics who suggested it would be used to blacklist certain contractors.

Nonetheless, the rule went into effect on Jan. 19, 2001, the last full day of the Clinton administration. Six days later, the Bush administration postponed implementation of the rule and by April 2001, the policy was permanently suspended.