Obama Uses Contracting Changes To Flex Policy Muscle

By Dietrich Knauth

Law360, New York (January 29, 2014, 9:59 PM EST) — Whether supporting green energy or fighting human trafficking, President Barack Obama has leveraged his authority over federal contracting to push policy goals without the support of Congress, and his newly proposed minimum wage for contractor employees signals a continued willingness to use contracting to push through incremental policy victories.

A key piece of Obama’s State of the Union address on Tuesday centered on his plans to require contractors to pay a minimum wage of $10.10 an hour to employees, part of an overall push for a nationwide minimum wage. While that proposal matched the speech’s theme of promoting executive action when Congress fails to act, it also highlighted the administration’s frequent use of contracting to pursue its policy goals.

“Using executive orders is not new, and contractor employment practices have been an active area for executive branch regulation since the 1960s,” said Charles Tiefer, a law professor at the University of Baltimore and a former member of the congressional Commission on Wartime Contracting. “President Obama, though, is using his power over contracting in a greater variety of ways than did his predecessors. This signals mounting frustration on many, many fronts with congressional inaction.”

Contractors’ employment practices, in particular, have been a sort of proxy war for disagreements between the White House and Republicans in Congress about issues like income inequality, and the minimum wage plan comes just weeks after the president signed a piece of legislation that reined in the amount the government will pay toward the salaries of contractor executives.

Obama has used executive power to change a number of contractor employment practices, requiring them to make more of an effort to retain workers when a federal service contract changes hands, requiring companies to police their suppliers for signs of human trafficking, and introducing new affirmative action rules that require contractors to hire more veterans and people with disabilities — regulations that have drawn protests from many in the contractor community.

Although executive orders cannot match the impact of comprehensive legislation, presidents have often used such orders to build on Congress’ work or prod it to action, Tiefer said.

“Congress can go much further by legislation than the president can by executive fiat, but often it breaks the ice for presidents to go first,” Tiefer said. “The equal employment opportunity program, by executive order, laid the groundwork for later legislation that strengthened the key anti-discrimination statutes.”

Obama’s executive order on human trafficking, for example, was quickly bolstered by legislation that was passed as part of the 2013 National Defense Authorization Act. Sen. Tom Harkin, D-Iowa, said he hopes something similar happens with the minimum wage, asking his colleagues to follow the president’s example and pass his proposal to raise the nationwide minimum wage to $10.10 an hour.

“As I’m sure the president would agree, this is only a first step,” Harkin said in a statement after the speech. “Low-wage workers perform some of the most difficult and important jobs in our society. They should not have to live in poverty, regardless of whether they are employed by a federal contractor or elsewhere in the private sector.”

From a policy perspective, the minimum wage is a curious place to go after contractors, according to Kara Sacilotto, a partner at Wiley Rein LLP. Contractors are already subject to minimum wages set by the U.S. Department of Labor through the Service Contracts Act and the Davis-Bacon Act, among other laws, she said.

“It’s not necessarily fair to single out federal contractors,” Sacilotto said. “They’ve already got some protections. To me this is perhaps a way of moving the needle on the minimum wage. One could argue that it puts a spotlight on an issue and provides greater attention.”

The president’s order will protect some workers not covered by existing laws, although it is unclear how many, according to Jonathan Entin, a law professor at Case Western Reserve University.

“How much of an impact President Obama’s proposal to raise the minimum wage for federal contractors to $10.10 per hour will have could depend on how many minimum-wage workers are employed by federal contractors,” Entin said. “I don’t know the answer to that. But presumably the number is not zero, so the order could make some difference directly and might also exert some pressure on state governments to raise their minimum wages.”

Tiefer estimated that existing minimum wage programs like Davis-Bacon cover less than 50 percent of the contracting workforce, and the practical impact of the executive order will depend in large part on how far it extends into “gray areas” like commercial item procurement and federal subcontracts.

But according to Stan Soloway, president of the Professional Services Council, the Service Contracts Act generally requires higher wages than the proposed $10.10 an hour, and the executive order could create unnecessary ill will toward contractors.

“We are deeply concerned with any implication that federal contractors are paying substandard wages,” he said. “The requirements of the federal prevailing wage laws and the government’s central role in determining the definition of a fair and reasonable wage are clear and long-standing. Moreover, there is natural concern that, amid a national debate over the minimum wage, government contractors are being uniquely singled out.”

Although Obama has been quick to target contractor employment practices in executive orders, he’s sometimes deferred to lawmakers. In 2012, he declined to issue an executive order that would prevent a contractor from discriminating on the basis of sexual orientation because he said it would distract from more comprehensive legislation in Congress.

The president has also used executive orders to change contracting policies in fields far from employment, acting to fill legislation gaps by boosting contractors’ cybersecurity responsibilities, or pursuing an agenda opposed by congressional Republicans by supporting green energy policies through Defense and Energy department contracts.

The military’s green energy initiatives have been a particular point of contention among many Republican lawmakers, who say that the military cannot afford expensive investments in new energy while it cuts costs and downsizes after two wars.

According to Sacilotto, the president’s focus on contracting is part of the higher public profile that contract spending has taken on after the wars in Iraq and Afghanistan, which helped make government contracts into front-page news and a more obvious political battleground.

“Ten years ago, it would have to be a big-time scandal to be in the news, but now you read about government contracts all the time,” Sacilotto said. “If there’s one area where Congress and the president seem to be able to legislate, it’s in regulating government contracts.”

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