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Government Mulls Contractor Rules on Wages, Benefits

February 26, 2010
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Wages and benefits offered by a company could influence whether it is chosen to do work for the federal government under new rules being considered by the Obama administration.

An early February letter from two members of Congress speculates that President Barack Obama’s Middle Class Task Force has drafted an executive order for Obama to sign that would implement the regulation.

Under the proposal, which was first reported by news site the Daily Caller and The New York Times, a company’s fitness for being awarded a federal contract would be determined in part by its compensation and leave policies.

“Positive weight in the source selection process is given to bidders based on the labor standards of their entire workforce,” says an administration document obtained by Workforce Management.

The standards would be measured by “whether the bidder pays a livable wage and provides quality, affordable health insurance; an employer-funded retirement plan; and paid sick days.”

The initiative would force contractors to meet wage standards above those set by current law. Advocates say it would increase job quality for American workers, about 2 million of whom worked on federal contracts in 2006.

Opponents say the proposal would raise employment costs and make federal contracting prohibitive for small businesses.

The idea is being championed by the Services Employees International Union and the Center for American Progress, a left-leaning Washington policy organization.

David Madland, director of the American Worker Project at the Center for American Progress, said that contracting is a ripe area for rewarding companies that treat their employees well.

He said that the so-called High Road Contracting Policy will improve the service that the government receives and save taxpayer dollars because better wages will lead to higher productivity and product quality.

“It’s going to help workers; it’s going to help taxpayers; it’s going to help business,” Madland said.

The U.S. Chamber of Commerce and congressional Republicans oppose the plan, calling it a sop to unions that provide strong political support to Obama and other Democrats.

“This is an attempt by the unions to force their policy agenda on a wide swath of the economy by rigging the government procurement process,” said Glenn Spencer, executive director of the chamber’s Workforce Freedom Initiative. “Moreover, it could increase costs to the taxpayers by $100 billion a year at a time when we are struggling with unsustainable deficits.”

An administration memo acknowledges that the initiative would increase contract prices and “potentially negatively impact nonunion and small businesses.”

Madland maintains that by paying substandard wages and skimping on benefits, “low-road” contractors force their employees to turn to government for medical care and welfare benefits. He says that a high-road policy in Maryland has resulted in “negligible cost increases” for business.

The proposal looks familiar to Brett McMahon, vice president for business development at Miller & Long, a Bethesda, Maryland, construction firm. Companies in the building trades have long been the subject of union efforts to impose wage and benefit standards, he said.

“It’s sad that they want to inflict the same kind of damage on the rest of the economic sphere,” McMahon said. He warns companies in other industries: “Your life is about to change and you have no idea.”

McMahon contends that the “high-road” effort is being spurred by organized labor’s failure to gain congressional approval for the Employee Free Choice Act, a measure that would enable workers to form unions by signing cards rather than by voting in a secret-ballot election.

“They didn’t get card check so far,” McMahon said. “They desperately need somebody to remake the game for them.”

Madland dismisses any connection to labor law legislation.

“It has nothing to do with card check,” Madland said. “It’s about raising workers’ standards. It’s the kind of thing that is good for the whole country.”

Two House Republicans, however, assert that “high road” will hurt the companies that produce the jobs for the workers Madland is trying to protect.

“[I]t threatens to put unelected bureaucrats of the federal government in the business of approving or disapproving the employment and employee benefit practices of countless private-sector businesses large and small,” wrote Reps. Darrell Issa, R-California, and John Kline, R-Minnesota and ranking member of the House Education and Labor Committee, in a February 4 letter to Jared Bernstein, executive director of the White House Middle Class Task Force.  

Howard Radzely, a partner at Morgan Lewis in Washington, said companies should look for more regulatory moves by the administration in coming weeks now that political appointees are settling into their offices at federal agencies.

“You’ll see the pace of things pick up,” said Radzely, a former deputy secretary of labor in the Bush administration.

—Mark Schoeff Jr. 

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