Federal Contractors Be Alert: OFCCP Is On the Move; Good News for TRICARE Health Care Providers

New Proposed Affirmative Action Regulations for Individuals with Disabilities Imminent

The Office of Management and Budget (OMB), on November 30, 2011, approved a Notice of Proposed Rulemaking (NPRM) to revise the Office of Federal Contract Compliance Programs' (OFCCP's) regulations implementing affirmative action for persons with disabilities under Section 503 of the Rehabilitation Act of 1973. Publication of the NPRM in the Federal Register is imminent. The disability affirmative action regulations have not undergone a comprehensive revision since 1996. According to OFCCP Director Patricia Shiu, the old regulations "were simply not cutting it," and the upcoming NPRM is "going to be a game changer." We will share our analysis of the new proposed regulations as soon as possible after their publication.

Stepped-Up Enforcement

The Agency is newly emboldened by the recent ruling in favor of the OFCCP in the closely watched United Space Alliance case, which upheld an earlier administrative ruling requiring United Space Alliance to produce additional compensation data as requested by OFCCP, even though the threshold tests conducted during the agency's desk audit found that there was no discrimination. New complaints against other contractors have been filed in the past few weeks with the OFCCP and the Solicitor's Office acting collaboratively and aggressively.

New Wave of OFCCP Scheduling Letters Coming Soon

Many OFCCP offices will be scheduling audits in the next few months. The Chicago District office of the OFCCP, which has jurisdiction over federal contractors in the Chicagoland area, central Illinois, eastern Iowa, and northern Indiana, will be issuing 165 scheduling letters to supply and service contractors and will select 15-20 construction contractors for evaluation within the next one to two months, according to District Director Mike Thomas. Addressing the Chicago Industry Liaison Group last Friday, Mr. Thomas reported that seven new compliance officers started in the Chicago District Office last week, increasing the number of compliance officers in the Chicago District by over 50%. In addition, according to remarks by Mr. Thomas, there will be an uptick in the involvement of the Solicitor's Office in the Midwest Region of the OFCCP. The Midwest Region will now typically involve the Solicitor's Office in any case with non-technical violations.

Responding to Audit Letters Will Require Significantly More Resources

While OMB has not yet approved OFCCP's proposed revisions to its Scheduling Letter and Itemized Listing (the letter contractors receive announcing they are to be audited), contractors should take note that many of the newly proposed data and document requests are being requested by OFCCP now, at the beginning of the desk audit. The proposed Scheduling Letter and Itemized Listing is available here. The changes will increase the complexity of audits from the outset and also will affect the way federal contractors and subcontractors develop portions of their annual affirmative action programs and maintain their human resources information. Some of the most significant proposed changes include:

• Requiring contractors to submit employment leave policies including, but not limited to, policies related to implementing the Family and Medical Leave Act, pregnancy leave, and accommodations for religious observances and practice;
• Requiring contractors to submit applicant flow, hiring, promotion and termination data by job group and job title; by specific race/ethnicity subgroups; and provide actual pools of candidates for promotions and terminations; and
• Requiring compensation data (including base salary, wage rate, and hours worked) to be submitted by gender and particular race/ethnicity data for each employee, by job title, EEO-1 category and job group.

Senate Votes to Exempt TRICARE Health Care Providers from Federal Subcontractor Status

On December 1, 2011 the Senate passed 93-7 a National Defense Authorization bill exempting certain health care providers under the TRICARE network from OFCCP jurisdiction. This bill sets the stage for Congress to trump OFCCP's prior directive covering such employers. TRICARE is the Department of Defense's health benefits program for military personnel and their families. Section 702 of this bill includes the following language plainly exempting TRICARE institutional, professional, and pharmacy network providers from covered subcontractor status:
In establishing rates and procedures for reimbursement of providers and other administrative requirements, including those contained in provider network agreements, the Secretary shall to the extent practicable maintain adequate networks of providers, including institutional, professional, and pharmacy. Network providers under such provider network agreements are not considered subcontractors for purposes of the Federal Acquisition Regulation or any other law.
The House and Senate versions of the bill will have to be reconciled as the House did not provide such an exemption.

What Contractors Should Do Now: Audit Readiness

Be prepared. Consider using the time before you receive a Scheduling Letter to conduct partial or full mock audits. Consult with your legal department or with us about the best approaches for self-audits and whether some or all of the review should be done under attorney-client privilege. If you receive a Scheduling Letter, immediately notify personnel responsible for the establishment and for affirmative action compliance. Also, stay tuned for more information on the NPRM on the Section 503 regulations.

By:Valerie Hoffmanand Christine Hendrickson

Valerie Hoffman is a partner in Seyfarth's Chicago and Los Angeles offices and Christine Hendrickson is senior counsel in the firm's Chicago office. If you would like further information, please contact your Seyfarth Shaw LLP attorney, our OFCCP & Affirmative Action Compliance Team, Valerie Hoffman at vhoffman@seyfarth.com, or Christine Hendrickson at chendrickson@seyfarth.com.