The Office of Federal Contract Compliance Programs (OFCCP) has submitted a new scheduling letter and itemized listing for review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act (PRA). The present scheduling letter expires in 2023.
However, it appears that OFCCP is using the new scheduling letter as an end around the Administrative Procedure Act (APA) to impose new requirements not identified in the regulations. As pointed out by John Fox, President & Partner, Fox, Wang, & Morgan P.C., “OFCCP first needs APA Notice and Comment and a ‘Final Rule,’ and thereafter Paperwork Reduction Act final approval from OMB.” Contractors may submit written comments to the proposal by January 20.
The issue is three-fold. First, does OFCCP understand the burden they are causing contractors if this new scheduling letter comes into play? Second, given that most of these burdensome requirements will lead to technical violations, (when discrimination violations are generally 2% of the audits year to year lead to discrimination findings), is what they are asking worth the buck? Third, given that audits that do deep dives take a long time to complete (years), will the new scheduling cause even further delays (which the Government Accounting Office noted in a previous report that contractors already do not submit AAPs timely) from submission to completion?
Note that the scheduling letter still requires 30 days to submit once received. Is that reasonable with all these new requirements? Likely not.
The following is a discussion of the troubling new requirements of the proposed scheduling letter and itemized listing.
Scheduling Letter:
If you are a post-secondary institution or federal contractor with a campus-like setting that maintains multiple AAPs, you must submit the information requested in this scheduling letter for all AAPs developed for campuses, schools, programs, buildings, departments, or other parts of your institution, or company located in [city and state only].
Previously OFCCP would only audit a single location, even if in a campus setting. Now they want to audit all locations in a campus setting. It’s not just universities covered but also hospitals, manufacturing, etc. OFCCP is using the PRA to change long-standing audit selection practices. Although OFCCP claims that this approach will provide a more holistic approach to understanding the contractor, it merely provides them more data which they may combine and create false positives. It has already become a standard practice for OFCCP Compliance Officers in audits to ask for a rolled-up AAP if a location has a low count of employees. This approach is violation of 41 CFR 60-2.1, which states that “[e]ach nonconstruction contractor must develop and maintain a written affirmative action program for each of its establishments if it has 50 or more employees.”
This approach of attempting to rewrite the regulations through the new scheduling letter and the PRA is a violation of the APA and is also beyond the scope of the current regulations where the regulations are violative of the recent Supreme Court case Sackett v. Environmental Protection Agency which held that agencies cannot go beyond the scope of the regulation or law or if the law is quiet to create a regulatory process where there is none. The current requirements under 41 CFR § 60-2.1(d)(4) is
“If a contractor wishes to establish an affirmative action program other than by establishment, the contractor may reach agreement with OFCCP on the development and use of affirmative action programs based on functional or business units. The Director, or his or her designee, must approve such agreements. Agreements allowing the use of functional or business unit affirmative action programs cannot be construed to limit or restrict how the OFCCP structures its compliance evaluations.”
In effect, the new approach for selection by OFCCP is to force contractors to create a functional or business AAP, which is something the current leadership of the agency prefers. The larger the plan, the more data, and the more data, the more likely to have indicators of discrimination, whether valid or not.
Itemized Listing:
Revised: 4. For each job group, a determination of minority and female availability pursuant to 41 CFR § 60-2.14.
Previously this analysis was limited to § 60-2.14 c) which states:
In determining availability, the contractor must consider at least the following factors:
(1) The percentage of minorities or women with requisite skills in the reasonable recruitment area. The reasonable recruitment area is defined as the geographical area from which the contractor usually seeks or reasonably could seek workers to fill the positions in question.
(2) The percentage of minorities or women among those promotable, transferable, and trainable within the contractor's organization. Trainable refers to those employees within the contractor's organization who could, with appropriate training which the contractor is reasonably able to provide, become promotable or transferable during the AAP year.
By expanding it to the full § 60-2.14, it includes reviewing current and discrete statistical information available, reasonable recruitment area, and the pool of promotable, transferable, and trainable employees. This section may have been expanded to confirm that the newest census statistics are being used and that the contractor reviews where the applicants and employees coming from. Zip code analysis is very popular, but it doesn’t answer the question why one zip code had applicants, and another didn’t which were located right next to each other.
New: 7. Pursuant to 41 CFR § 60-2.17(c), provide a list identifying all action-oriented programs designed to correct any problem areas identified pursuant to 41 CFR § 60-2.17(b).
41 CFR § 60-2.17(c) states:
(c) Action-oriented programs. The contractor must develop and execute action-oriented programs designed to correct any problem areas identified pursuant to § 60-2.17(b) and to attain established goals and objectives. In order for these action-oriented programs to be effective, the contractor must ensure that they consist of more than following the same procedures which have previously produced inadequate results. Furthermore, a contractor must demonstrate that it has made good faith efforts to remove identified barriers, expand employment opportunities, and produce measurable results.
OFCCP in its supporting documentation notes that it “does not currently collect information about a contractor’s action-oriented programs with the current compliance review scheduling letter.” This requirement harkens back to the 1990s when good faith efforts were generally provided and considered required in a narrative form to be provided although not identified specifically in the itemized listing at that time. Because it got so burdensome especially for those contractors with multiple site locations, it has been selectively enforced since the end of the Wilshire (Democratic) leadership of OFCCP.
New: 8. (Previously 7) . . . The documentation should also indicate whether you believe the totality of your efforts were effective. In the event the totality of your efforts was not effective in identifying and recruiting qualified individuals with disabilities, provide detailed documentation describing your actions in implementing and identifying alternative efforts, as provided in 41 CFR § 60-741.44(f)(3).
OFCCP states in its supporting document that language is the result of contractor “confusion over what documentation is sufficient for their Item 8 submission,” and will provide for “uniformity in contractors’ submissions and ensure consistency in what OFCCP is requesting across field offices as well as allow OFCCP to more efficiently assess whether the contractor is in full compliance with 41 CFR § 60-741.44(f).”
As this aspect becomes a required customizable section, it will increase the general costs of AAP development and require greater headcount for employers to complete this work. This situation will especially be costly for those contractors with hundreds of AAPs or more. Coordinating data in a decentralized environment can be very difficult. More troubling is the fact that most AAP locations may have only one or two HR professionals at its location. The costs may go beyond the bandwidth of the HR team currently in place.
New: 12 previously 11: . . . If any underutilization of individuals with disabilities is identified, provide a description of the steps taken to determine whether and where impediments for equal employment opportunity exist in accordance with 41 CFR § 60-741.45(e). Per 41 CFR § 60-741.45(e) and (f), this description shall include your assessment of personnel processes, the effectiveness of your outreach and recruitment efforts, the results of your affirmative action program audit, any other areas that might affect the success of the affirmative action program, and a description of action-oriented programs developed and executed to correct any identified problem areas. Provide this information for the immediately preceding AAP year. . .
This section is similar to the New 8 and justifies it for the same reason. However, as pointed out previously, contractors with many sites will find both the time to complete and costs associated with it increasing.
New 16. (Previous 15): If you are a post-secondary institution, submit copies of your Integrated Postsecondary Education Data System (IPEDS) Human Resources Survey Component data collection reports for the last three years.
This request harmonizes contractors providing three years of EEO-1 reports and universities to do the same with the University IPEDs report, which is filed with the Department of Education. It was not requested in the old, itemized listing.
New 18. (Previously 17): If you are six months or more into your current AAP year on the date you receive this listing, . . .
Previously, the itemized listing stated, “If you are six months or more into your current AAP year on the date you receive this Scheduling Letter and Itemized Listing.” Now the focus is on the listing, which is poor draftsmanship. Is there a different listing than the itemized listing or is it the same? Previously, everything turned on the receipt date of the scheduling letter.
New: 19. Documentation of policies and practices regarding all employment recruiting, screening, and hiring mechanisms, including the use of artificial intelligence, algorithms, automated systems, or other technology-based selection procedures.
When there is an issue with hiring, this itemized listing (but for AI) would be a question for the onsite. OFCCP in their justification states that the “use of [algorithmic] technologies may lead to instances of screening or selection bias” and so the “addition of this requirement will allow OFCCP to assess the contractor’s use of such technology to determine whether these tools are creating barriers to equal employment opportunity.” AI is not used by all organizations; it is an expensive tool. And unless OFCCP has experts on AI, the audit will slow to a crawl as experts will have to be engaged (this increasing costs) to explain how the AI works. Moreover, the documentation for hiring for many organizations may be voluminous, as each position hired may have separate requirements (e.g. Director level v. Operator). And generally hiring is local, with only general guidelines from corporate. As this documentation may change year to year, this section will have to be customizable year to year.
New: 20. (Previously 18): . . . c. Promotions: For each job group or job title, provide the total number of promotions by gender and race/ethnicity, and identify whether each promotion was competitive or non-competitive. Provide documentation that includes established policies and describes practices related to promotions in the submission. Also include the previous supervisor, current supervisor, previous compensation, current compensation, department, job group, and job title from which and to which the person(s) was promoted.
d. Terminations: For each job group or job title, provide the total number of employee terminations, broken down by reason(s) for termination (e.g., retirement, resignation, conduct, etc.) including gender and race/ethnicity information for each. When presenting terminations by job title, also include the department and job group from which the person(s) terminated.
e. For each job title or job group, provide the total number of employees, by gender and race/ethnicity, as of the start of the immediately preceding AAP year.
This section is expanding the requirements for documentation. Previously, a summary of promotions and terminations were required. Now, they are requiring a list of employees identified for both promotions and termination. OFCCP started asking for termination lists to show voluntary and involuntary, but it could have been provided by summary data. Now the reporting requirement is becoming more comprehensive.
Note that in Promotions, OFCCP requires documentation as to promotion procedures. As OFCCP is asking for compensation data and voluntary and involuntary status, it will be important for contractors to identify what a promotion is within the organization. Moreover, OFCCP defines a “competitive promotion” as a promotion of a candidate who was considered from a pool of other candidates. OFCCP in its justification defines a “non-competitive promotion” as a promotion of a candidate who was not considered amongst a pool of other candidates (e.g., “in-line” and “step”) promotions. Although the scheduling letter does not include a definition of promotion, it is likely coming. Previously, it was only promotions between job groups were submitted, and it is unclear if OFCCP is changing that approach.
A major issue for many contractors is that their HRIS or payroll systems (depending where the report is generated now) will likely show changes and multiple lines for each employee. It will be a burden to review thousands or tens of thousands of lines of changes to determine if a promotion occurred. OFCCP is still under the illusion that pulling promotion data is simply pressing a button.
As for the previous workforce data, most contractors provided that information initially, either providing their disparity analysis or the job group analysis from the previous year. This section puts in writing something that most contractors already provide.
New 21. (Previously 19): Employee level compensation data for all employees (including but not limited to full-time, part-time, contract, per diem or day labor, and temporary employees, including those provided by staffing agencies) as of (1) the date of the organizational display or workforce analysis and (2) as of the date of the prior year’s organizational display or workforce analysis. For each snapshot, provide a single file that contains for each employee, at a minimum, employee name or numerical ID, gender, race/ethnicity, hire date, job title, EEO-1 Category and job group. If the requested data is maintained in an accessible electronic format, please provide it electronically.
In this section, OFCCP is determining without rulemaking as to joint employment status that temporary and contract employees are employees under the contractor’s control when they could be controlled by the staffing or contracting agency. OFCCP is going to rely on the NLRB reinstating the Ferris Browning definition of joint employment status. Yet OFCCP and NLRB are separate agencies with different agendas. The agency should conduct rulemaking if they want to expand it beyond the traditional full-time, part-time regular employee.
In addition, OFCCP is asking for two years of compensation data. Currently, OFCCP is asking only for current year data. This situation could work both ways on contractors, showing they made changes or they did not. It is also unclear if there are problems with the previous year data if OFCCP will try to conciliate even though current year data may have no issues. The direction of OFCCP is clear, though, in that contractors will be “required” to conduct yearly analysis of compensation data whether needed or not, driving up the costs of compliance, especially for those contractors that compensation is a local matter, not centralized.
Also, OFCCP is now requiring upfront information as to compensation policies and practices, requiring contractors to prepare for audits which may have some centralized requirements but be also localized.
c. Provide documentation and policies related to the contractor’s compensation practices, including those that explain the factors and reasoning used to determine compensation (e.g., policies, guidance, or trainings regarding initial compensation decisions, compensation adjustments, the use of salary history in setting pay, job architecture, salary calibration, salary benchmarking, compensation review and approval, etc.).
Since the pandemic started, there have been a number of questions regarding nationwide or local pay and market rate mid-year adjustments due to inflation, which is likely not a usual or documented practice. With less working in compensation and the use of market data declining and the compensation philosophies in flux, OFCCP is not only increasing of an audit but the overall cost of compliance.
New 22. Documentation that the contractor has satisfied its obligation to evaluate its “compensation system(s) to determine whether there are gender-, race-, or ethnicity-based disparities,” as part of the contractor’s “in-depth analyses of its total employment process” required by 41 CFR 60-2.17(b)(3). Include documentation that demonstrates at least the following:
- When the compensation analysis was completed;
- The number of employees the compensation analysis included and the number and categories of employees the compensation analysis excluded;
- Which forms of compensation were analyzed and, where applicable, how the different forms of compensation were separated or combined for analysis (e.g., base pay alone, base pay combined with bonuses, etc.);
- That compensation was analyzed by gender, race, and ethnicity; and
- The method of analysis employed by the contractor (e.g., multiple regression analysis, decomposition regression analysis, meta-analytic tests of z-scores, compa-ratio regression analysis, rank-sums tests, career-stall analysis, average pay ratio, cohort analysis, etc.).
OFCCP is attempting to determine that the contractor has satisfied its obligation to evaluate its “compensation system(s) to determine whether there are gender-, race-, or ethnicity-based disparities,” as part of the contractor’s “in-depth analyses of its total employment process” required by 41 CFR 60-2.17(b)(3). Yet OFCCP is using Directive 2022-1 revised as its language for this section. A Directive is not regulation. If a contractor uses a simple method such as an eyeball approach, will OFCCP cite the contractor for insufficient analysis, especially if no compensation issues are identified?
In fact, the regulations do not prescribe a specific method or analysis needed to comply with 60-2.17(b). When OFCCP made substantive changes to the regulation in 2000, OFCCP stated, “contractors have the ability to choose a type of compensation analysis that will determine whether there are gender-,race-, or ethnicity-based disparities.” Therefore, the regulations allow contractors to determine an appropriate evaluation that fits its needs. If OFCCP wants to prescribe a specific method or analysis, it should go through the normal rulemaking process and seek public comment. This comment was the same that was raised by OFCCP at the time the Directive came out.
Further, this section is “requiring” contractors for each location, even if it is not necessary (e.g. manufacturing location that experiences little change in workforce or has low minority and women count in white collar positions). If a contractor has thousands of locations, the cost of these analyses might exceed the value of the contract.
New 23. (Previously 20): Copies of reasonable accommodation policies, and documentation of any accommodation requests received and their resolution, if any, for the immediately preceding AAP year. If you are six months or more into your current AAP year when you receive this listing, provide this information for at least the first six months of the current AAP year.
This section is asking for accommodations made for the first six months of the current plan year if the listing was received six months or more in the current plan year.
New 24. Copies of existing written employment policies concerning equal opportunity, including antiharassment policies, EEO complaint procedures, and employment agreements, such as arbitration agreements, that impact employees’ equal opportunity rights and complaint processes in place for the immediately preceding AAP year. If you are six months or more into your current AAP year when you receive this listing, provide this information for at least the first six months of the current AAP year.
This section is new and is a technical review. This information is at times provided at the beginning of the audit or provided when an additional data request is made. The main difference is that OFCCP will want to see the policies dated for the current year if the listing was received six months or more in the current AAP year. Many contractors have been found not to update their policies until an audit letter is received.
New 25. (Previously 21): Your most recent assessment of your personnel processes, as required by 41 CFR §§ 60-300.44(b) and 60-741.44(b). This assessment shall include, at a minimum, a description of the assessment, any impediments to equal employment opportunity identified through the assessment, and any actions taken, including modifications made or new processes added, as a result of the assessment.
The OFCCP is proposing to add a requirement of specific documentation of practices assessed from the description to impediments if any to actions taken. Previously, unless required, a general statement of assessment conducted on an as needed bases would be sufficient. It should be noted that if this assessment is done yearly, it increases the time and costs of preparation of an AAP.
Final analysis
The proposed OFCCP scheduling letter may be the beginning of horse trading of some sort with the contractor community. However, if it stands, more contractors and subcontractors will walk away from contracting with the government as the costs of compliance may turn out to be almost or greater than the value of the contract, especially if consultants have to increase pricing or contractors have to hire more headcount to keep up with these compliance expectations. Not every federal contractor is making millions of dollars on a contract and can afford the margin loss. In the long run, the cost to the federal government as the supply of contractors diminish could rise dramatically.
OFCCP has always stated that contracting with the federal government is a privilege, not a right. With this proposed scheduling letter, it is a nightmare, not a privilege. OFCCP seems to be asserting itself on the contracting stage beyond the scope of the regulations and the importance of the agency. In certain cases, it is pushing for the submission of data when contractors have no clue how the data will be used, such as two years of compensation data or the use of data from campus wide or city-wide audit. Using the scheduling letter to do a run around the APA coupled with increasing the costs to contractors puts the agency in a bad light because it shows that the agency does not understand the inner workings of the administration of contractors and it inserts themselves, not just in compliance, but the actual governance of contractors.
In addition, OFCCP is not providing contractors additional time to submit an AAP given the new submission requirements. It is still 30 days.
Overall, in the final analysis, the time to conduct an audit will greatly increase. In the long run, if the new scheduling letter does not change the results of audit closures and greatly lengthens the time to complete an audit, the agency has then accomplished nothing other than increased costs and headaches. OFCCP should be focused on triage, identifying contractors for a better use of its resources. But likely, if the Republicans take charge again, they will do what the administration did under Director Leen, and close the aged cases.
Source: Proskauer 11/21/22, DirectEmployers 11/21/22, DCI 11/21/22