Third Quarter 2023 Government Contracts Policy and Regulatory Review

At a Glance

• On June 29, 2023, the U.S. Supreme Court decided the admissions programs used by Harvard College and the University of North Carolina violate the Equal Protection Clause of the Fourteenth Amendment.
• The Department of Labor issued a regulatory overhaul of the Davis-Bacon and Related Acts (DBRA) to expand the definition of “prevailing wage” and more.
• On August 23, 2023, the Office of Management and Budget published its final guidance implementing the statutory requirements of the Build America, Buy America Act provisions of the Infrastructure Investment and Jobs Act.

The third quarter had government contractors staring down the possibility of a government shutdown while also contending with some significant regulatory developments. We review some of those developments below.

The Small Business Administration (SBA) and Affirmative Action

Faegre Drinker’s affirmative action task force has been monitoring the impacts of the U.S. Supreme Court’s decisions in Students for Fair Admissions Inc. v. President and Fellows of Harvard College and Students for Fair Admissions Inc. v. University of North Carolina et al., including what those decisions may mean for government contractors. The task force expected some of the SBA’s preference and set-aside programs to be particularly vulnerable to challenge, and in July, the U.S. District Court for the Eastern District of Tennessee relied in part on these Supreme Court decisions to strike down the 8(a) Program’s rebuttable presumption of social disadvantage (See Ultima Servs. Corp. v. U.S. Dep’t of Agric., No. 2:20-CV-0041-DCLC-CRW (E.D. Tenn. July 19, 2023)). That presumption previously allowed for certain minority groups to be considered socially disadvantaged and therefore eligible for contracts reserved under the 8(a) Program. The court found the presumption unconstitutional, concluding that SBA had failed to show that the presumption furthered a compelling interest and, even if SBA had made such a showing, the presumption was not narrowly tailored to serve that interest. Id.

The SBA responded to the Tennessee court’s decision with a press release and updated guidance, emphasizing that the 8(a) Program would continue. Contractors with concerns about their status under the program and how to proceed in the face of this updated guidance should contact the Faegre Drinker team with their questions.

Long-Awaited Updates to the Davis-Bacon and Related Acts

One of the most anticipated developments of the quarter was that, for the first time in almost 40 years, the Department of Labor (DOL) issued a Final Rule updating and modernizing the Davis-Bacon and Related Acts (DBRA). DBRA requires the payment of locally prevailing wages and fringe benefits on federal contracts for construction, and this Rule redefines “prevailing wage” to make it equivalent to the wage paid to at least 30% of workers in a given trade in a given locality. We explained what this change may mean for federal contractors in detail in our alert titled “DOL Issues Final Rule Updating Davis-Bacon and Related Acts.” 

Continued Emphasis on Sustainable Procurement

In August, the Biden Administration again demonstrated its commitment to sustainable procurement with the Federal Acquisition Regulation (FAR) Council’s issuance of a proposed rule restructuring and updating FAR Part 23 to focus on environmental and sustainability matters. The revisions would dedicate FAR Part 23 to environmental matters, sustainable acquisition and material safety, while also consolidating purchasing program requirements, requirements related to hazardous and radioactive material, and federal facility requirements. A new FAR Subpart 23.1 would also include a directive that agencies prioritize sustainable options and procure sustainable products and services to the maximum extent practicable. It would also require the inclusion of a new FAR clause titled “Sustainable Products and Services” in all solicitations and contracts. The clause would require contractors to:

1. Deliver and furnish sustainable products and services for government use, including use at government-owned, contractor-operated facilities
2. Incorporate sustainable products and services into the construction of a public building or public works
3. Furnish sustainable products and services for use in performing services under this contract, where the cost of the products is a direct cost to this contract (versus costs which are normally applied to the contractor's general and administrative expenses or indirect costs)

“Sustainable products and services” will be defined elsewhere as including products and services that meet the requirements for certain statutory purchasing programs and specific EPA purchasing programs. The proposed rule makes some exceptions for intelligence and national security-related contracting but would otherwise apply to most contractors. While this proposed rule is largely based on existing statutory and regulatory requirements, it may cause some government contractors to reconsider their operations. Faegre Drinker will continue to monitor this proposed rule as the rulemaking process continues. For more information on the Biden Administration’s commitment to sustainable procurement, the firm has previously commented on Executive Order 14057: “Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability.”

OFCCP Rolls Back Trump-Era Changes and Updates Its Reporting Requirements, CSAL List

On August 3, 2023, DOL finalized a rule rescinding Trump-era evidentiary standards and definitions for determining whether contractors and subcontractors have engaged in employment discrimination. Some of the most notable changes include changes to the pre-enforcement notice process, rescinding requirements that previously required those notices to include specific theories of discrimination backed by both “qualitative” and “quantitative” evidence, a demonstration of discriminatory intent, and the identification of any “practically significant” disparities. Commenting on these changes, DOL said the Office of Federal Contract Compliance Programs (OFCCP) will now have “more flexibility in its pre-enforcement and conciliation procedures, promotes efficiency in resolving cases, and promotes greater consistency with Title VII of the Civil Rights Act of 1964.” How the rule will impact contractors depends on how OFCCP chooses to use this increased flexibility — OFCCP may take a cooperative approach or may instead choose to be aggressive in its enforcement. The Faegre Drinker team will keep an eye on the OFCCP’s enforcement patterns as they begin to develop.

Additionally, on August 25, 2023, OFCCP announced that it had updated its Supply and Service Scheduling Letter and Itemized Listing (Scheduling Letter) for all compliance evaluations retroactive to those beginning on August 24, 2023, or after. The updated Scheduling Letter “encourages contractors to submit information electronically, clarifies existing requirements, and requests new information that will allow OFCCP to better assess compliance.” It also announces several changes that require contractors to provide an increased amount of information and support data relating to their action-oriented programs, outreach and recruitment efforts, compensation, and technology-selection process. Faegre Drinker explored those changes further in our alert titled “OFCCP’s New Supply and Service Scheduling Letter Significantly Increases Audit Scope.”

On September 8, 2023, OFCCP released its second 2023 Corporate Scheduling Announcement List (CSAL) of the year. The CSAL notifies 1,000 supply and service establishments (locations) of upcoming audits. Faegre Drinker reviewed the CSAL in detail in our alert titled “Supply and Service Federal Contractors and Subcontractors Should Immediately Review the OFCCP’s Second 2023 Pre-Audit Corporate Scheduling Announcement List.” Supply and federal service contractors who have not already reviewed the CSAL should do so immediately.

Additional Build America, Buy America Act Guidance — Finally!

On August 23, 2023, the Office of Management and Budget (OMB) published a Final Rule implementing the statutory requirements of the Build America, Buy America Act (BABA) provisions of the Infrastructure Investment and Jobs Act (Pub. L. 117-58). The Final Rule adds a new part 184 to Title 2 of the Code of Federal Regulations (2 CFR), revises 2 CFR § 200.322, and, above all, clarifies how to apply BABA’s domestic content preference. We covered the Final Rule’s key definitions and explained how those definitions had changed from those provided in OMB’s April 2022 Memorandum M-22-11 in our alert titled “OMB Issues Final Guidance on BABA Domestic Sourcing Requirements.”

Other BABA-related developments include the Department of Transportation’s (DOT) finalization of a waiver for situations where foreign-sourced materials only make up a small part of a federally funded transportation project. Specifically, the waiver applies when the value of the foreign-sourced materials is below $1 million or 5% of the total cost of materials under a particular federal award — whichever amount is lower. The waiver also applies where the total federal funding for a project is below $500,000. Contractors should be on the lookout as DOT and other agencies continue to issue BABA waivers.

An Opportunity for Feedback

FAR 52.201-1, “Acquisition 360: Voluntary Survey,” went into effect on September 22, 2023. The clause directs offerors to a website where they can provide feedback on the pre-award and debriefing process. As the title of the clause suggests, giving feedback is voluntary. Nevertheless, contractors should take advantage of this opportunity to provide feedback on the procurement process. The Faegre Drinker team can assist contractors with the preparation and submission of comments and feedback.