President Obama is increasingly using federal contractors as testing grounds for his social agenda, including a higher minimum wage and expanded gay rights.
But contractors warn about an eventual tipping point when rules become too costly or difficult. Driving bidders out of the marketplace, they say, will lead to fewer choices and higher costs for the government.
“I would hate to see there be less competition as companies drop out of federal contracting,” said Connie Bertram, co-chair of the government contractor compliance practice at Proskauer. “Contractors are being unfairly picked on because at this point the administration is having difficulty getting things through Congress.”
Many of the rules are still in their infancy. Mr. Obama has announced broad outlines, but his administration is still writing the details. That makes it difficult to calculate compliance costs at this point, contractors said.
Still, they are worried.
“They just know there’s a target on their backs,” said Ben Brubeck, director of labor and federal procurement at Associated Builders and Contractors, a construction trade association. “They’re being used as an experiment to implement some of these new policies that they can’t get through Congress, and so they’re definitely concerned about the effects on their business.”
The Obama administration has raised the minimum wage for government contract work to $10.10 an hour, called for changes to overtime rules, prohibited discrimination against workers based on sexual orientation, called for contractors to report their workers’ salaries and demanded that workplace safety violations be reported to federal officials.
Mr. Obama hoped to push many of those priorities through Congress and apply them to all businesses, but his poor relations with lawmakers on Capitol Hill have forced him to limit action to the federal workforce under his control.
The White House Office Management and Budget didn’t respond to messages seeking comment on the expected costs of compliance.
Ensuring compliance with the proposed rules could become an administrative burden, said Alan Chvotkin, executive vice president of the Professional Services Council.
“[Contractors] can make every effort to want to comply, but these are very complex laws with nonspecific regulatory guidance. It’s easy to have inadvertent or technical violations,” he said. “Part of our concern with this new range of regulations is they will require a lot of administrative work to implement.”
Although the executive orders deal only with the small population of federal contractors, the implications could be far-reaching. Mandating a higher minimum wage, for example, may have more of an effect in rural areas where wages and the cost of living are typically lower, Mr. Chvotkin said.
Mr. Brubeck said contractors also will have to hire additional staff to handle compliance.
“Costs will increase, and I’m sure this will serve as a barrier to small businesses in particular trying to enter the federal marketplace,” he said.
Lockheed Martin, one of the top defense contractors, said it is committed to complying with all labor laws, but it did not have information on how specifically each of the executive orders would be implemented.
“We take seriously our responsibility to provide a safe and inclusive workplace for all employees and prohibit discrimination — including discrimination based on sexual orientation, gender identity or expression,” said Gordon Johndroe, vice president of worldwide media relations. “We will assess the specific implications of each of the President’s recent executive orders when guidance and proposed regulations are issued.”
Other major contractors didn’t return requests seeking comment on the rules.
Mr. Obama’s most recent executive action would require companies to report workplace violations, and too many violations could disqualify a company from a contract.
Ms. Bertram said dealing with that rule could increase legal costs for businesses.
Because settlements wouldn’t need to be reported to the government, Ms. Bertram said, the executive order might encourage businesses to settle claims to avoid negative verdicts. Once a company has settled several claims, it will be seen as an easy target and may face more lawsuits, she said.
“For all companies, small and large, it ups the ante on employment and labor litigation,” she said. “You want to make certain you’re represented by high-caliber litigation counsel in connection with the matters because the stakes are much higher.”
Another possible side effect may bar individually owned franchisees from conducting business with the government if any business in the franchise has a workplace labor violation, said Matthew Haller, a spokesman for the International Franchise Association. This means that if a McDonald’s in Massachusetts had a violation, a McDonald’s in California could not bid to put a restaurant on a military base.
“The feds, at the request of the unions, are trying to break the franchise model regulation by regulation, to make it easier to unionize entire systems of franchises,” Mr. Haller said. “They don’t want to make the distinction between one independently owned franchise location and another. They’re throwing the baby out with the bathwater with this regulation.”