In late January, the FAR Council issued its long-awaited final rule amending the FAR to strengthen the U.S. Government’s policy against human trafficking. As discussed below, the amendments may have far-reaching compliance implications for government contractors.
The rule, applicable to all contracts awarded on, or after, March 2, 2015, expands the scope of prohibited conduct under FAR Subpart 22.17 to include:
- Destroying, concealing, confiscating, or otherwise denying access by an employee to the employee’s identity or immigration documents;
- Using misleading or fraudulent recruiting practices;
- Charging recruitment fees;
- Failing to provide, or pay for, return transportation upon the end of employment;
- Providing, or arranging for, substandard housing; and
- Failing to provide an employment contract, recruitment agreement, or other required work document in writing.
These requirements apply to all contracts, regardless of contract type or value, and the provisions amended by the new rule must be flowed down in all subcontracts.
What is most likely to grab the attention of contractors, however, are the new requirements applicable to certain contracts performed abroad. These new compliance and certification requirements will apply to any part of a contract that is (1) for (a) supplies, other than commercially available off-the-shelf items, acquired outside the United States, or (b) services to be performed outside the United States; and (2) has an estimated value exceeding $500,000.
The final rule amends the FAR to require covered contractors to create a compliance plan that is “appropriate . . . [t]o the size and complexity of the contract; and [t]o the nature and scope of the activities to be performed for the Government.” While the final rule lays out the baseline requirements of such a plan, it does not provide any insight into what, beyond these minimum requirements, constitutes an “appropriate” plan.
The difficulties of developing such a plan are underscored by the requirement that contractors adopt “[p]rocedures to prevent agents and subcontractors at any tier and at any dollar value from engaging in trafficking in persons . . .” That begs the question: exactly what procedures are “appropriate” to prevent subcontractors and suppliers from engaging in prohibited conduct? And exactly how far down the supply chain can a contractor realistically expect to implement such “appropriate” procedures? Perhaps time will tell, but it is easy to imagine a scenario in which compliance is extraordinarily burdensome (and expensive) and even potentially impossible for a contractor with a dispersed, multinational, supply chain network.
Equally troubling for contractors may be complying with the new FAR certification requirements. Not only must a covered contractor make certifications about its own conduct and policies, but also a contractor must, after conducting “due diligence,” certify that none of its agents or subcontractors (or their agents) are engaged in any prohibited activity. Again, the new rule appears to raise more questions than it provides answers.
What does adequate “due diligence” look like? Can a contractor merely rely on the representations of its lower-tier subcontractors and vendors? Or does a company, instead, have to go digging into the business practices of all its suppliers and subcontractors? The concerns raised by some of these questions are amplified by the requirement that contractors make the requisite certifications prior to contract award. It is too early to tell what the impact of this final rule will be, and what the best practices are for implementing an adequate compliance framework. But, at the very least, contractors would be well served to take a hard look at their compliance programs and supplier controls, assessing the risks based on the scope and nature of their overseas work.
Stay tuned for further updates as this rule takes effect…