On July 31, 2014, President Barack Obama issued a new executive order requiring federal government contractors to disclose labor violations when competing for contracts valued at more than $500,000.  The new executive order also requires contractors to periodically report labor violations throughout contract performance, provide employees with accurate information explaining the basis for their pay, and, in more limited circumstances involving the acquisition of non-commercial items, the option to refuse to arbitrate claims of discrimination, sexual assault, or sexual discrimination.  Although the new reporting requirements apply to all government contractors, information provided by medical device manufacturers and suppliers may be subject to heightened scrutiny.  Two reports referenced in a fact sheet accompanying the new executive order specifically identify members of the medical device industry in highlighting that government contracts have been awarded to companies with multiple labor law violations—a circumstance that the new executive order is designed to prevent.

The new executive order will require manufacturers and suppliers seeking the award of a government contract to disclose violations of fourteen federal statutes and executive orders, and their state law equivalents, setting forth wage and hour, health and safety, collective bargaining, family and medical leave, anti-discrimination, and other labor-related requirements.  Specifically, manufacturers and suppliers seeking an award will be required to make a representation regarding administrative merits decisions, arbitral awards, and civil judgments issued in a preceding three-year period for violation of the requirements covered by the new executive order.  Manufacturers and suppliers that receive an award must update this representation every six months and require their subcontractors to make a similar representation if their subcontractors provide goods or services, other than commercially available off-the-shelf items, with an estimated value of more than $500,000.

Contracting officers will consider the nature of any disclosed violation, as well as steps taken to correct a violation or improve compliance with labor requirements, to determine whether a manufacturer or supplier seeking an award is a responsible contractor qualified to receive a government contract.  The new executive order indicates that a single violation will generally not preclude a manufacturer or supplier from receiving an award.  However, contracting officers may report multiple or severe violations to agency suspension and debarment officials who may prohibit a manufacturer or supplier from conducting business with the federal government for an extended period of time.  Disclosures made after an award may also result in the termination of an awarded contract.  In addition, commentators have suggested that the Office of Federal Contract Compliance Programs may use the information provided by manufacturers and suppliers to direct enforcement efforts at particular companies.

In order to comply with the new reporting requirements, manufacturers and suppliers will likely need to incur additional costs to establish internal mechanisms that track reportable decisions, awards, and judgments.  In addition, as suggested by the fact sheet accompanying the new executive order, manufacturers and suppliers may feel pressure to settle labor disputes rather than risk disputing a claim that could result in a reportable decision.

Additional details are forthcoming with respect to how the new reporting regime will be implemented.  The new reporting requirements are expected to go into effect in 2016.