Government urged to check how contractors treat their employees

Companies with egregious labor violations are being awarded billions of dollars in federal contracts, a House Democrat and think tank analyst said on Thursday.

Rep. Patrick Murphy, D-Pa., and David Madland, director of the Center for American Progress' American Worker Project, told the House Armed Services Committee's Acquisition Reform Panel that agencies -- particularly the Defense Department -- do not sufficiently consider how contractors treat their workforce, ultimately costing the taxpayers more money.

"Every year, billions of federal dollars go to companies with histories of labor and workplace safety violations," Murphy said. "Aside from the major concern about mistreatment of employees, it seems to me that some companies are double-dipping the taxpayer, first with the cost of the contract, [and] second, [with] the cost of the benefits their poorly compensated workers qualify for, such as Medicaid and food stamps."

Information on contractor wages and benefits is scarce because the government neither keeps nor publicizes such data, but "all evidence points in the same direction of a widespread problem," Madland said. He cited estimates from the Economic Policy Institute that 20 percent of all federally contracted workers earn poverty-level wages and often do not receive benefits. He also cited Paul Light, a professor at New York University's Wagner School of Public Service, who told the Wall Street Journal in March 2008 that about 80 percent of the 5.4 million federal service contractors employed in 2005 were low-wage workers who were less likely than average to be offered or obtain health insurance.

These workers are not the lucratively compensated weapons systems developers or mercenary guards of the traditional acquisition narrative, but those who sew military uniforms, rebuild Army bases and provide security for facilities, Madland said.

To limit the number of contracts awarded to "low-road" companies, the acquisition process should be strengthened to better screen firms based on their overall regulatory record, including compliance with labor laws, Madland argued.

"This will require creating better tools to help contracting officers make this determination, such as improving the centralized contracting database that is being created to better capture labor law violations -- many of which currently are not included because labor law violations are often below the database's monetary threshold and are often resolved without acknowledgement of fault," he said.

Stan Soloway, president of the Professional Services Council, a contractor association, said he imagined there would be unanimous consent for the general ethics and principles Madland was promoting, but the logistics were more challenging. The construction and service industries already operate under extensive laws dictating the pay and benefits they must provide, Soloway said. The accompanying penalties for violations are not insignificant, he added.

The challenge for contractors is labor laws are extremely complicated, Soloway said, leading to many inadvertent violations despite hours of training. Federal contracting officers would face the same challenge if they were required to evaluate companies based on their labor record, he said.

"What kind of objective criteria are you going to provide to contracting officers to make what could be some really complicated decisions about relative severity and different kinds of violations?" Soloway asked. "The truth is, without in any way defending a company that's a scofflaw … many companies have some kind of violation somewhere that's inadvertent, and how do you deal with the complex issues?"

Madland recommended following the example of states such as California and Massachusetts, which have point ranking systems for companies based on labor practices. The systems are designed to avoid over-penalizing companies for limited inadvertent violations, while ensuring persistent offenders are identified.