• DOD, GSA, and NASA Contractors Not Permitted To Charge Government for Cost of Certain Labor Activities
  • July 11, 2012 | Author: Michael L. Sterling
  • Law Firm: Vandeventer Black LLP - Norfolk Office
  • On 12/2/11, the final rule implementing President Obama's 1/30/09 Executive Order 13494, Economy in Government Contracting, went into effect at the Department of Defense (DOD), General Services Administration (GSA) and National Aeronautics and Space Administration (NASA).  This rule prohibits reimbursement of federal contractors for the costs of engaging in even lawful “activities undertaken to persuade employees, of any entity, to exercise or not to exercise, or concerning the manner of exercising, the right to organize and bargain collectively through representatives of the employees' own choosing.”

    The rule modifies FAR Part 31.205-21 by adding Section (b) below. FAR Part 31.205-21 now reads as follows for DOD, GSA and NASA contractors:

    (a) Costs incurred in maintaining satisfactory relations between the contractor and its employees (other than those made unallowable in paragraph (b) of this section), including costs of shop stewards, labor management committees, employee publications, and other related activities, are allowable.

    (b) As required by Executive Order 13494, Economy in Government Contracting, costs of any activities undertaken to persuade employees, of any entity, to exercise or not to exercise, or concerning the manner of exercising, the right to organize and bargain collectively through representatives of the employees' own choosing are unallowable. Examples of unallowable costs under this paragraph include, but are not limited to, the costs of —

    (1) Preparing and distributing materials;
    (2) Hiring or consulting legal counsel or consultants;
    (3) Meetings (including paying the salaries of the attendees at meetings held for this purpose); and
    (4) Planning or conducting activities by managers, supervisors, or union representatives during work hours.

    While generally E.O. 13494 and the rule apply only to cost reimbursement contracts, they may also be applied to changes on other types of contracts that are negotiated based on FAR Part 31 cost principles. There is little guidance available at this time to clarify these and other issues related to the new rule. However, contractors should keep clear records regarding the cost of its labor related activities in order to be prepared to comply with the new rules.