Labor law violators raking in federal contracts

By Robert Brodsky - October 4, 2010

At least 15 federal contractors have been cited in the past five years for failing to follow wage, health and safety, or collective bargaining laws, according to a new report from the Government Accountability Office.

Investigators found that the government paid more than $6 billion in fiscal 2009 to firms that have a history of labor law violations.

In addition to health and wage violations, seven of the 15 were cited for hiring undocumented workers, breaching environmental standards, fraudulently billing Medicare and Medicaid, and billing for services not rendered. None of the firms has been suspended or debarred, the watchdog said.

Most of these companies had contracts with the Defense Department. The firms also contracted with the Agriculture, Homeland Security and Justice departments, the General Services Administration and NASA. GAO did not name the firms or attempt to determine whether they should have been ineligible for contract opportunities. The watchdog also did not offer any recommendations. But the report -- which Reps. Robert Andrews, D-N.J., and Patrick Murphy, D-Pa., requested -- could have significant repercussions for the Obama administration's potential High Road contracting plan.

The proposal, which Vice President Joe Biden's Middle-Class Task Force has been considering since the summer of 2009, would provide contractors that pay their employees higher wages and benefits a leg up when bidding for federal work.

Andrews and Murphy in February asked GAO to study whether certain "unscrupulous" firms with documented labor, safety and health or wage violations were receiving federal contracts. The request letter indirectly referenced the proposed High Road policy.

"Too often, taxpayers are essentially charged twice for the cost of a federal contract: once for the cost of the project and again when the poorly paid employees qualify for federal assistance, like Medicaid and food stamps," Murphy said in a statement to Government Executive on Monday. "Some companies that continue to receive lucrative government contracts not only pay rock-bottom wages but [also] have long histories of labor and workplace safety violations. This report makes clear that we have a lot of work to do to ensure that the federal contracting process encourages safe and good paying jobs."

In the face of fierce opposition from Senate Republicans and others who argue the plan would make the procurement system more costly and inefficient, the administration has yet to implement the High Road policy. In a letter to GOP lawmakers last month, Small Business Administration Administrator Karen Mills wrote, "there has been no decision in favor of 'High Road' contracting."

Some have suggested if GAO put a price tag on contracting with companies that pay their employees low salaries and few benefits, then it could provide cover for administration officials to introduce High Road.

Andrews and Murphy told GAO they wanted to "quantify the taxpayer burden associated with a certain company if they pay so little that workers and their families qualify for federal safety-net benefits." The report, however, did not attempt to calculate those costs.

GAO also did not tackle the lawmakers' request to connect the dots between contractors with documented labor violations and cost overruns. Gregory Kutz, GAO's managing director of forensic audits and special investigations, said some of data the congressmen requested was not available, or had limited relevance to the report.

The report, however, did attempt to quantify the number of companies with at least $100,000 in contracts in fiscal 2009 that were caught violating labor laws. The cases were limited to those that have been settled or adjudicated.

For example, GAO examined the 50 largest monetary penalty assessments the Labor Department's wage and hour division issued between fiscal 2005 and fiscal 2009. Investigators found half the assessments were made against federal contractors that owed their workers more than $80 million in back wages.

In another instance, Labor cited a food supplier with $500 million in contracts in fiscal 2009 for wrongfully firing employees who took family medical leave, including caring for a hospitalized spouse, the report said. In 2009, a federal jury determined the company was in violation of the 1938 Fair Labor Standards Act for failing to properly pay about 3,000 workers $250,000.

The government's record of contracting with firms with clean safety regulations also raises some questions. Eight of the 50 largest fines the Occupational Safety and Health Administration issued during the past five years for violations were against contractors. The seven firms -- one company had two large fines -- had a combined $3.7 million in OSHA fines.

OSHA cited a federal contractor that sells automotive and industrial batteries for 85 health and safety violations -- including 13 repeat violations -- since fiscal 2005 and assessed $428,000 in fines. In one instance, an employee was killed when his arm got caught while he was attempting to manually clear a jammed conveyor belt. OSHA records cited the company's lack of machinery safety devices as a factor in his death.

Investigators noted some data limitations. For instance, GAO was not able to determine the total number of firms that had violated collective bargaining laws because those companies are not subject to fines by the National Labor Relations Board.