One of President Obama’s first actions as President was to issue Executive Order No. 13494 (“Economy in Government Contracting”) on January 30, 2009.  It was subsequently amended on October 30, 2009.  The Executive Order “provided that to promote economy and efficiency in Government contracting, certain costs that are not directly related to the contractor's provision of goods and services to the Government shall be unallowable for payment.” It purported to accomplish its goals by making unallowable almost all costs associated with efforts “undertaken to persuade employees to exercise or not to exercise, or concern the manner of exercising, rights to organize and bargain collectively.”  The Administration argued that this policy revision was consistent with prior Federal government policy to “remain impartial” with respect to labor-management disputes involving government contractors.

As our readers know, however, in order to implement such a policy change, the Federal Acquisition Regulation (FAR) must be changed via the public rulemaking process, which provides the public at large with an opportunity to comment—and perhaps affect—the regulatory language.  We at Apogee Consulting, Inc. recently participated in that process, when we provided the DAR Council with our comments on a proposed revision to the Defense Federal Acquisition Regulation Supplement (DFARS) that would significantly affect how DCAA audits contractor internal control systems.

So it was not surprising when, on April 14, 2010, the FAR Councils published a proposed rule that would, if implemented as drafted, revise the Cost Principle at 32.205-21 (Labor Relations Costs) to make unallowable—

…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 in paragraph (b) of this section 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.

Importantly, other costs of efforts “to maintain satisfactory [labor] relations between the contractor and its employees”  are still made expressly allowable by the revised rule.

As always, comments on the proposed rule may be submitted by following the directions in the Federal Register notice (link above).

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