Delivering for Taxpayers: Taking on Contractor Fraud and Abuse and Improving Jobs for Millions of America’s Workers

by National Employment Law Project

The federal government spends more than $500 billion on contracts each year for a broad range of goods and services.[1] The U.S. Department of Labor has estimated that approximately 24,000 businesses have federal contracts, employing about 28 million workers—which works out to just over one in five of our nation’s private-sector workers.[2] We can and should leverage these investments to create good jobs for workers and their families. In fact, Congress has enacted laws to provide that taxpayer-supported jobs are not driving down wages and working conditions across entire industries.

The Scale of Federal Contracting: $500 billion in annual contracts; contracting companies employ 25% of U.S. workforce.

But despite these protections, too many workers on federal contracts—and especially women workers—have low-quality jobs. Federal contractors (and would-be contractors) face tremendous pressure to cut costs to win new contracts, especially as agencies increasingly turn to lowest-bidder contracting.[3] This “race to the bottom” undermines federal contracting law’s intent by driving down wages. According to a 2014 Dēmos analysis of firms that receive a significant portion of their revenue from federal funds, well more than one-third of jobs at those firms pay poverty or near-poverty wages.[4] Women in particular make up 71 percent of the low-wage workers on these jobs—about 5.6 million workers.[5] Worse yet, a series of recent reports have shown that too many federal contractors go so far as to break the law by stealing workers’ wages and cutting corners on health and safety or other core workplace protections just to win contracts or raise their profits.[6]

When federal contracting agencies do business with companies that break the law, there are a lot of losers:

  • Workers and their families take home less pay and work in unsafe conditions—leaving taxpayers footing the bill for bad (and potentially dangerous) jobs. In the extreme case, some large federal contractors have paid back tens of millions of dollars in stolen back wages, and others have been assessed more than a million dollars in penalties for their safety and health violations.[7]
  • Contractors that don’t pay their workers are likely to be the same ones that fail to perform for taxpayers. Time after time, the contractors who shortchange their workers are the same ones who don’t deliver for taxpayers.[8]
  • And responsible contractors themselves struggle to compete against those who don’t play by the rules, pushing down wages and workplace standards across the industry.

We need a variety of legal and policy reforms to better protect workers, responsible contractors, and taxpayers alike. But in advance of such larger policy initiatives, there are steps that federal contracting officers can and should take right now to protect our nation’s workers and federal contractors who play by the rules.

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Endnotes

[1] Federal records report $507.9 billion in contracts awarded in FY 2017, including more than $329B for the Department of Defense, $27 billion for the Department of Energy, $26 billion for the Department of Veterans Affairs, and $24.5 billion for the Department of Health and Human Services. See “Contract Explorer Sunburst,” USASpending.gov, accessed Aug. 25, 2018, https://datalab.usaspending.gov/contract-explorer.html.

[2] See “Fact Sheet: Fair Pay and Safe Workplaces Executive Order,” White House, July 31, 2014, https://obamawhitehouse.archives.gov/the-press-office/2014/07/31/fact-sheet-fair-pay-and-safe-workplaces-executive-order (28 million workers); “Employment, Hours, and Earnings from the Current Employment Statistics Survey (National),” Bureau of Labor Statistics, https://data.bls.gov/timeseries/CES0500000001 (listing 117.2 million private-sector workers in July 2014). A recent study released by Dēmos suggests a smaller, but still significant, share of workers employed by such firms: “In total, federally-supported firms employ nearly 16 million workers, which is almost 14 percent of the entire private sector workforce. Notably, federal purchasing accounts for 29 percent of total revenue for employers in the federal purchasing footprint.” Robert Hiltonsmith and Lew Daily, Underwriting Good Jobs: How to Place Over 20 Million Americans on a Pathway to the Middle Class Using Federal Purchasing Power, (New York, NY: 2014), https://www.demos.org/sites/default/files/publications/UnderwritingGoodJobs_2.pdf.

[3] See, e.g., James Bach, “Is ‘Lowest Price, Technically Acceptable’ Buying Toxic to Industry, or a Red Herring?,” Washington Business Journal, (Sep. 15, 2015), accessed Aug. 25, 2018, https://www.bizjournals.com/washington/blog/fedbiz_daily/2015/09/is-lowest-price-technically-acceptable-buying.html (“A recent report by Herndon-based Deltek determined that from fiscal 2009 to fiscal 2014, [lowest-price, technically acceptable]-related procurement grew 55 percent within civilian agencies and 24 percent with the Department of Defense… Ed Jesson, president and CEO of Tysons Corner-based OBXTek Inc., said it has the toxic effect of not only shrinking margins but adding downward wage pressures to workers.).

[4] Hiltonsmith and Daily, 15.

[5] Hiltonsmith and Daily at Dēmos find that women make up 71.2 percent of low-wage workers in the federally supported workforce. Ibid, 18. They also estimate that 8 million workers are in the low-wage portion of this workforce overall. Ibid, 2.

[6] Office of Senator Elizabeth Warren, Breach of Contract: How Federal Contractors Fail American Workers on the Taxpayer’s Dime, (Washington, DC: 2017), accessed Aug. 25, 2018, https://www.warren.senate.gov/files/documents/2017-3-6_Warren_Contractor_Report.pdf; Health, Education, Labor & Pensions Committee Majority Staff, Acting Responsibly? Federal Contractors Frequently Put Workers’ Lives and Livelihoods at Risk, (Washington, DC, 2013), accessed Aug. 25, 2018, https://www.help.senate.gov/imo/media/doc/Labor%20Law%20Violations%20by%20Contractors%20Report.pdf; Karla Walter and David Madland, At Our Expense: Federal Contractors that Harm Workers Also Shortchange Taxpayers, (Washington, DC: Center for American Progress Action Fund, 2013), accessed Aug. 25, 2018, https://www.americanprogressaction.org/issues/economy/reports/2013/12/11/80799/at-our-expense/; U.S. Government Accountability Office, Assessments and Citations of Federal Labor Law Violations by Selected Federal Contractors, GAO-10-1033 (Washington, DC, 2010), accessed Aug. 25, 2018, https://www.gao.gov/products/%20GAO-10-1033.

[7] Office of Senator Elizabeth Warren, 6-8.

[8] Walter and Madland.

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