Piliero Mazza &
Pargament, PLLC

Legal Advisor
Vol. V, Issue 1
January 2000

An Update for Federal Contractors and Commercial Businesses


OSHA's Home Office Advisory is Withdrawn; Ergonomic Regulations are Proposed

Supreme Court Allows Second Adarand Case to Proceed

Business Community Expresses Concerns About Proposal to Link Award of Contracts to Labor Law Compliance

Department of Energy Issues Proposed Regulations for Permanent Mentor-Protégé Program




OSHA's Home Office Advisory is Withdrawn; Ergonomic Regulations are Proposed

The Department of Labor recently rescinded a letter developed by the Occupational Safety and Health Administration ("OSHA") which reflected OSHA’s policies regarding employers’ accountability and liability for federal health and safety violations that occur in employees’ home offices. The letter, which was issued to one employer whose employees worked at home, caused widespread controversy after becoming public. The letter suggested that employers could be held liable for injuries caused by such conditions as unsafe stairs, improper lighting and inadequate ventilation in home offices.

While the letter had been considered a declaration of existing OSHA policy with respect to employers’ potential liability for home office work conditions, the Department of Labor rescinded the letter, citing the fact that the letter would have had unintended consequences. These consequences include possible use of the letter by courts to hold employers liable for injuries that occur in workers’ home offices. Additionally, the Department of Labor noted that it had neither the resources, nor the inclination, to conduct home inspections to ensure compliance.

Despite the withdrawal of the letter, however, the extent to which OSHA will adhere to a policy that could impose liability upon employers for injuries that occur within home offices remains uncertain. Indeed, several members of Congress have asked for an inquiry regarding the genesis of the letter, as well as OSHA’s policies with respect to this matter. Accordingly, employers should be cognizant of this uncertainty when considering allowing employers to work out of their homes.

The issuance of this letter was the second of recent controversial actions undertaken by OSHA. In November, the agency proposed regulations that would require employers to take new steps to minimize repetitive stress, or "ergonomic," injuries in the workplace. Although the proposed regulations do not apply to agriculture, maritime operations or construction, they require employers in manual handling and manufacturing operations to implement ergonomic programs in their workplaces. Manual handling operations include jobs in which a core element of employees’ duties is forceful lifting or lowering, pushing, pulling, or carrying. Manufacturing operations include production jobs in which employees perform significant "physical work activities." The regulations also apply to those employers who employ at least one employee who experiences a musculoskeletal injury, such as a back injury or carpal tunnel syndrome, on the job.

According to the proposed regulations, a "full" ergonomics program consists of six elements: i) management leadership and employee participation with respect to the program; ii) hazard information and reporting with respect to on the job musculoskeletal injuries; iii) job hazard analysis to identify and eliminate "ergonomic risk factors"; iv) employee training regarding measures for eliminating and reducing the likelihood of musculoskeletal hazards; v) medical management, or access to health care professionals, for treatment and prevention of musculoskeletal injuries; and vi) program evaluation at least every three years.

The regulations require employers with manual handling or manufacturing production jobs to implement a "basic" ergonomics program. Specifically, the basic program requires only the first two elements of a full ergonomics program: i) management leadership and employee participation; and ii) hazard information and reporting. However, such employers must institute a full program at such time as a musculoskeletal injury is reported. Similarly, employers without manual handling or manufacturing production jobs must institute a full program when such an injury is reported.

The proposed regulations also carve out an exception to the foregoing requirements, however. Specifically, employers may avoid implementing a full ergonomics program if they institute a "quick fix" after an injury is reported. Such a quick fix entails implementing certain actions, including: i) promptly caring for the injured employee; ii) working with employees to eliminate the musculoskeletal disorder or injury hazard within ninety (90) days; iii) verifying that the fix worked within another thirty (30) days; and iv) keeping records of quick fix controls.

In connection with the proposed regulations, OSHA estimated that employers who need to correct problems will spend an average of $150 per year per work station. OSHA also estimated that the proposed rules could prevent injury to about 300,000 workers annually and save employers approximately $9 billion.

Finally, pursuant to the proposed regulations, an employee who suffers a musculoskeletal injury on the job must receive one hundred percent of net pay and benefits for six months if the employee works on temporary light duty while recovering. If, however, the individual is unable to work due to the injury, he must receive ninety percent of net compensation and benefits. These amounts can be offset by any amounts that the employees receive under workers’ compensation or other sources.



Supreme Court Allows Second Adarand Case to Proceed

The U.S. Supreme Court this month revived a lawsuit by the Colorado construction company that previously prevailed in a landmark case regarding preferential procurement programs for businesses owned by socially and economically disadvantaged individuals. In an unsigned opinion, the Court ruled that the suit by Adarand Constructors, Inc. ("Adarand") regarding how the State of Colorado ("the State") makes such SDB determinations was not moot, even though Adarand itself had been certified as a disadvantaged business.

In the 1995 Adarand case, the Supreme Court ruled that racial distinctions in government programs must be narrowly tailored to serve a compelling government interest and that courts must apply strict judicial scrutiny in reviewing such cases. See Adarand Constructors, Inc. v. Peña, 515 U.S. 200 (1995) (Adarand I). On remand, the U.S. District Court for the District of Colorado held that the State’s presumption that members of certain racial groups are socially disadvantaged was unconstitutional. See Adarand Constructors, Inc. v. Peña, 965 F. Supp. 1556 (1997) (Adarand II). The State appealed that ruling to the Tenth Circuit Court of Appeals.

While that appeal was pending, Adarand filed a second suit in the District Court, this time seeking an injunction against the State’s use of federal guidelines in certifying disadvantaged businesses. See Adarand Constructors, Inc. v. Romer, Civ. No. 97-K-1351 (June 26, 1997). Shortly thereafter, however, the State altered its certification guidelines to remove the presumption in favor of certain minority groups and women and replaced it with a requirement that each applicant self-certify that they have "experienced social disadvantage based upon the effects of racial, ethnic or gender discrimination." Soon thereafter, the District Court denied Adarand’s request for an injunction on the grounds that under the new guidelines, Adarand was now likely to be certified as a disadvantaged business. Adarand then, in fact, applied for and received disadvantaged-business status from the State.

After Adarand received its disadvantaged-business status, the Tenth Circuit vacated the District Court’s decision in Adarand II and dismissed the case, holding that the case was now moot. See Adarand Constructors, Inc. v. Peña, 169 F.3d 1292 (10th Cir. 1999). In this month’s decision, however, the Supreme Court reversed the Tenth Circuit’s ruling and sent the case back to the Circuit Court to proceed. See Adarand Constructors, Inc. v. Peña, No. 99-295, 2000 WL 16646 (U.S. Jan. 12, 2000). The Supreme Court articulated a high standard for dismissal of cases on grounds of mootness, saying that such dismissals "would be justified only if it were absolutely clear that the litigant no longer had any need of the judicial protection it sought." In holding that Adarand II was not moot, the Court noted that the State’s self-certification process appears to be at odds with federal guidelines requiring states to withdraw certification from firms that do not meet federal eligibility requirements. The Court held that since there was a significant possibility that the inconsistency between the state and federal certification requirements would result in the withdrawal of Adarand’s certification, the District Court’s ruling in Adarand II was not moot.

The Supreme Court’s recent ruling opens the door to more litigation on the constitutionality of set-aside programs. District courts have been dismissing many similar cases on grounds of mootness or lack of standing. As a result of the Supreme Court’s decision in Adarand II, however, district courts may have to let more of these challenges go forward. This decision also provides a clear indication that the Supreme Court is receptive to cases which challenge government programs and policies that involve racial and ethnic distinctions.

Opponents of disadvantaged business programs have been very effective in coordinating their efforts to provide significant funding and resources to challenges to these programs. The suits brought by Adarand Constructors and others have been backed by organizations, such as Mountain Legal Defense Fund and the Pacific Legal Defense Fund, that are philosophically opposed to such programs. These organizations have had some success in limiting the government’s ability to direct assistance to historically disadvantaged business owners.

Given the efforts of these organizations, participants and supporters of these programs need to coordinate their efforts and resources to defend them. The Clinton Administration has revamped the 8(a), DBE, and SDB programs so as to pass constitutional muster. Despite these efforts, however, opponents of these programs continue pressing for their dismantlement in the courts as well as the political arena. Therefore, while SDB programs continue to provide important opportunities for historically disadvantaged businesses, participants and supporters of these programs are encouraged to remain engaged in the efforts to defend these important programs.


Business Community Expresses Concerns About Proposal to Link Award of Contracts to Labor Law Compliance

In the August 1999 issue of the Legal Advisor, we reported that the Clinton Administration was soliciting comments on its proposed changes to the Federal Acquisition Regulation ("FAR") to require that, in awarding federal contracts, agencies take into account contractors’ compliance with federal labor laws. The comment period on the proposed regulation ended on November 8, 1999 with over 1,600 comments having been submitted. Review of the comments by the FAR Council is expected to last into the spring of 2000.

Under current regulations, contractors must have "a satisfactory record of integrity and business ethics" in order to be considered "responsible" under the FAR. The proposed regulation would provide examples of an "unsatisfactory record." One such example would be "substantial noncompliance" with labor and employment laws. Determinations as to whether a contractor has a pattern of violating federal laws would be made based on the "whole picture," thus requiring a federal agency to use its subjective judgment to determine what constitutes patterns of "substantial" violations.

A majority of the comments, submitted primarily by the business community, urged rejection of the proposed regulation. Among the most serious concerns expressed was that the regulation could preclude a business from obtaining a contract based on alleged violations of the law that have not been adjudicated. Notably, this concern was also expressed in comments submitted by the Clinton Administration’s Environmental Protection Agency ("EPA"). Betty L. Bailey, the director of the EPA Office of Acquisition Management, noted that convictions for violations of the law are already considered under current policy. If the new regulation is implemented, however, Ms. Bailey fears that agency contracting officers would have to make compliance determinations without sufficient information and guidance. Ms. Bailey also expressed concern that a finding of "nonresponsibility" based on evidence of noncompliance, but without a conviction on record, would be difficult for the agency to defend in the face of a protest by the prospective contractor.

The proposed regulation was promulgated in order to live up to a promise that was made to organized labor in a 1997 speech to the AFL-CIO by Vice President Al Gore. Since that speech, business advocates such as the U.S. Chamber of Commerce have argued that the proposed regulation is "politically motivated," "probably illegal," and designed to allow the Administration to "blacklist" companies that have resisted the unionization of their employees. Congressional Republicans have expressed similar concerns and have vowed to oppose the proposed regulation.

In response, the AFL-CIO submitted comments rejecting the business community’s concerns as groundless. The AFL-CIO argued that the current screening process has allowed numerous companies with histories of noncompliance to obtain government contracts, and a higher level of scrutiny is therefore warranted. In response to concerns that the proposed regulation would create a "blacklist," the AFL-CIO noted that "responsibility" determinations are "contract specific," so businesses that are rejected on the basis of noncompliance could become eligible for other contracts by making changes to address the causes of the finding of "nonresponsibility." Other comments in support of the proposed regulation were submitted by consumer, civil rights, and women’s advocacy organizations such as the Consumer’s Choice Council, the Leadership Conference on Civil Rights, and the National Women’s Law Center.

Opponents of the proposed regulation, in addition to expressing concerns about the potential adverse effects of the proposed regulation, have argued that the Administration acted illegally in issuing the proposal by failing to comply with the requirements of the Regulatory Flexibility Act, the Administrative Procedure Act, and the Small Business Regulatory Fairness Act. Other legal arguments included concerns that the Administration’s actions could constitute a deprivation of due process under the U.S. Constitution. These concerns virtually guarantee that if the proposed regulation is implemented, it will be challenged in court.



Department of Energy Issues Proposed Regulations for Permanent Mentor-Protégé Program

In June 1995, the Department of Energy ("DOE") issued guidelines for a Mentor-Protégé Pilot Initiative Program ("Initiative"). The Initiative was aimed toward encouraging DOE prime contractors to enter into relationships with small disadvantaged, 8(a), and women-owned small businesses and assist them in preparing for and taking advantage of contracting opportunities offered through the DOE. The Initiative allowed prime contractors to provide developmental assistance to qualified small businesses and required that they enter into formal agreements delineating the responsibilities of each party.

The success of the mentoring relationships developed through the Initiative has prompted DOE to create a permanent Mentor-Protégé Program ("Program"). The proposed regulations for the permanent program were published in the Federal Register on December 6, 1999. The proposed regulations for the permanent program do not make any major changes to the Initiative, but they provide more specific guidance with regard to the requirements for participation in the program and the provisions to be included in a Mentor-Protégé Agreement. The proposed regulations also open the Program to historically black colleges and universities ("HBCU") and other minority institutions of higher learning.

To participate as a Protégé in the Program, a firm must satisfy certain requirements. For example, it must be a certified small disadvantaged business, a women-owned small business, an HBCU or other minority institution of higher learning, as defined within the proposed regulations. Additionally, it must be eligible for receipt of government contracts and have been in business for at least two (2) years prior to its application for the Program. Protégé firms must also be considered small under the Standard Industrial Code ("SIC") category for any subcontracts to be performed with the mentor firm. Mentor firms are responsible for choosing their own protégé firm(s) and these selections are not subject to protest unless the size of the protégé firm is at issue. Although mentors may choose more than one protégé, each protégé may not have more than one mentor in the Program.

Once a firm has selected a potential protégé, it must apply for mentor status through the DOE Mentor-Protégé Program Manager ("Manager"). To be eligible as a mentor, a firm must be a DOE contractor performing contracts with at least one negotiated subcontracting plan. The mentor firm’s application must include the following: (1) a statement that it is eligible for award of federal contracts; (2) a statement that it is currently performing at least one contract for DOE; (3) information regarding the DOE contract; and (4) an original and two copies of a Mentor-Protégé Agreement signed by the chief executive officer of each firm. The Mentor-Protégé Agreement must contain specific clauses and information regarding the responsibilities of each party and the assistance to be provided by the mentor firm. The specific information required is set forth in the proposed regulations. Once the application has been submitted, the Manager will review the submission and render a decision within thirty (30) days. Once the application has been approved, the mentor may implement the proposed assistance strategy.

The types of developmental assistance that may be provided to protégé firms include, but are not limited to, management guidance, engineering and technical assistance, subcontract awards, financial assistance, and personnel and training assistance. The costs incurred by a mentor in providing this assistance may be reimbursed, to the extent that they are incurred in the performance of a contract identified in the Mentor-Protégé Agreement.

Several government agencies are developing, or have already implemented, similar developmental assistance-based programs. The Department of Defense and the SBA’s 8(a) Program both have formal Mentor-Protégé Programs in place. These types of programs provide excellent business enhancement opportunities for both the mentor and the protégé firms. However, it is important that mentors and protégés carefully define their relationship within the Mentor-Protégé Agreement, as it can affect subsequent cost-reimbursement and contract performance issues.



Veterans Entrepreneurship and Small Business Act of 1999

Q. What is the Veterans Entrepreneurship and Small Business Act of 1999 ("Act")?

A. This legislation was passed and signed into law on August 17, 1999. It establishes the office of Veterans Business Development which is responsible for establishing policies and programs that provide assistance to small businesses owned and controlled by veterans and service-disabled veterans.

Q. Does the Act provide any type of procurement assistance?

A. Although the Act does not provide for any direct procurement assistance, it mandates that veteran-owned small businesses be included within the federal contracting and subcontracting goals for small business owners and within goals for the participation of small businesses in federal procurement contracts. Additionally, the Act requires the head of each federal agency to establish procurement contracting goals for small businesses owned and controlled by service-disabled veterans.

Q. Does the Act provide for financial assistance?

A. Yes. The Act makes veteran-owned small businesses eligible for loans administered by the Small Business Administration ("SBA") under the Microloan Program, the Defense Economic Transition Loan Program and the State Development Company Program. The Act also renders service-disabled veterans eligible for SBA-guaranteed general business loans.

The SBA has recently established the Veterans’ Prequalification Program to assist veteran-owned small businesses with the loan application process. This Program assists with the preparation of the loan prequalification application, provides an SBA-guaranty commitment letter with the application and speeds lender consideration of the requested loan.

Q. Does the Act provide for technical assistance or business counseling services?

A. Yes. The Act establishes the National Veterans Business Development Corporation ("Corporation") to provide veterans with technical assistance regarding entrepreneurship and to assist them in the formation and expansion of small businesses. In furtherance of these goals, the Act specifically requires the Corporation to establish and maintain a network of veterans information and assistance centers.

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