In tomorrow’s edition of the Federal Register, the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (Councils) will publish a proposed rule (pdf) implementing Executive Order (EO) 13494, Economy in Government Contracting, which precludes government contractors from being reimbursed for expenses incurred to influence employees regarding their decisions to form unions or engage in collective bargaining. Issued on January 30, 2009, EO 13494 considers as un-reimbursable any activities that are undertaken to persuade employees to exercise or not exercise such rights, such as preparing and distributing materials, hiring or consulting legal counsel or consultants, holding meetings (including paying the salaries of the attendees at meetings held for this purpose) and planning or conducting activities by managers, supervisors or union representatives during working hours. Such expenditures are deemed “unallowable” under any federal government contract by the order. Although federal contractors cannot use federal funds for these purposes, they may use federal dollars to “maintain satisfactory relations” between the contractor and its employees. As stated in the order, such expenditures could include the cost of labor-management committees, employee publications (provided they do not attempt to persuade employees regarding unionization), and other related activities.

To this end, the Councils propose amending the Federal Acquisition Regulation (FAR), 48 CFR part 31, to read as follows:

31.205-21 Labor relations costs.

(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 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.

Given that the EO is arguably limiting a federal contractor's free speech rights, the proposed change to the FAR may face legal and constitutional challenges once a final rule is implemented.

Comments on this proposed rule are due by June 14, 2010, and must contain the regulatory identification number 9000-AL39 or the FAR case number: 2009-006. Written comments may be sent to: General Services Administration, Regulatory Secretariat (MVCB), 1800 F Street, NW., Room 4041, ATTN: Hada Flowers, Washington, DC 20405. Alternatively, comments can be faxed to: 202-501-4067, or submitted via the federal eRulemaking portal: http://www.regulations.gov.

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