The Cost of Clean Hands

The laws and executive orders that serve as the authority for federal contract requirements are a function of those conditions being set by people who have to run for public office.  The conditions of a contract that address how a contractor behaves as an employer (or the fact that the government feels the need to weigh in on that as part of the contracting process) are motivated by first, the altruistic goal of benefitting the workers and second, the political need to avoid embarrassment of a business being paid with tax dollars acting inappropriately.  There was a time when fixed bid construction contracts (and the government’s incentive to accept low cost bids) resulted in substandard wages and to address that, the granddaddy of contracting wage and hour laws was born, the Davis-Bacon Act (1931), which requires a schedule of “prevailing wages” be paid to laborers and mechanics.  Those wages and benefits costs are necessarily factored into the contract price, and spoiler alert - they are generally very fair to workers.  Good for them, the elected officials and the workers.  Possibly bad for you, the taxpayer.  In 2016, the CBO estimated the increased cost of federal and federally assisted construction due to DBA prevailing wages to be approximately $1.4 billion annually.  What’s that, a dozen F-35 Turbos and a weekend at the Greenbriar?  Come on, let’s move on.  The DBA is a significant portion of the premium paid by the government to ensure its contractors are responsible employers.  What are the others, and what are the total costs to taxpayers?  Below is a rough estimate of some of those costs, both direct (spent directly by the government to enforce the laws) and indirect (spent by contractors to comply with the laws, some or much of which is reflected in contract pricing).

All values in millions of dollars (indirect costs reflect estimated amounts passed on to the government).

  Direct Costs1001
  Indirect Costs502
  Direct & Indirect Costs1,4003
Service Contract 
  Direct & Indirect Costs5004
Affirmative Action 
  Direct Costs1005
  Indirect Costs2506

[Note that the estimates are rough estimates, and are intended to avoid over-stating costs. The estimates do not include additional unknown direct costs such as additional administrative and training time for government contracting officials and costs of enforcement proceedings in DOL administrative and federal district courts. Additionally, the exercise is not meant to criticize the laws or contractual requirements, all of which are at least in part well intentioned and many of which have broad and positive societal impact.]

Total government contract values for all agencies are approximately $500 billion / year.7 The estimated costs to the government to administer / enforce the employment requirements in federal contracts listed above amount to about ½ of 1% of that amount. Said another way, the cost of a very small component of the consideration of all government contracts (that its contractors are good citizens as employers) approaches ½ of 1% of the total value of all contract goods and services purchased by the government. That can appear to be a small price to pay, or a huge premium depending on one’s point of view. It’s a lot of money either way, every little billion helps.

175% of DHS E-Verify Budget (p. 70) FY 2019, estimated that 75% of verifications are federal contractor employees.

250% of (75% of 36mm DHS reported total verifications 2018), 15 min admin time x $15 / hour; or 25mm cases x $4 / case x 50% (recovered from government through contract pricing)

3CBO report

4estimate of SCA costs by ratio of approximate non-construction service contracts to construction contracts, and reduced to include only non-professional service contracts and lower costs of SCA compliance (CBO letter to House Budget Committee member (2015) Re: Federal Contracts and the Contracted Workforce, P. 4)

5DOL (OFCCP) Budget (P.27) FY 2019

625% of estimated total cost of contractor compliance passed on to government, which assumes that the costs of compliance are passed on to both government and non-government customers. Covered employees is based on OFFCP estimate of 120,000 establishments covered by affirmative action regulations (DIR 2018-07), assumed 100 employees / establishment for 12 mm covered employees and $80 / employee annual expense to comply with all aspects of affirmative action requirements for all 3 laws.

7Congressional Research Service 2018 report on DoD acquisitions, P. 3 Figure 1 and Table 1 DoD and non-DoD contract values