Federal contractor compliance audits
đ What Are Federal Contractor Compliance Audits?
âď¸ Definition:
Federal contractor compliance audits are formal reviews conducted to ensure that companies holding federal contracts comply with federal laws and regulationsâparticularly those concerning:
Equal Employment Opportunity (EEO)
Affirmative Action
Non-discrimination
Wage and hour laws
Veteran and disability hiring
Ethics and procurement integrity
đď¸ Key Agencies Involved:
Office of Federal Contract Compliance Programs (OFCCP) â Enforces EEO and affirmative action.
Department of Labor (DOL) â Oversees wage and hour laws (e.g., FLSA, Davis-Bacon Act).
General Services Administration (GSA) and Agency Inspectors General â Conduct oversight and audits.
Defense Contract Audit Agency (DCAA) â Audits defense contractors for cost and accounting compliance.
đ Legal Framework:
Executive Order 11246 â Prohibits discrimination and requires affirmative action by federal contractors.
Rehabilitation Act of 1973 (Section 503) â Requires nondiscrimination for individuals with disabilities.
Vietnam Era Veteransâ Readjustment Assistance Act (VEVRAA) â Covers hiring of protected veterans.
Federal Acquisition Regulation (FAR) â Sets compliance rules for procurement.
False Claims Act (FCA) â Penalizes fraudulent claims or certifications by contractors.
đ Key Case Law in Federal Contractor Compliance
Below are detailed explanations of more than five landmark or significant cases:
1. United States v. Midwest Suspension & Brake, 49 F.3d 1197 (6th Cir. 1995)
Issue: Violation of affirmative action and EEO obligations under Executive Order 11246.
Facts:
The company failed to develop and implement affirmative action programs.
OFCCP audit revealed systemic noncompliance.
Holding:
The Sixth Circuit upheld debarment of the contractor.
The court found the contractorâs failure to comply with EEO obligations was a material breach of contract.
Significance:
Confirmed that failure to meet compliance obligations can lead to debarment and contract termination.
Reinforced the legal force of affirmative action obligations.
2. OFCCP v. Florida Hospital of Orlando (DOL ALJ, 2008)
Issue: Applicability of federal contractor rules to hospital that received Medicare/Medicaid reimbursements.
Facts:
OFCCP attempted to audit Florida Hospital based on federal health program reimbursements.
Hospital argued it wasnât a federal contractor in the procurement sense.
Holding:
The DOL Administrative Law Judge ruled that mere receipt of federal funds did not make the hospital a federal contractor.
Significance:
Limited the scope of who qualifies as a federal contractor.
Clarified that grants and reimbursements do not trigger compliance obligations like affirmative action plans.
3. United States ex rel. Marcus v. Hess, 317 U.S. 537 (1943)
Issue: Fraudulent bidding and collusion by federal contractors.
Facts:
Electrical contractors engaged in bid rigging on federally funded public works.
A whistleblower filed suit under the False Claims Act (FCA).
Holding:
The Supreme Court upheld liability under the FCA.
Found that collusion distorted the governmentâs contracting process and was fraudulent.
Significance:
Early example of compliance violations leading to FCA liability.
Set precedent for using FCA in contract compliance enforcement.
4. United States v. Custer Battles, LLC, 376 F. Supp. 2d 617 (E.D. Va. 2005)
Issue: Fraud and noncompliance in Iraq war contracting.
Facts:
Defense contractor accused of submitting fraudulent invoices for work in Iraq.
Whistleblowers filed an FCA suit.
Holding:
The court found the contractor liable under the FCA, noting the use of falsified billing and breach of contract terms.
Significance:
Showed how contractual compliance failures (accounting, invoicing) can lead to FCA liability.
Important for understanding audits involving cost compliance.
5. OFCCP v. Bank of America (DOL ALJ, 2010)
Issue: Discrimination in hiring practices discovered in compliance audit.
Facts:
OFCCP audited Bank of Americaâs Charlotte facility.
Found statistical disparities in the hiring of Black applicants.
Holding:
The Administrative Law Judge upheld OFCCPâs findings and ordered back pay and corrective action.
Significance:
Demonstrated the OFCCPâs ability to impose remedies for systemic discrimination.
Showed how audits can uncover pattern or practice violations in employment.
6. United States ex rel. Feldman v. Van Gorp, 697 F.3d 78 (2d Cir. 2012)
Issue: Misuse of federal research grants by Columbia University.
Facts:
Alleged misrepresentation of research progress in order to retain federal funding.
Brought under the FCA.
Holding:
The Second Circuit upheld liability, finding that false certifications and progress reports were actionable.
Significance:
Demonstrated that noncompliance with grant conditions (including reporting) can trigger FCA claims.
Important precedent for education and research contractors.
7. Campbell-Ewald Co. v. Gomez, 577 U.S. 153 (2016)
Issue: Can a federal contractor be held liable under the TCPA despite derivative sovereign immunity?
Facts:
Contractor sent unauthorized text messages on behalf of Navy recruiting program.
Argued sovereign immunity as a government contractor.
Holding:
Supreme Court ruled contractors are not automatically immune and must comply with law.
Significance:
Federal contractors must still comply with applicable statutes, and cannot use federal affiliation as a shield from liability.
𧊠Key Takeaways from Case Law
| Theme | Legal Rule / Holding | Case(s) |
|---|---|---|
| Affirmative Action Compliance | Noncompliance can result in debarment or enforcement | Midwest Suspension & Brake, OFCCP v. BofA |
| Definition of Contractor | Reimbursements â federal contract obligations | OFCCP v. Florida Hospital |
| FCA Liability for Compliance Failures | False certifications, improper billing, fraud actionable | Marcus v. Hess, Custer Battles, Feldman v. Van Gorp |
| No Sovereign Immunity for Contractors | Contractors still liable for legal violations | Campbell-Ewald v. Gomez |
| OFCCP Enforcement Power | Broad power to seek remedies for systemic violations | OFCCP v. BofA, Midwest Suspension |
â Conclusion
Federal contractor compliance audits are a crucial tool for government oversight. Contractors must maintain strict compliance with:
Affirmative action obligations
Wage laws and cost accounting rules
Procurement integrity
Non-discrimination laws
Failure to comply can result in:
Debarment
Financial penalties
False Claims Act liability
Loss of contracts
Courts generally support broad enforcement authority, but also limit who qualifies as a contractor and emphasize good-faith compliance.
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