Beginning January 30, 2022, all prime contractors and subcontractors doing work on a government contract will be required to pay workers at least $15 per hour, based on a recent executive order.

The executive order does not stop there, beginning in 2023 the wage will go up annually. When can we expect formal guidance to come out, and what other items are found in the text?

The executive order itself takes effect immediately, but don’t expect to hear any specifics until later this year. The Secretary of Labor shall issue regulations by November 24, 2021, giving a framework for implementing these new wage rules. Within 60 days after that, the FAR will be amended to include these new regulations.

It is unclear whether the public will get a comment period regarding the proposed regulations, but my suspicion is that comments will be noted, and the regulation will take full effect as planned.

A big question I had going in, “is this executive order retroactive?” I think the headache of trying to sort out and enforce this across all existing contracts was a bridge too far, and would be a regulatory nightmare. New contracts entered into on or after January 30, 2022 are subject to the order, as well as option years on existing contracts.

The $15 number is only a beginning. Each year on January 1, that amount may go up. By how much? The Secretary of Labor will determine the amount, rounded to the nearest nickel. The order states that the wage will be, “increased from such amount by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (United States city average, all items, not seasonally adjusted), or its successor publication, as determined by the Bureau of Labor Statistics.” The new amount will come out at least 90 days prior to taking effect. I would put a calendar reminder to start looking at the end of September 2022.          

Here is where things get interesting, how will this executive order be enforced? Well, the order states that it creates no rights under the Contract Disputes Act, 41 U.S.C. 7101 et seq. The executive order does give the Secretary of Labor the authority to enforce this order under the regulations. This means that any disputes regarding whether the wages have been paid, will be decided based exclusively by the framework laid out in the regulations.

As I discussed earlier, the regulations have yet to come out, and we will have approximately 60 days to digest the proposed enforcement mechanisms. While I suspect there will be some form of payment withholding structure built into contracts, unfortunately we will not know until November. Bookmark this blog, and we will see if I was right come Thanksgiving time. Until then, be aware that the government knows this means labor costs will go up on its’ procurements. How this is factored into coefficients, expected costs, price reasonableness, price realism, and other price-related matters developed by the agencies will be trial and error. I expect the bid protest landscape around pricing could be active once this order takes full effect. 2022 promises to be active, stay tuned for updates.

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