Government Contracts Alert
December 2008
Authors:
Hayes C. Stover
+1.412.355.6476
hayes.stover@klgates.com
Robert J. Sherry
+1.214.939.4945
robert.sherry@klgates.com
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Federal Contractor/Subcontractor E-Verify
Regulations Become Final
In November, the final E-Verify regulations were published in the Federal Register
– the regulations become effective on January 15, 2009. The final regulations will
mandate use of the E-Verify system by federal government contractors, subject to
certain exceptions. This Alert explains the new requirements and potentially applicable
exceptions.
E-Verify and Federal Contractors
In an earlier Client Alert, dated June 19, 2008, entitled “E‑Verify Strikes Federal
Contractors” (http://www.klgates.com/newsstand/Detail.aspx?publication=4636), we
reviewed past efforts by the federal government to enforce the Immigration Reform and
Control Act (“IRCA”). IRCA requires, among other things, that domestic employers
hire only those foreign nationals that possess appropriate work authorizations. In
an effort to facilitate IRCA compliance, the former Immigration and Naturalization
Service established the E‑Verify program. This program permits participating
employers to access Social Security Administration (“SSA”) and Department of
Homeland Security (“DHS”) data bases to confirm that individuals who were to be
offered employment were in fact eligible to work. Use of E‑Verify was voluntary, and
while many employers used the system, the vast majority did not.
In June 2008, the federal government took the first steps to mandate use of the E‑Verify
system by federal government contractors. President Bush issued Executive Order
13465 - amending Executive Order 12989, directing federal government contracting
departments and agencies to require federal contractors to participate in an electronic
employment eligibility verification system. 73 Fed. Reg. 33285 (June 11, 2008).
Shortly after the issuance of the Executive Order, DHS designated E‑Verify as that
system. 73 Fed. Reg. 33837 (June 13, 2008).
Consistent with the Executive Order and the DHS designation, the FAR Council
proposed revisions to the Federal Acquisition Regulation (“FAR”) on June 12, 2008
(73 Fed. Reg. 33374). The FAR Council received a number of comments on the
proposed regulation, resulting in some significant changes that largely are beneficial to
contractors. The final rule, containing the final acquisition regulations and applicable
contract clause, was published on November 14, 2008 at 73 Fed. Reg. 67651.
The final regulations are effective January 15, 2009 and will have broad applicability.
They will apply to all solicitations, contracts and subcontracts that contain the new
“Employment Eligibility Verification” clause (FAR 52.222-54). Contractors should
expect that the clause will be inserted in all solicitations, contracts and subcontracts
issued or awarded after that date, subject to the exceptions discussed below. In
addition, contractors and subcontractors should expect that the clause will be added
Government Contracts Alert
to existing indefinite‑delivery/indefinite‑quantity
(“ID/IQ”) contracts that will extend beyond six
(6) months after January 15, 2009, assuming that
a “substantial” amount of work or expected orders
remain under such contracts. The final rule amends
various provisions of the FAR to require federal
contractors and subcontractors to participate in
E‑Verify, subject to certain exceptions. The content
of those amendments is summarized below.
Definitions (FAR 22.1801)
The following definitions appear in both the
governing regulations (FAR 22.1801) and the
“Employment Eligibility Verification” clause (FAR
52.222-54):
COTS (commercially available off the shelf) item
is defined as a (1) commercial item, (2) sold in
substantial quantities in the commercial marketplace,
(3) offered to the government without modification
from the form sold in the commercial marketplace,
and (4) excluding bulk cargo as defined in the
regulations.
Employee assigned to the contract is an employee
hired after November 6, 1986, who is directly
performing work, in the U.S., under a covered
contract, excluding individuals normally performing
support work such as indirect or overhead functions,
and who do not perform any substantial duties
applicable to the contract.
Subcontract is defined as any contract to furnish
supplies or services for performance of a prime
contract or subcontract, including but not limited to
purchase orders, and changes and modifications to
purchase orders.
Subcontractor means any supplier, distributor,
vendor or firm which furnishes supplies or services
under a subcontract.
Policy (FAR 22.1802)
Contractors are to hire only those eligible to work
in the U.S., using E‑Verify as a means, but not
as a substitute, for other employment eligibility
verification requirements (i.e., I‑9 compliance).
A covered solicitation or contract is a contract in
excess of $100,000, except one that is (a) to be
performed outside the U.S., (b) is for a period of
performance of less than 120 days, or (c) falls under
the COTS exception.
Through use of the “Employment Eligibility
Verification” clause, contracting officers must
require in all covered solicitations and contracts
that prime contractors (1) enroll in E‑Verify; (2) use
E‑Verify to verify the eligibility of ALL (not just
those assigned to the contract) new hires, except
that a narrow category of contractors (institutions
of higher education, state or local governments,
federally recognized Indian Tribes, and sureties under
a takeover agreement with a federal agency pursuant
to a performance bond) may verify eligibility of only
new hires assigned to the contract; (3) use E‑Verify
to verify the eligibility of all employees assigned to
the contract; and (4) include these requirements in
subcontracts for (a) commercial or non-commercial
services except for commercial services that are part
of the purchase of a COTS (commercially available
off the shelf) item, or an item which would be a
COTS item but for minor modification performed
by the COTS provider and normally provided for
the COTS item; and (b) construction.
The contractor may voluntarily elect to verify
eligibility for all employees working in the U.S.
hired after November 6, 1986, not just assigned
employees. The contractor need not verify employees
with certain active security clearances or those who
have received credentials from DHS (so-called
“HSPD-12” credentials). In exceptional cases, the
head of the contracting activity, in a non-delegable
authority, may waive the E‑Verify obligations.
December 2008
Government Contracts Alert
In the event that DHS or SSA terminates a
Memorandum of Understanding (“MOU”) with
an employer (which all E-Verify participants must
sign as a condition of participation), the employer
may be suspended or debarred. In the event that the
suspension or debarment official decides that such
action is unwarranted, the employer is required to
reenroll in E-Verify.
applicable modification), the contractor must within
90 calendar days from date of enrollment initiate
verification of all new employees within 3 business
days of date of hire, and must initiate verification for
existing employees assigned to the contract within
90 calendar days after the award (or applicable
modification), or 30 calendar days after assignment,
whichever is later.
The “Employment Eligibility Verification” Clause
[FAR 52.222-54]
For employers electing to verify all existing
employees hired after November 6, 1986, the
contractor must initiate verification for all
employees within 180 calendar days of the later of
enrollment in E‑Verify, or provide notification to
E‑Verify operations of the election to exercise the
all-employee option.
If this clause is included in a contract (either in
full text or by reference), it imposes the following
obligations on a covered contractor who is not
already enrolled in E‑Verify at contract award:
1. Enroll as a federal contractor in E‑Verify within
30 days of the contract award (or issuance of
the modification to an existing contract that
incorporates the clause).
2. Within 90 calendar days of enrollment in E‑Verify,
begin to use E‑Verify to initiate verification of
all new hires working in the U.S., whether or
not assigned to the contract, within 3 business
days after date of hire, unless falling within the
educational institution, state or local government,
Indian Tribe, or surety exemption.
3. Within 90 calendar days after date of enrollment
in E‑Verify, or within 30 calendar days of the
employee’s assignment to the contract, whichever
is later, initiate verification of existing employees
assigned to the contract.
If the contractor is already enrolled in E‑Verify
for 90 calendar days or more at time of award (or
applicable modification), the contractor must initiate
verification of all new employees within 3 business
days of date of hire, and must initiate verification for
existing employees assigned to the contract within
90 calendar days after the award (or applicable
modification), or 30 calendar days after assignment,
whichever is later.
If the contractor is already enrolled in E‑Verify but
for less than 90 calendar days at date of award (or
Verification Obligations of Subcontractors
If the “Employment Eligibility Verification” clause
is included in a prime contract, it must be included
(“flowed down”) in all subcontracts that are for
$3,000 or more, if those subcontracts are for (1)
commercial or non-commercial services (unless they
fall under the COTS exception), or (2) construction.
Note, importantly, that the clause need not be flowed
down to subcontracts for supplies (products).
Analysis
The final rule poses some intriguing questions with
respect to applicability and creates the need for a
“go-forward” strategy with respect to compliance.
Among these:
Applicability to Existing Contracts and
Subcontracts. The final rule states clearly that
the “Employment Eligibility Verification” clause
(which is the trigger for E-Verify obligations) should
be included in existing ID/IQ contracts (such as
GSA multiple award schedule contracts) only on
a bilateral basis and only when “substantial work
or orders” are expected under such contracts for
a minimum six-month period. The use of the term
“bilateral” assumes that the contractor must agree
to the inclusion of the clause (and the assumption
of the E-Verify obligation) before the contract is
modified to include the clause. The commentary
December 2008
Government Contracts Alert
accompanying the final rule suggests that the FAR
Council recognizes that there may be some costs
associated with compliance and that a contractor
could solicit consideration in return for agreeing
to inclusion of the clause in a modification. As
a practical matter, contracting officers will be
reluctant to agree to consideration and may consider
termination or cancellation (depending on the terms
of the contract(s) at issue) in the event that the
contractor declines to accept the modification on a
bilateral basis without consideration. In other words,
contractors should expect that E-Verify compliance
will be a cost inherent in doing business with the
federal government.
Subcontractors should expect that prime contractors,
similarly, may seek to insert the clause in their
subcontracts. Again, subcontracts for products of
any kind and for COTS services are exempt from
E-Verify obligations, so subcontractors should be
mindful of incurring these obligations unless other
contracting activities implicate compliance.
MOU Adherence. As mentioned in our earlier alert
on this topic, and as explained in the commentary
to the final rule, contractors should expect DHS
to issue a new MOU which must be executed as a
prerequisite to participating in E-Verify. Breach or
violation of the MOU is a basis for termination of
participation in the E-Verify program – and could
lead to drastic consequences for the contractor, such
as termination for default of related contracts and
suspension or debarment. Accordingly, contractors
must carefully examine the MOU and ensure that
they have the resources to comply.
Overall Compliance Framework. Federal contractors
and subcontractors now must quickly take steps to
ensure that they will be able to comply with the
new verification obligations and devote resources
to this task. Human resources, purchasing, contract
negotiation and other pertinent employees need to
be assigned and briefed on their compliance roles.
Companies also should consider whether it is most
efficient and cost-effective to employ E-Verify to
verify all U.S. employees hired after November 6,
1986 (instead of just those employees assigned to a
government contract or applicable subcontract). The
regulations permit this option (see FAR 52.222-54(b)
(4)), and this may be the most efficient or least costly
one for some contractors and subcontractors.
Please do not hesitate to contact us if we can be
of assistance in interpreting or implementing the
requirements of the final rule.
Contacts:
Hayes C. Stover
+1.412.355.6476
hayes.stover@klgates.com
Robert J. Sherry
+1.214.939.4945
robert.sherry@klgates.com
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December 2008