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Federal Register / Vol. 86, No. 138 / Thursday, July 22, 2021 / Proposed Rules contractor on a contract subject to the Executive order in 2022 beginning on January 30, 2022 to pay covered workers at least $15.00 per hour for work performed on or in connection with the contract. If workers continue to perform work on or in connection with the covered contract in 2023 and the Secretary determines the applicable minimum wage to be effective January 1, 2023, was $15.10 per hour, paragraphs b1 and 2 will require the contractor to pay covered workers $15.10 for work performed on or in connection with the contract beginning January 1, 2023, thereby raising the wages of any workers paid $15.00 per hour prior to January 1, 2023.
The proposed contract clause also includes a provision that will require contracting agencies to ensure that contractors are compensated for any increase in labor costs resulting from the annual inflation increases in the Executive Order 14026 minimum wage beginning on January 1, 2023. The Department notes, however, that such compensation is only warranted if appropriate. For example, if the contracting agency and contractor have already anticipated an increase in labor costs in pricing the applicable contract, it would not be appropriate for a contractor to receive compensation in addition to whatever consideration it has already received for any increase in labor costs in the applicable contract.
The Department further notes that contractors shall be compensated only for increases in labor costs resulting from operation of the annual inflation increases. Thus, contractors are entitled to be compensated under the provision only for any increases in labor costs directly resulting from the annual inflation increase. For example, contractors are not entitled to be compensated for labor costs they allege they incurred related to raising wages for non-covered workers due to operation of the annual inflation increase for covered workers.
Compensation adjustments will necessarily be made on a contract-bycontract basis, and where any annual inflation increase does not increase labor costs because, for example, of the efficiency and other benefits resulting from the increase, the contractor will not ultimately receive additional compensation as a result of the annual inflation increase.
The Department recognizes that the mechanics of providing an adjustment to the economic terms of a covered contract likely differ between covered procurement and non-procurement contracts. With respect to covered nonprocurement contracts subject to the
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Departments proposed contract clause, the Department believes that the authority conferred on agencies that enter into such contracts under section 4b of the Executive order includes the authority to provide the type of adjustment contained in the Departments contract clause.
As discussed elsewhere in this preamble, the Department intends to provide notice of the Executive order minimum wage on SCA and DBA wage determinations to help inform contractors and workers of their rights and obligations under the order. As discussed in more detail in the preamble section for subpart C, the Department has also developed a poster for contractors with FLSA-covered workers performing work on or in connection with a contract covered by the Executive order.
The Department derived paragraph b3 from the contract clauses applicable to contracts subject to the SCA and the DBA, see 29 CFR 4.6h SCA, 29 CFR 5.5a1 DBA, to ensure full payment of the applicable Executive order minimum wage to covered workers. Specifically, paragraph b3
requires the contractor to pay unconditionally to each covered worker all wages due free and clear and without deduction except as otherwise provided by 23.230, rebate or kickback on any account. Paragraph b3 further requires that wages shall be paid no later than one pay period following the end of the regular pay period in which such wages were earned or accrued. Paragraph b3 also requires that a pay period under the Executive order may not be of any duration longer than semi-monthly a duration permitted under the SCA, see 29 CFR 4.165b.
Paragraph b4 of the proposed contract clause provides that the prime contractor and any upper-tier subcontractors will be responsible for the compliance by any subcontractor or lower-tier covered subcontractor with the Executive order minimum wage requirements. Proposed paragraph b4
also states that the contractor and any subcontractors responsible therefore will be liable for unpaid wages in the event of any violation of the minimum wage obligation of these clauses. As discussed earlier, the Department has found this flow-down model of responsibility to be an effective method to obtain compliance with the DBA and SCA, and to ensure that covered workers receive the wages to which they are statutorily entitled even if, for example, the subcontractor that employed them is insolvent. The Department believes the flow-down
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model of responsibility will likewise prove an effective model to enforce the Executive orders obligations and ensure payment of wages to covered workers.
Proposed paragraph b5 of the contract clause in appendix A states that workers with disabilities whose wages are calculated pursuant to special certificates issued under section 14c of the FLSA must be paid at least the Executive order minimum wage or the applicable commensurate wage rate under the certificate, if such rate is higher than the Executive order minimum wage for time spent performing work on or in connection with covered contracts.
The Department derived proposed paragraphs c and d of the contract clause, which specify remedies in the event of a determination of a violation of Executive Order 14026 or part 23, primarily from the contract clauses applicable to contracts subject to the SCA and the DBA, see 29 CFR 4.6i SCA; 29 CFR 5.5a2, 7 DBA.
Paragraph c provides that the agency head shall, upon its own action or upon written request of an authorized representative of the Department, withhold or cause to be withheld from the prime contractor under the contract or any other Federal contract with the same prime contractor, so much of the accrued payments or advances as may be considered necessary to pay workers the full amount of wages required by the Executive order. Consistent with withholding procedures under the SCA
and the DBA, paragraph c would allow the contracting agency and the Department to effect withholding of funds from the prime contractor on not only the contract covered by the Executive order but also on any other contract that the prime contractor has entered into with the Federal Government.
Proposed paragraph d states the circumstances under which the contracting agency and/or the Department could suspend, terminate, or debar a contractor for violations of the Executive order. It provides that in the event of a failure to comply with any term or condition of the Executive order or 29 CFR part 23, including failure to pay any worker all or part of the wages due under the Executive order, the contracting agency could on its own action, or after authorization or by direction of the Department and written notification to the contractor, take action to cause suspension of any further payment, advance, or guarantee of funds until such violations have ceased. Paragraph d additionally provides that any failure to comply with the contract clause may constitute
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