Contractor Agrees to Be Debarred Rather than Consent to OFCCP Jurisdiction

In an unlikely move, Manheim Government Services, LLC (“MAG”) and Manheim Auction Inc. (“MA”) entered a consent decree with OFCCP on September 13, 2011 agreeing to being debarred from bidding on federal contracts following an Administrative Law Judge (“ALJ”) ruling the two contractors were subject to OFCCP’s jurisdiction.

OFCCP sent scheduling letters for a compliance review of MAG and MA in April 2007 and November 2010.  MA is the parent company of MAG.  MA and MAG refused to submit an affirmative action plan (“AAP”) and information to OFCCP because it argued that they did not meet the coverage thresholds requiring it to create an AAP.  Under OFCCP’s laws, a contractor is not required to create and maintain an affirmative action plan unless (1) it holds a single contract (not aggregated) of $50,000 or more (or bills of lading totaling $50,000 or more, serves as a depository of Federal funds in any amount, or is an issuing or paying agent for U.S. savings bonds in any amount); and (2) has 50 or more employees.  MA claimed that it was not a covered federal contractor under this definition.

The OFCCP instituted enforcement proceedings against the contractors and argued to an ALJ that MA and MAG were required to create AAPs because they were a “single business entity” under the “integrated employer test.”  Under that test, two entities will be considered a single business entity were: (1) the operations are interrelated; (2) there is centralized control over labor or employment decisions; (3) they share common management; and (4) there is common ownership and financial control.

After the ALJ concluded that MA and MAG were a single business entity under the “integrated employer test.”  It based its decision on the following facts:

  • MA and MAG shared e-mail, website, and office space;
  • MA possessed an ownership interest in MAG because it had operating agreement with MAG that allowed it to change MAG’s board of directors, represent MAG in all tax matters, and override any action of MAG’s board of directors;
  • MA and MAG shared common directors;
  • MAG utilized MA’s call center operations to support its government contract;
  • MAG offered health and pension benefits through MA’s HR department, and MA offered HR, accounting, and technical support to MAG without cost;
  • The majority of auction facilities MAG used to support its federal contract were owned by MA; and
  • EEO-1 reports were prepared and maintained by MA for MAG.

The ALJ found that MA and MAG were jointly and individually liable for failing to submit reports and information to OFCCP.  The ALJ ordered MA and MAG to comply with OFCCP’s requests or it would face debarment.

On September 13, 2011, MA and MAG entered a consent decree with OFCCP selecting to be debarred rather than consent to OFCCP’s jurisdiction.  This is an extremely rare occurrence because the cost of compliance is usually less than the revenue lost from not being able to solicit future government contracts.  The consent decree, however, can be lifted if MAG and MA agree to submit reports and comply fully with OFCCP.

This case is a good reminder to companies with subsidiaries or affiliated entities that are contractors.  Because OFCCP is likely to take the position that subsidiaries, parents or affiliated entities that have interrelated operations and common management and ownership with contractors are required to comply with OFCCP’s regulations, companies should closely review their business operations with affiliated entities.

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Filed under Affirmative Action Plan (AAP), Department of Labor, Executive Order, OFCCP, Rehabilitation Act, Veterans

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