Fair Pay and Safe Workplaces: Reassessing the Costs and Benefits in Government Contracting

Abstract

When purchasing infrastructure, goods or services, the U.S. government has “to promote economy, efficiency and effectiveness.” Executive Order No. 13,673, issued by President Obama, expanded the requirement to encompass social sustainability: to promote economy and efficiency in procurement, the government was required to “contract with responsible sources who comply with labor laws.” The Fair Pay and Safe Workplaces rule (the Rule), proposed in 2014, required contractors of federal agencies to provide fair wages and safe workplaces to their workers. Because industries feared that the Rule would lead to contractors being unfairly excluded from public contracts, opponents of the Rule called it the “blacklisting rule.” After having reviewed the final rule and its regulatory impact analysis, the Office of Management and Budget (OMB) approved the Rule in 2016. Shortly after his inauguration, President Trump revoked the Rule. Now, with Congress’ passage of the “once-in-a-generation” Infrastructure Investment and Jobs Act, and the proposed Buy American rule, the U.S. government will employ thousands of American workers to build highways, bridges, and public transit. Hence, improving the quality of workplaces in government purchasing is more relevant than ever and may very well necessitate the promulgation of a new version of the Rule. Therefore, taking a closer look at the Rule’s regulatory impact assessment and evaluation of labor law benefits is warranted and can provide a helpful model for understanding and improving cost-benefit analysis of government purchasing.

This Article is the first and long overdue attempt to assess the costs and benefits in government contracting. It critically analyzes the methods and results of the Rule’s regulatory impact assessment of 2016. In particular, the Article criticizes the lack of a thorough evaluation of qualitative benefits and suggests a decision rule for agencies to select the most appropriate method for different benefit types. The Article also discusses the issue of evaluating social benefits and “transfer payments” between different groups of society. While wealth transfers are better researched in tax regulation (the government’s income side), currently no research exists on transfer payments in procurement regulation (the government’s expenditure side). To account for the unique nature of the Rule—i.e., the non-monetized benefits and the involvement of the government as a regulated entity—this Article suggests a multi-method approach, rather than the applied one-size-fits-all solution. The Article recommends using an economic impact analysis to evaluate transfer payments, a cost-effectiveness analysis to evaluate safety at work, and a break-even analysis to assess fair wages and reduced employment discrimination.

Keywords: public procurement, cost-benefit analysis, labor law, social sustainability, infrastructure

JEL Classification: E32, H57, K23, L33