Safety and OSHA News

Will an OSHA violation bar companies from new federal contracts?

A new executive order from President Obama will create more scrutiny of companies that want federal contracts. Included in what the feds will look at: OSHA violations within the last three years. Are all OSHA violators now barred from federal contracts? 

Not necessarily.

The Fair Pay and Safe Workplace Executive Order (EO) will require prospective federal contractors to disclose labor law violations. These include violations of several labor laws including the Fair Labor Standard Act, the National Labor Relations Act and the Occupational Safety and Health Act.

The EO will be implemented on new contracts in stages during 2016. It will affect contracts for more than $500,000 in goods, services or a combination of both.

A fact sheet produced by the White House puts it this way: “Taxpayer dollars should not reward corporations that break the law.”

“Break the law” sounds pretty broad.

But the fact sheet also says, “Contracting officers will take into account only the most egregious violations.” The violations must “rise to the level of a lack of integrity or business ethics.

“The Executive Order will ensure that the worst actors, who repeatedly violate the rights of their workers and put them in danger, don’t get contracts,” according to the White House.

Are you out of luck if you have some serious OSHA violations? Again, not necessarily. Help is available, and remediation can be a key.

“Companies with labor law violations will be offered the opportunity to receive early guidance on whether those violations are potentially problematic and remedy any problems,” according to the fact sheet.

What triggered this?

Speaking of scrutiny, President Obama has come under a certain amount of that himself regarding just this type of EO. Republicans in Congress say he’s using them too frequently.

So that begs the question: Is this EO really necessary?

While that can be debated among the politicians, here’s something that’s not in doubt: There are several recent examples of companies that have received particularly egregious OSHA citations that have also benefited from billions of dollars in federal contracts.

In 2010, the Government Accountability Office issued a report finding almost 40% of the 50 largest workplace health and safety penalties issued between fiscal years 2005 and 2009 received federal contracts.

In 2013, Senate Health, Education, Labor and Pensions Committee Chairman Sen. Tom Harkin (D-Iowa) issued a report showing dozens of contractors with significant OSHA violations from 2007 to 2012. Some findings from the report:

  • 18 companies that received large federal contracts were responsible for 23 of the 100 largest initial penalties imposed by OSHA
  • Eight federal contractors were found to be responsible for the deaths of 42 U.S. workers, and taxpayers provided $3.4 billion in contracts to these companies in 2012
  • Although the OSHA investigation of the Texas City Refinery explosion in 2005 led to an agreement with BP to pay a $21.3 million penalty and correct a number of problems, BP appears to have faced no limitations on its ability to obtain future federal contracts. Fifteen workers were killed in the explosion. (This changed after the Deep Water Horizon explosion that killed 11 workers in 2010. BP was barred from obtaining federal contracts for 18 months.)
  • Cintas had $2.5 million in final penalties from OSHA during the period, including ones involving a particularly gruesome worker death. Eleazar Torres Gomez noticed a clothes jam on the conveyor that feeds clothing into a dryer at Cintas’ Tulsa, OK, facility. In an attempt to dislodge the jam, he climbed onto the conveyor and was swept into the dryer which continued to spin for 20 minutes at 300°. OSHA found 46 violations at the plant.
  • In 2010, seven workers were killed at the Anacortes, WA, refinery owned by Tesoro Corp. A heat exchanger ruptured and exploded. OSHA initially fined Tesoro $2.3 million. The company received $463 million in federal contracts in 2012.

Another study showed 28 of the companies with the top workplace violations from 2005 to 2009 received federal contracts, and a quarter of those eventually had significant performance problems.

In other words, federal labor (including safety) violations can predict poor delivery of goods and services from a company.

So what does this ultimately mean for companies when it comes to OSHA violations? It’s difficult to state absolutes, but the White House documentation seems to point toward a greater chance of a company not getting a federal contract if violations are repeat or particularly egregious. One-time, low-level citations from OSHA won’t automatically disqualify a company.

But, of course, there’s this: If you are fined by OSHA once, and the agency finds similar violations again at your company (and it doesn’t have to be at the same location), you’re in line for citations categorized as repeat. So the best advice is to have a safety program that won’t trigger an OSHA inspection because of employee injuries.

It’s also a good idea to make sure employees feel comfortable bringing safety problems to you. A disgruntled employee can become a whistleblower, leading not only to OSHA citations but also a loss of federal contracts.

What do you think about the new White House EO regarding federal contracts? Let us know in the comments.

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  1. I don’t think this is the best approach. You end up punishing companies for the acts of individuals while the individuals themselves skate off. A long time ago I started with a company that I felt had a really bad safety culture with the worst offenders at the foreman level. I addressed it to management several times and shortly after starting there we had a fatality which occurred due to someone ignoring a clearly written and conveyed safety rule, with the foreman right there on the jobsite. During the investigation our site manager, a superintendent, and the foremen were fired and who immediately went to work inside the same plant with one of our competitors who ended up with the contract after we lost it.
    I know of some of the examples you listed and it’s a similar situation. When you talk about BP, there were failings from the operations group that was on duty that day. Where did all those people go? Are they still in positions which would allow this to happen again at another company?

  2. Some state/county/city contracts are now looking at 5 yr. EMR instead of 3 yr. as well. A previous company I worked for had 1 injury 4 years ago, and it cost them bidding on a multimillion dollar project.

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