Responsible contracting policies help governments reduce the risk of contract failure and ensure that contractors have a track record of providing employees with living wages and benefits. It usually leads to better quality services and reduces the hidden costs that result when workers don't receive living wages and benefits. Responsible contracting can be achieved through ordinances or laws, regulations, or administrative policies.
Responsible contracting policies establish a basic set of qualifications that all firms must meet in order to bid on public construction or private construction projects that:
- receive public funding,
- require public approvals, or
- benefit from public investment.
Responsible contracting policies typically require contractors to demonstrate that they offer high-quality employment and work product. In practice, firms that meet responsible contractor standards typically would be able to show that they:
- Are fully licensed and bonded
- Have had no wage/hour violations for the past three consecutive years
- Provide OSHA 10-hour safety training
- Participate in an ERISA or joint labor-management training program (e.g. certified apprenticeship program)
- Pay prevailing wages and offer health insurance
- Provide all benefits of employment to their workforce (including social security, workers comp, and unemployment insurance)
- Comply with all other federal and state regulations
- Have no history of violating this policy in previous public contracts
Moreover, strong policies require general contractors to incorporate these components into their agreements with subcontractors.
Responsible contracting policies can help leverage a higher quality construction industry by making sure that public policy and public funding support only those contractors that meet these critical job quality standards. Responsible contracting policies can function across a wide variety of construction markets, but they are particularly useful in low-density markets where prevailing wage standards reflect the low-wages and meager benefits that characterize the market. In regions where few construction workers belong to unions, responsible contracting policies can make sure that the worst actors in the market place do not have the opportunity to profit from public contracts.
Responsible contracting policies make for good public policy for several reasons. They make sure that construction firms do not misclassify their workers as independent contractors, rendering them ineligible for social security, unemployment insurance, health insurance and workers compensation. They ensure that contractors cannot underbid public contracts merely by shortchanging their workforce, an practice that creates public costs elsewhere when those workers rely on publicly-subsidized health insurance or when the quality of construction suffers as a result of lack of skills training and workforce stability.
Responsible contracting includes several broad principles:
Prudent and fair contracting processes
Governments should perform accurate cost comparisons to ensure that outsourcing is actually cost-effective. Cost comparisons should include direct costs, indirect costs, and transitional costs. Often contracting appears to be cheaper than keeping the function in-house because governments fail to consider a host of variables, including the community ramifications of reduced wages and benefits, the additional training that new employees may require, personnel time for monitoring the contractors, or the enormous costs that the government will incur in the event of contract cancellation. Projections of cost savings often rely on rosy assumptions. An honest assessment is required to make prudent contracting decisions.
Governments should set standards regarding contractors' wages, benefits, and records of complying with workplace, tax and other laws. Using bid price as the main selection variable can make responsible companies look uncompetitive. Governments should not reward companies for providing a low bid at the expense of workplace responsibility. Contractor responsibility reduces staff turnover and provides higher quality and more reliable services for the community. The City of Los Angeles, for example, has a "responsible contractor policy" requiring city agencies to review potential bidders' history of labor, employment, environmental and workplace safety violations. It uses a detailed questionnaire, in which bidders must disclose and explain past and pending litigation, past contract suspensions, and outstanding judgments.
Public transparency and accountability
Information related to the contracting process should be as open as possible, to allow for public input and to help hold contractors accountable. Public hearings and comment periods are important ways for the public to have a voice in the contracting process. Public access to contracting information allows taxpayers to understand how their money is being spent and reduces the risk of corruption in the contracting process. Public release of bidders' stated track records, for instance, allows the public to provide any relevant information that the applicants may not have included.
Responsible Contracting Campaigns
Working Partnerships USA
Santa Clara Valley Transportation Authority Prequalification Policy
One variation on responsible contracting policy is prequalification. Prequalification policies require contractors first to submit evidence that they meet responsible contracting criteria. Only those firms that pass the prequalification process are allowed to bid on public contracts.
In 2001, the Santa Clara County, CA Valley Transportation Authority (VTA) initiated a pre-qualification pilot program, which was renewed in 2003. The program requires contractors that want to bid on VTA construction projects to apply for pre-qualification. The pre-qualification process is designed to reduce safety and prevailing wage violations, and ensure that publicly funded construction contracts go to firms with strong safety and quality records.
A number of municipalities and school districts in California have instituted a pre-qualification process to ensure that construction contracts go to responsible contractors. Working Partnerships USA published a policy brief that provides an overview of the issue and a detailed inventory of public entities in California that use pre-qualification.
Georgia Stand-UP successfully worked to include community benefits standards in the statute authorizing the funding mechanism for the construction of the Atlanta Beltline. Among the specific policies they are working to implement under this broad policy language is a responsible contracting policy that would pertain to all construction funded through this multi-billion dollar infrastructure project.
Responsible Contracting Resources
Visit In the Public Interest's Advocacy Toolbox page to see examples of city and state-level responsible contracting policies.
The Road to Responsible Contracting: Lessons from States and Cities for Ensuring That Federal Contracting Delivers Good Jobs and Quality Services
National Employment Law Project, 2009
Making Contracting Work: Promoting Good Workplace Practices in the Federal Procurement Process
Center for American Progress Action Fund & National Employment Law Project, 2009
Stop Bad Contracts and Protect Public Jobs
This report gives examples of responsible contracting legislative language from around the country.