OFCCP’s New Burdensome Audit Scheduling Letter Approved

On August 25, 2023, OFCCP announced that it received approval from the Office of Management and Budget (OMB) for its new Scheduling Letter and Itemized Listing, significantly expanding the information and data federal contractors must submit to OFCCP at the outset of audits. These changes underscore OFCCP’s new aggressive approach to audits and provide OFCCP a greater opportunity to identify issues for investigation during audits.

Given the significant additional information contractors will need to provide at the beginning of audits and OFCCP’s refusal to grant extensions to the 30-day deadline for responding to the Scheduling Letter (except in “extraordinary circumstances”), contractors should immediately start reviewing their affirmative action practices and audit strategies to prepare for the new Scheduling Letter and Itemized Listing. The updated Scheduling Letter and Itemized Listing will apply to all supply and service compliance evaluations going forward. Since OFCCP is due to issue another round of Corporate Scheduling Announcement Letters (CSALs) soon, contractors should also be on the lookout for OFCCP to announce a new list of contractors selected for audit.

Background

As we previously reported, on November 22, 2022, OFCCP sought approval from OMB for proposed modifications to its Scheduling Letter and Itemized Listing, seeking to drastically increase the scope of information and data contractors have to provide OFCCP at the beginning of compliance evaluations. After receiving public comments, on April 17, 2023, OFCCP published a revised version of its proposed Scheduling Letter and Itemized Listing, scaling back some of its requests, but keeping many of the proposed items unchanged.

Significant Changes to the Scheduling Letter and Itemized Listing

The Scheduling Letter and Itemized Listing that was approved by OMB is largely the same as the April 17, 2023, proposed version. Contractors will now have to provide OFCCP with much more information and data at the outset of audits than previously required. Some of the more significant changes are noted below.

• Item 4 (previously Item 4): Under the prior version of Item 4, contractors were required to provide their availability analyses for females and minorities in accordance with the factors in 41 C.F.R. § 60-2.14(c)(1)-(2), which includes assessing the percentage of females and minorities: (1) with the requisite skills in the reasonable recruitment area; and (2) who are promotable, transferrable, and trainable within the contractor’s organization. The new Item 4 expands the scope of information contractors must provide for their availability analyses to include all factors in 41 C.F.R. § 60-2.14. OFCCP believes this change was needed so it could better assess whether contractors are in full compliance with all requirements in that regulation. Contractors will now need to consider how to update and document their availability analyses in each of their affirmative action plans (AAPs) and how to provide this information to OFCCP at the beginning of audits.

• Item 7 (new item): Contractors will now be required to provide OFCCP “documentation demonstrating the development and execution of action-oriented programs designed to correct any problem areas identified pursuant to 41 CFR § 60-2.17(b)” for the immediately preceding AAP year. Contractors should consider how best to create this documentation for each establishment AAP and how to provide this information to OFCCP at the outset of audits.

• Items 8 and 12 (previously Items 7 and 11):Contractors will now have to provide OFCCP additional details and documentation about their Section 503 and VEVRAA outreach and positive recruitment efforts, including documentation indicating whether the contractor “believe[s] the totality of [its] efforts were effective,” and, if not, provide “detailed documentation describing [the contractor’s] actions in implementing and identifying alternative efforts.” Although Section 503 and VEVRAA regulations already require contractors to undertake some of these actions, contractors must now consider how to create this additional documentation each year for their assessments in case they are scheduled for an audit.

• Item 11 (previously Item 10): Contractors will now have to provide OFCCP a “description of the steps taken to determine whether and where impediments for equal employment opportunity exist” if any underutilization of individuals with disabilities is identified through their Section 503 utilization analyses. The new Item 11 states that the description shall include an “assessment of personnel processes, the effectiveness of your outreach and recruitment efforts (if different than Item 8), the results of your affirmative action program audit, any other areas that might affect the success of the affirmative action program, and a description of action-oriented programs developed and executed to correct any identified problem areas.” This new requirement will substantially add to contractors’ time and costs for preparing Section 503 AAPs. Contractors will also need to consider how to document and provide this information to OFCCP if scheduled for an audit.

• Item 18 (previously Item 18):Under the prior Itemized Listing, contractors were required to provide certain information on employment activity (applicants, hires, promotions, and terminations) for the immediately preceding AAP year, and, if they were six months or more into their current AAP year, they were required to provide the same information for at least the first six months of the current AAP year. Item 18 in the new Itemized Listing remains mostly unchanged, but contractors will now be required to provide OFCCP the total number of employees for each job title or job group, broken down by gender and race/ethnicity, as of the start of the immediately preceding AAP year. Contractors will also have to provide documentation that includes any policies and practices related to promotions.
  
  On a positive note, contractors will be relieved that OFCCP removed several items from its initial and revised proposed versions of Item 18 in the Itemized Listing, including requiring contractors to: (1) identify whether each promotion is competitive or non‑competitive; (2) “include the previous supervisor, current supervisor, previous compensation, current compensation, department, job group, and job title from which and to which the person(s) was promoted”; and (3) provide a breakdown of employee terminations by reason for termination. Although these items have been removed from the new Itemized Listing, contractors should anticipate that OFCCP may request these and other related items if it decides to further investigate a contractor’s promotion or termination practices based on the contractor’s initial response to Item 18.

• Item 19 (previously Item 19): OFCCP has also significantly expanded the scope of information and data contractors must provide to OFCCP on compensation. Not only do these new requirements increase the burden on contractors to collect, quality check, and assess their compensation practices, but it also provides OFCCP a greater opportunity to identify issues for investigation during audits and increases the likelihood of OFCCP alleging pay discrimination findings. Several key changes include:
• Two Years of Compensation Data: Contractors will now have to provide OFCCP with two years of employee-level compensation data for all employees (including, but not limited to, full-time, part-time, contract, per diem or day labor, and temporary employees) both: (1) as of the snapshot date of affirmative action plan subject to the audit; and (2) “as of the date of the prior year’s organizational display or workforce analysis.”
• Pay Factors and Compensation Policies: Under the prior version of the Itemized Listing, it was optional for a contractor to provide OFCCP information on factors used to determine pay, such as education, experience, tenure, etc., and optional to provide OFCCP documentation related to the contractor’s compensation practices and policies. Now, contractors must provide OFCCP with the following information for each employee in the Item 19 compensation data: (1) “relevant data on the factors used to determine employee compensation”; and (2) “documentation and policies related to the contractor’s compensation practices, including those that explain the factors and reasoning used to determine compensation (e.g., policies, guidance, or trainings regarding initial compensation decisions, compensation adjustments, the use of salary history in setting pay, job architecture, salary calibration, salary benchmarking, compensation review and approval, etc.).” If contractors “do not maintain any of these items,” they will have to inform OFCCP of that fact in the initial submission.

• Item 21 (new): Contractors will now have to provide documentation of their policies and practices regarding all employment recruiting, screening, and hiring mechanisms,including the use of artificial intelligence, algorithms, automated systems, or other technology-based selection procedures (“AI Tools”). In recent years, OFCCP and EEOC have undertaken various efforts to try to regulate and investigate AI Tools used by contractors to make or aid in employment decisions. OFCCP has traditionally only sought to investigate employment tests or other assessment tools if they found statistical indicators suggesting adverse impact based on race or gender. Significantly, there is no guidance on how contractors should provide documentation of their policies and practices about their assessment tools or how OFCCP will evaluate that documentation. Now that OFCCP can obtain information about contractor assessment tools, including any use of recruiting, screening, and hiring AI Tools, contractors should start tracking and evaluating their use of such tools to understand how they are being used. Contractors should also assess those tools (under attorney-client privilege) to determine if they have any potential adverse impact based on protected characteristics and, if so, modify or eliminate those tools and validate them in accordance with the Uniform Guidelines for Employee Selection Procedures.

• Item 22 (new): Contractors will also have to provide documentation that they have fulfilled their obligation under 41 CFR 60-2.17(b)(3) to evaluate their “compensation system(s) to determine whether there are gender-, race-, or ethnicity-based disparities.” In line with OFCCP’s Directive 2022-01 Revision, new Item 22 states that contractors must provide documentation demonstrating at least the following for their regulatory required pay analysis:
• When the compensation analysis was completed;
• The number of employees the compensation analysis included and the number and categories of employees the compensation analysis excluded;
• Which forms of compensation were analyzed and, where applicable, how the different forms of compensation were separated or combined for analysis (g., base pay alone, base pay combined with bonuses, etc.); and
• That compensation was analyzed by gender, race, and ethnicity.

Since this documentation will now be required at the beginning of audits, contractors should start considering now what type of analysis they will perform to meet the 2.17(b)(3) requirement and the type of documentation they will have available to prove to OFCCP that analysis was conducted if they plan to withhold that analysis on attorney‑client privilege grounds.

• Item 23 (previously Item 20): Under Item 20 in the prior Itemized Listing, contractors were required to provide OFCCP documentation of any disability or religious accommodation requests received during the immediately preceding AAP year and resolution of those requests, if any. Now, contractors who receive the Scheduling Letter six months or more into their current AAP year must provide update data for these same accommodations for at least the first six months of the current AAP year.

• Item 24 (new): Contractors will now be required to provide copies of their EEO policies, including their antiharassment policies, complaint procedures, and “policies on employment agreements that impact employees’ equal opportunity rights and complaint processes,” such as arbitration agreements and policies. Contractors must provide any such policies that were in place in the immediately preceding AAP year, and if they receive the Scheduling Letter six months or more into their current AAP year, contractors must provide any such policies that have been issued in at least the first six months of the current AAP year.

• Item 25 (previously Item 21): Contractors will continue to be required to provide their most recent assessment of their personnel process as required by 41 C.F.R. §§60‑300.44(b) and 60-741.44(b), including a description of the assessment and any actions taken or changes made because of those assessments. Contractors will now also be required to describe any “impediments to equal employment opportunity identified through the assessment.” Contractors should ensure they are tracking impediments identified during those assessments and closely reviewing how they describe those impediments and any efforts to remediate them to decrease the risk of potential discrimination allegations by OFCCP.

Contractors should also note some important changes to the Scheduling Letter:

• Expansion of audits for post-secondary institutions and contractors with “campus‑like settings”: Contractors with campus-like settings, such as universities, hospitals, and technology companies, will now be required to produce all AAPs for the campus building(s) located in the same city where the establishment selected for audit is located. This new requirement is a significant change to OFCCP’s historic approach to only audit contractors by AAP establishment. Starting in September 2020, OFCCP changed its audit scheduling methodology to consider all buildings on a campus of a post-secondary institution as being subject to a single audit (even if the buildings maintained separate AAPs). But, OFCCP has now crystalized this requirement and expanded it to all other contractors with campus settings. OFCCP’s change in audit practice might also result in OFCCP creating more aggregated employee groupings and accessing larger numbers of personnel actions for OFCCP to statistically analyze, thereby increasing the risk of potential discrimination findings. Accordingly, contractors with campus settings should reevaluate their approach to creating AAPs and OFCCP audits.

• Electronically serving and responding to the Scheduling Letter: The Scheduling Letter also adds an option for OFCCP to issue the Scheduling Letter and Itemized Listing to contractors via email with a read receipt requested. In addition, OFCCP is strongly encouraging contractors to submit their AAPs and other information responding to the Itemized Listing electronically either by email or through a secure file sharing system, such as Kiteworks.

Practical Implications

Although OFCCP scaled back some of its proposed changes, the OMB-approved Scheduling Letter and Itemized Listing is still significant and far-reaching. Contractors should review their audit preparation strategies and affirmative action practices to ensure they are prepared to timely respond to the new audit requirements.

Despite significantly expanding the number of items contractors will be required to provide at the outset of audits, contractors should not assume OFCCP will grant extensions to the 30-day timeline contractors have for providing complete responses to the Scheduling Letter and Itemized Listing. Indeed, the new Scheduling Letter states that OFCCP may initiate enforcement proceedings if the requested information is not provided within 30 calendar days of the contractor’s receipt of the letter. As OFCCP previously stated in its FAQs, it will only grant extensions for submitting responses to the Scheduling Letter and Itemized Listing under “extraordinary circumstances,” such as extended medical or military leave absences of key personnel responsible for OFCCP compliance, localized or company-specific disaster affecting records retrieval (e.g., flood, fire, computer virus), or unexpected turnover or departure of key affirmative action personnel. Contractors should also be mindful that OFCCP changed its policies last year to allow contractors to be scheduled for an audit immediately after the CSAL list has been published by OFCCP.