Functional Affirmative Action Plans: Are They Right for Your Organization?

In September 2018, OFCCP published a notice and a draft of a revised directive that encourages federal contractors to use Functional Affirmative Action Plans (FAAPs). If enacted, the proposed changes would give large contractors an opportunity to streamline workforce compliance efforts.

But as captured in comments on the directive made by the National Industry Liaison Group, the Center for Workplace Compliance, and other workforce compliance organizations, the changes may fall short of what it takes to make FAAPs an effective option for even the largest federal contractors.

The comment period closed on November 13, 2018, and the agency should be issuing a final notice with any suggested modifications that were accepted.

The expected timing of the final notice is unknown, but although the EEOC has suspended work due to the ongoing government shutdown, OFCCP and the Department of Labor are fully funded through 2019 and are operating normally.

Under Craig Leen as acting director and director (as of this month), OFCCP has issued an unprecedented number of notices and directives, and shown a willingness to seriously consider submitted comments and modify proposed procedures in light of those comments.

There’s always a fine balance between the OFCCP’s mission and a federal contractor’s desire to reduce burden. But Director Leen has publicly stated a desire to establish a cooperative relationship with federal contractors.

In light of that, I expect that we’ll see some revisions in final notice some time in early 2019.

What is a Functional Affirmative Action Plan?

As defined by OFCCP, a Functional Affirmative Action Plan—or FAAP—covers a component of an organization. That is, a department or business unit with a specific function such as finance or marketing. To qualify, the functional unit must

  • Operate autonomously
  • Include at least 50 employees
  • Have its own managing official
  • Track and maintain its own personnel activity.

In contrast, a standard Affirmative Action Plan covers physical locations (or establishments). Employers who use standard Affirmative Action Plans must have one for each establishment with more than 50 employees.

FAAPs have been around since the Office of Federal Contract Compliance Programs (OFCCP) started approving them in 2002. But because the agency has not encouraged contractors to use them—and even previously considered doing away with FAAPs entirely—only about 70 FAAPS have been approved to date.

Given that the estimated total of 24,000 firms or parent companies subject to OFCCP jurisdiction, this is a vanishingly small number.

Proposed Changes to FAAP Requirements and Approvals

As announced during the 2018 ILG Conference, the agency is now encouraging the use of FAAPs and has proposed substantive changes to the requirements for FAAPs and the process for obtaining approval.

Proposed changes include

  • Extending re-certification from 3 years to 5 years
  • Eliminating the requirement that FAAP contractors undergo at least one compliance evaluation during the term of their agreements
  • Expanding the exemption period for FAAP units that have undergone a compliance evaluation from 24 months to 36 months from the date OFCCP closed the previous evaluation
  • Eliminating consideration of a contractor’s equal employment EEO compliance history when deciding whether to approve an FAAP request
  • Removing the 3-year waiting period for reapplying for an FAAP following termination of an agreement
  • Eliminating the annual requirement for contractors to modify their FAAP agreements.

What else did OFCCP reveal at ILG 2018? Get the insights captured by our experts and see what’s ahead for federal contractors in 2019.

Advantages and Disadvantages of Adopting FAAPs

FAAPs can offer an efficient alternative for large employers with many locations, chiefly by reducing the total number of AAPs required to maintain compliance.

But as with all things, there are potential disadvantages to consider.

1. Greater Legal Exposure

First and foremost is potential legal exposure. An FAAP groups together a larger and broader set of employees than an establishment-based AAP, typically including employees from multiple locations and regions. This means Compliance Officers will have access to a broader set of records—including compensation and selection data—during the desk audit stage.

Obviously, contractors who switch to FAAPs would also need to refocus audit preparations to ensure they proactively organize and preemptively analyze all data that would be subject to an FAAP compliance review.

Affirmity AAP audit ready banner

2. Greater Administrative Burden

The stated overall intent of the proposed directive is to reduce the burden from its current estimate of 1,297 burden hours to 862 burden hours.

That, however, is a macro view of the burden.

Let’s look at one aspect of administrative burden—the approval request process—as an example. The agency estimates that the time required to prepare a request will drop from 38 hours to 32.75. This estimate includes the following items:

  1. Written request to the OFCCP Director
  2. Statement of proof of federal contractor status
  3. Most recent consolidated EEO-1 report
  4. Organizational chart
  5. Description of the function or business
  6. Unit information and total number of employees
  7. Statement identifying the location of personnel records
  8. List of establishment-based AAPs
  9. Transition plan
  10. Dates of the proposed AAP year
  11. Copies of personnel policies
  12. Reporting hierarchy
  13. Personnel procedures
  14. Compliance with Section 503 and VEVRAA requirements (discussion with OFCCP on how the contractor will comply)
  15. Human Resources and EEO (discussion with OFCCP on how the contractor will manage responsibilities for each functional unit)

To prepare these 15 items, OFCCP estimates 2.2 hours, a number that assumes contractors already have all items in a submittable format. But because many contractors don’t, in my opinion this estimate is too low.

Writing, collecting, and organizing this level of documentation presents a significant administrative burden for some contractors. And for the final two requirements, it’s important to note involve discussion and negotiation with OFCCP.

But let’s keep our sights on the bigger picture. An initial investment of time to develop this level of documentation may be worthwhile. The burden and other administrative demands imposed by the proposed new process must be balanced against the net gain you may realize by having to manage fewer affirmative action programs over time.

3. Potential Future Burden

Other elements in the proposed directive could subject an employer to future administrative burden. These elements, if not managed carefully, could have consequences.

For example, contractors are required to provide written notice to the OFCCP of organizational changes—changes in workforce, mergers, acquisitions, and the like—within 60 days. Failure to meet this requirement, per the proposed changes, could mean termination of your FAAP or a compliance review.

In its proposed form, the directive is unclear whether the scope of that review would be a single FAAP or all FAAPs managed by the contractor.

The impact of ongoing or potential future administrative requirements is arguably the more important consideration for contractors assessing the risks and benefits associated with shifting to an FAAP approach.

8 Questions to Help Determine Whether an FAAP is Right for Your Organization

Federal contractors must carefully consider the advantages and disadvantages when deciding whether an FAAP is the better option for your business.

Start by answering these questions:

  1. How many establishment-based AAPs do you manage today?
  2. How many lines of business or business units do you have with more than 50 employees?
  3. How many functional AAPs (FAAPs) would be created?
  4. Are you planning a corporate area of responsibility for overall administration or will there be an individual FAAP administrator?
  5. How variable is your headcount for each functional business unit?
  6. How will you manage organizational restructuring (mergers/acquisitions) and the impact on your FAAPs?
  7. Does your internal legal team recommend managing single-location AAPs or FAAPs?
  8. Have you proactively analyzed compensation for the employee sets that each FAAP will represent? Are you prepared to address any issues?

By answering these questions, contractors can begin to weigh the costs and benefits of transitioning to FAAP and be aware that the estimated burden hours may be significantly underestimated.

The decision to pursue a functional affirmative action program—whether based on current or proposed requirements— is best made with the support of internal and external counsel.

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