Federal contractors with at least 50 employees and federal contracts of at least $50,000 are required to develop and implement a written affirmative action program for each of their physical establishments. Functional affirmative action plans (FAAPs), in which an employer establishes an affirmative action program for a specific business department (marketing, for example) rather than physical location, are nothing new. The Office of Federal Contract Compliance Programs (OFCCP) has been approving FAAPs since 2002.

Notably, OFCCP approved only 130 FAAPs between 2002 and 2010. In 2010, OFCCP issued a moratorium on any new FAAPs while it evaluated changes to the FAAP program. When OFCCP announced the return of the FAAP in June 2011, Director Patricia A. Shiu proclaimed that, “The FAAP is back and is better than before.” It is back, but is it really better?

FAAPs can be advantageous when the contractor’s business is managed by business unit rather than physical location. In this case, a FAAP provides an alternative that may more closely mirror the contractor’s organization, resulting in greater efficiency and effectiveness. However, the new directive governing FAAPs instituted significant changes that must be weighed by contractors before electing this alternative:

  • Current Eligibility Requirements: To qualify for a FAAP, the functional unit must currently exist and operate autonomously, include at least 50 employees, have its own managing official, and have the ability to track and maintain its own personnel activity.
  • New Approval Process: Contractors must obtain written approval from OFCCP prior to establishing a FAAP agreement. Previously, FAAPs were automatically approved if the agency failed to act on the request within 120 days. The new approval process also involves a mandatory conference to discuss the request. The OFCCP considers Equal Employment Opportunity violations from the past three years in deciding whether to approve the FAAP.
  • More Frequent Renewal Requirement: Previously, FAAPs expired after five years, at which point the contractor was required to submit a renewal request. Under the new FAAP directive, policies now expire after three years. Contractors must submit a renewal request no later than 120 days prior to expiration. To be eligible for renewal, two of the contractor’s functional units must have passed compliance evaluations during the three-year term of the agreement.
  • Additional Reporting Obligations: Contractors must notify the OFCCP of any significant changes in their corporate structure within 30 days of the change. Failure to do so may result in termination of the FAAP. Contractors also must notify OFCCP annually of minor FAAP changes, such as new HR representatives and address changes. The failure to provide these annual updates may result in a compliance evaluation.

Although an FAAP may improve efficiency and efficacy, a contractor must weigh these advantages against a more burdensome approval and renewal process, as well as the additional reporting obligations imposed by the new FAAP directive.