The White House is looking at a new policy that would give an advantage in bidding on government contracts to companies that offer a "living wage" and generous benefits.
But business groups opposing the idea maintain it would shut out smaller businesses from competing for more than $500 billion a year in federal contracts and increase government procurement costs.
The policy is known as "high road" contracting and could draw the Obama administration into a larger debate over whether the government should use public purse strings to strengthen the middle class and promote higher labor standards.
Advocates of the plan include unions. They say too many jobs financed by government contracts come with low wages and limited benefits and support companies that violate employment laws.
The Economic Policy Institute, a liberal think tank, estimates that nearly 20 percent of the 2 million federal contract workers in the U.S. earn less than the poverty threshold wage of $9.91 per hour. As many as 22 million workers are employed by federal contractors.
Documents obtained by The Associated Press show the plan under consideration would examine the wages and benefits — such as health insurance, retirement benefits and paid leave — a company pays its employees as a factor in the contract award process.
Another factor would be whether a contract bidder is a repeat violator of labor and employment laws. Businesses with legal violations are already supposed to be restricted under current contracting rules, but the new policy would create a better system for tracking those companies.
A Labor Department compliance office would compile a score on contract bidders based on the new criteria.
Obama's middle class task force said Friday in its first report that officials have looked at ways to reform the procurement process and "expect to produce shortly some new recommendations to bring these ideas into practice."
White House consideration of the new policy was first reported earlier this month on the political Web site Daily Caller.
Earlier this month, a group of four Republican senators led by Sen. Susan Collins of Maine wrote a letter to Budget Director Peter Orszag arguing that imposing such a policy could increase the cost of federal contracting and hurt small businesses.
"These small businesses could choose not to compete for federal contracts, undermining the diversity of the federal contracting base and lessening competitive pressure on larger federal contractors," the lawmakers wrote.
The U.S Chamber of Commerce goes further, calling the policy a payback to labor unions. Unionized companies that already pay workers higher average wages and offer better health and retirement benefits would be in a better position to compete with nonunion contractors.
"This is an attempt by the unions to force their policy agenda on a wide swath of the economy by rigging the government procurement process," said Glenn Spencer, executive director of the Chamber's Workforce Freedom Initiative.
David Madland, director of the American Worker Project at the Center for American Progress, a liberal think tank, said there is evidence that better-paid workers are more efficient and productive. Local governments with similar plans found raising standards increased competition because more companies are willing to bid on government contracts, he said.
Madland said raising labor standards and wages also saves taxpayers from hidden costs when employers pay so little that their workers rely on publicly funded health insurance and other safety net programs.
In 2007, Maryland became the first state to adopt a living wage law that requires state contractors to pay a minimum salary to workers. More than 100 other cities and counties have adopted similar mandates. By contrast, the federal "high road" policy would not require the government to prefer companies with higher wages — it would be one factor among other criteria.