[Federal Register Volume 66, Number 12 (Thursday, January 18, 2001)]
[Rules and Regulations]
[Pages 5328-5343]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1337]
[[Page 5327]]
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Part X
Department of Labor
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Office of the Secretary
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29 CFR Part 4
Service Contract Act; Labor Standards for Federal Service Contracts;
Final Rule
Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 /
Rules and Regulations
[[Page 5328]]
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DEPARTMENT OF LABOR
Office of the Secretary
29 CFR Part 4
RIN 1215-AB26
Service Contract Act; Labor Standards for Federal Service
Contracts
AGENCY: Wage and Hour Division, Employment Standards Administration,
Labor.
ACTION: Final rule.
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SUMMARY: This document adopts as a final rule an amendment to the
regulations exempting certain contracts for commercial services meeting
specific criteria from coverage under the McNamara-O'Hara Service
Contract Act (SCA). The proposed regulation was issued based on a
request by the Administrator for Federal Procurement Policy, Office of
Federal Procurement Policy (OFPP), in a May 12, 1999, letter to the
Secretary of Labor, representing that the requested exemptions were
both necessary and proper in the public interest, and in accord with
the remedial purpose of the SCA to protect prevailing labor standards.
Amendments/modifications were made to the OFPP-requested exemptions
based on the written comments submitted in response to the proposed
rule.
EFFECTIVE DATE: March 19, 2001.
FOR FURTHER INFORMATION CONTACT: William W. Gross, Director, Office of
Wage Determinations, Wage and Hour Division, Employment Standards
Administration, U.S. Department of Labor, Room S-3028, 200 Constitution
Avenue, NW., Washington, DC 20210; telephone (202) 693-0062. This is
not a toll-free number.
SUPPLEMENTARY INFORMATION:
I. Paperwork Reduction Act
This rule contains no reporting or recordkeeping requirements
subject to the Paperwork Reduction Act of 1980 (Pub. L. 96-511). The
existing information collection requirements contained in Regulations,
29 CFR part 4 were previously approved by the Office of Management and
Budget under OMB control number 1215-0150.
II. Background
On October 1, 1995, the Federal Acquisition Regulations were
amended to implement provisions of the Federal Acquisition Streamlining
Act (FASA). One provision of the final regulation, 48 CFR
12.504(a)(10), provided that the requirements of the McNamara-O'Hara
Service Contract Act (SCA) are not applicable to subcontracts at any
tier for the acquisition of commercial items or services. This
provision of the final rule had not been included in the proposed
regulation. When the Department of Labor became aware of the
regulation, the Administrator of the Wage and Hour Division wrote to
the Administrator for Federal Procurement Policy, OFPP, questioning the
appropriateness of the FAR regulation. The Department of Labor stated
its view that questions of coverage and exemptions under the SCA were
properly within the purview of the Secretary of Labor pursuant to
section 4 of SCA. After a review of the issue by the FAR Council the
Administrator for Federal Procurement Policy wrote to the Secretary of
Labor and requested that the Department propose an exemption for a more
limited group of commercial service contracts (both prime contracts and
subcontracts). The Administrator stated that the FAR Council had
concluded that a blanket exemption of all subcontracts for commercial
items may not adequately serve the Administration's policy of
supporting exemptions of the SCA only where they do not undermine the
purposes for which the SCA was enacted. In addition, the FAR Council
recognized the Department's authority to exempt contracts as well as
subcontracts on all types of contracts. Therefore the FAR Council
agreed that any exemption from the coverage of SCA for subcontracts for
the acquisition of commercial items or components should be
accomplished under the Secretary of Labor's authority in the SCA, and
stated that it would withdraw the FAR provision.
The FAR Council indicated that the adoption of their
recommendations would further the commitment of the Administration to
be more commercial-like, encourage broader participation in government
procurement by companies doing business in the commercial sector, and
reinforce their commitment to reduce government-unique terms and
conditions from their contracts. Furthermore, the FAR Council
represented that the limited exemptions that it proposed could be
accomplished without compromising the remedial purpose of the SCA to
protect prevailing labor standards.
On July 26, 2000, the Department of Labor published an NPRM,
proposing the limited exemption from the SCA recommended by the FAR
Council. On the same date, the FAR Council published a final rule in
the Federal Register removing SCA from the list of laws inapplicable to
subcontracts for commercial items, previously at FAR at 48 CFR
12.504(a)(10). The FAR final rule became effective August 25, 2000. As
a result, a small group of commercial subcontracts that were previously
exempted under the FAR rule and that also meet the requirements of
DOL's proposed rule could change from exempt to nonexempt and back to
exempt if the DOL proposal becomes final as it was proposed. Therefore,
to prevent the disruption that could be caused by such changes,
including the possible disruption of services if the current
subcontractor did not agree to continue the subcontract services under
the requirements of SCA, the Department also published a final rule in
the same Federal Register, temporarily exempting from the SCA those
commercial subcontracts which met the criteria of the proposed rule.
The rule was to remain in effect for one year, or until final action
was taken on the NPRM, whichever occurred first. With the publication
of this final rule, the final rule for commercial subcontracts is
superceded and is withdrawn.
The NPRM addressed two separate but somewhat related issues. First,
the NPRM proposed to modify the current exemption for the maintenance
and repair of Automated Data Processing (ADP) equipment, 29 CFR
4.123(e)(1), to reflect terminology changes in law that have occurred
since the exemption was originally established; broaden the exemption
to cover information technology as currently defined; apply the
exemption to installation services; and apply the exemption to
subcontracts as well as prime contracts. Second, a new exemption was
proposed, similar to the current ADP exemption, to exempt both prime
contractors and subcontractors for a specified subset of commercial
services that meet certain criteria.
III. Summary/Analysis of the Comments
A total of eleven comments were received. Three comments from
contractor associations are generally supportive of but recommend
certain changes to the proposed exemption. Eight comments--one from a
contractor association and seven from union organizations--are
generally opposed to all or specific portions of the proposed
exemption. Since most of the comments focus on the proposed services or
the proposed criteria for exemption, this summary also is organized on
the basis of individual services and criteria.
Before addressing the individual services, however, several
commenters raise an overarching issue regarding the statutory and
regulatory requirements for exemption under the Service Contract Act.
The American Federation
[[Page 5329]]
of Labor--Congress of Industrial Organizations (AFL-CIO), the Laborers'
International Union of North America (LIUNA), and the Building and
Construction Trades Department, AFL-CIO (Building Trades), note that
section 4(b) of SCA limits the Secretary of Labor the authority to
grant exemptions from SCA to those situations where the exemption is
``necessary and proper in the public interest or to avoid the serious
impairment of government business, and is in accord with the remedial
purpose of this Act to protect prevailing labor standards.'' The AFL-
CIO and LIUNA further note that 29 CFR 4.123, the Department's
regulation implementing section 4(b) of SCA, provides that ``a request
for exemption from the Act's provisions will be granted upon a strong
affirmative showing'' that the statutory requirements for exemption are
met. They argue that the reasons proffered are inadequate as a matter
of law. The AFL-CIO further states that the FAR Council offers no
factual support for its requested exemption, and that ``the Department
cannot defer to the FAR Council's unsupported `representations' as to
whether the exemptions satisfy the `public interest' and serious
impairment' standards.''
The Department agrees that exemptions from the SCA may only be
granted upon a strong affirmative showing that the statutory
requirements for exemption are met. This does not mean, however, that
the Department cannot or should not give great weight to the
representations of the FAR Council. The FAR Council's experience with
and knowledge of the Federal procurement process is clear, and we
believe it is appropriate to give the FAR Council's representations due
consideration. Absent evidence or arguments to the contrary, a
representation by the FAR Council may constitute a ``strong affirmative
showing'' that the requirements for exemption are met. Therefore, on
the one hand, we did not summarily reject the FAR Council's request,
and on the other hand, the FAR Council's representations have not been
accepted without question. They have been evaluated in light of the
comments received.
The AFL-CIO also argues that there is no basis for the proposal to
expand the FAR exemption for subcontracts to both prime contracts and
subcontracts. The Department disagrees with this comment. The
Department notes that SCA coverage and exemptions are commonly
applicable to both prime contracts and subcontracts, and the Department
sees no basis for limiting the exemption for certain commercial
services to subcontracts, provided the required showing is met.
A. Expansion of the current ADP exemption
Based upon the recommendation of the FAR Council, the Department
proposed that the current ADP maintenance exemption be updated to
reflect the current statutory definition of ``information technology''
and be consistent with other regulations. Further, the proposal added
installation services to the current regulatory exemption where those
services are not subject to the Davis-Bacon Act. The FAR Council noted
that service contracts often involve installation of information
technology (IT) equipment, for example installing and maintaining a
local area network, or installing and maintaining new telephones or a
telephone system. The same employees are performing installation as are
performing maintenance and repair services. Thus, the FAR Council
argued that the same conditions supporting the exemption for the
maintenance services also support an exemption for installation
services. Finally, the FAR Council recommended that the exemption be
made applicable to subcontracts as well as prime contracts.
The Council of Defense and Space Industry Associations (CODSIA) and
the Contract Services Association (CSA) support the expansion of the
current ADP exemption to a broader IT definition. CODSIA states that it
is ``pleased that the Department of Labor has virtually exempted all IT
prime and subcontracts from the Service Contract Act.'' CSA states that
the ``new `ADP' exemption has been significantly enlarged to a new
definition of IT.'' Both CODSIA and CSA state that the proposed rule
recognizes that ``the IT marketplace provides a vibrant and effective
guarantor of fair wage practices for virtually all IT workers.''
The AFL-CIO, LIUNA and the Building Trades all oppose changing the
current ADP exemption to adopt a new information technology definition.
The unions also oppose the addition of installation services. The AFL-
CIO states that the ``growth of data networks does not change the
fundamental distinction between the manipulation of data by computers--
which is automated data processing--and the transmission of data over
telecommunications networks--which is a telecommunications service.''
The AFL-CIO further states that installing and maintaining new
telephone lines or a telephone system is not automated data processing.
The AFL-CIO states that the proposal ``inappropriately extends the ADP
exemption to service work that involves the `switching, interchange,
transmission, or reception of data or information.' ''
It goes on to note:
``Installation and maintenance of telephone lines (where
unregulated) has historically been covered by the SCA. The service
work has not changed substantially even when installation and
maintenance involves data rather than voice networks. The service
work involved in the installation and maintenance of a local area
data network is comparable to the service work involved in the
installation and maintenance of a voice PBX or Centrex system, work
which is currently covered by the SCA.''
The FAR Council's request to change the current ADP definition was
made primarily to reflect the current statutory definition of
information technology and be consistent with other regulations. The
FAR Council did not indicate that the definition needed to be expanded
because it was having difficulty procuring telecommunications services.
With respect to the addition of installation services, the FAR Council
indicated only that the same employees are performing installation
services as are performing maintenance and repair services. Thus, the
FAR Council concluded that the same conditions supporting the exemption
for maintenance services also support an exemption for installation
services.
Based upon this description, the Department did not view the change
in definition to ``information technology'' and the addition of
installation services to be a significant expansion to the ADP
exemption. Rather, the Department considered these changes to be mostly
language changes to reflect other statutory terminology changes. The
comments--both for and against the proposed change--clearly indicate
that the proposed change is a significant expansion of the current
exemption. In this light, we have concluded that the present record
does not constitute a ``strong affirmative showing'' that the proposed
exemption meets the requirements for exemption in section 4(b) of the
Act. Therefore, the current ADP definition will be retained and
installation services will not be added to the scope of exempt ADP
maintenance services.
With respect to applying the ADP exemption to subcontracts, the
Department specifically asked ``whether there is any reason that the
exemption at the prime contract level should not be applied equally to
subcontracts that meet the criteria.'' As mentioned above, SCA coverage
and exemptions ordinarily apply to both prime and
[[Page 5330]]
subcontracts, where the criteria are met. There were no substantive
comments against the application of the ADP exemption to both prime and
subcontracts. That aspect of the proposed change will be retained.
However, the certification requirement is modified to make it clear
that a certification by a prime contractor that it meets the criteria
also constitutes a certification that if it subcontracts the services,
the subcontractor in turn will meet the criteria.
CODSIA and CSA also express concern that the NPRM apparently
eliminated ``scientific equipment and medical apparatus equipment''
from the exemption. To the contrary, the Department did not propose to
eliminate such equipment. Rather, the NPRM simply did not reprint those
portions of the regulation that were not affected by the proposal. The
final regulation reprints the exemption in its entirety, with the
clarification that in order to be exempt, a contract or subcontract
must be principally for the services in question.
B. New exemptions for Commercial Services
The NPRM was intended to address certain situations where an
employee's work on a government contract represents a small portion of
his or her time and the balance of the time is spent on commercial
work. In such cases, the FAR Council represented that the Government
loses the full benefits of competition for its service contracts
because some contractors decline to compete for Government work due to
specific government requirements. To remedy this situation, the FAR
Council recommended an exemption framework that it believed would
protect prevailing labor standards and avoid the undercutting of such
standards by contractors. The proposed exemption would apply only to a
specified list of commercial services for which the FAR Council has
found a particular need for an SCA exemption. In addition, in order
that the exemption comport with the statutory requirement that it be in
accord with the remedial purposes of the Act to protect prevailing
labor standards, the proposed regulation provided a number of criteria
which must be satisfied.
In selecting the services to which it believed the new exemption
should apply, the FAR Council focused on services which the Government
is having difficulty acquiring or for which the Government is getting
limited competition, or where the Government is unable to acquire the
quality of services needed because commercial sources are reluctant to
do business with the Government, thereby causing impairment to
Government business. The FAR Council stated that it avoided selecting
services where the Government may be in a position to motivate the
payment of less than prevailing wages by contractors striving to win
Government contracts. The factual basis for the FAR Council's view that
the proposed exemption for each of the specified services is necessary
and proper in the public interest or to avoid the serious impairment of
Government business was set forth in the NPRM.
1. Proposed Exempt Services
a. Automated data processing and telecommunication services. Unlike
the current exemption for ADP equipment, which applies to maintenance
and service of ADP hardware, the new proposed exemption for ADP and
telecommunications services would have exempted a broad range of
software-type services within the information technology industry. The
FAR Council explained that in this information age, the Federal
Government is contracting for more and more information technology (IT)
services. This is driven by the need to maximize the use of technology
to improve the efficiency and effectiveness of agency performance.
However, increasingly the Government is less of a player in the IT
marketplace in terms of market share (less than 3%). IT providers have
an abundance of work in an industry with a tight labor market. The FAR
Council stated that IT providers are often reluctant or unwilling to
deal with Government unique requirements such as the Service Contract
Act when they have an abundance of work available and are experiencing
difficulty keeping pace with their commercial work. The FAR Council
further represented that unless the Federal Government can more closely
align the Government's contracting practices and requirements with
commercial practice, it will not be able to generate enough interest to
permit the Federal Government to take full advantage of the
opportunities to use information technology and to obtain the requisite
quality of services needed to satisfy critical agency mission needs.
Many of the comments group this new proposed exemption for software
services with the ADP maintenance services and the comments clearly
address both proposed exemptions. For example, CODSIA and CSA are
``pleased that the Department of Labor has virtually exempted all IT
prime and subcontracts.'' Other than this broad reference to IT, CODSIA
and CSA do not separately comment on the individual services on the
proposed list. With respect to the new list of services, both CODSIA
and CSA primarily express concern that this list is too limited.
Similarly, most of the union commenters comment together on both
the new ADP/telecommunications exemption and the expansion of the
current ADP exemption. In commenting on the proposed new exemption for
ADP and telecommunication services, the AFL-CIO states that ``one of
the predominant purposes and effect of the proposed rule is to
eliminate coverage in one of the largest growth sectors of the Nation's
economy, the ADP, IT and telecommunications industry.'' The AFL-CIO and
the Building Trades contend that the services within the scope of this
proposed new exemption ``are performed by many employees enjoying the
protection of prevailing wage standards under the SCA. There is no
guarantee that these service employees will not experience a reduction
in wages and benefits or lose their jobs as a result of application of
the exemption in the proposed rule.''
These union commenters also challenge the FAR Council's
justification for the proposed exemption. In addition to the comments
on telecommunications, summarized above, the AFL-CIO states that the
Communications Workers of America (CWA) (one of its member unions)
represent employees performing ``network integration'' services for
several large companies, and that these firms would be at a
disadvantage in bidding for government contracts under the proposed
exemption. They also state that the International Brotherhood of
Teamsters (IBT) perform ``a multitude of very technical work with
regard to data collection and distribution for the Department of
Defense'' in Alaska. LIUNA states that the FAR Council stated that the
Government ``is contracting for more and more information (IT) services
* * * [but n]owhere has the FAR Council stated that it cannot obtain
these services or that there are actual instances where this has
occurred.'' The union commenters also state that the proposed ADP
exemption is contrary to Congressional intent, as expressed in the 1976
amendments to the SCA, to comprehensively cover white collar service
workers.
Based upon the comments, it is clear that all parties--those in
favor of the proposal as well as those opposed--view the combined
expansion of the current ADP exemption and the addition of ADP and
telecommunication
[[Page 5331]]
services to the proposed additional list of exempt services as an
intent to exempt virtually the entire ADP, IT and telecommunications
industry. While the Department still believes that the additional
criteria would limit the proposed exemption to a smaller set of
contracts than those apparently envisioned by the commenters, the
Department also recognizes that the scope of the new ADP and
telecommunications exemption is broadly defined. Compared with the
other exemptions proposed, the proposed ADP exemption is not as tightly
focused on an area where the Government has been having trouble
obtaining bidders. In light of the comments and representations
challenging the need for a broad-based ADP and telecommunications
exemption, the Department has concluded that the record does not
adequately demonstrate that the statutory requirements for exemption
have been met for this broad classification of ADP and
telecommunication services. If at some future time the FAR Council or
an individual agency can demonstrate that the statutory requirements
for exemption are met for a more specific type of ADP or
telecommunications service, then the Department will consider such a
request based upon the facts applicable to that specific type of
procurement or specific service.
b. Automotive or other vehicle maintenance services. Federal
agencies that maintain a fleet of automobiles have a need for services
such as normal maintenance (e.g., changing oil and filters, rotating
tires, etc.), mechanical repairs, paint and body work, glass
replacement, and other repairs needed to maintain the automobile or
other vehicle. Unless the agency has a dedicated Government facility
for such work, it is contracted out to commercial firms. The FAR
Council stated that the General Services Administration (GSA), which is
responsible for providing Interagency Fleet Management Services, has
been unsuccessful in contracting for these services because of the
unwillingness of commercial sources to deal with Government unique
requirements such as the Service Contract Act for the small amount of
Government work involved. As a result, GSA and other agencies often
acquire these services on an as needed basis using micro-purchase
procedures and the Government Purchase Card. The FAR Council stated
that unless GSA and other agencies can more closely align the
Government's contracting practices and requirements with commercial
practice, it will not be able to generate enough interest or business
to permit the Federal Government to take advantage of the quality
improvements and lower prices that will likely result from establishing
contractual relationships with commercial service centers. While the
individual transactions are small (typically under $2,500), the
aggregate volume and dollar value of transactions across the nation is
substantial. The Federal Government would benefit from the lower prices
it can negotiate for parts and supplies used to service vehicles if it
were able to contract for services rather than treat each transaction
individually. Additionally, the Federal Government could expect to
receive better service because it will be viewed as a ``corporate''
customer who gives its business to a particular contractor(s) in a
certain location. The FAR Council stated that an exemption is necessary
to permit the Government to enhance the quality of service while
reducing its cost through leveraging the Federal Government's
collective buying power.
The FAR Council provided the following specific example: The
Department of Interior's Office of Aircraft Services in Boise, ID,
contracts for maintenance of about 100 of its own aircraft and also
provides contract support for other agencies such as the U.S. Forest
Service. The Office of Aircraft Services reports that it has about a
dozen contracts at various locations around the country. These are
commercial services procured from commercial sources where the
maintenance of Government aircraft is performed alongside regular non-
government aircraft. Contractors' work is predominantly non-government.
Some commercial contractors have refused to do work for the Government
because of concerns with the SCA requirements. The result has been
limited competition for such contracts.
Only a few comments were received regarding this service, and none
of those comments provide any detailed information. The AFL-CIO states
that contractors supplying ``automotive and other vehicle maintenance
services to the government often subcontract these services, and
members of IBT perform this work for both prime contractors and
subcontractors and enjoy SCA protection. An exemption for this work
risks a loss of that protection, particularly under fixed price
contracts where there may be an incentive to cut employment costs.''
This comment, however, does not address the limiting effect that the
application of the required criteria will have on the application of
the exemption to these services. As noted in the proposal, the
exemption would not apply to contracts for the operation of a
Government motor pool or similar facility. Further, the exemption would
not apply where the volume of the government work is such that the
contractor could perform the work with a workforce dedicated to the
government contract. As noted in the FAR Council's request, GSA and
other government agencies often acquire these services on an as needed
basis using micro-purchase procedures and the Government Purchase Card.
Thus, in many cases the services that would be covered by this
exemption are not now subject to the prevailing wage requirements of
SCA, and in these cases the exemption would not result in loss of SCA
protection for employees currently working on SCA covered contracts.
Furthermore, under the criteria discussed below, the exemption would
not be available unless price is equal to or less important than the
combination of other non-price or cost factors in selecting the
contractor. Therefore, the Department has concluded that the statutory
requirements for exemption are met for this narrow vehicle maintenance
service category.
c. Financial services. Increasingly, the Government is contracting
for and using the services of financial institutions that provide
credit, debit, or purchase cards. These cards are used by Federal
employees while traveling or to make small purchases for commercial
items to meet the day-to-day needs of their organizations. The
providers of these services use the financial networks of firms like
VISA, MASTERCARD, and American Express to provide the services. The FAR
Council stated that while the Federal Government's use of these
services is significant, it represents a small fraction of the
transactions that flow through the financial infrastructure.
Transactions flowing through the networks are processed in the same
fashion and by the same workforce regardless of the ultimate user of
the cards. As a result, the FAR Council stated that it is very
difficult to get competition for these services when the Federal
Government imposes unique requirements on the contractors. It stated
that contractors will not change their way of doing business to
accommodate a customer that represents a small portion of their
business; it is impossible for them to segregate what is done for the
Federal Government from commercial activity.
None of the comments specifically opposes this category of
services. Therefore, based upon the FAR Council's recommendation, this
[[Page 5332]]
exemption for financial services meeting the specified criteria is
adopted.
d. Lodging at hotels/motels. Agencies of the Federal Government
often contract with hotels/motels for meeting rooms for conferences of
limited duration (e.g., one to five days). These contracts may be for
conferences where attendance is limited to Government employees or may
involve attendance by other organizations and/or the public. These
contracts may also involve furnishing lodging and meals to those
participating in the conference. In other cases, agencies establish
contractual arrangements with hotels/motels to obtain special rates for
lodging when the agency has a large number of employees that frequently
travel to a particular location. The hotel/motel agrees to special
reduced rates in exchange for being designated a preferred provider for
the agency travelers to that city/location. In both of these cases, the
FAR Council stated that hotels/motels are unwilling to agree to
contract with the Government when it would mean they would have to pay
different rates to employees as a result of a Service Contract Act wage
determination or would have to keep special/different payroll or other
records. Typically these contracts are for relatively small dollar
amounts (less than $25,000). The FAR Council stated that this severely
limits the Governments ability to contract for these services when
needed.
Several union commenters oppose the inclusion of this service
category. The Hotel Employees and Restaurant Employees International
Union (HERE) state that this exemption ``clearly disadvantages hotels/
motels which are unionized or paying prevailing wages as compared to
the status quo existing under the SCA.'' HERE states that if ``certain
hotels/motels are unwilling to contract with the Government, the
Government can simply contract with unionized hotels/motels, which * *
* will have no problem fulfilling the requirements of the SCA without
paying different rates to employees just for Government events.''
HERE's comments also focus on the prevailing fringe benefit
requirements of SCA, and it notes that maintaining the level of
benefits is particularly important in a low-wage industry such as the
hotel/motel industry. HERE also states that there is no justification
for eliminating the protections of section 4(c), which it considers an
``integral aspect of the SCA's attempt to protect prevailing wages and
fringe benefits.'' The AFL-CIO makes very similar comments regarding
this service category, and points out that the FAR Council does not
assert that it has been unable to contract for its required services,
but just that ``certain hotels/motels'' have refused to enter into
contracts.
The Department has considered these comments within the context of
the types of lodging services outlined in the proposal. With respect to
conferences, the Government does not always contract for these services
in the same manner. In some cases, the Government may simply have the
hotel/motel hold a block of rooms for conference participants. The
rooms are then reserved and paid for by the participants. In these
situations the Government may also reserve and pay for meeting rooms.
In other cases, especially if the conference participants are all from
the same agency and the number of participants is known, the agency may
award a contract not only for meeting rooms but also for lodging. In
the first situation, the contract is typically less than $2500 and SCA
prevailing wage requirements would not be applicable; however, in the
latter situation SCA would apply. Under the proposal, both types of
contracts would be treated the same and neither would be covered by SCA
where the regulatory criteria are met.
The Department is sympathetic to the issues raised by the union
commenters, especially their comments relative to fringe benefits.
However, as the above examples demonstrate, even if this proposal were
not adopted, SCA still would not apply to a large number of Government
meetings and conferences at private hotels/motels. Furthermore, while
the comments regarding the availability of union hotels/motels willing
to accept the application of SCA might be true in large cities with a
substantial number of union establishments, that scenario might not
always be the case for meetings in smaller metropolitan or
nonmetropolitan areas. While government meetings and conferences may be
frequent in cities such as Washington, DC, they would not be frequent
in small metropolitan areas. As HERE acknowledges, hotels/motels are
not likely to change their pay practices simply to attract Government
conferences or meetings.
With respect to other types of lodging contracts, these are
ordinarily long-term contracts where the Government has a continuing
need for a block of rooms, e.g., lodging for military recruits or
government employees attending training at an agency training center,
and the agency enters into a contract with a hotel/motel for number of
rooms over a longer period of time. The application of SCA to this type
of contract is more direct, and determining compliance with SCA is
simpler. Unlike conferences or meetings that are one-time contracts,
these lodging contracts fulfill a continuing lodging need. Furthermore,
contrary to the comments of HERE, section 4(c) provisions would apply
to options, and to renewals for services currently subject to section
4(c).
Based upon the foregoing, the Department has determined that it
will revise the proposed exemption for lodging services and apply the
exemption only to contracts for meetings or conferences. Contracts for
a block of rooms on a continuing basis would be outside the scope of
the exemption. As already noted, the application of SCA to contracts
with hotels/motels for conferences currently varies depending upon the
form of the contract. Further, it is the Department's view that the
application or non-application of SCA to these contracts does not
impact the remedial purpose of the Act to protect prevailing labor
standards. On the other hand, contracts for a block of rooms on a
continuing basis are different. Regardless of their form, these
contracts should all be subject to SCA at the present time, and the
record does not provide adequate support for extending the exemption to
this type of lodging contract.
e. Maintenance services for all types of specialized building or
facility equipment. Agencies that operate and maintain Government owned
and/or operated buildings often contract for operation and maintenance
of the building or facility and the prime contractor will then
typically subcontract for services related to specialized equipment. In
other cases, the Government will contract directly for the maintenance
and servicing of such equipment. In either case, the FAR Council
reported that it is very difficult to acquire the quality of service
needed from contractors who are not authorized representatives of the
manufacturer and therefore do not have access to parts needed for
repairs and training that is essentially only available from the
original equipment manufacturer. While there may be other contractors
who indicate they have the capability to provide the service, the FAR
Council states that experience often shows that the quality of service
obtained from such sources is not satisfactory. The FAR Council stated
that the Government, as a result of the reluctance of some of the best
contractors to accept Government unique requirements such as those
related to the Service Contract Act, is deprived of the opportunity to
improve the quality of service for the
[[Page 5333]]
maintenance and servicing of critical building equipment and systems.
The Mechanical Contractors Association of America (MCAA), AFL-CIO,
LIUNA, International Union of Elevator Constructors (IUEC), United
Association of Journeymen and Apprentices of the Plumbing and Pipe
Fitting Industry of the United States and Canada (UA), International
Union of Operating Engineers (IUOE), and Building Trades all strongly
oppose the proposed exemption for this category. Although the comments
all provide slightly different individual perspectives, the thrust of
these comments is similar: (1) qualified contractors and employees can
and do perform these services with the application of SCA; and (2) this
exemption would have a negative impact upon workers currently covered
by SCA.
Several commenters challenge the FAR Council statement that the
exemption is needed because ``some of the best contractors'' are
reluctant to accept government unique requirements such as SCA. MCAA--a
mechanical construction industry trade association with about 2,000
member firms--states that its member firms compete for federal agency
building systems contracts that are the subject of the NPRM. It also
asserts that alternate procurement and contracting planning would be a
better way to address any problems with lack of offerors or diminished
contracting leverage. MCAA states that ``[c]ompetent firms will compete
for federal contract opportunities when those contracts are fairly
awarded and administered and are performed with high business and labor
standards applied to all contractors.'' The AFL-CIO, and others contend
that the ``best'' contractors do not have a problem paying prevailing
wages, and this exemption would ``attract lower quality contractors
that pay lower wages, hire less skilled and less productive employees
and perform less well.'' Several commenters note that the proposed
exemption would encourage agencies to replace on-site stationary
engineers employed by SCA covered contractors with employees assigned
to a number of buildings on a service route. To the extent that a
legitimate problem exists, the commenters contend that it is not caused
by the application of SCA and the FAR Council should seek other
solutions. The IUOE stated that it has 120,000 members who are
stationary engineers employed in the field of operations and
maintenance of mechanical, electrical, electronic and plumbing systems,
including computer-operated HVAC systems and/or automated building
control systems, fire life safety systems, elevators, and escalators.
The IUOE expressed its concern that the proposed rule would have the
potential to replace more highly skilled stationary engineers in
Government facilities with entry level workers. They also state that
there are very few HVAC applications where ``a manufacturer or original
equipment supplier can validate that only their mechanics or
technicians can properly service the equipment in question. If that
were true, the commercial facilities that exist in the United States
would not be able to function without constant interaction and a
mandatory lifetime service agreement from the manufacturer.'' The IUEC
notes that the proposed exemption does not ``make any sense'' in the
context of the elevator industry. The IUEC states that ``in the
elevator industry, the lead, national manufacturing companies * * * are
all signatory to collective bargaining agreements with the IUEC under
which they are obligated to pay contractual rates that are tantamount
to prevailing wages. Thus, if there is in fact reluctance on the part
of these manufacturers to bid on federal maintenance, it is not because
they do not want to pay prevailing wages, because they are doing that
already.''
Based upon the comments, the record does not support the conclusion
that the statutory requirements for exemption are met, and this
category of service will be deleted from the final rule. It is evident
that this work is currently performed under SCA contracts. Furthermore,
as discussed below, if the Government needs to contract only with the
original manufacturer or supplier, that exemption remains available.
f. Installation, maintenance, calibration or repair services for
all types of equipment where services are obtained from the equipment
manufacturer or supplier of the equipment. Agencies acquire a wide
range of equipment and often have a need to acquire services to
install, maintain, calibrate, service or repair the equipment from the
manufacturer or original supplier in order to avoid compromising a
warranty or because proprietary information needed to perform the work
is only available from the manufacturer, an authorized representative
of the manufacturer or the supplier of the equipment. Typically, these
contracts involve sophisticated equipment that requires access to
proprietary information or requires employees involved in performing
the work to have extensive training that is often only available
through the manufacturer or equipment supplier. In such cases, the
Government's need to contract with a particular source or a limited
number of sources must be properly justified and approved, if
applicable, under the statutory competition requirements outlined in 48
CFR part 6 of the Federal Acquisition Regulation. Examples of the types
of equipment include automated building control systems, HVAC
equipment, building security systems, and elevators or escalators. The
FAR Council reported that in many of these cases, the Government has
limited leverage to negotiate with the contractor to accept Government
unique requirements such as those related to the Service Contract Act
and has had great difficulty obtaining services from commercial sources
who are unwilling to accommodate such requirements.
The commenters that oppose the exemption for specialized building
or facility equipment also oppose the exemption for other equipment
services obtained from the manufacturer of supplier of the equipment.
Many of their comments apply equally to both service categories. For
example, IUEC notes that the major elevator manufacturers are already
paying prevailing wages pursuant to their collective bargaining
agreements. Therefore, any reluctance to contract with the Government
on the part of these companies should not be caused by a concern with
the SCA.
The Department believes, however, that there is an important
difference between the proposed exemptions. While the services for
specialized building or facility equipment could be performed by the
manufacturer or supplier of the equipment, the services relative to
this category must be performed by the manufacturer or supplier.
Further, this exemption was not intended to provide an exemption for
the manufacturer or supplier when they are competing with other service
providers, but to limit the exemption to situations where the
manufacturer or supplier is the only source for the services. In a sole
source situation, as set forth in the FAR at 48 CFR 6302-1, other
contractors are not disadvantaged because there are not other
contractors available to perform the services. Therefore the Department
believes that the statutory requirements for exemption are met for this
narrow sole source exemption. The Department notes that the sole source
aspect of this exemption was discussed in the preamble, but was not set
forth in the regulatory language. The regulatory language of the final
rule has been clarified to specify that the exemption
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shall only apply when the contract is awarded on a sole source basis.
g. Transportation of persons by air, motor vehicle, rail, or marine
on regularly scheduled routes or via standard commercial services (not
including charter services) The General Services Administration (GSA)
enters into contracts with airlines called ``City Pairs'' so that
Federal employees traveling on Government business can get discount air
fares.
Under these contracts, Federal employees typically obtain tickets
through travel management contracts awarded by GSA or other agencies
and the Federal employee travels on regularly scheduled routes of
commercial airlines but receive tickets at a substantial discount.
While the Federal Government's use of these services is significant, it
represents a small fraction of the transactions that flow through the
airlines. Tickets that are issued to Federal travelers flow through the
same networks and are processed in the same fashion as other travelers.
As a result, the FAR Council reported that it is very difficult to get
competition for these services if the Federal Government imposes unique
requirements like those in the Service Contract Act on the contractors.
The airlines will not change their way of doing business to accommodate
a customer that represents a small portion of their business. It is
impossible for them to segregate what is done for the Federal
Government from commercial activity. The Federal Government also enters
into similar contracts for the carriage of passengers by other modes of
transportation.
The AFL-CIO and LIUNA both oppose this exemption. The AFL-CIO
states that ``[m]any IBT members work in the industries covered by this
proposed exemption. The FAR Council's rationale for this exemption is
unpersuasive and it could have a serious detrimental impact on service
workers.'' LIUNA comments that the ``FAR Council nowhere states that it
cannot obtain these services or that any contractor has refused to bid
in these categories of services.''
The proposed exemption mirrors an exemption for the carriage of
mail that was granted prior to the 1972 amendments to SCA. The
exemption was necessary because mail is not considered to be freight
and the transportation of mail did not fall within the scope of the
transportation exemption in section 7(3) of SCA. Because the exemption
for the carriage of mail was granted prior to the 1972 amendments, it
was not accompanied by a finding that the exemption was in accord with
the remedial purpose of the Act to protect prevailing labor standards.
Nevertheless, the Department is not aware of any instance where the
exemption for the transportation of mail has adversely impacted
prevailing labor standards.
The exemption for the transportation of persons is necessary at
this time because of deregulation in the transportation industry. When
the ``City Pairs'' contracts were first awarded, these contracts fell
within the scope of the transportation exemption in section 7(3). With
deregulation, it is not clear that ``City Pair'' fares still constitute
published tariffs. Since SCA has not been applied to these contracts
previously, the Department has concluded that the exemption would not
have a detrimental impact on service workers. In addition, the
Department has concluded that the application of SCA to these contracts
would seriously impair government business and would likely cause the
contracts to be discontinued. Therefore, the statutory requirements for
exemption are met for these transportation services. The Department
wishes to emphasize that this exemption is narrow, extending only to
common carriers providing the services in question to the general
public, as well as the Government. It does not extend to charter
services, where the Government contracts with a carrier to provide the
service just to the Government, such as shuttle buses between
Government buildings. The wording of the proposal has been clarified in
the final rule.
h. Real estate services. Federal agencies involved in acquiring and
disposing of real property often contract for real estate services,
including lease acquisition, real property appraisal, broker, space
planning, lease re-negotiation, tax abatement, and real property
disposal services. The primary classes of workers that are involved in
performing the work are appraisers, leasing specialists, brokers, space
planners, interior designers, fire safety engineers, and project
managers. In many cases, the employees are required by contracts with
the Government to be licensed. In many cases, the Department of Labor
has not established wage determinations that apply to these classes of
workers. The individual requirements are typically relatively low
dollar value (under $25,000) and require that services be performed in
a variety of different geographic locations. Knowledge of the local
real estate market is required to perform the services effectively.
Therefore, individual employees, particularly in rural areas, spend
only a small fraction of their time working on Government contracts.
While the Federal Government's use of these services is
significant, it represents a small fraction of the transactions that
flow through the industry/commercial sources. As a result, the FAR
Council reported that it is very difficult to get competition for these
services where the Federal Government imposes unique requirements like
those in the Service Contract Act on the contractors. The contractors
will not change their way of doing business to accommodate a customer
that represents a small portion of their business. The FAR Council
stated that as the Government continues to downsize, it must rely more
and more on commercial sources for these services and it is critical
that the Federal Government has access to well-qualified sources of
supply for these types of services.
LIUNA opposed this exemption simply by commenting that the ``FAR
Council nowhere states that it cannot obtain these services or that any
contractor has refused to bid in these categories of services.'' No
other comments were directed specifically at this service category.
While LIUNA is correct that the FAR Council did not state that
contractors had ``refused to bid,'' the FAR Council did report that it
is very difficult to get competition for these services. The Department
does not believe that LIUNA's comment, unsupported by factual
statements as to how the work is currently done or as to how the
Government could obtain the services, is of sufficient weight to
counter the FAR Council's representations. Therefore the exemption for
real estate services is retained in the final rule.
i. Relocation services. Employee relocation services are available
for Federal employees or military personnel and their families being
transferred to new duty stations anywhere within the continental United
States and Puerto Rico. These contracts offer a multitude of flexible
services to customize a solution that best meets the employee's needs.
The contracts save time and money and reduce stress by offering Federal
employees and military these services: Home marketing assistance, home
sales services, destination area services, management reporting
services, mortgage counseling, property management services, and other
related services. The individual requirements are typically relatively
low dollar value (under $25,000) and require that services be performed
in a variety of different geographic locations.
[[Page 5335]]
Knowledge of the local real estate market is required to perform the
services effectively. Therefore, individual employees, particularly in
rural areas, spend a fraction of their time working on Government
contracts.
While the Federal Government's use of these services is
significant, the FAR Council stated that it represents a small fraction
of the transactions that flow through the industry/commercial sources.
As a result, it is very difficult to get competition for these services
if the Federal Government imposes unique requirements like those in the
Service Contract Act on the contractors. The contractors will not
change their way of doing business to accommodate a customer that
represents a small portion of their business. The FAR Council stated
that it is in the Government's interest to maximize the availability of
these services to its personnel; accordingly it is detrimental to the
Government's interests when it is unable to attract commercial sources
as providers of these services.
LIUNA opposed this exemption with the same comments that it made
relative to real estate services. In this case also, although the FAR
Council did not state that contractors had ``refused to bid,'' the FAR
Council did report that it is very difficult to get competition for
these services. LIUNA's comment is not sufficient to change the
Department's preliminary conclusion in the NPRM that the statutory
criteria for exemption have been met.
The American Moving and Storage Association (AMSA) supported the
proposed exemption and stated that the term ``relocation services''
should be clarified to specifically include moving and storage
services. AMSA states that its members have ``usually performed their
services pursuant to FAR-exempt rate tenders rather than contracts.
Formerly, the rates contained in tenders were predicated upon published
tariff rates that were also filed with the Interstate Commerce
Commission. Today, the rates and charges offered for Federal Government
service are contained in published tariffs that must be available for
inspection * * * but are not filed with a Federal regulatory agency
although the tariffs are filed with contracting Government Agencies.''
AMSA notes that the Department of Defense has recently replaced rate
tenders with contracts subject to SCA for several test relocation
programs. AMSA analyzes moving and storage services to demonstrate how
these services meet all of the proposed exemption criteria.
The application of the SCA section 7(3) exemption for
transportation services is not the subject to this rulemaking. That
exemption is explained in Sec. 4.118 and the Department has not
proposed any change to that section. As indicated in that section, the
section 7(3) exemption has only had application to services performed
under rate tenders. Even before deregulation, DOD agencies had numerous
contracts for moving and storage services that have always been subject
to SCA. Since deregulation, it is the Department's experience that even
those previously exempt tender services are now performed pursuant to
contracts subject to SCA, rather than by tender agreement, as evidenced
by the DOD test relocation contracts noted in the AMSA comments.
When the Department proposed the exemption for relocation services,
it never considered moving and storage services within the scope of the
proposed exemption. None of the services listed in the preamble to the
proposed rule--home marketing assistance, home sales services,
destination area services, management reporting services, mortgage
counseling, or property management services--is similar to moving and
storage services. If the Department intended moving and storage to be
included within the scope of this exemption, it certainly would have
listed moving and storage services and not have included this dominant
aspect of the relocation within the catch-all phrase ``other related
services.''
Based upon the comments and the recommendation of the FAR Council,
the Department has concluded that the statutory requirements for
exemption are met for the relocation services described in the
proposal. The final rule will be clarified, however, to indicate
clearly that moving and storage services are not within the scope of
this exemption.
j. Other Services. The preamble to the proposal specifically
solicited comments regarding the listed services and asked whether
other services should be added to that list. The Department indicated
that if sufficient justification were received for any additional
service, it would issue a new proposal to add the new service. As noted
in the discussion of relocation services AMSA submitted comments
recommending that the definition of relocation services be clarified to
specifically indicate that moving and storage services would fall
within the scope of that exemption. As discussed above, the Department
never intended moving and storage services to be a part of relocation
services and has not adopted that recommendation. The Department
believes that the AMSA comment is more appropriately considered as a
recommendation for the addition of a new service to the list. In that
regard, while AMSA has submitted comments to show how moving and
storage services typically meet the proposed criteria, it has not
demonstrated that such an exemption is ``necessary and proper in the
public interest or to avoid the serious impairment of government
business, and is in accord with the remedial purpose of [the] Act to
protect prevailing labor standards.'' Accordingly, the Department is
not issuing a new proposal at this time to add moving and storage
services to the list of exempt services.
CODSIA and CSA both comment that the criteria should be applied to
all commercial services and should not be limited to those services
listed in the proposal. CODSIA and CSA specifically identify trash
pickup, pest control, and childcare as services for which an exemption
would be appropriate. As with AMSA's comments regarding moving and
storage services, however, CODSIA and CSA have not provided a more
specific justification to demonstrate that their recommended expansion
of the list of services (to either all commercial services or the three
specified additional services) meets the statutory requirements for
exemption, and the Department is not issuing a new proposal at this
time to add these services to the list.
Finally, a clarifying revision has been made to the introductory
language to the list of exempt services to make it clear that the
contract must be principally for the listed service in order to be
exempt.
2. Proposed Criteria
As explained above, the listed services would only be exempt if
specified criteria were satisfied. The recommended criteria were
intended to limit the exemption to those procurements where the
services being procured are such that it would be more efficient and
practical for an offeror to perform the services with a workforce that
is not primarily assigned to the performance of government work. Thus,
contracts for base support services where the work is performed by an
on-site dedicated workforce would not meet the exemption criteria.
Similarly, contracts where the services have been performed by a
dedicated group of federal employees (A-76 procurements) would be
unlikely to meet the exemption criterion that the workers perform only
a small part of their time on the contract; however, the NPRM explained
that it is possible that some
[[Page 5336]]
subcontracts for a portion of those services might meet the criteria
for exemption.
The criteria were designed to ensure that the remedial purpose of
the Act to protect prevailing labor standards is preserved. This would
be accomplished in two ways. First, the proposed exemption would apply
only when the contract award is not determined primarily upon the
factor of cost. Therefore, the contractor providing the best service at
a somewhat higher cost would not be at a competitive disadvantage.
Second, the criteria would limit the application of the exemption to
circumstances where the nature of the procurement dictates that the
most efficient and practical performance of the workload can be
accomplished with a workforce that is not dedicated to working
primarily on the Government contract. Thus, the competitive pressures
upon employee wages that might exist if the services were performed by
a workforce dedicated to the Government contract would not come into
play on the contracts within the scope of the recommended exemption.
Furthermore, even if a contractor might be inclined use a dedicated
workforce or to reduce wages to secure the Government contract, the
criteria would forbid that practice.
Several comments were received regarding the proposed criteria for
exemption. These comments will be organized and analyzed based upon
each individual criterion.
(1) The services are commercial services. The NPRM explained that a
basic underlying purpose of the proposed exemption was to permit a
prospective contractor to utilize its commercial compensation practices
for both Government and private commercial work. If the prospective
contractor does not currently perform the solicited services, then
conforming to the SCA requirements would not cause the contractor to
alter its commercial compensation practices.
The AFL-CIO commented that this criterion is easily met, covering
virtually all commercial contractors that do not exclusively rely upon
government contracts. CODSIA commented, ``if the contracting officer is
using FAR part 12, then presumption should exist that the service being
solicited will be COMMERCIAL.'' CSA made comments similar to CODSIA's.
This criterion was not intended to be limiting to any considerable
extent. This criterion is intended only to distinguish services that
are unique or specially adapted for the government contract from those
that are not provided in the commercial marketplace. The Department
agrees that services of the type described in paragraph (f) of the
definition of ``commercial item'' at FAR 2.101 would meet the
requirements of this criterion; however, other aspects of the
definition of ``commercial item'' in FAR 2.101 are not fully consistent
with all aspects of this proposed exemption. Also, the definition in
FAR 2.101 may change in the future. Therefore, the Department has not
included any reference to FAR parts 2, 10, or 12 in the commercial
service criterion, and the final rule retains the language in the
proposal for this criterion.
(2) The prime or subcontract will be awarded on a sole source basis
or primarily upon factors other than cost. One of the basic purposes of
the Service Contract Act is to counteract the negative impact that
competition based on price alone may have upon wages. If a contract is
awarded on a sole source basis, there is no competition and price is
clearly not the basis for awarding the contract. For the majority of
other contracts that are competitively awarded, this criterion would
attempt to largely remove wages from consideration by making quality of
service and other non-cost factors equal to or more important than the
bottom-line price. If one assumes that the best employees (contractors)
are paid (pay) higher wages, then this criterion would allow these
employees (contractors) to compete on the basis of the employees'
increased productivity and higher quality service. These employees/
contractors should not be disadvantaged even though the employee wages
and possibly the resulting contract price are somewhat higher than the
lowest offer.
The AFL-CIO comments that ``[e]ven in best value contracting, price
will always play a critical and often decisive role. . . If the
Government truly wished to obtain the best quality services at the best
cost, the better approach is for agencies to fully maintain SCA rates,
and then use best value contracting to hire the most qualified
contractors that offer the best price.''
This criterion is not intended to imply that all best value
contracts should be exempt from SCA. In fact, the opposite is true and
most best value service contracts will remain subject to SCA. This
criterion is intended to operate in conjunction with all of the other
criteria, and help to ensure that prevailing wage and benefit rates are
not adversely affected by the application of this exemption. This
criterion is retained without change in the final rule.
(3) The services are furnished at catalogue or market prices. This
criterion was designed to ensure that the contractor will provide the
services to the Government on the same basis that the contractor
services commercial accounts. Combined with the other criteria, this
requirement should ensure that contractors do not decrease employee
compensation as a part of the competitive contracting process.
The AFL-CIO commented that this criterion differs from
Sec. 4.123(e)(1)(ii)(B) because it contemplates that market price
information could also be established by surveying firms in a
particular industry or market. This additional sentence in the
criterion applicable to the new services was not intended to imply that
the market price would or could be determined in a manner different
from the determination of market price under Sec. 4.123(e)(1)(ii)(B).
To avoid any confusion, however, this additional sentence will be
deleted from the criterion in the final rule, and this criterion will
be consistent with the language currently used in
Sec. 4.123(e)(1)(ii)(B).
(4) The service employees performing the exempt services will spend
only a small portion of their time (a monthly average of less than 20%)
servicing the government contract. The NPRM explained that if the
employees spend only a small portion of their available work hours on
the Government contract, the contractor would not likely be willing to
alter its compensation practices simply to obtain the Government
contract. (Note: Criterion 5 would also specifically preclude any such
change in compensation practices.) Furthermore, the criteria for
exemption would not be satisfied by rotating the workforce and having
different employees work on the contract each day of the week. In the
Department's experience it would be extraordinary for a contractor to
staff a contract in this manner. Therefore in such a case, although
each individual employee would spend less than 20% of his/her work
hours on the Government contract, a contracting officer or prime
contractor (in the case of a subcontract) could not certify--as
required by Criterion 6--that all or nearly all offerors would staff
the contract with service employees who spend only a small portion of
their time on the project.
This criterion generated considerable comment on both sides of the
issue. CODSIA and CSA both strongly oppose any type of hours
restriction whatsoever. CODSIA notes that several of the proposed
criteria have their foundation in the current ADP exemption, but it
states that ``the Department has effectively eviscerated
[[Page 5337]]
the previous foundation by adding a new qualification that requires a
potential commercial subcontractor to perform the work without being
able to dedicate the company's workforce in excess of more that 20% of
the service worker's annualized hours to the government contract.''
CODSIA further states that ``no commercial company would execute a
government subcontract with the understanding (and obligation) that its
service workers cannot be dedicated to the subcontract until completion
. . . [t]herefore, no prudent company will seek to meet this
qualification and the SCA will apply.'' CODSIA concludes that ``SCA
wages should not be superimposed upon the commercial market place due
to an artificial, ill-founded criterion,'' and ``the workforce
requirement should be eliminated.''
CSA makes many of the same comments as CODSIA but focuses those
comments on the application of the criterion to subcontracts. CSA also
states ``no commercial service subcontractor will contract under an
obligation that clearly impairs the efficient performance of its
work.'' CSA concludes that ``the 20% limitation should be eliminated
for commercial service subcontractors.''
On the other side of the issue, several union commenters take the
position that the 20% criterion should be more limiting. The AFL-CIO
comments that under the proposed rule a service contract worker could
spend virtually all of his or her time performing work that has been
covered by SCA, but receive no SCA protection. ``[I]f a contractor had
numerous service contracts with one or more government agencies, and no
employee spent more that 19.9 percent of his or her time on any one
contract, the contractor could be exempt from the SCA even if one or
more of its employees spent 99 percent of his or her time on five
separate contracts, taken together.'' The AFL-CIO states that this
criterion ``would encourage bid splitting by government agencies and
contractors to avoid SCA coverage.'' Therefore, it recommends that
Sec. 4.123(e)(2)(ii)(D) require that ``contractors treat the total time
spent on government contracts or subcontracts cumulatively in
calculating employee time allocated to government contract work.''
Also, ``[t]o further ensure that contractors perform a significant
amount of government contract work remain subject to the SCA,'' AFL-CIO
recommends that ``the Department should also place a cap on the total
amount of time a contractor can devote to government contracts and
still be eligible for the exemption.'' AFL-CIO suggests five percent as
a reasonable level. Finally, the AFL-CIO states that ``[w]ithout
recordkeeping requirements, the contractor itself may not know if any
employee works a monthly average of more than 20 percent of available
hours on an annualized basis on a government contract or subcontract.''
``To address the exemptions' failure to include recordkeeping
requirements,'' the AFL-CIO suggests that ``the regulation define a
`small portion' of a worker's time as `no more than 20 percent in any
one month.' ''
The Department believes that these comments overlook the primary
purpose of this criterion. The criterion is not designed to dictate how
the contractor manages its workforce, but rather to describe the nature
of the services being procured. The proposed criteria are designed to
complement each other and to work as a whole. Therefore, each
individual criterion must be evaluated within the context of the whole.
In evaluating this criterion, therefore, it is important to remember
that a subsequent criterion requires that the contracting officer (or
the prime contractor in the case of a subcontract) determine in advance
that all or nearly all of the prospective contractors will meet the
criteria. Therefore, the 20 percent criterion should primarily serve as
a guide for the contracting officer in evaluating the services to be
procured. A hypothetical example might illustrate this point better. An
agency is contracting for routine maintenance on a fleet of
automobiles. The fleet is large enough that the agency expects to have
at least five cars in the shop at all times. In this example, a
contractor could clearly perform the government work with a dedicated
workforce. Because it is therefore highly unlikely that all or nearly
all the bidders would perform the contract in a way that would meet
this criterion, the contracting officer would make the determination
that the exemption would not apply to this procurement. The fact that a
large repair shop could divide the work and ensure that none of its
mechanics spends more than 20 percent of his or her time (on an
annualized monthly basis) servicing the government vehicles would not
alter the determination that SCA applies to this contract. An example
of an exempt vehicle maintenance contract would be one where the
government's fleet is relatively small or dispersed so that it is not
likely that more than one or two vehicles per month will be serviced by
one facility. In this case, the mechanics for all or nearly all of the
offerors would clearly spend less than 20 percent of their time
servicing the government vehicles. The contractor's certification that
its employees will not spend more than 20 percent of their time
servicing the government vehicles is largely a confirmation that the
contracting officer's evaluation of the nature of the contract work was
correct.
Because the contracting officer should have already determined that
all or nearly all offerors would meet this criterion, no contractor
should be required to restructure its workforce to comply with the 20
percent limitation. Furthermore, the limitation requires employees to
spend no more than 20 percent of their hours on the contract on an
annualized basis, thereby permitting longer hours where required by the
interim exigencies of the contract or to accommodate short-term
workforce fluctuations. Therefore, the underlying basis for the CODSIA
and CSA recommendation to delete this criterion should not exist. If a
contractor could perform the services with a dedicated workforce, then
the contracting officer should not consider the exemption to be
applicable.
Further, with respect to the AFL-CIO's recommendation that the 20
percent limitation be based upon all government work and not just the
contract in question, this is a question for which the contracting
office would not have direct knowledge, and is something that would
change from one contractor to the next. If the AFL-CIO's recommendation
were adopted, one company might be exempt because it only had one
government contract whereas another would be subject to SCA because it
had numerous contracts. This would convert the determination on
application of the exemption from one based upon the overall
requirements of the contract to a determination based upon the
individual contractor's workforce utilization. The Department does not
intend this exemption to permit the situation where an exempt
contractor would compete against a nonexempt contractor, and we have
not adopted the AFL-CIO recommendation. Similarly, we have not adopted
the AFL-CIO recommendation to limit the overall amount of Government
work that an exempt contractor would be allowed to perform.
Finally, the Department has not adopted the AFL-CIO's
recommendation to apply the 20 percent limitation on a month-by-month
basis rather than an annualized monthly average. As already explained,
this criterion was established primarily to describe the nature of the
exempt services. In the automotive maintenance example described
previously, the
[[Page 5338]]
Department does not believe that the exemption should be denied simply
because in one month the agency's entire fleet of twenty vehicles needs
servicing and for the remainder of the year no more than one car per
month is in the shop. While the contracting officer should have
informed knowledge about the amount of work anticipated over a normal
year period, the contracting officer may not always be able to predict
when repairs will be needed. The application of the exemption should
not be impacted by unexpected fluctuations in service needs as long as
the overall nature of the contract is not changed. Accordingly, the
Department has not changed this annualized monthly average concept.
The criterion is adopted with a minor wording change to make it
clear that the 20% limitation applies on an employee-by-employee basis,
rather than an average of all of the employees working on the contract.
(5) The contractor utilizes the same compensation plan for both
contract and commercial work. This criterion would ensure that the
employees servicing the government contract will be compensated exactly
as they would be if they were servicing a commercial account. Thus, the
prevailing labor standards for private work would not be impacted in
any way by the award of the Government contract. Furthermore, because
contract award is not determined primarily on the basis of cost
(Criterion 2), the contractor paying the lowest wages would not have a
competitive advantage over other employers who pay average or above
average wages. These contractors would compete for the Government work
on the same basis that they compete for private work--quality of
service and overall value.
The AFL-CIO and LIUNA commented that the Department improperly
substituted the term ``equivalent commercial wage'' for the statutory
term ``prevailing.'' The AFL-CIO recommended that this criterion be
changed to require that the contractor's compensation plan be not less
than the SCA wages and benefits. If this recommendation were adopted,
the exemption would serve no purpose. If the contractor is already
paying SCA rates then it should not matter whether SCA is applied to
the contract. This comment, however, also goes to the issue of whether
the exemption is ``in accord with the remedial purpose of the Act to
protect prevailing labor standards.'' The Department believes that the
criteria as a whole achieve this goal. If the employer does not change
its pay practices to obtain the Government contract, prevailing wages
should not be affected. Furthermore, an employer would be unlikely to
change its pay practices in any event where no worker spends more than
20% of his or her time on the Government contract. In addition, the
criteria limit the application of the exemption to situations where
employee wages are not a primary factor in deciding which company is
awarded the contract. Thus, the Government contract should not serve to
either increase or decrease prevailing labor standards. This
recommendation, therefore, is not adopted, and the criterion is
retained in the final rule as proposed.
(6) The contracting officer determines in advance that all or
nearly all of the offerors will meet the requirements of the criteria.
This requirement was designed to ensure that all contractors compete on
an equal basis, and that a contractor subject to SCA would not be
forced to compete against a contractor that would be exempt from SCA.
Furthermore, as noted in the discussion of Criterion 4, this
requirement--which takes into consideration not only the practices of
likely offerors but also the nature of the contract requirements--is a
necessary safeguard to prevent individual offerors from juggling
staffing patterns simply in an effort to avoid SCA coverage. This
criterion also would serve to protect those employees (either
contractor or Federal employees) who might currently be engaged in
performing the solicited services on a full-time basis.
The AFL-CIO noted that this criterion is designed to ensure that
all contractors compete on an equal basis. The AFL-CIO questions
whether the criterion accomplishes this goal since it only requires
that all or ``nearly all'' of the offerors meet the requirements of the
other criteria. The AFL-CIO suggests that this standard be changed to
require that all offerors meet the requirements.
The Department's intention is that a contracting officer would not
make this determination unless he or she has a high degree of
confidence that all offerors will meet the requirements. It is unlikely
that any contracting officer would feel able to determine absolutely
that every offeror will qualify for the exemption. The ``or nearly
all'' language therefore would permit the extraordinary situation where
one bidder might not qualify as exempt. Returning to the automotive
maintenance example described previously, an employer with a single
employee and a relatively small number of commercial customers could
bid on the contract to maintain on average a few vehicles a month. With
that small volume of government work, the workforce for ``nearly all''
prospective contractors would spend less than 20 percent of their time
working on the contract. The single employee working for a company with
relatively few commercial accounts, however, might spend more than 20
percent of his or her time performing work on the contract. While this
company's offer might be rejected for other reasons (e.g., the contract
might require a capacity to service more than one vehicle at a time--a
capacity that the two-person shop might not possess), the fact that one
non-exempt contractor might bid on the contract should not negate the
application of the exemption to everyone else. The Department believes
that retaining some amount of flexibility in this regard is
appropriate, and the criterion is retained.
The Department would like to emphasize that ``nearly all'' does not
mean most or a majority. The words ``nearly all'' are intended to
recognize the possibility of exceptional circumstances where an
individual offeror might not meet all of the criteria. If this offeror
receives the contract, of course, the contract would be subject to SCA
prevailing wage requirements. On the other hand, the Department
realizes that there may be circumstances where, once bids are received,
the contracting officer determines that he or she was incorrect in the
determination that all or nearly all bidders would meet the exemption
requirements. The regulation has therefore been revised to provide that
in such circumstances SCA will apply to the procurement.
(7) The exempted contractor or subcontractor certifies to the
provisions of criteria (1) and (3) through (5). This criterion would
provide a mechanism for addressing and correcting situations where the
exemption may have been misapplied. If the Department of Labor, in its
enforcement, determines that the contract is not in fact exempt, it
would require that SCA stipulations be included in the contract. In the
case of a subcontract, the prime contractor, who in almost all cases
would have SCA stipulations already included in its contract, would be
ultimately responsible for compliance with the requirements of the Act.
The Department could therefore require that the SCA requirements be
effective as of the date of contract award. The Department noted in the
NPRM that an exempt contractor or subcontractor would not be required
to keep any particular records to meet its burden of showing that the
criteria are satisfied.
CODSIA and CSA both comment that this was an unauthorized
certification
[[Page 5339]]
requirement. They note that section 4301 of the Clinger-Cohen Act of
1996 (Pub. L. 104-106) prohibits the imposition of contractor and
subcontractor certification requirements in the Federal Acquisition
Regulations unless the certification is required by statute or
justified in writing and approved by the FAR Council and the
Administrator of the Office of Federal Procurement Policy (OFPP). While
CODSIA and CSA correctly identify the procedural requirements for
approval of these certifications, the Department does not consider this
to be a substantive deficiency since the FAR Council and the
Administrator of OFPP recommended the certifications. The Department
notes that no contracting officer can be expected to know whether
individual contractors in fact satisfy the exemption. Therefore the
Department considers certification essential to ensure that the
criteria for the exemption have been met. The FAR Council has now made
the required justification, and it has been approved by the
Administrator of OFPP. Therefore the certification requirement is
retained, and modified to make it clear that a certification by a prime
contractor that it meets the criteria also constitutes a certification
that if it subcontracts the services, the subcontractor in turn will
meet the criteria.
CSA also ``recommends that the Department adopt the same policy
that accompanies the Buy America Act (BAA) certification. Under the BAA
policy, the contracting officer is permitted to accept the contractor's
self-certification.'' In considering this comment the Department notes
that the contracting officer or the prime contractor has already
reviewed the requirements of the proposed contract/subcontract and has
determined that all or nearly all of the offerors will meet the
criteria. Therefore, the contracting officer or prime contractor should
have no reason to question the contractor/subcontractor's
certification. Accordingly, the Department has concluded that it is not
necessary for the contracting officer or prime contractor to review the
contractor/subcontractor's certification and this requirement has been
deleted from the final rule. The fact that the requirement for review
has been eliminated, however, does not mean that the contracting
officer or prime contractor may not review the certification if they
choose to do so, such as where they possess information which causes
them to question the validity of the certification. Further, if it is
determined that the certification is not correct, then the contracting
officer or the prime contractor should not proceed with award of an
exempt contract or subcontract. Because the contracting officer will no
longer be required to review the certification in advance, the
Department has also amended the regulation to delete the language
applying SCA as of the date of the Department's determination. As
provided in Sec. 4.5(c)(2) of the regulations, the Department may
require retroactive application of the SCA where it determines it is
appropriate under the circumstances.
The AFL-CIO, while not opposing the criterion, commented that in
the absence of a formal monitoring system, it is unlikely that any
misapplication of the exemption would ever be identified. The
Department shares the AFL-CIO's concern that this exemption not be
misapplied. Certainly, the Department expects that contracting agencies
and prime contractors would exercise their responsibilities to ensure
that such misapplication is minimized. At the same time, the Department
recognizes that mistakes may be made; however, the Department does not
believe that the mere possibility of a mistake should preclude adopting
an exemption that is otherwise justified. The Department will monitor
allegations of abuse to determine whether future changes in this
exemption are warranted.
3. Other Issues
Several commenters raised additional issues that were not
specifically related or limited to a single aspect of the proposed
exemptions. Those issues are addressed separately in this section.
Several union commenters, including the AFL-CIO and LIUNA,
recommended that the exclusion for contracts subject to the provisions
of section 4(c) of SCA be expanded to include ``resolicitations and
other successor contracts for substantially the same services.'' They
also recommended that this limitation be added to contracts under the
current ADP exemption. The Department agrees that the regulation should
be revised to make it clear that the exemption does not apply to any
contract which is subject to section 4(c), as well as all options
exercised and extensions of the contract. The Department does not
believe, however, that there is sufficient justification to extend this
limitation to all future resolicitations for substantially the same
services, where the predecessor contract was not subject to section
4(c). In addition, the Department does not believe sufficient
justification has been presented to add this requirement to the
existing ADP exemption. This exemption has been in existence for nearly
twenty years and the Department is not aware of any problems arising
from the absence of this requirement.
Several union commenters recommended that the Department promulgate
a new procedure under which the contracting agency is required to
demonstrate in advance of issuing the solicitation that the section
4(d) requirements are satisfied for a proposed exemption of a
particular contract or subcontract. This recommendation is consistent
with other union comments that the contracting officers and prime
contractors should not be delegated the responsibility to decide
whether a contractor is exempt from SCA coverage. The purpose of the
proposed exemptions, however, is to carefully describe a class of
contracts where exemption from SCA is appropriate. Every day
contracting officers decide whether SCA should be applied to a
particular contract, and the decisions required to be made in this case
are no different. The Department does not believe that case-by-case
determination is necessary where, as in the instant situation, the
record supports an exemption for a particular class of contracts.
4. Conclusion
For the reasons discussed above, the Department has concluded that
the exemptions as set forth in this rule are necessary and proper in
the public interest or to avoid serious impairment of Government
business, and are in according with the remedial purpose of the Service
Contract Act to protect prevailing labor standards. The list of
services is narrowly tailored to include only commercial services which
the Government has had difficulty in acquiring or where the Government
is getting limited competition because of unique requirements imposed
by the Government. The additional criteria, when viewed as a whole, are
designed to ensure that the contractor will not be motivated to change
its wage practices and pay less than the prevailing wage in order to
obtain the Government contract, and that the Government in turn will
not be motivated to award contracts to offerors who pay less than
prevailing wages.
IV. Regulatory Flexibility Act
Under the Regulatory Flexibility Act, Public Law 96-354 (94 Stat.
1164; 5 U.S.C. 601 et seq.), Federal Agencies are required to prepare
and make available for public comment and initial regulatory
flexibility analysis that describes the anticipated impact of
[[Page 5340]]
proposed rules on small entities. The Department received no comments
regarding the Regulatory Flexibility Analysis prepared for this rule.
(1) The Need for and Objectives of the Rule
This rule was made at the request of the Administrator for Federal
Procurement Policy, OFPP, in her letter of May 12, 1999. The
Administrator, on behalf of the FAR Council, stated that the exemption
``will further the commitment of the Administration to be more
commercial-like, encourage broader participation in government
procurement by companies doing business in the commercial sector, and
reinforce our commitment to reduce government-unique terms and
conditions from our contracts. We believe that all of this can be
accomplished without compromising the purpose of the SCA to protect
prevailing labor standards.'' The FAR Council developed a short list of
services to which it believed an exemption should apply in the best
interest of the Government and to avoid impairment to Government
business.
Pursuant to section (4)(b) of SCA, the Secretary of Labor may grant
reasonable exemptions to the provisions of the Act, but only in special
circumstances where the ``exemption is necessary and proper in the
public interest or to avoid the serious impairment of government
business, and is in accord with the remedial purpose of this Act to
protect prevailing labor standards.''
After a review of the comments and the representations of the FAR
Council, the Department of Labor determined that the exemption, as
revised based upon the public comments, will be both ``necessary and
proper in the public interest'' and will also be ``in accord with the
remedial purpose of th[e] Act to protect prevailing labor standards.''
(2) Summary of Significant Issues Raised by the Public Comments in
Response to the Initial Regulatory Flexibility Analysis
The Department received a number of comments regarding the proposed
exemptions. Those comments are discussed in detail in the preamble to
this rule. The Department did not receive separate comments concerning
its initial regulatory flexibility analysis.
(3) Number of Small Entities Covered Under the Rule
The definition of ``small business'' varies considerably depending
upon the policy issues and circumstances under review, the industry
being studied, and the measures used. The Small Business
Administration's Office of Advocacy generally uses employment data as a
basis for size comparisons, with firms having fewer than 100 employees
or fewer than 500 employees defined as small. The types of services
covered by the proposed exemptions span a variety of industries. Based
upon analyses done by the U.S. Small Business Administration, Office of
Advocacy, some of the industries affected by the proposed exemptions
are characterized as ``large-business-dominated industries'' (e.g., air
transportation and business credit institutions) and others are
characterized as ``small-business-dominated industries'' (e.g.,
automotive repair and real estate).\1\ Thus, at least some of the
services covered by the exemption would be performed primarily by small
businesses. In fact, with the exception of those contracts for
financial services involving the issuance and servicing of cards, the
contracts for the transportation of persons, and contracts with
equipment manufacturers, it would appear that a majority of the
contracts affected by the proposed exemption likely would be performed
by small businesses.
---------------------------------------------------------------------------
\1\ The State of Small Business: A Report of the President, 1996
(1997).
---------------------------------------------------------------------------
It is also difficult to determine with precision the value of
Federal contracts that would be affected by the exemption. Federal
Procurement Data System (FPDS) compiles and reports information on
approximately 500,000 annual transactions exceeding $25,000; however,
as discussed above, many of the contracts covered by the exemption
(e.g., food and lodging contracts for conferences) are currently or
would likely be less that $25,000. Also, the criteria that must be met
for the specified services to be within the scope of the exemption will
limit the application of the exemptions to a relatively small subset of
contracts within a specific SIC code. Thus, FPDS data does not provide
an accurate estimate of the contracts potentially covered by the
exemption. Nevertheless, in view of the limiting criteria for the
listed services, the total value of the exempt contracts should be
relatively small, and it is believed that the SCA would no longer apply
to only a relatively small number of contracts that currently contain
SCA wage determination provisions.
(4) Reporting, Recordkeeping and Other Compliance Requirements of the
Rule
The exemption does not impose any new reporting or recordkeeping
requirements. Although offerors are required to certify that the
criteria for exemption are met, offerors are not required to maintain
records to support the certification. The certification, which can be
submitted as part of the bid package, is an important element to
satisfy the statutory requirement that exemptions be ``in accordance
with the remedial purpose of the Act to protect prevailing labor
standards.'' Contractors and subcontractors to whom the exemption
applies will not be required to comply with the wage and reporting
requirements of the SCA.
(5) Description of the Steps Taken To Minimize the Significant Economic
Impact on Small Entities Consistent With the Objectives of the Service
Contract Act
The exemption does not contain any new reporting, recordkeeping, or
other compliance requirements applicable to small business. Rather, the
exemption would relieve small businesses and other contractors from the
requirements of the SCA on certain contracts where the contractor
certifies that the requirements of the exemption have been met.
Furthermore, any contractor performing on a contract within the scope
of the exemption may elect to perform the contract under the
requirements of SCA rather than make the necessary certifications.
Because application of the exemption will have been determined in
advance by the contracting officer, the Department anticipates that
questions regarding proper application of the exemption will be rare.
Contractors will not be required to maintain any records to support the
exemption, although they may be required to furnish payroll and other
existing records to the Department in the event of an investigation.
V. Executive Order 12866 and 13132; Section 202 of the Unfunded
Mandates Reform Act of 1995; Small Business Regulatory Enforcement
Fairness Act
This rule is being treated as a ``significant regulatory action''
within the meaning of Executive Order 12866 because of the significant
impact of this rule on other agencies. Therefore, the Office of
Management and Budget has reviewed the rule. However, the Department
concurs with the view of the Federal Acquisition Regulatory Council
that this rule is not ``economically significant'' as defined in
section 3(f)(1) of E.O. 12866, and therefore it does not require a full
economic impact analysis under section 6(a)(3)(C) of the Order. Under
the new exemption, contracts would not be exempt unless price is equal
to or less important than the combination of other non-price or cost
factors in selecting the
[[Page 5341]]
contractor. Therefore it is not anticipated that the changed rule will
have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy, a sector of the
economy, productivity, jobs, the environment, public health or safety,
or State, local, or tribal governments or communities.
The Department has similarly concluded that this rule is not a
``major rule'' requiring approval by the Congress under the Small
Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et
seq.). It will not likely result in (1) an annual effect on the economy
of $100 million or more; (2) a major increase in costs or prices for
consumers, individual industries, Federal, State or local government
agencies, or geographic regions; or (3) significant adverse effects on
competition, employment, investment, productivity, innovation, or on
the ability of U.S.-based enterprises to compete with foreign-based
enterprises in domestic or export markets.
For purposes of the Unfunded Mandates Reform Act of 1995, this rule
does not include any federal mandate that may result in excess of $100
million in expenditures by state, local and tribal governments in the
aggregate, or by the private sector. Furthermore, the requirements of
the Unfunded Mandates Reform Act, 2 U.S.C. 1532, do not apply here
because the rule does not include a ``Federal mandate.'' The term
``Federal mandate'' is defined to include either a ``Federal
intergovernmental mandate'' or a ``Federal private sector mandate.'' 2
U.S.C. 658(6). Except in limited circumstances not applicable here,
those terms do not include an enforceable duty which is ``a duty
arising from participation in a voluntary program.'' 2 U.S.C.
658(7)(A). A decision by a contractor to bid on Federal service
contracts is purely voluntary in nature, and the contractor's duty to
meet Service Contract Act requirements arises ``from participation in a
voluntary Federal program.''
The Department has also reviewed this rule in accordance with
Executive Order 13132 regarding federalism, and has determined that it
does not have ``federalism implications.'' The rule does not ``have
substantial direct effects on the States, on the relationship between
the national government and the States, or on the distribution of power
and responsibilities among the various levels of government.''
VI. Document Preparation
This document was prepared under the direction and control of
Thomas M. Markey, Deputy Administrator, Wage and Hour Division,
Employment Standards Administration, U.S. Department of Labor.
List of Subjects in 29 CFR Part 4
Administrative practice and procedures, Employee benefit plans,
Government contracts, Investigations, Labor, Law enforcement, Minimum
wages, Penalties, Recordkeeping requirements, Reporting requirements,
wages.
Accordingly, for the reasons set out in the preamble, 29 CFR part 4
is amended as set forth below:
PART 4--LABOR STANDARDS FOR FEDERAL SERVICE CONTRACTS
1. The authority citation for part 4 is revised to read as follows:
Authority: 41 U.S.C. 351 et seq.; 41 U.S.C. 38 and 39; 5 U.S.C.
301.
2. Section 4.123(e) is revised to read as follows:
Sec. 4.123 Administrative limitations, variances, tolerances , and
exemptions.
* * * * *
(e) The following types of contracts have been exempted from all
the provisions of the Service Contract Act of 1965, pursuant to section
4(b) of the Act, which exemptions the Secretary of Labor found are
necessary and proper in the public interest or to avoid serious
impairment of the conduct of Government business, and are in accord
with the remedial purpose of the Act to protect prevailing labor
standards:
(1)(i) Prime contracts or subcontracts principally for the
maintenance, calibration, and/or repair of:
(A) Automated data processing equipment and office information/word
processing systems;
(B) Scientific equipment and medical apparatus or equipment where
the application of microelectronic circuitry or other technology of at
least similar sophistication is an essential element (for example,
Federal Supply Classification (FSC) Group 65, Class 6515, ``Medical
Diagnostic Equipment''; Class 6525, ``X-Ray Equipment''; FSC Group 66,
Class 6630, ``Chemical Analysis Instruments''; Class 6665,
``Geographical and Astronomical Instruments'', are largely composed of
the types of equipment exempted under this paragraph);
(C) Office/business machines not otherwise exempt pursuant to
paragraph (e)(1)(i)(A) of this section, where such services are
performed by the manufacturer or supplier of the equipment.
(ii) The exemptions set forth in this paragraph (e)(1) shall apply
only under the following circumstances:
(A) The items of equipment are commercial items which are used
regularly for other than Government purposes, and are sold or traded by
the contractor (or subcontractor in the case of an exempt subcontract)
in substantial quantities to the general public in the course of normal
business operations;
(B) The prime contract or subcontract services are furnished at
prices which are, or are based on, established catalog or market prices
for the maintenance, calibration, and/or repair of such commercial
items. An ``established catalog price'' is a price included in a
catalog, price list, schedule, or other form that is regularly
maintained by the manufacturer or the contractor, is either published
or otherwise available for inspection by customers, and states prices
at which sales currently, or were last, made to a significant number of
buyers constituting the general public. An ``established market price''
is a current price, established in the usual course of trade between
buyers and sellers free to bargain, which can be substantiated from
sources independent of the manufacturer or contractor; and
(C) The contractor utilizes the same compensation (wage and fringe
benefits) plan for all service employees performing work under the
contract as the contractor uses for these employees and equivalent
employees servicing the same equipment of commercial customers;
(D) The contractor certifies to the provisions in this paragraph
(e)(1)(ii). Certification by the prime contractor as to its compliance
with respect to the prime contract also constitutes its certification
as to compliance by its subcontractor if it subcontracts out the exempt
services. The certification shall be included in the prime contract or
subcontract.
(iii)(A) Determinations of the applicability of this exemption to
prime contracts shall be made in the first instance by the contracting
officer on or before contract award. In making a judgment that the
exemption applies, the contracting officer shall consider all factors
and make an affirmative determination that all of the conditions in
paragraph (e)(1) of this section have been met.
(B) Determinations of the applicability of this exemption to
subcontracts shall be made by the prime contractor on or before
subcontract award. In making a judgment that the exemption applies, the
prime contractor shall consider all factors and make an affirmative
determination that all of the conditions in paragraph (e)(1) have been
met.
(iv)(A) If the Administrator determines after award of the prime
[[Page 5342]]
contract that any of the requirements in paragraph (e)(1) for exemption
has not been met, the exemption will be deemed inapplicable, and the
contract shall become subject to the Service Contract Act, effective as
of the date of the Administrator's determination. In such case, the
corrective procedures in Sec. 4.5(c)(2) shall be followed.
(B) The prime contractor is responsible for compliance with the
requirements of the Service Contract Act by its subcontractors,
including compliance with all of the requirements of this exemption
(see Sec. 4.114(b)). If the Administrator determines that any of the
requirements in paragraph (e)(1) for exemption has not been met with
respect to a subcontract, the exemption will be deemed inapplicable,
and the prime contractor may be responsible for compliance with the Act
effective as of the date of contract award.
(2)(i) Prime contracts or subcontracts principally for the
following services where the services under the contract or subcontract
meet all of the criteria set forth in paragraph (e)(2)(ii) of this
section and are not excluded by paragraph (e)(2)(iii):
(A) Automobile or other vehicle (e.g., aircraft) maintenance
services (other than contracts to operate a Government motor pool or
similar facility);
(B) Financial services involving the issuance and servicing of
cards (including credit cards, debit cards, purchase cards, smart
cards, and similar card services);
(C) Contracts with hotels/motels for conferences, including lodging
and/or meals which are part of the contract for the conference (which
shall not include ongoing contracts for lodging on an as needed or
continuing basis);
(D) Maintenance, calibration, repair and/or installation (where the
installation is not subject to the Davis-Bacon Act, as provided in
Sec. 4.116(c)(2)) services for all types of equipment where the
services are obtained from the manufacturer or supplier of the
equipment under a contract awarded on a sole source basis;
(E) Transportation by common carrier of persons by air, motor
vehicle, rail, or marine vessel on regularly scheduled routes or via
standard commercial services (not including charter services);
(F) Real estate services, including real property appraisal
services, related to housing federal agencies or disposing of real
property owned by the Federal Government; and
(G) Relocation services, including services of real estate brokers
and appraisers, to assist federal employees or military personnel in
buying and selling homes (which shall not include actual moving or
storage of household goods and related services).
(ii) The exemption set forth in this paragraph (e)(2) shall apply
to the services listed in paragraph (e)(2)(i) only when all of the
following criteria are met:
(A) The services under the prime contract or subcontract are
commercial--i.e., they are offered and sold regularly to non-
Governmental customers, and are provided by the contractor (or
subcontractor in the case of an exempt subcontract) to the general
public in substantial quantities in the course of normal business
operations.
(B) The prime contract or subcontract will be awarded on a sole
source basis or the contractor or subcontractor will be selected for
award on the basis of other factors in addition to price. In such
cases, price must be equal to or less important than the combination of
other non-price or cost factors in selecting the contractor.
(C) The prime contract or subcontract services are furnished at
prices which are, or are based on, established catalog or market
prices. An established price is a price included in a catalog, price
list, schedule, or other form that is regularly maintained by the
contractor or subcontractor, is either published or otherwise available
for inspection by customers, and states prices at which sales are
currently, or were last, made to a significant number of buyers
constituting the general public. An established market price is a
current price, established in the usual course of trade between buyers
and sellers free to bargain, which can be substantiated from sources
independent of the manufacturer or contractor.
(D) Each service employee who will perform services under the
Government contract or subcontract will spend only a small portion of
his or her time (a monthly average of less than 20 percent of the
available hours on an annualized basis, or less than 20 percent of
available hours during the contract period if the contract period is
less than a month) servicing the government contract or subcontract.
(E) The contractor utilizes the same compensation (wage and fringe
benefits) plan for all service employees performing work under the
contract or subcontract as the contractor uses for these employees and
for equivalent employees servicing commercial customers.
(F) The contracting officer (or prime contractor with respect to a
subcontract) determines in advance, based on the nature of the contract
requirements and knowledge of the practices of likely offerors, that
all or nearly all offerors will meet the requirements in paragraph
(e)(2)(ii) of this section. Where the services are currently being
performed under contract, the contracting officer or prime contractor
shall consider the practices of the existing contractor in making a
determination regarding the requirements in paragraph (e)(2)(ii). If
upon receipt of offers, the contracting officer finds that he or she
did not correctly determine that all or nearly all offerors would meet
the requirements, the Service Contract Act shall apply to the
procurement, even if the successful offeror has certified in accordance
with paragraph (e)(2)(ii)(G) of this section.
(G) The contractor certifies in the prime contract or subcontract,
as applicable, to the provisions in paragraph (e)(2)(ii)(A) and (C)
through (E) of this section. Certification by the prime contractor as
to its compliance with respect to the prime contract also constitutes
its certification as to compliance by its subcontractor if it
subcontracts out the exempt services. If the contracting officer or
prime contractor has reason to doubt the validity of the certification,
SCA stipulations shall be included in the prime contract or
subcontract.
(iii)(A) If the Administrator determines after award of the prime
contract that any of the requirements in paragraph (e)(2) for exemption
has not been met, the exemption will be deemed inapplicable, and the
contract shall become subject to the Service Contract Act. In such
case, the corrective procedures in Sec. 4.5(c)(2) shall be followed.
(B) The prime contractor is responsible for compliance with the
requirements of the Service Contract Act by its subcontractors,
including compliance with all of the requirements of this exemption
(see Sec. 4.114(b)). If the Department of Labor determines that any of
the requirements in paragraph (e)(2) for exemption has not been met
with respect to a subcontract, the exemption will be deemed
inapplicable, and the prime contractor may be responsible for
compliance with the Act, as of the date of contract award.
(iv) The exemption set forth in this paragraph (e)(2) does not
apply to solicitations and contracts:
(A) Entered into under the Javits-Wagner-O'Day Act, 41 U.S.C. 47;
(B) For the operation of a Government facility or portion thereof
(but may be applicable to subcontracts for services set forth in
paragraph (e)(2)(ii) that meet all of the criteria of paragraph
(e)(2)(ii)); or
(C) Subject to section 4(c) of the Service Contract Act, as well as
any
[[Page 5343]]
options or extensions under such contract.
Signed at Washington, DC, on this 11th day of January, 2001.
T. Michael Kerr,
Administrator, Wage and Hour Division.
[FR Doc. 01-1337 Filed 1-17-01; 8:45 am]
BILLING CODE 4510-27-P