# Nondisplacement of Qualified Workers Under Service Contracts

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2011-21261

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** August 29, 2011
- **Citation:** 76 FR 53720

## Text

DEPARTMENT OF LABOR
Office of the Secretary
29 CFR Part 9
RIN 1215-AB69;1235-AA02
Nondisplacement of Qualified Workers Under Service Contracts

AGENCY:

Wage and Hour Division, Labor.

ACTION:

Final rule.

SUMMARY:

In this final rule, the Department of Labor (Department or DOL) issues final regulations to implement Executive Order 13495, Nondisplacement of Qualified Workers Under Service Contracts. The Executive Order establishes a general policy of the Federal Government concerning service contracts and solicitations for service contracts for performance of the same or similar services at the same location. This policy mandates the inclusion of a contract clause requiring the successor contractor and its subcontractors to offer those employees employed under the predecessor contract, whose employment will be otherwise terminated as a result of the award of the successor contract, a right of first refusal of employment under the successor contract in positions for which they are qualified.

DATES:

The effective date for this final rule is pending, and the Department will publish a notice in the
Federal Register
announcing the effective date once it is determined.

FOR FURTHER INFORMATION CONTACT:

Timothy Helm, Branch Chief, Division of Enforcement Policies and Procedures, Branch of Government Contracts Enforcement, Wage and Hour Division, U.S. Department of Labor, Room S-3014, 200 Constitution Avenue, NW., Washington, DC 20210; telephone: (202) 693-0064 (this is not a toll-free number). Copies of this notice may be obtained in alternative formats (Large Print, Braille, Audio Tape or Disc), upon request, by calling (202) 693-0023 (not a toll-free number). TTY/TDD callers may dial toll-free (877) 889-5627 to obtain information or request materials in alternative formats.

SUPPLEMENTARY INFORMATION:

This regulatory action first appeared on the Spring 2009 Regulatory Agenda with regulatory identification number (RIN) 1215-AB69. Due to an organizational restructuring which resulted in the Wage and Hour Division becoming a free-standing agency within the Department, the RIN changed to 1235-AA02. Throughout this final rule, citations to various statutes such as the Service Contract Act have been revised to reflect the recodification of those Acts in January 2011.

I. Executive Order 13495 Requirements and Background

On January 30, 2009, President Barack Obama signed Executive Order 13495, Nondisplacement of Qualified Workers Under Service Contracts (Executive Order 13495, E.O. 13495, or Order). 74 FR 6103 (Feb. 4, 2009). This Order establishes that when a service contract expires and a follow-on contract is awarded for the same or similar services at the same location, the Federal Government's procurement interests in economy and efficiency are better served when a successor contractor hires the predecessor's employees. A carryover workforce reduces disruption to the delivery of services during the period of transition between contractors and provides the Federal Government the benefits of an experienced and trained workforce that is familiar with the Federal Government's personnel, facilities, and requirements. As explained in the Order, the successor contractor or its subcontractors often hires the majority of the predecessor's employees when a service contract ends and the work is taken over from one contractor to another. Occasionally, however, a successor contractor or its subcontractors hires a new workforce, thus displacing the predecessor's employees.

Section 1 of Executive Order 13495 sets forth a general policy of the Federal Government that service contracts and solicitations for service contracts shall include a clause that requires the contractor and its subcontractors, under a contract that succeeds a contract for performance of the same or similar services at the same location, to offer those employees (other than managerial and supervisory employees) employed under the predecessor contract, whose employment will be terminated as a result of the award of the successor contract, a right of first refusal of employment under the contract in positions for which they are qualified. Section 1 also provides that there shall be no employment openings under the contract until such right of first refusal has been provided. Section 1 further stipulates that nothing in Executive Order 13495 is to be construed to permit a contractor or subcontractor to fail to comply with any provision of any other Executive Order or law of the United States.

As discussed above in the
DATES
section, this rule will not be effective until the Federal Acquisition Regulatory Council (FARC) issues regulations. The Executive Order requires the FARC to issue regulations in Section 6 of the Order, which is discussed in further detail below.

Section 2 of Executive Order 13495 defines
service contract
or
contract
to mean any contract or subcontract for services entered into by the Federal Government or its contractors that is covered by the McNamara-O'Hara Service Contract Act of 1965 (SCA), as amended, 41 U.S.C. 6701
et seq.,
and its implementing regulations. Section 2 also defines
employee
to mean a service employee as defined in the SCA. 74 FR 6103 (Feb. 4, 2009).
See
41 U.S.C. 6701(3).

Section 3 of the Order exempts from its terms (a) contracts or subcontracts under the simplified acquisition threshold as defined in 41 CFR 2.101; (b) contracts or subcontracts awarded pursuant to the Javits-Wagner-O'Day Act, 41 U.S.C. 8501-8506; (c) guard, elevator operator, messenger, or custodial services provided to the Federal Government under contracts or subcontracts with sheltered workshops employing the severely handicapped as described in section 505 of the Treasury, Postal Services and General Government Appropriations Act, 1995, Public Law 103-329; (d) agreements for vending facilities entered into pursuant to the preference regulations issued under the Randolph-Sheppard Act, 20 U.S.C. 107; and (e) employees who were hired to work under a Federal service contract and one or more nonfederal service contracts as part of a single job, provided that the employees were not deployed in a manner that was designed to avoid the purposes of the Order. 74 FR 6103-04 (Feb. 4, 2009).

Section 4 of Executive Order 13495 authorizes the head of a contracting department or agency to exempt its department or agency from the requirements of any or all of the provisions of the Executive Order with respect to a particular contract, subcontract, or purchase order or any class of contracts, subcontracts, or purchase orders, if the department or agency head finds that the application of any of the requirements of the Order would not serve the purposes of the Order or would impair the ability of the Federal Government to procure services on an economical and efficient basis. 74 FR 6104 (Feb. 4, 2009).

Section 5 of the Order provides the wording for the required contract clause regarding the nondisplacement of qualified workers that is to be included in solicitations for and service contracts that succeed contracts for performance of the same or similar services at the

same location. 74 FR 6104-05 (Feb. 4, 2009). Specifically, the new contract clause provides that the contractor and its subcontractors shall, except as otherwise provided by the clause, in good faith offer those employees (other than managerial and supervisory employees) employed under the predecessor contract whose employment will be terminated as a result of award of the contract or the expiration of the contract under which the employees were hired, a right of first refusal of employment under the contract in positions for which they are qualified. The successor contractor and its subcontractors determine the number of employees necessary for efficient performance of the contract, and may elect to employ fewer employees than the predecessor contractor employed in performance of the work. Except as provided by the contract clause, there is to be no employment opening under the contract, and the successor contractor and any subcontractors shall not offer employment under the contract to any person prior to having complied fully with the obligation to offer employment to employees on the predecessor contract. The successor contractor and its subcontractors must make a bona fide, express offer of employment to each employee including stating the time within which the employee must accept such offer, which must be no less than 10 days. The clause also provides that, notwithstanding the obligation to offer employment to employees on the predecessor contract, the successor contractor and any subcontractors (1) May employ under the contract any employee who has worked for the contractor or subcontractor for at least 3 months immediately preceding the commencement of the contract and who would otherwise face lay-off or discharge; (2) are not required to offer a right of first refusal to any employee(s) of the predecessor contractor who are not service employees within the meaning of the SCA, 41 U.S.C. 6701(3); and (3) are not required to offer a right of first refusal to any employee(s) of the predecessor contractor whom the successor contractor or any of its subcontractors reasonably believes, based on the particular employee's past performance, has failed to perform suitably on the job. The contract clause also provides that, in accordance with Federal Acquisition Regulation (FAR) 52.222-41(n), not less than 10 days before completion of the contract, the contractor must furnish the Contracting Officer a certified list of the names of all service employees working under the contract and its subcontracts during the last month of contract performance. The list must also contain anniversary dates of employment of each service employee under the contract and its predecessor contracts either with the current or predecessor contractors or their subcontractors. The Contracting Officer must provide the list to the successor contractor, and the list must be provided on request to employees or their representatives. If it is determined, pursuant to regulations issued by the Secretary of Labor, that the contractor or its subcontractors are not in compliance with the requirements of this clause or any regulation or order of the Secretary, appropriate sanctions may be imposed and remedies invoked against the contractor or its subcontractors, as provided in the Executive Order, the regulations, and relevant orders of the Secretary, or as otherwise provided by law. Finally, the clause provides that in every subcontract entered into in order to perform services under the contract, the contractor will include provisions that ensure that each subcontractor will honor the requirements of the clause in the prime contract with respect to the employees of a predecessor subcontractor or subcontractors working under the contract, as well as employees of a predecessor contractor and its subcontractors. The subcontract must also include provisions to ensure that the subcontractor will provide the contractor with the information about the employees of the subcontractor needed by the contractor to comply with the prime contractor's requirement, in accordance with FAR 52.222-41(n). The contractor must also take action with respect to any such subcontract as may be directed by the Secretary of Labor as a means of enforcing these provisions, including the imposition of sanctions for noncompliance; provided, however, that if the contractor, as a result of such direction, becomes involved in litigation with a subcontractor, or is threatened with such involvement, the contractor may request that the United States enter into the litigation to protect the interests of the United States. 74 FR 6104-05 (Feb. 4, 2009).

Section 6 of the Order assigns responsibility for investigating and obtaining compliance with the Order to the Department. In such proceedings, this section also authorizes the Department to issue final orders prescribing appropriate sanctions and remedies, including, but not limited to, orders requiring employment and payment of wages lost. The Department also may provide that where a contractor or subcontractor has failed to comply with any order of the Secretary of Labor or has committed willful violations of Executive Order 13495 or its implementing regulations, the contractor or subcontractor, its responsible officers, and any firm in which the contractor or subcontractor has a substantial interest will be ineligible to be awarded any contract of the United States for a period of up to 3 years. Neither an order for debarment of any contractor or subcontractor from further Government contracts under this section nor the inclusion of a contractor or subcontractor on a published list of noncompliant contractors is to be carried out without affording the contractor or subcontractor an opportunity for a hearing. Section 6 also specifies that Executive Order 13495 creates no rights under the Contract Disputes Act, and disputes regarding the requirement of the contract clause prescribed by Section 5, to the extent permitted by law, will be disposed of only as provided by the Department in regulations issued under the Order. To the extent practicable, such regulations shall favor the resolution of disputes by efficient and informal alternative dispute resolution methods. Finally, Section 6 provides that, to the extent permitted by law and in consultation with the FARC, the Department will issue regulations to implement the requirements of the Executive Order. In addition, to the extent permitted by law, the FARC is to issue regulations in the Federal Acquisition Regulation to provide for inclusion of the contract clause in Federal solicitations and contracts subject to the current Order.
See
74 FR 6105 (Feb. 4, 2009).

Section 7 of Executive Order 13495 revokes Executive Order 13204 of February 17, 2001, rescinding Executive Order 12933 of October 20, 1994, Nondisplacement of Qualified Workers Under Certain Contracts.
Id. See also
59 FR 53559 (Oct. 24, 1994), 66 FR 11228 (Feb. 22, 2001).

Section 8 of the Order provides that if any provision of the Order or its application is held to be invalid, the remainder of the Order and the application shall not be affected.

Section 9 of the Order specifies that nothing in Executive Order 13495 is to be construed to impair or otherwise affect the authority granted by law to an executive department, agency, or the head thereof; or functions of the Director of the Office of Management and Budget (OMB) relating to budgetary, administrative, or legislative proposals. In addition, the Order is to be implemented consistent with applicable law and subject to the availability of appropriations, and the Order is not intended to, and does not, create any

right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person. Section 9 clarifies, however, that the Order is not intended to preclude judicial review of final decisions by the Department in accordance with the Administrative Procedure Act, 5 U.S.C. 701
et seq.
74 FR 6105-06 (Feb. 4, 2009).

As indicated, Section 7 of Executive Order 13495, revoked Executive Order 13204, signed by President Bush on February 17, 2001, which rescinded Executive Order 12933, Nondisplacement of Qualified Workers Under Certain Contracts, signed by President Clinton on October 24, 1994. More specifically, these rescinded Executive Orders pertained to the obligations of successor contractors to offer employment to employees of predecessor contractors on Federal contracts to maintain public buildings.
See
59 FR 53559 (Oct. 24, 1994), 66 FR 11228 (Feb. 22, 2001). The Department promulgated regulations, 29 CFR part 9 (62 FR 28185) to implement Executive Order 12933 (62 FR 28176 (May 22, 1997)) and, per Executive Order 13204, rescinded them through a Notice appearing in the
Federal Register
. 66 FR 16126 (Mar. 23, 2001). There are some notable differences between Executive Order 13495, and Executive Order 12933. For example, Executive Order 13495 covers all contracts covered by the SCA above the simplified acquisition threshold, whereas Executive Order 12933 was limited to building services contracts in excess of the simplified acquisition threshold for maintenance of public buildings. In addition, exemptions listed for U.S. Postal Service, NASA, military, and Veterans Administration installations (among others) in Executive Order 12933 have been eliminated. A new provision authorizes the head of a contracting department or agency to exempt any of its contracts from the current Order if the agency finds the requirements would not serve the purposes of the Order or would impair the Federal Government's ability to procure services economically and efficiently. In addition, the current Order expressly provides that it applies to subcontracts awarded in amounts equal to or above the simplified acquisition threshold, while coverage under Executive Order 12933 was determined at the prime contract level. Subsequent to publication of the proposed rule upon which this final rule is responsive, the simplified acquisition threshold was raised to $150,000 from $100,000. 75 FR 53129 (August 30, 2010) (codified at 41 CFR 2.101).

II. Discussion of Final Rule

The Department published and sought comments on a proposed rule implementing the provisions of Executive Order 13495 on March 19, 2010 (75 FR 13382 (Mar. 19, 2010)). A total of 21 comments were received from labor organizations, government contractors, and government agency contract personnel, among others. These comments are discussed in the following section-by-section analysis of the final rule.

Subpart A—General

Executive Order 13495 does not establish wage or fringe benefit rates. The minimum wage and fringe benefit rates established under the SCA to be paid service employees will apply to work performed on service contracts covered by the Executive Order. SCA rates will apply equally to successor contracts with a workforce made up of employees who worked under the predecessor contract and to successor contracts with, under one of the Executive Order's exceptions, a workforce not made up of employees who worked under the predecessor contract. The SCA requires contractors and subcontractors performing services on prime contracts in excess of $2,500 to pay service employees in various classes no less than the wage rates and fringe benefits found prevailing in the locality, or the rates (including prospective increases) contained in a predecessor contractor's collective bargaining agreement as provided in wage determinations issued by the Department. These determinations are incorporated into the service contract.

The Department received several comments opposing the Executive Order and questioning its stated purpose. For example, the Professional Services Council (PSC) questioned when private employment under a government contract became an immutable entitlement. The PSC and the Society for Human Resource Management (SHRM) doubted whether the Executive Order would fulfill its stated goals of promoting economy and efficiency in government procurement, and the Associated Builders and Contractors, Incorporated (ABC, Inc.), stated that there was no evidentiary support that nondisplacement of workers would result in greater efficiency. Comments questioning the legality of and rationale for the Executive Order are clearly not within the purview of this rulemaking action. All other comments are summarized in the preamble under the relevant subsections.

Proposed subpart A addressed general matters, including the purpose and scope of the rule, its definitions, coverage under the Order, and the exclusions it provides.

Section 9.1 Purpose and Scope

The Department proposed in § 9.1 to explain the purpose of the proposed rule and to reiterate policy statements from the Executive Order. This section articulates the Executive Order's general requirement that successor service contractors performing on Federal contracts offer a right of first refusal to suitable employment (i.e., a job for which the employee is qualified) under the contract to those employees under the predecessor contract whose employment will be terminated as a result of the award of the successor contract, and emphasizes the Executive Order's underlying principle that the Federal Government's procurement interests in economy and efficiency are served when the successor contractor hires the predecessor's employees and that a carryover workforce both minimizes disruption in the delivery of services during a period of transition between contractors and provides the Federal Government the benefit of an experienced and trained workforce that is familiar with the Federal Government's personnel, facilities, and requirements. No comments were received on this section; the final rule therefore implements § 9.1 as proposed, except with one additional sentence as discussed below.

Specifically, § 9.1 has been revised to include the following sentence: “Additionally, the Order also provides that it is to be implemented consistent with applicable law and subject to the availability of appropriations.” This sentence has been added to emphasize in particular that, as stated in Section 9 of the Order, the Order is to be implemented consistent with applicable law. Along similar lines, Section 1 of the Order provides, as noted, that nothing in the Order shall be construed to permit a contractor or subcontractor to fail to comply with any provision of any other Executive Order or law of the United States. The applicable law encompassed by these Sections includes, for example, the HUBZone program established by title VI of the Small Business Reauthorization Act of 1997, Executive Order 11246 (Equal Employment Opportunity), and the Vietnam Era Veterans' Readjustment Assistance Act of 1974. When (and only when) the requirements of such laws

would conflict with the requirements of Executive Order 13495 under the particular factual circumstances of a specific situation, then the requirements of such laws may be satisfied in tandem with—and, when necessary, prior to—the requirements of Executive Order 13495.

For example, HUBZone small business concerns (SBCs) are required to have 35 percent of all of their employees reside in a HUBZone. When both the successor and the predecessor contractors are SBCs, the residence requirement threshold normally could be met through a standard application of this final rule. Under circumstances where the successor is a SBC but the predecessor is not, we believe that HUBZone SBCs can still meet both the requirements of the HUBZone program and the Executive Order. For instance, the successor SBC awardee could first extend offers of employment to the qualified predecessor awardee's employees that reside in a HUBZone. If necessary to reach the residency threshold, the successor HUBZone SBC would next extend offers of employment to qualified residents of a HUBZone who were not employees of the predecessor. The HUBZone SBC could next extend offers for the remaining vacancies to non-HUBZone resident qualified employees of the predecessor awardee. The HUBZone SBC would need to first ensure that it meets the statutory requirements of the HUBZone program so that it is not decertified, and must consider the predecessor's employees pursuant to the Executive Order in doing so. This approach would also apply in other circumstances, such as where the predecessor HUBZone SBC did not maintain the HUBZone residence requirement but was permitted to remain in the program. While the HUBZone SBC must maintain the 35 percent HUBZone residency requirement at all times while certified in the program, there is an exception: an SBC may “attempt to maintain” this requirement when performing on a HUBZone contract. When that occurs and the HUBZone SBC is permitted to fall below the 35 percent threshold, it still must meet the requirement any time it submits a subsequent offer and wins a HUBZone contract.

Section 9.2 Definitions

The proposed rule included definitions of several important terms, such as “contractor”, “month”, “same or similar service”, “managerial employee and supervisory employee”, and “employee or service employee”. The Department received comments on only two of the proposed definitions.

The Department proposed to define “employee or service employee” to mean a service employee as defined in the Service Contract Act of 1965, 41 U.S.C. 6701(3). The Service Employees International Union (SEIU) and Change to Win commented that they agreed with this proposed definition as it is based on the definition under the SCA. No other comments were received on this definition and it is adopted as proposed.

The Department proposed to define “managerial or supervisory employee” to mean a person engaged in the performance of services under the contract who is employed in a bona fide executive, administrative, or professional capacity, as those terms are defined in 29 CFR part 541, and specifically sought comments on this proposed definition. The PSC and American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) supported the proposed definition. The PSC commented that “adopting a different definition would lead to unnecessary confusion about the proper standard to apply in different situations, could lead to unintended consequences regarding coverage, and would create a trap for unwary contractors.”

The American Maritime Officers Union (AMOU) suggested the Department define the term “managerial or supervisory employee” through reference to definitions set forth in the National Labor Relations Act (NLRA) or established by the National Labor Relations Board (NLRB). The American Maritime Association (AMA) stated that the proposed definition will not clarify the scope of the supervisory and managerial exclusion and would result in the unintended consequence of removing most “supervisors” from the scope of the exclusion. The AMA further commented that the proposed definition of managerial and supervisory employee would require the successor contractor to hire supervisory employees of the predecessor contractor, which would contradict the intent of the Executive Order. The Chamber of Commerce of the United States of America (Chamber) commented that the definition of managerial and supervisory employees should be more expansive than the Department proposed. The Chamber also suggested, like the AMOU, that the Department use the definitions of these terms under the NLRA. The Chamber added that the definition proposed by the Department renders the words “other than managerial and supervisory employee” in the Executive Order superfluous because any employee employed in a bona fide executive, administrative, or professional capacity, as those terms are defined in 29 CFR Part 541, is not a service employee under the SCA. The SHRM similarly urged the Department to embrace the definition of “supervisor” under the NLRA and recommended that the Department consider how NLRB case law treats the term “manager.” This recommendation, according to the commenter, would “avoid a proliferation and possible contradiction of statutory and regulatory definitions making good-faith compliance more difficult.”

The Department carefully considered the comments received on the definition of “managerial or supervisory employee” but is unconvinced that defining the term in accordance with the NLRA or NLRB caselaw is appropriate for the purpose of this Executive Order. As discussed in the preamble to the proposed rule, Sections 1 and 5 of the Executive Order parenthetically exclude from its requirements managerial and supervisory employees, without defining the term. It is the Department's view that this is a reiteration, not an expansion, of the exemption included in the SCA. Defining ”managerial or supervisory employee” consistent with the SCA definition excludes any person employed in a bona fide executive, administrative, or professional capacity as those terms are defined in the regulations issued under the Fair Labor Standards Act (FLSA), 29 U.S.C. 203
et seq.,
at 29 CFR part 541. Such employees are exempt from the provisions of the SCA and need not be offered employment on the successor contract. Thus, the successor contractor has complete discretion to decide whom to employ as managers and supervisors on the contract. If a service employee of the predecessor contractor is qualified for a managerial or supervisory position, an offer of employment in that classification would satisfy the successor's obligation to offer the employee employment on the contract, but the successor contractor is under no obligation to make an offer to such a position. Of course, the Department does not administer or enforce the NLRA and it is the Department's view that use of SCA definitions with which contractors are already familiar will facilitate good-faith compliance, rather than making compliance more difficult. Contrary to the view of the Chamber, the Department believes this definition supports and clarifies the policy statement in the Executive Order, which affords the right to an offer of

employment to those service employees who are not managerial or supervisory employees.

The proposed rule defined “same or similar service”, in relevant part, to mean a service that is either identical to or has characteristics that are alike in substance and essentials to another service. After consideration, the Department has altered this definition to avoid inconsistency with the Executive Order. The language of the proposed definition could have resulted in the exclusion of some “similar” services in contravention of the Order. For example, it is the Department's understanding that the term “same or similar service” is broader and more inclusive than the term “substantially the same services” that is used in the SCA.
See
41 U.S.C. 6707(c). Therefore, the Department has refined the proposed definition at § 9.2(13) to mean a service that is either identical to or has characteristics that are alike in substance to a service performed at the same location on a contract that is being replaced by the Federal Government or a contractor on a Federal service contract. Apart from that change, the final rule implements the definitions as proposed.

Section 9.3 Coverage

Proposed § 9.3 discussed application of the rule and the Executive Order to all service contracts and their solicitations that succeed contracts for the same or similar service at the same location, except those specifically excluded by § 9.4. No comments were received on this proposed section and the final rule adopts proposed § 9.3 without change.

Section 9.4 Exclusions

Proposed § 9.4 would implement the exclusions contained in Sections 3 and 4 of Executive Order 13495. Proposed § 9.4(a)(1) addressed the exclusion for contracts or subcontracts under the simplified acquisition threshold, as defined in 41 CFR 2.101. 74 FR 6103 (Feb. 4, 2009). The simplified acquisition threshold, at the time the NPRM was published was $100,000; it has since been increased to $150,000. 41 CFR 2.101. In contrast to the prior version of part 9, the proposal did not state that amount in the regulatory text so that in the event that a future statutory amendment changes the amount, any such change would automatically apply to contracts subject to part 9.

Proposed § 9.4(a)(2) explained how the exclusion applies to subcontracts, including when a successor contractor discontinues the services of a subcontractor. The Department interprets the exclusion for contracts and subcontracts under the simplified acquisition threshold as applying to subcontracts of less than $150,000, even when the prime contract is for a greater amount because of the definition of a service contract in Section 2(a) of the SCA and the express terms of the exclusion in Section 3(a) of Executive Order 13495. However, while the proposed § 9.4(a)(1) exclusion would apply to subcontracts of less than $150,000, the covered prime contractor or higher tier subcontractor would still be required to comply with the requirements of this part. Moreover, if a covered contractor that is subject to the nondisplacement requirements were to discontinue the services of a subcontractor at any time during the contract and perform those or similar services itself at the same location, the contractor would be required to offer employment to the subcontractor's employees who would otherwise be displaced and would otherwise be covered in accordance with this part but for the size of the subcontract. As noted in the preamble to the proposed rule, the earlier Executive Order 12933 excluded prime contracts under the simplified acquisition threshold but did not mention subcontracts. The Chamber requested additional guidance regarding the application of the Executive Order to subcontracts. The Department has concluded that proposed § 9.4(a)(2) is sufficiently instructive; as no other comments were received on this paragraph, no revisions have been made to proposed § 9.4(a) and it is implemented in the final rule without change.

Proposed § 9.4(b) implemented the exclusions applicable to certain contracts or subcontracts awarded for services produced or provided by persons who are blind or have severe disabilities. 74 FR 6103-4 (Feb. 4, 2009). Proposed § 9.4(b)(4) clarified that the exclusions provided by § 9.4(b)(1) through (b)(3) apply when either the predecessor or successor contract has been awarded for services produced or provided by the blind or severely disabled, as described. To require Federal service contractors who obtain their work under the specified set-aside programs to offer employment to the predecessor contractor's employees would defeat the purpose of these programs to allow people to participate in the workforce who otherwise would not be able to do so. No comments were received on this paragraph and the final rule implements proposed § 9.4(b) without change.

Proposed § 9.4(c) implemented the exclusion in Section 3(e) of Executive Order 13495 relating to employment where Federal service work constitutes only part of the employee's job. 74 FR 6104 (Feb. 4, 2009). This exclusion applies to an employee who was hired to work on the predecessor's contract and one or more nonfederal jobs. No comments were received on this paragraph and the final rule adopts proposed § 9.4(c) without change.
See
§ 9.12(c)(5) (discussion of implementation of section 3(e) of the Executive Order).

Section 9.4(d) Contracts Exempted by Federal Agency

Section 9.4(d) implements the Section 4 exclusion in the Executive Order that provides that the head of a contracting department or agency may exempt its department or agency from the requirements of any or all of the provisions of the Executive Order with respect to a particular contract, subcontract, or purchase order, or any class of contracts, subcontracts, or purchase orders, if the department or agency head finds that the application of any of the requirements of the Executive Order would not serve the purposes of the Executive Order or would impair the ability of the Federal Government to procure services on an economical and efficient basis. 74 FR 6104 (Feb. 4, 2009).

A number of commenters addressed issues relating to proposed language concerning the exemption authority of Federal agencies, including the notification and timing requirements relating to the exemption process, the factors agencies should use when considering whether to exempt contracts, and whether exemption decisions should be reviewable by and appealable to the Secretary of Labor.

The introductory language of paragraph (d) remains as proposed except for a minor clarification specifying that the authority for contracting department or agency heads to exempt certain contracts from the Executive Order stems from Section 4 of the Order.

Section 9.4(d)(1) Agency Determination No Later Than the Solicitation Date

Section 9.4(d)(1) of the proposed rule limited the time in which an agency may decide to exempt contracts to no later than the solicitation date. This limitation was intended to ensure that the contract clause is included in the solicitation, if applicable, as required by the Executive Order.

Two commenters addressed this issue. The Chamber opposed the

requirements that the agency exemption decision be made by the solicitation date and that the decision be supported by a written analysis in which the agency compares anticipated outcomes under both a carryover workforce and a non-carryover workforce scenario. It asserted that these requirements would significantly limit the contracting agency's exercise of its waiver authority and would prevent the contracting agency from having “the full benefit of the contractors' bids/proposals, many of which might include significant cost savings or other improvements in contract performance if the contract was exempted from coverage.”

A labor advisor with the United States Navy (Navy Labor Advisor), asserted that the final regulations should remove the time limitation for agency exemption decisions, which he characterized as “an unwarranted infringement on agency deliberations and decisions that are essential to the mission of each agency.” He added that the time limitation was not needed to ensure that the contract clause is included in the solicitation because, under procurement practices and the Federal Acquisition Regulation, “any solicitation may be amended to correct oversights, errors, or changes to the originally issued document * * *”.

After carefully considering the comments, the Department has decided to adopt the proposed time limitation for agency exemption decisions to ensure that solicitations accurately reflect agency exemption determinations, either including the contract clause required by the Executive Order or omitting it following an agency exemption determination. This time limitation will ensure that the predecessor contractor's service employees, as well as prospective bidders, receive timely notice of the agency's decision. The Department has added language providing that the failure to follow this procedural requirement shall render any agency exemption decision inoperative and require the inclusion or addition of the clause in Appendix A of the final rule in the solicitation and any resulting contract, subcontract, or purchase order, or class of contracts, subcontracts, or purchase orders.

Section 9.4(d)(2) and § 9.4(d)(3) Written Notice to Affected Workers of Finding and Decision No Later Than Solicitation Date Using the Notification Method Specified in § 9.11(b)

Under § 9.4(d)(2) and § 9.4(d)(3), the Department proposed that when an agency exercises its exemption authority, it is required to notify “affected workers in writing of the finding and decision no later than the award date” either in an individual notice given to each worker or through a posting at the location where the work is performed. The notification would need to include facts supporting the decision and use the method specified in proposed § 9.11(b).

A number of commenters addressed this issue. The Chamber stated that requiring an agency to provide written notification to all affected workers that it will be exercising its exemption authority—including the facts supporting its decision—would significantly limit the agency's exercise of its authority.

A Navy Labor Advisor commented that the notification requirement is not supported by the language of the Executive Order and is not possible for agencies to fulfill under current recordkeeping rules for employment and protection of personally identifiable information. He further indicated that the prime contractor, not the contracting agency, should be required to notify affected workers of a waiver. He also stated that agencies lack “access to workers or the ability to require personally identifiable information,” and that under certain circumstances, contracting agencies may lack knowledge of who these service employees are or how to provide them with notice of the waiver decision. He added that agencies do not retain postal or e-mail addresses for these service employees; that under certain circumstances, there may be no appropriate place for a contracting agency to post a notice; that the methods called for in the proposed rule would infringe on the privacy of workers in question; that “neither the Service Contract Act nor the Executive Order provides any rationale or authority to collect such information and no other laws or regulations would require or allow contractors to provide this personal identifiable information (PII) to the contracting agencies,” and that agencies seek to avoid establishing a “ `personal service' type relationship where employees are perceived to be directly employed by the contracting agency.” An individual commenter also expressed concern that the proposed rule could lead to the appearance of personal services contracts.

The AFL-CIO stated that the final rule should clarify that agencies must provide written notice of their intent to exempt a contract to the labor union, if any, that represents the incumbent workers. It also asserted that instead of the date of contract award, notice should be provided at least 180 days before the contract award to “allow employees and their bargaining representative to have sufficient time to analyze the asserted reasons for the proposed exemption, and, if warranted, to challenge the exemption.”

The SEIU and Change to Win supported the requirement that contracting agencies provide written notice of an exemption decision to affected workers, but stated that the final rule should clarify that notice must also be provided to the labor union, if any, that represents the incumbent workers. They noted that other provisions of the proposed rule provided for the worker representative to receive notice or to make a complaint on behalf of service workers. They also stated that the final rule should require notice of an exemption decision “sufficiently in advance of the solicitation to bid” to allow affected workers and their representatives the opportunity to respond to the exemption, and if necessary contest it through an administrative review process. They suggested that such notice be provided no later than 120 days before the solicitation date.

After careful consideration of the comments, the Department has decided to adopt the proposed language requiring notification with five changes. It remains the Department's view that service employees are entitled to written notice of an agency exemption decision. However, we agree with the aforementioned commenters that the obligation to provide the notice should rest with the contractor, and not the contracting agency. Section 9.4(d)(2) and § 9.4(d)(3) have been revised to reflect that the “contracting agency shall ensure that the predecessor contractor notify affected workers and their collective bargaining representatives in writing of its determination no later than five business days after the solicitation date” and that “the agency shall ensure that the predecessor contractor uses the notification method specified in § 9.11(b) of this part to inform workers and their collective bargaining representatives of the exemption determination.” An agency exercising exemption authority will need to ensure that affected workers “and their collective bargaining representatives” are notified of the finding and decision, in writing, no later than five business days after the “solicitation” date, i.e., the date the solicitation is issued. The added language is needed to keep the provision consistent with other provisions in the rule and to provide those affected by the exemption decision with additional time to

consider their employment options. (
See
§ 9.11(b); § 9.21(a).) For clarity, the Department has also added language providing that the failure to follow this requirement shall render any agency exemption decision inoperative and require the inclusion of the clause in Appendix A of the final rule in the solicitation and any resulting contract, subcontract, or purchase order, or class of contracts, subcontracts, or purchase orders.

The Department considers that written notification be provided to affected workers and their collective bargaining representatives of its exemption finding and decision—including facts supporting the decision—by no later than the solicitation date as consistent with the President's commitment to openness and transparency in government.
See
January 21, 2009, Memorandum for the Heads of Executive Departments and Agencies. 74 FR 4685 (Jan. 21, 2009). Also in the interest of openness and transparency in government, language has been added to this subsection stating that the contracting agency shall notify the Department of its exemption decision and provide the Department a copy of its written analysis no later than 5 business days after the solicitation date, which the Department will post on its Web site at
www.dol.gov.
Language has been added providing that the failure to follow this requirement shall render any agency exemption decision inoperative and require the inclusion of the clause in Appendix A of the final rule in the solicitation and any resulting contract, subcontract, or purchase order, or class of contracts, subcontracts, or purchase orders.

In response to comments stating that notice of the exemption decision needs to be made at an earlier time than the contract award date for affected workers or their collective bargaining representatives to contest the decision with the agency, the Department has changed the time by which notice of the exemption decision must be provided from the award date to no later than five business days after the solicitation date. This change provides increased time for affected workers and their collective bargaining representatives to seek reconsideration of an exemption decision by the head of the contracting department or agency without burdening the agency with providing notice prior to the solicitation date, the date by which the decision must be made. The notification requirement should not be burdensome to fulfill because service contractors on Federal service contracts are already required to maintain, and make available for inspection and transcription, basic employment information concerning their employees, including their names and addresses.
See
29 CFR 4.6.

Section 9.4(d)(4) Factors and Analysis for Written Agency Determination

Section 9.4(d)(4) of the proposed rule provided that when exercising the authority to exempt contracts, the agency shall prepare a written analysis supporting the determination that application of the nondisplacement provisions would not serve the purposes of the Executive Order or would impair the ability of the Federal Government to procure services on an economical and efficient basis. A number of commenters addressed this issue. Before addressing those comments individually, the Department believes that it may be helpful to summarize both what an exemption determination accomplishes and why the wage and fringe benefit costs of the predecessor contractor are rarely germane to such a determination.

Executive Order 13495 and this final rule simply require a successor contractor and its subcontractors to offer a right of first refusal of employment on a successor contract to qualified service employees who are employed under the predecessor contract and whose employment would otherwise be terminated as a result of the award of the successor contract. When a contracting agency decides to exempt a contract from the Executive Order, that decision reflects a determination that none of the service employees on the predecessor contract should have a right to employment on the successor contract. A decision not to provide a single employee on the predecessor contract with a right to employment on the successor contract generally runs counter to the purpose of Executive Order 13495, which recognizes that the Federal Government's procurement interests in economy and efficiency are served when a successor contractor hires the predecessor's employees

Although an exemption decision can be expected to have a profound impact on whether the employees on a predecessor contract are discharged or retained, it would generally have little, if any impact on the successor's wage and fringe benefit costs. The Executive Order does not establish what wages or fringe benefits the successor employer pays any of its employees. Regardless of whether a contracting agency exempts a contract from the requirements of the Executive Order, SCA-mandated wage rates and fringe benefits still will apply to the successor contractor. An exemption determination simply determines who receives an offer of employment on the successor contract at whatever rate the contracting agency and/or the successor contractor choose (as long as that rate at least equals the applicable SCA rate). Given these realities, any focus at the exemption stage on wage rates or related cost-savings is misplaced.

As noted, the SCA establishes the minimum wage rates and fringe benefits to be paid to service employees on a contract for services. These minimum wage rates and fringe benefits can result from the SCA prevailing wage and fringe benefit rates or, under Section 4(c) of the SCA, the wages and fringe benefits that service employees would have been paid under any collective bargaining agreement that would have applied had the predecessor contractor retained the service contract. 47 U.S.C. 6707(c); 29 CFR 4.163(a). In either case, the SCA sets a floor for wage rates and fringe benefits, and, as noted, that floor will apply regardless of whether an agency exempts a contract from the requirements of the Executive Order. The SCA's wage requirements thus buttress the Department's view that, as noted above, wage and fringe benefit costs on successor service contracts could rarely serve as the basis for any agency to exercise its exemption authority.

Finally, it is important to understand that a contracting agency remains free to consider wage rates and fringe benefits at other stages of the contracting process when it would normally consider such costs. A contracting agency can, for example, consider wage rates and fringe benefit costs at the solicitation stage for purposes other than exercising exemption authority, provided that the agency's consideration of such costs is in accordance with the SCA and other applicable law. Similarly, bidders on service contracts may base their bids on the minimum wage rates and fringe benefits required by the SCA (including, where applicable, wage rates and fringe benefits required by section 4(c) of the SCA). A contracting agency also may consider wage rates and fringe benefit costs at the contract award stage, and may award the contract (if it so chooses and if the award is otherwise consistent with applicable law) to a prospective contractor whose bid reflects the payment of the minimum wage rates and fringe benefits required by the SCA. Thus, the decision to exempt a successor from the requirement to offer jobs to the predecessor's workforce does not interfere with the agency's ability to consider the costs, including the labor costs, of potential contractors. However, the fact that wage rates thus may change between contracts should not be used to

deprive service employees on the predecessor contract of any right to an offer of employment on the successor contract.

Turning to the specific comments received, the Chamber stated that the determination of relevant factors in the agency exemption analysis should be left to the discretion of the contracting agency because “[t]he contracting agency knows better than DOL what costs and other factors are most significant to a particular contract.” It found unclear the purpose of a written determination in light of its conclusion that there does not appear to be any right of appeal regarding the agency's decision.

The PSC stated that the contracting agency should be able to delegate its exemption authority to the Contracting Officer for use whenever it would be in the best interests of the government. It stated that the Contracting Officer is the government official best positioned to identify the government's needs and act in its best interests and that the delegation and less rigorous standard would “eliminate the stigma that a waiver can only be considered in rare circumstances or represents a failure to adhere to government policy.” It found that the proposed standard “suggests that the government must first conduct a highly-technical, objective market survey or analysis to determine whether services can be economically and efficiently obtained.” The PSC also stated that “collective poor performance of an incumbent labor staff or its resistance to change management” may not impair the government's ability to obtain services on an economical or efficient basis, but that in such circumstances the contract should be excludable because it may “prevent the government from obtaining the highest quality services.” Similarly, the HR Policy Association asked whether agency dissatisfaction with a predecessor contractor because of inefficient work or poor performance by service employees would provide a “sufficient justification for the contracting agency to exempt the contract or for the agency to authorize certain employees with performance issues” to be replaced. TechAmerica, an industry association representing the technology industry, requested that the Department consider an exception from the nondisplacement requirements when the predecessor contract has been terminated for default or cause.

A Navy Labor Advisor stated that the requirement of a written analysis supporting an agency's determination of exemption is “an unnecessary and unsupportable directive to the contracting agencies by DOL,” and requested that it be removed. An individual commenter stated that when an agency considers the cost of the nondisplacement requirements for a particular contract or class of contracts, it should also consider the savings to successor contractors derived from “a supply of qualified, experienced service employees.”

The AFL-CIO stated that agencies should only be permitted to exempt contracts based on non-cost factors, and not on anticipated labor cost savings, after making “a strong and affirmative showing that an exemption is required in order to provide an essential government service.” This commenter added that the need to provide an essential government service in emergency circumstances could provide an appropriate basis to exempt a service contract. For example, the government's ability to provide necessary services could be seriously impaired as a result of “a natural disaster, an act of war, or a terrorist attack [that] physically displaces incumbent employees from the geographic location in which they are employed, [making] it impossible for a successor contractor to reach such employees through any economically-reasonable efforts in order to extend the job offers required by the nondisplacement rule.”

The SEIU and Change to Win asserted that the agency exemption authority should be narrowly construed and that agencies should be required to substantiate the findings on which they base an exemption. These commenters further stated that an agency should exempt a contract only if the agency can present clear proof that application of the Executive Order to the contract would seriously impair the ability of the Federal Government to procure services, such as in circumstances where “the agency cannot procure the needed services if the Executive Order is applied.” They added that there should exist an “irrebuttable presumption that the Executive Order does not impair the ability of the Federal Government to procure services” where, in the past, a Federal service contract has involved the successor hiring all or most of the predecessor's workers, because it has been demonstrated that the agency is able to procure those services with a carryover workforce. Concerned that a broad application of the waiver authority could defeat the purpose of the Executive Order, the SEIU and Change to Win stated that the agency waiver provision of the Executive Order “could not have been meant to create a means by which agencies could easily exempt some or all of their service contracts.” Like the AFL-CIO, they asserted that anticipated labor cost savings, including the use of a workforce with less seniority, should never be an appropriate justification for an agency exemption.

As with other exemptions applicable to labor standards, the Department interprets the exemption authority of the agencies under Section 4 of the Executive Order to be narrow. The Executive Order states that the Federal Government's procurement interests in economy and efficiency are served when the successor contractor hires the predecessor's employees. This conclusion is predicated on the determination that a carryover workforce reduces disruption to the delivery of services during the period of transition between contractors and provides the Federal Government the benefits of an experienced and trained workforce that is familiar with the Federal Government's personnel, facilities, and requirements. Therefore, the Executive Order reflects a presumption that nondisplacement is in the interest of the Federal Government for each contract, class of contracts, subcontract, or purchase order, and the head of a contracting department or agency should only exercise exemption authority in those instances when the presumption can be clearly overcome based on a finding that nondisplacement would not serve the purposes of the Executive Order or would impair the ability of the Federal Government to procure services on an economical and efficient basis. The basis for such a finding must not be arbitrary and capricious. The regulations require a reasoned and transparent written analysis to support the decision to claim the exemption, because the Executive Order provides that it is normally in the government's interest to use a carryover workforce.

In the proposal, the Department specifically requested comments concerning proposed § 9.4(d) and what, if any, specific guidance the regulation should provide regarding the consideration of cost and other factors in exercising an agency's exemption authority, including guidance regarding what information should be included in the agency's written analysis supporting a decision to exercise exemption authority. For example, the Department sought comments on what costs would be most appropriately considered in determining whether application of the Executive Order's requirements would not serve the purposes of the Executive Order or would impair the ability of the Federal Government to procure services on an economical and efficient basis,

and how much weight should be given to such costs. Although the AFL-CIO and the SEIU and Change to Win responded concerning whether the regulation should restrict a contracting agency's ability to exercise the exemption based solely on a demonstration that the cost of the predecessor contractor's workers is greater than the cost of hiring new employees, no specific responses were received to other related inquiries, such as how an agency could project cost savings, whether a contracting agency should be prohibited from making projections based on how it believes a successor contractor may reconfigure the contract or wages to be paid, and what non-cost factors are most appropriately considered in determining whether application of the Executive Order's requirements would or would not serve the purposes of the Executive Order or impair the ability of the Federal Government to procure services on an economical and efficient basis, and how much weight should be given to such non-cost factors.

After careful consideration of the comments received, and based on the purposes of the Executive Order, the Department believes it is appropriate to add language to § 9.4(d)(4) explaining the framework and factors that may be used as well as what factors shall not be used, when conducting an analysis of relevant facts in order to make an exemption decision. Language has also been added to clarify that the failure to properly make such a written analysis shall render the exemption inoperative and require the inclusion of the clause in Appendix A of the final rule in the solicitation and any resulting contract, subcontract, or purchase order, or class of contracts, subcontracts, or purchase orders.

An agency determination that the nondisplacement requirements would not serve the purpose of the Executive Order, or would impair the ability of the Federal Government to procure the services on an economical and efficient basis, must be supported with a detailed written analysis. Such a written analysis, among other things, shall compare the anticipated outcomes of hiring predecessor contract employees against those of hiring a new workforce. The consideration of costs and other factors should reflect the basic finding in the Executive Order that the government's procurement interests in economy and efficiency are normally served when the successor contractor hires the predecessor's employees, and should demonstrate how, in the particular factual circumstances, the finding does not apply. As discussed earlier, because the Executive Order simply requires the successor to offer a job to the predecessor's employees, and because of the minimum wage and fringe benefit rates applicable to employees that are independently established by the requirements of the SCA, the contracting agency's exemption decision should rarely take wage and fringe benefit rates into account. Therefore, a contracting agency's decision to exercise the exemption should rarely be based on a demonstration that the wages and fringe benefits paid to the predecessor contractor's workers are in some manner greater than the wages and fringe benefits to be paid to new employees. Instead, the written analysis typically must demonstrate that the cost savings other than wages and fringe benefits clearly outweigh the benefits of retaining the predecessor's workers under the criteria provided in Section 4 of the Executive Order.

As for factors other than cost, the Executive Order presumes that “a carryover work force reduces disruption to the delivery of services during the period of transition between contractors and provides the Federal Government the benefits of an experienced and trained work force that is familiar with the Federal Government's personnel, facilities, and requirements.” In order for an agency to exempt itself from the requirements of the Executive Order, an agency must overcome this presumption by demonstrating why use of the carryover workforce would not be beneficial and would be inconsistent with economy and efficiency. When analyzing whether the application of the Executive Order's requirements would not serve the purpose of the Order and would impair the ability of the Federal Government to procure services on an economical and efficient basis, the head of a contracting department or agency shall consider the specific circumstances associated with the services to be acquired. General assertions or presumptions of an inability to procure services on an economical and efficient basis using a carryover workforce shall be insufficient. Factors that may be considered include, but are not limited to, the following:

• Whether the use of a carryover workforce would greatly increase disruption to the delivery of services, such as during the transition period between contracts, and in its entirety would not yield an experienced and trained workforce that is familiar with the Federal Government's personnel, facilities, and requirements as pertinent to the contract, subcontract, purchase order, class of contracts, subcontracts, or purchase orders at issue and would require extensive training to learn new technology or processes that would not be required of a new workforce.

• Emergency situations, such as a natural disaster or an act of war, that physically displace incumbent employees from the locations of the service contract work and make it impossible or impracticable to extend offers to hire as required by the Order.

With respect to the job performance of the predecessor contractor's workforce, a contract, subcontract or purchase order may be exempted under Section 4 of the Order if the head of the contracting department or agency reasonably believes, based on the predecessor employees' past performance, that the entire predecessor workforce failed, individually as well as collectively, to perform suitably on the job and that it is not in the interest of economy and efficiency to provide supplemental training to the predecessor's workers. Under those circumstances, it would be futile to require the successor contractor to evaluate the predecessor service employees on an individualized basis, as provided in § 9.12 of the final rule, to determine whether they had performed suitably on the job. A reasonable belief that some subset of the predecessor's service employees failed to perform suitably on the job, standing alone, would not satisfy the exemption standards of Section 4 of the Executive Order because it would not serve the government's procurement interests in economy and efficiency to exercise exemption authority when the predecessor's workforce contains qualified service employees who are familiar with the contracting agency's personnel, facilities, and requirements. Similarly, the termination of a service contract for default, standing alone, would not satisfy the exemption standards of Section 4 of the Executive Order. Such defaults, as well as other performance problems not leading to default, may result from poor management decisions of the predecessor contractor that have been addressed by awarding the contract to another entity, and that do not warrant the exercise of exemption authority, even when such management decisions have negatively affected the overall performance of the workforce.

A head of the contracting department or agency that makes a reasonable determination that an entire predecessor contractor's workforce failed to perform suitably on the job must demonstrate that his or her belief is reasonable and is based upon credible information that

has been provided by a knowledgeable source such as department or agency officials responsible for monitoring performance under the contract. Absent an ability to demonstrate that this belief is based upon written credible information provided by such a knowledgeable source, the employees working under the predecessor contract in the last month of performance will be presumed to have performed suitable work on the contract. The head of a contracting agency or department may demonstrate a reasonable belief that an entire workforce, in fact, failed to perform suitably on the predecessor contract through written evidence that all of the employees, collectively and individually, did not perform suitably. Information regarding the general performance of the predecessor contractor is not sufficient to claim the exception. It is also unlikely that the agency will be able to make this showing where the predecessor employed a large workforce.

Narrowly circumscribing an agency's ability to exempt a contract, subcontract, or purchase order from the requirements of the Executive Order based on poor performance of the predecessor contractor's workforce is consistent with the Section 5(b)(3) of the Executive Order, which expressly contemplates evaluating employee performance on an individual basis. It also ensures that an agency will not claim the exemption based on deficiencies of the predecessor contractor, even when those deficiencies have negatively affected the quality of the predecessor contractor's workforce.

Further, we agree with the SEIU and Change to Win that the seniority of the workforce is an inappropriate and irrelevant consideration for exercising an exemption.

Finally, a contracting agency should not base an exemption determination on inherently speculative assessments of how a successor contractor might reconfigure contract work. Since a contractor may consider the size of its workforce and the job classifications that are needed in the course of determining which employees of the predecessor contractor should receive an offer of employment, the agency's interest in economy and efficiency can be preserved without having to exempt an entire contract or class of contracts from the requirements of the Executive Order.

As discussed, the successor's wage and fringe benefit costs on an aggregate basis do not generally depend on whether its employees come from the predecessor's workforce, and thus are not a permissible basis for an agency exemption decision, absent exceptional circumstances. This is consistent with the presumption in the Executive Order that the Federal Government's procurement interests in economy and efficiency are served when the successor contractor hires the predecessor's employees. Moreover, except with respect to the nondisplacement obligation, the Executive Order does not preclude contracting agencies from considering aggregate wage and fringe benefit costs at the solicitation and award stages. For example, a contracting agency may reconfigure a contract at the solicitation stage in order to reduce costs (including aggregate wage and fringe benefit costs) by, for example, consolidating sites of performance, and it may also consider bidders' calculations of aggregate wage and fringe benefit costs in making contract awards as well. To consider such costs in connection with an exemption decision, however, would mean that service employees on the predecessor contract would have no right of first refusal of employment on such a reconfigured or lower-cost successor contract. Such an outcome would be neither consistent with the presumptions and findings of the Executive Order nor be necessary to ensure that contracting agencies have sufficient flexibility to consider the full range of potential costs at the solicitation and award stages.

Of course, there may be exceptional circumstances in which a contracting agency could consider wage and fringe benefit costs in exercising its exemption authority. As noted, a contracting agency could exercise its exemption authority in emergency situations, such as a natural disaster or an act of war, that physically displace incumbent employees from the locations of the service contract work and make it impossible or impracticable to extend offers to hire as required by the Order. It could also exercise its exemption authority when a carryover workforce in its entirety would not constitute an experienced and trained workforce that is familiar with the Federal Government's personnel, facilities, and requirements but rather would require extensive training to learn new technology or processes that would not be required of a new workforce. In each of these two scenarios—in which exigent circumstances may make the use of a carryover workforce prohibitively expensive—a contracting agency could consider wage and fringe benefit costs in deciding whether to exercise its exemption authority. There may be other, similar circumstances in which the cost of employing a carryover workforce on the successor contract would be prohibitive, and wage and fringe benefit costs could be considered in such circumstances, as well. Absent such truly exceptional circumstances, however, a contracting agency may not consider wage and fringe benefit costs in making an exemption decision for the reasons described above.

The Department did not change the regulations to provide for an “irrebuttable presumption that the Executive Order does not impair the ability of the Federal Government to procure services” under a service contract where, in the past, the contract has involved the successor hiring all or most of the predecessor's workers, as requested by the SEIU and Change to Win. Circumstances surrounding service contracts can change. The Department concludes that such a provision would exceed the standard in Section 4 of the Executive Order.

Language has been added to § 9.4 stating that the written analysis shall be prepared no later than the solicitation date and retained in accordance with FAR 4.805. 48 CFR 4.805. This addition is intended to clarify that the written analysis and the exemption determination are to be made contemporaneously, and that the written analysis is to be retained and made available for disclosure in a manner consistent with the President's commitment to openness and transparency in government.

Section 9.4(d)(5) Reconsideration of Exemption Decisions

Three commenters addressed the issue of whether agency decisions to exempt contracts are subject to challenge or review. Both the Chamber and the SEIU and Change to Win noted that the proposed regulations do not provide for any review of an agency decision to exempt a contract, subcontract or purchase order from coverage of the Executive Order. The SEIU and Change to Win and the AFL-CIO asserted that exemption decisions should be reviewable by and appealable to the Secretary of Labor. The SEIU and Change to Win believe that some oversight is necessary to ensure that an agency exemption is in full compliance with the Executive Order; otherwise, “the Secretary would be abdicating her responsibility” to ensure compliance with the Executive Order and, by allowing agencies to exempt contacts without some form of external review, would be warranting “a breach of fundamental due process.” They suggested an administrative process

through which interested parties could challenge, and the Department of Labor could review, an agency's exemption decision. The AFL-CIO requested that the final rule require administrative review and Departmental approval of an agency's contract exemption decision in advance of the contract solicitation date.

After careful consideration, the Department has decided not to add provisions for Departmental review of agency exemption decisions because it is the Department's view that the Executive Order does not provide for such review. The Department's final rule is intended to ensure that agencies exercise exemption authority appropriately based on proper consideration of the relevant factors. Such safeguards, rather than Departmental review, are designed to ensure that agencies do not exempt contracts from the nondisplacement protections of the Executive Order in an arbitrary or capricious manner. However, the Department has added language stating that any requests for reconsideration of an exemption decision shall be directed to the head of the relevant contracting department or agency. Such reconsiderations would, of course, be final agency actions appealable in accordance with the Administrative Procedure Act, 5 U.S.C. 701-06.

Contracts Involving the Marine Industry

Finally, the Marine Engineers Beneficial Association (MEBA) requested that the final rule exempt service contracts involving U.S. Coast Guard Licensed Officers because application of the nondisplacement requirements would allegedly disrupt longstanding hiring practices in the maritime industry. Similarly, the AMA and the Seafarers International Union (SIU) requested that the final rule exempt the maritime industry because application of the Executive Order would “over-ride and cancel long-established industry collectively bargained obligations and practices and frustrate, rather than further, the underlying goals of that Order.” After consideration, the Department has decided not to add a provision exempting service contracts involving U.S. Coast Guard Licensed Officers specifically or the maritime industry in general because the Executive Order does not provide the Secretary with such authority.

In addition, the Department believes that the provisions governing exemption authority, as presently drafted, suffice to address the concerns raised by the MEBA, the AMA, and the SIU.

Subpart B—Requirements

Proposed subpart B established the requirements that contracting agencies and contractors shall undertake to comply with the nondisplacement provisions.

Section 9.11 Contracting Agency Requirements

Proposed § 9.11(a) provided the regulatory requirement to incorporate the contract clause specified in Appendix A in covered service contracts, and solicitations for such contracts, that succeed contracts for performance of the same or similar services at the same location. Appendix A of the proposed rule established the employee nondisplacement contract clause to implement Section 5 of Executive Order 13495. 74 FR 6105 (Feb. 4, 2009). Paragraph (e) of proposed Appendix A required the contractor to include, in every subcontract entered into in order to perform services under the prime contract, provisions to ensure that each subcontractor honors the requirements of paragraphs (a) through (b) of the employee nondisplacement contract clause with respect to the employees of a predecessor subcontractor or subcontractors working under the contract, as well as employees of a predecessor contractor and its subcontractors. Under proposed Appendix A, the subcontract must also include provisions ensuring that the subcontractor will provide the contractor with the information about the employees of the subcontractor needed by the contractor to comply with paragraph (c) of the employee nondisplacement clause. Paragraph (d) of proposed Appendix A concerned sanctions and remedies for noncompliance with the nondisplacement contract clause. Proposed Appendix A also set forth additional provisions necessary to implement the Order. With the exception of a provision that addressed recordkeeping, similar contract clause provisions appeared in the earlier version of part 9.
See
62 FR 28188 (May 22, 1997). The additional provisions would appear in paragraphs (f) through (i) of the nondisplacement contract clause. Specifically, proposed paragraph (f) provided notice that under certain circumstances the Contracting Officer will withhold, or cause to be withheld, from the prime contractor funds otherwise due under the subject contract or any other Government contract with the same prime contractor for violations of the Executive Order or these regulations. Paragraph (g) of Appendix A required the contractor to maintain certain records to demonstrate compliance with the substantive requirements of part 9, and specified the records to be maintained. Paragraph (h) required the contractor, as a condition of the contract award, to cooperate in any investigation by the contracting agency or the Department into possible violations of the provisions of the nondisplacement clause and to make records requested by such official(s) available for inspection, copying, or transcription upon request. Paragraph (i) provided that disputes concerning the requirements of the nondisplacement clause would not be subject to the general disputes clause of the contract. Instead, such disputes are to be resolved in accordance with the procedures in part 9.

The Department received three comments on the contract clause provision. The PSC commented that it was concerned that if the Department and the FARC contract clauses are not identical then it would prevent efficient administration of the Executive Order. The PSC recommended that the Department not include the contract clause proposed at Appendix A, but instead, explicitly incorporate by reference the mandatory contract clause promulgated in the FAR. The PSC also stated that the final rule should include a provision similar to that found in the SCA regulations at 29 CFR 4.5(c) indicating that when a contract is not initially considered to be covered by the SCA but is later determined to be, in fact, SCA-covered that the Contracting Officer unilaterally modify the contract to include the relevant SCA clause and wage determination. The PSC commented that a similar provision should be included in part 9 to ensure the incumbent contractor's obligation to timely deliver to the Contracting Officer a list of service employees performing on the contract. The Chamber commented that a “safe harbor” provision is necessary for circumstances where the contracting agency erroneously failed to include the nondisplacement contract clause in a contract. It asserted that retroactive application of the clause during the course of the contract would result in “chaos or significant liability.” The Chamber stated that if contract performance had begun with non-predecessor contractor employees, the successor contractor would be required to terminate its workforce in sufficient numbers to accommodate any qualified workers or pay back wages to workers who were denied their right to an offer of employment. The Chamber also argued that a contracting agency's

determination that a contract is not subject to the provisions of the Executive Order because it is not for the same or similar service, or for any other reason, should be dispositive for the duration of the contract.

The Small Business Administration, Office of Advocacy (SBA) sought clarification concerning the effect compliance with the proposed rule would have on non-unionized successor contractors. Specifically, it asked whether a successor contractor who hires a predecessor contractor's employees under Executive Order 13495 will be deemed a successor to the predecessor's collective bargaining agreement under the NLRA, 29 U.S.C. 151-169. It also suggested that the Department disclose in contract bidding materials whether or not the predecessor contractor has a collective bargaining agreement and whether it is a union shop. The SHRM also inquired about the possible interaction of the proposed rule with the NLRA.

In response to the PSC's comments, the Department notes that the Executive Order requires the FARC and the Department to consult in regards to drafting regulations that are required for implementation of the Order. The Department has consulted with the FARC and will continue to work with the FARC to promote consistency in the regulations.

The Department understands the concern raised by the Chamber; however, we believe that inclusion of a “safe harbor” provision in the regulation would be inappropriate and would exceed the Secretary's authority under the Executive Order. The Department also notes that a mandatory contract clause expressing a “significant or deeply ingrained strand of public procurement policy,” such as the clause mandated by Executive Order 13495 and its implementing regulations, “is considered to be included in a contract by operation of law.”
S.J. Amoroso Constr. Co. Inc.,
v.
United States,
12 F.3d 1072, 1075 (Fed. Cir. 1993);
see also

Office of Federal Contract Compliance Programs, United States Dep't of Labor
v.
UPMC Braddock, UPMC McKeesport, and UPMC Southside,
Case No. 08-048, 2009 WL 1542298, at *3 (Admin. Rev. Bd. May 29, 2009). Therefore, the Department concludes that it is not necessary to include a provision in the final rule mirroring 29 CFR 4.5(c), as suggested by the PSC, in order to require the Contracting Officer to modify such a contract by adding the clause required by Executive Order 13495 and the final rule. However, where the provisions of the Executive Order were incorrectly omitted from a contract or a contract solicitation, the Department shall, consistent with the Executive Order, employ informal alternative dispute resolution to remedy the situation and may require the retroactive application of the nondisplacement requirements of the Executive Order and its implementing regulations. Additionally, in those instances where the Department is notified of the potential misapplication, of the contract clauses (such as the improper inclusion or omission of those clauses) prior to contract award, the Department will notify the contracting agency and provide advice concerning how to revise the solicitation. In response to comments, the Department added paragraph (f)(1) to Appendix A to require the predecessor contractor to provide a certified seniority list to the Contracting Officer not less than 30 days before completion of the contract. Where changes to the workforce are made after the submission of the list provided 30 days before completion of the contract, the predecessor contractor shall furnish an updated certified list to the Contracting Officer not less than 10 days before completion of the contract.
See
§ 9.12(e) for further discussion of this change to the contract clause. Proposed paragraph (f) has been renumbered as (f)(2).

Concerning the possible effect of the final rule on an employer's obligations under the NLRA, it is the Department's conclusion that any statement about the potential interplay between the nondisplacement provisions of this final rule and the NLRA would exceed Departmental authority; the Department does not administer or enforce the NLRA and the NLRB has not ruled on whether a successor contractor under these or similar circumstances would also be a successor in interest for NLRA purposes. The Department declines the SBA's suggestion that the Department supplement the bidding materials of contracting agencies with information concerning whether the predecessor has a collective bargaining agreement and a unionized workforce; such action would exceed the Department's responsibilities under Executive Order 13495. When a collective bargaining agreement governs the wage rates and fringe benefits of service employees employed on the predecessor contract, the provisions of section 4(c) of the SCA require the successor contractor to pay no less than the predecessor's contractor's collective bargaining agreement rates.

Proposed § 9.11(b) specified that contracting agencies must provide notice to incumbent service employees when the contract on which they are employed will be awarded to a successor contractor. Under the proposed language in Appendix B, the Contracting Officer shall provide written notice to such service employees of their possible right to an offer of employment by either posting a notice in a conspicuous place at the worksite or delivering it to the employees individually. Under the proposal, where a significant portion of the incumbent contractor's workforce is not fluent in English, the notice shall be provided in both English and the language with which the employees are more familiar. The Department would translate the notice into several foreign languages and make the English and foreign language versions available in a poster format to contracting agencies via the Internet in order to allow easy access; however, another format with the same information may be used. Multiple foreign language notices would be required where significant portions of the workforce speak different foreign languages and there is no common language. If, for example, a significant portion of a workforce spoke Korean and another significant portion of the same workforce spoke Spanish, then the contracting agency would need to provide the information in English, Korean, and Spanish. Under those circumstances, providing the information only in English and Korean typically would not provide the notice in a language with which the Spanish speakers are more familiar than English.

Proposed § 9.11(b) did not provide for notice through electronic communications; instead, the Department sought comments as to whether allowing contracting agencies an electronic notification option, in lieu of physical posting or providing a paper copy to the worker, will provide the agencies greater flexibility and efficiency without sacrificing the quality of the information provided to workers, especially when contract work is performed at a location that is remote from procurement staff.

The Department received several comments on the notification requirements in proposed § 9.11(b). The U.S. Air Force Installations & Sourcing Division stated that because the Contracting Officer has no contact information for contractor employees, and because the contract clause already puts the contractor on notice regarding its responsibilities with respect to nondisplacement, the requirements for agency contracting personnel to notify employees and the contractor of their rights and responsibilities are burdensome and redundant.

A Navy Labor Advisor commented that requiring the successor contractor to distribute the notices would result in a collection of Personal Identifiable Information (PII) in the form of employee mailing and email addresses. He suggested that because the contracting agency has a direct relationship with only the prime contractor, the requirement for direct notice to the employees should be placed upon the prime contractor. Furthermore, this commenter expressed the concern that contracting agency acquisition personnel are already overburdened and that, “regardless of the good and honorable intentions of contracting agency acquisition officials, the notice requirements will likely
not
get accomplished routinely as currently written into the Part 9 regulations.” However, if the requirement to provide the notice remains with the contracting agency, he added, the contracting agency should be allowed to distribute the notice via a general electronic posting, since service employees often work in facilities not controlled by the contracting agency. The AFL-CIO commented that providing electronic notification to employees is reasonable, assuming the agency has determined that the workforce has the ability to receive the e-mail. This commenter added that the agency should also be required to physically post a copy of the notice at the job site. The PSC stated that e-mail notification would encourage compliance with the proposed rule; however, such e-mail notification would only be sufficient when employees hold e-mail accounts maintained by the predecessor contractor or government.

Concerning the proposed requirement that notice be provided in English and, when appropriate, in other languages, the HR Policy Association suggested that the final rule clarify what constitutes a “significant” portion of the workforce in terms of how many employees speak a language other than English, as the notification requirement would put a burden on the successor contractor if it would have to create notices and new offer letters in multiple languages if it was determined that a significant portion of its workforce spoke a language other than English. A Navy Labor Advisor, along with the U.S. Air Force Installations and Sourcing Division, also stated that because the incumbent contractor knows best the languages of its employees, it should be responsible for distributing notices.

It remains the Department's view that notifying service employees of their possible right to an offer of employment is an effective means by which to ensure compliance with the Executive Order. However, we do agree with the aforementioned commenters that the obligation to provide the notice should rest with the contractor, and not the contracting agency. Section 9.11(b) has been revised to reflect that the “Contracting Officer will ensure that the predecessor contractor provide written notice to service employees of the predecessor contractor of their possible right to an offer of employment” and that “Contracting Officers may advise contractors to provide the notice set forth in Appendix B * * *” This is consistent with “existing” contractor obligations under the SCA with regards to providing notice of compensation through posting “or the delivery” of the applicable wage determination, and SCA poster. 29 CFR 4.183, 4.184. Therefore, the Department believes that placement of this obligation with the contractor is appropriate and best accomplishes the goal of employee notification.

Concerning providing notice through the use of electronic communications, the Department has decided, after careful consideration of the comments, to allow contractors to distribute the notices through the use of effective electronic communications. The Department has added language to the rule allowing contractors to use an effective electronic mail communication, and describing effective electronic communication. To be effective, such a communication must result in an electronic delivery receipt or some other reliable confirmation that the intended recipient received the notice. Any particular determination of the adequacy of a notification, regardless of the method used, must be fact-dependent and made on a case-by-case basis. The Department recognizes that reliance on electronic communication will increase in the future and often may provide an inexpensive and reliable way to communicate information quickly. For example, using electronic mail may be the most effective method to notify service employees who work in facilities not controlled by the contractor. The Department disagrees with the PSC that sufficient e-mail notification would require employees to have email accounts maintained by the predecessor contractor or the government. Additionally, the Department declines to implement the suggestion from the Navy Labor Advisor that contracting agencies be allowed to distribute the notice via a general electronic posting. The Department believes that providing for individual electronic notices to workers will result in the affected workers receiving the notice and appropriately addresses the concern of providing notice to service employees.

Concerning the proposed requirement that the notice be provided in English and in other languages, as appropriate, the Department notes that this requirement is similar to regulatory requirements implementing other DOL-administered and enforced statutes, such as the Family and Medical Leave Act, the H-2A provisions of the Immigration and Nationality Act, the Migrant and Seasonal Agricultural Worker Protection Act, and Executive Order 13496, Notification of Employee Rights Under Federal Labor Laws. The term “significant portion” has not been defined under these other regulations, and the lack of a definition or bright-line test has not prevented employers from complying with the requirement. For these reasons, the term is not defined in the final rule. If there is a question of whether a portion of the workforce is significant and the Department has a poster in the language common to those workers, the notice should be posted in that language.

Proposed § 9.11(c) requires the Contracting Officer to provide the list of employees employed by the predecessor contractor, referenced in proposed § 9.12(e), to the successor contractor and, on request, to employees or their representatives. A Navy Labor Advisor suggested that two lists be required: an alphabetical list, provided long before the end of the predecessor contract and used to comply with the Executive Order, and a list organized by date of hire, provided at the beginning of contract performance and used for compliance with SCA-mandated wage and fringe benefit terms. This commenter asserted that the use of two separate lists would protect more senior employees from discrimination by concealing their seniority during the transition process. The Department's consideration of this comment can be found in the discussion of proposed § 9.12(e). No other comments were received on this provision and the final rule implements this paragraph as proposed.

Proposed § 9.11(d) addressed Contracting Officers' responsibilities regarding complaints of alleged violations of part 9. As under the prior version of part 9, the proposed rule provided that contracting agencies would initially receive complaints of alleged violations of the nondisplacement requirements and, in a compliance assistance mode, provide information to the complainant and

contractor about their rights and responsibilities under the employee nondisplacement provision of the contract.

Under the proposed rule, contracting agencies would not be obligated to forward to the Wage and Hour Division (WHD) any complaint that is withdrawn because of this compliance assistance. Thus, for example, a Contracting Officer would not need to forward to the WHD a complaint that an employee withdraws because the employee was previously not aware of the application of a particular exclusion. In all other cases, the contracting agency would forward certain information necessary for the Department to determine compliance. Under the proposal, the Contracting Officer, within 30 days of receipt of a complaint, would forward to the WHD headquarters any allegations of any violation of this part; available statements by the employee or the contractor regarding the alleged violation; evidence that a seniority list was issued by the predecessor and provided to the successor; a copy of the seniority list; evidence that the nondisplacement contract clause was included in the contract or that the contract was exempted by the agency; information concerning known settlement negotiations between the parties (if applicable); and other pertinent information the Contracting Officer chooses to disclose. The proposal also required the Contracting Officer to provide copies of the information to the successor contractor and the complainant. To assist the contracting agency in providing information to the WHD and to protect the interests of the contracting agency, the proposal provided for the contracting agency to conduct an initial review of any nondisplacement complaint, including obtaining statements of the positions of the parties and inspecting the records of the predecessor and successor contractors (and making copies or transcriptions thereof); questioning the predecessor and successor contractors and any employees of these contractors; and requiring the production of any documentary or other evidence deemed relevant to determine whether a violation of this part had occurred. Contracting agencies would be obligated to refer questions of interpretations regarding part 9 to the nearest WHD local office.

The Department received few comments on this provision. The SEIU and Change to Win as well as the AFL-CIO both commented that the 30-day period for the contracting agency to forward complaints to the WHD constituted an appropriate amount of time in order for complaints to be handled expeditiously. A Navy Labor Advisor requested the elimination of the entire provision, suggesting that WHD handle all complaints. This commenter claimed that “there is no basis for involving the contracting agency in the receipt or resolution of complaints.” In addition, contracting officers from Federal agencies represented on the FARC expressed their concerns with the implementation of this proposed requirement. After careful consideration of these comments, the Department has revised § 9.11(d) to limit the Contracting Officer's responsibilities with regard to handling complaints. The Contracting Officer is no longer responsible for initial review of or compliance assistance with complaints. Instead, the Contracting Officer shall be responsible for reporting information to the WHD within 14 days of WHD's request. Because the contracting agency no longer has the responsibility of reviewing complaints, the Department believes 14 days is an appropriate timeframe within which to require production of information necessary to evaluate the complaint. Further consideration of this comment can be found in the discussion of § 9.21(a).

Section 9.12 Contractor Requirements and Prerogatives

General

Proposed § 9.12 articulated contractors' requirements and prerogatives under the nondisplacement requirements. The proposed section included the general obligation to offer employment, the method of the job offer, exceptions, permitted staffing reductions, obligations near the end of the contract, recordkeeping, and obligations to cooperate with reviews and investigations.

Proposed § (a)(1) of this section implemented the Executive Order requirement that no employment openings may be posted before the successor contractor has offered employment to the employees on the predecessor contract. Under the proposed rule, except as provided under the exclusions listed in proposed § 9.4 and the exceptions in proposed § 9.12 paragraphs (c) and (d), a successor contractor or subcontractor could not fill any employment openings under the contract prior to making bona fide, express offers of employment, in positions for which the employees are qualified, to those employees employed under the predecessor contract whose employment would be terminated as a result of award or expiration of the contract under which they were hired. Except as provided under the aforementioned exclusions and exceptions, all employees working on the contract at the time of contract completion, regardless of length of tenure, would be entitled to such an offer. The successor contractor and its subcontractors would be required to make a bona fide, express offer of employment to each employee and state the time within which the employee must accept such offer, but in no case would the period within which the employee must accept the offer of employment be less than 10 days.

The HR Policy Association suggested that the final rule should permit a successor contractor to post and offer positions to non-predecessor employees within the same time frame—at least 10 days—during which the successor contractor offers positions to predecessor employees, in case the predecessor employees do not accept the job offers. The HR Policy Association also commented that proposed § 9.12(a)(1) implied that if an employee was laid off because, for instance, the successor contract has fewer positions in a particular job, the successor contractor must permit the otherwise displaced employee to be offered other positions for which he or she is arguably minimally qualified, including jobs he or she never performed before. This commenter recommended that the final rule clarify that the right of first refusal exists for predecessor employees who would perform the same job with the successor employer. The SEIU and Change to Win commented that proposed § 9.12(a)(1) did not specify the manner in which such offers should be made.

The Department disagrees with the HR Policy Association's assertion to the extent that it suggests that the successor contractor would be required to offer a position to an employee who is not qualified for the position. Proposed § 9.12(b)(4) described the criteria by which a successor contractor can determine whether an employee is qualified for the position, based upon the employee's education and employment history, with particular emphasis on the employee's experience on the predecessor contract, and the Department believes this section provides appropriate guidance to successor contractors for determining whether a particular employee is qualified. The Department also disagrees with this commenter's suggested revision to allow the successor contractor to make contingent offers of employment to non-predecessor employees in the period

during which predecessor employees are considering the successor's offer. The Department notes that the HR Policy Association's suggestions to provide contingent offers to non-predecessor employees would be contrary to the express language of the Executive Order.

Proposed § 9.12(a)(2) clarified that the successor contractor's obligation to offer a right of first refusal exists even if the successor contractor was not provided a list of the predecessor contractor's employees or the list did not contain the names of all persons employed during the final month of contract performance. The Navy Labor Advisor suggested that this requirement should be eliminated entirely, asserting that the successor contractor would have no reason to know, in the absence of a seniority list, to whom it is legally required to offer employment. He also suggested that responsibility should be placed upon the predecessor contractor to provide an accurate seniority list or other information on a timely basis rather than to place what he characterized as unreasonable demands upon the successor contractor and/or the contracting agency. The SBA Office of Advocacy also commented that if a list of employees is not provided by the predecessor contractor, then the successor contractor may incur costs in trying to determine to which employees it is supposed to extend job offers. An individual commenter recommended that if the predecessor contractor fails to provide a list of incumbent employees, then “the successor contractor [should] be permitted to offer probationary employment to incoming employees, with the understanding that employment may be revoked upon a good faith finding that the employee was not previously employed.” The PSC also expressed concern about a predecessor contractor failing to furnish a list of employees, and suggested that the Contracting Officer should have the authority to allocate remedies to the responsible party in an effort to encourage compliance and allocate risks of non-compliance.

After carefully considering the comments, the Department has decided to adopt the proposed language without change. The Department notes that meeting the requirement to make an offer of employment should not be burdensome because the predecessor contractor may use the list submitted to satisfy the requirements of the SCA contract clause specified at 29 CFR 4.6(l)(2) to meet its list submission requirement under part 9. In those instances where the list is not provided or is incomplete, the Department disagrees that the nondisplacement requirements should be extinguished or altered. While sympathetic to the successor contractor's needs in such circumstances, the Department concludes that waiving the predecessor employees' right of first refusal of employment is not consistent with the Executive Order. Furthermore, the Department is not authorized under the Executive Order to make such an exception. The Department also does not agree that a successor contractor should be permitted to offer probationary employment.

Proposed § 9.12(a)(3) discussed determining the employee's eligibility for the job offer and provided related guidance. While a person's eligibility for a job offer usually would be based on whether his or her name is included on the certified list of all service employees working under the predecessor's contract or subcontracts during the last month of contract performance, a successor contractor would also be required to accept other credible evidence of an employee's entitlement to a job offer. For example, even if a person's name does not appear on the list of employees on the predecessor contract, an employee's assertion of an assignment to work on a contract during the predecessor's last month of performance, coupled with contracting agency staff verification, could constitute credible evidence of an employee's entitlement to a job offer. Similarly, an employee could demonstrate eligibility by producing a paycheck stub identifying the work location and dates worked for the predecessor. The successor could verify the claim with the contracting agency, the predecessor, or another person who worked at the facility.

The Chamber asserted that the presumption that all employees on the seniority list are entitled to a right of first refusal should be reciprocal, so that the successor contractor could presume that only those employees identified on the seniority list are entitled to a right of first refusal. A Navy Labor Advisor requested that the Department provide additional examples of proof of credible evidence of entitlement to a job offer, while SEIU and Change to Win recommended that the regulations make clear that the submission of any evidence of employment is acceptable as long as such evidence is credible.

The Department disagrees with the Chamber's suggestion that only those employees whose names appear on the seniority list should be entitled to an offer of employment under the Executive Order. To deny an employee an offer because of a failure of the predecessor contractor to meet its obligations under the Executive Order would unfairly disadvantage the employee. The final rule adopts the proposed language without change.

Section 9.12(b) Method of Job Offer

Proposed § 9.12(b) discussed the method of the job offer. Proposed § 9.12(b)(1) stated that except as otherwise provided in part 9, a contractor must make a bona fide express offer of employment to each employee on the predecessor contract before offering employment on the contract to any other person. The obligation to offer employment would cease upon the employee's first refusal of a bona fide, express offer to employment on the contract. Proposed § 9.12(b)(2) provided that the contractor shall state the time period within which the employee must accept the employment offer, but in no case may that time period be less than 10 days. Proposed § 9.12(b)(3) required the successor contractor to make an oral or written employment offer to each employee, and, in order to ensure that the offer is effectively communicated, to take reasonable efforts to make the offer in a language that each worker understands.

Proposed § 9.12(b)(4) clarified that the employment offer may be for a different position on the contract than the position the employee held on the previous contract. An offer of employment on the successor's contract would generally be presumed to be a bona fide offer of employment even if it was not for a position similar to the one the employee previously held, provided that the position was one for which the employee was qualified. Questions concerning an employee's qualifications would be decided based upon the employee's education and employment history with particular emphasis on the employee's experience on the predecessor contract. A successor contractor would have to base its decision regarding an employee's qualifications on credible information provided by a knowledgeable source such as the predecessor contractor, the local supervisor, the employee, or the contracting agency. For example, an oral or written outline of job duties or skills used in prior employment, school transcripts, or copies of certificates and diplomas all would be credible information. Under proposed § 9.12(b)(5), the offer of employment could be for a position providing different terms and conditions of employment than those that applied to the employee's work for the predecessor contractor, where the different terms

and conditions are not related to a desire that the employee refuse the offer or that other employees be hired. Lastly, proposed § 9.12(b)(6) provided that, where an employee is terminated under circumstances suggesting the offer of employment may not have been bona fide, the facts and circumstances of the offer and the termination will be closely examined to ensure the offer was bona fide.

Many of the comments received on proposed § 9.12(b) expressed concern with the timing of required actions, particularly the time frame between the successor contractor's receipt of the list of the predecessor contractor's employees (seniority list) from the contracting agency, the timeframe within which employees must respond to an offer of employment, and the start date of the contract. This issue is discussed in greater detail with respect to proposed § 9.12(e).

CAE USA, Inc. commented that there is a possibility that positions will be unfilled at the start of the contract, since the obligatory offer of employment to the predecessor contractor employee has a deadline for acceptance on or after the contract start date. A Navy Labor Advisor commented that this section must be supplemented with additional information because it fails to address predecessor contractor employees that may, in fact, refuse a bona fide employment offer. This commenter also suggested that the Department include the full description of how determinations of qualification would be made in the text of the final rule. TechAmerica suggested that successor contractors be given the flexibility to review the qualifications of incumbent personnel before those employees are offered employment. The HR Policy Association, the Chamber, and TechAmerica commented concerning hiring practices, stating that the final rule should identify whether the application of the successor contractor's “higher standards for employment” or “normal hiring validation processes” (e.g., requiring passing a drug test as a condition of employment) would be permissible in determining whether an employee is qualified. The SBA Office of Advocacy sought clarification on whether successor contractors can vet the predecessor employees through means such as, but not limited to, interviews, drug tests, and security tests.

The AFL-CIO commented that the final rule should require all employment offers by successor contractors to be made in writing in order to reduce disputes about whether offers were made and whether they were bona fide. This commenter added that having the offer in writing would be particularly helpful for workers who are not fluent in English. The SEIU and Change to Win stated that the proposed requirement that an employer “take reasonable efforts to make an offer in a language that each worker understands” should require that offers be made in English and in a language that the worker understands. The International Union of Operating Engineers (IUOE) commented that to ensure that service workers receive an offer that affords prevailing wage protection, there should be no presumption that an offer of employment to a lower paying job is a bona fide offer. The IUOE suggested that the positions offered should, as a general rule, be in the same classifications or in higher paid classifications for individual workers, stating that this section as proposed will exacerbate the existing problem of deliberate misclassification of prevailing wage workers by creating an additional incentive to misclassify workers. The AFL-CIO stated that offers for lesser pay or benefits cannot presumptively be considered bona fide, and should only be considered bona fide if the successor contractor proves by clear and convincing evidence that the reasons for the offer are not related to a desire to reduce labor costs, to induce the incumbent employee to refuse the offer, or to ensure that other employees are hired for the offer. The SEIU and Change to Win stated that to allow an employer to offer a lesser position when the person's equivalent position is available cannot be considered a “bona fide offer of employment.” They suggested that the final regulations provide that a “bona fide offer of employment” must be for an equivalent or better position under the successor contract as long as such a position remains open. The SEIU and Change to Win also commented that the provision as proposed is inadequate because it would allow successor contractors to hire employees who did not work for the predecessor contractor at higher wages and benefits than it offers the predecessor's employees for the same position.

The Chamber commented that if the provision allowing the successor to offer employment to a position with different terms and conditions did not exist, Federal contractors would be significantly disadvantaged when attempting to craft appropriate bids and could easily be locked into inefficient business models that would further hinder the provision of economic and efficient services. This commenter suggested that clearer language creating a presumption in favor of the employer and requiring more than a suggestion that the offer was not bona fide to rebut the presumption would go a long way toward making this important part of the regulations practically functional. The PSC expressed concern that the provision concerning termination after contract commencement would restrict companies from using policies of “at will” employment to terminate “employees who fail to deliver excellent services.” It also stated that such examination of a successor Federal service contractor's termination decisions would contradict or preempt state at-will employment laws, and that the proposed rule does not indicate the standard that will be used in government investigations to determine whether a termination was bona fide or pretextual.

After a careful review of the comments, the Department has concluded that a successor contractor may apply employment screening processes (i.e., drug tests, background checks, security clearance checks, and similar pre-employment screening mechanisms) only when such processes are provided for by the contracting agency, are conditions of the service contract, and (in addition to being otherwise consistent with applicable Federal and state law) are consistent with the Executive Order. Conversely, a successor contractor may not impose its own hiring standards (such as college degree requirements for particular positions) in making determinations regarding whether an employee of a predecessor contactor is qualified. Contracting agencies and prospective bidders and successor contractors may exchange views during the contracting process about the need for particular employment screening processes. For example, a prospective bidder may inform a contracting agency that the bidder requires drug testing of all of its service employees and may recommend that the contracting agency provide for such drug testing in connection with the service contract; whether drug testing would be permitted in this circumstance would depend upon whether the contracting agency agrees with the bidder and provides for such testing as provided in this rule. With respect to determining employee qualifications, the Executive Order focuses on an employee's past performance, and it specifically provides that a right of first refusal need not be offered to an employee whom the contractor or any of its subcontractors reasonably believes, based on the particular employee's past performance, has failed to perform

suitably on the job. Consistent with the Executive Order, the final rule provides that questions concerning an employee's qualifications should be decided based upon the employee's education and employment history, with particular emphasis on the employee's experience on the predecessor contract. A contractor's hiring standards or employment screening processes typically would not measure the employee's performance on the predecessor contract, and use of such standards or processes thus could not be used to determine whether an employee is qualified unless a contracting agency provided for use of such standards or processes and made them a condition of the service contract. Such standards or processes would, of course, also need to be consistent with the Executive Order; a contracting agency or successor contractor could not, for example, determine that otherwise-qualified service employees on a predecessor contract would not be qualified to perform the same or similar services on a successor contract because they lack a college degree. The Department has added language to § 9.12(b)(1) to reflect these changes.

In response to concerns rai

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2011-21261. Public record. Not legal advice.