Establishing a Minimum Wage for Contractors

DEPARTMENT OF LABOR

Office of the Secretary

29 CFR Part 10

RIN 1235-AA10

Establishing a Minimum Wage for Contractors

AGENCY:

Wage and Hour Division, Department of Labor.

ACTION:

Final rule.

SUMMARY:

In this final rule, the Department of Labor issues final regulations to implement Executive Order 13658, Establishing a Minimum Wage for Contractors, which was signed by President Barack Obama on February 12, 2014. Executive Order 13658 states that the Federal Government's procurement interests in economy and efficiency are promoted when the Federal Government contracts with sources that adequately compensate their workers. The Executive Order therefore seeks to raise the hourly minimum wage paid by those contractors to workers performing work on covered Federal contracts to: $10.10 per hour, beginning January 1, 2015; and beginning January 1, 2016, and annually thereafter, an amount determined by the Secretary of Labor. The Executive Order directs the Secretary to issue regulations by October 1, 2014, to the extent permitted by law and consistent with the requirements of the Federal Property and Administrative Services Act, to implement the Order's requirements. This final rule therefore establishes standards and procedures for implementing and enforcing the minimum wage protections of Executive Order 13658. As required by the Order, the final rule incorporates to the extent practicable existing definitions, procedures, remedies, and enforcement processes under the Fair Labor Standards Act, the Service Contract Act, and the Davis-Bacon Act.

DATES:

Effective date:

This final rule is effective on December 8, 2014.

Applicability date:

For procurement contracts subject to the Federal Acquisition Regulation and Executive Order 13658, this final rule is applicable beginning on the effective date of regulations revising 48 CFR parts 22 and 52 issued by the Federal Acquisition Regulatory Council.

FOR FURTHER INFORMATION CONTACT:

Timothy Helm, Chief, Branch of Government Contracts Enforcement, Office of Government Contracts, Wage and Hour Division, U.S. Department of Labor, Room S-3006, 200 Constitution Avenue NW., Washington, DC 20210; telephone: (202) 693-0064 (this is not a toll-free number). Copies of this final rule may be obtained in alternative formats (Large Print, Braille, Audio Tape or Disc), upon request, by calling (202) 693-0675 (this is not a toll-free number). TTY/TDD callers may dial toll-free 1-877-889-5627 to obtain information or request materials in alternative formats.

Questions of interpretation and/or enforcement of the agency's regulations may be directed to the nearest Wage and Hour Division (WHD) district office. Locate the nearest office by calling the WHD's toll-free help line at (866) 4US-WAGE ((866) 487-9243) between 8 a.m. and 5 p.m. in your local time zone, or log onto the WHD's Web site for a nationwide listing of WHD district and area offices at

http://www.dol.gov/whd/america2.htm

.

SUPPLEMENTARY INFORMATION:

I. Executive Order 13658 Requirements and Background

On February 12, 2014, President Barack Obama signed Executive Order 13658, Establishing a Minimum Wage for Contractors (the Executive Order or the Order). 79 FR 9851. The Executive Order states that the Federal Government's procurement interests in economy and efficiency are promoted when the Federal Government contracts with sources that adequately compensate their workers.

Id.

The Order therefore “seeks to increase efficiency and cost savings in the work performed by parties who contract with the Federal Government” by raising the hourly minimum wage paid by those contractors to workers performing work on covered Federal contracts to (i) $10.10 per hour, beginning January 1, 2015; and (ii) beginning January 1, 2016, and annually thereafter, an amount determined by the Secretary of Labor (Secretary) in accordance with the Executive Order.

Id.

Section 1 of Executive Order 13658 sets forth a general position of the Federal Government that increasing the hourly minimum wage paid by Federal contractors to $10.10 will “increase efficiency and cost savings” for the Federal Government. 79 FR 9851. The Order states that raising the pay of low-wage workers increases their morale and productivity and the quality of their work, lowers turnover and its accompanying costs, and reduces supervisory costs.

Id.

The Order further states that these savings and quality improvements will lead to improved economy and efficiency in Government procurement.

Id.

Section 2 of Executive Order 13658 therefore establishes a minimum wage for Federal contractors and subcontractors. 79 FR 9851. The Order provides that executive departments and agencies (agencies) shall, to the extent permitted by law, ensure that new contracts, contract-like instruments, and solicitations (collectively referred to as “contracts”), as described in section 7 of the Order, include a clause, which the contractor and any subcontractors shall incorporate into lower-tier subcontracts, specifying, as a condition of payment, that the minimum wage to be paid to workers, including workers whose wages are calculated pursuant to special certificates issued under 29 U.S.C. 214(c),

1

in the performance of the contract or any subcontract thereunder, shall be at least: (i) $10.10 per hour beginning January 1, 2015; and (ii) beginning January 1, 2016, and annually thereafter, an amount determined by the Secretary in accordance with the Executive Order. 79 FR 9851. As required by the Order, the minimum wage amount determined by the Secretary pursuant to this section shall be published by the Secretary at least 90 days before such new minimum wage is to take effect and shall be: (A) Not less than the amount in effect on the date of such determination; (B) increased from such amount by the annual percentage increase, if any, in the Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers (United States city average, all items, not seasonally adjusted) (CPI-W), or its successor publication, as determined by the Bureau of Labor Statistics; and (C) rounded to the nearest multiple of $0.05.

Id.

1

29 U.S.C. 214(c) authorizes employers, after receiving a certificate from the WHD, to pay subminimum wages to workers whose earning or productive capacity is impaired by a physical or mental disability for the work to be performed.

Section 2 of the Executive Order further explains that, in calculating the annual percentage increase in the CPI for purposes of this section, the Secretary shall compare such CPI for the most recent month, quarter, or year available (as selected by the Secretary prior to the first year for which a minimum wage determined by the Secretary is in effect pursuant to this section) with the CPI for the same month in the preceding year, the same quarter in the preceding year, or the preceding year, respectively. 79 FR 9851. Pursuant to this section, nothing in the Order excuses noncompliance with any applicable Federal or State prevailing wage law or any applicable

law or municipal ordinance establishing a minimum wage higher than the minimum wage established under the Order.

Id.

Section 3 of Executive Order 13658 explains the application of the Order to tipped workers. 79 FR 9851-52. It provides that for workers covered by section 2 of the Order who are tipped employees pursuant to 29 U.S.C. 203(t), the hourly cash wage that must be paid by an employer to such employees shall be at least: (i) $4.90 an hour, beginning on January 1, 2015; (ii) for each succeeding 1-year period until the hourly cash wage under this section equals 70 percent of the wage in effect under section 2 of the Order for such period, an hourly cash wage equal to the amount determined under section 3 of the Order for the preceding year, increased by the lesser of: (A) $0.95; or (B) the amount necessary for the hourly cash wage under section 3 to equal 70 percent of the wage under section 2 of the Order; and (iii) for each subsequent year, 70 percent of the wage in effect under section 2 for such year rounded to the nearest multiple of $0.05. 79 FR 9851-52. Where workers do not receive a sufficient additional amount on account of tips, when combined with the hourly cash wage paid by the employer, such that their wages are equal to the minimum wage under section 2 of the Order, section 3 requires that the cash wage paid by the employer be increased such that their wages equal the minimum wage under section 2 of the Order. 79 FR 9852. Consistent with applicable law, if the wage required to be paid under the Service Contract Act (SCA), 41 U.S.C. 6701

et seq.,

or any other applicable law or regulation is higher than the wage required by section 2 of the Order, the employer must pay additional cash wages sufficient to meet the highest wage required to be paid.

Id.

Section 4 of Executive Order 13658 provides that the Secretary shall issue regulations by October 1, 2014, to the extent permitted by law and consistent with the requirements of the Federal Property and Administrative Services Act, to implement the requirements of the Order, including providing exclusions from the requirements set forth in the Order where appropriate. 79 FR 9852. It also requires that, to the extent permitted by law, within 60 days of the Secretary issuing such regulations, the Federal Acquisition Regulatory Council (FARC) shall issue regulations in the Federal Acquisition Regulation (FAR) to provide for inclusion of the contract clause in Federal procurement solicitations and contracts subject to the Executive Order.

Id.

Additionally, this section states that within 60 days of the Secretary issuing regulations pursuant to the Order, agencies must take steps, to the extent permitted by law, to exercise any applicable authority to ensure that contracts for concessions and contracts entered into with the Federal Government in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public, entered into after January 1, 2015, consistent with the effective date of such agency action, comply with the requirements set forth in sections 2 and 3 of the Order.

Id.

The Order further specifies that any regulations issued pursuant to this section should, to the extent practicable and consistent with section 8 of the Order, incorporate existing definitions, procedures, remedies, and enforcement processes under the Fair Labor Standards Act (FLSA), 29 U.S.C. 201

et seq.;

the SCA; and the Davis-Bacon Act (DBA), 40 U.S.C. 3141

et seq.

79 FR 9852.

Section 5 of Executive Order 13658 grants authority to the Secretary to investigate potential violations of and obtain compliance with the Order. 79 FR 9852. It also explains that Executive Order 13658 does not create any rights under the Contract Disputes Act and that disputes regarding whether a contractor has paid the wages prescribed by the Order, to the extent permitted by law, shall be disposed of only as provided by the Secretary in regulations issued pursuant to the Order.

Id.

Section 6 of Executive Order 13658 establishes that if any provision of the Order or the application of such provision to any person or circumstance is held to be invalid, the remainder of the Order and the application shall not be affected. 79 FR 9852.

Section 7 of the Executive Order provides that nothing in the Order shall be construed to impair or otherwise affect the authority granted by law to an agency or the head thereof; or the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals. 79 FR 9852-53. It also states that the Order is to be implemented consistent with applicable law and subject to the availability of appropriations. 79 FR 9853. The Order explains that it 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.

Id.

Section 7 of Executive Order 13658 further establishes that the Order shall apply only to a new contract, as defined by the Secretary in the regulations issued pursuant to section 4 of the Order, if: (i)(A) It is a procurement contract for services or construction; (B) it is a contract for services covered by the SCA; (C) it is a contract for concessions, including any concessions contract excluded by Department of Labor (the Department) regulations at29 CFR 4.133(b); or (D) it is a contract entered into with the Federal Government in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public; and (ii) the wages of workers under such contract are governed by the FLSA, the SCA, or the DBA. 79 FR 9853. Section 7 of the Order also states that, for contracts covered by the SCA or the DBA, the Order shall apply only to contracts at the thresholds specified in those statutes.

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Id.

Additionally, for procurement contracts where workers' wages are governed by the FLSA, the Order specifies that it shall apply only to contracts that exceed the micro-purchase threshold, as defined in 41 U.S.C. 1902(a),

3

unless expressly made subject to the Order pursuant to regulations or actions taken under section 4 of the Order. 79 FR 9853. The Executive Order specifies that it shall not apply to grants; contracts and agreements with and grants to Indian Tribes under the Indian Self-Determination and Education Assistance Act (Pub. L. 93-638), as amended; or any contracts expressly excluded by the regulations issued pursuant to section 4(a) of the Order. 79 FR 9853. The Order also strongly encourages independent agencies to comply with its requirements.

Id.

2

The prevailing wage requirements of the SCA apply to covered prime contracts in excess of $2,500.

See

41 U.S.C. 6702(a)(2) (recodifying 41 U.S.C. 351(a)). The DBA applies to covered prime contracts that exceed $2,000.

See

40 U.S.C. 3142(a). There is no value threshold requirement for subcontracts awarded under such prime contracts.

3

41 U.S.C. 1902(a) defines the micro-purchase threshold as $3,000.

Section 8 of Executive Order 13658 provides that the Order is effective immediately and shall apply to covered contracts where the solicitation for such contract has been issued on or after: (i) January 1, 2015, consistent with the effective date for the action taken by the FARC pursuant to section 4(a) of the Order; or (ii) for contracts where an agency action is taken pursuant to section 4(b) of the Order, January 1, 2015, consistent with the effective date for such action. 79 FR 9853. It also

specifies that the Order shall not apply to contracts entered into pursuant to solicitations issued on or before the effective date for the relevant action taken pursuant to section 4 of the Order.

Id.

Finally, section 8 states that, for all new contracts negotiated between the date of the Order and the effective dates set forth in this section, agencies are strongly encouraged to take all steps that are reasonable and legally permissible to ensure that individuals working pursuant to those contracts are paid an hourly wage of at least $10.10 (as set forth under sections 2 and 3 of the Order) as of the effective dates set forth in this section. 79 FR 9854.

II. Discussion of Final Rule

A. Legal Authority

The President issued Executive Order 13658 pursuant to his authority under “the Constitution and the laws of the United States,” expressly including the Federal Property and Administrative Services Act (Procurement Act), 40 U.S.C. 101

et seq.

79 FR 9851. The Procurement Act authorizes the President to “prescribe policies and directives that the President considers necessary to carry out” the statutory purposes of ensuring “economical and efficient” government procurement and administration of government property. 40 U.S.C. 101, 121(a). Executive Order 13658 delegates to the Secretary the authority to issue regulations to “implement the requirements of this order.” 79 FR 9852. The Secretary has delegated his authority to promulgate these regulations to the Administrator of the WHD. Secretary's Order 05-2010 (Sept. 2, 2010), 75 FR 55352 (published Sept. 10, 2010).

B. Discussion of the Final Rule

On June 17, 2014, the Department published a Notice of Proposed Rulemaking (NPRM) in the

Federal Register

, inviting public comments for a period of 30 days on a proposal to implement the provisions of Executive Order 13658.

See

79 FR 34568 (June 17, 2014). On July 8, 2014, the Department extended the period for filing written comments until July 28, 2014.

See

79 FR 38478. More than 6,500 individuals and entities commented on the Department's NPRM. Comments were received from a variety of interested stakeholders, such as labor organizations; contractors and contractor associations; worker advocates, including advocates for people with disabilities; contracting agencies; small businesses; and workers. Some organizations attached the views of some of their individual members. For example, 1,159 individuals joined in comments submitted by Interfaith Worker Justice and the National Women's Law Center submitted 5,127 individual comments.

The Department received many comments, such as those submitted by the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), North America's Building Trades Unions (Building Trades), the National Women's Law Center, Interfaith Worker Justice, Demos, the National Employment Law Project (NELP), and the National Disability Rights Network (NDRN), expressing strong support for the Executive Order and for raising the minimum wage. Many of these commenters, such as Demos, commended the Department's NPRM as a “reasonable and appropriate” implementation of Executive Order 13658. The Building Trades similarly applauded the Department's proposed rule as presenting “a straightforward and comprehensive framework for implementing, policing and enforcing Executive Order 13658.” Although the Professional Services Council (PSC) disagreed with some of the substantive interpretations set forth in the Department's NPRM, it also expressed its appreciation for “the extensive explanatory material” set forth in the preamble to the proposed rule and noted that such information provided “valuable insight into the Department's approach and rationale.”

However, the Department also received submissions from several commenters, including the National Restaurant Association (Association) and the International Franchise Association (IFA), the U.S. Chamber of Commerce (Chamber) and the National Federation of Independent Business (NFIB), the HR Policy Association, and the Associated Builders and Contractors, Inc. (ABC), expressing strong opposition to the Executive Order and questioning its legality and stated purpose. Comments questioning the legal authority and rationale underlying the Executive Order are not within the purview of this rulemaking action.

The Department also received a number of comments requesting that the President take other executive actions to protect workers on Federal Government contracts. While the Department appreciates such input, comments requesting further executive actions are beyond the scope of this rule and the Department's rulemaking authority.

Finally, the Center for Plain Language (CPL) submitted a comment regarding how the Federal Plain Language Guidelines could improve the general clarity of the final rule. The Department has carefully considered this comment and has endeavored to use plain language in the preamble and regulatory text of the final rule in instances where plain language is appropriate and does not change the substance of the rule. For example, the Department has avoided the use of “prior to,” “pursuant to,” “shall,” “such,” and “thereunder,” where appropriate. In addition, the Department has made an effort to use shorter sentences and paragraphs where possible or appropriate. Some of the suggested changes, however, are not suitable to this final rule. For example, the Department does not find the use of the pronoun “you” or headings in the form of questions to be appropriate here. Section 4(c) of Executive Order 13658 directs the Department to incorporate existing definitions and procedures from the DBA, the SCA, and the FLSA, to the extent practicable. Because the implementing regulations under those statutes do not use the pronoun “you” and do not use questions as headings, the Department has concluded that it would be inconsistent to do so in the final rule.

All other comments, including comments raising specific concerns regarding interpretations of the Executive Order set forth in the Department's NPRM, will be addressed in the following section-by-section analysis of the final rule. After considering all timely and relevant comments received in response to the June 17, 2014 NPRM, the Department is issuing this final rule to implement the provisions of Executive Order 13658.

The Department's final rule, which amends Title 29 of the Code of Federal Regulations (CFR) by adding part 10, establishes standards and procedures for implementing and enforcing Executive Order 13658. Subpart A of part 10 relates to general matters, including the purpose and scope of the rule, as well as the definitions, coverage, and exclusions that the rule provides pursuant to the Order. It also sets forth the general minimum wage requirement for contractors established by the Executive Order, an antiretaliation provision, and a prohibition against waiver of rights. Subpart B establishes the requirements that contracting agencies and the Department must follow to comply with the minimum wage provisions of the Executive Order. Subpart C establishes the requirements that contractors must follow to comply with the minimum wage provisions of the Executive Order. Subparts D and E specify standards and procedures related to complaint intake, investigations, remedies, and administrative enforcement

proceedings. Appendix A contains a contract clause to implement Executive Order 13658. 79 FR 9851. Appendix B sets forth a poster regarding the Executive Order minimum wage for contractors with FLSA-covered workers performing work on or in connection with a covered contract.

The following section-by-section discussion of this final rule summarizes the provisions proposed in the NPRM, addresses the comments received on each section, and sets forth the Department's response to such comments for each section.

Subpart A—General

Executive Order 13658 seeks to raise the hourly minimum wage paid by those contractors to workers performing work on covered Federal contracts to: $10.10 per hour, beginning January 1, 2015; and beginning January 1, 2016, and annually thereafter, an amount determined by the Secretary of Labor in accordance with the Order.

Subpart A of part 10 pertains to general matters, including the purpose and scope of the rule, as well as the definitions, coverage, and exclusions that the rule provides pursuant to the Order. Subpart A also includes the Executive Order minimum wage requirement for contractors, an antiretaliation provision, and a prohibition against waiver of rights.

Section 10.1 Purpose and Scope

Proposed § 10.1(a) explained that the purpose of the proposed rule was to implement Executive Order 13658 and reiterated statements from the Order that the Federal Government's procurement interests in economy and efficiency are promoted when the Federal Government contracts with sources that adequately compensate their workers. The proposed rule further stated that there is evidence that boosting low wages can reduce turnover and absenteeism in the workplace, while also improving morale and incentives for workers, thereby leading to higher productivity overall. As stated in proposed § 10.1(a), it is for these reasons that the Executive Order concludes that raising, to $10.10 per hour, the minimum wage for work performed by parties who contract with the Federal Government will lead to improved economy and efficiency in Government procurement. The NPRM stated that the Department believes that, by increasing the quality and efficiency of services provided to the Federal Government, the Executive Order will improve the value that taxpayers receive from the Federal Government's investment.

The Department received a number of comments asserting that Executive Order 13658 does not promote economy and efficiency in Federal Government procurement and challenging the determinations set forth in the Executive Order that are reflected in proposed § 10.1(a). As stated above, comments questioning the President's legal authority to issue the Executive Order are not within the scope of this rulemaking action. To the extent that such comments challenge specific conclusions made by the Department in its economic and regulatory flexibility analyses set forth in the NPRM, those comments are addressed in sections IV and V of the preamble to this final rule. The Department did not receive any other comments addressing proposed § 10.1(a) and therefore implements the provision as it was proposed in the NPRM.

Proposed § 10.1(b) explained the general Federal Government requirement established in Executive Order 13658 that new contracts with the Federal Government include a clause, which the contractor and any subcontractors shall incorporate into lower-tier subcontracts, requiring, as a condition of payment, that the contractor and any subcontractors pay workers performing work on the contract or any subcontract thereunder at least: (i) $10.10 per hour beginning January 1, 2015; and (ii) an amount determined by the Secretary pursuant to the Order, beginning January 1, 2016, and annually thereafter. Proposed § 10.1(b) also clarified that nothing in Executive Order 13658 or part 10 is to be construed to excuse noncompliance with any applicable Federal or State prevailing wage law or any applicable law or municipal ordinance establishing a minimum wage higher than the minimum wage established under the Order. The Department did not receive any comments on proposed § 10.1(b) and therefore adopts the provision as proposed.

Proposed § 10.1(c) outlined the scope of this proposed rule and provided that neither Executive Order 13658 nor this part creates any rights under the Contract Disputes Act or any private right of action. In the NPRM, the Department explained that it does not interpret the Executive Order as limiting existing rights under the Contract Disputes Act. This provision also restated the Executive Order's directive that disputes regarding whether a contractor has paid the minimum wages prescribed by the Order, to the extent permitted by law, shall be disposed of only as provided by the Secretary in regulations issued under the Order. The provision clarified, however, that nothing in the Order is intended to limit or preclude a civil action under the False Claims Act, 31 U.S.C. 3730, or criminal prosecution under 18 U.S.C. 1001. Finally, this paragraph clarified that neither the Order nor the proposed rule would preclude judicial review of final decisions by the Secretary in accordance with the Administrative Procedure Act, 5 U.S.C. 701

et seq.

The PSC commented on proposed § 10.1(c), noting that it concurred with the provision as written but recommended that the Department modify the phrase “

create

any rights under the Contract Disputes Act” in the first sentence of that provision to “

change

any rights under the Contract Disputes Act” to recognize that this rule does not impact existing Contract Disputes Act rights. The Department agrees with this comment and, as stated in the NPRM, does not interpret the Executive Order as limiting any existing rights under the Contract Disputes Act.

See

79 FR 34571. Accordingly, the Department has provided in § 10.1(c) of the final rule that neither Executive Order 13658 nor this part “creates or changes” any rights under the Contract Disputes Act. The Department has also made a technical edit to this section by adding a citation to the Administrative Procedure Act.

Section 10.2 Definitions

Proposed § 10.2 defined terms for purposes of this rule implementing Executive Order 13658. Section 4(c) of the Executive Order instructs that any regulations issued pursuant to the Order should “incorporate existing definitions” under the FLSA, the SCA, and the DBA “to the extent practicable and consistent with section 8 of this order.” 79 FR 9852. Most of the definitions provided in the Department's proposed rule were therefore based on either the Executive Order itself or the definitions of relevant terms set forth in the statutory text or implementing regulations of the FLSA, SCA, or DBA. Several proposed definitions adopted or relied upon definitions published by the FARC in section 2.101 of the FAR. 48 CFR 2.101. The Department also proposed to adopt, where applicable, definitions set forth in the Department's regulations implementing Executive Order 13495, Nondisplacement of Qualified Workers Under Service Contracts. 29 CFR 9.2. In the NPRM, the Department noted that, while the proposed definitions discussed in the proposed rule would govern the implementation and enforcement of Executive Order 13658, nothing in the proposed rule was

intended to alter the meaning of or to be interpreted inconsistently with the definitions set forth in the FAR for purposes of that regulation.

As a general matter, several commenters, such as Demos and the AFL-CIO, stated that the Department reasonably and appropriately defined the terms of the Executive Order. The AFL-CIO, for example, particularly supported “the inclusive definitions and broad scope of the proposed rule.” Many other individuals and organizations submitted comments supporting, opposing, or questioning specific proposed definitions that are addressed below.

The Department proposed to define the term

agency head

to mean the Secretary, Attorney General, Administrator, Governor, Chairperson, or other chief official of an executive agency, unless otherwise indicated, including any deputy or assistant chief official of an executive agency or any persons authorized to act on behalf of the agency head. This proposed definition was based on the definition of the term set forth in section 2.101 of the FAR.

See

48 CFR 2.101. The CPL suggested that the Department consolidate this definition with the definition set forth for the term

Administrator

because the NPRM appeared to be using different terms to describe the same concept. The Department disagrees with the CPL's suggested consolidation of these two definitions because the term

agency head

is used to refer to the head of any executive agency whereas the term

Administrator,

as used in this part, refers specifically to the head of the Wage and Hour Division, U.S. Department of Labor. Because the Department did not receive any other comments addressing the term

agency head,

the Department has adopted the definition of that term as it was originally proposed.

The Department proposed to define

concessions contract

(or

contract for concessions

) to mean a contract under which the Federal Government grants a right to use Federal property, including land or facilities, for furnishing services. In the NPRM, the Department explained that this proposed definition did not contain a limitation regarding the beneficiary of the services, and such contracts may be of direct or indirect benefit to the Federal Government, its property, its civilian or military personnel, or the general public.

See

29 CFR 4.133. The proposed definition included but was not limited to all concessions contracts excluded by Departmental regulations under the SCA at 29 CFR 4.133(b).

Demos expressed its support for the Department's proposed definition of

concessions contract,

noting that the definition appropriately does not impose restrictions on the beneficiary of services offered by parties to a concessions contract with the Federal Government (

i.e.,

concessions contracts may be of direct or indirect benefit to the Federal Government, its property, its civilian or military personnel, or the general public). Several other commenters expressed concern or confusion regarding application of this definition to specific factual circumstances; such comments are addressed below in the preamble discussion of the coverage of concessions contracts. As the Department received no comments suggesting revisions to the proposed definition of this term, the Department adopts the definition as set forth in the NPRM.

The Department proposed to define

contract

and

contract-like instrument

collectively for purposes of the Executive Order as an agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law. This definition included, but was not limited to, a mutually binding legal relationship obligating one party to furnish services (including construction) and another party to pay for them. The proposed definition of the term

contract

broadly included all contracts and any subcontracts of any tier thereunder, whether negotiated or advertised, including any procurement actions, lease agreements, cooperative agreements, provider agreements, intergovernmental service agreements, service agreements, licenses, permits, or any other type of agreement, regardless of nomenclature, type, or particular form, and whether entered into verbally or in writing.

The Department explained that the proposed definition of the term

contract

shall be interpreted broadly to include, but not be limited to, any contract that may be consistent with the definition provided in the FAR or applicable Federal statutes. In the NPRM, the Department noted that this definition shall include, but shall not be limited to, any contract that may be covered under any Federal procurement statute. The Department specifically proposed to note in this definition that contracts may be the result of competitive bidding or awarded to a single source under applicable authority to do so. The proposed definition also explained that, in addition to bilateral instruments, contracts include, but are not limited to, awards and notices of awards; job orders or task letters issued under basic ordering agreements; letter contracts; orders, such as purchase orders, under which the contract becomes effective by written acceptance or performance; and bilateral contract modifications. The proposed definition also specified that, for purposes of the minimum wage requirements of the Executive Order, the term

contract

included contracts covered by the SCA, contracts covered by the DBA, and concessions contracts not otherwise subject to the SCA, as provided in section 7(d) of the Executive Order.

See

79 FR 9853. The proposed definition of

contract

discussed herein was derived from the definition of the term

contract

set forth in Black's Law Dictionary (9th ed. 2009) and § 2.101 of the FAR (48 CFR 2.101), as well as the descriptions of the term

contract

that appear in the SCA's regulations at 29 CFR 4.110-.111, 4.130. The Department also incorporated the exclusions from coverage specified in section 7(f) of the Executive Order and provided that the term

contract

does not include grants; contracts and agreements with and grants to Indian Tribes under the Indian Self-Determination and Education Assistance Act (Pub. L. 93-638), as amended; or any contracts or contract-like instruments expressly excluded by § 10.4.

The Department noted that the mere fact that a legal instrument constitutes a

contract

under this definition does not mean that the contract is subject to the Executive Order. The NPRM explained that, in order for a contract to be covered by the Executive Order and the proposed rule, the contract must qualify as one of the specifically enumerated types of contracts set forth in section 7(d) of the Order and proposed § 10.3. For example, although a cooperative agreement would be considered a contract pursuant to the Department's proposed definition, a cooperative agreement would not be covered by the Executive Order and this part unless it was subject to the DBA or SCA, was a concessions contract, or was entered into “in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public.” 79 FR 9853. In other words, the NPRM explained that this part would not apply to cooperative agreements that did not involve providing services for Federal employees, their dependents, or the general public.

Several individuals and entities submitted comments expressing their support for the Department's proposed definition of the terms

contract

and

contract-like instrument

. NELP and the

eight organizations that joined in its comment, for example, stated that the proposed definition “fairly reflect[s] the increasing complexity of leasing and contracting relationships between the Federal Government and the private sector.” The AFL-CIO similarly commended the Department's proposed definition because “it is consistent both with the Executive Order and because it tracks the definitions contained in the SCA and DBA. . . . The proposal appropriately seeks to include the full range of contracts and other government procurement arrangements so as to effectuate the purposes of the Executive Order.”

However, the Department received several comments, such as those submitted by the Associated General Contractors of America (AGC), the Chamber/NFIB, the Equal Employment Advisory Council (EEAC), and the Association/IFA, expressing confusion or concern regarding the breadth of the Department's proposed definition of the terms

contract

and

contract-like instrument.

The National Ski Areas Association (NSAA), for example, described this proposed definition as “all-encompassing” and “remarkably broad.” NSAA asserted that the proposed definition of the term

contract

was so broad that it could extend to cover “

any

agreement with a federal agency” and could “include even those hotels that accept a GSA room rate for government employees.”

The PSC similarly criticized the Department's “very broad” proposed definition and contended that it would cover situations and business relationships that are not subject to the FAR or the SCA's regulations, thus generating confusion among contractors. The PSC asserted that the proposed definition also “over-scopes” the term

contract

to include transactions, such as notices of awards that are not “mutually binding legal relationships.” The PSC further stated that the proposed definition of the term would cover instruments such as blanket purchase agreements, task orders, and delivery orders that it does not regard as “contracts.” The PSC thus urged the Department to adopt the definition of the term

contract

set forth in the FAR for purposes of covering Federal procurement transactions. The EEAC criticized the Department's proposed definition for including “verbal agreements,” and asserted that it is difficult to imagine how a proposed contract clause could be included in a verbal agreement. It further observed that the proposed definition would appear to cover any lease for space under the General Services Administration's (GSA) outlease program as well as any license or permit to use Federal land, including a permit to conduct a wedding on Federal property.

As a threshold matter, the Department notes that its proposed definition of the terms

contract

and

contract-like instrument

was primarily derived from the definitions of those terms in the FAR and the SCA's regulations and thus it should not have been wholly unfamiliar or unduly confusing to contractors.

See

48 CFR 2.101; 29 CFR 4.110-.111, 4.130. For example, the PSC criticized the proposed definition for its inclusion of “notices of awards,” which the PSC argues are not “mutually binding legal relationships.” However, this language is taken verbatim from the FAR definition of the term

contract

that the PSC itself urges the Department to adopt.

See

48 CFR 2.101 (defining the term

contract

as “a mutually binding legal relationship” and specifically stating that “contracts include (but are not limited to) awards and notices of awards”).

Although the Department relied heavily on the FAR's definition of the term

contract,

the Department must reject the suggestion that it wholly adopt the FAR definition of the term because the term

contract

as used in the Executive Order applies to both procurement and non-procurement legal arrangements whereas the FAR definition only applies to procurement contracts. For that reason, the Department has also relied upon the Department's interpretation of the term “contract” under the SCA. For example, the proposed definition includes “verbal agreements” because the SCA's regulations specifically provide that the mere fact that an agreement is not written does not render such contract outside the scope of the SCA's coverage,

see

29 CFR 4.110, even though the SCA mandates inclusion of a written contract clause. The inclusion of verbal agreements in the definition of the terms

contract

and

contract-like instrument

helps to ensure that coverage of the Executive Order can extend to situations where contracting parties, for whatever reason, rely on an oral agreement rather than a written contract. Although such instances are likely to be exceptionally rare, workers should not be deprived of the Executive Order minimum wage merely because the contracting parties neglected to formally memorialize their mutual agreement in an executed written contract.

With respect to all comments regarding the general breadth of the proposed definition of the terms

contract

and

contract-like instrument,

the Department notes that its proposed definition is intentionally all-encompassing. The proposed definition of these terms could indeed be applied to an expansive range of different types of legal arrangements, including purchase and task orders; the use of the term “contract-like instrument” in the Executive Order underscores that the Order was intended to be of potential applicability to virtually any type of agreement with the Federal Government that is contractual in nature. Importantly, however, the NPRM carefully explained that “the mere fact that a legal instrument constitutes a contract under this definition does not mean that such contract is subject to the Executive Order.” 79 FR 34572.

In order for a legal instrument to be covered by the Executive Order, the instrument must satisfy all of the following prongs: (1) It must qualify as a

contract

or

contract-like instrument

under the definition set forth in this part; (2) it must fall within one of the four specifically enumerated types of contracts set forth in section 7(d) of the Order and § 10.3 of this part; and (3) it must be a “new contract” pursuant to the definition provided in § 10.2. (Moreover, in order for the minimum wage protections of the Executive Order to actually extend to a particular worker on a covered contract, that worker's wages must be governed by the DBA, SCA, or FLSA.) For example, although an agreement between a contracting agency and a hotel pursuant to which the hotel accepts the GSA room rate for Federal Government workers would likely be regarded as a “contract” or “contract-like instrument” under the Department's proposed definition, such an agreement would not be covered by the Executive Order and this part because it is not subject to the DBA or SCA, is not a concessions contract, and is not entered into in connection with Federal property or lands. Similarly, a permit issued by the National Park Service (NPS) to an individual for purposes of conducting a wedding on Federal land would qualify as a “contract” or “contract-like instrument” but would not be subject to the Executive Order because it would not be a contract covered by the SCA or DBA, a concessions contract, or a contract in connection with Federal property related to offering services to Federal employees, their dependents, or the general public. The Department believes that this basic test for contract coverage was clearly stated in the NPRM, but has endeavored to provide additional clarification and examples of covered contracts in its preamble discussion of

the coverage provisions set forth at § 10.3 in this final rule.

Several other commenters, including AGC, requested that the Department separately define the term

contract-like instrument

and provide examples of contract-like instruments because the regulated community is generally unfamiliar with the term. The EEAC generally observed that the term

contract-like instrument

is not used in the FAR or the prevailing wage statutes with which most government contractors are familiar and thus the term has generated considerable confusion in the regulated community. Fortney and Scott, LLC (FortneyScott) similarly requested that the Department clarify the definition of a

contract-like instrument.

It asserted that all of the examples of “contract-like instruments” set forth in the NPRM would in fact qualify as “contracts” and therefore asked whether there would be any instruments that would be deemed to be “contract-like instruments” that would not also be considered “contracts.” FortneyScott suggested that the Department should expressly state in the final rule that there are no “contract-like instruments” subject to the Executive Order other than those that would be covered by the definition of “contract.”

The Department acknowledges that the term

contract-like instrument

is not used in the FLSA, SCA, DBA, or FAR. For this reason, the Department has defined the term collectively with the well-known term

contract

in a manner that should be generally known and understood by the contracting community. As noted above, several commenters accurately observed that the Department's proposed definition of these terms is broad. The use of the term “contract-like instrument” in the Executive Order reflects that the Order is intended to cover all arrangements of a contractual nature, including those arrangements that may not be universally regarded as a “contract.” For example, the term

contract-like instrument

would encompass Forest Service permits that “possess contract characteristics,”

Son Broadcasting, Inc.

v.

United States,

52 Fed. Cl. 815, 823 (Ct. Cl. 2002), and that use “contract-like language.”

Meadow-Green Wildcat Corp.

v.

Hathaway,

936 F.2d 601, 604 (1st Cir. 1991). The large number of specific comments that the Department received regarding the coverage of “contracts for concessions” and “contracts in connection with Federal property” underscores the importance of the term “contract-like instrument” in the Executive Order; as the EEAC itself observed, “[e]mployers may not think of these arrangements as contracts at all, and indeed may be surprised to learn that the new minimum wage mandate applies.” For this precise reason, the Executive Order utilized the term “contract-like instrument” to help clarify that its minimum wage requirements are broadly applicable to all contractual arrangements so long as such arrangements fall within one of the four specifically enumerated types of arrangements set forth in section 7(d) of the Order. The Department acknowledges that the term

contract-like instrument

does not apply to an arrangement or an agreement that is truly not contractual. However, the use of such term helps to emphasize that the Executive Order was intended to sweep broadly to apply to concessions agreements and agreements in connection with Federal property or lands and related to offering services, regardless of whether the parties involved typically consider such arrangements to be “contracts” and regardless of whether such arrangements are characterized as “contracts” for purposes of the specific programs under which they are administered. Moreover, the Department believes that the Executive Order's use of the term

contract-like instrument

is intended to prevent disputes or extended discussions between contracting agencies and contractors regarding whether a particular legal instrument qualifies as a “contract” for purposes of coverage by the Order and this part. The broad definition set forth in this rule will help facilitate more efficient determinations by contractors, contracting officers, and the Department as to whether a particular legal arrangement is covered. The Department thus declines to separately define the term

contract-like instrument

as suggested by some commenters because the term is best understood contextually in conjunction with the well-known term

contract.

The United States Department of Agriculture's Forest Service (FS) commented that the Department should consolidate the definition of the terms

contract

and

contract-like instrument

with the definition of the term

concessions contract

because it believes that the definition of

concessions contract

is subsumed in the more general definition of

contract.

Although the Department agrees that the definition of the term

contract

is relevant to determining whether a legal instrument qualifies as a “

contract

for concessions,” the Department continues to believe that a separate definition is necessary to inform the regulated community about the meaning of the term “contract

for concessions.”

As noted above, commenters such as Demos expressed their strong support for the proposed definition of the term “contract for concessions.” The need for this specific and separate definition is underscored by the large number of comments that the Department received regarding the coverage of concessions contracts and contracts in connection with Federal property or lands. The Department addresses the specific concerns raised regarding the coverage of concessions contracts in the preamble discussion of coverage provisions below.

Several other commenters, including the America Outdoors Association (AOA) and the Association/IFA, urged the Department to include separate definitions of the terms

subcontract

and

subcontractor

in the final rule. In the NPRM, the Department stated that the proposed definition of the term

contract

broadly included all contracts and any subcontracts of any tier thereunder and also provided that the term

contractor

referred to both a prime contractor and all of its subcontractors of any tier on a contract with the Federal Government. The AOA and the Association/IFA expressed confusion regarding the “flow-down” provisions of the Executive Order and suggested that the Department could help to clarify coverage of subcontracts by expressly defining that term.

The applicability of the Executive Order to subcontracts is addressed in greater detail in the discussion of the rule's coverage provisions below, but with respect to these commenters' specific proposal to separately define the terms

subcontract

and

subcontractor,

the Department declines to set forth definitions of those terms in the final rule because it could generate significant confusion for contracting agencies, contractors, and workers. The Department notes that many commenters, including the Association/IFA itself, strongly urged the Department to align its definitions and coverage provisions with those set forth in the SCA, the DBA, and the FAR to ensure compliance and to minimize confusion. Neither the FAR nor the regulations implementing the DBA or SCA provide independent definitions of the terms “subcontract” and “subcontractor.” The SCA's regulations, for example, simply provide that the definition of the term “contractor” includes a subcontractor whose subcontract is subject to provisions of the SCA.

See

29 CFR 4.1a(f).

As with the SCA and DBA, all of the provisions of the Executive Order that

are applicable to covered prime contracts and contractors apply with equal force to covered subcontracts and subcontractors, except for the value threshold requirements set forth in section 7(e) of the Order that only pertain to prime contracts. The final rule provides more clarity with respect to the rule's flow-down provisions and subcontractor coverage and liability below. For these reasons and to avoid using unnecessary and duplicative terms throughout this part, the Department therefore will continue to utilize the term

contract

to refer to all contracts and any subcontracts thereunder and use the term

contractor

to refer to a prime contractor and all of its subcontractors in the final rule, unless otherwise noted.

The Department has carefully considered all of the comments received on the proposed definition of the terms

contract

and

contract-like instrument

but, for the reasons set forth above, ultimately declines to make any of the suggested changes. However, the Department has modified the proposed definition of

contract

to delete reference to the exclusions from coverage specified in section 7(f) of the Executive Order (

i.e.,

grants; contracts and agreements with and grants to Indian Tribes under the Indian Self-Determination and Education Assistance Act (Pub. L. 93-638), as amended; or any contracts or contract-like instruments expressly excluded by § 10.4). As the Department has explained throughout this rule, the mere fact that an agreement qualifies as a “contract” under this definition does not necessarily mean that the agreement is covered by the Order. Accordingly, the Department has determined that its proposed reference to the exclusionary provisions of the Order in this definition is unnecessary and potentially confusing for the public. The Department has also made a clarifying edit to the definition of

contract

to reflect application of the Executive Order to contracts in connection with Federal property or land and related to offering services for Federal employees, their dependents, or the general public. Other than these changes, the Department adopts the definition as proposed in the NPRM.

The Department proposed to substantially adopt the definition of

contracting officer

in section 2.101 of the FAR, which means a person with the authority to enter into, administer, and/or terminate contracts and make related determinations and findings. The term included certain authorized representatives of the contracting officer acting within the limits of their authority as delegated by the contracting officer.

See

48 CFR 2.101. The Department did not receive any comments on its proposed definition of this term; the final rule therefore adopts the definition as proposed.

The Department defined

contractor

to mean any individual or other legal entity that (1) directly or indirectly (

e.g.,

through an affiliate), submits offers for or is awarded, or reasonably may be expected to submit offers for or be awarded, a Government contract or a subcontract under a Government contract; or (2) conducts business, or reasonably may be expected to conduct business, with the Government as an agent or representative of another contractor. In the NPRM, the Department noted that the term

contractor

refers to both a prime contractor and all of its subcontractors of any tier on a contract with the Federal Government. This proposed definition incorporated relevant aspects of the definitions of the term

contractor

in section 9.403 of the FAR,

see

48 CFR 9.403; the SCA's regulations at 29 CFR 4.1a(f); and the Department's regulations implementing Executive Order 13495, Nondisplacement of Qualified Workers Under Service Contracts at 29 CFR 9.2. This definition included lessors and lessees, as well as employers of workers performing on or in connection with covered Federal contracts whose wages are computed pursuant to special certificates issued under 29 U.S.C. 214(c). The Department noted that the term

employer

is used interchangeably with the terms

contractor

and

subcontractor

in this part. The proposed rule also explained that the U.S. Government, its agencies, and its instrumentalities are not considered contractors, subcontractors, employers, or joint employers for purposes of compliance with the provisions of Executive Order 13658.

The Department received several comments on its proposed definition of the term

contractor.

The PSC, for example, contended that the proposed definition improperly covers entities that are not subject to the Executive Order, the FAR, or the SCA's regulations. In its comment, the PSC observed that the proposed definition covers an entity that “submits an offer or reasonably may be expected to submit offers for” a government contract and asserted that it is “not aware of any federal procurement provision that applies to entities who `may be expected to submit offers'” and urged the Department to delete this language. The Association/IFA similarly criticized the Department's proposed definition of the term

contractor

as including prospective bidders on a government contract “with no explanation provided in the preamble.” The Association/IFA further urged the Department to define specific words that appear in the proposed definition of

contractor,

such as “affiliate” and “indirectly,” and to clarify what it means to “indirectly” submit offers. The Association/IFA also challenged the proposed definition as including an “exceedingly broad” category of entities because it would apply to entities such as law firms that “reasonably may be expected to conduct business . . . with the Government as an agent or representative of another contractor.” The Association/IFA expressed concern that the Department's proposed definition could potentially cover “hundreds of thousands of entities that never before considered themselves `government contractors'” and would need to ascertain what, if any, legal obligations they have under the Executive Order. The National Industry Liaison Group (NILG) similarly requested that the Department narrow its proposed definition of the term

contractor

to exclude prospective and former Federal contractors.

The Department notes that all of the proposed definitional language to which the PSC, the Association/IFA, and the NILG object is taken verbatim from the FAR's definition of the term

contractor. See

48 CFR 9.403. The Department proposed this definition, in part, because it believed that the definition would be of general familiarity to contractors. Moreover, the proposed definition purposely included both prospective and former contractors because, like section 9.403 of the FAR, this final rule also sets forth standards regarding the debarment, suspension, and ineligibility of contractors.

However, in light of the comments received by the Department expressing concern and confusion regarding the breadth of the proposed definition of the term

contractor,

the Department has decided to simplify the definition in the final rule to assist the general public in understanding coverage of the Executive Order. In the final rule, the Department has therefore deleted the first sentence of the definition derived from the FAR and instead defines

contractor

to mean any individual or other legal entity that is awarded a Federal Government contract or subcontract under a Federal Government contract. The Department has therefore removed the proposed definition's reference to prospective contractors and has eliminated use of terms such as “affiliate” and “indirectly,” which apparently confused several commenters. However, the Department notes that, despite the

removal of language regarding prospective contractors from this definition, such a deletion has no impact on the suspension and debarment provisions of the final rule. In other words, an individual that is awarded a Federal Government contract may be debarred pursuant to § 10.52 if he or she has disregarded obligations to workers or subcontractors under the Executive Order or this part.

Importantly, the Department notes that the mere fact that an individual or entity qualifies as a

contractor

under the Department's definition does not mean that such an entity has any legal obligations under the Executive Order. A contractor only has obligations under the Executive Order if it has a contract with the Federal Government that is specifically covered by the Order. Thus, while an individual that is awarded a contract with the Federal Government will qualify as a “contractor” pursuant to the Department's definition, that individual will only be subject to the minimum wage requirements of the Executive Order if he or she is awarded a “new” contract that falls within the scope of one of the four specifically enumerated categories of contracts covered by the Order.

Other than the revisions to the first sentence of the proposed definition of the term

contractor

explained above, the Department has retained the remainder of the proposed definition, which incorporates relevant aspects of the definition from the SCA's regulations at 29 CFR 4.1a(f) and the Department's regulations implementing Executive Order 13495, Nondisplacement of Qualified Workers Under Service Contracts at 29 CFR 9.2. As in the proposed rule, the Department thus explains that the term

contractor

refers to both a prime contractor and all of its subcontractors of any tier on a contract with the Federal Government. The Department also notes that the term

contractor

includes lessors and lessees, as well as employers of workers performing on covered Federal contracts whose wages are calculated pursuant to special certificates issued under 29 U.S.C. 214(c). Finally, as stated in the NPRM, the Department explains that the term

employer

is used interchangeably with the terms

contractor

and

subcontractor

in various sections of this part and that the U.S. Government, its agencies, and instrumentalities are not contractors, subcontractors, employers, or joint employers for purposes of compliance with the provisions of the Executive Order.

The PSC commented on the portion of the proposed definition of

contractor

that states that neither the U.S. Government nor its agents are contractors or employers for purposes of the rule and stated that it has not yet had an opportunity to research whether the Department has the authority to make “such a binding declaration by regulation” or the potential effects of such a statement. The Department notes that this language identified by the PSC is taken directly from the SCA's definition of the term

contractor, see

29 CFR 4.1a(f), and merely reflects that for purposes of this Executive Order the Federal Government does not contract with itself or enter into employment relationships with the contractors with whom it conducts business.

Finally, the Association/IFA suggested that the Department define the term “Government contract” because it is used in the definition of

contractor.

The Department disagrees with this comment because this part already contains definitions of the term

Federal Government

and

contract.

Because other commenters such as the CPL have urged the Department to avoid creating duplicative definitions and the Department believes that readers of this part already have clear guidance about what types of agreements qualify as contracts with the Federal Government, the Department declines to make this suggested revision.

For the reasons explained above, the Department has revised the first sentence of the definition of the term

contractor

as proposed in the NPRM to assist the general public in understanding coverage of the Executive Order, but has retained the remainder of the proposed definition in the final rule.

The Department proposed to define the term

Davis-Bacon Act

to mean the Davis-Bacon Act of 1931, as amended, 40 U.S.C. 3141

et seq.,

and its implementing regulations. Because the Department did not receive any comments on this proposed definition, the Department adopts the proposed definition in this final rule.

In the NPRM, the Department defined

executive departments and agencies

that are subject to Executive Order 13658 by adopting the definition of

executive agency

provided in section 2.101 of the FAR. 48 CFR 2.101. The Department therefore interpreted the Executive Order to apply to executive departments within the meaning of 5 U.S.C. 101, military departments within the meaning of 5 U.S.C. 102, independent establishments within the meaning of 5 U.S.C. 104(1), and wholly owned Government corporations within the meaning of 31 U.S.C. 9101. The Department did not interpret this definition as including the District of Columbia or any Territory or possession of the United States. No comments were received on this proposed definition; the final rule therefore adopts the definition as set forth in the NPRM.

The Department defined the term

Executive Order minimum wage

as a wage that is at least: (i) $10.10 per hour beginning January 1, 2015; and (ii) beginning January 1, 2016, and annually thereafter, an amount determined by the Secretary pursuant to section 2 of Executive Order 13658. This definition was based on the language set forth in section 2 of the Executive Order. 79 FR 9851-52. No comments were received on this proposed definition; accordingly, this definition is adopted in the final rule.

The Department proposed to define

Fair Labor Standards Act

as the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. 201

et seq.,

and its implementing regulations. The Department did not receive any comments on this proposed definition and therefore adopts the definition as proposed, except that it has added the acronym FLSA to the definition.

The term

Federal Government

was defined in the NPRM as an agency or instrumentality of the United States that enters into a contract pursuant to authority derived from the Constitution or the laws of the United States. This proposed definition was based on the definition of

Federal Government

set forth in 29 CFR 9.2, but eliminated the term “procurement” from that definition because Executive Order 13658 applies to both procurement and non-procurement contracts covered by section 7(d) of the Order. Consistent with the SCA, the proposed definition of the term

Federal Government

included nonappropriated fund instrumentalities under the jurisdiction of the Armed Forces or of other Federal agencies.

See

29 CFR 4.107(a). For purposes of the Executive Order and this part, the Department's proposed definition did not include the District of Columbia or any Territory or possession of the United States. The Department did not receive any comments on the proposed definition of

Federal Government

and thus adopts the definition as set forth in the NPRM with one modification. For the reasons explained in the NPRM and set forth below, independent regulatory agencies within the meaning of 44 U.S.C. 3502(5) are not subject to the Executive Order or this part. The Department has therefore made a clarifying edit to this definition to reflect that, for purposes of the Executive Order, independent regulatory agencies are not included in the definition of

Federal Government.

The Department proposed to define the term

independent agencies,

for the purposes of Executive Order 13658, as any independent regulatory agency within the meaning of 44 U.S.C. 3502(5). Section 7(g) of the Executive Order states that “[i]ndependent agencies are strongly encouraged to comply with the requirements of this order.” The Department interpreted this provision to mean that independent agencies are not required to comply with this Executive Order. This proposed definition was therefore based on other Executive Orders that similarly exempt independent regulatory agencies within the meaning of 44 U.S.C. 3502(5) from the definition of

agency

or include language requesting that they comply.

See, e.g.,

Executive Order 13636, 78 FR 11739 (Feb. 12, 2013) (defining

agency

as any executive department, military department, Government corporation, Government-controlled operation, or other establishment in the executive branch of the Government but excluding independent regulatory agencies as defined in 44 U.S.C. 3502(5)); Executive Order 13610, 77 FR 28469 (May 10, 2012) (same); Executive Order 12861, 58 FR 48255 (September 11, 1993) (“Sec. 4 Independent Agencies. All independent regulatory commissions and agencies are requested to comply with the provisions of this order.”); Executive Order 12837, 58 FR 8205 (Feb. 10, 1993) (“Sec. 4. All independent regulatory commissions and agencies are requested to comply with the provisions of this order.”). The Department did not receive any comments on the proposed definition of this term and therefore adopts the definition as proposed in this final rule.

The Department proposed to define the term

new contract

as a contract that results from a solicitation issued on or after January 1, 2015, or a contract that is awarded outside the solicitation process on or after January 1, 2015. The proposed definition noted that this term includes both new contracts and replacements for expiring contracts provided that the contract results from a solicitation issued on or after January 1, 2015, or is awarded outside the solicitation process on or after January 1, 2015. This language was based on section 8 of the Executive Order, 79 FR 9853, and was consistent with the convention set forth in section 1.108(d) of the FAR, 48 CFR 1.108(d). The PSC commented that it supports the proposed definition of this term. In response to several comments requesting clarification of the Executive Order's applicability to new contracts, the Department has revised the definition of “new contract” provided in § 10.2 of the proposed rule, as explained below in the preamble discussion of the “new contract” coverage provisions set forth at § 10.3.

Proposed § 10.2 defined the term

option

by adopting the definition set forth in section 2.101 of the FAR, which provides that the term

option

means a unilateral right in a contract by which, for a specified time, the Federal Government may elect to purchase additional supplies or services called for by the contract, or may elect to extend the term of the contract.

See

48 CFR 2.101. As noted above, many commenters expressed confusion or concern with the Department's discussion of the coverage of new contracts, including its proposed interpretation that the exercise of an option clause by the Federal Government does not constitute a “new contract” for purposes of the Executive Order. All such comments are addressed below in the preamble discussion of the coverage provisions set forth at § 10.3.

Several other commenters, including Bond, Schoeneck, and King, PLLC, and the Civil Works Program of the U.S. Army Corps of Engineers (USACE), observed that the Department's proposed definition of the term

option

refers only to a unilateral contractual right held by the Federal Government; these commenters questioned whether the Department would also include situations in which a contractor exercises a unilateral right to extend the term of a contact within its definition of an

option.

The USACE noted, for example, that many of its leases of Federal lands to third parties contain options for renewal that provide the lessee with the unilateral right to renew the lease with all terms and conditions of the existing lease, except that they occasionally provide for increased rent and are subject to USACE's discretion to terminate the lease or decline renewal of the lease for non-compliance with the terms and conditions of the agreement.

In response to these comments, the Department notes that its proposed definition of the term

option,

which solely refers to a unilateral contractual right exercised by the Federal Government, is taken directly from the FAR.

See

48 CFR 2.101. The Department chose to utilize this definition in order to provide clarity and consistency with well-established contracting concepts to the regulated community. The Department understands that it is rare for the Federal Government to enter into agreements under which a contractor would have the unilateral right to extend the term of the contract without entering into bilateral negotiations with the contracting agency. Insofar as such a situation may arise in which a contractor holds a unilateral right to extend the contract, however, the Department believes that the interests of the Executive Order are best effectuated by adhering to its conclusion that only the unilateral exercise of a pre-negotiated option clause by the Federal Government itself falls outside the scope of the Order; if a contractor unilaterally elects to exercise an option period after January 1, 2015, that option period may be subject to the minimum wage requirements of the Order. After thorough review and consideration of these comments, the Department has decided to implement the definition as proposed in the NPRM without modification.

The Department proposed to define the term

procurement contract for construction

to mean a contract for the construction, alteration, or repair (including painting and decorating) of public buildings or public works and which requires or involves the employment of mechanics or laborers, and any subcontract of any tier thereunder. The proposed definition included any contract subject to the provisions of the DBA, as amended, and its implementing regulations. This proposed definition was derived from language found at 40 U.S.C. 3142(a) and 29 CFR 5.2(h). The Department did not receive any comments on this proposed definition and it is therefore adopted as set forth in the NPRM.

The Department proposed to define the term

procurement contract for services

to mean a contract the principal purpose of which is to furnish services in the United States through the use of service employees, and any subcontract of any tier thereunder. This proposed definition included any contract subject to the provisions of the SCA, as amended, and its implementing regulations. This proposed definition was derived from language set forth in 41 U.S.C. 6702(a), 29 CFR 4.1a(e), and 29 CFR 9.2. No comments were submitted on this definition; accordingly, the Department implements the definition as proposed.

The Department proposed to define the term

Service Contract Act

to mean the McNamara-O'Hara Service Contract Act of 1965, as amended, 41 U.S.C. 6701

et seq.,

and its implementing regulations.

See

29 CFR 4.1a(a). The Department did not receive any comments on the proposed definition of this term and thus adopts the definition as proposed for purposes of the final rule.

In the NPRM, the term

solicitation

was defined to mean any request to

submit offers or quotations to the Federal Government. This definition was based on the language found at 29 CFR 9.2. The Department broadly interpreted the term

solicitation

to apply to both traditional and nontraditional methods of solicitation, including informal requests by the Federal Government to submit offers or quotations. In its comment, the PSC did not object to the proposed definition of this term as set forth in the regulatory text itself, but stated that the NPRM's preamble discussion of this term reflected that the Department intended to cover “informal requests” by the Federal Government to submit offers or quotations. The PSC urged the Department to reject this interpretation because it could be construed to inappropriately cover “requests for information” whereby agencies seek information from the public without providing any commitment to issuing solicitations or making awards. The PSC similarly contended that this interpretation of “solicitation” could even be deemed to apply to informal conversations with Federal workers. In response to the PSC's concerns, the Department has clarified that requests for information issued by Federal agencies and informal conversations with Federal workers are not “solicitations” for purposes of the Executive Order.

The final rule therefore adopts the definition as proposed, except that it clarifies that the term

solicitation

also includes any request to submit “bids” to the Federal Government. The Department believes that the NPRM was clear that “bids” were included within its reference to “offers or quotations,” but has determined that it would be helpful to the regulated community to include the more colloquially used term “bids” in the final rule.

The Department adopted in the proposed rule the definition of

tipped employee

in section 3(t) of the FLSA, that is, any employee engaged in an occupation in which he or she customarily and regularly receives more than $30 a month in tips.

See

29 U.S.C. 203(t). The NPRM explained that, for purposes of the Executive Order, a worker performing on or in connection with a contract covered by the Executive Order who meets this definition is a tipped employee. One commenter, the CPL, criticized the Department for defining the term

tipped employee

twice in its proposed rule—first in the “definitions” section at proposed § 10.2 and subsequently in the section addressing contractor requirements with respect to tipped employees at proposed § 10.28(b)(1). The CPL added that the definition provided in proposed § 10.2 was “incomplete” because it did not include the additional clarifications provided in proposed § 10.28(b)(1). In response, the Department notes that the two definitions are consistent and believes that keeping the definitions of “tipped employee” in both sections is appropriate to the extent that doing so obviates the need for contractors to cross reference between sections when attempting to understand their obligations to tipped employees. For that reason, the Department adopts the definition of “tipped employee” in § 10.2 as it was originally proposed.

In proposed § 10.2, the Department defined the term

United States

by adopting the definition set forth in 29 CFR 9.2, which provides that the term means the United States and all executive departments, independent establishments, administrative agencies, and instrumentalities of the United States, including corporations of which all or substantially all of the stock is owned by the United States, by the foregoing departments, establishments, agencies, instrumentalities, and including nonappropriated fund instrumentalities. The proposed definition also incorporated the definition of the term that appears in the FAR at 48 CFR 2.101, which explains that when the term is used in a geographic sense, the

United States

means the 50 States and the District of Columbia. The Department's proposed rule did not adopt any of the exceptions to the definition of this term that are set forth in the FAR. No comments were received on this proposed definition and it is therefore implemented in the final rule.

The Department proposed to define

wage determination

as including any determination of minimum hourly wage rates or fringe benefits made by the Secretary pursuant to the provisions of the SCA or the DBA. This term included the original determination and any subsequent determinations modifying, superseding, correcting, or otherwise changing the provisions of the original determination. The proposed definition was derived from 29 CFR 4.1a(h) and 29 CFR 5.2(q). The Department did not receive any comments on this proposed definition and thus adopts it as proposed for the final rule.

The Department proposed to define

worker

as any person engaged in the performance of a contract covered by the Executive Order, and whose wages under such contract are governed by the FLSA, the SCA, or the DBA, regardless of the contractual relationship alleged to exist between the individual and the employer. The proposed definition also incorporated the Executive Order's provision that the term

worker

includes any individual performing on or in connection with a covered contract whose wages are calculated pursuant to special certificates issued under 29 U.S.C. 214(c).

See

79 FR 9851, 9853. The proposed definition also included any person working on or in connection with a covered contract and individually registered in a bona fide apprenticeship or training program registered with the Department's Employment and Training Administration, Office of Apprenticeship, or with a State Apprenticeship Agency recognized by the Office of Apprenticeship.

See

29 CFR 4.6(p) (SCA); 29 CFR 5.2(n) (DBA). Consistent with the FLSA, SCA, and DBA and their implementing regulations, this proposed definition of

worker

excluded from coverage any person employed in a bona fide executive, administrative, or professional capacity, as those terms are defined in 29 CFR part 541.

See

29 U.S.C. 213(a)(1) (FLSA); 41 U.S.C. 6701(3)(C) (SCA); 29 CFR 5.2(m) (DBA).

The Department also emphasized the well-established principle under those statutes that worker coverage does not depend upon the existence or form of any contractual relationship that may be alleged to exist between the contractor or subcontractor and such persons.

See, e.g.,

29 U.S.C. 203(d), (e)(1), (g) (FLSA); 41 U.S.C. 6701(3)(B), 29 CFR 4.155 (SCA); 29 CFR 5.5(a)(1)(i) (DBA). The proposed rule noted that, as reflected in the proposed definition, the Executive Order is intended to apply to a wide range of employment relationships. The Department thus explained that neither an individual's subjective belief about his or her employment status nor the existence of a contractual relationship is determinative of whether a worker is covered by the Executive Order.

The AFL-CIO supported the Department's proposed definition of the term

worker,

noting that it “appropriately comports with the very broad definition of `employee' contained in the FLSA,” as well as with the relevant definitions of covered workers under the SCA and DBA.

A few commenters such as the Association/IFA noted a technical inconsistency in the regulatory text pertaining to the scope of the definition of the term

worker.

In the NPRM, the Department repeatedly stated in its preamble discussion that workers are entitled to the Executive Order minimum wage for all hours worked “on or in connection with” a covered contract. This language regarding coverage of workers performing “on or

in connection with” a covered contract is also set forth in the proposed definition of the term

worker

in specific reference to certain apprentices and workers whose wages are calculated pursuant to special certificates issued under section 14(c) of the FLSA; that language did not, however, appear in the regulatory text of the proposed definition in a more generally applicable way.

Based on the number of comments received regarding this standard and its application to all covered workers, the Department believes that commenters clearly understood the NPRM's intent to apply this standard to all covered workers. As recommended by the Association/IFA, however, the Department has added clarifying language to reconcile the definition of the term

worker

with its preamble discussion of worker coverage, reflecting that the definition applies to all individuals performing work on or in connection with a covered contract.

The Department also received many comments regarding its proposed interpretation of worker coverage under the Executive Order, all of which are addressed in the preamble and regulatory text for the coverage provisions at § 10.3 below.

Finally, the Department proposed to adopt the definitions for the terms

Administrative Review Board, Administrator, Office of Administrative Law Judges,

and

Wage and Hour Division

set forth in 29 CFR 9.2. No comments were received on the proposed definitions of these terms, and the Department thus adopts those definitions in the final rule with a technical modification. The Department has added the acronym ARB to the definition of

Administrative Review Board.

Section 10.3 Coverage

Proposed § 10.3 addressed and implemented the coverage provisions of Executive Order 13658. Proposed § 10.3 explained the scope of the Executive Order and its coverage of executive agencies, new contracts, types of contractual arrangements and workers. Proposed § 10.4 implemented the exclusions expressly set forth in section 7(f) of the Executive Order and provided other limited exclusions to coverage as authorized by section 4(a) of the Order. 79 FR 9852-53. Several commenters, such as AGC and the Association/IFA, requested that the Department provide additional clarification and examples regarding covered contracts, workers, and work throughout its preamble discussion of this provision. The Association/IFA also generally urged the Department to include additional discussion of the coverage provisions in both the preamble and regulatory text. In response to these comments and as set forth below, the Department has endeavored to further clarify the scope of the Executive Order's coverage in both the preamble and regulatory text for § 10.3.

A number of commenters requested that the Department determine whether the Executive Order applies to a wide variety of particular factual arrangements and circumstances. To the extent that such commenters provided sufficient specific factual information for the Department to opine on a particular coverage issue and such a discussion of the specific coverage issue would be useful to the general public, the Department has addressed the specific factual questions raised in the preamble discussion below.

Executive Order 13658 provides that agencies must, to the extent permitted by law, ensure that new contracts, as described in section 7 of the Order, include a clause specifying, as a condition of payment, that the minimum wage to be paid to workers in the performance of the contract shall be at least: (i) $10.10 per hour beginning January 1, 2015; and (ii) an amount determined by the Secretary, beginning January 1, 2016, and annually thereafter. 79 FR 9851. Section 7(d) of the Executive Order establishes that the Order's minimum wage requirement only applies to a new contract if: (i)(A) It is a procurement contract for services or construction; (B) it is a contract for services covered by the SCA; (C) it is a contract for concessions, including any concessions contract excluded by the Department's regulations at 29 CFR 4.133(b); or (D) it is a contract entered into with the Federal Government in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public; and (ii) the wages of workers under such contract are governed by the FLSA, the SCA, or the DBA. 79 FR 9853. Section 7(e) of the Order states that, for contracts covered by the SCA or the DBA, the Order applies only to contracts at the thresholds specified in those statutes.

Id.

It also specifies that, for procurement contracts where workers' wages are governed by the FLSA, the Order applies only to contracts that exceed the micro-purchase threshold, as defined in 41 U.S.C. 1902(a), unless expressly made subject to the Order pursuant to regulations or actions taken under section 4 of the Order. 79 FR 9853. The Executive Order states that it does not apply to grants; contracts and agreements with and grants to Indian Tribes under the Indian Self-Determination and Education Assistance Act (Pub. L. 93-638), as amended; or any contracts expressly excluded by the regulations issued pursuant to section 4(a) of the Order. 79 FR 9853.

Proposed § 10.3(a) implemented these coverage provisions by stating that Executive Order 13658 and this part apply to any contract with the Federal Government, unless excluded by § 10.4, that results from a solicitation issued on or after January 1, 2015, or that is awarded outside the solicitation process on or after January 1, 2015, provided that: (1)(i) It is a procurement contract for construction covered by the DBA; (ii) it is a contract for services covered by the SCA; (iii) it is a contract for concessions, including any concessions contract excluded by Departmental regulations at 29 CFR 4.133(b); or (iv) it is a contract in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public; and (2) the wages of workers under such contract are governed by the FLSA, the SCA, or the DBA. 79 FR 9853. Proposed § 10.3(b) incorporated the monetary value thresholds referred to in section 7(e) of the Executive Order.

Id.

Finally, proposed § 10.3(c) stated that the Executive Order and this part only apply to contracts with the Federal Government requiring performance in whole or in part within the United States. Several issues relating to the coverage provisions of the Executive Order and proposed § 10.3 are discussed below.

Coverage of Executive Agencies and Departments

Executive Order 13658 applies to all “[e]xecutive departments and agencies.” 79 FR 9851. As explained above, the Department proposed to define

executive departments and agencies

by adopting the definition of

executive agency

provided in section 2.101 of the Federal Acquisition Regulation (FAR). 48 CFR 2.101. The proposed rule therefore interpreted the Executive Order as applying to executive departments within the meaning of 5 U.S.C. 101, military departments within the meaning of 5 U.S.C. 102, independent establishments within the meaning of 5 U.S.C. 104(1), and wholly owned Government corporations within the meaning of 31 U.S.C. 9101. Pursuant to this proposed definition, contracts awarded by the District of Columbia or any Territory or possession of the United States would not be covered by the Order.

The Executive Order strongly encourages, but does not compel, “[i]ndependent agencies” to comply with its requirements. 79 FR 9853. The Department interpreted this provision, in light of the Executive Order's broad goal of adequately compensating workers on contracts with the Federal Government, as a narrow exemption from coverage.

See

79 FR 9851. As discussed above, the proposed rule interpreted independent agencies to mean any independent regulatory agency within the meaning of 44 U.S.C. 3502(5). This interpretation is consistent with provisions in other Executive Orders.

See, e.g.,

Executive Order 13636, 78 FR 11739 (Feb. 12, 2013); Executive Order 12861, 58 FR 48255 (Sept. 11, 1993). Thus, under the proposed rule, the Executive Order would cover executive departments and agencies but would not cover any independent regulatory agency within the meaning of 44 U.S.C. 3502(5).

The Department did not receive any comments on its discussion of the proposed coverage of executive agencies and departments and thus adopts this coverage discussion in the final rule.

Coverage of New Contracts With the Federal Government

Proposed § 10.3(a) provided that the requirements of the Executive Order generally apply to “contracts with the Federal Government.” As discussed above, the NPRM set forth a broadly inclusive definition of the term

contract

that would include all contracts and contract-like instruments and any subcontracts of any tier thereunder, whether negotiated or advertised, including any procurement actions, lease agreements, cooperative agreements, intergovernmental service agreements, provider agreements, service agreements, licenses, permits, awards and notices of awards, job orders or task letters issued under basic ordering agreements, letter contracts, purchase orders, or any other type of agreement, regardless of nomenclature, type, or particular form, and whether entered into verbally or in writing. Unless otherwise noted, the use of the term

contract

throughout the Executive Order and this part therefore included

contract-like instruments

and subcontracts of any tier.

As reflected in proposed § 10.3(a), the minimum wage requirements of Executive Order 13658 apply only to “new contracts” with the Federal Government within the meaning of section 8 of the Order. 79 FR 9853-54. Section 8 of the Executive Order states that the Order shall apply to covered contracts where the solicitation for such contract has been issued on or after: (i) January 1, 2015, consistent with the effective date for the action taken by the FARC pursuant to section 4(a) of the Order; or (ii) for contracts where an agency action is taken pursuant to section 4(b) of the Order, on or after January 1, 2015, consistent with the effective date for such action. 79 FR 9853-54. Proposed § 10.3(a) of this rule therefore stated that this part applies to contracts with the Federal Government, unless excluded by § 10.4, that result from solicitations issued on or after January 1, 2015, or to contracts that are awarded outside the solicitation process on or after January 1, 2015. As stated in the NPRM, the Executive Order and this part thus would apply to both new contracts and replacements for expiring contracts provided that such a contract results from a solicitation issued on or after January 1, 2015, or is awarded outside the solicitation process on or after January 1, 2015. The Department proposed that the Executive Order and this part do not apply to subcontracts unless the prime contract under which the subcontract is awarded results from a solicitation issued on or after January 1, 2015, or is awarded outside the solicitation process on or after January 1, 2015. Pursuant to the proposed rule, the requirements of the Executive Order and this part would not apply to contracts entered into pursuant to solicitations issued prior to January 1, 2015, the automatic renewal of such contracts, or the exercise of options under such contracts. Under the NPRM, existing contracts would have been treated as “new contracts” subject to the Executive Order if they were extended, renewed, or modified in any way (other than administrative changes) as a result of bilateral negotiations on or after January 1, 2015.

As discussed above in the context of the Department's proposed definitions in § 10.2, the term

option

meant a unilateral right in a contract by which, for a specified time, the Federal Government may elect to purchase additional supplies or services called for by the contract, or may elect to extend the term of the contract.

See

48 CFR 2.101. In the NPRM, the Department noted that only truly automatic renewals of contracts or exercises of options devoid of any bilateral negotiations fall outside the scope of the Executive Order. As discussed above, the Department's proposed definition of the term

contract

specifically included bilateral contract modifications. Pursuant to the proposed rule, any renewals or extensions of contracts resulting from bilateral negotiations involving contractual modifications other than administrative changes would therefore qualify as “new contracts” subject to the Executive Order if they are awarded on or after January 1, 2015, even if such negotiations occur during option periods. For example, pursuant to the proposed interpretation, renewals of GSA Schedule Contracts that occur on or after January 1, 2015, and subsequent task orders under such contracts, would be covered by the Executive Order and this part to the extent that such renewals reflect bilateral negotiations. By way of another example, if on January 1, 2015, a contracting agency and contractor renew an existing contract for construction after engaging in negotiations regarding the type, size, cost, or location for the construction work to be performed under the contract, the Department would view such a contractual renewal as a “new contract” subject to the Executive Order. However, when a contracting agency exercises its unilateral right to extend the term of an existing service contract and simply makes pricing adjustments based on increased labor costs that result from its obligation to include a current SCA wage determination pursuant to 29 CFR 4.4 but no bilateral negotiations occur (other than any necessary to determine and effectuate those pricing adjustments), the Department would not view the exercise of that option as a “new contract” covered by the Executive Order.

The Department received a number of comments relating to its proposed interpretation of “new contracts” that are subject to the minimum wage requirements of the Executive Order. As a general matter, the PSC expressed its support for the formulation of proposed § 10.3(a) because “it is consistent with the definition of a `new contract' in Section 10.2 and the provisions of the Executive Order.” Other commenters, however, expressed confusion or concern regarding the Department's proposed interpretation, resulting in some changes to the proposed definition discussed above. Each of these comments, and any resulting change made, is addressed below.

A few comments were submitted regarding the Department's proposed interpretation that the minimum wage requirements of Executive Order 13658 do not apply to a unilateral exercise of an option clause because it is not a “new contract.” The AFL-CIO, the Office and Professional Employees International Union (OPEIU) and the Industrial Technical & Professional Employees Union, OPEIU Local 4873 (ITPEU), and the Building Trades

expressed concern regarding the Department's proposed interpretation of the term

new contract

and urged the Department to redefine the term in the Final Rule such that the exercise of an option period under an existing contract would be subject to the Executive Order if it is exercised on or after January 1, 2015. Those commenters noted that, under the SCA and DBA, the Department and the FARC require the inclusion of new or current prevailing wage determinations upon the exercise of options under existing contracts.

See, e.g.,

48 CFR 22.404-1(a)(1). The Building Trades and AFL-CIO argued that the Department should apply this same standard to the Executive Order. The OPEIU and the ITPEU similarly asserted that the exercise of an option clause under an existing contract should be covered and suggested that the Department clarify that its proposed definition of

contract-like instrument

includes the exercise of an option period because it qualifies as a “bilateral contract modification.” This commenter cautioned that if the exercise of options is not considered a covered contract, the application of the Executive Order to many service contract workers could be delayed for years because concessions contracts are often long-term in nature.

The Department appreciates and has carefully considered the comments received on this issue, but ultimately declines to alter its conclusion that the unilateral exercise of an option clause under an existing contract does not qualify as a “new contract” for purposes of the Executive Order. As a threshold matter, the Department notes that its definition of the term

option

only refers to a pre-negotiated unilateral contractual right held by the Federal Government to purchase additional supplies or services or extend the term of the contract; contrary to the assertion made by the OPEIU and the ITPEU, the unilateral exercise of an option clause does not qualify as a “bilateral contract modification” for purposes of the Order because it is a pre-negotiated unilateral contractual right affording the contracting agency discretion in whether to exercise the option.

Sections 2(a), 7(d), and 8(a) of the Executive Order all contain express directives that the minimum wage requirements of the Order only extend to “new contracts.” 79 FR 9851-53. In extending only to “new contracts,” the Executive Order ensures that contracting agencies and contractors will have sufficient notice of any obligations under Executive Order 13658 and can take into account any potential economic impact of the Order on projected labor costs prior to negotiating “new contracts” on or after January 1, 2015.

The Department recognizes that, under the SCA and DBA, the Department and the FARC generally require the inclusion of new or current prevailing wage determinations upon the exercise of option clauses under existing contracts.

See, e.g.,

29 CFR 4.143(b); 48 CFR 22.404-1(a)(1); All Agency Memorandum (AAM) No. 157 (1992);

In the Matter of the United States Army,

ARB Case No. 96-133, 1997 WL 399373 (ARB July 17, 1997).

4

The SCA's regulations, for example, provide that when the term of an existing contract is extended pursuant to an option clause, the contract extension is viewed as a “new contract” for SCA purposes.

See

29 CFR 4.143(b). The rationale underlying this treatment of the exercise of option periods for purposes of the SCA and DBA, however, is distinguishable from the equities present with the Executive Order. Under the SCA and DBA, the interpretation of an exercise of an option period as a “new contract” is relevant for purposes of inserting a new or current prevailing wage determination in an existing multi-year contract that is

already

subject to the SCA or DBA; contracting parties affected by this interpretation thus knew that the agreement was covered by the prevailing wage statute at the time they entered into the original contract. Under the Executive Order, however, the “new contract” determination triggers coverage of the minimum wage requirements for contracts that previously were not subject to the Order at all. The Department thus finds its treatment of option periods under the SCA and DBA serves a substantively different purpose and function than its interpretation of option periods under the Executive Order.

4

As stated in AAM 157 and as recognized by the Building Trades, the Department does not assert that the exercise of an option period qualifies as a new contract in all cases for purposes of the DBA and SCA.

See

63 FR 64542 (Nov. 20, 1998). The Department considers the specific contract requirements at issue in making this determination. For example, the Department does not consider that a new contract has been created where a contractor is simply given additional time to complete its original obligations under the contract.

Id.

For these reasons, the Department adheres to its conclusion that the unilateral exercise of a pre-negotiated option clause by the Federal Government under an existing contract is not a “new contract” for purposes of the Executive Order.

Under the Department's proposed interpretation set forth in the NPRM, any renewals extensions, or modifications of existing contracts resulting from bilateral negotiations (other than administrative changes) on or after January 1, 2015 would have qualified as “new contracts” subject to the Executive Order, even if such negotiations occurred during option periods. The USACE commented on this proposed interpretation, requesting clarification as to what constitutes an “administrative change” and as to what degree of contractual modification is required in order for a modification to be considered a “new contract” subject to the Executive Order, particularly for covered contracts that are not subject to the FAR. The USACE specifically wondered whether the Department would regard a change of ownership or control under a contract (

e.g.,

assignment of a lease) as an “administrative change” or if such change would be sufficient to trigger a “new contract” under this part.

The FS similarly requested clarification on the scope of bilateral contract modifications that would require application of the Executive Order minimum wage requirements to a concessions contract. It specifically asked the Department to explain whether the Executive Order is intended to apply to bilateral contract modifications exclusively in the context of contractual renewals or extensions, or whether bilateral contract modifications in any context (

e.g.,

revisions during the term of an existing concessions contract that do not modify the scope of the authorized use of Federal land or property) would be regarded as “new contracts” subject to the Order. The FS also asked the Department to clarify whether the Executive Order applies exclusively to bilateral contract modifications that affect the scope of offered services or facilities, or would extend more generally to any type of bilateral contract modifications, including those that do not change the scope of authorized services or facilities (such as updating annual operating plans or utilizing a land use fee offset agreement).

Similarly, the AOA asked about the application of the Executive Order to contractual amendments, specifically with respect to amendments to existing contracts and permits on Federal land. It also requested clarification as to whether the Executive Order would apply to extensions of National Park Service (NPS) concessions contracts pursuant to the Concessions Management Improvement Act or to extensions and/or renewals of FS priority use permits.

Under the NPRM, existing contracts would have been treated as “new contracts” if extended, renewed, or

modified in any way except for administrative changes as a result of bilateral negotiations on or after January 1, 2015. Based upon a thorough review of comments received and careful consideration of the issue, the Department has decided to modify and clarify its approach to “new contract” coverage in this final rule. A contractual arrangement is a “new contract” subject to the Executive Order if it is a contract that results from a solicitation issued on or after January 1, 2015, or a contract that is awarded outside the solicitation process on or after January 1, 2015. The Department notes that this term includes both new contracts and replacements for expiring contracts, but it does not apply to the unilateral exercise of a pre-negotiated option to renew an existing contract by the Federal Government. The Department further clarifies that, for purposes of the Executive Order, a contract entered into prior to January 1, 2015 will be deemed to be a

new contract

if, through bilateral negotiation, on or after January 1, 2015: (1) The contract is renewed; (2) the contract is extended, unless the extension is made pursuant to a term in the contract as of December 31, 2014 providing for a short-term limited extension; or (3) the contract is amended pursuant to a modification that is outside the scope of the contract. The FARC, in consultation with the Department, will develop additional guidance, as necessary, as to what constitutes a short-term limited extension for these purposes.

In this final rule, the Department adopts its proposed interpretation in the NPRM that existing contracts that are renewed on or after January 1, 2015 as a result of bilateral negotiations qualify as “new contracts” subject to the Executive Order. As noted above, however, the final rule makes two changes with respect to the NPRM's treatment of contract extensions and modifications on or after January 1, 2015. First, extensions would not be treated as “new contracts” if such extensions were made pursuant to terms in the contract as of December 31, 2014 that authorized a short-term limited contract extension. Second, modifications (other than extensions or renewals that constitute new contracts) would not be treated as “new contracts” unless they qualify as modifications outside the scope of the contract. Each of these changes to the Department's proposed treatment of “new contracts” set forth in the NPRM are discussed below.

With respect to the coverage of contract modifications, the Department's approach in this final rule is designed to reflect that modifications within the scope of the contract do not in fact constitute new contracts. Long-standing contracting principles recognize that an existing contract, especially a larger one, will often require modifications, which may include very modest changes (

e.g.,

a small change to a delivery schedule). Therefore, regulations such as the FAR do not require agencies to create new contracts to support these actions. Accordingly, contract modifications that are within the scope of the contract within the meaning of the FAR,

see

48 CFR 6.001(c) and related case law, are not “new contracts” for purposes of the Executive Order.

However, if the parties bilaterally negotiate a modification that is outside the scope of the contract, the agency will be required to create a new contract, triggering solicitation and/or justification requirements, and thus such a modification after January 1, 2015 will constitute a “new contract” subject to the minimum wage requirements of this rule. For example, if an existing SCA-covered contract for janitorial services at a Federal office building is modified by bilateral negotiation after January 1, 2015 to also provide for security services at that building, such a modification would likely be regarded as outside the scope of the contract and thus qualify as a “new contract” subject to the Executive Order. Similarly, if an existing DBA-covered contract for construction work at Site A was modified by bilateral negotiation after January 1, 2015 to also cover construction work at Site B, such a modification would generally be viewed as outside the scope of the contract and thus trigger coverage of the Executive Order. The Department cautions, however, that whether a modification qualifies as “within the scope” or “outside the scope” of the contract is necessarily a fact-specific determination.

See, e.g., AT&T Communications, Inc.

v.

Wiltel, Inc.,

1 F.3d 1201 (Fed. Cir. 1993).

The Department further notes that, while in scope modifications do not create “new contracts” under this final rule, the Department strongly encourages agencies to bilaterally negotiate, as part of any such modification, application of the minimum wage requirements so that these contracts can take advantage of the benefits of a higher minimum wage.

With respect to contract extensions, the Department generally affirms its proposed approach that a bilaterally negotiated extension of an existing contract on or after January 1, 2015 will be viewed as a “new contract.” Importantly, however, the Department has carved out one exception to this general principle: If the extension is made pursuant to a term in the contract as of December 31, 2014 providing for a short-term limited extension, the extension will not constitute a “new contract” and will not be covered. These changes to the definition of

new contract

better align the final rule with notions of in scope and out of scope actions while still providing an important limitation on the length of the bilaterally negotiated extension. Thus, a short-term extension of contract terms (

e.g.,

an extension of six months or less) that was provided for by the pre-negotiated terms of the contract prior to January 1, 2015 would be an in scope change and would not constitute a new contract. Bilaterally negotiated extensions envisioned in the contract that are limited in duration, such as a bridge to prevent a gap in service, would not be considered a “new contract,” but a long-term extension that is tantamount to a replacement contract will be treated as a “new contract” for purposes of this rule. Similarly, an extension that was bilaterally negotiated and not previously authorized by the terms of the existing contract would be a “new contract” subject to the minimum wage requirements. The Department also notes that a long-term extension of an existing contract will qualify as a “new contract” subject to the Executive Order, even if such an extension was provided for by a pre-negotiated term of the contract. The Department would regard a long-term extension as tantamount to a renewal or replacement, which are covered by the Order.

The Department has consulted with the FARC and notes that contract extensions are commonly accomplished through options created by the agency pursuant to FAR clause 52.217-8 (which allows for an extension of time of up to six months for a contractor to perform services that were acquired but not provided during the contract period) or FAR clause 52.217-9 (which provides for an extension of the contract term to provide additional services for a limited term specified in the contract at previously agreed upon prices). The contracting agency's exercise of extensions under these clauses would not trigger application of the minimum wage requirements because the clauses give the contracting agency a discretionary right to unilaterally exercise the option to extend and unilateral options are excluded from the definition of “new contract.” However, as explained above, if an extension was

bilaterally negotiated and not made pursuant to an existing clause as of January 1, 2015, such action would create a new relationship with the Federal Government. As a result, such action would be treated as creating a “new contract” for purposes of this rule and trigger application of the minimum wage requirements.

The Department believes that these changes to its proposed approach to “new contract” coverage are responsive to several commenters, such as the USACE, the FS, and the AOA, that expressed confusion regarding the type or extent of contract modifications that the Department would consider sufficient to trigger coverage of the Executive Order. For example, with respect to the USACE's comment seeking clarification on the meaning of the phrase “administrative change,” as explained above, the Department has modified the definition of

new contract

in the final rule and removed reference to “administrative changes.”

With respect to the specific questions raised by the AOA, the approach described above governs whether a “new contract” has been created for purposes of the Executive Order. Extensions of existing NPS concessions contracts pursuant to the Concessions Management Improvement Act will be treated in the same manner as all other concessions contracts. If the NPS exercises its unilateral right to exercise an option to extend the contract and no substantive modifications are made to the agreement, such agreement will not be considered a “new contract.” However, if, on or after January 1, 2015, the parties renew the agreement or extend the agreement bilaterally and such extension was not made pursuant to the terms of the contract as of December 31, 2014 or is not a short-term extension, the Department would view the resulting agreement as a “new contract” subject to the Executive Order. Similarly, if the parties amend the concessions contract pursuant to a modification that is outside the scope of the contract, the Department would regard the resulting agreement as a “new contract” subject to the Order.

Several commenters also requested the Department to clarify whether its interpretation of “new contracts” subject to the Executive Order applies to task orders issued on or after January 1, 2015, under existing master contracts. The AGC, for example, sought clarification as to whether the Order applies to task orders issued on or after January 1, 2015, pursuant to an “indefinite delivery, indefinite quantity” (IDIQ) contract that was awarded prior to January 1, 2015. FortneyScott similarly sought clarification regarding the coverage of task orders issued by a contracting agency under a GSA Schedule Contract. It specifically asked whether, if a GSA Schedule Contract is entered into prior to January 1, 2015, and remains unmodified after that date, any task orders issued under the GSA Schedule Contract, even if issued on or after January 1, 2015, would be subject to the Order. FortneyScott asked that the Department explicitly state in the regulations that task orders issued under GSA Schedule Contracts entered into prior to January 1, 2015, and prior to the renewal or modification of the GSA Schedule Contract are not subject to the Executive Order. Alternatively, it proposed that if the Department determines that such task orders are covered, contractors should be entitled to a contract price adjustment. Relatedly, the PSC observed that the Department's proposed interpretation of the coverage of new contracts would treat each new order under a task order as a new contract and that such an interpretation would raise labor costs without the contractor being able to anticipate or recover any price increase resulting from the minimum wage requirement, notwithstanding the pricing regimes in the base contract.

Under this final rule, a contract awarded under the GSA Schedules will be considered a “new contract” in certain situations. Of particular note, any covered contracts that are added to the GSA Schedule in response to GSA Schedule solicitations issued on or after January 1, 2015, qualify as “new contracts” subject to the Order; any covered task orders issued pursuant to those contracts would be deemed to be “new contracts.” This would include contracts to add new covered services as well as contracts to replace expiring contracts. As explained above, the Department is strongly encouraging agencies to bilaterally modify existing contracts, as appropriate, to include the minimum wage requirements of this rule when such contracts are not otherwise considered to be a “new contract” under the terms of this rule. For example, the FARC should encourage, if not require, contracting officers to modify existing indefinite-delivery, indefinite-quantity contracts in accordance with FAR section 1.108(d)(3) to include the Executive Order minimum wage requirements, particularly with respect to future orders if the amount of work or number of orders expected under the remaining performance period is substantial.

The Department declines the request made by FortneyScott to direct that a contract price adjustment be given to contractors reflecting any higher short-term labor costs that may arise by applying the Order to new task or purchase orders on or after January 1, 2015, that are issued under master contracts that were entered into prior to January 1, 2015. As a general matter, price adjustments, if appropriate, would need to be negotiated by the parties and based on the specific nature of the contract. In addition, as explained above, the Department is encouraging, but not requiring, agencies to modify existing IDIQ contracts that do not otherwise meet the definition of a new contract. Pursuant to this final rule, task orders that are issued under IDIQ contracts entered into prior to January 1, 2015 will thus only be covered by the Executive Order if and when the master contract is modified to include the minimum wage requirement.

The Department also received many comments from individuals and organizations such as the National Federation of the Blind and the National Association of Blind Lawyers urging the Department not to exempt contracts placed on the AbilityOne Procurement List from the Executive Order minimum wage requirements. These commenters noted that, although such contracts are exempt from external competition once placed on the Procurement List, they are subject to renewal and renegotiation in the same manner as any other contract. The Department agrees with such commenters that procurements through the AbilityOne program are not exempt and will be covered in the same manner as any other contract. For example, if an AbilityOne service contract was awarded on January 1, 2011 and provided for a five-year contract term, a decision by the contracting parties to renew the contract on January 1, 2016 would qualify as a “new contract” subject to the Executive Order.

The Department therefore adopts § 10.3(a) as proposed, except that it has used the term

new contract

in the regulatory text to improve clarity. As explained above, the Department has also revised its proposed definition of the term

new contract

set forth in § 10.2.

Coverage of Types of Contractual Arrangements

Proposed § 10.3(a)(1) set forth the specific types of contractual arrangements with the Federal Government that are covered by the Executive Order. As explained in the NPRM, Executive Order 13658 and this part are intended to apply to a wide range of contracts with the Federal Government for services or construction. Proposed § 10.3(a)(1)

implemented the Executive Order by generally extending coverage to procurement contracts for construction covered by the DBA; service contracts covered by the SCA; concessions contracts, including any concessions contract excluded by the Department's regulations at 29 CFR 4.133(b); and contracts in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public. Each of these categories of contractual agreements is discussed in greater detail below.

Procurement Contracts for Construction:

Section 7(d)(i)(A) of the Executive Order extends coverage to “procurement contract[s] for . . . construction.” 79 FR 9853. The proposed rule at § 10.3(a)(1)(i) interpreted this provision of the Order as referring to any contract covered by the DBA, as amended, and its implementing regulations. The Department noted that this provision reflects that the Executive Order and this part apply to contracts subject to the DBA itself, but do not apply to contracts subject only to the Davis-Bacon Related Acts, including those set forth at 29 CFR 5.1(a)(2)-(60).

The DBA applies, in relevant part, to contracts to which the Federal Government is a party, for the construction, alteration, or repair, including painting and decorating, of public buildings and public works of the Federal Government and which require or involve the employment of mechanics or laborers. 40 U.S.C. 3142(a). The DBA's regulatory definition of

construction

is expansive and includes all types of work done on a particular building or work by laborers and mechanics employed by a construction contractor or construction subcontractor.

See

29 CFR 5.2(j). For purposes of the DBA and thereby the Executive Order, a contract is “for construction” if “more than an incidental amount of construction-type activity” is involved in its performance.

See, e.g., In the Matter of Crown Point, Indiana Outpatient Clinic,

WAB Case No. 86-33, 1987 WL 247049, at *2 (June 26, 1987) (citing

In re: Military Housing, Fort Drum, New York,

WAB Case No. 85-16, 1985 WL 167239 (Aug. 23, 1985)),

aff'd sub nom., Building and Construction Trades Dep't, AFL-CIO

v.

Turnage,

705 F. Supp. 5 (D.D.C. 1988); 18 Op. O.L.C. 109, 1994 WL 810699, at *5 (May 23, 1994). The term “contract for construction” is not limited to contracts entered into with a construction contractor; rather, a contract for construction “would seem to require only that there be a contract, and that one of the things required by that contract be construction of a public work.”

Id.

at *3-4. The term “public building or public work” includes any building or work, the construction, prosecution, completion, or repair of which is carried on directly by authority of or with funds of a Federal agency to serve the interest of the general public.

See

29 CFR 5.2(k).

Proposed § 10.3(b) implemented section 7(e) of Executive Order 13658, 79 FR 9853, which provides that the Order applies only to DBA-covered prime contracts that exceed the $2,000 value threshold specified in the DBA.

See

40 U.S.C. 3142(a). Consistent with the DBA, there is no value threshold requirement for subcontracts awarded under such prime contracts.

Several commenters, including the EEAC, expressed support for the Department's discussion of this category of covered contracts. In its comment, the EEAC noted that it concurred with the Department's interpretation that the Executive Order does not apply to contracts subject only to the Davis-Bacon Related Acts and appreciated that clarification in the NPRM's preamble.

The Building Trades submitted a comment expressing concern regarding the Department's interpretation that the Executive Order only applies to procurement contracts for construction that are subject to the DBA. The Building Trades argued that there is no “legitimate or reasonable explanation” for excluding FLSA-covered workers on construction contracts that are not subject to the DBA because the plain language of section 7(d) of the Executive Order states that its minimum wage requirements apply to workers on “procurement contract[s] . . . for construction” whose wages are governed by the FLSA, SCA, or DBA. In other words, the Building Trades urged the Department to extend coverage of the Executive Order to FLSA-covered workers performing work on prime construction contracts that are not subject to the Davis-Bacon Act because the value of the prime contract does not exceed the DBA's $2,000 statutory threshold.

As explained above, the DBA applies to all prime contracts for construction over $2,000 and all subcontracts thereunder regardless of the value of the subcontract.

See

40 U.S.C. 3142(a). The Department has interpreted the Executive Order as applying to all procurement construction contracts covered by the DBA, which means that the Order covers all prime procurement contracts for construction worth at least $2,000 and all covered subcontracts thereunder. Based on the Department's enforcement experience under the DBA, there are very few construction contracts with the Federal Government that fall below the $2,000 statutory value threshold.

However, insofar as construction contracts with the Federal Government that fall below the $2,000 statutory value threshold may exist, the Department believes that it is constrained, by the plain language of section 7(e) of the Executive Order, from extending the protections of the Executive Order to FLSA-covered workers on prime construction contracts that are valued at less than $2,000.

See

79 FR 9853. That provision expressly states that, for procurement contracts where workers' wages are governed by the FLSA, the Order applies only to contracts that exceed the $3,000 micro-purchase threshold, as defined in 41 U.S.C. 1902(a). Although section 7(e) of the Order allows the Department to depart from these value threshold standards in its regulations where appropriate, the Department believes that this provision constitutes compelling evidence that the Executive Order is not intended for construction contracts that are not covered by the DBA to be subject to the Order. Moreover, the Department received many comments specifically requesting it to align coverage of the Executive Order with coverage of the SCA and DBA to the greatest extent possible. Although the Department appreciates and has carefully considered the comment submitted by the Building Trades on this issue, the Department believes that its interpretation that only procurement contracts for construction that are subject to the DBA are within the scope of the Executive Order is reasonable and appropriate.

Contracts for Services:

Proposed § 10.3(a)(1)(ii) provided that coverage of the Executive Order and this part encompasses “contract[s] for services covered by the Service Contract Act.” This proposed provision implemented sections 7(d)(i)(A) and (B) of the Executive Order, which state that the Order applies respectively to a “procurement contract for services” and a “contract or contract-like instrument for services covered by the Service Contract Act.” 79 FR 9853. The Department interpreted a “procurement contract for services,” as set forth in section 7(d)(i)(A) of the Executive Order, to mean a procurement contract that is subject to the SCA, as amended, and its implementing regulations. The proposed rule viewed a “contract for services covered by the Service Contract Act” under section 7(d)(i)(B) of the Order as including both procurement

and non-procurement contracts for services that are covered by the SCA. The Department therefore incorporated sections 7(d)(i)(A) and (B) of the Executive Order in proposed § 10.3(a)(1)(ii) by expressly stating that the requirements of the Order apply to service contracts covered by the SCA.

The SCA generally applies to every contract entered into by the United States that “has as its principal purpose the furnishing of services in the United States through the use of service employees.” 41 U.S.C. 6702(a)(3). The SCA is intended to cover a wide variety of service contracts with the Federal Government, so long as the principal purpose of the contract is to provide services using service employees.

See, e.g.,

29 CFR 4.130(a). As reflected in the SCA's regulations, where the principal purpose of the contract with the Federal Government is to provide services through the use of service employees, the contract is covered by the SCA.

See

29 CFR 4.133(a). Such coverage exists regardless of the direct beneficiary of the services or the source of the funds from which the contractor is paid for the service and irrespective of whether the contractor performs the work in its own establishment, on a Government installation, or elsewhere.

Id.

Coverage of the SCA, however, does not extend to contracts for services to be performed exclusively by persons who are not service employees,

i.e.,

persons who qualify as bona fide executive, administrative, or professional employees as defined in the FLSA's regulations at 29 CFR part 541. Similarly, a contract for professional services performed essentially by bona fide professional employees, with the use of service employees being only a minor factor in contract performance, is not covered by the SCA and thus would not be covered by the Executive Order or this part.

See

41 U.S.C. 6702(a)(3); 29 CFR 4.113(a), 4.156; WHD Field Operations Handbook (FOH) ¶¶ 14b05, 14c07.

Although the SCA covers all non-exempted contracts with the Federal Government that have the “principal purpose” of furnishing services in the United States through the use of service employees regardless of the value of the contract, the prevailing wage requirements of the SCA only apply to covered contracts in excess of $2,500. 41 U.S.C. 6702(a)(2) (recodifying 41 U.S.C. 351(a)). Proposed § 10.3(b) of this rule implemented section 7(e) of the Executive Order, which provides that for SCA-covered contracts, the Executive Order applies only to those prime contracts that exceed the $2,500 threshold for prevailing wage requirements specified in the SCA. 79 FR 9853. Consistent with the SCA, there is no value threshold requirement for subcontracts awarded under such prime contracts.

Some commenters, including the EEAC, expressed support for the Department's interpretation of this category of covered contracts, noting that “[b]y directly linking . . . coverage of service contracts to SCA coverage, the NPRM eliminates most of the confusion generated by the EO as to what service contracts might be covered as `procurement contracts for services' but which are not `contracts for services covered' by the SCA.” However, other commenters such as the AFL-CIO and the Building Trades urged the Department to extend the Executive Order's minimum wage requirements to all service contracts with the Federal Government and not to restrict coverage to those service contracts covered by the SCA. The AFL-CIO noted, for example, that “certain employees who perform service tasks on contracts that are exempt from the SCA because the principal purpose of the contract is not provision of services” would not be covered under the proposed rule. It urged the Department to reconsider this approach for contracts that exceed the micro-purchase threshold because the plain language of the Executive Order extends coverage to workers performing on “procurement contract[s] for services” whose wages are governed by the FLSA.

The Department's proposed approach to interpret sections 7(d)(i)(A) and (B) of the Executive Order as referring to SCA-covered procurement and nonprocurement service contracts was similar to the manner in which the Department interpreted section 7(d)(i)(A) as referring to DBA-covered procurement construction contracts. The Department intended its interpretation of these two categories of contracts to be aligned with well-established SCA and DBA contract coverage standards in order to assist contracting agencies and contractors in determining their obligations under the Order and this part. The Department believes that this approach best effectuates the purposes of the Executive Order and is consistent with the directive set forth in section 4(c) of the Order to draft regulations that incorporate existing definitions, procedures, and processes under the FLSA, SCA, and DBA to the extent practicable. The Department emphasizes, however, that service contracts that are not subject to the SCA may still be covered by the Order if such contracts qualify as concessions contracts or contracts in connection with Federal property or lands and related to offering services to Federal employees, their dependents, or the general public pursuant to sections 7(d)(i)(C) and (D) of the Order. Because service contracts may be covered by the Order if they fall within any of these three categories (

e.g.,

SCA-covered contracts, concessions contracts, or contracts in connection with Federal property and related to offering services), the Department anticipates that most service contracts with the Federal Government will be covered by the Executive Order and this part.

The Department received a comment from an individual seeking clarification as to whether non-profit service providers who provide home and community-based services through the Medicaid waiver program are subject to the Executive Order because the Medicaid waiver program involves Federal funds. In response, the Department notes the mere receipt of Federal financial assistance by an individual or entity does not render an agreement subject to the Executive Order. With respect to the specific concerns raised by this commenter, contracts let under the Medicaid program that are financed by Federally-assisted grants to the states, and contracts that provide for insurance benefits to third parties under the Medicare program, are not subject to the SCA.

See

29 CFR 4.107(b), 4.134(a); WHD FOH ¶ 14e01. Because such an agreement is not covered by the SCA and would not fall within the scope of the other three types of contracts covered by the Executive Order (

e.g.,

it is not a construction contract covered by the DBA, a concessions contract, or a contract in connection with Federal property or lands), the agreement is not subject to the requirements of the Order.

The American Health Care Association (AHCA) submitted a comment on the proposed coverage of service contracts under the Executive Order, seeking clarification as to the coverage of provider agreements with the Veterans Administration (VA). The AHCA noted that a proposed rule issued by the VA in 2013 would exempt nursing facilities operating under provider agreements with the VA from SCA coverage and such agreements would therefore not be covered by the Executive Order. The AHCA requested that, if the VA's proposed rule is not finalized by the time that the Department issues its final rule, the Department should expressly exempt VA provider agreements from coverage of the Executive Order. The AHCA asserted that if the Executive Order were

deemed to apply to nursing facilities operating pursuant to VA provider agreements, many such facilities would be unable to continue their VA contracts because nursing facilities “will not be able to afford to pay all of their staff the wage increase.” As a result, the AHCA maintained that application of the Executive Order to such nursing facilities “will result in a health care access issue for our nation's veterans because a number of [nursing facilities] will no longer be able to provide VA services.”

For purposes of determining coverage under the Executive Order, the relevant inquiry is whether VA provider agreements fall into one of the specifically enumerated categories of covered contracts set forth in section 7(d) of the Order,

i.e.,

whether such agreements are covered by the SCA.

5

The SCA grants authority and responsibility for administering and enforcing the SCA to the Secretary of Labor.

See

41 U.S.C. 6707(a) and (b) (stating that the Secretary of Labor has authority “to enforce this chapter, . . . prescribe regulations, issue orders, hold hearings, make decisions based on findings of fact, and take other appropriate action” and to “provide reasonable limitations” and “prescribe regulations allowing reasonable variation, tolerances, and exemptions” as the Secretary deems necessary and proper). The Secretary's authority includes the ability to make final determinations regarding coverage of the SCA, and such decisions are binding on contracting agencies.

See id.; Collins Int'l Serv. Co.

v.

United States,

744 F.2d 812 (Fed. Cir. 1984);

Curtiss-Wright Corp.

v.

McLucas,

381 F. Supp. 657 (D. N.J. 1974);

Midwest Service and Supply Co.,

Decision of the Comptroller General No. B-191554 (July 13, 1978); 43 Op. Atty. Gen. 14 (March 9, 1979). The Department is not asserting SCA coverage of VA provider agreements through this rulemaking; in fact, the AHCA has not pointed to any examples of VA provider agreements for which the Department has asserted SCA coverage. In the event that the Department is called upon to issue a coverage determination under the SCA regarding VA provider agreements and determines that such contracts are not covered by the SCA, they would not be subject to Executive Order 13658. In this circumstance, and because the Department finds that the AHCA's general claims of hardship that could result from application of the Order to VA provider agreements are inconsistent with the economy and efficiency rationale underlying the Executive Order, the Department believes that it would be inappropriate to grant a special exemption from the Executive Order for this type of agreement.

5

Based on the information provided by the AHCA in its comment, it does not appear that its VA provider agreements would qualify as concessions contracts or as contracts in connection with Federal property or lands and related to offering services to Federal employees, their dependents, or the general public.

The Department also received a comment from EAP Lifestyle Management, LLC, seeking clarification about whether the Executive Order would apply to its provision of employee assistance programs, including critical incident response services, provided for Federal employees on private land. The Department notes that, based on the limited amount of information received, such a contract appears to be subject to the SCA because it is a contract with the Federal Government principally for services through the use of service employees and thus would indeed be covered by the Executive Order regardless of whether the services are performed on public or private land.

Finally, the AOA and the O.A.R.S. Companies, Inc. (O.A.R.S.) sought guidance regarding whether the Executive Order applies to special use permits issued by the FS, Commercial Use Authorizations (CUAs) issued by the NPS, and outfitter and guide permits issued by the Bureau of Land Management (BLM) and the United States Fish and Wildlife Service (USFWS), respectively. The Department notes that FS special use permits generally are SCA-covered contracts, unless a permit holder can invoke the SCA exemption for certain concessions contracts contained in 29 CFR 4.133(b).

See Cradle of Forestry in America Interpretive Association,

ARB Case No. 99-035, 2001 WL 328132, at *5 (ARB March 30, 2001) (noting that “whether Forest Service [special use permits] are exempt from SCA coverage as concessions contracts would need to be evaluated based upon the specific services being offered at each site”). Thus, FS special use permits will normally be subject to the Executive Order's requirements under section 7(d)(i)(B) of the Order and § 10.3(a)(1)(ii). To the extent that a contractor may be able to invoke the 29 CFR 4.133(b) exemption from the SCA with respect to a specific special use permit, such a contract will be subject to the Executive Order's requirements under section 7(d)(i)(C) of the Order and § 10.3(a)(1)(iii).

The AOA also represents that its members “provide services to the public on federal lands.” O.A.R.S. refers to itself as a “recreational service provider on federal lands.” Accordingly, the Department's understanding is that the AOA's members and O.A.R.S. enter into CUA agreements with the NPS, and outfitter and guide permit agreements with the BLM and USFWS, respectively, the principal purpose of which (akin to the agreement at issue in the

Cradle of Forestry

decision cited above) is to furnish services through the use of service employees. Assuming this is true, the SCA, and thus the Executive Order, covers the CUA and outfitter and guide permit agreements that the AOA's members, and O.A.R.S., enter into with the NPS, BLM, and USFWS, respectively. The Department notes that a further discussion of the application of section 7(d)(i)(D) of the Executive Order to FS special use permits, NPS CUAs, and BLM and USFWS outfitter and guide permits is set forth below in the discussion of contracts in connection with Federal property and related to offering services.

Contracts for Concessions:

Proposed § 10.3(a)(1)(iii) implemented the Executive Order's coverage of a “contract or contract-like instrument for concessions, including any concessions contract excluded by the Department of Labor's regulations at 29 CFR 4.133(b).” 79 FR 9853. As explained above, the NPRM interpreted a “contract or contract-like instrument for concessions” under section 7(d)(i)(C) of the Executive Order as a contract under which the Federal Government grants a right to use Federal property, including land or facilities, for furnishing services. The proposed definition of the term

concessions contract

included every contract the principal purpose of which is to furnish food, lodging, automobile fuel, souvenirs, newspaper stands, and/or recreational equipment, regardless of whether the services are of direct benefit to the Government, its personnel, or the general public. The SCA generally covers contracts for concessionaire services.

See

29 CFR 4.130(a)(11). However, pursuant to the Secretary's authority under section 4(b) of the SCA, the SCA's regulations specifically exempt from coverage concession contracts “principally for the furnishing of food, lodging, automobile fuel, souvenirs, newspaper stands, and recreational equipment to the general public.” 29 CFR 4.133(b); Preamble to the SCA final rule, 48 FR 49736, 49753 (Oct. 27, 1983). Section 7(d)(i)(C) of the Executive Order specifies that the Order applies to all contracts with the Federal Government for concessions, including any concessions contracts that are

excluded from SCA coverage by 29 CFR 4.133(b). Proposed § 10.3(a)(1)(iii) implemented this provision and extended coverage of the Executive Order and this part to all concession contracts with the Federal Government. Consistent with the SCA's implementing regulations at 29 CFR 4.107(a), the Department noted in the NPRM that the Executive Order generally applies to concessions contracts with nonappropriated fund instrumentalities under the jurisdiction of the Armed Forces or of other Federal agencies.

Proposed § 10.3(b) of this rule implemented the value threshold requirements of section 7(e) of Executive Order 13658. 79 FR 9853. Pursuant to that section, the Executive Order applies to an SCA-covered concessions contract only if it exceeds $2,500.

Id.;

41 U.S.C. 6702(a)(2). Section 7(e) of the Executive Order further provides that, for procurement contracts where workers' wages are governed by the FLSA, such as procurement contracts for concessionaire services that are excluded from SCA coverage under 29 CFR 4.133(b), this part applies only to contracts that exceed the $3,000 micro-purchase threshold, as defined in 41 U.S.C. 1902(a). There is no value threshold for subcontracts awarded under prime contracts or for non-procurement concessions contracts or contracts in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public.

The Department received several comments expressing concern regarding application of the Executive Order to restaurant franchises on military bases. These comments, which were submitted by individual franchisees as well as organizations such as the Association/IFA and the Dunkin' Donuts Independent Franchise Owners, assert that the minimum wage requirements of the Order impose a uniquely burdensome obligation on fast food restaurants on military bases because the restaurant owners receive no funding from the Federal Government. They state that such contractors generally pay rent and a portion of their sales in exchange for the ability to conduct business on the military installation and that such funds are used to support the military's Morale, Welfare and Recreation (MWR) Programs. These commenters also assert that, due to restrictions in their contracts with the Federal Government, they cannot raise the prices that they charge for products sold on the military base above the prices offered by competitors in a three-mile radius.

Many franchise owners on military installations commented that they are small businesses and will not be able to absorb the increase in cost that may result from the Executive Order. These commenters asserted that having to pay the Executive Order minimum wage would result in their businesses reducing employee work hours, terminating workers, or closing store locations, all of which would affect customer service. The Coalition of Franchisee Associations similarly noted that the closure of such businesses could substantially impact the military's MWR Programs that are funded by the concessionaires' rent payments. These franchise owners also argued that application of the Executive Order minimum wage to their business establishments on military installations would cause them to operate at a competitive disadvantage because competitor businesses located off the military base would not be affected. The Association/IFA, for example, maintained that the application of the Executive Order minimum wage to concessions contracts and contracts in connection with Federal property and related to offering services places businesses operating under such contracts on an unfair playing field because their competitors are generally not subject to the minimum wage increase and thus have a competitive advantage due to their lower labor costs. Many of the commenters raising these concerns also noted that the potential economic impact of the Executive Order upon their businesses should not be analyzed in isolation; rather, they asked that the Department consider the costs of the Executive Order minimum wage as well as the costs associated with legal obligations to which they may be subject under other Federal laws (

e.g.,

SCA fringe benefit obligations). For these reasons, some commenters urged the Department to exempt from the Executive Order minimum wage requirements any entities that do not receive direct funds from the Federal Government (

e.g.,

concessionaires).

In response to all of the comments received about the economic impact of the Executive Order upon businesses operating on military installations under concessions contracts, the Department notes that such comments fail to account for a number of factors that the Department anticipates will substantially offset many potential adverse economic effects on their businesses. In particular, these commenters fail to consider that increasing the minimum wage of their workers can reduce absenteeism and turnover in the workplace, improve employee morale and productivity, reduce supervisory costs, and increase the quality of services provided to the Federal Government and the general public. These commenters similarly do not account for the potential that increased efficiency and quality of services will attract more customers and result in increased sales.

Moreover, and significantly, the Executive Order minimum wage requirements apply only to “new contracts.” Contracting agencies and contractors negotiating “new contracts” after January 1, 2015, will be aware of Executive Order 13658 and can take into account any potential economic impact of the Order on projected labor costs. For example, with respect to several commenters' concerns regarding the restrictions on pricing imposed by their concessions contracts, the Department notes that contractors typically will have the ability to negotiate a lower percentage of sales paid as rent or royalty to the Federal Government in new contracts prior to application of the Executive Order that could help to offset any costs that may be incurred as a result of the Order. The assertion that a franchisee must terminate workers or close businesses due to the Executive Order minimum wage requirements thus overlooks the benefits of the Executive Order wage increase as well as alternatives available through contract renegotiation. Sections 7(d)(i)(C) and (D) of the Executive Order reflects a clear intent that concessions contracts with the Federal Government are subject to the minimum wage requirement. The Department therefore declines the commenters' request to create an exemption for entities that do not receive direct funds from the Federal Government (

e.g.,

concessionaires).

A few commenters, such as ACCSES and SourceAmerica, requested that the Department address whether officers clubs and restaurants on military bases operated by nonappropriated Federal funds are subject to the Executive Order. The Department noted in the NPRM that, consistent with the SCA, the proposed definition of the term

Federal Government

includes nonappropriated fund instrumentalities under the jurisdiction of the Armed Forces or of other Federal agencies.

See

29 CFR 4.107(a). Businesses that contract with nonappropriated fund instrumentalities to operate on military installations are thus subject to the Executive Order minimum wage requirement if the contract falls within one of the four specifically enumerated categories of contracts covered by the Order.

Contracts to operate officers clubs and restaurants on military bases would likely qualify as SCA-covered contracts as well as concessions contracts or contracts in connection with Federal lands and related to offering services; any such contracts which qualify as a “new contract” as explained in this part will thus be subject to the Executive Order.

The EEAC commented on the Department's interpretation of concessions contract coverage, noting it would be helpful for the Department to provide more examples of covered contracts. The EEAC further stated that the Executive Order “appears to effectively eliminate the regulatory exception that the Department created for certain concessions contracts now codified at 29 CFR § 4.133(b).” The EEAC also expressed confusion because it viewed the NPRM as implying that there might be concessions contracts covered by the third category of the Executive Order that are not exempt under the SCA's regulations.

Contrary to the EEAC's claim, the Executive Order does not eliminate the regulatory exemption to the SCA's requirements that the Department created for certain concessions contracts at 29 CFR 4.133(b). Even after enactment of Executive Order 13658, the SCA still does not apply to such contracts. While the Executive Order establishes a minimum wage for such contracts, SCA prevailing wage rate and fringe benefit requirements remain inapplicable to concessions contracts that fall within the 29 CFR 4.133(b) exemption.

With respect to this commenter's confusion about the types of concessions contracts that are not exempt from the SCA under 29 CFR 4.133(b), the regulatory text of that provision expressly states that the exemption only applies to certain kinds of concessions contracts. The SCA's regulatory exemption applies to certain concessions contracts that provide services to the general public; it does not, however, apply to concessions contracts that provide services to the Federal Government or its personnel or to concessions services provided incidentally to the principal purpose of a covered SCA contract.

See, e.g.,

29 CFR 4.130 (providing an illustrative list of SCA-covered contracts);

In the Matter of Alcatraz Cruises, LLC,

ARB Case No. 07-024, 2009 WL 250456 (ARB Jan. 23, 2009) (holding that the SCA regulatory exemption at 29 CFR 4.133(b) does not apply to National Park Service contracts for ferry transportation services to and from Alcatraz Island). The Executive Order expressly applies to all concessions contracts with the Federal Government, including those exempted from the SCA's requirements. For example, the Executive Order's minimum wage requirements generally extend to fast food restaurants on military bases, souvenir shops at national monuments, child care centers in Federal buildings, and boat rental facilities at national parks.

The comment submitted by the FS also raised several issues pertaining to the Executive Order's coverage of concessions contracts. First, the FS urged the Department to consolidate the definition for the terms

contract

and

contract-like instrument

with the definition for the term

concessions contract.

As discussed above in the context of § 10.2, the Department has considered and declined this request. Second, the FS noted its disagreement with the Department's proposed interpretation of the term “concessions.” This commenter stated that “the FS construes the term `concession' much more narrowly” than the definition proposed by the Department and that it specifically interprets the term “to include only commercial recreation public services such as ski areas, marinas, and outfitting and guiding.” The FS stated that it does not view “concessions” as including the provision of noncommercial educational or interpretive services or covering the provision of energy, transportation, communications, or water services to the public. Finally, the FS requested that the Department create a $3,000 de minimis threshold for nonprocurement concessions contracts whose workers' wages are subject to the FLSA. The FS noted that the Executive Order has value threshold requirements for SCA- and DBA-covered prime contracts, as well as for covered prime procurement contracts on which FLSA-covered workers perform work, but that it does not have a value threshold for nonprocurement concessions contracts under which workers' wages are subject to the FLSA. It urged the Department to apply the micro-purchase threshold set forth at 41 U.S.C. 1902(a) to all such nonprocurement concessions contracts and thus to determine that nonprocurement contracts under which a land use fee to the Federal Government falls below the $3,000 threshold are not covered by the Executive Order.

With respect to the FS's comment on the scope of the term “concessions,” the Department does not believe that the narrow view of the term proffered by the FS is an appropriate interpretation for purposes of the Executive Order.

6

The Department has proposed to more broadly define a concessions contract as any contract under which the Federal Government grants a right to use Federal property, including land or facilities, for furnishing services without any substantive restrictions on the type of services provided or the beneficiary of the services rendered. The Department received supportive comments on its proposed definition of this term from several commenters such as Demos and NELP. Moreover, this broad interpretation of the term “concessions” best effectuates the inclusive nature of the Executive Order. By expressly applying to both concessions contracts covered by the SCA as well as concessions contracts exempt from the SCA, the Executive Order clearly is intended to cover concessions contracts for the benefit of the general public as well as for the benefit of the Federal Government itself and its personnel. The Department would thus generally view contracts for the provision of noncommercial educational or interpretive services, energy, transportation, communications, or water services to the general public as within the scope of concessions contracts covered by the Order. Regardless of the scope of the term “concessions,” however, the Department notes that such contracts may qualify as SCA-covered contracts and are also likely to fall within the ambit of the fourth category of covered contracts set forth at section 7(d)(i)(D) of the Executive Order because such contracts are entered into “in connection with Federal property” and “related to offering services for . . . the general public.”

6

The Department's interpretation of the term “concessions” for purposes of Executive Order 13658 and this final rule of course does not determine how that term may be interpreted under other laws, including laws implemented by the FS.

With respect to the FS's request that the Department establish a $3,000 de minimis threshold for nonprocurement concessions contracts, the Department has carefully considered this request. The Department declines to create such an exception to coverage of the Executive Order, however, because section 7(e) of the Order sets forth very specific value threshold requirements for other types of contracts and notably does not include a value threshold for nonprocurement contracts under which workers' wages are governed by the FLSA. The Department views such an omission as a deliberate decision reflecting a clear intent of the Executive

Order to cover concessions contracts regardless of dollar amount.

Contracts in Connection with Federal Property or Lands and Related to Offering Services:

Proposed § 10.3(a)(1)(iv) implemented Section 7(d)(i)(D) of the Executive Order, which extends coverage of the Order to contracts entered into with the Federal Government in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public.

See

79 FR 9853. To the extent that such agreements were not otherwise covered by § 10.3(a)(1), the Department interpreted this provision in the NPRM as generally including leases of Federal property, including space and facilities, and licenses to use such property entered into by the Federal Government for the purpose of offering services

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