Nondisplacement of Qualified Workers Under Service Contracts

DEPARTMENT OF LABOR

29 CFR Part 9

RIN 1235-AA42

Nondisplacement of Qualified Workers Under Service Contracts

AGENCY:

Wage and Hour Division, Department of Labor.

ACTION:

Final rule.

SUMMARY:

This document finalizes regulations to implement Executive Order 14055, “Nondisplacement of Qualified Workers Under Service Contracts” (Executive order or the order), which was signed by President Joseph R. Biden, Jr. on November 18, 2021. The Executive order states that when a service contract with the Federal Government expires and a follow-on contract is awarded for the same or similar services, the Federal Government's procurement interests in economy and efficiency are best served when the successor contractor or subcontractor hires the predecessor's employees, thus avoiding displacement of these employees. The Executive order, therefore, provides that contractors and subcontractors performing on covered Federal service contracts must in good faith offer service employees employed under the predecessor contract a right of first refusal of employment. The Executive order directs the Secretary of Labor (Secretary) to issue regulations, consistent with applicable law, to implement the order's requirements. This final rule establishes standards and procedures for implementing and enforcing the nondisplacement protections of the order.

DATES:

Effective date:

This final rule is effective February 12, 2024.

Applicability date:

This final rule will apply to solicitations issued on or after the effective date of the final regulations issued by the Federal Acquisition Regulatory Council (FAR Council).

FOR FURTHER INFORMATION CONTACT:

Amy DeBisschop, Director, Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, Washington, DC 20210; telephone: (202) 693-0406 (this is not a toll-free number). Alternative formats are available upon request by calling 1-866-487-9243. If you are deaf, hard of hearing, or have a speech disability, please dial 7-1-1 to access telecommunications relay services.

Questions of interpretation or enforcement of the agency's existing 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 WHD's website at

https://www.dol.gov/agencies/whd/contact/local-offices

for a nationwide listing of WHD district and area offices.

SUPPLEMENTARY INFORMATION:

I. Background

On November 18, 2021, President Joseph R. Biden, Jr. issued Executive Order 14055, “Nondisplacement of Qualified Workers Under Service Contracts.” 86 FR 66397 (Nov. 23, 2021). This order explains that “when a service contract expires and a follow-on contract is awarded for the same or similar services, the Federal Government's procurement interests in economy and efficiency are best served when the successor contractor or subcontractor hires the predecessor's employees, thus avoiding displacement of these employees.”

Id.

Accordingly, Executive Order 14055 provides that contractors and subcontractors performing on covered Federal service contracts must in good faith offer service employees employed under the predecessor contract a right of first refusal of employment.

Id.

Section 1 of Executive Order 14055 sets forth a general policy of the Federal Government that when a service contract expires and a follow-on contract is awarded for the same or similar services, the Federal Government's procurement interests in economy and efficiency are best served when the successor contractor or subcontractor hires the predecessor's employees, thus avoiding displacement of these employees. 86 FR 66397. Using a carryover workforce reduces disruption in the delivery of services during the period of transition between contractors, maintains physical and information security, and provides the Federal Government with the benefits of an experienced and well-trained workforce that is familiar with the Federal Government's personnel, facilities, and requirements.

Id.

Section 1 explains that these same benefits are also often realized when a successor contractor or subcontractor performs the same or similar contract work at the same location where the predecessor contract was performed.

Id.

Section 2 of Executive Order 14055 defines “service contract” or “contract” to mean any contract, contract-like instrument, or subcontract for services entered into by the Federal Government or its contractors that is covered by the Service Contract Act of 1965, as amended (SCA), 41 U.S.C. 6701

et seq.,

and its implementing regulations. 86 FR 66397. Section 2 also defines “employee” to mean a service employee as defined in the SCA, 41 U.S.C. 6701(3).

See

86 FR 66397. Finally, section 2 defines “agency” to mean an executive department or agency, including an independent establishment subject to the Federal Property and Administrative Services Act (Procurement Act), 40 U.S.C. 101

et seq. See

86 FR 66397 (citing 40 U.S.C. 102(4)(A)).

Section 3 of Executive Order 14055 provides the wording for a required contract clause that each agency must, to the extent permitted by law, include in solicitations for service contracts and subcontracts that succeed a contract for performance of the same or similar work. 86 FR 66397-98. Specifically, the contract clause provides that the contractor and its subcontractors must, except as otherwise provided in the clause, in good faith offer service employees, as defined in the SCA, employed under the predecessor contract and its subcontracts whose employment would be terminated as a result of the award of the contract or the expiration of the predecessor contract under which the employees were hired, a right of first refusal of employment under the contract in positions for which those employees are qualified.

Id.

at 66397. The contractor and its subcontractors determine the number of employees necessary for efficient performance of the contract and may elect to employ more or fewer employees than the predecessor contractor employed in connection with performance of the work.

Id.

Except as otherwise provided by the contract clause, there is to be no employment opening under the contract or subcontract, and the contractor and any subcontractors may not offer employment under the contract to any employee prior to having complied fully with the obligation to offer employment to employees on the predecessor contract.

Id.

The contractor and its subcontractors must make an express offer of employment to each employee and must state the time within which the employee must accept such offer, and an employee must be provided at least 10 business days to accept the offer of employment.

Id.

at 66397-98.

The contract clause in section 3 of the Executive order also provides that, notwithstanding the obligation to offer employment to employees on the predecessor contract, the contractor and any subcontractors (1) are not required to offer a right of first refusal to any

employee(s) of the predecessor contractor who are not service employees within the meaning of the SCA and (2) are not required to offer a right of first refusal to any employee(s) of the predecessor contractor for whom the contractor or any of its subcontractors reasonably believes, based on reliable evidence of the particular employee's past performance, that there would be just cause to discharge the employee(s). 86 FR at 66398.

The contract clause also provides that a contractor must, not fewer than 10 business days before the earlier of the completion of the contract or of its work on the contract, furnish the contracting officer a certified list of the names of all service employees working under the contract and its subcontracts during the last month of contract performance. 86 FR at 66398. The list must also contain anniversary dates of employment of each service employee on the contract and its predecessor contracts either with the current or predecessor contractors or their subcontractors.

Id.

The contracting officer must provide the list to the successor contractor, and the list must be provided on request to employees or their representatives, consistent with the Privacy Act and other applicable law.

Id.

The contract clause further provides that if it is determined, pursuant to regulations issued by the Secretary, that the contractor or its subcontractors are not in compliance with the requirements of the contract clause or any regulation or order of the Secretary, the Secretary may impose appropriate sanctions against the contractor or its subcontractors, as provided in the Executive order, the regulations, and relevant orders of the Secretary, or as otherwise provided by law.

Id.

The contract clause also provides that in every subcontract entered into in order to perform services under the contract, the contractor will include provisions that ensure that each subcontractor will honor the requirements of the clause in the prime contract with respect to the employees of a predecessor subcontractor or subcontractors working under the contract, as well as of a predecessor contractor and its subcontractors.

Id.

The subcontract must also include provisions to ensure that the subcontractor will provide the contractor with the information about the employees of the subcontractor needed by the contractor to comply with the prime contractor's requirements.

Id.

The contractor must also take action with respect to any such subcontract as may be directed by the Secretary as a means of enforcing these provisions, including the imposition of sanctions for noncompliance. However, if the contractor, as a result of such direction, becomes involved in litigation with a subcontractor, or is threatened with such involvement, the contractor may request that the United States enter into the litigation to protect the interests of the United States.

Id.

Finally, the contract clause states that nothing in the order may be construed to require or recommend that agencies, contractors, or subcontractors pay the relocation costs of employees who exercise their right to work for a successor contractor or subcontractor pursuant to the Executive order.

Id.

Section 4 of Executive Order 14055 provides that when an agency prepares a solicitation for a service contract that succeeds a contract for performance of the same or similar work, the agency will consider whether performance of the work in the same locality or localities in which the contract is currently being performed is reasonably necessary to ensure economical and efficient provision of services. 86 FR at 66398. If an agency determines that performance of the contract in the same locality or localities is reasonably necessary to ensure economical and efficient provision of services, section 4 requires the agency, to the extent consistent with law, to include a requirement or preference in the solicitation for the successor contract that it be performed in the same locality or localities. 86 FR at 66399.

Section 5 of Executive Order 14055 provides exclusions. Specifically, section 5 provides that the order does not apply to (a) contracts under the simplified acquisition threshold as defined in 41 U.S.C. 134 (

i.e.,

currently contracts less than $250,000); and (b) employees who were hired to work under a Federal service contract and one or more nonfederal service contracts as part of a single job, provided that the employees were not deployed in a manner that was designed to avoid the purposes of the order. 86 FR at 66399.

Section 6 of Executive Order 14055 authorizes a senior official of an agency to grant an exception from the requirements of section 3 of the order for a particular contract under certain circumstances. In order to grant an exception from the requirements of section 3 of the order, the senior official must, by no later than the solicitation date, provide a specific written explanation of why at least one of the following circumstances exists with respect to the contract: (i) adhering to the requirements of section 3 would not advance the Federal Government's interests in achieving economy and efficiency in Federal procurement; (ii) based on a market analysis, adhering to the requirements of section 3 of the order would: (A) substantially reduce the number of potential bidders so as to frustrate full and open competition; and (B) not be reasonably tailored to the agency's needs for the contract; or (iii) adhering to the requirements of section 3 would otherwise be inconsistent with Federal statutes, regulations, Executive orders, or presidential memoranda. 86 FR at 66399. The order also requires each agency to publish descriptions of the exceptions it has granted on a centralized public website, and any contractor granted an exception to provide written notice to affected workers and their collective bargaining representatives.

Id.

In addition, the Executive order requires each agency to report to the Office of Management and Budget (OMB) any exceptions granted on a quarterly basis.

Id.

Section 7 of Executive Order 14055 provides that, consistent with applicable law, the Secretary will issue final regulations to implement the requirements of the order. 86 FR at 66399. In addition, to the extent consistent with law, the FAR Council is to amend the Federal Acquisition Regulation (FAR) to provide for inclusion of the contract clause in Federal procurement solicitations and contracts subject to the order.

Id.

Additionally, the Director of OMB must, to the extent consistent with law, issue guidance to implement section 6(c) of the order, requiring each agency to report to OMB any exceptions granted on a quarterly basis.

Id.

Section 8 of Executive Order 14055 assigns responsibility for investigating and obtaining compliance with the order to the U.S. Department of Labor (Department). 86 FR at 66399. This section authorizes the Department to issue final orders in such proceedings prescribing appropriate sanctions and remedies, including, but not limited to, orders requiring employment and payment of wages lost.

Id.

The Department may also provide that where a contractor or subcontractor has failed to comply with any order of the Secretary or has committed willful violations of the Executive order or its implementing regulations, the contractor or subcontractor, its responsible officers, and any firm in which the contractor or subcontractor has a substantial interest, may be ineligible to be awarded any contract of the United States for a period of up to 3 years. 86 FR at 66399-400. Neither an order for debarment of any contractor or subcontractor from further Federal

Government contracts nor the inclusion of a contractor or subcontractor on a published list of noncomplying contractors is to be carried out without affording the contractor or subcontractor an opportunity to present information and argument in opposition to the proposed debarment or inclusion on the list. 86 FR at 66400. Section 8 also specifies that Executive Order 14055 creates no rights under the Contract Disputes Act, 41 U.S.C. 7101

et seq.,

and that disputes regarding the requirements of the contract clause prescribed by section 3 of the order, to the extent permitted by law, will be disposed of only as provided by the Department in regulations issued under the order. 86 FR at 66400.

Section 9 of Executive Order 14055 revokes Executive Order 13897 of October 31, 2019, which itself revoked Executive Order 13495 of January 30, 2009, Nondisplacement of Qualified Workers Under Service Contracts. 86 FR at 66400;

see also

84 FR 59709 (Nov. 5, 2019); 74 FR 6103 (Jan. 30, 2009). Section 9 also explains that Executive Order 13495 remains revoked. 86 FR at 66400.

Section 10 of Executive Order 14055 provides that if any provision of the order, or the application of any provision of the order to any person or circumstance, is held to be invalid, the remainder of the order and its application to any other person or circumstance will not be affected. 86 FR at 66400.

Section 11 of Executive Order 14055 provides that the order is effective immediately and applies to solicitations issued on or after the effective date of the final regulations issued by the FAR Council under section 7 of the order. 86 FR at 66400. For solicitations issued between the date of Executive Order 14055 and the date of the action taken by the FAR Council, or solicitations that were previously issued and were outstanding as of the date of Executive Order 14055, agencies are strongly encouraged, to the extent permitted by law, to include in the relevant solicitation the contract clause described in section 3 of the order.

Id.

Section 12 of Executive Order 14055 specifies that nothing in the order is to be construed to impair or otherwise affect the authority granted by law to an executive department or agency, or the head thereof, or the functions of the Director of OMB relating to budgetary, administrative, or legislative proposals. 86 FR at 66400. In addition, the order is to be implemented consistent with applicable law and subject to the availability of appropriations. The order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities; its officers, employees, or agents; or any other person.

Id.

at 66401.

A. Prior Relevant Executive Orders

As indicated, section 9 of Executive Order 14055 revoked Executive Order 13897, which revoked Executive Order 13495, Nondisplacement of Qualified Workers Under Service Contracts. On August 29, 2011, after engaging in notice-and-comment rulemaking, the Department promulgated regulations, 29 CFR part 9 (76 FR 53720), to implement Executive Order 13495. As required by Executive Order 13897, the Department rescinded these regulations in a notice published in the

Federal Register

on January 31, 2020. 85 FR 5567.

Executive Order 14055 is very similar to Executive Order 13495, but there are a few notable differences. For example, Executive Order 14055 requires that the contractor give an employee at least 10 business days to accept an employment offer, whereas Executive Order 13495 only required 10 calendar days.

Compare

86 FR at 66398,

with

74 FR at 6104. Similarly, Executive Order 14055 requires that the contractor must provide the contracting officer a certified list of the names of all service employees working under the contract during the last month of contract performance at least 10 business days before contract completion, whereas Executive Order 13495 only required 10 calendar days.

Compare

86 FR at 66398,

with

74 FR at 6104. Executive Order 13495 required that performance of the work be at the same location for the order's requirements to apply to the successor contract, whereas the requirements of Executive Order 14055 apply even if the successor contract is not performed at the same location as the predecessor contract. Further, Executive Order 14055 directs an agency to consider, when preparing a solicitation for a service contract that succeeds a contract for performance of the same or similar work, whether performance of the contract in the same locality is reasonably necessary to ensure economical and efficient provision of services. If an agency determines that performance of the contract in the same locality or localities is reasonably necessary to ensure economical and efficient provision of services, then the agency will, to the extent consistent with law, include a requirement or preference in the solicitation for the successor contract that it be performed in the same locality. Executive Order 13495 did not contain a similar requirement.

Executive Order 14055 also differs from Executive Order 13495 in its provisions regarding a contracting agency's authority to grant an exception from the requirements of the order for a particular contract. Specifically, section 6 of Executive Order 14055 provides that a senior official within an agency may except a particular contract from the requirements of section 3 of the order by, no later than the solicitation date, providing a specific written explanation of why at least one of the particular circumstances enumerated in the order as grounds for exemption exists with respect to that contract. 86 FR at 66399. It also requires agencies to publish descriptions of each exception on a centralized public website and report exceptions to OMB on a quarterly basis.

Id.

Finally, Executive Order 14055 requires agencies to ensure that the incumbent contractor notifies affected workers and their collective bargaining representatives, if any, in writing of the agency's determination to grant an exception.

Id.

In contrast, Executive Order 13495 provided that if the head of a contracting department or agency found that the application of any of the requirements of the order would not serve the purposes of the order or would impair the ability of the Federal Government to procure services on an economical and efficient basis, the head of such department or agency could exempt its department or agency from the requirements of any or all of the provisions of the order with respect to a particular contract, subcontract, or purchase order or any class of contracts, subcontracts, or purchase orders. 74 FR at 6104. Executive Order 13495 did not require notice or publication of agency exemptions.

See id.

B. Notice of Proposed Rulemaking

On July 15, 2022, the Department published a Notice of Proposed Rulemaking (NPRM) in the

Federal Register

inviting comments for a period of 30 days on a proposal to implement the provisions of Executive Order 14055.

See

87 FR 42552. The 30-day comment period closed on August 15, 2022. The Department received 33 timely comments in response to the NPRM from a variety of interested stakeholders, such as labor organizations, nonprofit organizations, contractors, and contractor associations.

II. Discussion of Final Rule

A. Legal Authority

President Biden lawfully issued Executive Order 14055 pursuant to his

authority under “the Constitution and the laws of the United States,” expressly including the Procurement Act. 86 FR 66397 (citing 40 U.S.C. 101

et seq.

). The Procurement Act's express purpose is “to provide the Federal Government with an economical and efficient system” for “[p]rocuring and supplying property and nonpersonal services, and performing related functions including contracting.” 40 U.S.C. 101. The Act empowers the President to “prescribe policies and directives that the President considers necessary to carry out” that objective. 40 U.S.C. 121(a). Executive Order 14055 directs the Secretary, “to the extent consistent with law,” to issue regulations to “implement the requirements of this order.” 86 FR at 66399. The Secretary has delegated the authority to promulgate these types of regulations to the Administrator of the WHD (Administrator) and to the Deputy Administrator of the WHD if the Administrator position is vacant. Secretary's Order 01-2014 (Dec. 19, 2014), 79 FR 77527 (published Dec. 24, 2014); Secretary's Order 01-2017 (Jan. 12, 2017), 82 FR 6653 (published Jan. 19, 2017).

Some commenters, particularly Associated Builders and Contractors (ABC), the Professional Services Council (PSC), and an anonymous commenter, generally contended that neither Executive Order 14055 nor the proposed rule provide evidentiary support for the proposition that establishing a nondisplacement obligation would actually achieve greater economy and efficiency in federal procurement. ABC further commented that it believes the proposed rule conflicts with the plain language of the SCA, as the SCA does not require a successor contractor to hire a predecessor contractor's employees, and that neither the President nor the Department has the authority to override the SCA. Accordingly, ABC requested that the Department withdraw the proposed rule in its entirety.

As a threshold matter, the purpose of this rulemaking is to implement Executive Order 14055, and therefore the President's legal authority to issue Executive Order 14055, and the justification for doing so, are not matters within the scope of this rulemaking. Concerning the scope of the Department's rulemaking authority, the Department strongly disagrees with ABC's comment that the proposed rule is in conflict with the SCA. While ABC is correct that the SCA does not require a successor contractor to hire the predecessor contractor's workforce, the SCA does not prohibit the hiring of the predecessor contractor's workforce or address whether such hiring may be encouraged or required by another law. That Executive Order 14055 applies to SCA-covered contracts does not mean that the order and this rule must mirror the SCA's substantive provisions and that the nondisplacement provision is “in conflict” with the SCA because it is not required by that statute. Rather, Executive Order 14055 provides for contractual requirements that are separate and distinct from the legal obligations of the SCA—with the President's authority to issue the Executive order derived from the Procurement Act in particular. The Procurement Act empowers the President to “prescribe policies and directives that the President considers necessary to carry out” its objectives, and Executive Order 14055 further directs the Secretary to issue regulations to “implement the requirements of this order.” 40 U.S.C. 121(a); 86 FR at 66399. This final rule has been promulgated consistent with that authority and contains obligations that are independent from a contractor's responsibilities under the SCA. The SCA's requirements thus do not preclude the Department from implementing and enforcing the nondisplacement requirements of Executive Order 14055. Instead, the SCA and

Executive Order 14055

can and should be viewed as complementary and co-existing rather than in conflict because it is possible for contractors to comply with both authorities; the SCA does not reflect an intent to preclude application of a nondisplacement requirement established by another legal authority. Thus, the Department declines ABC's request to withdraw the proposed rule.

After considering all timely comments received to the proposed rule, the Department is issuing this final rule to implement the provisions of Executive Order 14055.

B. Overview of the Rule

This final rule, which amends Title 29 of the Code of Federal Regulations (

CFR

) by adding part 9, sets forth standards and procedures for implementing and enforcing Executive Order 14055. Subpart A of part 9 relates to general matters, including the purpose and scope of the rule, as well as the definitions, coverage, exclusions, and exceptions that the rule provides pursuant to the Executive order. Subpart B establishes requirements for contracting agencies and contractors to comply with the Executive order. Subpart C specifies standards and procedures related to complaint intake, investigations, and remedies. Subpart D specifies standards and procedures related to administrative enforcement proceedings.

The following section-by-section discussion of this rule presents the contents of each section in more detail.

Part 9 Subpart A—General

Subpart A of part 9 pertains to general matters, including the purpose and scope of the rule, as well as the definitions, coverage, exclusions, and exceptions that the rule provides pursuant to the Executive order.

1. Section 9.1 Purpose and Scope

Proposed § 9.1(a) explained that the purpose of the rule is to implement

Executive Order 14055.

The paragraph emphasized that the Executive order assigns enforcement responsibility for the nondisplacement requirements to the Department.

Proposed § 9.1(b) explained the underlying policy of

Executive Order 14055.

First, the provision repeated a statement from the Executive order that the Federal Government's procurement interests in economy and efficiency are served when the successor contractor or subcontractor hires the predecessor's employees. Like the order, the proposed rule elaborated that a carryover workforce minimizes disruption in the delivery of services during a period of transition between contractors, maintains physical and information security, and provides the Federal Government the benefit of an experienced and well-trained workforce that is familiar with the Federal Government's personnel, facilities, and requirements. It is for these reasons that the Executive order concludes that requiring successor service contractors and subcontractors performing on Federal contracts to offer a right of first refusal to suitable employment under the contract to service employees under the predecessor contract and its subcontracts whose employment would be terminated as a result of the award of the successor contract will lead to improved economy and efficiency in Federal procurement.

Proposed § 9.1(b) further explained the general requirement established in section 3 of

Executive Order 14055

that service contracts and subcontracts that succeed a contract for performance of the same or similar work, and solicitations for such contracts and subcontracts, include a clause that requires the contractor and its subcontractors to offer a right of first refusal of employment to service employees employed under the predecessor contract and its subcontracts whose employment would

be terminated as a result of the award of the successor contract in positions for which the employees are qualified. Proposed § 9.1(b) also clarified that nothing in

Executive Order 14055

or part 9 is to be construed to excuse noncompliance with any applicable Executive order, regulation, or law of the United States.

Proposed § 9.1(c) outlined the scope of the regulations and provided that neither

Executive Order 14055

nor part 9 creates or changes any rights under the Contract Disputes Act,

41 U.S.C. 7101 et seq.,

or any private right of action. The Department does not interpret the Executive order as limiting existing rights under the Contract Disputes Act. The provision also restated the Executive order's directive that disputes regarding the requirements of the contract clause prescribed by the Executive order, to the extent permitted by law, must be disposed of only as provided by the Secretary in regulations issued under the Executive order. This paragraph also clarified that neither the Executive order nor the regulations would preclude review of final decisions by the Secretary in accordance with the judicial review provisions of the Administrative Procedure Act,

5 U.S.C. 701 et seq.

The Department did not receive any comments directly related to § 9.1. The Department has addressed comments directed at specific elements of the nondisplacement requirements, such as the scope of the right of first refusal, in the preamble sections for the relevant elements of the order's requirements. The final rule accordingly adopts the § 9.1 provisions as proposed.

2. Section 9.2 Definitions

Proposed § 9.2 defined terms for purposes of this rule implementing Executive Order 14055. Most defined terms follow common applications and are based on either Executive Order 14055 itself or the definitions of relevant terms set forth in the text of related statutes and Executive orders or the implementing regulations for those statutes and orders. The Department noted that, while the definitions discussed in the proposed rule would govern the implementation and enforcement of Executive Order 14055, 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.

Consistent with the definition provided in Executive Order 14055, the Department proposed to define

agency

to mean an executive department or agency, including an independent establishment subject to the Procurement Act.

See

86 FR 66397. The Department explained that, for the purpose of this definition, “an executive department or agency” means any executive agency as defined in section 2.101 of the FAR. 48 CFR 2.101. The proposed definition of

agency

therefore would include 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 explained that the proposed definition would include independent regulatory agencies. The Department did not receive any comments addressing the term

agency

and the final rule adopts the definition of that term as proposed.

The Department proposed to adopt the definition of

Associate Solicitor

in 29 CFR 6.2(b), which means the Associate Solicitor for Fair Labor Standards, Office of the Solicitor, U.S. Department of Labor, Washington, DC 20210. The Department did not receive any comments addressing the definition of

Associate Solicitor,

and the final rule adopts the definition of that term as proposed.

The Department proposed to define

business day

as Monday through Friday, except Federal holidays declared under 5 U.S.C. 6103 or by executive order, or any day with respect to which the U.S. Office of Personnel Management has announced that Federal agencies in the Washington, DC, area are closed. The Department did not receive any comments addressing the definition of

business day.

The final rule therefore adopts this definition as proposed, with one technical edit to correct the alphabetical order of definitions that is not intended to reflect a change in the substance of this section.

Consistent with section 2(a) of the Executive order, the Department proposed to define

contract

or

service contract

to mean any contract, contract-like instrument, or subcontract for services entered into by the Federal Government or its contractors that is covered by the SCA and its implementing regulations.

See

86 FR 66397. PSC commented that the proposed definition of

contract or service contract

would wrongly expand the coverage of the SCA to “contract-like instruments,” while others, such as the Coalition,

1

submitted comments supporting the proposed rule's broad scope and coverage.

1

As reflected in their comment, “the Coalition” refers collectively to the following organizations that submitted a joint comment in response to the NPRM: The American Association of People with Disabilities; the Autistic Self Advocacy Network; Communications Workers of America; the International Brotherhood of Teamsters; the Laborers' International Union of North America; the National Employment Law Project; and the Service Employees International Union.

PSC recommended removing “contract-like instrument” from the definition of

contract

on the grounds that, among other reasons, the use of “contract-like instrument” might “create confusion by suggesting that a `contract-like instrument' can be subject to the SCA.” The Department acknowledges that the term “contract-like instrument” is not used in the SCA. However, the term “contract-like instrument” was expressly used in the definition of

contract

and

service contract

in Executive Order 14055, was used in both of the previous Executive orders requiring a minimum wage for Federal contractor employees (Executive Orders 13658 and 14026), and is defined, collectively with the term

contract,

in the Department's regulations implementing both Executive Order 13658 and Executive Order 14026.

See

29 CFR 10.2; 29 CFR 23.20. Therefore, the Department expects that most contracting agencies and contractors affected by this rulemaking are already familiar with the use of this term.

Furthermore, the use of the term “contract-like instrument” in Executive Order 14055 neither expands SCA coverage nor expands coverage under Executive Order 14055 to contracts not subject to the SCA. Rather, consistent with the SCA's scope of coverage, the term simply reflects that the order is intended to cover all agreements of a contractual nature (

i.e.,

all agreements between two or more parties creating obligations that are enforceable or otherwise recognizable at law, including those agreements that may not be universally regarded as a

contract

in other contexts) that qualify as contracts under the SCA. Licenses, permits, and similar instruments may qualify as contracts under the SCA regardless of whether parties typically consider such instruments to be “contracts” and regardless of whether such instruments are characterized as “contracts” for purposes of the specific programs under which they are administered. Given the SCA's coverage of a such a wide variety of service contracts and its broad definition of covered contracts,

see, e.g.,

29 CFR 4.110, the Department views the term “contract-like instrument” as simply reinforcing the breadth of contract coverage under the SCA, and

hence under Executive Order 14055. The Department further believes that the use of the term “contract-like instrument” in Executive Order 14055 is intended to prevent disputes or extended discussions between contracting agencies and contractors regarding whether a particular legal arrangement qualifies as a

contract

for purposes of coverage by the order and this part. In sum, the use of the term “contract-like instruments” in Executive Order 14055 and in this rule is consistent with previous Executive orders and will help facilitate more efficient determinations by contractors, contracting officers, and the Department as to whether a particular legal instrument is covered. The Department therefore declines to delete the term “contract-like instrument” from the definition of

contract.

Separately, however, to reduce ambiguity in the definition of

contract or service contract,

the Department is clarifying that SCA-covered temporary interim contracts are also included within the definition of

contract and service contract.

This technical clarification will ensure that temporary interim contracts are understood to be fully included within the definition. To effectuate the order, temporary interim contracts must be within that definition to prevent workforce displacement during any such contracts.

PSC also recommended removing the term “exercised contract options” from the illustrative list of terms defining

contract,

noting that the inclusion of the term in the definition is inconsistent with the Department's statements in the preamble to § 9.3 regarding coverage. Under § 9.3, when an option is exercised and no solicitation is issued for a follow-on contract, the original contract is not considered expired for purposes of Executive Order 14055, and the requirements of the order and this rule do not apply at that time as a result of the exercised contract option. The Department agrees with PSC's recommendation and therefore, to maintain consistency and reduce confusion, is not including “exercised contract options” in the definition of

contract.

The Department proposed to substantially adopt the definition of

contracting officer

in section 2.101 of the FAR, which defines the term to mean an agency official with the authority to enter into, administer, and/or terminate contracts and make related determinations and findings. The term, as proposed, would include 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 addressing the definition of

contracting officer,

and the final rule adopts the definition of that term as proposed.

The Department proposed to define

contractor

to mean any individual or other legal entity that is awarded a Federal Government service contract or subcontract under a Federal Government service contract. The Department noted that, unless the context reflects otherwise, the term

contractor

refers collectively to both a prime contractor and all of its subcontractors of any tier on a service contract with the Federal Government. The proposed definition incorporated relevant aspects of the definitions of the term contractor in section 9.403 of the FAR,

see

48 CFR 9.403, and the SCA's regulations at 29 CFR 4.1a(f).

Importantly, the Department noted that the fact that an individual or entity is a

contractor

under the Department's definition does not mean that such an individual or entity has legal obligations under the Executive order. Thus, an individual or entity that is awarded a service contract with the Federal Government will qualify as a “contractor” pursuant to the Department's definition, but that individual or entity may only be subject to the nondisplacement requirements of the Executive order in connection with a particular contract if the contract is one that is covered under § 9.3(a). For example, an employment contract providing for direct services to a Federal agency by an individual is not covered by the SCA. 41 U.S.C. 6702(b)(6); 29 CFR 4.121. As a result, an individual who enters into such a contract may be a “contractor” under the definition of contractor in the nondisplacement rule, but the contract will not be covered by the nondisplacement requirements. The Department did not receive any comments addressing the definition of

contractor,

and the final rule adopts the definition of that term as proposed.

Consistent with the definition provided in Executive Order 14055, the Department proposed to define

employee

to mean a service employee as defined in the SCA.

See

86 FR 66397 (citing 41 U.S.C. 6701(3)). Accordingly,

employee

“means an individual engaged in the performance of” an SCA-covered contract.

See

41 U.S.C. 6701(3)(A). The term “includes an individual without regard to any contractual relationship alleged to exist between the individual and a contractor or subcontractor,” and it therefore includes an individual who is identified as an independent contractor on the contract.

See

41 U.S.C. 6701(3)(B). It “does not include an individual employed in a bona fide executive, administrative, or professional capacity” as those terms are defined in 29 CFR part 541.

See

41 U.S.C. 6701(3)(C).

The Coalition submitted a comment supporting the Department's proposed inclusion of individuals identified as independent contractors in the definition of

employee.

They stated that given the significant volume of work performed by such individuals, the purposes of the Executive order will be promoted by inclusion of such workers. The Department received no other comments about the proposed definition of

employee,

and therefore the final rule adopts the definition as proposed in the NPRM, with an edit to remove “or service employee” from the regulatory text. This edit is not intended to reflect a change in the substance of the definition, but is made to reduce redundancy, as Executive Order 14055 already states that

employee

means service employee as defined by the SCA.

The Department proposed to define

employment opening

to mean any vacancy in a position on the successor contract. This is consistent with the definition of

employment opening

in the regulations that implemented Executive Order 13495. The Department did not receive any comments on the proposed definition of

employment opening,

and the final rule adopts the definition as proposed.

The Department proposed to define the term

Federal Government

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 set forth in the regulations that implemented Executive Order 13495. Consistent with that definition and 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). This proposed definition also included independent agencies because such agencies are subject to the order's requirements.

See

86 FR 66397. For purposes of Executive Order 14055 and part 9, the Department's proposed definition would 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 the final rule adopts the definition as proposed.

The Department proposed to define

month

under the Executive order as a

period of 30 consecutive calendar days, regardless of the day of the calendar month on which it begins. The Department proposed defining the term to clarify how to address partial months and to balance calendar months of different lengths. The proposed definition was consistent with the definition of

month

in the regulations that implemented Executive Order 13495. The Department did not receive any comments addressing the definition of

month,

and the final rule adopts the definition of that term as proposed.

The Department proposed to define

same or similar work

to mean work that is either identical to or has primary characteristics that are alike in substance to work performed on a contract that is being replaced either by the Federal Government or by contractor on a Federal service contract. This would require the work under the successor contract to, at a minimum, share the characteristics essential to the work performed under the predecessor contract. Accordingly, work under a successor contract would not be considered to be

same or similar work

where it only shares characteristics incidental to performance of the contract under the predecessor contract.

PSC requested the Department further define how the definition of

same or similar work

would be applied to Multiple Agency Contracts, especially with regard to competition at the task-order level and completion of task orders over years-long performance periods on the master contract as a whole, as well as best-in class contracts. PSC's question also implicates the overall subset of contracts for indefinite delivery indefinite quantity (IDIQ), including the Multiple Award Schedule (MAS) and the Federal Supply Schedule program.

See

48 CFR 8.401.

Whether work is “same or similar” is only relevant when specific work on an expiring contract is going to be replaced by work under another contract, such that one contract can reasonably be considered to be a successor contract and the other a predecessor contract. In that situation, the contracting agency must compare the expiring work and the anticipated work to determine whether they share primary characteristics. Thus, where a contracting agency is considering the use of an order under an IDIQ contracting vehicle for a specific scope of work, the nondisplacement requirements of the Executive order—including the determination of whether a contract involves the

same or similar work

—would apply at the task order level in the same manner as for any other contract. For example, an agency may have an expiring non-MAS contract for security services at an individual federal facility and may seek to use the MAS program to identify a contractor to take over the same or similar security services at that facility. In such a circumstance, any new MAS program task order would need to include the nondisplacement clause to be a permissible contracting vehicle for the successor contract and the MAS contractor would need to provide job offers to qualified employees on the expiring non-MAS contract.

The Coalition recommended the Department modify the definition of

same or similar work

to make it clear that the definition applies regardless of whether the successor changes in size. However, such a change would be redundant to the existing use of the term “similar,” which encompasses contracts of varying monetary amounts or other material changes in size. Furthermore, the rule addresses reductions in staffing in detail at § 9.12(d), and the Coalition's suggested revisions to the definition of

same or similar work

might add confusion to that existing framework. Although the Department therefore declines to modify the definition of

same or similar work

in the manner requested, the Department has revised the definition for purposes of clarity. As noted, the NPRM defined same or similar work as “work that is either identical to or has primary characteristics that are alike in substance to work performed on a contract that is being replaced either by the Federal Government or a contractor on a Federal service contract.” However, the portion of this proposed definition beginning with “that is being replaced” does not address whether the work at issue is the “same or similar,” but rather concerns the distinct (though related) issue of whether a predecessor-successor relationship exists. As a result, in the interest of clarity, the Department defines same or similar work in the final rule as “work that is either identical to or has primary characteristics that are alike in substance to work performed on another service contract.” This change is intended to be nonsubstantive, as it preserves the operative language regarding whether the work under a predecessor and successor contract is the same or similar.

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 part 4 (SCA implementing regulations); 29 CFR 4.1a(a) (defining the SCA for the purpose of the implementing regulations). The Department did not receive comments about this proposed definition and the final rule adopts the definition as proposed.

The Department proposed to define

solicitation

as any request to submit offers, bids, or quotations to the Federal Government. This definition is consistent with the definition of

solicitation

in both the regulations that implemented Executive Order 13495 and in 48 CFR 2.101. The Department broadly interprets 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. However, the Department notes that requests for information issued by Federal agencies and informal conversations with Federal workers are not “solicitations” for purposes of the Executive order. The Department did not receive any comments addressing the definition of

solicitation,

and the final rule adopts the definition of that term as proposed.

The Department proposed to define the term

United States

as 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. When the term is used in a geographic sense, the Department proposed that the

United States

means the 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, Outer Continental Shelf lands as defined in the Outer Continental Shelf Lands Act, American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, Wake Island, and Johnston Island. The geographic scope component of this proposed definition was derived from the regulations implementing the SCA at 29 CFR 4.112(a) and the SCA's definition of the term

United States

at 41 U.S.C. 6701(4).

The Coalition expressed support for this proposed definition, stating that it appropriately defines the geography it covers broadly and consistently with the SCA and its implementing regulations. The Coalition stated that they support such consistency because the Federal Government will obtain the most economy and efficiency benefits from Executive Order 14055 if it is applied broadly, and that uniform coverage between Executive Order 14055 and the SCA provides clarity for Federal agencies, contractors, and Federal

service contractor workers. The Department did not receive any other comments about the proposed definition of

United States,

and therefore the final rule adopts the definition as proposed.

Finally, the Department proposed to use the definitions of the terms

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

and

Wage and Hour Division

that were set forth in the regulations that implemented Executive Order 13495. The Department did not receive comments on these proposed definitions, and the final rule adopts these definitions as proposed with one technical edit to correct the alphabetical order of

Secretary

that is not intended to reflect a change in the substance of this section.

3. Section 9.3 Coverage

Proposed § 9.3 addressed the coverage provisions of Executive Order 14055. It explained the scope of the Executive order and its coverage of executive agencies and contracts.

Executive Order 14055 provides that agencies must, to the extent permitted by law, ensure that service contracts and subcontracts (and solicitations for such contracts and subcontracts) that succeed a contract for performance of the same or similar work include a specific nondisplacement clause. This clause must state that the successor contractor and its subcontractors, except as otherwise provided in the order, must, in good faith, offer service employees employed under the predecessor contract and its subcontracts a right of first refusal of employment under the successor contract in positions for which those employees are qualified, if those service employees' employment would otherwise be terminated as a result of the award of the successor contract or the expiration of the contract under which the employees were hired. Section 2 of the order states that “service contract” means any contract, contract-like instrument, or subcontract for services entered into by the Federal Government or its contractors that is covered by the SCA. Section 2 also defines

agency

to mean an executive department or agency of the Federal Government, including an independent establishment subject to the Procurement Act, 40 U.S.C. 102(4)(A). Section 5 of the order specifies that the order does not apply to contracts under the simplified acquisition threshold as defined in 41 U.S.C. 134.

Section 9.3(a) of the NPRM proposed to implement these coverage provisions by stating that Executive Order 14055 and part 9 would apply to any contract or solicitation for a contract with an executive department or agency of the Federal Government, provided that: (1) it is a contract for services covered by the SCA; and (2) the prime contract exceeds the simplified acquisition threshold as defined in 41 U.S.C. 134. Proposed § 9.3(b) would require all contracts that satisfy the requirements of § 9.3(a) to contain the contract clause set forth in Appendix A, and all contractors on such contracts to comply, without limitation, with the related requirements of paragraphs (e), (f), and (g) of § 9.12, regarding contractor obligations near the end of contract performance, recordkeeping, and cooperation with investigations. Proposed § 9.3(c) would require all contracts that satisfy the requirements of § 9.3(a) and that also succeed a contract for performance of the same or similar work, to contain the contract clause set forth in Appendix A. It also would require all contractors on such contracts to comply, without limitation, with all the requirements of § 9.12. As in the NPRM, several issues relating to the coverage provisions of the Executive order and § 9.3 are discussed below.

i. Coverage of Agencies

Section 9.3 of the NPRM proposed to apply the nondisplacement requirements to contracts or solicitations for contracts with “an agency.” This language reflects that Executive Order 14055 applies to contracts and solicitations with the “Federal Government” that meet the other coverage requirements of the order. In § 9.2 of the NPRM, the Department proposed to define “Federal Government” to include “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.” And, consistent with section 2(c) of the Executive order, the Department proposed to define “agency” as an “[e]xecutive department or agency, including an independent establishment subject to the [Procurement Act].” The Department noted in discussing the proposed definitions in § 9.2 that it would interpret the terms “executive departments” and “agencies” consistent with the definition of “executive agency” provided in section 2.101 of the FAR.

See

48 CFR 2.101. Thus, the Department stated that the proposed rule would apply to contracts entered into by 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.

See

48 CFR 2.101 (definition of “executive agency”). The NPRM stated that this proposed definition would be interpreted to include independent regulatory agencies.

The plain text of Executive Order 14055 reflects that the order applies to executive departments and agencies, including independent establishments, but only when such establishments are subject to the Procurement Act, 40 U.S.C. 101

et seq.

Thus, for example, contracts awarded by the U.S. Postal Service are not covered by the order or part 9 because the U.S. Postal Service is not subject to the Procurement Act. Finally, pursuant to the proposed definition of “Federal Government,” contracts awarded by the District of Columbia and any Territory or possession of the United States would not be covered by the order.

No comments were received regarding coverage of agencies. The Department therefore affirms its discussion of coverage of agencies in the final rule.

ii. Coverage of Contracts

Proposed § 9.3(a) provided that the requirements of the Executive order generally would apply to “any contract or solicitation for a contract with an agency.” Section 2(a) of the Executive order defines “contract” to mean “any contract, contract-like instrument, or subcontract for services entered into by the Federal Government or its contractors that is covered by the [SCA] and its implementing regulations.” In § 9.2, the Department proposed to set forth a broadly inclusive definition of the term “contract” that is consistent with the Executive order and how the term is used in the SCA. Consistent with the definition of the term “contract” in the Restatement (Second) of Contracts, which was in the process of being developed when Congress enacted the SCA, an agreement is a “contract” for SCA purposes if it amounts to “a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes a duty.”

Cradle of Forestry in Am. Interpretive Ass'n,

ARB No. 99-035, 2001 WL 328132, at *3 (Mar. 30, 2001) (quoting Restatement (Second) of Contracts section 1 (Am. L. Inst. 1979)). As discussed above with regard to the definition of “contract” in § 9.2, licenses, permits, and similar instruments thus may qualify as contracts under the SCA,

id.,

regardless of whether parties typically consider such instruments to be “contracts” and regardless of whether such instruments are characterized as “contracts” for

purposes of the specific programs under which they are administered.

Proposed § 9.3(a) provided that part 9 would also apply to “any . . . solicitation for a contract” that meets the other requirements for coverage. In § 9.2, the Department proposed to define “solicitation” to mean “any request to submit offers, bids, or quotations to the Federal Government.” In keeping with the definition proposed in that section, the Department broadly interprets 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. However, requests for information issued by Federal agencies and informal conversations with Federal workers are not “solicitations” for purposes of the Executive order. If the solicitation is for a contract that is covered by part 9, then the solicitation will also be covered.

Consistent with section 2(a) of Executive Order 14055, proposed § 9.3(a)(1) clarified that the contract must be a contract for services covered by the SCA in order to be covered by the Executive order and part 9. The SCA generally applies to every “contract or bid specification for a contract that . . . is made by the Federal Government” and 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.

See, e.g.,

29 CFR 4.130(a) (providing a nonexclusive list of examples). 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 Federal Government installation, or elsewhere.

Id.

SCA coverage, 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 regulations at 29 CFR part 541. Similarly, a contract for services performed essentially by bona fide executive, administrative, or professional employees, with the use of service employees being only a minor factor in contract performance, is not covered by the SCA and thus is not covered by the Executive order or part 9.

See

41 U.S.C. 6702(a)(3); 29 CFR 4.113(a); WHD Field Operations Handbook (FOH) 14c07. No comments were received regarding § 9.3(a)(1). Aside from adding language to make clear that only contracts or solicitations issued or entered on or after the applicability date of part 9 are covered, the final rule adopts that provision as proposed.

iii. Coverage of Contracts at or Above the Simplified Acquisition Threshold

Proposed § 9.3(a)(2) provided that a prime contract must exceed the simplified acquisition threshold to be covered by part 9. This is consistent with section 5 of Executive Order 14055, which provides that the order does not apply to contracts under the simplified acquisition threshold as defined in 41 U.S.C. 134. Unlike Executive Order 13495, which excluded “contracts or subcontracts under the simplified acquisition threshold,” section 5 of Executive Order 14055 expressly excludes only “contracts under the simplified acquisition threshold[.]” Accordingly, the Department proposed that all subcontracts for services, regardless of size, would be covered by part 9 if the prime contract meets the coverage requirements of § 9.3. As the Department noted in the NPRM, the definitions sections of both Executive Order 13495 and Executive Order 14055 define “contract” to include “contract or subcontract,” which could support a continued exception for subcontracts under the simplified acquisition threshold. For this reason, the Department sought comment from the public on the potential impact, including any unintended consequences, of covering subcontracts below the simplified acquisition threshold.

PSC advocated to exclude subcontracts with a value less than the simplified acquisition threshold, noting, as the Department also did, that Executive Order 14055 defines “contract” to include “contract or subcontract.” PSC also commented that applying the rule's nondisplacement requirements to subcontracts below the current simplified acquisition threshold would be unreasonable, calculating that a 5-year service subcontract that has a value below the current simplified acquisition threshold might only employ one person. Nakupuna Companies (Nakupuna) also opposed coverage of subcontracts below the simplified acquisition threshold, positing that the costs of compliance with Executive Order 14055 will be burdensome on small subcontractors.

Conversely, multiple commenters supported covering subcontracts for amounts below the simplified acquisition threshold where the prime contract meets or exceeds the simplified acquisition threshold. The Coalition supported coverage of these subcontracts because such an approach maximizes the reach of Executive Order 14055 and avoids incentivizing circumvention of the order's requirements through subcontracting. Likewise, the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) supported coverage of subcontracts below the simplified acquisition threshold as an “important tool for ensuring that the contractors do not evade the nondisplacement requirements,” and noted that the proposed rule appropriately specified that non-service subcontracts, such as supply subcontracts, were excluded. Relatedly, the Center for American Progress (CAP) supported the ways in which Executive Order 14055 “clos[ed] loopholes,” thereby “preventing low road firms from undermining the rules.”

The final rule adopts the regulatory language at § 9.3(a)(2) as proposed in the NPRM, with a limited addition for clarity explained below. As in the NPRM, the final rule is not excluding subcontracts that fall below the simplified acquisition threshold where the prime contract is itself covered. While section 2(a) of the Executive order defines the term “contract” as “any contract . . . or subcontract for services,” the order includes a different textual indication that the exclusion in section 5(a) for “contracts” below the simplified acquisition threshold is only intended to exclude prime contracts below that level, not subcontracts. Notwithstanding the expansive definition of the word “contract” in section 2(a), section 3(a) of the order expressly requires the incorporation of the contract clause into contracts “and subcontracts.” In section 5(a), however, the order provides an exclusion only for “contracts” below the threshold and does not mention subcontracts. This comparison (in addition to the change in language from previous Executive Order 13495) supports limiting the interpretation of the term “contract” in section 5 to mean “prime contract.”

This interpretation is consistent with the Executive order's stated policy goals. The example provided by PSC—wherein a subcontractor employing a single person for 5 years might still be below the simplified acquisition threshold—supports, rather than

undercuts, extending nondisplacement protections to workers employed on subcontracts below the simplified acquisition threshold. This is because where, as in that example, an individual provides services to the government for a period as long as 5 years, displacing that well-trained and experienced employee when a new subcontract occurs would undermine the policies of Executive Order 14055, such as uninterrupted delivery of services, physical and informational security, and familiarity with operations. PSC's example demonstrates that such goals are equally operative whether a particular service employee happens to be employed under a high-dollar-amount subcontract or not. Consistent application of these goals outweighs the compliance costs to subcontractors even where subcontracts are for amounts below the simplified acquisition threshold.

In reaching this conclusion, the Department also considered that the existing exclusions in the rule limit the real-world scenarios in which the commenters' concerns regarding such compliance costs could be applicable. The Executive order's nondisplacement requirements do not apply to small prime contracts (and any subcontracts of those small prime contracts) that fall below the simplified acquisition threshold, nor (in keeping with the SCA) to non-service contracts, nor to contracts for services performed essentially by bona fide executive, administrative, or professional employees as defined in the FLSA's regulations at 29 CFR part 541, with the use of service employees being only a minor factor in contract performance. Likewise, the Executive order does not apply to “employees who were hired to work under a Federal service contract and one or more nonfederal service contracts as part of a single job.” As a result, many subcontracts below the simplified acquisition threshold will be excluded from coverage for other reasons.

Finally, as indicated by commenters, extending coverage to subcontracts below the simplified acquisition threshold will avoid the creation of subcontracts for the purpose of circumventing the requirements of Executive Order 14055, helping to maintain the efficacy and consistent application of the order.

Separately, the Department is modifying the language of § 9.3(a)(2) to clarify the coverage of contracts at the simplified acquisition threshold. Proposed § 9.3(a)(2) provided that part 9 would apply only to prime contracts that exceed the simplified acquisition threshold. However, section 5 of Executive Order 14055 provides that the order does not apply to contracts under the simplified acquisition threshold. To avoid ambiguity, the Department is adding language to § 9.3(a)(2) to include prime contracts equal to the simplified acquisition threshold. The Department did not receive any comments on this issue. This clarification is consistent with the intent of the order and ensures that prime contracts equal to the simplified acquisition threshold are covered by part 9.

Accordingly, the final rule adopts § 9.3(a)(2) as proposed with an amendment to clarify that part 9 applies to prime contracts equal to the simplified acquisition threshold.

iv. Coverage of Successor Contracts

Proposed § 9.3(c) provided that all of the nondisplacement requirements would apply only to contracts that satisfy the requirements of paragraph (a) of § 9.3 and that “

succeed

” a contract for performance of the same or similar work. Pursuant to section 1 of Executive Order 14055, this successor contract relationship exists when an existing service contract “expires” and a follow-on contract is awarded. Under the Executive order, the Department views a service contract as expired when the contract ends due to the completion of performance or is terminated. In contrast, if a term of an existing contract is simply extended pursuant to an option clause, and no solicitation is issued for a follow-on contract, then the original contract is not considered expired for purposes of Executive Order 14055, the extended term of the contract is not considered a new or a follow-on contract under the Executive order, and the requirements of the order and this part would not apply.

In accordance with the terms of Executive Order 14055, if a contract expires, the Department considers successor service contracts and subcontracts for performance of the same or similar work, and solicitations for such contracts and subcontracts, to be covered by the order, assuming the successor contracts meet the requirements of § 9.3(a). Thus, for example, when the term of a contract ends and a follow-on contract is awarded, a predecessor-successor relationship exists for purposes of Executive Order 14055 if the two contracts are for the same or similar work. This includes circumstances where a temporary interim contract is the successor to a full-term predecessor contract and circumstances where a temporary interim contract is a predecessor to a full-term successor contract. Similarly, if a contract is terminated, a solicitation for a follow-on contract is issued, and a follow-on contract is awarded, then a predecessor-successor relationship exists for purposes of Executive Order 14055 (again if the two contracts are for the same or similar work). The identity of the contractor awarded the successor contract does not impact the coverage determination. For example, when a contract expires and the same contractor is awarded the successor contract, the terms of the order and part 9 apply. Similarly, the successor contract does not need to be awarded by the same contracting agency as the predecessor contract to be covered by the Executive order and this part.

PSC commented that the exclusion of options from the type of contract event that creates a successor contract under the Executive order conflicted with the Department's inclusion of “exercised contract options” in the list of terms in § 9.2 that define “contract” for purposes of the order. As explained in the discussion of § 9.2, to resolve this inconsistency in accordance with the Executive order's scope of coverage, the Department is removing the term “exercised contract options” from the definition in § 9.2 of the final rule. This change to § 9.2 reduces the potential for confusion identified by PSC and no change is necessary to § 9.3. No other comments were received regarding coverage of successor contracts, and the final rule adopts the language regarding those provisions of § 9.3 as proposed. For clarity, the Department has switched the order of § 9.3(b) and (c) and has revised the text for technical accuracy and to reflect that (b) applies to covered contracts that succeed a contract for performance of the same or similar work, whereas (c) applies to covered contracts and solicitations that do not succeed a contract for the same or similar work (

i.e.,

SCA-covered contracts that are strictly predecessor contracts). Revised (b) and (c) thus reflect more clearly that contractor requirements under this rule may depend on whether a contractor is a predecessor contractor, a successor contractor, or both. For example, a predecessor contractor that is not succeeding a contract for the same or similar work will be required to provide the certified list of employees under § 9.12(c) but would not be required to offer employment to any service employees because the contractor is not succeeding another contract.

v. Coverage of Contracts for Same or Similar Work

Consistent with section 3 of Executive Order 14055, proposed § 9.3(c) would require successor contracts to be for the “performance of the same or similar work” in order to be covered by the nondisplacement requirements. As explained in the discussion of proposed § 9.2, the Department proposed to define “same or similar work,” in relevant part, as “work that is either identical to or has primary characteristics that are alike in substance.” This definition requires the work under the successor contract to, at a minimum, share the characteristics essential to the work performed under the predecessor contract. Accordingly, work under a successor contract is not considered to be same or similar work where it only shares characteristics incidental to performance under the predecessor contract.

In many instances, determining whether a contract involves the same or similar work as the predecessor contract will be straightforward. For example, when a contract for food service at a Federal building expires and a new contract for food service begins at the same location, the work on the successor contract would be considered to be “same or similar work.” This is true even where more limited food services are provided under the successor contract than the predecessor contract, or where work on the successor contract requires additional job classifications that were not required for work under the predecessor contract. In other instances, the particular facts and circumstances may need to be carefully scrutinized to determine whether a contract involves the same or similar work as the predecessor contract. For example, when a contract expires, specific requirements from the contract may be broken out and placed in a new contract or combined with requirements from other contracts into a consolidated new contract. In such circumstances, it will be necessary to evaluate the extent to which the prior and new contracts involve the same or similar functions of work and the same or similar job classifications to determine whether the prior and new contracts involve the same or similar work. Although such a circumstance-specific evaluation may be complex in certain instances, nondisplacement requirements can be expected to apply when a larger SCA-covered contract expires and is re-bid as several individual SCA-covered contracts, as well as when two covered contracts expire and the new solicitation combines the work previously performed under those two contracts into a new contract. Finally, in some instances, it will be evident that two contracts do not involve the same or similar work. For example, if an SCA-covered contract to operate a gift shop in a Federal building expires, and a new contract is awarded to operate a dry cleaning service in the same physical space as had been occupied by the gift shop, the two contracts would not involve the same or similar work because, even though the place of contract performance would be the same, the nature of the work performed under the contracts and the job classifications performing the work would not be the same or similar.

PSC expressed concern that various federal acquisition initiatives, including the category management initiative, are leading to an increase in the consolidation of smaller contracts and having a negative effect on small business contractors that are less able to compete for the resulting larger contracts. PSC stated that if nondisplacement rules apply in these situations, “small business employees may be retained by successor contractors” and “small businesses themselves may suffer from employee attrition to follow-on successors.” However, PSC also stated that “such hiring is commonplace in many instances” already even without the nondisplacement order. The Department understands that the Federal Government is carefully monitoring small business participation levels and implementing strategies to help ensure that new contracting initiatives such as category management do not undermine small business contracting. The Department believes this strikes the right balance for both small businesses and workers on service contracts even though there may be the potential for employee attrition from a small business predecessor to a successor contract.

As noted above, in the final rule, the Department has switched the order of § 9.3(b) and (c) and made edits for clarity, so that the proposed § 9.3(c) is now, with minor revisions, located at § 9.3(b).

vi. Coverage of Subcontracts

Consistent with sections 2 and 3 of Executive Order 14055, which specify that the nondisplacement requirements apply equally to subcontracts, the Department noted that where a prime contract is covered by the order and part 9, any subcontracts for services are also covered and subject to the requirements of the order and part 9. As a corollary, the Executive order does not apply to non-service subcontracts. For example, a subcontract to supply napkins and utensils to a prime contractor as part of a covered contract to operate a cafeteria in a Federal building is not a covered subcontract for purposes of this order because it is a supply subcontract rather than a subcontract for services. No comments were received about the coverage of subcontracts, other than those related to the discussion of subcontracts below the simplified acquisition threshold.

vii. Geographic Scope

The Executive order and this part apply to contracts that are both: (1) with the Federal Government; and (2) require performance in whole or in part within the United States. Performance in whole or in part within the United States means within the 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, Outer Continental Shelf lands as defined in the Outer Continental Shelf Lands Act, American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, Wake Island, and Johnston Island. Under this approach—which is consistent with the geographic scope of coverage under the SCA—the Executive order and these regulations do not apply to contracts with the Federal Government to be performed in their entirety outside the geographical limits of the United States as thus defined. However, if a contract with the Federal Government is to be performed in part within and in part outside these geographical limits and is otherwise covered by the Executive order and these regulations, the order and the regulations apply to the contract and require a right of first refusal for any workers who have performed work inside the geographical limits of the United States as defined. As noted previously, contracts awarded by the District of Columbia or any Territory or possession of the United States are not covered by the order, as neither the District of Columbia nor any Territory or possession of the United States constitutes the “Federal Government” under these regulations. The Coalition expressed support for the scope of geographic coverage under the proposed rule; no other comments were received regarding the geographic scope of coverage.

4. Section 9.4 Exclusions

Pursuant to section 5(a) of Executive Order 14055, proposed § 9.4(a) addressed the exclusion for contracts under the simplified acquisition threshold, as defined in 41 U.S.C. 134. The simplified acquisition threshold currently is $250,000. 41 U.S.C. 134.

The regulations, as finalized, omit that amount from the regulatory text in the event that a future statutory amendment changes the amount. Any such change would automatically apply prospectively to new contracts subject to part 9.

Proposed § 9.4(a)(2) clarified that the exclusion provision at § 9.4(a)(1) would apply only to prime contracts under the simplified acquisition threshold and that whether a subcontract is excluded from the requirements of part 9 is dependent on the prime contract amount. As discussed above in the discussion of § 9.3, section 5(a) of Executive Order 14055 excludes only “contracts under the simplified acquisition threshold[.]” The proposed rule explained that this language differs from Executive Order 13495, which excluded “contracts

or subcontracts

under the simplified acquisition threshold.”

See

Executive Order 13495, 74 FR 6103 (Feb. 4, 2009) (emphasis added). Accordingly, proposed § 9.4(a)(2) explained that subcontracts would be excluded under § 9.4(a)(1) only if the prime contract is under the simplified acquisition threshold. The Department sought comment on the potential impact, including any unintended consequences, of covering subcontracts below the simplified acquisition threshold.

As described in the preamble to § 9.3(a)(2), the Coalition and the AFL-CIO commented in support of coverage of subcontracts below the simplified acquisition threshold where the prime contract exceeds the simplified acquisition threshold. Conversely, PSC and Nakupuna suggested excluding subcontracts with a value less than the simplified acquisition threshold from the requirements of Executive Order 14055 and this part. For the reasons given in the preamble to § 9.3(a)(2), the final rule does not exclude subcontracts below the simplified acquisition threshold where the prime contract meets or exceeds that threshold, and the final rule adopts paragraphs § 9.4(a)(1) and 9.4(a)(2) as proposed.

In § 9.4(b), the Department proposed to implement the exclusion in section 5(b) of Executive Order 14055 relating to employment where Federal service work constitutes only part of the employee's job. The Department did not receive any comments on proposed § 9.4(b), and the final rule adopts the provision as proposed.

Proposed § 9.4 did not include an exclusion for contracts awarded for services produced or provided by persons who are blind or have severe disabilities. The proposed rule explained that section 3 of Executive Order 13495 specifically excluded “contracts or subcontracts awarded pursuant to the Javits-Wagner-O'Day Act,” “guard, elevator operator, messenger, or custodial services provided to the Federal Government under contracts or subcontracts with sheltered workshops employing the severely handicapped as described in section 505 of the Treasury, Postal Services and General Government Appropriations Act, 1995,” and “agreements for vending facilities entered into pursuant to the preference regulations issued under the Randolph-Sheppard Act[.]” In contrast, section 5 of Executive Order 14055 does not enumerate any such exclusions. For this reason, proposed § 9.4 did not exclude such contracts from the requirements of part 9.

The proposed rule explained, however, that section 12 of Executive Order 14055 expressly provides that nothing in the order should be construed “to impair or otherwise affect . . . the authority granted by law” to an agency and directs that the order be “implemented consistent with applicable law.” The applicable law encompassed by these sections includes the statutes that were excluded explicitly from Executive Order 13495, such as the Javits-Wagner-O'Day (JWOD) Act, 41 U.S.C. 8501

et seq.,

and the Randolph-Sheppard Act, 20 U.S.C. 107. These laws establish requirements for contracts awarded for services produced or provided by persons who are blind or have severe disabilities, and the laws may conflict with the requirements of Executive Order 14055 in that the laws may impose staffing requirements that in many cases would preclude, in whole or in part, offering employment to the employees on the predecessor contract. For example, under the JWOD Act, a qualified nonprofit agency operating under the AbilityOne Program is required to employ blind or severely disabled individuals for at least 75 percent of the direct labor hours required for the particular nonprofit agency's production or provision of services.

See

41 U.S.C. 8501(6)(C). If there are few blind or severely disabled workers on a predecessor contract, it could be impossible for a successor contractor to make offers to all incumbent workers and also comply with the JWOD Act 75-percent requirement. The proposed rule explained that where direct legal conflicts squarely exist between the requirements of Executive Order 14055 and the requirements of another statute, regulation, Executive order, or presidential memorandum under the particular factual circumstances of a specific situation, the requirements of this part would not apply. Under the proposed rule, a contracting agency would be obligated to follow the procedures proposed at § 9.5 to make a case-by-case exception for contracts on the basis of a determination that the requirements of this part did not apply to a particular contract because of a direct legal conflict.

In the NPRM, the Department also recognized that contracting agencies award contracts under a wide variety of programs, including those mentioned above, some of which have, by law, specific processes and requirements that may make it challenging to fully implement the requirements of Executive Order 14055. The Department invited comments on how Executive Order 14055 and its implementing regulations should be applied to any specific programs that are subject to contracting requirements that may conflict with Executive Order 14055 or the provisions of the proposed rule.

Several commenters supported the Department's approach in the proposed rule. The Coalition commented that they supported the proposed rule's coverage of contracts covered by the JWOD Act and awarded under the AbilityOne Program, indicating that coverage of AbilityOne contracts is consistent with modern disability policy and promotes “integrated employment in which workers with disabilities work alongside nondisabled workers and enjoy the same rights and protections.” In its comment, Jobs to Move America thanked the Department for “providing equal treatment to disabled workers by covering” these contracts.

Several other commenters expressed opposition to the proposed treatment of contracts covered by the JWOD Act. These commenters requested an across-the-board exclusion for contracts or subcontracts awarded pursuant to the JWOD Act, in line with the exclusion previously granted in Executive Order 13495. These commenters criticized the proposed exception process in § 9.5 that contracting agencies would need to use for AbilityOne contracts if the Department did not provide an express exclusion. Peckham Inc., Didlake Inc., and Nobis Enterprises, which are AbilityOne contractors, commented that making “case-by-case determinations on AbilityOne contracts will lead to inconsistent management of the AbilityOne Program, unnecessary contract award delays, and adverse impacts on the employment of individuals with disabilities.” Source America, an AbilityOne contractor network, noted that the lack of an

express exclusion puts the burden of decision-making on procurement officers, possibly leading to inconsistent application for contracts covered by the AbilityOne Program. Source America further noted that the exception process in the proposed rule does not apply to subcontracts and that there are several instances where a JWOD Act contractor may operate as a subcontractor instead of a prime contractor.

National Industries for the Blind (NIB), a nonprofit agency designated by the AbilityOne Commission to distribute Federal Government orders for products and services on the AbilityOne Procurement List, wrote that the potential need for a case-by-case exception for AbilityOne contracts may not even be recognized by the contracting agency. Melwood Horticultural Training Center, Inc. (Melwood), an AbilityOne contractor, commented that if the rule, as finalized, applies to AbilityOne authorized contractors, it would be extremely unlikely that those contractors would be able to maintain compliance with the AbilityOne program when a predecessor workforce does not have individuals who meet the required AbilityOne labor criteria. Melwood further explained that “[i]f AbilityOne authorized contractors are not explicitly exempted from the requirements of the rule, they will be compelled to hire the incumbent workforce instead of offering up meaningful, steady opportunities to people with significant disabilities.” Melwood recommended that the final rule explicitly exclude contracts under the JWOD Act. In the alternative, Melwood suggested that the Department codify an arrangement specifically for successor contracts awarded under the JWOD Act that would (1) create a right of nondisplacement for jobs constituting 25 percent of the direct labor hours on a contract; (2) require the successor contractor to offer positions to displaced predecessor contract workers on other contracts to the extent doing so would not affect AbilityOne compliance; (3) require the successor contractor to offer to displaced predecessor contract workers a right to be recalled for up to two years should a vacancy occur in roles performing the 25 percent of direct labor hours performed by people without disabilities; and (4) require the successor contractor to take a neutral position should a displaced worker accept an offer at a non-unionized site and attempt to organize it.

Other commenters similarly requested exemptions from the nondisplacement requirements based on a perceived inconsistency between the requirements and other statutes. PSC, in response to the Department's question about location continuity and HUBZones, as well as other procurement preference programs,

2

urged a broad exemption from the nondisplacement requirements whenever they would “impact internal organizational or federal Diversity, Equity, Inclusion and Accessibility goals.” The Council on Federal Procurement of Architectural & Engineering Services (COFPAES) asserted that architecture, engineering (A/E) and related services (including surveying and mapping) should be exempted from the rule because these services are governed by the Brooks Act, 40 U.S.C. 1101

et seq.

COFPAES stated that the Brooks Act is inconsistent with the right of first refusal, because it requires that evaluation and selection of firms for A/E services be based on “demonstrated competence and qualification,” including award to the “most highly qualified” firm.

2

The HUBZone program, established by title VI of the Small Business Reauthorization Act of 1997, is one of several procurement-related preference programs for small businesses, and it is designed to aid small businesses that are located in economically distressed areas.

See

15 U.S.C. 657a. HUBZone is an acronym for Historically Underutilized Business Zone Empowerment Contracting (HUBZone). The other small business preference programs include preferences for small businesses generally, Women-Owned Small Businesses, Service-Disabled Veteran-Owned Small Businesses, and Small Disadvantaged Businesses.

See generally

Congressional Research Service, Small Business Administration HUBZone Program, R41268, (Updated July 29, 2022),

https://sgp.fas.org/crs/misc/R41268.pdf.

After consideration of these comments, the Department is amending the contract clause to give effect to the requirements and goals of Executive Order 14055 to the maximum extent possible in light of the requirements and policy objectives of the HUBZone program statute, the JWOD Act, and the Randolph-Sheppard Act. Specifically, the Department has added paragraph (j) to the contract clause in Appendix A, which sets forth a requirement that, to the maximum extent possible, contractors that are awarded contracts under the HUBZone program statute, the JWOD Act, or the Randolph-Sheppard Act must comply with both the relevant requirements under those statutes and the requirements of Executive Order 14055. Paragraph (j) clarifies that nothing in the contract clause will be construed to permit a contractor or subcontractor to fail to comply with any applicable provision of the HUBZone program statute, the JWOD Act, or the Randolph-Sheppard Act. Consistent with paragraph (j) of the contract clause, when the requirements of such laws would conflict with the requirements of Executive Order 14055 in connection with a particular contract, then the requirements of such laws may be satisfied in tandem with and, if necessary, prior to the requirements of Executive Order 14055 and this part. In the contract clause, the Department has not included reference to section 505 of the Treasury, Postal Services and General Government Appropriations Act, because the requirements of that Act are covered already by the reference to the JWOD Act.

Under this framework, for example, a successor AbilityOne contractor will be required to provide a right of first refusal to workers from the predecessor contract who have significant disabilities or visual impairment, as defined by the JWOD Act. The AbilityOne successor contractor could then hire non-predecessor contract workers with significant disabilities or visual impairment to the extent necessary to satisfy the employment threshold requirements of the AbilityOne Program. Specifically, the JWOD Act requires that 75 percent of direct labor hours be performed by workers with significant disabilities or visual impairment.

See

41 U.S.C. 8501(6)(c). After ensuring that this programmatic threshold requirement is met, the AbilityOne successor contractor will be required under paragraph (j) of the nondisplacement contract clause in Appendix A to provide the right of first refusal to as many of the remaining predecessor contract employees (

i.e.,

those who do not have significant disabilities or visual impairment) as necessary to fill any remaining positions on the successor contract for which those employees are qualified.

Similarly, the HUBZone program statute requires small business concerns (SBCs) to have 35 percent of all of their employees reside in a HUBZone to be certified under the program, and to attempt to maintain this percentage when they are awarded contracts on the basis of a HUBZone preference.

See

14 U.S.C. 657a(c) and (d). When both the successor and the predecessor contractors are SBCs, the residence requirement threshold normally could be met through a standard application of this final rule where the successor contractor is required to offer a right of first refusal to employees on the predecessor contract. Under circumstances where the successor is an SBC but the predecessor is not, HUBZone SBCs can meet both the requirements of the HUBZone program and the Executive order in accordance with paragraph (j) of the contract clause. For instance, the successor SBC contractor would first have to extend

offers of employment to the qualified predecessor contractor's employees who reside in a HUBZone. If necessary to reach the residency threshold, the successor HUBZone SBC would next extend offers of employment to qualified residents of a HUBZone who are not employees of the predecessor. The HUBZone SBC would next extend offers for the remaining employment openings to non-HUBZone-resident qualified employees of the predecessor contractor. Under such an approach, the HUBZone SBC would first ensure that it meets the statutory requirements of the HUBZone program so that it is not decertified, and then would be required to offer employment to the predecessor's employees pursuant to Executive Order 14055 to the maximum extent possible without violating HUBZone program requirements. This approach would also apply in other circumstances, such as where the predecessor HUBZone SBC did not maintain the HUBZone residence requirement but was permitted to remain in the program. While the HUBZone SBC must maintain the 35 percent HUBZone residency requirement at all times while certified in the program, there is an exception: an SBC may “attempt to maintain” this requirement when performing on a HUBZone contract. When that occurs and the HUBZone SBC is permitted to fall below the 35 percent threshold, it still must meet the requirement any time it submits a subsequent offer and wins a HUBZone contract. Where a non-SBC successor follows a HUBZone SBC predecessor, the non-SBC successor would be required to comply without limitation with the requirements of the nondisplacement contract clause and implementing regulations by offering a right of first refusal to all qualified predecessor contract employees. This framework is consistent with the Department's treatment of HUBZones in the 2011 final rule for Executive Order 13495.

See

76 FR 53720, 53723.

The Department believes that this framework recognizes contractors' obligations to comply with the requirements of the HUBZone program statute, the JWOD Act, and the Randolph-Sheppard Act while satisfying Executive Order 14055 by providing the nondisplacement benefit to workers employed on predecessor contracts to the greatest extent permissible. Consistent with Executive Order 14055, this part also applies to covered contracts in which the predecessor contractor, but not the successor contractor, is covered by the HUBZone program statute, the JWOD Act, or the Randolph-Sheppard Act. Similarly, this part applies to covered contracts in which both the predecessor and successor contracts are covered by the HUBZone program statute, the JWOD Act, the Randolph-Sheppard Act.

In light of new paragraph (j) in the contract clause, there is no need for contracting agencies to authorize an exception under the agency exception procedure in § 9.5 of these regulations for contracts because of the potential application of the HUBZone program statute, the JWOD Act, or the Randolph-Sheppard Act. Paragraph (j) operates to provide an exception to the requirements of Executive Order 14055 where necessary (and only to the extent necessary) to enable compliance with these statutory provisions. The Department believes that the approach reflected in the final rule will promote consistency in applying the requirements of Executive Order 14055 to contracts subject to the HUBZone program statute, the JWOD Act, and the Randolph-Sheppard Act. The approach in the final rule thus is preferable to an approach under which some such contracts would nominally be fully subject to Executive Order 14055's requirements even where application of those requirements would conflict with these statutory preference programs, while others would be entirely exempt from Executive Order 14055's requirements even though certain positions on the successor contract could be filled with predecessor contract employees without any conflict with these preference programs. In this manner, the final rule strikes an important balance by retaining the nondisplacement benefit for many workers on predecessor contracts while enabling successor contractors to maintain compliance with these other statutes.

The Department declines to create a broader exemption from the nondisplacement requirements wherever they might impact a contractor's “internal organizational” or Federal Diversity, Equity, Inclusion, and Accessibility (DEIA) goals, as requested by PSC. There is no basis in the order to allow exceptions from the nondisplacement requirements to pursue internal corporate goals however laudable, and such an exemption would not be administrable. With regard to other Federal procurement preference and nondiscrimination programs, PSC did not identify any inconsistency between the nondisplacement requirements and such programs, other than the HUBZone employment requirements addressed in this preamble and contract clause. As noted in § 9.12(d)(3), contractors are required to carry out their responsibilities and exercise their discretion under the nondisplacement requirements in a manner consistent with non-discrimination laws and regulations.

The Department also considered COFPAES's assertion that there is a direct conflict between the Brooks Act and the nondisplacement requirements. COFPAES commented that a conflict exists because the Brooks Act requires that evaluation and selection of firms for architecture and engineering services be based on “demonstrated competence and qualification” and be awarded to the “most highly qualified” firm.

See

40 U.S.C. 1101, 1103(d). COFPAES further stated that the Brooks Act requires selection of contractors based on the qualifications of “key employees” who will work on the contract and that firms compete by submitting a Standard Form (SF) 330 with the resumes of proposed personnel.

See

48 CFR 36.603. The Department does not agree that these requirements create direct conflicts. The nondisplacement requirements do not conflict with a requirement to contract with the most highly qualified firm or with a firm based on its qualifications or demonstrated competence. Moreover, the order does not require a right of first refusal for employees who are exempt under the professional exemption in part 541 of the FLSA regulations and who therefore are not service employees within the meaning of the SCA.

See

Executive Order 14055, section 3(b). The Department's FLSA regulations state that the “traditional professions” of architecture and engineering are “field[s] of science or learning” such that employees performing work requiring advanced knowledge in those fields generally meet the duties requirements for the learned professional exemption.

See

29 CFR 541.301(a) and (c). Accordingly, these individuals will generally not be “service employees” under the definition in the Executive order and thus there will generally not be any duty under the nondisplacement rule to provide a right of first refusal to these individuals or any reason that a bidder cannot list its own professional employees on its SF 330 form.

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3

While the order does not require a right of first refusal for professional architects and engineers, Brooks Act contracts may still be covered by the nondisplacement requirement. As discussed in § 9.3, the order applies to contracts that are covered by the SCA and are at or above the simplified acquisition threshold.

See also

Executive Order 14055, section 2(a), 3(a). The SCA, and therefore the order, does not extend to contracts for services “to be performed exclusively by persons who are not service employees—

i.e.,

persons who are bona fide executive, administrative or professional

personnel[.]” 29 CFR 4.113(a)(2). However, SCA (and therefore nondisplacement) coverage extends to contracts “which may involve the use of service employees to a significant or substantial extent,” even if there is “some use of bona fide executive, administrative, or professional employees[.]” 29 CFR 4.113(a)(3)

; see also Nat'l Cancer Inst.,

BSCA No. 93-10, 1993 WL 832143 (Dec. 30, 1993) (discussing the meaning of “significant or substantial extent”). Many employees who work on Brooks Act-covered contracts may be nonexempt service employees. The Brooks Act contemplates that covered work may include “incidental services” carried out by architects and engineers “and individuals in their employ.” 40 U.S.C. 1103(2)(C)). Accordingly, some Brooks Act contracts could be covered by the SCA and therefore the nondisplacement order.

While there is no direct conflict between the Brooks Act and the nondisplacement requirements so as to justify an across-the-board exemption, an agency exception may be appropriate depending on the specific facts of a particular contract under the nondisplacement regulations in § 9.5(a)(1) or (a)(2).

See

section II.B.5. below. These agency exceptions apply where adhering to the requirements of the order or the implementing regulations would not advance the Federal Government's interests in achieving economy and efficiency in Federal procurement or where, based on a market analysis, adhering to the requirements of the order or the implementing regulations would both substantially reduce the number of potential bidders so as to frustrate full and open competition and not be reasonably tailored to the agency's needs for the contract. Where a contract is largely performed by SCA-exempt professional services employees, it may still be covered by the order even if only a relatively small percentage of the employees on the project would be provided with a right of first refusal. In such a situation, where the agency's overriding interest may be in fostering creative competition between the professional employees on the project, it may not make sense to impose the nondisplacement requirements if their inclusion would adversely affect the ability of the agency to maximize the number of such firms that might participate while providing a benefit only to a limited number of covered service employees on the contract.

Accordingly, the final rule adopts the paragraph at § 9.4 as proposed, along with the amendments specified above to the contract clause in Appendix A.

5. Section 9.5 Exceptions Authorized by Agencies

Section 6 of the order provides a procedure for Federal agencies to except particular contracts from the application of the nondisplacement requirements. The Department proposed to implement this procedure through language in § 9.5 of the regulations. Under section 6 of the order, and in § 9.5 as proposed and as adopted in this final rule, an agency would be permitted to grant an exception from the requirements of section 3 of the order (the incorporation of the nondisplacement contract clause) for a particular contract under certain circumstances. The determination must be made no later than the solicitation date for the contract and must include a specific written explanation of why at least one of the qualifying circumstances exists with respect to that contract.

Proposed § 9.5(a) listed the qualifying circumstances for an agency exception, as provided for in the agency exceptions provision in section 6(a) of the order. These included (1) where adhering to the requirements of the order or the implementing regulations would not advance the Federal Government's interests in achieving economy and efficiency in Federal procurement; (2) where based on a market analysis, adhering to the requirements of the order or the implementing regulations would both substantially reduce the number of potential bidders so as to frustrate full and open competition and not be reasonably tailored to the agency's needs for the contract; and (3) where adhering to the requirements of the order or the implementing regulations would otherwise be inconsistent with statutes, regulations, Executive orders, or Presidential Memoranda.

The Department proposed to interpret section 6(a) of the order as allowing agencies to make exceptions only for prime contracts and not for individual subcontracts. The proposed language in § 9.5(a) carried out this interpretation by authorizing contracting agencies to waive nondisplacement provisions only “as to a prime contract.” The Department's proposed interpretation of section 6(a) followed from a comparison of this section with the agency exemption provision in Executive Order 13495. In Executive Order 13495, the agency exemption provision permitted agencies to exempt “a particular contract, subcontract, or purchase order or any class of contracts, subcontracts, or purchase orders.” In Executive Order 14055, however, section 6(a) permits agencies to make exceptions only for “a particular contract” and does not reference subcontracts. In the NPRM, the Department also noted that section 2(a) of Executive Order 14055 defines the term “contract” as including “subcontract,” which could support an interpretation of section 6(a) as allowing a continued case-by-case exception for subcontracts. For that reason, the Department sought comment from the public on the potential impact, including any unintended consequences, of not allowing agency exceptions for particular subcontracts or classes of subcontracts.

In response to the Department's request for comments, the Coalition responded in support of the proposed limitation that would allow exceptions to be granted only for prime contracts and not separately for subcontracts. The Coalition expressed concern that permitting exceptions for particular subcontracts could “create opportunities for circumvention” of the nondisplacement requirements by “pushing more work to the subcontractor.” The Coalition described an example of how contractors use subcontracting arrangements to evade contract requirements. In the example, a New Jersey state law required certain services to be provided only by nonprofits; a contractor evaded the law by using a shell nonprofit prime contractor and then subcontracting to a for-profit entity.

No commenter specifically opposed the Department's proposed interpretation. PSC's comment, however, contained a more general legal argument that paralleled the Department's discussion in the NPRM. PSC opposed the Department's proposed limitation on the application of the simplified acquisition threshold exclusion (which appears in section 5(a) of the order) to subcontracts. In making its argument, PSC referenced the order's definition section at section 2(a) that includes “subcontract” within the definition of the term “contract.” PSC asserted that, because of this definition, the order requires the exclusion for prime contracts below the simplified acquisition threshold in section 5(a) of the order to apply to subcontracts as well. Although PSC did not extend its argument to the interpretation of section 6(a) of the order, the same logic would apply there too, given that section 6(a) provides for agency exceptions for “a particular contract.”

NIB expressed concern that if the agency exception process only applies to prime contracts, then the regulations might not be able to adequately account for potential conflicts between the nondisplacement requirements and the requirements of the JWOD Act and the AbilityOne Program. NIB noted that the FAR recognizes “[t]he statutory obligation” under the JWOD Act “also applies when contractors purchase the supplies or services for Government use,” 48 CFR 8.002(c)—

i.e.,

including

when contractors subcontract for services. Likewise, SourceAmerica noted that Marine Corps Food Service contracts are “mandatory subcontracts” under the JWOD Act, so there would be a direct conflict between the JWOD Act and the Executive order if JWOD-covered subcontracts are not given an exception. To remedy this concern, NIB recommended providing an express exemption for AbilityOne contracts and subcontracts so that contracting agencies would not need to follow the procedures in § 9.5 of the nondisplacement regulations to except these contracts and subcontracts.

Finally, PSC raised questions about the application of the Executive order and the regulations to Multi-Agency Contracts (MACs) and the individual task orders that may be made from them. For MACs, as well as for similar MAS/IDIQ contracts, there are at least two separate moments in which a contracting agency takes an action to enter into a contract: First, when the General Services Administration (GSA) (or other coordinating agency) negotiates the underlying umbrella contract with the contractor; and second, when the individual contracting agency issues a task order under the umbrella contract. As a general matter, an umbrella IDIQ contract should include the nondisplacement clause with appropriate modification (or some mechanism for its later inclusion at the task order level) if there is any reasonable possibility that a future task order under the contract could be found to be a covered successor contract. Unless a mechanism exists to add the nondisplacement clause to individual task orders at the time of their issuance, the fact that such a possibility is unknown at the time of the solicitation for the underlying MAS/IDIQ contract would not be sufficient reason to exempt the entire umbrella contract from coverage under the procedure in § 9.5.

Having considered these comments, the final rule retains the language that authorizes agency exceptions for “a prime contract” and not subcontracts. As noted in the NPRM, this approach follows from a comparison between Executive Order 14055 and its predecessor, Executive Order 13495. Executive Order 13495 expressly included the term “subcontracts” in its authorization for agency exceptions, while section 6(a) of Executive Order 14055 does not. While it is true, as PSC noted, that the definition of “contract” in section 2(a) of Executive Order 14055 includes subcontracts, Executive Order 13495 contained this same definition. The Department therefore believes the better interpretation of Executive Order 14055 is to give weight to the fact that Executive Order 14055 eliminated the express reference to “subcontracts” that was included in the agency exemptions provision of Executive Order 13495. A comparison between section 3(a) and section 6(a) supports this interpretation. Notwithstanding the expansive definition of the word “contract,” section 3(a) of the order expressly requires the incorporation of the contract clause into “contracts and subcontracts.” In 6(a), however, the order provides an exception process only for “contracts.” In addition, the potential division of contract work through subcontracts is often only clear after prime contractors have submitted bids in response to a solicitation and not before it is issued. It would be impractical or impossible in many cases for contracting agencies, prior to the solicitation date for a prime contract, to identify “particular” subcontracts which could appropriately be excepted from coverage.

The Department is mindful of NIB's concern regarding the application of the § 9.5 agency exception procedure to JWOD Act-covered contracts and subcontracts. However, as discussed in section II.B.4., the Department has separately addressed these concerns by including language in the contract clause that applies to all such contracts and subcontracts and instructs contractors that they must implement the JWOD Act and the nondisplacement provisions in tandem and to the maximum extent possible.

To account for the unique structure of MAS/IDIQ contracts, the Department has added a new sentence to § 9.5(b) that provides for a bifurcated exception process. The provision provides that for IDIQ contracts, an exception must be granted prior to the solicitation date if the basis for the exception cited would apply to all orders. Otherwise, exceptions must be granted for each order by the time of the notice of the intent to place an order. The appropriate entity to analyze and grant an agency exception at the time of a task order may often be the ordering agency, as the ordering agency will usually be best placed to make the initial determination of whether a task order is a successor contract that would be covered by the order and therefore whether it is relevant to consider an agency exception to coverage. As a general matter, however, the agency responsible for the umbrella contract may determine the procedure through which task orders may be excepted (and whether the contracting agency can overrule an ordering agency's determination regarding an agency exception), as long as that procedure is consistent with the nondisplacement order, these regulations, and any applicable FAR provisions.

Accordingly, the final rule adopts the language limiting section 6(a) to prime contracts as proposed, with a limited amendment to account for MAS/IDIQ contract task orders. The Department has also added a sentence to § 9.5(b) to clarify that when an agency determines that a prime contract is excepted under this section, the nondisplacement requirements will not apply to any subcontracts under that prime contract.

Section 6(a) of Executive Order 14055 also limits contracting agency exception decisions by requiring that a decision to except a contract must be made by a “senior official” within the agency. The Department interprets “senior official” to mean the senior procurement executive, as defined in 41 U.S.C. 1702(c). Consistent with this interpretation, the Department proposed regulatory text at § 9.5(a) that identifies the senior procurement executive as the senior official who must make an exception decision. In the NPRM, the Department explained that, because the order specifically requires the decision to be made by a senior official, the decision cannot be delegated by the senior procurement executive to a lower-level official. This same non-delegation principle was applied in the 2012 FAR rule that implemented Executive Order 13495.

See

77 FR at 75773.

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4

Section 4 of Executive Order 13495 also included the authority to grant a waiver of that order's effect but limited the authority to the “head of a contracting department or agency.”

The Coalition approved of the Department's interpretation of the term “senior official” in § 9.5(a), stating that the required approval of the senior procurement executive will ensure that exceptions are “subject to consistent, rigorous levels of review.” The Coalition noted that an agency's senior procurement executive is “well positioned to assess whether the need for any particular service contract is sufficiently unusual to justify waiving the nondisplacement requirement.” The Coalition agreed with the Department that prohibiting any further delegation of this duty is consistent with use of the term “senior official” in section 6(a) of the order. The Coalition, however, also recommended that the Department add a consultation requirement, such that the senior procurement executive would have to make the determination “in consultation with the agency head.” The Coalition noted that such a requirement

would be consistent with the FAR, which permits individual deviations from FAR requirements when authorized by the agency head.

See

48 CFR 1.403. The AFL-CIO stated that they supported the requirement that any exception decision be made by the senior procurement executive.

In contrast, Nakupuna expressed concern that the exception process in § 9.5(a) is “too arduous” and may result in agencies not granting exceptions that would have been in the best interest of the Federal government. Nakupuna also stated that the head of a contracting department or agency should have the authority to exempt contracts from the requirements of the order if justified. Several other commenters expressed more general concerns about the requirements for senior-level decision-making. PSC, in a response to the Department's proposal regarding location continuity, stated that requiring the senior procurement executive to make a determination “would cause needless delay” because such decisions “require time, consideration, and decision capital” that may “bottleneck solicitations.” NIB, in requesting a blanket exemption for contracts awarded under the JWOD Act, suggested that exception decisions by senior procurement executives would be “superfluous” and “time-consuming.” Several other entities involved in contracting under the JWOD Act expressed similar concerns. These comments, however, did not address the express language in section 6(a) of the Executive order that limits the exception authority to a “senior official within an agency” or suggest that the Department was incorrect to interpret that language as limiting the decision to the senior procurement executive.

The final rule adopts the senior-procurement-executive requirement in § 9.5(a) as proposed. As the Coalition noted, this language is consistent with the requirement in the order that the decision must be made by a “senior official,” and the involvement of the senior procurement executive will promote consistency in agency exception decisions. The requirement is also consistent with the implementation of Executive Order 13495 in the 2012 FAR final rule, which adopted language at 48 CFR 22.103-3 authorizing the senior procurement executive to waive nondisplacement requirements.

See

77 FR at 75767. The Department declines to implement the Coalition's proposal to require consultation with the agency head. While such consultation may be appropriate and should be encouraged, it is not required by the order and may not be warranted in every instance.

NIB also suggested that the word “may” in § 9.5(a) should be replaced with the word “shall,” to more effectively require a contracting agency to grant an exception to the nondisplacement requirements in certain circumstances. While acknowledging that section 6(a) of the order itself uses the term “may,” NIB asserted that replacing it with the word “shall” in the regulations would eliminate any implication that a contracting agency has any “discretion” to apply the nondisplacement requirements even when that would be inconsistent with another law such as the JWOD Act. The Department agrees with NIB that in circumstances in which the application of the nondisplacement requirements would directly conflict with an express provision of another statute, such that compliance with the nondisplacement requirements set forth in this final rule would necessarily result in a violation of another statute, the agency should authorize the exception. But the Department interprets the order's use of the term “may” to suggest only that (consistent with Nakupuna's suggestion) the senior procurement executive's determination can still be subject to review and revision by the contracting agency head or otherwise pursuant to an individual contracting agency's procurement procedure. Accordingly, the final rule continues to authorize, but not require, the agency to waive the application of nondisplacement provisions after the determination of the senior procurement executive. The final rule therefore adopts the language of § 9.5(a) as proposed.

Proposed § 9.5(b) reiterated the procedural requirements that section 6(a) of the order states must be satisfied for an exception to be effective. The proposed language stated that the action to except a contract from some or all of the requirements of the Executive order or the regulations must include a specific written explanation of the facts and reasoning supporting the determination. Following the text of section 6(a) of the order, the proposed language in § 9.5(b) stated that this written explanation must be issued no later than the solicitation date, which is also the latest date that the action to except a contract may be taken. The proposed language in § 9.5(b) provided that any determination by an agency to exercise its exception authority that is made after the solicitation date or without the timely and specific written explanation would be inoperative. In such a circumstance, the contract clause would have been wrongly omitted and the agency would be required to take action consistent with paragraph § 9.11(f) of this part, which sets forth the requirements for incorporating missing contract clauses.

The Coalition and the AFL-CIO expressed general support for the proposed procedural requirements in § 9.5(b). The Coalition noted that the requirement for a specific written explanation, including the facts and reasoning, will promote thorough analyses and consistent decision-making. They also noted that this requirement is in accordance with the FAR's requirement that documentation in contract files be sufficient to constitute a complete history of the contractual action, including support for actions taken.

See

48 CFR 4.801(b). The Coalition, however, recommended modifying the language of § 9.5(b) to also require an “attestation” by the incoming contractor that “no service disruption will occur due to the displacement of predecessor contract employees.” They explained that the attestation could be requested in the solicitation.

The Department declines to require an additional “attestation” condition. Such an attestation requirement could be an effective mechanism in a particular contract to maximize the use of predecessor employees and limit disruption even when the nondisplacement contract clause is not included in the solicitation. However, the order does not impose this blanket requirement, and the Department did not propose one in the NPRM. Thus, while agencies are encouraged to take alternative and contract-specific measures to protect against service disruption where the nondisplacement provisions do not apply—including an attestation requirement on a contract-by-contract or agency-wide basis—the Department is not imposing such a requirement in this final rule.

Multiple commenters noted potential challenges from the requirement in § 9.5(b) that the exception determination and written analysis must be carried out no later than the solicitation date. One entity, Professional Contract Services, Inc. (PCSI), requested a modification of these timing requirements to accommodate the potential for interaction between bidders and the contracting agency. PCSI noted that the regulations do not provide for a “process for a bidder or contractor to interact with the contracting agency and explain its need for such an exception.” PCSI suggested that such a procedure would be particularly useful with regard to the AbilityOne program, where “a contracting agency may not understand

the conflict in laws posed without such an interaction with the selected [AbilityOne contracting entity].” PCSI did not suggest how exactly the timeframe should be modified—whether by providing a pre-solicitation procedure or by allowing exceptions to be requested and provided after the solicitation date.

The Coalition discussed the challenge of the exception deadline in the context of a comment about the proposed reconsideration process. Under their suggestion, agencies would be required to notify workers and their representatives of a proposed exception no later than 120 days before the solicitation, providing time for comment from interested parties. The deadline for the agency to make an initial exception decision would be 60 days prior to the solicitation date, to accommodate time for interested parties to then request reconsideration and for that reconsideration to be resolved before any bid solicitation goes out. The AFL-CIO expressed agreement with the Coalition's proposed timeframe.

The Department acknowledges that the solicitation-date deadline for an agency exception decision may be challenging in some circumstances because it requires agencies to collect relevant information regarding the need for an exception prior to the solicitation date, and because any decision that is made close to or on the solicitation date leaves little to no time for interested parties to assist the agency in correcting any mistakes before the solicitation is issued. Notwithstanding these concerns, the Department declines to extend the deadline for agency exceptions beyond the solicitation date, which would be contrary to the specification in the order itself that the exception may be granted “no later than the solicitation date.” This language does not allow a procedure in which exceptions are granted after the solicitation date, unless the solicitation is subsequently canceled and reissued. Such a rule strikes a reasonable balance, as allowing exceptions after the solicitation date would not make sense procedurally and could invite abuse of the exceptions provision.

The Department also declines to impose a procedural framework that would require agency exception decisions to be made 60 days before the solicitation date for all contracts. The Department agrees with the Coalition that agencies will be able to make better-informed decisions and avoid errors if they engage with stakeholders—including workers on predecessor contracts or their collective bargaining representatives—as early as possible in the acquisition planning process. The order, however, requires only that the exception decision be made no later than the solicitation date, which allows, but does not require, agency exception decisions to be made at an earlier date. In responding to the Coalition's suggestion, the Department considered that the FAR contains broad requirements for acquisition planning prior to the issuance of solicitations.

See generally

48 CFR 7.102 (“Agencies shall perform acquisition planning and conduct market research . . . for all acquisitions[.]”). It is during this advance planning process that agencies should be identifying whether an exception from the nondisplacement provisions is necessary—and engaging workers and their representatives if possible—and not at the last minute before a solicitation is issued. The language of the order allows agencies to address exceptions in this way, and agencies are encouraged to carry out the exceptions decision as early as possible. At this time, however, the Department declines to impose by regulation an earlier deadline for agency exceptions determinations. As noted below, however, the Department has included new language in § 9.5(d) that requires contracting agencies, to the extent consistent with mission security, to include employee representatives in any pre-solicitation market-research-related industry exchanges that are specific to the nondisplacement requirements and conducted for the purpose of analyzing whether to impose an agency exception under § 9.5.

For the foregoing reasons, the final rule adopts § 9.5(b) as proposed.

i. Bases for Agency Exceptions

In the NPRM, the Department also proposed to provide additional guidance and requirements applicable to each of the three circumstances in which an agency may make an exception for a particular contract.

In § 9.5(c), the Department proposed language to address the first of the three circumstances under which an agency may authorize an exception from the nondisplacement provisions: where adhering to the requirements of the order would not advance the Federal Government's interests in achieving economy and efficiency in Federal procurement. The proposed language in § 9.5(c) is consistent with the language in section 6(a)(i) of Executive Order 14055. The Department interprets this circumstance to be effectively the same as the agency exemption that was included in section 4 of Executive Order 13495, which authorized an exemption where the nondisplacement requirements “would not serve the purposes of [the] order or would impair the ability of the Federal Government to procure services on an economical and efficient basis.” Both the Executive Order 13495 and Executive Order 14055 versions of this exception require consideration of whether, in the specific circumstances of the particular contract, economy and efficiency will not be served if the contract clause is incorporated. In 2011, the Department issued detailed regulations to implement the Executive Order 13495 exemption, including factors that could be considered and others that could not be considered.

See

76 FR at 53726-29 (discussion of comments); 29 CFR 9.4(d)(4) (2012) (regulatory text). The Department has not received information suggesting that, during the several years in which the prior regulations were in effect, these factors were over- or under-prescriptive or abused by contracting agencies. The AFL-CIO noted in its comment that the prior nondisplacement procedure was a “resounding success.”

In § 9.5(c), as it did in the regulations implementing Executive Order 13495, the Department proposed to include language stating that the written analysis that accompanies the determination must, among other things, compare the anticipated outcomes of hiring predecessor contract employees with those of hiring a new workforce. In addition, the Department proposed to include the same requirement as under the prior regulations that the consideration of cost and other factors in exercising the agency's exception authority must reflect the general findings made in section 1 of the Executive order that the government's procurement interests in economy and efficiency are normally served when the successor contractor hires the predecessor's employees. Thus, if the agency finds that costs or other factors support an exception from the nondisplacement requirements, it must specify how the particular circumstances support a conclusion contrary to the general findings of the order.

In § 9.5(c)(1), the Department proposed to include a non-exhaustive list of factors that the contracting agency may consider in making its determination. These factors are the same factors that the Department adopted in the regulations that implemented Executive Order 13495. They include circumstances where the use of the carryover workforce would greatly increase disruption to the delivery of services during the period of transition between contracts. This might

occur where, for example, the entire predecessor workforce would require extensive training to learn new technology or processes that would not be required of a replacement workforce. They also include emergency situations, such as a natural disaster or an act of war, that physically displace incumbent employees. Finally, they include situations where the senior official at the contracting agency reasonably believes, based on the predecessor employees' past performance, that the entire predecessor workforce failed, individually as well as collectively, to perform suitably, and it would not be economical or efficient to provide supplemental training to these workers.

As the Department explained in the NPRM, a determination that the entire workforce failed cannot be made lightly. A senior agency official who makes such a determination must demonstrate that their belief is reasonable and is based upon reliable evidence that has been provided by a knowledgeable source, such as department or agency officials responsible for monitoring performance under the contract. Absent an ability to demonstrate that this belief is based upon reliable evidence, such as written credible information provided by such a knowledgeable source, the employees working under the predecessor contract in the last month of performance would be presumed to have performed suitable work on the contract. Alone, information regarding the general performance of the predecessor contractor is not sufficient to justify an exception. It is also less likely that the agency would be able to make this showing where the predecessor employed a large workforce.

In § 9.5(c)(2), the Department proposed to list factors that the contracting agency may not consider in making an exception determination related to economy and efficiency. These include any general presumptions that directly contravene the purpose and findings of the order, such as any general presumption—without contract-specific facts—that the use of a carryover workforce would increase (as opposed to decrease) disruption of services during the transition between contracts. While, as described above, contract-specific factors demonstrating a potential for disruption are a potential factor that may be considered, any general presumption as to such disruption would be contrary to and inconsistent with the purpose and findings of the order. Similarly, it would not be appropriate to consider hypothetical cost savings that a contractor might attempt to achieve by hiring a workforce with less seniority given the critical benefits that an experienced contractor workforce provides to the government.

The Department proposed in § 9.5(c)(2), as it did in the regulations that implemented Executive Order 13495, to preclude agencies from using any potential reconfiguration of the contract workforce by the successor contractor as a factor in supporting an exception. Successor contractors are permitted to reconfigure the staffing pattern to increase the number of employees employed in some positions while decreasing the number of employees in others. In such cases, providing a right of first refusal does not affect the contractor's ability to do so, except that proposed § 9.12(c)(3) would require the contractor to examine the qualifications of each employee to minimize displacement. Thus, any potential for reconfiguration cannot justify excepting the entire contract from coverage.

The Department also proposed in § 9.5(c)(2), as it did in the regulations that implemented Executive Order 13495, to prohibit any exception decision based solely on the contract performance by the predecessor contractor. This would include the termination of a service contract for default, which, standing alone, would not satisfy the exception standards of section 6(a)(i) of the Executive order. Such defaults, as well as other performance problems not leading to default, may result from poor management decisions of the predecessor contractor that have been addressed by awarding the contract to another entity. Even where contract problems can be traced to specific poor performing service employees, that is not necessarily sufficient to justify invocation of the exception, as, consistent with section 3(a) of the Executive order, the successor contractor can decline to offer the right of first refusal to employees for whom the contractor reasonably believes, based on reliable evidence of the particular employees' past performance, that there would be just cause to discharge the employees.

Finally, the Department proposed in § 9.5(c)(2) to limit contracting agencies from considering wage rates and fringe benefit rates of services employees in most circumstances. Minimum wage and fringe benefit rates are set by the SCA and the Executive orders governing minimum wage and sick leave for Federal contractors, and these rates will therefore apply regardless of whether the predecessor workforce is rehired. Thus, as a general matter, cost savings from a reduction in wage or fringe benefits is not an appropriate basis for making an exception for a contract from the order's requirements. Moreover, even where cost savings may be achieved theoretically by lowering wages and fringe benefits, such savings would be an inappropriate basis alone for an exception from the order because higher wages and benefits allow for the employment of workers with more skills and experience.

Cf.

48 CFR 52.222-46(c) (stating, with regard to professional contracts not subject to the SCA, that “[p]rofessional compensation that is unrealistically low or not in reasonable relationship to the various job categories, since it may impair the Contractor's ability to attract and retain competent professional service employees, may be viewed as evidence of failure to comprehend the complexity of the contract requirements”). While barring the consideration of wage costs in most circumstances, the proposed language in § 9.5(c)(2) would allow such costs to be considered in exceptional circumstances. These exceptional circumstances would be limited to emergency situations; where the entire workforce would need significant training; or in other similar situations in which the cost of employing a carryover workforce on the successor contract would be prohibitive.

The AFL-CIO expressed general support for the Department's approach to agency exceptions, including the Department's decision to provide a set of specific factors in § 9.5(c) that the agency may and may not consider in determining whether an exception is appropriate. The Coalition stated that the Department's proposed agency exception process was a “good start.” The Coalition in particular supported the requirement in § 9.5(c) that an agency justify its deviation from the order's assessment of the benefits of nondisplacement if it seeks to rely on costs as a basis for exception. The Coalition stated that this requirement would promote a thorough and consistent analysis across agencies. They also stated that this requirement is in line with general principles under the Procurement Act, under which, they explained, “economy and efficiency are not necessarily promoted by contracting with the lowest bidder or seeking to minimize costs with a less effective workforce.”

The Coalition also suggested a number of changes to the procedural requirements in § 9.5(c). As an initial matter, the Coalition recommended that the required comparison of anticipated outcomes should include a cost-benefit analysis in a standard format, as

determined by the Secretary, that estimates the direct and indirect costs of employee turnover during the first year of the successor contract. The Coalition also suggested amending the discussion of relevant factors in § 9.5(c)(1) and exceptional circumstances in § 9.5(c)(2) to require that any conclusions about potential disruptions or workforce failures must be based on “documented incidents” during the predecessor contract's period of performance “such as at least two consecutive annual past performance ratings of `unsatisfactory' as defined by FAR 42.1503(b)(4).”

The Department declines to adopt the Coalition's suggestion that § 9.5(c) include a requirement to carry out a standardized cost-benefit analysis in a format designated by the Secretary. As the Coalition noted, § 9.5(c) already requires agencies to carry out a written analysis that compares the anticipated outcomes of hiring predecessor contract employees with those of hiring a new workforce; and the proposed regulation already provides guidance for how to consider costs as part of that analysis, as well as guidance about factors that are not appropriate. The Department believes the scope of the current § 9.5(c) is sufficient to assist agencies in a way that will lead to consistent decision-making across agencies. Under paragraphs 6(b) and 6(c) of the Executive order, agencies are also required to publish descriptions of the exceptions they have granted on a centralized website and to report to OMB descriptions of these exceptions on a quarterly basis. The Department intends to analyze use of the agency exception process as these regulations are implemented and may consider in the future whether additional procedural requirements (such as the suggested standardized cost-benefit analysis) are necessary.

The Department also declines to adopt the Coalition's suggestion regarding additional guideposts for the discussion of factors in § 9.5(c)(1) and (c)(2). The existence of two consecutive annual “unsatisfactory” past performance ratings, as suggested by the Coalition, would certainly be relevant evidence for a determination made with reference to the factor at § 9.5(c)(1)(iii). That factor provides for agency exceptions in situations where there is a reasonable belief “based on the predecessor employees' past performance, that the entire predecessor workforce failed, individually as well as collectively to perform suitably on the job[.]” However, as the Department noted in the NPRM, a contractor's past performance alone will generally not be sufficient basis to invoke an exception, because poor performance may result from poor management decisions of the predecessor contractor (and not from failures of the predecessor's service employees), and the management failures could be addressed by awarding the contract to another entity. Instead, as the Department proposed in the NPRM, the specific reasons for such poor performance ratings would need to be considered. The Department is concerned that adopting the Coalition's suggested language could give the impression that past performance ratings alone can justify an exception. Thus, the Department declines to adopt the Coalition's suggested amendments. For the reasons discussed, the final rule adopts § 9.5(c) as proposed.

In § 9.5(d), the Department proposed language to address the second of the three circumstances under which an agency may authorize an exception from the nondisplacement provisions: where their application would substantially reduce the number of potential bidders so as to frustrate full and open competition and not be reasonably tailored to the agency's needs for the contract. This exception is provided for in section 6(a)(ii) of Executive Order 14055. The proposed language of § 9.5(d) clarified that a reduction in the number of potential bidders is not, alone, sufficient to except a contract from coverage under this authority; the senior procurement executive at the contracting agency must also find that inclusion of the contract clause would frustrate full and open competition and would not be reasonably tailored to the agency's needs for the contract. The proposed language stated that on finding that inclusion of the contract clause would not be reasonably tailored to the agency's needs, the agency must specify in its written explanation how it intends to more effectively achieve the benefits that would have been provided by a carryover workforce, including physical and information security and a reduction in disruption of services.

The order requires that any exercise of this authority must be based on a market analysis. This requirement was addressed in proposed § 9.5(a)(2) and (d). This market analysis requirement is consistent with existing requirements in the FAR. During the acquisition process for FAR-covered procurements, an agency must “conduct market research appropriate to the circumstances.” 48 CFR 10.001. Thus, the extent of market research conducted for any acquisition “will vary, depending on such factors as urgency, estimated dollar value, complexity, and past experience.” 48 CFR 10.002(b)(1). To justify the exception from the nondisplacement requirements, the order requires that the market analysis show that adherence to the requirements would “substantially” reduce the number of potential bidders so as to frustrate full and open competition. In proposed § 9.5(d), the Department clarified that the likely reduction in the number of potential offerors indicated by market analysis is not, by itself, sufficient to except a contract from coverage under this authority unless the agency concludes that adhering to the nondisplacement requirements would diminish the number of potential offerors to such a degree that adequate competition at a “fair and reasonable price” could not be achieved and adhering to the nondisplacement requirements would not be reasonably tailored to the agency's needs.

As with any of the exceptions, where an agency seeks to except a particular contract under this competition-related analysis, the agency is required, consistent with section 6(a) of Executive Order 14055 and proposed § 9.5(b), to provide a “specific written explanation” of why the circumstance exists. Thus, the agency's market analysis—and consideration of whether the requirements are nonetheless reasonably tailored to its needs—must be documented in a manner sufficient to provide and support such an explanation.

See also

48 CFR 4.801(b) (requiring sufficient documentation in contract files to support actions taken).

The AFL-CIO stated their general support for the Department's proposed specific requirements in § 9.5(d). As noted above, however, the AFL-CIO and the Coalition also sought a process by which employees for incumbent contractors would be notified of the potential for an exception 120 days before the solicitation date and allowed to submit comments. The final rule adopts § 9.5(d) as proposed with a slight and nonsubstantive change to the wording of one sentence, and with two limited additions. In a nonsubstantive change, the Department has streamlined the language that explains that a potential reduction in the number of bidders alone is not sufficient to justify the exception. The final rule clarifies that such a reduction is not sufficient “unless it is coupled with the finding that the reduction would not allow for adequate competition at a fair and reasonable price” and adhering to the nondisplacement requirements would not be reasonably tailored to the agency's needs for the contract.

In the first addition to this paragraph, the Department has included a sentence to provide additional detail regarding

the requirement that the agency determine whether “a fair and reasonable price” can be achieved in order to justify this exception. The new sentence states that “[w]hen determining whether a fair and reasonable price can be achieved, the agency must consider current market conditions and the extent to which price fluctuations may be attributable to factors other than the nondisplacement requirements (

e.g.,

costs of labor or materials, supply chain costs).” The consideration of current market conditions in a price analysis is consistent with agency approaches under FAR subpart 15.4 (Contract Pricing).

See Nomura Enter., Inc.,

B-271215 (May 24, 1996).

Second, the Department has added language to § 9.5(d) to require contracting agencies, to the extent consistent with mission security, to include employees' representatives in any market-research-related exchanges with industry that are specific to the nondisplacement requirement.

See

48 CFR 10.002(b)(2) (discussing market research techniques involving industry outreach); 48 CFR 15.201 (encouraging “early exchanges” of information with industry and other interested parties to identify concerns about acquisition strategy). As the Department noted in the NPRM, to satisfy the Executive order's requirement for an agency exception, the market analysis must be an objective, contemporary, and proactive examination of the market conditions. Accordingly, it would not be appropriate for the agency to except a contract from the nondisplacement requirements on the basis of a market analysis without a proactive effort to determine whether sufficient bidders may exist so as to satisfy full and open competition, including through communication with other knowledgeable sources (such as, where feasible, the representatives of employees currently working in that industry) regarding the services to be provided.

In § 9.5(e), the Department proposed to address the third circumstance in which an agency exception would be appropriate: where adhering to the requirements of the order would otherwise be inconsistent with statutes, regulations, Executive orders, or Presidential Memoranda. This exception basis is articulated in section 6(a)(iii) of Executive Order 14055 and restated in § 9.5(a)(3) of the regulations. In § 9.5(e), the Department proposed to require that contracting agencies consult with the Department prior to excepting contracts on this basis, unless: (1) the governing statute at issue is one for which the contracting agency has regulatory authority, or (2) the Department has already issued guidance finding an exception on the basis of the specific statute, rule, order, or memorandum to be appropriate. The Department proposed this requirement to provide consistency, to the extent possible, in the application of the order.

NIB commented that the exception process described in § 9.5(e) is, at least as to the legal questions around the JWOD Act, “unnecessary and likely to negatively impact the AbilityOne Program.” NIB noted that unless the Department issues guidance as referenced in the proposed § 9.5(e) regarding the AbilityOne Program, contracting agencies would always be required to consult with the Department before invoking this exception. For this reason, among others, NIB advocated for an express exemption for AbilityOne contracts to remove these steps from the procurement process. Melwood expressed a different but related general concern—that the determination of legal conflicts by contracting agencies “on a case-by-case basis” may lead to inconsistent application or exceptions for AbilityOne authorized contractors. Several other commenters, including SourceAmerica, Peckham Inc., ServiceSource, and Didlake Inc., expressed similar concerns.

The Coalition, on the other hand, commented in support of the proposed consultation requirement in § 9.5(e). In their comment, however, the Coalition advocated that the rule should further require that the Department approve any exception before a contracting agency is allowed to proceed. They also advocated that the Department's approval should be contingent on a finding that such an exception would be “consistent with the federal government's interest in promoting competitive integrated employment for people with disabilities, as defined by the Workforce Innovation and Opportunity Act and applicable implementing regulations and guidance issued by the Rehabilitation Services Administration.”

Having considered the comments received regarding the procedure in proposed § 9.5(e), the final rule adopts the text of this paragraph as proposed. Section 6(a) of the Executive order itself provides for a default procedure of individual case-by-case determinations regarding potential legal conflicts with the nondisplacement requirements. The Department agrees with the various commenters that it makes sense to ensure, as much as possible, that these agency exception decisions are not made on an inconsistent basis or with inconsistent outcomes. The proposed consultation procedure in § 9.5(e) is intended to ensure that these case-by-case determinations are as consistent as possible.

The Department declines to adopt the Coalition's suggestion that agencies be required to receive approval from the Department, in addition to seeking consultation, before issuing an exception for a contract under § 9.5. The procedure in § 9.5(e) provides an appropriate balance. In most cases, the procedure will require consultation with the Department if a potential conflict is identified. Consultation will allow the Department to share any resources or information with the contracting agency, including how the specific potential conflict has been treated by other agencies. This should decrease the potential for inconsistency, about which commenters expressed concern. Section 9.5(e) also seeks to increase efficiency, without cost to consistency, by eliminating the consultation requirement where the Department has already issued guidance on the potential conflict.

If an agency itself has the authority to interpret and implement a particular law or policy that potentially conflicts with the requirements of Executive Order 14055 or this regulation, the procedure in § 9.5(e) defers in the first instance to that agency and does not require consultation with the Department. Although no consultation is required, the Department encourages communication because the determination of whether a conflict exists between two legal requirements necessarily involves interpreting both legal requirements—and the Department itself has authority to interpret and enforce nondisplacement requirements.

Finally, with regard to the potential conflicts with contracts covered by the JWOD Act, as discussed in section II.B.4. above, the Department has separately addressed these concerns by including a contract clause that applies to all such contracts and subcontracts and instructs contractors that they must implement the JWOD Act (and certain other statutory procurement preference programs) and the nondisplacement provisions in tandem and to the maximum extent possible.

ii. Reconsideration of Agency Exceptions

In the NPRM, the Department proposed language at § 9.5(f) to provide a procedure for interested parties to request reconsideration of agency exception determinations. This proposed language mirrored the procedure that was included in the

regulations that implemented Executive Order 13495.

See

29 CFR 9.4(d)(5) (2012). In using the term “interested parties,” the Department stated that it intended to extend the opportunity to request reconsideration to affected workers or their representatives, in addition to actual or prospective bidders. The Department stated that it did not intend that the term be limited to actual or prospective bidders as it is under the Competition in Contracting Act.

See

31 U.S.C. 3551(2). The Department sought input from commenters regarding the proposed procedure.

PSC expressed concerns about the reconsideration process that the Department proposed for both the location continuity decision described in § 9.11 and the agency exception decision in § 9.5. The PSC noted that the Executive order does not expressly provide for a reconsideration process and stated that the process could have negative outcomes, such as by allowing a broad set of individuals or entities to “potentially delay the implementati

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