Service Contract Act; Labor Standards For Federal Service Contracts

DEPARTMENT OF LABOR

Office of the Secretary

29 CFR Part 4

RIN 1215-AA78

Service Contract Act; Labor Standards For Federal Service

Contracts

AGENCY: Office of the Secretary, Labor.

ACTION: Proposed rule; notice of publication of regulatory impact

analysis; request for comments.

-----------------------------------------------------------------------

SUMMARY: By notice of proposed rulemaking published in the Federal

Register on May 2, 1996 (61 FR 19770), the Department of Labor (DOL or

the Department) proposed alternative approaches for procedures to

establish minimum health and welfare benefits requirements in the

regulations issued under the McNamara-O'Hara Service Contract Act

(SCA). As was explained in the proposed rule, it was not feasible to

publish a regulatory impact analysis for comment with the proposed rule

due to judicially imposed time constraints.

In the meantime, the Department has developed data on the

occupational mix of service contract employees in order to provide a

basis for the impact analysis and to aid in the selection of the most

appropriate methodology. The analysis has been completed and is now

being published for comment. Comments may also be submitted on the

various alternatives set forth previously for comment. Comments on this

document will be reviewed together with comments submitted on the May

2, 1996 proposed rule prior to promulgation of a final rule.

DATES: Comments are due on or before November 25, 1996.

ADDRESSES: Submit written comments to Maria Echaveste, Administrator,

Wage and Hour Division, Employment Standards Administration, U.S.

Department of Labor, Room S-3502, 200 Constitution Avenue, NW.,

Washington, DC 20210. Commenters who wish to receive notification of

receipt of comments are requested to include a self-addressed, stamped

post card, or to submit them by certified mail, return receipt

requested. As a convenience to commenters, comments may be transmitted

by facsimile (``FAX'') machine to (202) 219-5122 (this is not a toll-

free number). If transmitted by facsimile and a hard copy is also

submitted by mail, please indicate on the hard copy that it is a

duplicate copy of the facsimile transmission.

FOR FURTHER INFORMATION CONTACT: William Gross, Director, Division of

Wage Determinations, Wage and Hour Division, Employment Standards

Administration, U.S. Department of Labor, Room S-3506, 200 Constitution

Avenue, NW., Washington, DC 20210; telephone (202) 219-8353. This is

not a toll-free number.

SUPPLEMENTARY INFORMATION:

Survey of Occupational Employment Covered by the McNamara-O'Hara

Service Contract Act; Health and Welfare Benefit Level Impact Analysis

Survey Description and Findings

Background

The McNamara-O'Hara Service Contract Act of 1965 (SCA) requires

that contracts over $2,500 (if the predecessor contract was not subject

to a collective bargaining agreement) contain wage determinations

issued by DOL that specify the minimum monetary wages and fringe

benefits that must be paid to the various classes of workers who

perform work on the service contract, based upon rates determined by

DOL to be prevailing in the locality where the work is to be performed.

However, because fringe benefit data are not generally available on an

occupation-specific or locality basis, DOL has issued fringe benefit

determinations for health and welfare based on nationwide data ever

since SCA was enacted.

Following a challenge by the Service Employees International Union

(SEIU) to the methodology utilized by DOL to determine health and

welfare benefits, the DOL's Board of Service Contract Appeals remanded

the matter to the Wage and Hour Division to consider alternative

methodologies for implementing the statutory objectives. Accordingly,

the Administrator of the Wage and Hour Division, by Notice published in

the Federal Register on May 2, 1996 (61 FR 19770), proposed for public

comment various alternative methodologies.

In the meantime, the Department has developed data to determine the

occupational mix of service employees engaged in the performance of

SCA-covered contracts. Based on data collected by the Federal

Procurement Data System for Fiscal Year 1994, the Department has

conducted a survey to obtain specific information on service contract

employment by occupation within SIC industry classifications. The

information collected provides a basis for the following estimates of

the economic impact of the various proposed alternatives.

In an action filed by the SEIU in the U.S. District Court for the

District of Columbia, the court has set a deadline

[[Page 55240]]

for publication of the final rule of December 24, 1996. SEIU v. Reich,

CA No. 91-0605 (August 27, 1996).

Purpose and Process

In the Fall of 1995, the Wage and Hour Division of the Employment

Standards Administration conducted a survey of occupational employment

under the McNamara-O'Hara Service Contract Act (SCA). Primary

objectives of the survey were to: (1) Assist in the development of a

process to determine prevailing health and welfare benefit levels under

the SCA; and (2) furnish data that may be useful in assessing the costs

of various health and welfare benefit alternatives.

The survey population consisted of almost 20,000 contracts, and

includes all contracts identified as SCA-covered in the Federal

Procurement Data System (FPDS) automated data base. These contracts

represented $20.5 billion in procurement actions during FY 1994. The

sample, which was selected by contract value within industry group,

consisted of 7,084 contracts, awarded by 129 Federal agencies, and

administered by 1,039 agency contracting offices. Contracts represented

by the sample included 35 percent of the number of contracts in the

population, and 63 percent of population contract value.

With the assistance of designated Federal procurement agency Survey

Coordinators, and procurement officers who were responsible for the

contracts in the sample, 1,430 usable survey responses were received

and processed. This represented a usable response rate of 20.2 percent.

The usable response contained 7.2 percent of all contracts in the

targeted population and 19.0 percent of population contract value.

For additional information on the survey design, survey sample and

population, the sampling technique utilized, use of the sample to

estimate the population, and the data collection process and response

rate, see the Technical Note, following the Impact Analysis.

Findings

Employment by Occupation. Based upon the Wage and Hour Division

survey of occupational employment under the SCA, there were 275,800

full-time equivalent positions (FTEs) under the FPDS universe of

contracts in FY 1994 . Utilizing survey data, estimated FTEs by broad

occupational group are presented in Table 1, below.

Table 1.--Estimate of Full-time Equivalent Positions by Broad

Occupational Group

------------------------------------------------------------------------

Percent of

Group title Number total

------------------------------------------------------------------------

Professional, Specialty, & Technical 36,900 13.4

Administrative Support/Clerical..... 48,300 17.5

Precision Production, Craft, & 88,200 32.0

Repair.

Transportation & Material Moving.... 11,200 4.1

Handlers, Cleaners, Helpers, & 33,200 12.0

Laborers.

Service Workers..................... 58,000 21.0

Total, All Groups............... 275,800 100.0

------------------------------------------------------------------------

By far, the occupational group with the largest numbers of FTEs was

Precision Production, Craft, and Repair occupations, representing

almost one-third of total employment. The Service Worker group was next

in order of significance, having over one-fifth of total employment.

Three broad occupational groups each accounted for close to 15 percent

of the FTE total: Administrative Support and Clerical occupations, 17.5

percent; Professional, Specialty, and Technical occupations, 13.4

percent; and Handlers, Cleaners, Helpers, and Laborers, 12.0 percent.

The broad group with the fewest positions was Transportation and

Material Moving occupations, 4.1 percent. The most frequently listed

occupations, under each broad occupational group, are listed in order

of employment, in Table 2, below.

Table 2.--Frequently Listed Occupations Within Broad Occupational Groups

Administrative Precision

Professional, Technical, & Support & Clerical Production, Craft,

Specialty (13.4%) (17.5%) Repair (32.0%)

Engineering Technician.......... General Clerk..... Electronic Tech,

Maintenance.

Licensed Practical Nurse........ Secretary......... Aircraft Mechanic.

Computer Programmer............. Key Entry Operator Telecommunication

Mechanic.

Instructor...................... Computer Operator. Gen Maintenance

Worker.

Medical Lab Technician.......... Word Processor.... Maintenance

Electrician.

Systems Analyst................. Accounting Clerk.. Maintenance

Carpenter.

Drafter......................... Supply Technician. Maintenance

Painter.

Switchboard Op/ Maintenance

Receptionist. Plumber.

................ Heavy Equip

Mechanic.

................ Heating, Refrig, &

AC Mechn.

................ Welder.

................ Mach Maintenance

Mechanic.

------------------------------------------------------------------------

Handlers/Cleaners/

Transportation/Material Moving Helpers/ Laborers Service Workers

(4.1%) (12.0%) (21.0%)

------------------------------------------------------------------------

Truck Driver.................... Stock Clerk....... Nursing Assistant.

Heavy Equipment Operator........ Laborer........... Janitor.

Forestry Equip Operator......... Laborer Ground Food Service

Maintenance. Worker.

Driver Messenger................ Housekeeping Aide. Guard.

Tree Planter...... Court Security

Officer.

.................. Cook.

.................. Dishwasher.

------------------------------------------------------------------------

Information by Industry. According to survey data, more than two-

thirds of all the contract FTEs were located in five broad industry

groups: Engineering, Accounting, Research, Management, and Related

Services; Business Services; Health Services; Miscellaneous Repair

Services; and Electronic & Other Electrical Equipment & Components,

Except Computer Equipment. Specific industries included under each of

these groups are listed in Table 3, below.

[[Page 55241]]

Table 3.--Frequently Listed Industries within Broad SIC Industry Groups

Engineering, Accounting,

Research, Management, and Business Services Health Services

Related Services

Engineering, Architectural, Computer Hospitals.

& Surveying Services. Programming, Data

Processing, & other

Computer Related

Services.

Research, Development, & Miscellaneous Doctor & Dentist

Testing Services/ Business Services/ Offices & Clinics.

Laboratories. Guard Services.

Management & Public Services to Medical & Dental

Relations Services/Base Dwellings & other Laboratories.

Maintenance. Buildings/Cleaning

& Maintenance.

------------------------------------------------------------------------

Electronic & other

Miscellaneous Repair Electrical Equipment

Services & Components, except

Computer Equipment

------------------------------------------------------------------------

Miscellaneous & Electrical Communications

Repair Shops. Equipment.

Electronic

Components &

Accessories.

Miscellaneous

Electrical

Equipment &

Supplies..

------------------------------------------------------------------------

Also accounting for two percent or more of total FTEs were Eating

and Drinking Places, Miscellaneous Services/Weather Forecasting,

Transportation Equipment, Special Trade Contractors, and Forestry.

Health and Welfare Benefit Level Impact Analysis

Purpose and Process

Utilizing the survey data described above, and other relevant

information, cost estimates have been developed for each of eight

alternative methods for determining health and welfare benefit levels

under the McNamara-O'Hara Service Contract Act. These alternatives were

published for comment in the Federal Register on May 2, 1996 (61 FR

19769).

The cost estimates provided apply to the almost 20,000 SCA-covered

contracts reported to be active in FY 1994, by the Federal Procurement

Data System of the General Services Administration. Where required, the

number of full-time equivalent positions (FTEs) estimated through the

use of survey data, less the estimate of FTEs whose wages and benefits

are determined by collective bargaining agreements (CBAs), pursuant to

Section 4(c) of the SCA, were utilized in the development of

alternative cost estimates. (See Table 4, below.)

Table 4.--Estimate of FTEs by SCA Health & Welfare Benefit Level

----------------------------------------------------------------------------------------------------------------

Contracts Employment

----------------------------------------------------------------------------------------------------------------

Percent of Percent of Average

Type* Number total FTEs total FTEs

----------------------------------------------------------------------------------------------------------------

Insurance...................................... 16,129 80.7 94,048 34.1 5.8

Total Benefits................................. 2,858 14.3 117,215 42.5 41.0

4(c)........................................... 999 5.0 64,537 23.4 64.6

----------------------------------------------------------------

All Types, Total........................... 19,986 100.0 275,800 100.0 13.8

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* These levels are currently utilized for the issuance of SCA wage determinations. The ``Insurance'' level is

based upon the cost of life, accident, and health insurance for establishments employing less than 100

workers. The ``Total Benefits'' level is based upon the cost of insurance, retirement and savings, sick leave,

other leave, and other benefits for establishments employing 100 or more workers. Assignment of health and

welfare benefit level was based upon wage determination information provided by survey respondents.

Findings

The eight alternative methods being considered to compute SCA

health and welfare benefit levels are fully explained in 61 FR 19770,

published May 2, 1996. Full understanding of the implications of the

following impact analysis requires reference to that document. However,

a statement of each alternative in summary follows:

Alternative I: Issue a single benefit level based upon ECI data for

workers in private industry.

Alternative II-A: Issue a single benefit level for each of six

major occupational groupings based on ECI data for all workers in each

grouping in private industry.

Alternative II-B: Issue a single benefit rate adjusted to reflect

the difference between the BLS ECI occupational universe and the actual

mix of comparable occupations on SCA-covered contracts.

Alternative II-C: Issue two benefit levels, based on a combination

of the occupational groupings: white collar and production occupations.

Alternative III: Issue a single benefit rate for each of four

geographic regions based on ECI data for all workers in private

industry.

Alternative IV: Issue a single fringe benefit rate (as a percent of

wages) based on the relationship between the ECI all-private industry

``total benefit'' rate and the ECI all private industry average wage

rate.

Alternative V-A: Issue two fringe benefit levels--``Insurance'' and

``Total Benefits''--(see Table 5 note), based on BLS ECI size-of-

establishment data for all workers in private industry. Apply these

levels based upon the nature of the contract; i.e., routine contracts

receive the Insurance level and the Total Benefits level is provided

for large base support contracts, solicitations based on OMB circular

A-76, solicitations for highly technical services typically provided by

large corporations, and other selected solicitations without regard to

size of contract.

Alternative V-B: Issue two fringe benefit levels, using the BLS ECI

all

[[Page 55242]]

industry Total Benefits data for (1) establishments with fewer than 100

workers and (2) establishments with 100 or more workers. Apply these

levels based upon the employment size of respective contracts.

These alternatives appear to offer a narrow range of annual health

and welfare benefit costs for FTEs whose rates are not determined by

collective bargaining agreement (CBA). The range computed is from

$3,551.45 for Alternative V-A to $4,100.63 for Alternative II-A. This

range of $549.18 is just 14.1 percent of the average cost of all eight

alternatives, $3,908.74. (See Table 5, below.) Similarly, the total

non-CBA estimated cost for all SCA-covered contracts included in the

FPDS data base ranges from about $750 million (V-A) to $866 million

(II-A). As discussed in the Technical Note below, the FPDS system

contains the best available data for determining the SCA-covered

universe. However, the data in the system understates the size of the

SCA-covered universe. This is due to such factors as exclusion of most

contracts under $25,000, exclusion of contracts of the U.S. Postal

Service and the Air Force/Army Exchange System, and possible under-

reporting of SCA-covered contracts in the FPDS system, as well as

possible errors in determinations as to whether contracts are covered

by SCA.

Table 5.--Estimation of Annual Costs Per FTE of Eight Alternative SCA

Health & Welfare Methods

------------------------------------------------------------------------

Cost Per

Alternative Rank* FTE--1995

data

------------------------------------------------------------------------

I. Single Benefit/ECI/Private Industry............ 4 $3,931.20

II-A. Single Benefit/Six Occupational Groups...... 8 4,100.63

II-B. Single Benefit/ Adjusted to Employment

Composition...................................... 7 4,097.60

II-C. White Collar & Production Workers........... 6 4,095.98

III. Single Rate/Four BLS Regions................. 2 3,676.73

IV. Single Benefit Rate As A Percent of Wages..... 3 3,872.67

V-A. Insurance & Total Benefits Rates/Based upon

Size of Establishment/Applied by Nature of

Contract......................................... 1 3,551.45

V-B. Total Benefits Rates/Based upon Size of

Establishment/Applied by Employment Size of

Contract......................................... 5 3,943.67

------------------------------------------------------------------------

* Rank, 1 to 8, is from least to most costly. Alternative V-A is the

current methodology. Current costs per FTE ($3,787.05) are based upon

the use of Alternative V-A and 1994 ECI data. Note that cost

differences between Alternatives II-A, II-B, and II-C, are due to

rounding.

Based upon the use of survey data, Alternatives I, IV, and V-B, the

first two utilizing single benefit ECI data, approximate the average

alternative cost per FTE of about $3,909. Alternatives

II-A, II-B, and II-C, each of which is controlled by occupational

criteria, appear to be higher cost options, at about $4,100.

Alternatives V-A and III, determined by size-of-establishment and

regional data, are relatively lower cost options, each falling below

$3,700. Note that the relative costs by alternative may change over

time as FTE distribution by industry and occupation changes. For

example, if the distribution of FTEs by occupation were to change

significantly, one would expect corresponding changes in Alternative-II

costs.

As noted in the notice of proposed rule making, 61 FR 19770, each

alternative offers certain advantages and disadvantages. The cost

estimates provided in Table 5 furnish additional information for use in

considering how each alternative meets relevant evaluation criteria,

such as statistical accuracy, enforceability, administrative

feasibility for contractors and contracting agencies, and conformance

with statutory requirements and intent.

The notice of proposed rulemaking (60 FR 19770), fully discusses

the advantages and disadvantages which the Department of Labor

currently perceives in the various alternatives. Comments were

solicited on a number of issues to assist in preparing a final

regulatory impact analysis and in making a determination of the

alternatives which should be selected, including in particular

information regarding administrative and/or recordkeeping burdens;

economic and budgetary impact from the point of view of service

contractors, service employees and Federal procurement agencies;

transitional difficulties if the rule departs from the current

methodology; the nature of SCA-covered contracts and the fringe benefit

practices typical of service contractors; and the effects on

contracting activity and employment.

Without input from the commenters the Department was unable to

include in this analysis a discussion of the administrative costs to

contractors and to the Government of the various alternatives.

Presumably, all alternatives except Alternative V-A would involve the

burden of changing fringe benefit programs because of increased or

decreased fringe benefit levels. Several alternatives (II-A and -C, IV,

and to lesser extent III) may require that employers either provide

different fringe benefits to different employees in their work force or

make up the difference in cash. Because of this issue, the Department

also requested comments on the administrative feasibility and

recordkeeping burden of the average cost approach, which would allow

employers to average fringe benefits costs across the work force. These

issues will be addressed more fully in the final rule, after review of

the comments received.

The Department lacks sufficient data to be able to quantify the

benefits to the affected workers and to society of providing workers

prevailing fringe benefits, or any indirect effects on jobs,

productivity, or the Federal deficit. The Service Contract Act was

enacted in order to protect service employees from the practices of

contractors who undercut prevailing wages and benefits in order to be

the low bidder on service contracts. These workers are especially

vulnerable since wages and benefits are frequently the predominant cost

of service contracts. With regard to fringe benefits in particular, the

Department believes that most contractors provide workers benefits only

at the level provided on the wage determination. Thus SCA permits

workers to receive fringe benefits--including in particular health

benefits--which might not otherwise be provided because of the pressure

of being the low bidder on the Government contract.

A preliminary regulatory flexibility analysis discussing the

anticipated impact of the proposed rule on small businesses was also

included in the notice of proposed rulemaking. In most respects the

impact on small businesses will be the same as the impact on other

businesses, although it is anticipated that any administrative

difficulty may be greater for smaller firms. As discussed above, some

alternatives appear to have greater administrative difficulty than

others. It is anticipated that any impact could be mitigated by

[[Page 55243]]

the statutory authority for SCA-covered contractors to discharge their

obligations to furnish prevailing fringe benefits by furnishing any

equivalent combinations of fringe benefits or by making equivalent or

differential payments in cash. Impact may also be minimized because (1)

Such businesses with SCA-covered contracts are currently required to

pay their employees prevailing fringe benefits; and (2) SCA contractors

will continue to be reimbursed by the Federal procurement agencies for

fringe benefit expenditures.

Tables 6 through 9 provide many of the key statistics required to

compute cost estimates for the eight alternative methodologies.

Following these tables are detailed presentations of each methodology's

data requirements and computations.

Table 6.--Occupational Group ECI Total Benefit Rates & SCA FTE

Distribution

------------------------------------------------------------------------

1995 ECI rates

---------------------- SCA FTE

Occupational group Total distribution

benefits Wage* (percent)

------------------------------------------------------------------------

Professional, Specialty, & Technical $3.03 $20.65 13.4

Administrative Support/Clerical..... 1.87 10.47 17.5

Precision Production/Craft/Repair... 2.71 14.72 32.0

Transportation & Material Moving.... 2.09 11.42 4.1

Handlers/Cleaners/Helpers/ Laborers. 1.24 8.18 12.0

Service Workers..................... 0.65 6.35 21.0

------------------------------------------------------------------------

* Provided for information only.

Table 7.--ECI Total Benefits Rates, 1995

------------------------------------------------------------------------

------------------------------------------------------------------------

All Private Industry........................................... $1.89

SCA Occupational Distribution*................................. 1.97

White Collar................................................... 2.37

Production Worker.............................................. 1.79

Northeast...................................................... 2.30

South.......................................................... 1.64

Midwest........................................................ 1.83

West........................................................... 1.84

Estabs of 100 or more Workers.................................. 2.42

Estabs 1-99 Workers............................................ 1.29

------------------------------------------------------------------------

* Rate weighted by FTEs in 6 broad occupational groups. Utilized in

Alternative II-B.

Table 8.--ECI Wage & Salary Levels*

------------------------------------------------------------------------

------------------------------------------------------------------------

Private Industry............................................... $12.25

SCA Weighted................................................... 12.09

------------------------------------------------------------------------

* Utilized in Alternative IV.

Table 9.--SCA Expenditures and FTEs by Region

------------------------------------------------------------------------

Expenditures Percent of Estimate of

(billions) total SCA FTEs *

------------------------------------------------------------------------

Northeast.................... 2.0 9.9 20,919

South........................ 11.9 58.6 123,822

Midwest...................... 1.4 6.9 14,580

West......................... 5.0 24.6 51,980

------------------------------------------------------------------------

* Excludes workers under CBAs. Source: FPDS universe data.

Alternative Data Requirements & Cost Computations

Alternative I:

Single benefit level based upon ECI data for workers in private

industry.

Data Requirements

------------------------------------------------------------------------

------------------------------------------------------------------------

1995:

Sick leave....................... 0.14 ........................

Other leave...................... 0.05 ........................

Insurance........................ 1.15 ........................

Retirement & savings............. 0.52 Hours=2,080/FTE.

Other benefits................... 0.03 ........................

1.89 ........................

------------------------------------------------------------------------

Cost Computations

Cost per FTE=Hours Worked x Benefit Rate per Hour

=2,080 x 1.89=$3,931.20

Alternative II-A

Single benefit level for each of six major occupational groups.

Data Requirements

ECI H&W Benefit Levels of Occupational Group

----------------------------------------------------------------------------------------------------------------

Sick Other Retire

Occupational group leave leave Insurance & Other Total

* * savings benefits

----------------------------------------------------------------------------------------------------------------

Prof., spec., & tech......................................... N.P. N.P. 1.67 0.91 0.05 3.03

Adm. support/clerical........................................ N.P. N.P. 1.22 0.42 0.02 1.87

Precision, prod./craft/repair................................ N.P. N.P. 1.67 0.82 0.06 2.71

Trans. & material moving..................................... N.P. N.P. 1.31 0.65 0.01 2.09

Handlers, cleaners, & helpers................................ N.P. N.P. 0.83 0.35 0.01 1.24

[[Page 55244]]

Service workers.............................................. N.P. N.P. 0.45 0.11 0.01 0.65

----------------------------------------------------------------------------------------------------------------

*Not publishable.

Survey Distribution of Employment

------------------------------------------------------------------------

Percent

Occupational group of Number of

total FTEs

------------------------------------------------------------------------

Professional.................... 13.4 28,314 Hours = 2,080.

Administrative.................. 17.5 36,978 ..................

Precision....................... 32.0 67,616 ..................

Transportation.................. 4.1 8,663 ..................

Handlers........................ 12.0 25,356 ..................

Service......................... 21.0 44,373 ..................

------------------------------------------------------------------------

Cost Computations

Cost per occupation=

FTEs x Hours x Occupation H&W Rate:

Prof., Specialty, & Tech.--$28,314 x 2080 x $3.03=$178,446,154

Admin. Support & Clerical--$36,978 x 2080 x $1.87=$143,829,629

Precision Prod./Craft & Repair--$67,616 x 2080 x $2.71=$381,137,869

Transp. & Material Moving--$8,663 x 2080 x $2.09=$37,659,794

Handlers, Cleaners, Helpers & Laborers--

$25,356 x 2080 x $1.24=$65,398,195

Service Workers--$44,373 x 2080 x $0.65=$59,992,296

Sum=$866,463,937

Cost per FTE=Total Cost/211,300=$4,100.63

Alternative II-B

Single benefit rate adjusted to employment composition of covered

contracts.

Data Requirements

FTEs by Occupational Group: See II-A Data requirements. ECI H & W

benefit levels by Occupational Group: See II-A data requirements.

Cost Computations

Total cost=FTEs for each Occupational Group x Corresponding H & W

Rate; Sum and Divide by Total FTEs; Multiply Product by Total FTEs and

then by Hours.

------------------------------------------------------------------------

H & W

Occupational group FTE's rate Product

------------------------------------------------------------------------

Prof., spec., & technical................... 28,314 3.03 85,791

Admin. support/clerical..................... 36,978 1.87 69,149

Precision prod/craft/rep.................... 67,616 2.71 183,239

Trans. & material movers.................... 8,663 2.09 18,106

Handlers/cleaners/helpers/ laborers......... 25,356 1.24 31,441

Service workers............................. 44,373 0.65 28,842

Sum..................................... 416,568

------------------------------------------------------------------------

416,568 divided by 211,300=1.97

Cost per FTE=1.97 x 2080=$4,097.60

Alternative II-C

Reconfigure II-A rates into two groups: white-collar and production

occupation rates.

Data Requirements

White Collar=Summation of Professional, Specialists, & Technical

Grouping and Administrative Support/Clerical Grouping.

Production=Summation of Precision, Transportation, Handler, and

Service Groupings.

Cost Computations

For each combined group, obtain a weighted rate as in II-B;

multiply each combination rate by the FTEs included and the hours

worked; then sum the costs for the two combination groups.

----------------------------------------------------------------------------------------------------------------

White collar FTEs H & W rate Product

----------------------------------------------------------------------------------------------------------------

Prof, Specialists And Technicians........................................ 28,314 3.03 85,791

Admin. Support/Clerical.................................................. 36,978 1.87 69,149

------------- ------------

Sum................................................................ 65,292 ........... 154,940

----------------------------------------------------------------------------------------------------------------

Combined Rate=154,940 divided by 65,292 = 2.37.

Cost=2.37x65,292x2080 = 321,863,443.

----------------------------------------------------------------------------------------------------------------

Production worker FTEs H & W rate Product

----------------------------------------------------------------------------------------------------------------

Precision Prod./Craft/Rep................................................ 67,616 2.71 183,239

Transportation And Material Movers....................................... 8,663 2.09 18,106

Handlers/Cleaners/Helpers/ Laborers...................................... 25,356 1.24 31,441

Service Workers.......................................................... 44,373 0.65 28,842

Sum................................................................ 146,008 ........... 261,628

----------------------------------------------------------------------------------------------------------------

Combined Rate=261,628/146,008 = 1.79.

Cost=1.79x146,008x2080 = 543,616,986.

Total Cost=321,863,443+543,616,986 = 865,480,429.

Cost per FTE=865,480,429/211,300 = $4,095.98.

Note: Alternative II-C also could be computed by weighting in

accordance with the national incidence of the various occupational

groups. No cost data are provided for this option.

[[Page 55245]]

Alternative III

Single benefit rate for each of four Bureau of Labor Statistics

regions.

Data Requirements

[FPDS Distribution of SCA-Covered Contract Expenditures by Region *]

------------------------------------------------------------------------

Percent Billion FTEs

------------------------------------------------------------------------

Northeast................................. 9.9 $2.0 20,919

South..................................... 58.6 11.9 123,822

Midwest................................... 6.9 1.4 14,580

West...................................... 24.6 5.0 51,980

Total................................... 100.0 20.3 211,301

------------------------------------------------------------------------

*Based upon FPDS universe data.

H & W Benefit Levels by Region

----------------------------------------------------------------------------------------------------------------

Other

Sick leave Other leave Insurance R & S benefits Total

----------------------------------------------------------------------------------------------------------------

Northeast......................... 0.19 0.07 1.39 0.62 0.03 2.30

South............................. 0.11 0.04 1.01 0.46 0.02 1.64

Midwest........................... 0.11 0.04 1.15 0.49 0.04 1.83

West.............................. 0.15 0.04 1.11 0.51 0.03 1.84

----------------------------------------------------------------------------------------------------------------

Cost Computations

Total Cost=For each Region, FTEs x H & W Rate x Hours, then Sum for

Total Cost.

Northeast-- 20,919x2.30x2080=100,076,496.

South--123,822x1.64x2080=422,381,606.

Midwest--14,580x1.83x2080=55,497,312.

West--51,980x1.84x2080=198,937,856 Sum=776,893,270.

Cost per FTE=776,893,270/211,300=$3,676.73.

Alternative IV

Single fringe benefit rate as a percent of wages.

Data Requirements

Single total benefits rate=$1.89 (See Alternative I)

ECI Ave. Wage & Salary for 1995=$12.25

ECI Ave. Wage & Salary weighted to SCA for 1995=$12.09

ECI Average Wage Weighted to SCA Occupations Distribution

------------------------------------------------------------------------

(2)--ECI (3)--SCA (4)--Product

(1)--Occupational group rate FTE's (2) x (3)

------------------------------------------------------------------------

Professional, specialty &

technical...................... 20.65 28,314 584,684

Administrative support/clerical. 10.47 36,978 387,160

Precision production, craft &

repair......................... 14.72 67,616 995,308

Transportation & material movers 11.42 8,663 98,931

Handlers, cleaners, helpers, &

laborers....................... 8.18 25,356 207,412

Service workers................. 6.35 44,373 281,769

211,300 2,555,264

------------------------------------------------------------------------

Average SCA Wage=2,555,264211,300=$12.09

Total benefits level/Average wages and salaries:

1.8912.25=15.4%

Cost Computations

Cost per FTE=(Hours x Average SCA Wage) (15.4%)

=(2080 x 12.09) (.154)

=$3,872.67

Note: This alternative may provide for application of the 15.4

percent to each occupational group wage. However, for the purpose of

this cost analysis, the 15.4 percent was applied to the all-

occupational group average wage.

Alternative V-A

``Insurance'' and ``Total Benefits'' levels based upon size-of-

establishment ECI data but applied according to the ``nature of the

contract.''

Data Requirements

Insurance level=Insurance for establishments of 1-99 workers=0.82

Total benefits=Summation of Insurance, Sick Leave, Other Leave,

Retirement and Savings, and Other Benefits for establishments of 100

workers or more:

Ins.......................... 1.45 FTEs by National Health and

Welfare Level:

SL........................... 0.17 ..................................

OL........................... 0.06 Insurance=94,048

R & S........................ 0.69 ..................................

OB........................... 0.05 Total Benefits=117,215

2.42 ..................................

Source: See Table 4.

Cost Computations

Cost: For each level, multiply FTEs x Benefit Rate X Hours; then

sum to obtain total costs.

Insurance Cost=FTEs x Benefit Rate x Hour

=94,048 x 0.82 x 2080

=160,408,269

Total Benefit Cost = FTEs x Benefit Rate x Hours

=117,215 x 2.42 x 2080

=590,013,424

Cost per FTE=(160,408,269+590,013,424)/211,300

=$3,551.45

Note: For comparison purposes, 1995 data are utilized. Actual

Health and Welfare benefit levels for FY 1996 continue to utilize

1994 ECI data.

Comparable computations utilizing rates currently issued, based

upon 1994 ECI data:

Insurance=94,048 x 0.90 x 2080 = 176,057,856

Total Benefits=117,215 x 2.56 x 2080 = 624,146,432

Cost per FTE=(176,057,856 + 624,146,432)/211,300

=$3,787.05

[[Page 55246]]

Alternative V-B

Total Benefit levels, based upon size of establishment data,

applied by employment size of establishments.

Data Requirements

Total Benefits

------------------------------------------------------------------------

Establishments Establishments

of 1-99 of 100 workers

workers or more

------------------------------------------------------------------------

SL...................................... 0.10

OL...................................... 0.03 $2.42

Ins..................................... 0.82

R&S..................................... 0.33

OB...................................... 0.01

$1.29

------------------------------------------------------------------------

FTEs for contracts not subject to Section 4(c) collective

bargaining agreements, 1-99 workers and 100 workers or more:

Distribution of employment for known 4(c) contracts by

establishment size--1-99: 13.6%; 100 & over: 86.4%.

Obtain distribution of employment for 4(c) contracts by

establishment size by multiplying the above percents by 64,537.

Subtract 4(c) employment for each establishment category

from the corresponding employment total.

100 & over: 169,084-55,760=113,324

1-99: 106,746-8,777=97,969

Compute percent distribution of non-4(c) contracts by establishment

category:

100 & over: 113,324--53.6%

1-99: 97,969--46.4%

Total: 211,293--100.0%

Cost Computations

Cost = For each size group, FTEs x Corresponding Benefit Rate x

Hours

Sum two size group totals:

100 & over: 113,324 x 2.42 x 2080=570,427,686

1-99: 97,969 x 1.29 x 2080=262,870,421

Cost per FTE=(579,427,686 + 262,870,421)/211,300

=$3,943.67

Technical Note

Survey Design

Design of the survey benefited from guidance provided by

representatives of the U.S. Army, the Bureau of Labor Statistics, the

Office of Federal Procurement Policy, and the Federal Procurement Data

System. In addition, a pilot test of the survey instruments and

procedures was conducted with the assistance of the General Services

Administration and the U.S. Air Force. Design of the survey's

proportionate, systematic sampling, mailing of the survey materials,

and data collection and processing were accomplished by the University

of Tennessee, under contract to the Wage and Hour Division.

Sample and Population

The most comprehensive universe of detailed information about

contracts under the McNamara-O'Hara Service Contract Act is the Federal

Procurement Data System (FPDS) operated by the General Services

Administration. This automated system is routinely and continually

updated by information provided by Federal procurement officers on the

contracts they administer. While the FPDS represents a rich source of

statistical information, it is recognized that this data base is not

all-inclusive. For example, it does not contain data from the U.S.

Postal Service, the Air Force/Army Exchange Service, and most contracts

under $25,000. Therefore, since the Impact Analysis is based upon a

sample drawn from the FPDS population, estimates made only represent

the covered contracts included in the FPDS, and should not be

considered as representing the universe of all covered contracts. For

this reason, the focus of the Impact Analysis is on the relative

differences among costs likely to be generated by each alternative

listed. It should be noted that although contracts for which the

required wages and fringe benefits were determined by collective

bargaining agreements in accordance with Section 4(c) of the SCA were

included in the universe and survey to determine contract employment,

these contracts were excluded from the cost computations. Since fringe

benefits on these contracts are not determined on the basis of

prevailing fringe benefits, the cost of these contracts is not affected

by the methodology selected.

Sample Selection

Sample selection was proportional and systematic, by two-digit

Standard Industrial Classification (SIC) Major Group. For example,

assume that out of $20 billion in covered contracts, total contract

value in SIC 01 was $100 million. A sample ratio of 0.005 (100,000,000/

20,000,000,000) is computed for SIC 01. If we further assume that the

survey sample within the FPDS data base includes a total of 7,000

covered contracts, then 7,000 X 0.005 or 35 would be the number of

contracts selected for SIC 01. To randomly select the 35 contracts,

first, the total number of FPDS contracts in SIC 01--further assumed to

be 105--are arranged sequentially from most to least costly. One of the

first three contracts is selected by chance, and then every third

contract (105/35) is systematically selected.

Using Sample Data to Estimate the Population

Population estimates were developed by computing the ratio of Full

Time Equivalent positions (FTEs) by occupation to total contract value

for each SIC Major Group; population estimates by occupation for all

SICs were added together to compute occupational population estimates;

and population estimates for all occupations were added together to

provide industry totals, and the all industry sum.

Continuing the above example, assume that six usable responses to

the survey were received in SIC 01. Further assume that the employment

data provided on the completed questionnaires revealed FTEs in six

occupations. To obtain population estimates for employment in

Occupation #1 for SIC 01, the total employment reported on the six

questionnaires--8--is divided by the total contract value for the six

contracts represented ($10,000,000). The resulting ratio--0.0000008--is

then multiplied by the total contract value of all contracts in SIC 01

in the FPDS population--$100,000,000. The product of this

multiplication--80--is the population estimate for Occupation #1, SIC

01. Like calculations for the other five occupations found in SIC 01

would be completed to permit the estimation of the remaining population

employment in SIC 01. Once these calculations are completed for all

SICs and occupations, employment totals by occupation, industry, and

total employment may be obtained.

Note that the survey data were collected by occupational groupings

and definitions contained in the Service Contract Act Directory Of

Occupations, a resource tool utilized in the issuance of Service

Contract Act wage determinations, and generally familiar to contractors

with covered contracts. For those contractors not familiar with the

Directory's standard job titles and definitions, copies were made

available. Once the survey data were received and verified, the

occupational entries were reclassified into the six Census groups for

which health and welfare benefit information is available from the

Bureau of Labor Statistics. FTEs represent the number of annual full-

time equivalents budgeted to the contract in FY 1994 from the obligated

funds for each occupation listed. Since FTEs represent 2080 work hours

per year, and sample data were collected and population estimates

developed on this basis, and cost estimates developed reflect this

definition.

[[Page 55247]]

Data Collection and Response Rate

Collection of survey data was through a network of Federal

Procurement Executives and Federal agency Data Collection Coordinators

designated for this survey. Survey introductory materials were

transmitted to the Federal Procurement Executives in September 1995. In

October, all Data Collection Coordinators were provided with a

comprehensive package of survey orientation materials. Later in

October, and early November, agency procurement offices responsible for

contracts selected for the sample were provided with survey

questionnaires and materials. From December through March, Data

Collection Coordinators were provided with their agency response rates

and the list of contracts for which data were not yet received; an

additional mailing was made to the Federal Procurement Executives;

copies of the Service Contract Act Directory Of Occupations were

provided on request; and data review and follow-up with submitting

offices were carried-out.

The survey usable response rate--20.2 percent--varied somewhat by

industry and Federal agency. In general the highest response rates,

weighted by value, were for those industries that account for the

majority of covered employment. For example, for the four industries

that account for over two-thirds of population contract value (SICs 87,

73, 37, and 89), the sample contracts represented in the responses were

valued at over $3.4 billion, or 39.7 percent of the total value in the

sample for those industries, and averaged over $850 million per SIC

(and not falling below $303 million). The responses therefore appear to

be similar to the FPDS data in the universe by industry, providing a

measure of external validity that appears to limit the potential for

bias of the estimates obtained from the sample data. For this reason it

is believed that the responses received follow the general industry

framework and represent the best picture the Department was able to

obtain of employment in the various industries that make up the SCA

universe. The process whereby FTE/contract value ratios (by

occupational group within industry group), once established, are

applied to the population (not the sample) to estimate FTE totals (as

explained more fully in ``Using Sample Data to Estimate the

Population'', above), is another factor that would tend to limit the

potential for bias caused by the low response rate. However, the low

response rate does not allow for a reasonable measure of internal

validity to be assigned to the sample data.

Document Preparation: This document was prepared under the

direction and control of Maria Echaveste, Administrator, Wage and

Hour Division, Employment Standards Administration, U.S. Department

of Labor.

List of Subjects in 29 CFR Part 4

Administrative practice and procedures, Employee benefit plans,

Government contracts, Investigations, Labor, Law enforcement, Minimum

wages, Penalties, Recordkeeping requirements, Reporting requirements,

Wages.

Signed in Washington, DC, on this 21st day of October, 1996.

Maria Echaveste,

Administrator, Wage and Hour Division.

[FR Doc. 96-27402 Filed 10-24-96; 8:45 am]

BILLING CODE 4510-27-P