Service Contract Act; Labor Standards for Federal Service Contracts

DEPARTMENT OF LABOR

29 CFR Part 4

RIN 1215-AA78

Service Contract Act; Labor Standards for Federal Service

Contracts

AGENCY: Wage and Hour Division, Employment Standards Administration,

Labor.

ACTION: Final rule.

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

SUMMARY: This document adopts as a final rule a new methodology for

establishing minimum health and

[[Page 68648]]

welfare benefits requirements under the McNamara-O'Hara Service

Contract Act (SCA). In this document, the Department of Labor (DOL or

the Department) also issues a variance, pursuant to Section 4(b) of the

Act, to reflect the Department's practice of issuing prevailing fringe

benefit determinations on a nationwide basis, rather than separately

for classes of employees and localities. This document also contains

other minor, clarifying modifications that conform the regulations to a

1985 court decision, a 1983 treaty, a 1996 intergovernmental compact,

and more recent amendments to the Fair Labor Standards Act (FLSA)

minimum wage provisions.

EFFECTIVE DATE: June 1, 1997.

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:

I. Paperwork Reduction Act

This rule does not contain any new or added reporting or

recordkeeping requirements subject to the Paperwork Reduction Act of

1980 (Pub. L. 96-511). The existing information collection requirements

contained in Regulations, 29 CFR Part 4, were previously approved by

the Office of Management and Budget under OMB control number 1215-0150.

The general Fair Labor Standards Act (FLSA) recordkeeping requirements

which are restated in Part 4 were approved by the Office of Management

and Budget under OMB control number 1215-0017.

II. Background

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

that the Department determine locally-prevailing wages and fringe

benefits for the various classes of service employees performing

contract work subject to the SCA. Federal service contracts over $2,500

(if the predecessor contract was not subject to a collective bargaining

agreement) are required to 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 on a locality basis, DOL has issued fringe benefit

determinations for health and welfare based on nationwide data ever

since SCA was enacted.1

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

\1\ For a complete description of the history and content of the

current methodology, see the Background section of the Notice of

proposed rulemaking published at 61 FR 19770 (May 2, 1996).

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

The Service Employees International Union (SEIU) sued DOL in March

1991 in the United States District Court for the District of Columbia

over the longstanding administrative practice, since 1976, of issuing

two nationwide rates for health and welfare fringe benefits, and for

failure to periodically update SCA health and welfare fringe benefit

levels which, at that time, had not been updated since 1986 (SEIU v.

Martin, CA No. 91-0605 (JFP) (D.D.C. April 1, 1992)). Following a

remand to the Department for exhaustion of administrative remedies, 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 of Proposed Rulemaking (NPRM)

published in the Federal Register on May 2, 1996 (61 FR 19770),

proposed for public comment various alternative methodologies based on

data from the U.S. Bureau of Labor Statistics, Employment Cost Index

(ECI). Due to the time constraints, it was not feasible to publish the

required regulatory impact analysis for comment with the proposed rule.

The Department thereafter developed information on 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 conducted a survey which

provided specific information on service contract employment by

occupation within SIC industry classifications. By Notice published in

the Federal Register on October 25, 1996 (61 FR 55239), the Department

published its preliminary regulatory impact analysis containing

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 set a deadline for publication of this

final rule of December 24, 1996. SEIU v. Reich, CA No. 91--0605 (August

27, 1996).

In response to the proposed rulemaking, the Department received 80

comments. This included comments from seven Federal agencies:

Department of the Army, Department of the Navy, Department of the Air

Force, Defense Commissary Agency, U.S. Postal Service, Environmental

Protection Agency (EPA), and National Aeronautics and Space

Administration (NASA). Comments were received from six union

organizations: Service Employees International Union (SEIU), the

American Federation of Labor-Congress of Industrial Organizations (AFL-

CIO), the International Union of Operating Engineers, the Laborers'

International Union of North America (LIUNA), District No. 5--ITPE,

NMU/MEBA (AFL-CIO), and the International Association of Bridge,

Structural and Ornamental Iron Workers. The Contract Services

Association of America (CSA), which according to its comment represents

more than 240 companies that provide technical and support services to

37 Federal agencies, provided detailed comments, and thirty-three of

its member contractors separately submitted comments concurring with

CSA's position. Several major government service contractors, including

Johnson Controls, Lockheed Martin, Raytheon Aerospace, Aspen Systems

Corporation, and Kay and Associates, Inc., also provided comments. In

addition, the law firm of Hogg, Allen, Norton & Blue, which stated that

it represents a large number of service contractors throughout the

country, commented on the Department's proposal.

Thirteen firms which employ or provide employment services to

disabled workers under the NISH program and the Javitz-Wagner-O'Day Act

(JWOD) submitted comments. The National Star Route Mail Contractor's

Association and six mail hauling firms also filed comments. Fringe

Insurance Benefits, Inc., which markets and provides services to the

Contractors and Employees Retirement Trust Fund and several health

plans designed specifically for prevailing wage employees, provided its

comments. ACIL, which represents firms performing scientific testing

and engineering services, also commented on the Department's proposal.

III. Comments and Analysis of Alternatives

Summary of Comments

A majority of the commenters favored Alternative I, which would

provide for a single fringe benefit rate based on ECI all-industry

data. The CSA supported the Alternative I methodology, and thirty-three

of its member contractors concurred separately with CSA's position.

Both the Department of the Army and the Department of the Navy

[[Page 68649]]

preferred Alternative I. Alternative I was also supported by Lockheed

Martin and Kay and Associates, Inc. (KAI).

Little support was offered by the commenters for Alternatives II,

III or IV, including the variations of these alternatives. The Defense

Commissary Agency and four firms which employ disabled workers

supported Alternative II-A, which would provide separate benefit levels

for six major occupational groupings, primarily because it would be the

least costly in their particular circumstances. None of the commenters

favored Alternative II-B, which would provide a single fringe benefit

rate based on the occupational mix of service employees engaged in the

performance of SCA-covered contracts, or Alternative II-C, which would

provide for two benefit levels based on combining occupational

groupings into two categories. Alternative III, under which separate

rates would apply to each of four geographic regions, was supported by

only three commenters. Alternative IV, which would provide for a fringe

benefit rate based on a percentage of wages paid was endorsed by Aspen

Systems Corporation, which desired a high benefit package for its

employees, and three firms which wanted a low benefit package.

The Air Force strongly supported Alternative V-A, which would

continue the current methodology of applying two benefit levels based

on ECI size-of-establishment data. NASA, EPA, and the U.S. Postal

Service, and 3 other organizations also supported this alternative.

Three commenters supported Alternative V-B, a variation of the current

methodology in that it would be applied by the size, rather than

nature, of the contract and the lower benefit level would be based on

``total benefit'' rather than ``insurance only'' ECI data.

The unions commenting favored none of the proposed alternatives,

choosing instead to propose another alternative, which would preserve

the two-tier benefit system, but would use a different methodology for

calculating the lower ``insurance'' benefit rate. The unions proposed

that this lower rate be based on all-industry insurance only data,

rather than ``size-of-establishment'' insurance data, and that those

firms not providing health insurance be eliminated from the data (i.e.,

eliminating the ``zeros''). The unions also proposed including data on

fringe benefits paid to public employees in the low level fringe

benefit calculation.

Another alternative was also proposed by Fringe Insurance Benefits,

Inc., under which the Department would issue a single level for health

insurance which would be the same for all employees, and an additional

amount for pension which would vary based upon wages or job

classification.

More detailed discussion of the comments on each of the

alternatives proposed follows:

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

workers in private industry. The commenters who supported the

Alternative I methodology did so generally for three basic reasons.

First, they preferred its simplicity in establishing a uniform benefit

rate for all employees and the consequent ease with which contractors

could administer this rate and the government could verify SCA

compliance. Commenters also believed that this methodology would

eliminate the possibility of contractors manipulating employee

classifications in order to obtain a competitive advantage, which might

happen under some of the other proposed methodologies, thus ensuring a

``level playing field for bidders.''

Secondly, many commenters preferred Alternative I because it does

not discriminate between classes of employees based on the kind of job

they have or the location of their employment, and because it is easy

for employees to understand and would result in fewer morale problems.

KAI complained that because on some military installations the $2.56

``total benefit'' package applies to some contracts while the $.90

``insurance'' applies to others, it has lost highly qualified employees

to a different company working at the same base location which paid the

same wage but with the higher $2.56 benefit rate. According to KAI, its

employees ``never understand or accept why someone else on the same

base receives $2.56 per hour in benefits in comparison to the $.90 they

receive.'' Vinnell Corporation echoed this concern, stating as follows:

We have long believed that the two tier fringe benefit rate

methodology used for service contracts is discriminatory and creates

a disparate impact on those individuals working on projects where

the lower rate is applicable. One of Vinnell's current service

contracts is at a location where the higher fringe rate is

applicable because the project was derived from an A-76 procurement

action approximately 15 years ago. At that same location we have a

second project where the lower fringe rate is applicable. We find it

inconceivable that two carpenters, both working for Vinnell on

different service contracts but at the same military installation

and receiving the same wage rate should not also receive the same

fringe benefit rate.

KAI was also concerned that a two-tiered system ``results in added

administrative costs and negates the cost savings associated with

economies of scale.''

Finally, many commenters preferred the Alternative I methodology

because, as CSA stated in its comments, it produces a benefit rate

which is ``sufficient to allow all service contractors to purchase a

good benefit package for employees that would cover a range of health

and welfare benefits for all contract workers.'' Many commenters

expressed their belief that due to the continually rising cost of

benefit packages, the current ``insurance only'' benefit rate of $.90

per hour is simply insufficient to purchase any meaningful benefit

package, especially one that would include adequate health insurance.

KAI offered the following concrete example:

In 1993, $.89 per hour of benefits allowed the contractor to

provide a benefit package with 3 personal days, $10,000.00 of life

insurance, profit sharing contribution, dental insurance, and

medical insurance with a $250.00 deductible and supplemental

accident insurance. The $.90 per hour of benefits in 1996 allows the

contractor to provide a benefit package with 4 personal days, zero

life insurance, profit sharing contribution, zero dental insurance,

and a medical plan with a $350.00 deductible and no supplemental

accident insurance.

Contractors favoring Alternative I also believe that the resulting

increase in the benefit level for many of their employees would aid

them in attracting and retaining qualified employees to work on service

contracts with the Federal government.

Both the Department of the Army and the Department of the Navy

supported the establishment of a single health and welfare benefit rate

to be issued on all SCA wage determinations. The Army stated that it

supports one flat rate ``in the interests of simplicity and acquisition

streamlining.'' The Army preferred a ``single rate'' methodology

because it believes that the standards currently used by DOL to apply

the high benefit rate have no rational basis. The Army cited as an

example the Department's policy of applying the high rate to ``OMB

Circular A-76'' contracts.2 The Army stated that if DOL is to

continue with a two-rate methodology, it must ``publish clear

understandable and fair guidance to explain when each rate is

applied.''

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

\2\ OMB Circular A-76 actions are solicitations with potential

for displacement of Federal civilian workers. The rationale behind

applying the high benefit level to such contracts is that Federal

workers whose jobs are being converted to the private sector should

not suffer an abrupt decrease in their benefits.

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

The Army appears to regard the $1.89 rate as acceptable since it

``splits the

[[Page 68650]]

difference between the `low' and the `high' fringe rate.'' However, the

Army believes that ``it is important that the contracting agencies have

the ability to challenge that one rate by industry. If rates are

significantly lower for a particular industry, then DOL should deviate

from the one rate and set a lower rate for that industry.''

The Navy similarly concludes that ``[t]he single rate is far more

justifiable in terms of both contracting for services and compliance

within established employer wage and benefit programs.'' The Navy also

expressed belief that DOL has applied the current ``high'' health and

welfare benefit level in an artificial manner. Like the Army, the Navy

specifically mentioned the OMB Circular A-76 contracts involving

displacement of Federal employees as an example of improper application

of the high benefit rate. The Navy stated that once the high rate is

applied to such a contract, it continues to apply indefinitely to

follow-on contracts, and consequently, ``many service contracts contain

the artificially high benefit level while the prevailing rates for

those contracts are considerably lower.''

The Navy also stated that ``information available within the

Federal Employees Health Benefits Program'' would provide a sound basis

for establishing a single benefit rate. The Navy is concerned that

implementation of the $1.89 rate would create a significant cost

increase that might result in ``the federal contracting agencies'

inability to continue funding certain services, or existing service

levels, or [cause agencies] to reconsider decisions to contract out

such services to the private sector,'' thus causing a reduction in the

service contract workforces. The CSA also was concerned that

``[i]ncreased cost to government agencies could result in downsizing of

contracts and layoffs of employees.''

On the other hand, the Department of the Air Force opposed the

Alternative I methodology on the bases that the $1.89 ECI-based rate is

too costly and not appropriate for any contractor, being ``too low for

employees of large companies or with high-skilled workers and too high

for employees of small companies or low-skilled employees.'' The Air

Force, however, agreed with the Army and the Navy that ``[t]he current

problems with the two rate system stem from the inconsistent

application of the two fringe benefit levels resulting in confusion and

frustration by Federal contracting agencies, contractors, and service

contractors.'' The Air Force further stated that ``[t]he inflexibility,

for example, in applying the `high' fringe benefit rate to A-76

[Federal employee displacement] solicitations and then maintaining the

high benefit level regardless of the type of continued circumstances of

the contract has created the climate for complaints and attacks on the

two level system.''

The Defense Commissary Agency believed that Alternative I would be

cost-prohibitive for its contracting purposes since that agency

normally uses ``service occupations'' that would be paid the ``low''

health and welfare benefit rate under the current methodology.

Another disadvantage to the Alternative I methodology, specifically

mentioned by CSA, is that the all-industry ECI data upon which the

Alternative I benefit rate would be based includes ``zeros''--that is

data from companies that do not provide the benefit surveyed, thus

resulting in a lower rate that does not accurately reflect the actual

cost of such benefits. This concern was also reflected in the unions'

alternative proposal for determining health and welfare benefit rates,

which is separately discussed below.

Many commenters expressed concern that lowering the current high

``total benefit'' rate to the Alternative I single benefit rate would

result in serious employee morale problems and disruption in benefits.

Accordingly, as will be more fully discussed below, many commenters

favored some type of ``grandfathering'' or ``phase-in'' mechanism to

ameliorate the disruptive effects resulting from a change in the health

and welfare benefit rate methodology.

The unions unanimously opposed the single rate methodology provided

in Alternative I primarily because it would reduce existing benefits

currently received by those service contract workers to which the

higher level ``total benefits'' rate applies. They believed that

Alternative I met their primary criterion of establishing a rate high

enough to purchase health insurance coverage, but nonetheless found

this alternative unacceptable because it would eliminate the existing

``total benefits'' rate. SEIU also opposed Alternative I for the

specific reasons that it excludes public employee data and fails to

give ``due consideration'' to Federal employee rates.

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

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

of these groupings in private industry. This alternative was favored by

the Defense Commissary Agency and four firms which employ workers with

disabilities pursuant to programs sponsored under the Javitz-Wagner-

O'Day Act (JWOD), based primarily on their view that this alternative

would be the least costly in their individual circumstances. The

Defense Commissary Agency recommended use of Alternative II-A because

the ``service occupations'' it normally uses ``really would justify

only a rate of $.62 per hour.'' Eastern Carolina Vocational Center

(ECVC), which operates a work center for disabled individuals,

explained that Alternative II would be the best alternative for its

operations based on cost reasons. While ECVC acknowledged that

Alternative II-A may be the most expensive to the government as a

whole, it would be the least costly where ECVC was concerned since its

workers fall within the second lowest paid occupational group

(handlers, equipment cleaners, helpers and laborers, which would

receive fringe benefits of $1.24 per hour [based on 1995 ECI data]

under this alternative).

Most of the commenters who opposed adoption of Alternative II-A

believed that it would be too difficult to administer and enforce, and

would result in ``additional costs to the contractor, and ultimately to

the contracting agency, for personnel and systems to administer the

program.'' The Air Force was concerned that the increase in the

complexity of accounting resulting from this alternative would pose

``additional compliance difficulties for contractors and [Wage-Hour]

investigators.''

Commenters also expressed concern that too much subjectivity would

be inherent in the administration of this alternative. Both CSA and

Aspen Systems Corporation specifically stated that utilization of this

alternative could lead to gamesmanship involving manipulation of

classifications by contractors during the competitive bidding process.

Many commenters expressed their belief that minimum fringe benefit

rates differentiating among various groups of employees under

Alternative II-A would not reflect the prevailing practice in the

service contracting industry and would be unfair to employees in lower-

paid occupations. CSA stated that a ``vast majority'' of its member

companies ``provide the same level of benefits to all workers, except

those workers who are covered under a Collective Bargaining Agreement

or a prevailing wage law.'' The AFL-CIO also stated that employers

generally provide the same rate of fringe benefits, particularly health

insurance, to all employees working on the same

[[Page 68651]]

contract. The AFL-CIO further stated that ``a system based on

occupational groupings that would provide different employees working

for the same employer under the same contract with widely different

fringe benefits simply could not be considered to be prevailing since

such a system is rarely found among employers.''

Several contractors stated that, especially on those contracts with

a mix of labor categories, there could be a high potential for

discrimination problems arising under the Internal Revenue Code in view

of the large disparity between the various benefit rates. Several

commenters were also concerned that having the various benefit levels

under Alternative II-A would create serious labor and morale problems.

In addressing this point, the AFL-CIO stated as follows:

[Q]uality health insurance is needed by all service workers

regardless of their occupational groupings. The cost of insurance is

the same for the custodian as for the computer technician.

Establishing different minimum fringe benefit levels based on

occupational titles or groupings probably would lead to different

levels of health care among service workers, creating basic problems

in the workplace.

Finally, several commenters, including Fringe Insurance Benefits,

Inc., opposed this alternative because the $.62 rate for ``service

occupation'' employees would not be sufficient for such employees to

obtain any meaningful health insurance.

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 contracts. No commenters favored

this alternative; Lockheed Martin was the only commenter to provide any

favorable comments concerning this alternative. 3 Lockheed Martin

believes that the benefit rate produced under this methodology would be

less than the $1.89 rate produced under Alternative I and that it

``would be more reflective of prevailing benefit levels of SCA type

contracts.'' Lockheed Martin also believed this alternative to be easy

to administer.

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

\3\ Lockheed Martin supported Alternative I.

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

Most commenters opposed Alternative II-B simply because they

believed it to be too complicated. CSA believed that ``the data

required to effectively accomplish this may be too difficult to obtain

and may have too much error to be effective.'' Aspen Systems expressed

concern that this alternative would be difficult for the government to

implement, thus creating delay, and that it was unclear as to which

agency would have the authority to set the single benefit rate. Several

commenters, including the AFL-CIO and the Air Force, questioned the

accuracy of the Department's calculation of the occupational mix of

service employees contained in the regulatory impact analysis, which

formed the basis of the cost estimate for this alternative. The Air

Force also believes this alternative to be the most inflationary of all

those proposed.

Alternative II-C: Issue two benefit levels based on combining the

occupational groupings. This alternative likewise garnered no support

from any commenters. Many commenters had the same objections to this

alternative that they had to Alternative II-A. The commenters generally

complained that this alternative would be too complex administratively,

and would be discriminatory against workers in certain types of

occupations leading to employee morale problems. Aspen Systems believed

that there would be too much subjectivity in determining under which of

the two broad occupational groupings certain classifications would

fall.

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

regions based on ECI data for all workers in private industry. This

alternative was endorsed by Goodwill Industries, Inc. of Eastern

Nebraska and Southwest Iowa, which stated that this alternative ``would

provide the least financial burden to the Federal Government and

provide a significant increase in benefits to [its] employees,'' and by

the EPA, which believed this alternative to be ``among the most prudent

cost effective alternatives.'' 4

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

\4\ EPA equally supported Alternative V-A.

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

Commenters which opposed this alternative stated that regional data

is not an adequate substitute for locality data, especially since this

methodology would not take into consideration fringe benefit

differences within a particular region. One commenter noted that the

District of Columbia and Mississippi would be located in the same

region, yet the labor costs in these two regions are significantly

different. Similarly, the AFL-CIO points out that prevailing rates in

San Francisco, which is located in the Western region, are much more

likely to be similar to the prevailing rates in Boston than to the

prevailing rates in Boise, Idaho, which is also in the Western region.

Commenters therefore questioned the usefulness of the geographic

breakdown embodied in Alternative III.

Several commenters also pointed out that fringe benefits are

provided to employees within a company on a similar basis without

reference to geographic location and that benefit plans to which

employers subscribe are not structured to take into account

geographical differences. CSA and its member companies disliked

Alternative III, finding it too difficult to administer because it

would possibly require four separate benefit plans. They were also

concerned that implementation of this alternative would necessitate

major payroll, accounting and administrative changes, and would be

especially problematic with regard to employees who work in more than

one region. CSA was also concerned as to how contract bids would be

evaluated in situations where place of performance of the service

contract would be determined by the location of the successful bidder.

Finally, CSA believed that this alternative ``could cause non-

compliance with IRS discrimination rules on pension plans.'' Hogg,

Allen, Norton & Blue was concerned that the establishment of a higher

benefit for one geographic region than another might give rise to

``control group issues under ERISA.''

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. This alternative was endorsed by Aspen Systems Corporation and

three firms which employ workers with disabilities pursuant to programs

sponsored under the JWOD. Aspen Systems believed that this alternative

would provide positive incentive to employees ``in the sense that the

higher an employee's hourly wage, the higher the employee's fringe

benefit rates.'' Aspen Systems also stated that implementation of this

methodology would aid firms in attracting and retaining employees in

high level classifications, such as specialty and technical personnel.

Aspen Systems did not view this alternative as being too burdensome

from an administrative standpoint and recommended that the methodology

be applied as a percentage of each individual employee's wages rather

than of an average based on all wages paid under a contract. The JWOD

firms which favored this alternative appeared to do so because the

percentage methodology when applied to the wage rates typically paid to

their low-wage employees would serve to decrease their labor costs and

enhance their competitiveness.

Many commenters believed that this alternative would not be

[[Page 68652]]

administratively feasible. For example, Johnson Controls stated that

many of its contracts are not staffed with administrative personnel who

could adequately perform the requirements associated with this

alternative. The Air Force was also specifically concerned that

applying multiple fringe benefit rates on a contract would impose an

excessive administrative burden on contractors, particularly small

contractors such as those operating under the Small Business

Administration's ``8a'' program and the ``NISH'' programs. The Air

Force also believes that the complexity of accounting inherent in this

alternative would pose added compliance difficulties for contractors

and Wage-Hour investigators alike. Fringe Insurance Benefits, Inc. was

concerned that use of this alternative would provide incentives for

employers to intentionally misclassify employees.

Several commenters stated that a methodology providing for multiple

fringe benefit rates would naturally lead to problems of inequity and

morale in the workforce. CSA and the AFL-CIO both expressed concern

that lower paid workers might not be able to obtain adequate health

insurance under this alternative. Finally, Fringe Insurance Benefits,

Inc., while pointing out that ``the cost of health has no relationship

to wages,'' stated that this methodology is ``inconsistent with the

traditional approach of providing all non-exempt employees with the

same health benefit level.''

Alternative V-A: Issue two fringe benefit levels based on BLS ECI

size-of-establishment data for all workers in private industry (Current

methodology--applied based on nature of contract). The Air Force, NASA,

EPA and the United States Postal Service specifically recommended this

alternative. Moreover, several commenters, including Johnson Controls

and Hogg, Allen, Norton & Blue, even though they did not choose this

alternative, believe this to be the least disruptive alternative since

it most closely approximates the present two-level methodology.

The Air Force believes this to be the least costly of all the

alternatives proposed and that experience over the past twenty years

shows that a methodology providing a two-tier system would best ``meet

the needs of large or high-skill contractors and provide a

representative rate for the small and low-skill contractors.'' The Air

Force further believes that ``[t]he current problems with the two rate

system stem from the inconsistent application of the two fringe benefit

levels resulting in confusion and frustration by Federal contracting

agencies, contractors, and service employees.'' The Air Force favored

establishment of regulations that would ``place a high fringe benefit

level only on large dollar contracts and contracts that require the use

of a highly skilled workforce.''

The United States Postal Service preferred this alternative so that

``the current methods of calculating wages and benefits for highway

transportation contract employees would be continued.'' The Postal

Service's preference stems from its desire to preserve the status quo

with respect to the Department's current policy of special treatment of

the mail transportation industry.

The primary objections to this alternative are that the two levels

are inconsistently and subjectively applied to contracts and that the

insurance level is too low to provide adequate benefits and/or attract

and retain qualified employees. SEIU points out that ``size-of-

establishment'' data has no direct correlation to the population of

establishments performing SCA contracts and the types of contracts to

which the two benefit levels apply, i.e., the size of the business has

no relationship to the nature of the service contract or to the level

of benefit applied under the current methodology. SEIU and the AFL-CIO

both stated that the ``size-of-establishment'' approach for the lower

``insurance'' rate has been rejected by the Department's Board of

Service Contract Appeals.

Alternative V-B: Issue two fringe benefit levels based on BLS ECI

size-of-establishment data for all workers in private industry

(variation of current methodology--applied by size/number of employees

on contract; lower fringe benefit rate based on ``total benefit''

level). This alternative was favored only by CCAR Services, Inc., an

employer of persons with disabilities, whose primary concern was that

an increase in the cost of benefit packages would result in a reduction

in the number of employees on government service contracts.

The Air Force opposed this alternative because of the problems

attendant to its application. The Air Force notes that ECI fringe

benefit data is based on the number of employees in the firm, whereas

the suggested application would be based on the number of employees on

the contract. The Air Force believes this illogical given that many

large firms that would normally pay high fringe benefit rates have

contracts that utilize only a small number of employees. CSA states

that employees would be penalized for working on smaller contracts and

that it would be difficult to attract and retain highly skilled workers

on small contracts. Finally, Job Options, Inc. states this alternative

would lead to a perception by employees of arbitrariness and unfairness

since ``there is really no difference from the workers point of view

whether or not he or she works for a large or small employer, the

workers' needs are the same. Therefore, to either penalize or reward

them based on the size of the employer seems unfair to employees.''

Other Alternatives

Unions' Proposal

The union commenters suggested an alternative methodology that

would maintain the existing ``two-tier'' system, including the ``total

benefits'' rate (currently at $2.56) utilizing the current methodology,

but would provide a different methodology for determining only the

lower ``insurance'' rate.5 SEIU and the AFL-CIO both stated that

the Department should continue to set the lower fringe benefit rate

based on the cost that employers pay for insurance because BLS data

shows that insurance is the only benefit which a majority of service

workers receive. However, rather than using the ECI size-of-

establishment data currently used to determine the ``insurance'' rate,

the unions recommended using ECI all-industry data, but only after

those establishments that reported no health insurance costs are

factored out of the survey data, i.e., after eliminating the ``zeros.''

The unions argued that inclusion of ``zeros'' as amounts paid for

health insurance distorts the cost of health insurance paid by

employers which actually provide health insurance, and therefore

artificially deflates the prevailing fringe benefit rate. The AFL-CIO

believes that its proposal would bring the ``insurance level'' cost

within the range of $2.00.6 As discussed below, the unions''

proposal also would include State, local and Federal data in the

computation. They argue that inclusion of State and local data is

appropriate because nothing in the Act suggests that prevailing rates

are based only on private industry. They further suggest

[[Page 68653]]

that inclusion of Federal rates is appropriate because of the statutory

provision for the Department to give ``due consideration'' to the rates

paid Federal employees.

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

\5\ SEIU recommends that the ``Total Benefits'' rate should be

``frozen at $2.56 until such time as the ECI data for all benefits

for establishments of 100 or more employees rises above the $2.56''

because the ECI data for 1995 and 1996 fell below this rate.

\6\ Fringe benefit data with ``zeros'' excluded is not currently

available from BLS. SEIU claims in its comments that BLS has

informed them that ``establishments with zero health care benefits

can be eliminated from the ECI data by some programming changes * *

*''

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

As an alternative, SEIU suggested that the ``insurance'' rate could

be based on data derived from the Federal Employee Health Benefits

Program (FEHBP). According to SEIU, the family coverage contribution

rate under the FEHBP program was $1.65 in 1996, whereas a blend of

single and family coverage rates as reflected in the actual cost per

employee to the Federal government would amount to approximately $1.30

per hour. Apparently, SEIU would support either of these two rates as

the basis for the ``insurance'' rate.

The Army believes that the unions' proposal to change the ``low''

rate methodology, but retain the methodology for computing the ``high''

rate as it now stands is a ``protectionist stance * * * that cannot be

defended.'' The Army states that if DOL decides to continue with a two-

rate methodology, the rationale for each rate must be the same. In

other words, it would be illogical and inconsistent to determine the

lower ``insurance'' rate based on all-industry data, while continuing

to determine the higher ``total benefits'' rate based only on ``size-

of-establishment'' data.

Insurance Plus Variable Rate

Fringe Insurance Benefits, Inc. (FIBI) recommended implementation

of ``a prevailing rate for health insurance that is level and

consistent for all employees on the contract and a pension rate that is

based on either wages or job classification.'' Under this method,

health care costs for each class of employee would be consistent, but

other fringe benefits such as pension amount would vary by occupation

or wage rate. FIBI suggested that this method would better conform to

actual market place practices. Furthermore, FIBI suggested that the

Department closely review the National Association of Insurance

Commissioners' Small Employer Health Insurance Availability Model Act.

``Due Consideration'' and Inclusion of State and Local Data

Five organizations commented concerning the appropriate procedure

for the Department to give due consideration to the wage and fringe

benefits paid Federal employees, as required by the Act. Three unions

and one contractor stated that due consideration should be given to the

wage and fringe benefit rates being paid Federal employees in making

SCA wage determinations. SEIU stated that due consideration was

intended to narrow the disparity between the compensation received by

Federal employees and service contract workers. SEIU's view is that

Wage and Hour has made no attempt to determine the cost of Federal

employees' fringe benefit in order to close the gap. The AFL-CIO

contends that the Department cannot rationally maintain that it gives

``due consideration'' to Federal wage and fringe benefit rates, as

required by the statute, when Federal workers are excluded from the

data on which the SCA fringe benefit rates are based. LIUNA and

Lockheed Martin concurred that in computing the insurance level, ECI

insurance benefit costs from all civilian sectors, including government

employees, should be used.

The unions strongly supported the inclusion of fringe benefits paid

to all public employees, including State and local as well as Federal

employees, in SCA fringe benefit rate determinations. According to

SEIU, data on fringe benefits paid State and local government employees

is readily available in that the ECI now publishes data on fringe

benefits paid to ``civilian workers'' including both private and State

and local workers combined. SEIU and the AFL-CIO also maintain that

data on fringe benefits paid to Federal workers, which SEIU states is

``readily available'' from the Office of Personnel Management, should

also be factored into the fringe benefit rates. SEIU states that fringe

benefits received by State, local, and Federal workers ``tend to be

higher than the fringe benefits paid in private industry'' and their

exclusion artificially suppresses the rates currently published by the

Department. The unions pointed out that neither the Act nor the

regulations make a distinction between private and public service

employees, and therefore, there is no basis for excluding public sector

fringe benefit data.

In contrast, the Air Force states that if ECI fringe benefit data

is to be used, State and local government fringe benefit data should be

excluded. The Air Force states that not only are fringe benefits paid

by these entities ordinarily above the levels provided by local private

industry, but that a disproportionate number of these employees are

represented by unions. These factors would tend to skew the data and

results, just as would the inclusion of Federal government data.

Furthermore, the CSA states that the benefit rate should be based on

private industry data and does not believe that the Department should

explore the cost and feasibility of expanding ECI to include fringe

benefits of State and local workers.

``Grandfathering'' or ``Phase-In''

Nine organizations provided comments concerning the possibility of

``grandfathering'' and/or ``phasing-in'' any of the proposed

alternative health and welfare benefit rate(s). CSA and its member

contractors specifically recommend that the current ``total benefit''

level of $2.56 be ``grandfathered'' throughout the life of all existing

contracts, including all options and extensions, and that all new

contracts and recompetitions convert to the new health and welfare rate

at the time of award. The Navy concurs that ``the revised benefit rate

should be implemented only at the resolicitation of a contract, or the

new solicitation of contract services.'' The Navy also states that

``[a]ny existing contract would continue with the same present benefit

level through the end of that contract, regardless of options or

extensions.'' The Navy did not specifically indicate whether its

``grandfathering'' scheme would apply only to the ``total benefit''

level or would also apply to the current ``insurance'' level of $.90 as

well. The Army also agrees that ``implementation should occur when a

contract is being resolicited or a new requirement is being awarded.''

The Army anticipates that this would allow implementation ``to occur

over a period of one to four years, given the fact that most contracts

are for a five year term.''

KIA, on the other hand, suggested that contracts subject to the

$2.56 level be ``grandfathered to protect the current level until such

time as the lower single level of $1.89 can catch up to it.'' Hogg,

Allen, Norton & Blue also offered this suggestion. These commenters

generally believe that this approach would protect incumbent employees

against a reduction in their fringe benefits upon recompetition and

would protect incumbent contractors against predatory pricing practices

by non-incumbents at the time of recompetition. They believe that

grandfathering the high benefit level until the new rate catches up,

provided it is not cost-prohibitive for the agencies involved, would

cause the least disruption for contractors and employees alike.

SEIU states that equity dictates that no employee's benefits should

be cut back. In addition, LIUNA believes it appropriate for the

Secretary of Labor to issue an exemption or variance for purposes of

preserving the current high benefit rate. Another organization

concurred, stating that because of the inevitable employee

dissatisfaction resulting from a reduction in benefits,

[[Page 68654]]

contracts should be grandfathered to protect the current level ``until

any lower level H & W rate can catch up because failure to do so would

negatively impact employee morale and retention.''

The AFL-CIO proposes a two-year phase-in approach for

implementation of its recommended new ``insurance'' rate. The AFL-CIO

recommended that implementation of the new ``insurance'' rate start

with all contract anniversary dates after September 30, 1997, and that

only one-half of the difference between the current rate and the new

rates which would otherwise apply for fiscal year 1998 be implemented

at that time. On the next anniversary date of the contract, the second

half of the increase would be implemented.

The Air Force strongly opposes grandfathering the high fringe

benefit level should a final rule be adopted to change to a methodology

other than Alternative V-A. The Air Force objects to the Department

artificially retaining higher fringe benefit rates, which they do not

believe to be supported by the surveys. The Air Force recommends a

``phase-in'' period whereby the rate[s] would ``take effect only upon

recompetition of each contract.'' The Air Force believes that, while a

phase-in period would not reduce the eventual cost of the benefit

increase, it would at least serve to ``reduce the immediate negative

impact on employees facing layoffs.''

The Defense Commissary Agency recommends against a permanent

grandfathering at the current rate because that agency believes that

the current rates are already too high for the type of work for which

it contracts. Instead, the Defense Commissary Agency recommends a

phase-in period of two years, with half the reduction occurring the

first year, and movement to the then-current rate the second year.

Analysis

Based on a careful review of the comments and further analysis of

the various alternatives, the Department has concluded that Alternative

I best accords with the Department's dual responsibilities to determine

fringe benefits which prevail, and to select a methodology which is

administrable and not unduly disruptive for employees, contractors,

contracting agencies, and the Department. Currently there are no

occupation-specific or locality-based fringe benefit data available.

Furthermore, virtually all commenters opposed any alternative which

would result in their having to pay different fringe benefits to

different classes of workers or in different parts of the country.

While recognizing that no methodology will satisfy all parties

interested in the service contracting process, the Department believes

that Alternative I represents a reasonable application of the statutory

requirement to establish prevailing fringe benefit rates and best meets

the concerns expressed by the commenters to the Department's proposal.

(See also the discussion below concerning the Department's issuance of

a variance under Section 4(b) of the Act.)

Pursuant to the Alternative I methodology, the applicable fringe

benefit level would be based on employer costs per hour worked for all

benefits--excluding holidays and vacations, which are separately

determined, and excluding benefits otherwise required by law, such as

social security, unemployment insurance, and workers' compensation

payments--as reported annually by the BLS Employment Cost Index (ECI)

study of employer costs for employee compensation in the private sector

(i.e., all workers, all industries, all establishment sizes, and all

occupations). Under this ``total benefits'' approach, the Department

will issue a single nationwide health and welfare fringe benefit level

applicable to all employees engaged in the performance of SCA-covered

contracts, based on the average cost 7 for the following

compensation components:

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

\7\ The cost of the benefit components in the BLS ECI study is

an average based on data from all employers in the survey, including

those employers that do not provide the particular benefit.

Averaging in these ``zeros'' gives consideration to the degree to

which a benefit in fact is paid by employers.

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

(1) sick and other leave (excluding vacation and holiday leave);

(2) insurance, consisting of life, health, and sickness and

accident insurance plans;

(3) retirement and savings, consisting of pension and savings and

thrift plans; and

(4) other benefits not otherwise required by law.

The Department chooses Alternative I because, as noted by many

commenters, this determination method is simple to understand and to

comply with, and relatively simple to administer and enforce. The

Department also chooses Alternative I because it is consistent with the

Department's general practice of using cross-industry data which is not

differentiated by size-of-firm in determining prevailing wage rates.

The Department has concluded that use of size-of-firm data should not

be continued because the Department's application of the two benefit

levels did not in fact correspond to the size of the employer, and

because review of the survey conducted in preparation of the

Department's impact analysis (61 FR 55239, October 25, 1996) led the

Department to conclude that the low ``insurance'' level which was

applied to most contracts was particularly inappropriate for the large

numbers of white collar and skilled blue collar workers employed on

Federal service contracts.

Furthermore, the Department prefers Alternative I over the current

methodology (Alternative V-A) because it addresses concerns expressed

by commenters that the current two-tier system has been inconsistently

and subjectively applied. This approach is also preferable because it

applies the same minimum hourly benefit level for all service employees

and does not require any subjective judgments as to which benefit level

to apply based on the type of contract or employee. Accordingly,

adoption of Alternative I will largely avoid the potential for employee

morale problems and perceptions of unfairness and inequity that are

inherent in the current system and in those alternatives that would

establish different rates for different occupations (Alternatives II-A,

II-C, and IV).

The Department also notes that Alternative I provides a benefit

level that is sufficient for service contract employees to obtain

meaningful health insurance coverage and will allow service contractors

to obtain and retain qualified employees. This is consistent with the

Department's goals of encouraging employers to provide a high quality

and high performance work place. In contrast, the current low insurance

fringe benefit level, because it is based on only ``small'' employers

and averages in those employers which provide no fringe benefits, has

resulted in a fringe benefit level significantly lower than the level

actually paid by employers in private industry.

Alternative I also is consistent with the desire of almost all

commenters that health and welfare fringe benefit rates be based upon

nationwide data. The Department agrees with those commenters which

opposed the alternative (III) which would base rates on the four

regional breakdowns because it does not take into account the

potentially wider prevailing rate disparities within regions and

because employers commented that they generally provide similar

benefits to their employees regardless of location.

The Department has decided not to mix State and local government

fringe benefit data with ECI private industry data in determining the

fringe benefit

[[Page 68655]]

level applicable under this methodology. The Department has concluded

that the determination of the prevailing fringe benefit level should be

based only on private industry data since this is the sector that

competes for government contracts. Public employee benefit rates are

not representative of the benefit levels paid by the universe of

private firms that comprises SCA contractors. Rather, fringe benefit

levels paid by State and local governments are substantially different

than private industry, and consequently, inclusion of such data would

inappropriately skew the fringe benefit determination.

The Department has also concluded that inclusion of Federal fringe

benefit data is not feasible.8 The Department has not been able to

obtain usable cost data for Federal benefits other than health and life

insurance. The pension system provides a defined benefit package for

one group of employees 9 and a defined contribution system for

others, with contributions which vary according to the level of

contributions by employees. Pension and sick leave both vary with the

pay of employees. Thus, it is apparent that data on fringe benefits

paid to Federal employees would not readily mix with ECI private

industry data. However, the Department has taken ``due consideration''

of the Federal benefit system in its selection of Alternative I, which

utilizes ``total benefits'' data and will bring SCA fringe benefit

levels more into line with Federal benefits.

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

\8\ Inclusion of Federal benefits would likely have little

impact in any event. For example, Federal health insurance would

affect the insurance level by no more than a few cents per hour.

\9\ The level of the defined benefit plan presumably is also

affected by the fact that participating employees do not receive

credit towards Social Security benefits for their period of

Government service.

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

The Department shares the view of many commenters that any change

in the methodology should avoid the serious adverse effect of a

substantial reduction in fringe benefits for those service employees

currently employed on contracts subject to the ``total benefit'' level.

We anticipate that employers paying the higher benefits in accordance

with past determinations of the Department will face the Hobson's

choice of cutting fringe benefits for their workers (possibly losing

them to employers who are not Federal service contractors which pay

higher fringe benefit packages) or becoming uncompetitive. Similarly,

Federal agencies may lose the continuity of services provided by major

contractors which may become uncompetitive, or by valuable employees

who leave because of the reduction in their fringe benefits.

Accordingly, the Department has concluded that the current ``total

benefit'' level should be grandfathered at the present rate ($2.56 per

hour) until the single benefit provided by Alternative I (all-industry,

all-occupation average) reaches or exceeds $2.56. This grandfathered

rate will apply to all contracts which currently contain the high,

``total benefit'' level, and future solicitations for those contracts.

The grandfathered rate will not apply to contracts for new services.

The Department also believes it is necessary to allow contracting

agencies (which may have budgeted based upon existing fringe benefit

levels) and contractors (which will likely need to develop new fringe

benefit plans) a period of time in which to prepare for the change in

minimum fringe benefit levels. Accordingly, the new methodology

established by this final rule will apply only to wage determinations

issued on or after June 1, 1997. This date was selected so that the new

rate will apply to contracts solicited and options exercised for the

fiscal year beginning October 1, 1997. For the same budgetary and

planning reasons, the Department has also concluded that a four-year

phase-in of the rate set by the new methodology would be appropriate.

The Department believes that this approach is preferable to the

alternative suggestion of applying the new rate only to new

solicitations, and not to extensions and options on existing contracts,

because it is more equitable. Furthermore, the Department is concerned

about potentially serious problems in applying the proper fringe

benefit determination because of difficulties in ascertaining whether

the wage determination is needed for a new contract or exercise of an

option.

As discussed above, most of the alternative methodologies proposed

did not garner significant support from commenters, though they were

fully considered by the Department in light of the rulemaking record.

The Department did not select Alternative II-A, which would set

different rates for each of six occupational groups, because it would

be much more difficult for contractors to administer and for Wage-Hour

to enforce. The Department considered it significant that commenters

stated that providing different levels of benefits according to

occupation is contrary to the common practice of employers providing

the same benefit program to most employees, and that it would be

difficult for insurance carriers to accommodate. Commenters also agreed

generally that having different benefit levels based upon occupation

would create serious labor-management and morale problems. The

Department also shares the concern expressed by several commenters

about subjectivity inherent in this alternative and the possibility

that some contractors might attempt to manipulate the classifications

in order to obtain a competitive advantage.

Alternative II-B is similar to Alternative I in that it would

provide a single benefit level for all employees and all contracts.

However, no commenters responded favorably to this new concept for

computing health and welfare fringe benefits, which would set the

fringe benefit level based upon available information regarding the mix

of occupations used on Federal service contracts. Under this

alternative, fringe benefit rates would be determined based upon the

survey the Department conducted last year which formed the basis for

its impact analysis. Commenters generally expressed little confidence

in the Department's efforts to determine the occupational mix on SCA-

covered contracts.

The Department did not select Alternative II-C for many of the same

reasons it declined to adopt Alternative II-A. Reducing the

occupational groupings from six to two would decrease the frequency of

having different levels paid to groups of employees on the same

contract. However, where that situation arose, there still would be a

distinct possibility of perceptions of discrimination and consequent

employee morale problems. Moreover, determining the appropriate mixing

and weighting of the various occupational group rates would be

difficult.

The Department rejected Alternative III because the Department

agrees with the many commenters expressing the belief that establishing

benefit rates on a regional basis offers no significant advantage over

using a nationwide rate. To the contrary, regional data does not

reflect variations in labor costs and fringe benefit rates within a

region, which, as the commenters pointed out, are often more

substantial than variations among regions. Moreover, this option would

be inconsistent with the reportedly common practice among employers,

including service contractors, of providing similar fringe benefits to

most employees nationwide, without regard to either occupation or

geographic location. This alternative would be particularly problematic

to those government service contractors which perform contracts for

similar services at various facilities and installations throughout the

country. It

[[Page 68656]]

could also create serious administrative problems for service

contractors whose contracts require performance in multiple locations

that fall within different regions.

Alternative IV (benefits based on a fixed percentage of each

employee's wages) was not chosen by the Department primarily because of

the extreme difficulty that would be posed by its administrative

requirements. Several commenters expressed serious concern that the

additional administrative and recordkeeping requirements that would be

associated with this alternative would simply be too burdensome,

especially for smaller contractors. Although the Department is of the

view that there is a correlation between wage levels and fringe

benefits paid when viewed across the entire workforce, the Department

recognizes that individual employers reportedly provide the same or

similar benefit packages to most employees (especially insurance

benefits), without regard to wage levels. Moreover, the Department

agrees with the commenters that this alternative has the greatest

potential for creating problems of inequity and morale in the workf

orce. The Department also notes that under this alternative many lower

paid workers simply would not receive adequate health insurance.

As discussed above, the Department decided against continuing the

methodology proposed under Alternative V-A or the variation proposed

under Alternative V-B primarily because of the lack of evidence

justifying continued use of ECI ``size-of-establishment'' data, which

has been difficult to defend before the Board of Service Contract

Appeals, and commenter concerns regarding the manner in which the two

rates have been applied and the resulting effects on the morale of the

work force.

The Department also seriously considered the union proposal. The

Department was concerned about the lack of opportunity for comment on

this specific alternative. Furthermore, the Department believes that

the union proposal, which would maintain the existing ``two-tier''

system, including the current method for determining the high ``total

benefits'' rate, while providing a revised methodology for determining

the lower ``insurance'' rate, would be difficult to support given that

the two rates would be based on inconsistent methodologies. Under the

union proposal, the high ``total benefit'' rate would continue to be

set based on ECI ``size-of-establishment'' data for large firms

(establishments with 100 or more employees). However, the Department's

use of ``size-of-establishment'' data was successfully challenged in

proceedings before the BSCA. Though the specific challenge was to the

use of ECI ``size-of-establishment'' data as a basis for the low

``insurance'' rate, the Department believes that any legal shortcomings

identified in that action would likely apply as well to the use of such

data in establishing the ``total benefit'' level. Neither the comments

nor the Department's own survey provided evidence to refute the

Department's statement in its Notice of Proposed Rulemaking (61 FR

19773) that the major problem with the continued use of ``size-of-

establishment'' data is that there is little evidence to show that the

average benefit level for small firms corresponds best to benefits paid

by private employers on contracts similar to most SCA contracts, or

that the benefit level paid by large firms corresponds to the rates

paid by employers on contracts to which the ``total benefit'' package

has been applied under SCA. Thus, just as there is questionable

justification for relying upon ``size-of-establishment'' data as the

basis for the ``insurance'' rate, there is equally questionable basis

for relying upon such data in setting the ``total benefit'' rate.

Finally, the union proposal would continue to raise concerns about the

potential for inconsistent and subjective application of the two

levels.

The Department also rejected the alternative suggested by the FIBI.

Like the union alternative, this alternative had not been offered for

public comment. It has the distinct advantage of being consistent with

many employers' reported practice of providing one insurance benefit

package to their employees, while providing pension or other benefits

at a level varying with wages. However, the Department is concerned

that this proposal would be difficult and burdensome to administer,

requiring detailed recordkeeping.

IV. Comments and Analysis of Other Fringe Benefit Issues

Variance Under Section 4(b) of the Act

Approximately ten organizations commented regarding the

Department's proposal to issue a variance under Section 4(b) of the Act

from the statutory requirement that the Secretary determine prevailing

fringe benefits for the various classes of service employees in the

locality.

Johnson Controls stated that using a single nationwide rate ``does

not reflect the economic factors of the local geographic areas for the

prevailing benefits from a competitive and comparability standpoint.

Nationwide average data is skewed and does not reflect a valid

depiction of benefits when compared with local geographic prevailing

benefit data.'' However, Johnson Controls did not identify any source

of locality-based fringe benefit data nor did it support the use of

regional data as proposed in Alternative III. Rather, Johnson Controls

opposed use of such regional data because it would not take into

consideration ``the economic fringe benefit differences within the

region.''

SEIU stated that the absence of available data that could be used

to set the fringe benefit rates on a locality basis is universally

recognized. SEIU therefore supported the Department's proposal that ``a

variance be permitted to establish national fringe benefit rates on the

grounds that there is no reliable locality data available which would

permit the department to establish fringe benefit rates on a locality

basis.'' The AFL-CIO believed that ``only a national `insurance level'

rate is practical and consistent with the SCA.'' The AFL-CIO favored

nationwide rates not only because of the absence of reliable locality-

based data, but also because many insurance plans operate on a national

basis and Federal service contractors often operate in multiple

locations.

District No. 5--ITPE, NMU/MEBA (AFL-CIO) stated that they strongly

support the position of the AFL-CIO that the fringe benefit rates

should be uniform throughout the nation. In addition, the CSA

recommended that the Department continue to issue health and welfare

benefits on a national level stating that employers typically provide

similar benefits regardless of location. Most of CSA's member companies

felt that the utilization of locality-based fringe benefit data for

selected metropolitan areas is not a desirable practice. Further, they

felt that the benefits derived from collecting the data on a locality

basis would not be worth the considerable survey costs.

The Air Force also did not favor using locality-based fringe

benefit data for certain metropolitan areas. In their opinion, the

resulting disparity in fringe benefit rates for large metropolitan

areas versus the remainder of the nation would be inequitable and

discriminatory to those workers outside the metropolitan areas.

Pony Express stated that any plan should take into account the

differences in pay and fringes by region or locality.

After review of the comments, the Department has concluded that it

is

[[Page 68657]]

appropriate to issue a variance from the statutory requirement in

Section 2(a)(2) of the Act that the Secretary determine the fringe

benefits to be prevailing for the ``various classes of service

employees'' ``in the locality.'' Fringe benefit data simply are not

available for specific classes of employees or localities. Furthermore,

it is evident from the comments that there would be significant

administrative burdens to employers in providing fringe benefit plans

which vary by locality or by class of employee. Such a system would be

contrary to the reportedly common practice by employers, as evidenced

by the comments, of providing one fringe benefit package to most

employees. Any other system would likely also result in significant

morale problems among employees.

Therefore, the Department has determined that a variance is

necessary and proper in the public interest. Furthermore, the

Department has determined that in light of the reportedly common

practice of employers providing the same fringe benefit plan to most

employees, a variance to provide a uniform nationwide level of benefits

would be in accord with the remedial purposes of the Act to protect

prevailing labor standards.

Different Benefit Levels for Certain Industries

The National Star Route Mail Contractors' Association and their

member organizations support the current method used by the Department

for setting wage and fringe benefit rates for the mail hauling

industry. The Department sets wage and fringe benefit rates for the

mail hauling industry for four geographic regions based on a special

survey by the U.S. Postal Service. Wage determinations applicable to

this industry contain monetary amounts due for health and welfare and

pension benefits.

In addition, both the Department of the Army and the Department of

the Navy supported having variation in fringe benefit rates under

certain circumstances. Specifically, the Army stated that if a national

rate were the standard, it would be important that the contracting

agencies have the ability to challenge that one rate by industry.

Moreover, if rates are found to be significantly lower for a particular

industry, then the DOL should deviate from that one rate and set a

lower rate for that industry. The Department of the Navy supported

having a single health and welfare benefit rate for all SCA wage

determinations. At the same time, however, it suggested use of the

Section 4(b) variance procedure to prevent impairment of the

Government's business where the agency can show that the fringe benefit

rate determined under these regulations ``would prevent adequate

contract competition.''

After review of the comments, and in consideration of the limited

circumstances where special wage rates and fringe benefit rates are

currently issued for certain industries, the Department has determined

that it is appropriate to allow variances to permit industry-specific

fringe benefits in certain limited circumstances upon application of

the contracting agency. Such variations from the single nationwide rate

will be allowed only on a showing that the variation is necessary and

proper in the public interest or to avoid the serious impairment of

government business. This might be satisfied, for example, where an

agency is unable to obtain contractors willing to bid on the services

because the service will be performed at the contractor's facility by

employees performing work for the Government and other customers, and

as a result, paying the required SCA fringe benefits would cause undue

disruption to the contractor's own work force and pay practices. In all

cases, in order to obtain a variance, it will also be necessary for the

contracting agency to provide comprehensive data from a valid survey

demonstrating the prevailing fringe benefits for the specific industry

(not broad ECI data), in order to demonstrate that the variance is in

accordance with the remedial purpose of the Act to protect prevailing

labor standards.

This variance procedure does not constitute an opportunity to

request a separate fringe benefit package for every class of employee

or industry, but rather will require a showing of special

circumstances. As discussed, it is evident from the ECI that practices

do in fact vary widely among industries and occupations. Such an

industry-by-industry or occupation-by-occupation approach has already

been rejected through the consideration of the various alternatives and

the decision to issue fringe benefit determinations without regard to

occupation and based on cross-industry data.

If the criteria for granting a variance are met, and industry-

specific data are found to be adequate for establishing an alternative

prevailing fringe benefit determination, the party presenting such data

will be responsible for updating the data on a regular basis. If the

data are not regularly updated, then future procurements will be

subject to the standard cross-industry determination.

Significant support was received for continuing the special fringe

benefit determination for the mail transportation industry. The

regulation acknowledges the appropriateness of industry determinations

under certain conditions; the specific merits of such an approach for

the mail industry is not appropriately an issue for this rulemaking

proceeding, but will receive the Department's prompt attention.

Average Cost

Approximately 15 organizations commented regarding the average cost

issue. Under the Department's regulations at Sec. 4.175, fringe benefit

contributions (or cash payments in lieu thereof) must ordinarily be

made with respect to each service employee in the amount specified on

the wage determination for all hours worked on the contract up to 40

hours per week. However, the regulations at Sec. 4.175(b) prescribe a

different compliance rule where the wage determination specifically

identifies the benefit as an ``average cost.'' Under the ``average

cost'' fringe benefit determination, a contractor's contributions to a

``bona fide'' fringe benefit plan may vary among employees so long as

total contributions for all hours worked (not just hours up to 40 in a

workweek) by service employees on a particular contract average at

least the specified amount per hour per service employee. In practice

this average cost methodology is used only for the high ``total

benefits'' fringe benefit rate.

CSA (and its 35 or so member organizations which filed comments in

general support of CSA's comments) supported the average cost concept

because of the flexibility it permits employers in the establishment of

fringe benefit plans. Specifically, the CSA (and CSA member

organizations which concurred with CSA's comments) stated that average

cost is the preferred method because it allows companies to offer

benefits in a comprehensive package that provides a variety of options.

It allows for flexible benefit design for employees and helps service

contractors to remain competitive. CSA stated that the average cost

concept is the basis for the development of group insurance premiums,

and that it allows for more efficiency in auditing. CSA believed that

eliminating average cost would cause such an administrative burden on

larger employers with self-insured medical plans that such an option

would no longer be feasible. CSA also believed that the average cost

concept allows small companies to obtain relief from administrative

burdens by ``outsourcing benefits administration and/or

[[Page 68658]]

purchasing `packaged service contract benefit plans.' ''

National Star Route Mail Contractors' Association and seven member

organizations strongly oppose the use of an average cost concept. While

acknowledging that some type of average cost concept ``may be

advisable,'' National Star Route believes that any advantages would be

outweighed by the significant administrative and bookkeeping

difficulties inherent in such a system, especially in circumstances

where ``an employee works on several contracts covered by different

wage determinations.'' National Star Route was also concerned that use

of average cost would result in substantial decreases in benefits for

large numbers of service employees, would not guarantee equal benefits

to all employees, and would create the possibility that some employees

would not be provided with any benefits (e.g., employees not working

enough hours to become eligible for medical coverage). In short,

National Star Route believes that ``[i]nstead of averaging, employees

should be benefitted on their individual basis.''

National Star Route also believes that an averaging system would

necessitate delay in some fringe benefit payments, since that averaging

process would have to await the closing of the pay period. Finally,

National Star Route expressed strong opposition to any methodology that

would require its members to make fringe benefit payment for hours

worked over 40. It stated that this would create such an increase in

their overall labor costs that they might be rendered non-competitive

against railroads, airlines and ``various transportation groups within

the U.S. Postal Service itself,'' thus causing the trucking industry to

lose its market share of mail transportation.

Other commenters opposed to the average cost concept stated that

the unequal division of benefits would unfairly disadvantage single

versus married employees and short-term versus long-term employees.

Some commenters foresaw the possibility that ``a handful of very

compensated employees could tilt the average high enough to meet the

minimum average benefit with little or no contributions to the

`average' employee.''

The Air Force also opposed the average cost concept in conjunction

with any of the proposed fringe benefit methodologies. The Air Force

believes that average cost allows some workers to receive preferential

compensation based on personal circumstances, and that some companies

use average cost to ``exclude specific workers or to cause portions of

their work force to suffer at the expense of more favored groups.'' The

Air Force is of the opinion that it is more appropriate ``for workers

with higher risks or with more costly health care plans to pay these

costs individually and not cause other workers to pay disproportionate

shares of earnings or benefits to subsidize others.'' The Air Force

also recommends that regulations be adopted to limit the hourly fringe

benefit contributions to the standard 40 hour work week since ``this is

routinely done for both the private sector and government sector

benefit plans.''

The Department has concerns as to whether it is appropriate to

expand the average cost concept to the basic fringe benefit level to be

established under Alterative I. The Department is concerned that this

concept, which would involve a radical change for most contractors, did

not receive sufficient attention in the comments to warrant further

action at this time. The Department is also concerned about the

inequities of averaging, which allows contractors to make arbitrary

determinations to deny fringe benefits altogether to some workers or

classes of workers. Currently this system, which may be difficult to

understand and administer for small contractors, is utilized primarily

by sophisticated major contractors. Furthermore, the average cost

concept requires payments or contributions at the prescribed fringe

benefit level with respect to all hours worked, including hours over

40. Therefore this method could increase the costs of some contracts

where the employees work a significant amount of overtime.

On the other hand, the Department recognizes the advantages of

allowing averaging across a workforce where a contractor has an

elaborate fringe benefit system with variable costs based on factors

such as choice of health benefit plans, and pension and sick leave

contributions, and payments which vary based on wages. The Department

is considering further rulemaking on this issue and would welcome

additional comments, including comments on any revisions to the current

averaging method which may be appropriate. If there is significant

support, the Department will consider further rulemaking. In the

meantime, the Department is making no change in the regulation at

Sec. 4.175(b).

V. Comments and Analysis of Other Issues

Time-Frame for Section 4(c) Substantial Variance Hearings

The SCA and the regulations provide a procedure to request a

determination that collectively bargained wages and fringe benefit

rates required to be paid pursuant to Section 4(c) of the Act are

``substantially at variance'' from prevailing local wages or fringe

benefits. The Department requested comments on a proposal suggested by

the National Performance Review (NPR) that the regulations be tightened

to provide a 60-day time-frame for completion of substantial variance

hearings.

Seven organizations commented concerning the Section 4(c) variance

issue. SEIU, AFL-CIO, CSA, District No. 5--ITPE, NMU/MEBA (AFL-CIO),

and the LIUNA strongly opposed the proposal to reduce the 60-day time

limit to conduct the entire Section 4(c) hearing process. They believed

that the proposed restricted time frame for the completion of

substantial variance hearings is totally impractical and should,

therefore, be rejected. In fact, they believe the current time-frame of

60 days from the issuance of an Order of Reference until the opening of

the hearing to be too short; they recommended that if any changes in

the time-frames were to be made, the deadline should be extended.

The unions stated that this ``fast track'' approach, suggested by

the National Performance Review without input from workers and unions,

ignores the practical difficulties of litigation. They point out that

in most instances where the contracting agency requests a substantial

variance hearing, ``the agency has enjoyed the benefit of months spent

assembling the data that it will use to challenge the wage rates

negotiated between the service contractor and the unions. The new time

frame suggested essentially forces the service contractor or union to

proceed to the substantial variance hearing without the time necessary

to assemble the supportive evidence.''

The Army suggested that the time frame be expanded to within 90 to

120 days. They stated that the current system can take years and

affords no relief to the agencies.

In contrast, the Air Force strongly supported any effort to reduce

the amount of time in the substantial variance process. The Air Force

stated that reducing the time-frames will force the parties to address

the issues in a prompt manner, while simplifying the process, and

stated that an unbiased third party should be able to look at the

[[Page 68659]]

facts and determine if the data supports the existence of a substantial

variance. They assert that the fact that the contractor must continue

to pay the rates being challenged in the hearing makes it imperative

that a timely and final decision be made. Finally, the Air Force

recommended that regulations be implemented to stay the payment of

rates that are being challenged until the final decision is made. In

this regard, the Air Force stated as follows:

The current structure forces the contracting agency into paying

the cost of the increased rate or rates until a decision is made.

This leaves the contracting agency no way to recover funds paid on

rates that are ultimately determined to be substantially at

variance. If rates are deemed to be at variance, this results in

legal victory without proper cost recovery. If the rates were

temporarily frozen this would not result in a loss if the final

determination was made that rates did not substantially vary. It

would simply delay the payment long enough for that decision to be

made and applied.

The regulations currently provide a period of only 85 days from the

date of the Order of Reference to the Chief Administrative Law Judge to

appoint an administrative law judge (ALJ) to conduct a hearing, to the

date of the ALJ decision. It is believed that this time-frame, if

followed, provides a sufficiently fast track for proceedings. In

addition, the Department has initiated a procedure to alert affected

parties (union, contractor and agency, as appropriate) when a request

for a substantial variance proceeding is received, in order to allow

additional preparation time.

Other Proposals

The Department also proposed certain minor, technical modifications

necessitated by amendments to the FLSA, a 1985 court decision, a 1983

treaty, and a 1986 intergovernmental compact. The Department received

no comments on these minor proposals and has decided to proceed with

these proposed minor changes.

In order to conform to more recent amendments to the FLSA

establishing a new minimum wage, Sec. 4.2 is revised to delete the

reference to now out-of-date minimum wage rates; likewise, the tip

credit example in Section 4.6(q) is modified to delete the language in

the proviso that is based on the minimum wage rates provided by the

1978 amendments to the FLSA.

The text of Sec. 4.112, which was invalidated by the 1985 court

decision in AFL-CIO v. Donovan, 757 F.2d 330 (D.C. Cir. 1985), is

modified to reinstate the language of the previous regulations as they

appeared in the July 1, 1983, edition of the CFR. Final regulations

published on October 27, 1983 (48 FR 49736), among other things,

established a new provision in 29 CFR 4.112 that would have excluded

from the Act's coverage contracts under which only a minor or

incidental portion of the services would be performed within the

geographical limits of the United States as defined in the Act. The

D.C. Circuit held that this new provision had been adopted in violation

of the notice-and-comment requirements of the Administrative Procedure

Act. Under the restored language, which conforms to the Department's

practice in the administration of this provision since the 1985

decision, if a service contract is performed in part within and in part

outside the United States, any portion performed in the United States

is covered.

In addition, the restored regulatory language includes changes that

were necessary to conform to more recent enactments pertaining to the

geographic scope of the SCA. As indicated in Sec. 4.112, the SCA covers

contract services furnished ``in the United States,'' as that phrase is

defined in Section 8(d) of the Act. The geographical area included

within this definition was changed in the invalidated 1983 regulation

to conform to the Treaty of Friendship Between the United States and

the Republic of Kiribati, T.I.A.S. No. 10777, ratified June 21, 1983,

by excluding Canton Island. The regulations are further amended to take

into consideration changes necessitated by the 1986 Compact of Free

Association between the United States and the Governments of Marshall

Islands and the Federated States of Micronesia, set forth at 48 U.S.C.

1901 note, to exclude the Eniwetok Atoll, and the Kwajalein Atoll. In

addition, pursuant to the Covenant to Establish a Commonwealth of the

Northern Mariana Islands in Political Union with the United States of

America, set forth at 48 U.S.C. 1801 note, all laws not explicitly

dealt with elsewhere in the Covenant which are applicable to Guam and

are of general application to the States, are applicable to the

Commonwealth of the Northern Mariana Islands (CNMI). Because the SCA is

applicable to Guam, the regulation is amended to add the CNMI.

VI. Conclusion

For the foregoing reasons and after consideration of all of the

comments submitted in response to the proposed rule published on May 2,

1996, in the Federal Register (61 FR 19770) and the preliminary

regulatory impact analysis published in the Federal Register on October

25, 1996 (61 FR 55239), the Department is making the following changes

in the regulations:

The Department has decided to issue a new Sec. 4.52 \10\ to set

forth the methodology for determining future prevailing fringe benefit

determinations. The Department is adopting the methodology provided in

Alternative I as the appropriate methodology for establishing minimum

health and welfare benefit rates under the SCA. Pursuant to this

methodology, the fringe benefit rate will be based on nationwide ECI

data for all employees in private industry, and will include all

benefits (excluding holidays and vacation, ``benefits otherwise

required by law'', and supplemental pay such as shift differentials,

considered to be wages under SCA).

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

\10\ Existing 4.52 and subsequent sections are renumbered

accordingly.

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

This methodology replaces the current methodology of issuing two

benefit rates, ``insurance'' and ``total benefit,'' based on ECI size-

of-establishment data, which have applied to SCA contracts on the basis

of the nature of the contract. However, the Department has decided to

``grandfather'' the current ``total benefit'' rate at its present level

($2.56) until the rate determined in accordance with Alternative I

equals or exceeds $2.56. This grandfathered rate will apply to those

contracts which currently are subject to the ``total benefit'' level,

and to future solicitations for such contracts; the grandfathered rate

will not apply to solicitations for new services.

The regulations will also allow for a four-year ``phase-in'' period

under which only one-quarter of the difference between the current

``insurance'' rate and the new all-industry rate will be implemented

for wage determinations issued on or after June 1, 1997. One-third of

the remainder of the increase would be implemented the following year,

and one-half of the remainder the following year. Beginning June 1,

2000, the new methodology will be fully implemented.

The Department has also decided that it is necessary and proper in

the public interest and in accordance with the remedial purposes of the

Act to protect prevailing labor standards to issue a variance pursuant

to Section 4(b) of the Act and Sec. 4.123 of the regulations from the

Act's provisions that require fringe benefit determinations be made for

various classes of workers in the locality. Pursuant to this variance,

the Department will issue a nationwide level of benefits applicable to

all classes of employees. The Department has also

[[Page 68660]]

provided a procedure to permit contracting agencies to request a

variance to allow industry-specific fringe benefits in certain limited

circumstances. Finally, the regulation will continue to recognize as

prevailing those situations (ordinarily where the provisions of a

collective bargaining agreement are found to prevail) where a single

fringe benefit rate is paid with respect to a majority of the workers

in an occupation in a locality.

VII. Executive Order 12866/Small Business Regulatory Enforcement

Fairness Act

On the assumption that the change in methodology for determining

prevailing fringe benefits would have an annual impact on the economy

of $100 million or more, the Department prepared and sought comments on

its preliminary regulatory impact analysis (61 FR 55239 (October 25,

1996)). As discussed below, the Department has now completed its final

regulatory impact analysis and has concluded that this rule, after full

implementation, will have an annual effect on the economy of $100

million or more. Therefore the Department has concluded that the rule

is economically significant within the meaning of Executive Order

12866, and that the rule is a major rule within the meaning of Section

804(2) of the Small Business Regulatory Enforcement Fairness Act.

However, the rule does not require an economic impact analysis under

Section 202 of the Unfunded Mandates Reform Act of 1995 because it will

not require State, local, or tribal government, or private sector

expenditures, in excess of $100 million in any one year; rather, the

costs of the increases in fringe benefits will be borne by the Federal

government.

Discussion of Comments

Five commenters provided specific comments regarding the Wage and

Hour Division's SCA Occupational Employment Survey and Impact Analysis:

the AFL-CIO, the Contract Services Association, the Navy, the Air

Force, and the Army. Their comments concerned six areas:

Survey Purpose: The Army and Navy were critical of the survey for

being directed exclusively toward Federal contractors whose wages and

benefits are already established by DOL's own wage determinations, not

by the labor market of the locality where the services are performed.

At the same time, the Navy contended that ``prevailing benefits are

unattainable by any reasonable or affordable survey effort.'' The Air

Force criticized the survey because it did not survey ``prevailing

rates'' in the locality labor market.

These comments reflect a misunderstanding of the purpose of the

survey. The survey only sought information on occupational employment

under the SCA, along with the relevant wage determination issued for

each contract. As stated in several communications with each Federal

agency asked to participate in the survey, its purpose was to

``estimate the distribution of employment by occupation on contracts

covered by the McNamara-O'Hara Service Contract Act.'' As noted in the

preliminary impact analysis, wage data utilized in the analysis were

from the Bureau of Labor Statistics, Employment Cost Index, not from

the fringe benefits paid by these contractors or from the wage

determinations used for these contracts.

Survey Procedures: The Army, Navy and Air Force were critical of

the survey procedures. Specifically, the Navy contended that receipt of

the survey material was the first notification contracting agencies

received from DOL that such a survey was being conducted. The Navy also

contended that the survey methodology had not been discussed or

coordinated ahead of time with the contracting agencies. The Air Force

claimed that the survey was developed without agency Labor Advisor

input. The Army stated that there was not meaningful coordination and

communication between DOL and the Army.

As summarized in the preliminary impact analysis, the then U.S.

Army Labor Advisor fully participated in the work group that helped

design the survey procedures and materials. Staff of the Office of

Federal Procurement Policy also participated in this process, which was

initiated in April 1995. In June 1995, the U.S. Air Force and General

Services Administration Labor Advisors participated in pilot testing

the survey process and materials, and were specifically requested to

provide ideas for improvement. The initial survey mailing was to each

Federal Procurement Agency's Federal Procurement Executive, in

September 1995. In that transmittal from the Wage and Hour

Administrator, top agency procurement officers were asked to

``designate a data collection coordinator to assume overall

responsibility for your agency's role in this special study.'' Several

of these designees were the agency Labor Advisor, or comparable agency

staff. These coordinators were asked to ``contact each of the offices

responsible for contracts selected for this survey * * * and ensure

that data collection instructions are properly followed).'' Throughout

the course of the survey, written and telephone contacts were

maintained between the Wage and Hour Division and participating survey

coordinators.

Survey Universe: The Contract Services Association, Navy, and Air

Force had concerns regarding the reliability of the survey universe.

The Contract Services Association and the Air Force stated that the

universe under represents the actual population of covered FTEs,

especially contracts under $25,000. At the same time, the Navy claimed

that the universe overstated the number of contracts, by including

procurements that actually were not covered by SCA.

The preliminary impact analysis acknowledges that the FPDS excludes

certain segments of the contract universe. ``For example, it does not

contain data from the U.S. Postal Service, 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

was on the relative differences among costs likely to be generated by

each alternative listed.'' (61 FR 55246) As with many large surveys, it

should be expected that some sampled units may be wrongly included

because they should not have been included in the population.

Therefore, the questionnaires returned with notation by the contracting

offices indicating that the contract was not covered by SCA were

excluded from the survey and were used to correct the population of

SCA-covered contract obligations by SIC. These corrections were based

upon an assumption by the Wage and Hour Division that those closest to

contract administration are best informed regarding SCA coverage.

Survey Findings: Both the Air Force and the Navy contended that the

survey overestimates the number of contracts assigned the current high

($2.56) health and welfare benefit level and underestimates the number

assigned the low ($0.90) level. The Navy stated: ``If one were to

accept the contention made in DOL's survey impact report, that the

``high'' health and welfare benefit level is paid on a large percentage

of all service contracts, that conclusion would be due in part to DOL's

own historical practice of applying that benefit level artificially.''

The Navy further stated that the majority of contract workers are paid

at or near the low health and

[[Page 68661]]

welfare benefit level, while an Air Force internal study concluded that

64 percent of FTEs are at the low level and 19 percent at the high.

In fact, the survey did not find a large number of contracts at the

high health and welfare benefit level. Table 4 of the preliminary

impact analysis clearly shows 80.7 percent of contracts at the low

level, 14.3 percent at the high level, and 5.0 percent set by

collective bargaining agreement pursuant to Section 4(c) of the Act.

The survey did find 42.5 percent of FTEs at the high level, 34.1

percent at the low, and 23.4 percent under Section 4(c). Of course,

there is no reason to believe that such ratios are necessarily the same

for all agencies.

Survey Reliability: Four of the five commenting parties questioned

survey reliability. The Contract Services Association, Air Force, and

AFL-CIO expressed concern over the survey's ``7 percent'' response

rate. In addition, the Contract Services Association and the Air Force

questioned the size and representativeness of the sample. The AFL-CIO

claimed that nonresponse to the survey was a source of systematic bias

and error, resulting in population estimates not reflective of the SCA

population.

As explained in the preliminary impact analysis, the survey usable

response rate was 20.2 percent of the sample (not 7 percent). The

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

represented 35 percent of the number of contracts in the population,

and 63 percent of population contract value. Usable responses to the

survey represented 7.2 percent of population contracts and 19 percent

of contract value. At the same time, the apparent similarity to the

FPDS data in the universe by industry appears to limit the potential

for bias of the estimates obtained from the sample data. The process

whereby FTE/contract value ratios (by occupational group within

industry group), once established, were applied to the population (not

the sample) to estimate FTE totals would also tend to limit the

potential for bias caused by the low response rate.

Impact Analysis: The Air Force claimed that the survey

underestimates the number of FTEs at the low health and welfare benefit

level, and therefore that the impact analysis underestimates cost

increases associated with the various alternatives. Based on its survey

of Air Force contracts, the agency developed its own estimate of the

cost of the current size-of-firm methodology ($612,202,240) and of the

cost of Alternative I, based on increasing the low benefit to $1.89

($970,503,040). The Air Force then compared its estimate of the cost of

Alternative I to its calculation of the DOL estimates 11

($720,462,080 and $961,800,320, respectively, according to the Air

Force). Therefore, the Air Force concludes that a total annual cost

increase of $358,300,800 would be incurred by accepting ``DOL's

proposed single fringe benefit alternative of $1.89 per hour,'' and not

the ``DOL estimate'' of $241,338,240.

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

\11\ The Department's proposed impact analysis as published in

the Federal Register did not set forth a total cost for the various

methodologies, but rather advised the public of the cost per FTE.

Therefore the Air Force did its own calculations of the Department's

estimated cost.

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

Even assuming that the results of Air Force's survey of the number

of contracts/employees subject to the two current fringe benefit rates

could be generalized to other agencies, the Air Force analysis appears

to be incorrect in four respects: (1) In doing its calculations of the

DOL estimate, the Air Force seems to have mistakenly multiplied the low

benefit health and welfare amount ($0.90) times the high benefit FTE

total (117,200), and the high benefit amount ($2.56) times the low

benefit FTE total (94,100). Therefore the Air Force underestimated the

DOL current cost estimate by $79,741,585. (2) By underestimating

current costs by almost $80 million, alternative cost increases were

overestimated by a like amount. (3) The Air Force cost computations for

Alternative I assumed the Department would continue to issue the high

rate for contracts currently receiving that rate. Although comments

were solicited on the issue of grandfathering the high rate, the

Department's estimate was not based on this assumption. (4) The Air

Force computations for combining the $2.56 with a $1.89 level appear to

have understated costs by over $5 million.

Final Regulatory Impact Analysis

After review of the comments, the Department has concluded that

there is no reason to change its estimates of the relative costs of the

various alternatives projected, as set forth in the preliminary

regulatory impact analysis.

The Department has now obtained 1996 ECI data, which shows that the

all-private-industry, all-employee rate under Alternative I would

increase from $1.89 (1995 data) to $1.91 (1996 data) per hour. The

Department therefore has computed the cost of the alternative selected

utilizing 1996 data, and based on the survey projection that 44.5

percent of covered employees (94,048 FTE) are employed on contracts

currently subject to the low ($.90) benefit, and 55.5 percent (117,215

FTE) are employed on contracts currently subject to the high ($2.56)

benefit:

1. The cost of prevailing fringe benefits determined in accordance

with the current methodology:

Cost for employees receiving benefits of $.90 per hour: $.90 x

94,048 FTE x 2080 hrs. = $176,057,856

Cost for employees receiving benefits of $2.56 per hour: $2.56 x

117,215 FTE x 2080 hrs. = $624,146,432

Cost of current methodology: $176,057,856 + $624,146,432 =

$800,204,288 ($3788 per FTE)

2. The first-year increase in the cost of the new methodology,

i.e., the cost of increasing the fringe benefits for employees

currently receiving $.90 per hour by $.25 per hour (one-fourth of the

increase to $1.91): $.25 x 94,048 FTE x 2080 hrs. = $48,904,960

($231 per FTE)

Thus the first-year increase in costs caused by the new methodology

would be less than $50 million per year. In succeeding years it can be

anticipated that the increase in fringe benefits costs for employees

receiving the low rate may be somewhat higher than $.25 per hour as the

cost of fringe benefits varies from year to year. However, it is

anticipated that this increase will be more than offset by savings

where contracts currently requiring fringe benefits of $2.56 are not

succeeded by new contracts for substantially the same services;

contracts for new services which would have received the $2.56 rate

under the former procedures will receive the new ``all-industry, all-

employee'' rate at the rate it is being phased in.

By the fourth year, if the $1.91 rate were to hold, the increased

annual cost would be approximately: $1.01 x 94,048 FTE x 2080 hrs.

= $197,576,038 ($935 per FTE)

The administrative burden, if any, of the various alternatives

proposed is discussed in some detail in the preamble above. From the

comments, it is evident that the alternative chosen is among the least

burdensome of the various alternatives, since it does not involve

paying different benefits to different workers on the same contract or

in different regions of the country. However, during the period where

both rates are issued, those contractors which have contracts subject

to both rates (as is sometimes currently the case) will continue to

have the burden of administering two benefit programs. In addition, the

change in the fringe benefit rate will involve the administrative

burden of contractors making changes in their fringe benefit plans to

accommodate changed fringe

[[Page 68662]]

benefit rates, both during the transition period and as prevailing

benefits change over time.

The Department has not been able to obtain data which would allow

it to quantify the benefits to the affected workers and to society of

providing workers prevailing fringe benefits, or to quantify any

indirect effects on jobs, productivity, or the Federal deficit, and no

such data was provided by commenters. A significant issue raised in the

comments, as discussed above, is the concern that the current low

``insurance'' rate is not high enough to provide meaningful health

insurance to employees. The Department believes, as stated by many

commenters, that the rate established through the selected methodology

will allow employers to provide meaningful health benefits, with the

concomitant direct benefit to the employees and indirect benefit to

society from a healthier work force, including reduced pressure on

public health resources.

IX. Regulatory Flexibility Act

Under the Regulatory Flexibility Act, Public Law 96-354 (94 Stat.

1164; 5 U.S.C. 601 et seq.), Federal agencies are required to prepare a

final regulatory flexibility analysis that describes the anticipated

impact of a rule on small entities. After review of the comments

received and consideration of the various alternatives, the Department

has prepared the following regulatory flexibility analysis regarding

this rule:

(1) The need for and objectives of the rule.

SCA requires that the Department of Labor (DOL) determine locally-

prevailing wages and fringe benefits for the various classes of service

employees performing contract work subject to the SCA. Contracts over

$2,500 (if the predecessor contract was not subject to a collective

bargaining agreement) are required to 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.

As discussed previously, fringe benefit data are not generally

available on an occupation-specific or on a locality basis, which

prompted DOL to issue fringe benefit determinations for health and

welfare based on nationwide data ever since SCA was enacted.

The Service Employees International Union (SEIU) sued DOL in March

1991 in the United States District Court for the District of Columbia

over the longstanding administrative practice, since 1976, of issuing

two nationwide rates for health and welfare fringe benefits, and for

failure to periodically update SCA health and welfare fringe benefit

levels which, at that time, had not been updated since 1986 (SEIU v.

Martin, CA No. 91-0605 (JFP) (D.D.C. April 1, 1992)). In this court

challenge, the district court remanded the case to DOL for exhaustion

of administrative remedies and final agency action, which led to the

decisions of DOL's Board of Service Contract Appeals that remanded the

matter to the Wage and Hour Division to consider alternative

methodologies for implementing the statutory objectives (BSCA Case No.

92-01 (August 28, 1992) and Case No. 93-08 (September 23, 1993)). Based

on the Board's decisions, the Department decided that the best process

for developing a methodology to establish prevailing SCA fringe

benefits consistent with statutory requirements would be to propose

various alternatives through rulemaking. In the meantime, SEIU moved

the district court to reopen its case against the Department. The

district court dismissed the case without prejudice to SEIU's right to

reopen for reconsideration upon a showing that DOL has not adopted a

final rule in this matter by July 31, 1996 (SEIU v. Reich, CA No. 91-

0605 (CRR) (D.D.C. January 19, 1996)).

On May 2, 1996, the Administrator of the Wage and Hour Division

published a Notice in the Federal Register (61 FR 19770) proposing for

public comment various alternative fringe benefit determination

methodologies. As explained in the proposed rule, however, it was not

feasible to publish a regulatory impact analysis for comment with the

proposed rule. At the time the Department was completing the

development of data on the occupational mix of service contract

employees in order to provide a basis for the impact analysis. That

analysis was completed and published for comment on October 25, 1996

(61 FR 55239). In the meantime, the Court set a deadline for

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

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

(2) Summary of significant issues raised by the public comments in

response to the initial regulatory flexibility analysis.

The Department received a number of comments regarding the economic

impact analysis and the survey that was conducted to determine the

occupational mix on Federal service contracts. Those comments are

specifically addressed in the economic impact analysis section above.

No comments were received on the initial regulatory flexibility

analysis.

(3) Number of small entities covered under the rule.

The definition of ``small business'' varies considerably depending

upon the policy issues and circumstances under review, the industry

being studied, and the measures used. The Small Business

Administration's Office of Advocacy generally uses employment data as a

basis for size comparisons, with firms having fewer than 100 employees

or fewer than 500 employees defined as small.12

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

\12\ The State of Small Business: A Report of the President

Transmitted to the Congress (1991), together with The Annual Report

on Small Business and Competition of the U.S. Small Business

Administration (United States Government Printing Office,

Washington, D.C., 1991), p. 19. A more detailed breakdown also used

is: under 20 employees, very small; 20-99, small; 100-499, medium-

sized; and over 500, large. In general, a business bidding on a

government contract is regarded as small if it has fewer than 500

employees (see p. 221).

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

Statistics published by the Internal Revenue Service indicate that

in 1990, an estimated 20.4 million business tax returns were filed for

4.4 million corporations, 1.8 million partnerships, and 14.2 million

sole proprietorships, most of which are ``small''--fewer than 7,000

would qualify as large businesses if an employment measure of 500

employees or less is used to define small and medium-sized

businesses.13

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

\13\ U.S. Department of the Treasury, Internal Revenue Service,

SO Bulletin (Spring 1990) Table 19; reprinted by SBA in The State of

Small Business (1991), Id., p. 21.

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

Federal procurement data are compiled and reported by the Federal

Procurement Data Center (FPDC) in the Federal Procurement Data System

Federal Procurement Report (Washington, D.C.: U.S. Government Printing

Office). The value of Federal contracts and volume of contract

``actions'' are currently reported individually to the FPDC for

contract actions exceeding $25,000; actions of less than $25,000 are

reported only in the aggregate. A contract ``action'' differs from an

initial contract ``award'' because a single contract may involve more

than one action--for example, a modification to an initial contract

award is reported to the FPDC as a separate action and may involve the

obligation or de-obligation of funds.

Small businesses were awarded $58.8 billion of the $184.2 billion

spent by the Federal government on goods and services in Fiscal Year

(FY) 1989, including $31.6 billion awarded directly to small firms and

$27.2 billion awarded to small subcontractors by Federal

[[Page 68663]]

prime contractors.14 Small firms accounted for more than one-half

(51.3 percent) of the value of contracts under $25,000, but only 14.1

percent of those over $25,000 in FY 1989.15 Since FY 1979 when the

FPDC first began reporting procurement data regularly, the share of

Federal procurement dollars awarded to small firms has fluctuated

between 14 and 16 percent over the entire period--for FY 1989 it was

14.1 percent overall.

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

\14\ The State of Small Business, supra at 220.

\15\ Ibid.

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

Of the major product/service categories under which contract

actions are reported to the FPDC, the ``other services'' category

(which includes a variety of non-construction activities ranging from

technical, sociological, administrative, and other professional

services, to installation, maintenance, and repair of equipment)

amounted to 28.9 percent of the total Federal prime contract actions

reported individually in FY 1989. Small businesses were awarded $6.8

billion or 14.7 percent of the contract dollars awarded for services in

FY 1989.16

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

\16\ Id., pp. 223, 226 & 235-237.

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

This FPDS data on small business awards does not correlate

precisely with the number of contract actions or contract dollars

awarded that are subject to the SCA. However, the ``services'' category

can be considered a reliable proxy for analyzing the universe of SCA-

covered contracts reported to the FPDC that may be awarded to small

businesses. Of a total 502,138 contract actions valued at $177.8

billion that were individually reported to the FPDC in FY 1992 (i.e.,

actions over $25,000 each), 82,957 contract actions, valued at $18.1

billion, were classified as subject to the SCA.17 Of these awards,

we estimate that $2.66 billion (14.7 percent) went to small businesses.

These figures, however, do not include any portion of the contract

actions not individually reported but reported in summary to the FPDC,

which totaled 19.6 million contract actions valued at $22.02

billion.18 Based upon the percentage of contract actions and

contract dollars in the services category that were reported

individually to FPDC as being subject to SCA, we estimate that an

additional 2,905,696 actions, valued at $2.2 billion, of the actions

reported in summary to the FPDC were subject to SCA. Of these awards,

we estimate that $1.1 billion (50 percent) went to small businesses.

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

\17\ Federal Procurement Data System Standard Report, Fiscal

Year 1992, Fourth Quarter, pp. 74-75.

\18\ Id., p. 74.

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

No current employment data are available by size of business that

would relate to Federal contracts awarded subject to SCA. (The SBA

measures employment change on a current basis for each small- or large-

business-dominated industry using Bureau of Labor Statistics payroll

data.19)

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

\19\ Id., p. 34.

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

(4) Reporting, Recordkeeping and Other Compliance Requirements of

the Rule.

All SCA-covered contractors (including small businesses) are

required to maintain records specified under 29 CFR Part 4 that

demonstrate compliance with the statutory requirements to furnish

equivalent fringe benefits or cash equivalents at not less than

prevailing rates.

This final rule, which relates to the procedures to be followed by

DOL for determining prevailing health and welfare fringe benefits to be

paid to service employees working on Federal service contracts covered

by SCA, contains no new reporting, recordkeeping, or other compliance

requirements applicable to small businesses. Although some of the

proposed alternatives likely would have involved additional

recordkeeping obligations, the alternative selected does not require

any additional recordkeeping. In fact, contractor comments regarding

the ease of administration and compliance under this alternative were

an important factor in selecting the alternative.

(5) Description of the steps taken to minimize the significant

economic impact on small entities consistent with the objectives of the

Service Contract Act.

As noted in the discussion of the various alternatives, the

methodology selected (Alternative I) was clearly the alternative

favored by most employers, many of which were small businesses. The

factual, policy and legal reasons for selecting Alternative I and the

reasons for rejecting the other alternatives are fully addressed in the

discussion of the various alternatives. A key factor underlying the

support of Alternative I by many employers, including many small

entities, was the ease of administration and compliance under this

alternative. In addition, this alternative was favored because it

produces a benefit rate that is sufficient to allow all service

contractors to purchase a reasonable benefit package for all contract

workers. Under the current two-tier benefit structure, the low level

benefit has been generally considered to be too low for employers to

purchase even a minimal health and welfare package for their workers.

Proposed Alternatives II--IV were generally viewed by most

commenters as being administratively difficult, especially for small

employers. Notwithstanding the greater administrative burden, these

alternatives were favored by some because they yielded a lower fringe

benefit rate for many workers. For service contractors in general,

however, these alternatives would have imposed significant

administration and compliance difficulties.

List of Subjects in 29 CFR Part 4

Administrative practice and procedures, Employee benefit plans,

Government contracts, Investigations, Labor, Law enforcement, Minimum

wages, Penalties, Recordkeeping requirements, Reporting requirements,

Wages.

Accordingly, for the reasons set out in the preamble, 29 CFR Part 4

is amended as set forth below:

PART 4--LABOR STANDARDS FOR FEDERAL SERVICE CONTRACTS

1. The authority citation for Part 4 continues to read as follows:

Authority: 41 U.S.C. 351, et seq., 79 Stat. 1034, as amended in

86 Stat. 789, 90 Stat. 2358; 41 U.S.C. 38 and 39; 5 U.S.C. 301; and

108 Stat. 4101(c).

2. Section 4.2 of Subpart A is revised to read as follows:

Sec. 4.2 Payment of minimum wage specified in section 6(a)(1) of the

Fair Labor Standards Act of 1938 under all service contracts.

Section 2(b)(1) of the Service Contract Act of 1965 provides in

effect that, regardless of contract amount, no contractor or

subcontractor performing work under any Federal contract the principal

purpose of which is to furnish services through the use of service

employees shall pay any employees engaged in such work less than the

minimum wage specified in section 6(a)(1) of the Fair Labor Standards

Act of 1938, as amended.

3. The introductory text of Sec. 4.6(q) of Subpart A is revised to

read as follows:

Sec. 4.6 Labor standard clauses for Federal service contracts

exceeding $2,500.

* * * * *

(q) Where an employee engaged in an occupation in which he or she

customarily and regularly receives more than $30 a month in tips, the

amount of tips received by the employee may be credited by the employer

against the minimum wage required by Section 2(a)(1) or 2(b)(1) of the

Act to the extent permitted by section 3(m) of the Fair

[[Page 68664]]

Labor Standards Act and Regulations, 29 CFR Part 531. To utilize this

proviso:

* * * * *

Secs. 4.52 through 4.55 [Redesignated as Secs. 4.53 through 4.56]

4. Sections 4.52 through 4.55 of Subpart B are redesignated as

Secs. 4.53 through 4.56 respectively.

5. A new Sec. 4.52 is added to read as follows:

Sec. 4.52 Fringe benefit determinations.

(a) Wage determinations issued pursuant to the Service Contract Act

ordinarily contain provisions for vacation and holiday benefits

prevailing in the locality. In addition, wage determinations contain a

prescribed minimum rate for all other benefits, such as insurance,

pension, etc., which are not required as a matter of law (i.e.,

excluding Social Security, unemployment insurance, and workers'

compensation payments and similar statutory benefits), based upon the

sum of the benefits contained in the U.S. Bureau of Labor Statistics,

Employment Cost Index (ECI), for all employees in private industry,

nationwide (and excluding ECI components for supplemental pay, such as

shift differential, which are considered wages rather than fringe

benefits under SCA). Pursuant to Section 4(b) of the Act and

Sec. 4.123, the Secretary has determined that it is necessary and

proper in the public interest, and in accord with remedial purposes of

the Act to protect prevailing labor standards, to issue a variation

from the Act's requirement that fringe benefits be determined for

various classes of service employees in the locality.

(b) The minimum rate for all benefits (other than holidays and

vacation) which are not legally required, as prescribed in paragraph

(a) of this section, shall be phased in over a four-year period

beginning June 1, 1997. The first year the rate will be $.90 per hour

plus one-fourth of the difference between $.90 per hour and the rate

prescribed in paragraph (a) of this section; the second year the rate

will be increased by one-third of the difference between the rate set

the first year and the rate prescribed; the third year the rate will be

increased by one-half of the difference between the rate set in the

second year and the rate prescribed; and the fourth year and thereafter

the rate will be the rate prescribed in paragraph (a) of this section.

(c) Where it is determined pursuant to Sec. 4.51(b) that a single

fringe benefit rate is paid with respect to a majority of the workers

in a class of service employees engaged in similar work in a locality,

that rate will be determined to prevail notwithstanding the rate which

would otherwise be prescribed pursuant to this section. Ordinarily, it

will be found that a majority of workers receive fringe benefits at a

single level where those workers are subject to a collective bargaining

agreement whose provisions have been found to prevail in the locality.

(d) A significant number of contracts contain a prevailing fringe

benefit rate of $2.56 per hour. Generally, these contracts are large

base support contracts, contracts requiring competition from large

corporations, contracts requiring highly technical services, and

contracts solicited pursuant to A-76 procedures (displacement of

Federal employees), as well as successor contracts thereto. The $2.56

benefit rate shall continue to be issued for all contracts containing

the $2.56 benefit rate, as well as resolicitations and other successor

contracts for substantially the same services, until the fringe benefit

rate determined in accordance with paragraphs (a) and (b) of this

section equals or exceeds $2.56 per hour.

(e) Variance procedure. (1) The Department will consider variations

requested by contracting agencies pursuant to Section 4(b) of the Act

and Sec. 4.123, from the methodology described in paragraph (a) of this

section for determining prevailing fringe benefit rates. This variation

procedure will not be utilized to routinely permit separate fringe

benefit packages for classes of employees and industries, but rather

will be limited to the narrow circumstances set forth herein where

special needs of contracting agencies require this procedure. Such

variations will be considered where the agency demonstrates that

because of the special circumstances of the particular industry, the

variation is necessary and proper in the public interest or to avoid

the serious impairment of government business. Such a demonstration

might be made, for example, where an agency is unable to obtain

contractors willing to bid on a contract because the service will be

performed at the contractor's facility by employees performing work for

the Government and other customers, and as a result, paying the

required SCA fringe benefits would cause undue disruption to the

contractor's own work force and pay practices.

(2) It will also be necessary for the agency to demonstrate that a

variance is in accordance with the remedial purpose of the Act to

protect prevailing labor standards, by providing comprehensive data

from a valid survey demonstrating the prevailing fringe benefits for

the specific industry. If the agency does not continue to provide

current data in subsequent years, the variance will be withdrawn and

the rate prescribed in paragraph (a) of this section will be issued for

the contract.

6. Section 4.112 of Subpart C is revised to read as follows:

Sec. 4.112 Contracts to furnish services ``in the United States.''

(a) The Act and the provisions of this part apply to contract

services furnished ``in the United States,'' including any State of the

United 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

definition expressly excludes any other territory under the

jurisdiction of the United States and any United States base or

possession within a foreign country. Services to be performed

exclusively on a vessel operating in international waters outside the

geographic areas named in this paragraph would not be services

furnished ``in the United States'' within the meaning of the Act.

(b) A service contract to be performed in its entirety outside the

geographical limits of the United States as thus defined is not covered

and is not subject to the labor standards of the Act. However, if a

service contract is to be performed in part within and in part outside

these geographic limits, the stipulations required by Sec. 4.6 or

Sec. 4.7, as appropriate, must be included in the invitation for bids

or negotiation documents and in the contract, and the labor standards

must be observed with respect to that part of the contract services

that is performed within these geographic limits. In such a case the

requirements of the Act and of the contract clauses will not be

applicable to the services furnished outside the United States.

Signed at Washington, D.C., on this 24th day of December, 1996.

Gene Karp,

Deputy Assistant Secretary for Employment Standards.

[FR Doc. 96-33222 Filed 12-26-96; 10:05 am]

BILLING CODE 4510-27-P