5328 Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Rules and Regulations

DEPARTMENT OF LABOR

Office of the Secretary

29 CFR Part 4

RIN 1215–AB26

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 an amendment to the

regulations exempting certain contracts

for commercial services meeting specific

criteria from coverage under the

McNamara-O’Hara Service Contract Act

(SCA). The proposed regulation was

issued based on a request by the

Administrator for Federal Procurement

Policy, Office of Federal Procurement

Policy (OFPP), in a May 12, 1999, letter

to the Secretary of Labor, representing

that the requested exemptions were both

necessary and proper in the public

interest, and in accord with the

remedial purpose of the SCA to protect

prevailing labor standards.

Amendments/modifications were made

to the OFPP-requested exemptions

based on the written comments

submitted in response to the proposed

rule.

EFFECTIVE DATE: March 19, 2001.

FOR FURTHER INFORMATION CONTACT:

William W. Gross, Director, Office of

Wage Determinations, Wage and Hour

Division, Employment Standards

Administration, U.S. Department of

Labor, Room S–3028, 200 Constitution

Avenue, NW., Washington, DC 20210;

telephone (202) 693–0062. This is not a

toll-free number.

SUPPLEMENTARY INFORMATION:

I. Paperwork Reduction Act

This rule contains no 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.

II. Background

On October 1, 1995, the Federal

Acquisition Regulations were amended

to implement provisions of the Federal

Acquisition Streamlining Act (FASA).

One provision of the final regulation, 48

CFR 12.504(a)(10), provided that the

requirements of the McNamara-O’Hara

Service Contract Act (SCA) are not

applicable to subcontracts at any tier for

the acquisition of commercial items or

services. This provision of the final rule

had not been included in the proposed

regulation. When the Department of

Labor became aware of the regulation,

the Administrator of the Wage and Hour

Division wrote to the Administrator for

Federal Procurement Policy, OFPP,

questioning the appropriateness of the

FAR regulation. The Department of

Labor stated its view that questions of

coverage and exemptions under the SCA

were properly within the purview of the

Secretary of Labor pursuant to section 4

of SCA. After a review of the issue by

the FAR Council the Administrator for

Federal Procurement Policy wrote to the

Secretary of Labor and requested that

the Department propose an exemption

for a more limited group of commercial

service contracts (both prime contracts

and subcontracts). The Administrator

stated that the FAR Council had

concluded that a blanket exemption of

all subcontracts for commercial items

may not adequately serve the

Administration’s policy of supporting

exemptions of the SCA only where they

do not undermine the purposes for

which the SCA was enacted. In

addition, the FAR Council recognized

the Department’s authority to exempt

contracts as well as subcontracts on all

types of contracts. Therefore the FAR

Council agreed that any exemption from

the coverage of SCA for subcontracts for

the acquisition of commercial items or

components should be accomplished

under the Secretary of Labor’s authority

in the SCA, and stated that it would

withdraw the FAR provision.

The FAR Council indicated that the

adoption of their recommendations

would further the commitment of the

Administration to be more commerciallike, encourage broader participation in

government procurement by companies

doing business in the commercial

sector, and reinforce their commitment

to reduce government-unique terms and

conditions from their contracts.

Furthermore, the FAR Council

represented that the limited exemptions

that it proposed could be accomplished

without compromising the remedial

purpose of the SCA to protect prevailing

labor standards.

On July 26, 2000, the Department of

Labor published an NPRM, proposing

the limited exemption from the SCA

recommended by the FAR Council. On

the same date, the FAR Council

published a final rule in the Federal

Register removing SCA from the list of

laws inapplicable to subcontracts for

commercial items, previously at FAR at

48 CFR 12.504(a)(10). The FAR final

rule became effective August 25, 2000.

As a result, a small group of commercial

subcontracts that were previously

exempted under the FAR rule and that

also meet the requirements of DOL’s

proposed rule could change from

exempt to nonexempt and back to

exempt if the DOL proposal becomes

final as it was proposed. Therefore, to

prevent the disruption that could be

caused by such changes, including the

possible disruption of services if the

current subcontractor did not agree to

continue the subcontract services under

the requirements of SCA, the

Department also published a final rule

in the same Federal Register,

temporarily exempting from the SCA

those commercial subcontracts which

met the criteria of the proposed rule.

The rule was to remain in effect for one

year, or until final action was taken on

the NPRM, whichever occurred first.

With the publication of this final rule,

the final rule for commercial

subcontracts is superceded and is

withdrawn.

The NPRM addressed two separate

but somewhat related issues. First, the

NPRM proposed to modify the current

exemption for the maintenance and

repair of Automated Data Processing

(ADP) equipment, 29 CFR 4.123(e)(1), to

reflect terminology changes in law that

have occurred since the exemption was

originally established; broaden the

exemption to cover information

technology as currently defined; apply

the exemption to installation services;

and apply the exemption to

subcontracts as well as prime contracts.

Second, a new exemption was

proposed, similar to the current ADP

exemption, to exempt both prime

contractors and subcontractors for a

specified subset of commercial services

that meet certain criteria.

III. Summary/Analysis of the Comments

A total of eleven comments were

received. Three comments from

contractor associations are generally

supportive of but recommend certain

changes to the proposed exemption.

Eight comments—one from a contractor

association and seven from union

organizations—are generally opposed to

all or specific portions of the proposed

exemption. Since most of the comments

focus on the proposed services or the

proposed criteria for exemption, this

summary also is organized on the basis

of individual services and criteria.

Before addressing the individual

services, however, several commenters

raise an overarching issue regarding the

statutory and regulatory requirements

for exemption under the Service

Contract Act. The American Federation

Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Rules and Regulations 5329

of Labor—Congress of Industrial

Organizations (AFL–CIO), the Laborers’

International Union of North America

(LIUNA), and the Building and

Construction Trades Department, AFL–

CIO (Building Trades), note that section

4(b) of SCA limits the Secretary of Labor

the authority to grant exemptions from

SCA to those situations where the

exemption is ‘‘necessary and proper in

the public interest or to avoid the

serious impairment of government

business, and is in accord with the

remedial purpose of this Act to protect

prevailing labor standards.’’ The AFL–

CIO and LIUNA further note that 29

CFR 4.123, the Department’s regulation

implementing section 4(b) of SCA,

provides that ‘‘a request for exemption

from the Act’s provisions will be

granted upon a strong affirmative

showing’’ that the statutory

requirements for exemption are met.

They argue that the reasons proffered

are inadequate as a matter of law. The

AFL–CIO further states that the FAR

Council offers no factual support for its

requested exemption, and that ‘‘the

Department cannot defer to the FAR

Council’s unsupported ‘representations’

as to whether the exemptions satisfy the

‘public interest’ and serious

impairment’ standards.’’

The Department agrees that

exemptions from the SCA may only be

granted upon a strong affirmative

showing that the statutory requirements

for exemption are met. This does not

mean, however, that the Department

cannot or should not give great weight

to the representations of the FAR

Council. The FAR Council’s experience

with and knowledge of the Federal

procurement process is clear, and we

believe it is appropriate to give the FAR

Council’s representations due

consideration. Absent evidence or

arguments to the contrary, a

representation by the FAR Council may

constitute a ‘‘strong affirmative

showing’’ that the requirements for

exemption are met. Therefore, on the

one hand, we did not summarily reject

the FAR Council’s request, and on the

other hand, the FAR Council’s

representations have not been accepted

without question. They have been

evaluated in light of the comments

received.

The AFL–CIO also argues that there is

no basis for the proposal to expand the

FAR exemption for subcontracts to both

prime contracts and subcontracts. The

Department disagrees with this

comment. The Department notes that

SCA coverage and exemptions are

commonly applicable to both prime

contracts and subcontracts, and the

Department sees no basis for limiting

the exemption for certain commercial

services to subcontracts, provided the

required showing is met.

A. Expansion of the current ADP

exemption

Based upon the recommendation of

the FAR Council, the Department

proposed that the current ADP

maintenance exemption be updated to

reflect the current statutory definition of

‘‘information technology’’ and be

consistent with other regulations.

Further, the proposal added installation

services to the current regulatory

exemption where those services are not

subject to the Davis-Bacon Act. The FAR

Council noted that service contracts

often involve installation of information

technology (IT) equipment, for example

installing and maintaining a local area

network, or installing and maintaining

new telephones or a telephone system.

The same employees are performing

installation as are performing

maintenance and repair services. Thus,

the FAR Council argued that the same

conditions supporting the exemption for

the maintenance services also support

an exemption for installation services.

Finally, the FAR Council recommended

that the exemption be made applicable

to subcontracts as well as prime

contracts.

The Council of Defense and Space

Industry Associations (CODSIA) and the

Contract Services Association (CSA)

support the expansion of the current

ADP exemption to a broader IT

definition. CODSIA states that it is

‘‘pleased that the Department of Labor

has virtually exempted all IT prime and

subcontracts from the Service Contract

Act.’’ CSA states that the ‘‘new ‘ADP’

exemption has been significantly

enlarged to a new definition of IT.’’ Both

CODSIA and CSA state that the

proposed rule recognizes that ‘‘the IT

marketplace provides a vibrant and

effective guarantor of fair wage practices

for virtually all IT workers.’’

The AFL–CIO, LIUNA and the

Building Trades all oppose changing the

current ADP exemption to adopt a new

information technology definition. The

unions also oppose the addition of

installation services. The AFL–CIO

states that the ‘‘growth of data networks

does not change the fundamental

distinction between the manipulation of

data by computers—which is automated

data processing—and the transmission

of data over telecommunications

networks—which is a

telecommunications service.’’ The AFL–

CIO further states that installing and

maintaining new telephone lines or a

telephone system is not automated data

processing. The AFL–CIO states that the

proposal ‘‘inappropriately extends the

ADP exemption to service work that

involves the ‘switching, interchange,

transmission, or reception of data or

information.’ ’’

It goes on to note:

‘‘Installation and maintenance of telephone

lines (where unregulated) has historically

been covered by the SCA. The service work

has not changed substantially even when

installation and maintenance involves data

rather than voice networks. The service work

involved in the installation and maintenance

of a local area data network is comparable to

the service work involved in the installation

and maintenance of a voice PBX or Centrex

system, work which is currently covered by

the SCA.’’

The FAR Council’s request to change

the current ADP definition was made

primarily to reflect the current statutory

definition of information technology

and be consistent with other

regulations. The FAR Council did not

indicate that the definition needed to be

expanded because it was having

difficulty procuring telecommunications

services. With respect to the addition of

installation services, the FAR Council

indicated only that the same employees

are performing installation services as

are performing maintenance and repair

services. Thus, the FAR Council

concluded that the same conditions

supporting the exemption for

maintenance services also support an

exemption for installation services.

Based upon this description, the

Department did not view the change in

definition to ‘‘information technology’’

and the addition of installation services

to be a significant expansion to the ADP

exemption. Rather, the Department

considered these changes to be mostly

language changes to reflect other

statutory terminology changes. The

comments—both for and against the

proposed change—clearly indicate that

the proposed change is a significant

expansion of the current exemption. In

this light, we have concluded that the

present record does not constitute a

‘‘strong affirmative showing’’ that the

proposed exemption meets the

requirements for exemption in section

4(b) of the Act. Therefore, the current

ADP definition will be retained and

installation services will not be added to

the scope of exempt ADP maintenance

services.

With respect to applying the ADP

exemption to subcontracts, the

Department specifically asked ‘‘whether

there is any reason that the exemption

at the prime contract level should not be

applied equally to subcontracts that

meet the criteria.’’ As mentioned above,

SCA coverage and exemptions

ordinarily apply to both prime and

5330 Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Rules and Regulations

subcontracts, where the criteria are met.

There were no substantive comments

against the application of the ADP

exemption to both prime and

subcontracts. That aspect of the

proposed change will be retained.

However, the certification requirement

is modified to make it clear that a

certification by a prime contractor that

it meets the criteria also constitutes a

certification that if it subcontracts the

services, the subcontractor in turn will

meet the criteria.

CODSIA and CSA also express

concern that the NPRM apparently

eliminated ‘‘scientific equipment and

medical apparatus equipment’’ from the

exemption. To the contrary, the

Department did not propose to

eliminate such equipment. Rather, the

NPRM simply did not reprint those

portions of the regulation that were not

affected by the proposal. The final

regulation reprints the exemption in its

entirety, with the clarification that in

order to be exempt, a contract or

subcontract must be principally for the

services in question.

B. New exemptions for Commercial

Services

The NPRM was intended to address

certain situations where an employee’s

work on a government contract

represents a small portion of his or her

time and the balance of the time is spent

on commercial work. In such cases, the

FAR Council represented that the

Government loses the full benefits of

competition for its service contracts

because some contractors decline to

compete for Government work due to

specific government requirements. To

remedy this situation, the FAR Council

recommended an exemption framework

that it believed would protect prevailing

labor standards and avoid the

undercutting of such standards by

contractors. The proposed exemption

would apply only to a specified list of

commercial services for which the FAR

Council has found a particular need for

an SCA exemption. In addition, in order

that the exemption comport with the

statutory requirement that it be in

accord with the remedial purposes of

the Act to protect prevailing labor

standards, the proposed regulation

provided a number of criteria which

must be satisfied.

In selecting the services to which it

believed the new exemption should

apply, the FAR Council focused on

services which the Government is

having difficulty acquiring or for which

the Government is getting limited

competition, or where the Government

is unable to acquire the quality of

services needed because commercial

sources are reluctant to do business

with the Government, thereby causing

impairment to Government business.

The FAR Council stated that it avoided

selecting services where the

Government may be in a position to

motivate the payment of less than

prevailing wages by contractors striving

to win Government contracts. The

factual basis for the FAR Council’s view

that the proposed exemption for each of

the specified services is necessary and

proper in the public interest or to avoid

the serious impairment of Government

business was set forth in the NPRM.

1. Proposed Exempt Services

a. Automated data processing and

telecommunication services. Unlike the

current exemption for ADP equipment,

which applies to maintenance and

service of ADP hardware, the new

proposed exemption for ADP and

telecommunications services would

have exempted a broad range of

software-type services within the

information technology industry. The

FAR Council explained that in this

information age, the Federal

Government is contracting for more and

more information technology (IT)

services. This is driven by the need to

maximize the use of technology to

improve the efficiency and effectiveness

of agency performance. However,

increasingly the Government is less of a

player in the IT marketplace in terms of

market share (less than 3%). IT

providers have an abundance of work in

an industry with a tight labor market.

The FAR Council stated that IT

providers are often reluctant or

unwilling to deal with Government

unique requirements such as the Service

Contract Act when they have an

abundance of work available and are

experiencing difficulty keeping pace

with their commercial work. The FAR

Council further represented that unless

the Federal Government can more

closely align the Government’s

contracting practices and requirements

with commercial practice, it will not be

able to generate enough interest to

permit the Federal Government to take

full advantage of the opportunities to

use information technology and to

obtain the requisite quality of services

needed to satisfy critical agency mission

needs.

Many of the comments group this new

proposed exemption for software

services with the ADP maintenance

services and the comments clearly

address both proposed exemptions. For

example, CODSIA and CSA are ‘‘pleased

that the Department of Labor has

virtually exempted all IT prime and

subcontracts.’’ Other than this broad

reference to IT, CODSIA and CSA do not

separately comment on the individual

services on the proposed list. With

respect to the new list of services, both

CODSIA and CSA primarily express

concern that this list is too limited.

Similarly, most of the union

commenters comment together on both

the new ADP/telecommunications

exemption and the expansion of the

current ADP exemption. In commenting

on the proposed new exemption for

ADP and telecommunication services,

the AFL–CIO states that ‘‘one of the

predominant purposes and effect of the

proposed rule is to eliminate coverage

in one of the largest growth sectors of

the Nation’s economy, the ADP, IT and

telecommunications industry.’’ The

AFL–CIO and the Building Trades

contend that the services within the

scope of this proposed new exemption

‘‘are performed by many employees

enjoying the protection of prevailing

wage standards under the SCA. There is

no guarantee that these service

employees will not experience a

reduction in wages and benefits or lose

their jobs as a result of application of

the exemption in the proposed rule.’’

These union commenters also

challenge the FAR Council’s

justification for the proposed

exemption. In addition to the comments

on telecommunications, summarized

above, the AFL–CIO states that the

Communications Workers of America

(CWA) (one of its member unions)

represent employees performing

‘‘network integration’’ services for

several large companies, and that these

firms would be at a disadvantage in

bidding for government contracts under

the proposed exemption. They also state

that the International Brotherhood of

Teamsters (IBT) perform ‘‘a multitude of

very technical work with regard to data

collection and distribution for the

Department of Defense’’ in Alaska.

LIUNA states that the FAR Council

stated that the Government ‘‘is

contracting for more and more

information (IT) services * * * [but

n]owhere has the FAR Council stated

that it cannot obtain these services or

that there are actual instances where

this has occurred.’’ The union

commenters also state that the proposed

ADP exemption is contrary to

Congressional intent, as expressed in

the 1976 amendments to the SCA, to

comprehensively cover white collar

service workers.

Based upon the comments, it is clear

that all parties—those in favor of the

proposal as well as those opposed—

view the combined expansion of the

current ADP exemption and the

addition of ADP and telecommunication

Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Rules and Regulations 5331

services to the proposed additional list

of exempt services as an intent to

exempt virtually the entire ADP, IT and

telecommunications industry. While the

Department still believes that the

additional criteria would limit the

proposed exemption to a smaller set of

contracts than those apparently

envisioned by the commenters, the

Department also recognizes that the

scope of the new ADP and

telecommunications exemption is

broadly defined. Compared with the

other exemptions proposed, the

proposed ADP exemption is not as

tightly focused on an area where the

Government has been having trouble

obtaining bidders. In light of the

comments and representations

challenging the need for a broad-based

ADP and telecommunications

exemption, the Department has

concluded that the record does not

adequately demonstrate that the

statutory requirements for exemption

have been met for this broad

classification of ADP and

telecommunication services. If at some

future time the FAR Council or an

individual agency can demonstrate that

the statutory requirements for

exemption are met for a more specific

type of ADP or telecommunications

service, then the Department will

consider such a request based upon the

facts applicable to that specific type of

procurement or specific service.

b. Automotive or other vehicle

maintenance services. Federal agencies

that maintain a fleet of automobiles

have a need for services such as normal

maintenance (e.g., changing oil and

filters, rotating tires, etc.), mechanical

repairs, paint and body work, glass

replacement, and other repairs needed

to maintain the automobile or other

vehicle. Unless the agency has a

dedicated Government facility for such

work, it is contracted out to commercial

firms. The FAR Council stated that the

General Services Administration (GSA),

which is responsible for providing

Interagency Fleet Management Services,

has been unsuccessful in contracting for

these services because of the

unwillingness of commercial sources to

deal with Government unique

requirements such as the Service

Contract Act for the small amount of

Government work involved. As a result,

GSA and other agencies often acquire

these services on an as needed basis

using micro-purchase procedures and

the Government Purchase Card. The

FAR Council stated that unless GSA and

other agencies can more closely align

the Government’s contracting practices

and requirements with commercial

practice, it will not be able to generate

enough interest or business to permit

the Federal Government to take

advantage of the quality improvements

and lower prices that will likely result

from establishing contractual

relationships with commercial service

centers. While the individual

transactions are small (typically under

$2,500), the aggregate volume and dollar

value of transactions across the nation is

substantial. The Federal Government

would benefit from the lower prices it

can negotiate for parts and supplies

used to service vehicles if it were able

to contract for services rather than treat

each transaction individually.

Additionally, the Federal Government

could expect to receive better service

because it will be viewed as a

‘‘corporate’’ customer who gives its

business to a particular contractor(s) in

a certain location. The FAR Council

stated that an exemption is necessary to

permit the Government to enhance the

quality of service while reducing its cost

through leveraging the Federal

Government’s collective buying power.

The FAR Council provided the

following specific example: The

Department of Interior’s Office of

Aircraft Services in Boise, ID, contracts

for maintenance of about 100 of its own

aircraft and also provides contract

support for other agencies such as the

U.S. Forest Service. The Office of

Aircraft Services reports that it has

about a dozen contracts at various

locations around the country. These are

commercial services procured from

commercial sources where the

maintenance of Government aircraft is

performed alongside regular nongovernment aircraft. Contractors’ work

is predominantly non-government.

Some commercial contractors have

refused to do work for the Government

because of concerns with the SCA

requirements. The result has been

limited competition for such contracts.

Only a few comments were received

regarding this service, and none of those

comments provide any detailed

information. The AFL–CIO states that

contractors supplying ‘‘automotive and

other vehicle maintenance services to

the government often subcontract these

services, and members of IBT perform

this work for both prime contractors and

subcontractors and enjoy SCA

protection. An exemption for this work

risks a loss of that protection,

particularly under fixed price contracts

where there may be an incentive to cut

employment costs.’’ This comment,

however, does not address the limiting

effect that the application of the

required criteria will have on the

application of the exemption to these

services. As noted in the proposal, the

exemption would not apply to contracts

for the operation of a Government motor

pool or similar facility. Further, the

exemption would not apply where the

volume of the government work is such

that the contractor could perform the

work with a workforce dedicated to the

government contract. As noted in the

FAR Council’s request, GSA and other

government agencies often acquire these

services on an as needed basis using

micro-purchase procedures and the

Government Purchase Card. Thus, in

many cases the services that would be

covered by this exemption are not now

subject to the prevailing wage

requirements of SCA, and in these cases

the exemption would not result in loss

of SCA protection for employees

currently working on SCA covered

contracts. Furthermore, under the

criteria discussed below, the exemption

would not be available unless price is

equal to or less important than the

combination of other non-price or cost

factors in selecting the contractor.

Therefore, the Department has

concluded that the statutory

requirements for exemption are met for

this narrow vehicle maintenance service

category.

c. Financial services. Increasingly, the

Government is contracting for and using

the services of financial institutions that

provide credit, debit, or purchase cards.

These cards are used by Federal

employees while traveling or to make

small purchases for commercial items to

meet the day-to-day needs of their

organizations. The providers of these

services use the financial networks of

firms like VISA, MASTERCARD, and

American Express to provide the

services. The FAR Council stated that

while the Federal Government’s use of

these services is significant, it

represents a small fraction of the

transactions that flow through the

financial infrastructure. Transactions

flowing through the networks are

processed in the same fashion and by

the same workforce regardless of the

ultimate user of the cards. As a result,

the FAR Council stated that it is very

difficult to get competition for these

services when the Federal Government

imposes unique requirements on the

contractors. It stated that contractors

will not change their way of doing

business to accommodate a customer

that represents a small portion of their

business; it is impossible for them to

segregate what is done for the Federal

Government from commercial activity.

None of the comments specifically

opposes this category of services.

Therefore, based upon the FAR

Council’s recommendation, this

5332 Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Rules and Regulations

exemption for financial services meeting

the specified criteria is adopted.

d. Lodging at hotels/motels. Agencies

of the Federal Government often

contract with hotels/motels for meeting

rooms for conferences of limited

duration (e.g., one to five days). These

contracts may be for conferences where

attendance is limited to Government

employees or may involve attendance

by other organizations and/or the

public. These contracts may also

involve furnishing lodging and meals to

those participating in the conference. In

other cases, agencies establish

contractual arrangements with hotels/

motels to obtain special rates for lodging

when the agency has a large number of

employees that frequently travel to a

particular location. The hotel/motel

agrees to special reduced rates in

exchange for being designated a

preferred provider for the agency

travelers to that city/location. In both of

these cases, the FAR Council stated that

hotels/motels are unwilling to agree to

contract with the Government when it

would mean they would have to pay

different rates to employees as a result

of a Service Contract Act wage

determination or would have to keep

special/different payroll or other

records. Typically these contracts are for

relatively small dollar amounts (less

than $25,000). The FAR Council stated

that this severely limits the

Governments ability to contract for

these services when needed.

Several union commenters oppose the

inclusion of this service category. The

Hotel Employees and Restaurant

Employees International Union (HERE)

state that this exemption ‘‘clearly

disadvantages hotels/motels which are

unionized or paying prevailing wages as

compared to the status quo existing

under the SCA.’’ HERE states that if

‘‘certain hotels/motels are unwilling to

contract with the Government, the

Government can simply contract with

unionized hotels/motels, which * * *

will have no problem fulfilling the

requirements of the SCA without paying

different rates to employees just for

Government events.’’ HERE’s comments

also focus on the prevailing fringe

benefit requirements of SCA, and it

notes that maintaining the level of

benefits is particularly important in a

low-wage industry such as the hotel/

motel industry. HERE also states that

there is no justification for eliminating

the protections of section 4(c), which it

considers an ‘‘integral aspect of the

SCA’s attempt to protect prevailing

wages and fringe benefits.’’ The AFL–

CIO makes very similar comments

regarding this service category, and

points out that the FAR Council does

not assert that it has been unable to

contract for its required services, but

just that ‘‘certain hotels/motels’’ have

refused to enter into contracts.

The Department has considered these

comments within the context of the

types of lodging services outlined in the

proposal. With respect to conferences,

the Government does not always

contract for these services in the same

manner. In some cases, the Government

may simply have the hotel/motel hold a

block of rooms for conference

participants. The rooms are then

reserved and paid for by the

participants. In these situations the

Government may also reserve and pay

for meeting rooms. In other cases,

especially if the conference participants

are all from the same agency and the

number of participants is known, the

agency may award a contract not only

for meeting rooms but also for lodging.

In the first situation, the contract is

typically less than $2500 and SCA

prevailing wage requirements would not

be applicable; however, in the latter

situation SCA would apply. Under the

proposal, both types of contracts would

be treated the same and neither would

be covered by SCA where the regulatory

criteria are met.

The Department is sympathetic to the

issues raised by the union commenters,

especially their comments relative to

fringe benefits. However, as the above

examples demonstrate, even if this

proposal were not adopted, SCA still

would not apply to a large number of

Government meetings and conferences

at private hotels/motels. Furthermore,

while the comments regarding the

availability of union hotels/motels

willing to accept the application of SCA

might be true in large cities with a

substantial number of union

establishments, that scenario might not

always be the case for meetings in

smaller metropolitan or

nonmetropolitan areas. While

government meetings and conferences

may be frequent in cities such as

Washington, DC, they would not be

frequent in small metropolitan areas. As

HERE acknowledges, hotels/motels are

not likely to change their pay practices

simply to attract Government

conferences or meetings.

With respect to other types of lodging

contracts, these are ordinarily long-term

contracts where the Government has a

continuing need for a block of rooms,

e.g., lodging for military recruits or

government employees attending

training at an agency training center,

and the agency enters into a contract

with a hotel/motel for number of rooms

over a longer period of time. The

application of SCA to this type of

contract is more direct, and determining

compliance with SCA is simpler. Unlike

conferences or meetings that are onetime contracts, these lodging contracts

fulfill a continuing lodging need.

Furthermore, contrary to the comments

of HERE, section 4(c) provisions would

apply to options, and to renewals for

services currently subject to section 4(c).

Based upon the foregoing, the

Department has determined that it will

revise the proposed exemption for

lodging services and apply the

exemption only to contracts for

meetings or conferences. Contracts for a

block of rooms on a continuing basis

would be outside the scope of the

exemption. As already noted, the

application of SCA to contracts with

hotels/motels for conferences currently

varies depending upon the form of the

contract. Further, it is the Department’s

view that the application or nonapplication of SCA to these contracts

does not impact the remedial purpose of

the Act to protect prevailing labor

standards. On the other hand, contracts

for a block of rooms on a continuing

basis are different. Regardless of their

form, these contracts should all be

subject to SCA at the present time, and

the record does not provide adequate

support for extending the exemption to

this type of lodging contract.

e. Maintenance services for all types

of specialized building or facility

equipment. Agencies that operate and

maintain Government owned and/or

operated buildings often contract for

operation and maintenance of the

building or facility and the prime

contractor will then typically

subcontract for services related to

specialized equipment. In other cases,

the Government will contract directly

for the maintenance and servicing of

such equipment. In either case, the FAR

Council reported that it is very difficult

to acquire the quality of service needed

from contractors who are not authorized

representatives of the manufacturer and

therefore do not have access to parts

needed for repairs and training that is

essentially only available from the

original equipment manufacturer. While

there may be other contractors who

indicate they have the capability to

provide the service, the FAR Council

states that experience often shows that

the quality of service obtained from

such sources is not satisfactory. The

FAR Council stated that the

Government, as a result of the

reluctance of some of the best

contractors to accept Government

unique requirements such as those

related to the Service Contract Act, is

deprived of the opportunity to improve

the quality of service for the

Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Rules and Regulations 5333

maintenance and servicing of critical

building equipment and systems.

The Mechanical Contractors

Association of America (MCAA), AFL–

CIO, LIUNA, International Union of

Elevator Constructors (IUEC), United

Association of Journeymen and

Apprentices of the Plumbing and Pipe

Fitting Industry of the United States and

Canada (UA), International Union of

Operating Engineers (IUOE), and

Building Trades all strongly oppose the

proposed exemption for this category.

Although the comments all provide

slightly different individual

perspectives, the thrust of these

comments is similar: (1) qualified

contractors and employees can and do

perform these services with the

application of SCA; and (2) this

exemption would have a negative

impact upon workers currently covered

by SCA.

Several commenters challenge the

FAR Council statement that the

exemption is needed because ‘‘some of

the best contractors’’ are reluctant to

accept government unique requirements

such as SCA. MCAA—a mechanical

construction industry trade association

with about 2,000 member firms—states

that its member firms compete for

federal agency building systems

contracts that are the subject of the

NPRM. It also asserts that alternate

procurement and contracting planning

would be a better way to address any

problems with lack of offerors or

diminished contracting leverage. MCAA

states that ‘‘[c]ompetent firms will

compete for federal contract

opportunities when those contracts are

fairly awarded and administered and are

performed with high business and labor

standards applied to all contractors.’’

The AFL–CIO, and others contend that

the ‘‘best’’ contractors do not have a

problem paying prevailing wages, and

this exemption would ‘‘attract lower

quality contractors that pay lower

wages, hire less skilled and less

productive employees and perform less

well.’’ Several commenters note that the

proposed exemption would encourage

agencies to replace on-site stationary

engineers employed by SCA covered

contractors with employees assigned to

a number of buildings on a service

route. To the extent that a legitimate

problem exists, the commenters contend

that it is not caused by the application

of SCA and the FAR Council should

seek other solutions. The IUOE stated

that it has 120,000 members who are

stationary engineers employed in the

field of operations and maintenance of

mechanical, electrical, electronic and

plumbing systems, including computeroperated HVAC systems and/or

automated building control systems, fire

life safety systems, elevators, and

escalators. The IUOE expressed its

concern that the proposed rule would

have the potential to replace more

highly skilled stationary engineers in

Government facilities with entry level

workers. They also state that there are

very few HVAC applications where ‘‘a

manufacturer or original equipment

supplier can validate that only their

mechanics or technicians can properly

service the equipment in question. If

that were true, the commercial facilities

that exist in the United States would not

be able to function without constant

interaction and a mandatory lifetime

service agreement from the

manufacturer.’’ The IUEC notes that the

proposed exemption does not ‘‘make

any sense’’ in the context of the elevator

industry. The IUEC states that ‘‘in the

elevator industry, the lead, national

manufacturing companies * * * are all

signatory to collective bargaining

agreements with the IUEC under which

they are obligated to pay contractual

rates that are tantamount to prevailing

wages. Thus, if there is in fact

reluctance on the part of these

manufacturers to bid on federal

maintenance, it is not because they do

not want to pay prevailing wages,

because they are doing that already.’’

Based upon the comments, the record

does not support the conclusion that the

statutory requirements for exemption

are met, and this category of service will

be deleted from the final rule. It is

evident that this work is currently

performed under SCA contracts.

Furthermore, as discussed below, if the

Government needs to contract only with

the original manufacturer or supplier,

that exemption remains available.

f. Installation, maintenance,

calibration or repair services for all

types of equipment where services are

obtained from the equipment

manufacturer or supplier of the

equipment. Agencies acquire a wide

range of equipment and often have a

need to acquire services to install,

maintain, calibrate, service or repair the

equipment from the manufacturer or

original supplier in order to avoid

compromising a warranty or because

proprietary information needed to

perform the work is only available from

the manufacturer, an authorized

representative of the manufacturer or

the supplier of the equipment.

Typically, these contracts involve

sophisticated equipment that requires

access to proprietary information or

requires employees involved in

performing the work to have extensive

training that is often only available

through the manufacturer or equipment

supplier. In such cases, the

Government’s need to contract with a

particular source or a limited number of

sources must be properly justified and

approved, if applicable, under the

statutory competition requirements

outlined in 48 CFR part 6 of the Federal

Acquisition Regulation. Examples of the

types of equipment include automated

building control systems, HVAC

equipment, building security systems,

and elevators or escalators. The FAR

Council reported that in many of these

cases, the Government has limited

leverage to negotiate with the contractor

to accept Government unique

requirements such as those related to

the Service Contract Act and has had

great difficulty obtaining services from

commercial sources who are unwilling

to accommodate such requirements.

The commenters that oppose the

exemption for specialized building or

facility equipment also oppose the

exemption for other equipment services

obtained from the manufacturer of

supplier of the equipment. Many of

their comments apply equally to both

service categories. For example, IUEC

notes that the major elevator

manufacturers are already paying

prevailing wages pursuant to their

collective bargaining agreements.

Therefore, any reluctance to contract

with the Government on the part of

these companies should not be caused

by a concern with the SCA.

The Department believes, however,

that there is an important difference

between the proposed exemptions.

While the services for specialized

building or facility equipment could be

performed by the manufacturer or

supplier of the equipment, the services

relative to this category must be

performed by the manufacturer or

supplier. Further, this exemption was

not intended to provide an exemption

for the manufacturer or supplier when

they are competing with other service

providers, but to limit the exemption to

situations where the manufacturer or

supplier is the only source for the

services. In a sole source situation, as

set forth in the FAR at 48 CFR 6302–1,

other contractors are not disadvantaged

because there are not other contractors

available to perform the services.

Therefore the Department believes that

the statutory requirements for

exemption are met for this narrow sole

source exemption. The Department

notes that the sole source aspect of this

exemption was discussed in the

preamble, but was not set forth in the

regulatory language. The regulatory

language of the final rule has been

clarified to specify that the exemption

5334 Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Rules and Regulations

shall only apply when the contract is

awarded on a sole source basis.

g. Transportation of persons by air,

motor vehicle, rail, or marine on

regularly scheduled routes or via

standard commercial services (not

including charter services) The General

Services Administration (GSA) enters

into contracts with airlines called ‘‘City

Pairs’’ so that Federal employees

traveling on Government business can

get discount air fares.

Under these contracts, Federal

employees typically obtain tickets

through travel management contracts

awarded by GSA or other agencies and

the Federal employee travels on

regularly scheduled routes of

commercial airlines but receive tickets

at a substantial discount. While the

Federal Government’s use of these

services is significant, it represents a

small fraction of the transactions that

flow through the airlines. Tickets that

are issued to Federal travelers flow

through the same networks and are

processed in the same fashion as other

travelers. As a result, the FAR Council

reported that it is very difficult to get

competition for these services if the

Federal Government imposes unique

requirements like those in the Service

Contract Act on the contractors. The

airlines will not change their way of

doing business to accommodate a

customer that represents a small portion

of their business. It is impossible for

them to segregate what is done for the

Federal Government from commercial

activity. The Federal Government also

enters into similar contracts for the

carriage of passengers by other modes of

transportation.

The AFL–CIO and LIUNA both

oppose this exemption. The AFL–CIO

states that ‘‘[m]any IBT members work

in the industries covered by this

proposed exemption. The FAR

Council’s rationale for this exemption is

unpersuasive and it could have a

serious detrimental impact on service

workers.’’ LIUNA comments that the

‘‘FAR Council nowhere states that it

cannot obtain these services or that any

contractor has refused to bid in these

categories of services.’’

The proposed exemption mirrors an

exemption for the carriage of mail that

was granted prior to the 1972

amendments to SCA. The exemption

was necessary because mail is not

considered to be freight and the

transportation of mail did not fall

within the scope of the transportation

exemption in section 7(3) of SCA.

Because the exemption for the carriage

of mail was granted prior to the 1972

amendments, it was not accompanied

by a finding that the exemption was in

accord with the remedial purpose of the

Act to protect prevailing labor

standards. Nevertheless, the Department

is not aware of any instance where the

exemption for the transportation of mail

has adversely impacted prevailing labor

standards.

The exemption for the transportation

of persons is necessary at this time

because of deregulation in the

transportation industry. When the ‘‘City

Pairs’’ contracts were first awarded,

these contracts fell within the scope of

the transportation exemption in section

7(3). With deregulation, it is not clear

that ‘‘City Pair’’ fares still constitute

published tariffs. Since SCA has not

been applied to these contracts

previously, the Department has

concluded that the exemption would

not have a detrimental impact on

service workers. In addition, the

Department has concluded that the

application of SCA to these contracts

would seriously impair government

business and would likely cause the

contracts to be discontinued. Therefore,

the statutory requirements for

exemption are met for these

transportation services. The Department

wishes to emphasize that this

exemption is narrow, extending only to

common carriers providing the services

in question to the general public, as well

as the Government. It does not extend

to charter services, where the

Government contracts with a carrier to

provide the service just to the

Government, such as shuttle buses

between Government buildings. The

wording of the proposal has been

clarified in the final rule.

h. Real estate services. Federal

agencies involved in acquiring and

disposing of real property often contract

for real estate services, including lease

acquisition, real property appraisal,

broker, space planning, lease renegotiation, tax abatement, and real

property disposal services. The primary

classes of workers that are involved in

performing the work are appraisers,

leasing specialists, brokers, space

planners, interior designers, fire safety

engineers, and project managers. In

many cases, the employees are required

by contracts with the Government to be

licensed. In many cases, the Department

of Labor has not established wage

determinations that apply to these

classes of workers. The individual

requirements are typically relatively low

dollar value (under $25,000) and require

that services be performed in a variety

of different geographic locations.

Knowledge of the local real estate

market is required to perform the

services effectively. Therefore,

individual employees, particularly in

rural areas, spend only a small fraction

of their time working on Government

contracts.

While the Federal Government’s use

of these services is significant, it

represents a small fraction of the

transactions that flow through the

industry/commercial sources. As a

result, the FAR Council reported that it

is very difficult to get competition for

these services where the Federal

Government imposes unique

requirements like those in the Service

Contract Act on the contractors. The

contractors will not change their way of

doing business to accommodate a

customer that represents a small portion

of their business. The FAR Council

stated that as the Government continues

to downsize, it must rely more and more

on commercial sources for these

services and it is critical that the Federal

Government has access to well-qualified

sources of supply for these types of

services.

LIUNA opposed this exemption

simply by commenting that the ‘‘FAR

Council nowhere states that it cannot

obtain these services or that any

contractor has refused to bid in these

categories of services.’’ No other

comments were directed specifically at

this service category. While LIUNA is

correct that the FAR Council did not

state that contractors had ‘‘refused to

bid,’’ the FAR Council did report that it

is very difficult to get competition for

these services. The Department does not

believe that LIUNA’s comment,

unsupported by factual statements as to

how the work is currently done or as to

how the Government could obtain the

services, is of sufficient weight to

counter the FAR Council’s

representations. Therefore the

exemption for real estate services is

retained in the final rule.

i. Relocation services. Employee

relocation services are available for

Federal employees or military personnel

and their families being transferred to

new duty stations anywhere within the

continental United States and Puerto

Rico. These contracts offer a multitude

of flexible services to customize a

solution that best meets the employee’s

needs. The contracts save time and

money and reduce stress by offering

Federal employees and military these

services: Home marketing assistance,

home sales services, destination area

services, management reporting

services, mortgage counseling, property

management services, and other related

services. The individual requirements

are typically relatively low dollar value

(under $25,000) and require that

services be performed in a variety of

different geographic locations.

Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Rules and Regulations 5335

Knowledge of the local real estate

market is required to perform the

services effectively. Therefore,

individual employees, particularly in

rural areas, spend a fraction of their

time working on Government contracts.

While the Federal Government’s use

of these services is significant, the FAR

Council stated that it represents a small

fraction of the transactions that flow

through the industry/commercial

sources. As a result, it is very difficult

to get competition for these services if

the Federal Government imposes unique

requirements like those in the Service

Contract Act on the contractors. The

contractors will not change their way of

doing business to accommodate a

customer that represents a small portion

of their business. The FAR Council

stated that it is in the Government’s

interest to maximize the availability of

these services to its personnel;

accordingly it is detrimental to the

Government’s interests when it is

unable to attract commercial sources as

providers of these services.

LIUNA opposed this exemption with

the same comments that it made relative

to real estate services. In this case also,

although the FAR Council did not state

that contractors had ‘‘refused to bid,’’

the FAR Council did report that it is

very difficult to get competition for

these services. LIUNA’s comment is not

sufficient to change the Department’s

preliminary conclusion in the NPRM

that the statutory criteria for exemption

have been met.

The American Moving and Storage

Association (AMSA) supported the

proposed exemption and stated that the

term ‘‘relocation services’’ should be

clarified to specifically include moving

and storage services. AMSA states that

its members have ‘‘usually performed

their services pursuant to FAR-exempt

rate tenders rather than contracts.

Formerly, the rates contained in tenders

were predicated upon published tariff

rates that were also filed with the

Interstate Commerce Commission.

Today, the rates and charges offered for

Federal Government service are

contained in published tariffs that must

be available for inspection * * * but are

not filed with a Federal regulatory

agency although the tariffs are filed with

contracting Government Agencies.’’

AMSA notes that the Department of

Defense has recently replaced rate

tenders with contracts subject to SCA

for several test relocation programs.

AMSA analyzes moving and storage

services to demonstrate how these

services meet all of the proposed

exemption criteria.

The application of the SCA section

7(3) exemption for transportation

services is not the subject to this

rulemaking. That exemption is

explained in § 4.118 and the Department

has not proposed any change to that

section. As indicated in that section, the

section 7(3) exemption has only had

application to services performed under

rate tenders. Even before deregulation,

DOD agencies had numerous contracts

for moving and storage services that

have always been subject to SCA. Since

deregulation, it is the Department’s

experience that even those previously

exempt tender services are now

performed pursuant to contracts subject

to SCA, rather than by tender

agreement, as evidenced by the DOD

test relocation contracts noted in the

AMSA comments.

When the Department proposed the

exemption for relocation services, it

never considered moving and storage

services within the scope of the

proposed exemption. None of the

services listed in the preamble to the

proposed rule—home marketing

assistance, home sales services,

destination area services, management

reporting services, mortgage counseling,

or property management services—is

similar to moving and storage services.

If the Department intended moving and

storage to be included within the scope

of this exemption, it certainly would

have listed moving and storage services

and not have included this dominant

aspect of the relocation within the

catch-all phrase ‘‘other related

services.’’

Based upon the comments and the

recommendation of the FAR Council,

the Department has concluded that the

statutory requirements for exemption

are met for the relocation services

described in the proposal. The final rule

will be clarified, however, to indicate

clearly that moving and storage services

are not within the scope of this

exemption.

j. Other Services. The preamble to the

proposal specifically solicited

comments regarding the listed services

and asked whether other services

should be added to that list. The

Department indicated that if sufficient

justification were received for any

additional service, it would issue a new

proposal to add the new service. As

noted in the discussion of relocation

services AMSA submitted comments

recommending that the definition of

relocation services be clarified to

specifically indicate that moving and

storage services would fall within the

scope of that exemption. As discussed

above, the Department never intended

moving and storage services to be a part

of relocation services and has not

adopted that recommendation. The

Department believes that the AMSA

comment is more appropriately

considered as a recommendation for the

addition of a new service to the list. In

that regard, while AMSA has submitted

comments to show how moving and

storage services typically meet the

proposed criteria, it has not

demonstrated that such an exemption is

‘‘necessary and proper in the public

interest or to avoid the serious

impairment of government business,

and is in accord with the remedial

purpose of [the] Act to protect

prevailing labor standards.’’

Accordingly, the Department is not

issuing a new proposal at this time to

add moving and storage services to the

list of exempt services.

CODSIA and CSA both comment that

the criteria should be applied to all

commercial services and should not be

limited to those services listed in the

proposal. CODSIA and CSA specifically

identify trash pickup, pest control, and

childcare as services for which an

exemption would be appropriate. As

with AMSA’s comments regarding

moving and storage services, however,

CODSIA and CSA have not provided a

more specific justification to

demonstrate that their recommended

expansion of the list of services (to

either all commercial services or the

three specified additional services)

meets the statutory requirements for

exemption, and the Department is not

issuing a new proposal at this time to

add these services to the list.

Finally, a clarifying revision has been

made to the introductory language to the

list of exempt services to make it clear

that the contract must be principally for

the listed service in order to be exempt.

2. Proposed Criteria

As explained above, the listed

services would only be exempt if

specified criteria were satisfied. The

recommended criteria were intended to

limit the exemption to those

procurements where the services being

procured are such that it would be more

efficient and practical for an offeror to

perform the services with a workforce

that is not primarily assigned to the

performance of government work. Thus,

contracts for base support services

where the work is performed by an onsite dedicated workforce would not

meet the exemption criteria. Similarly,

contracts where the services have been

performed by a dedicated group of

federal employees (A–76 procurements)

would be unlikely to meet the

exemption criterion that the workers

perform only a small part of their time

on the contract; however, the NPRM

explained that it is possible that some

5336 Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Rules and Regulations

subcontracts for a portion of those

services might meet the criteria for

exemption.

The criteria were designed to ensure

that the remedial purpose of the Act to

protect prevailing labor standards is

preserved. This would be accomplished

in two ways. First, the proposed

exemption would apply only when the

contract award is not determined

primarily upon the factor of cost.

Therefore, the contractor providing the

best service at a somewhat higher cost

would not be at a competitive

disadvantage. Second, the criteria

would limit the application of the

exemption to circumstances where the

nature of the procurement dictates that

the most efficient and practical

performance of the workload can be

accomplished with a workforce that is

not dedicated to working primarily on

the Government contract. Thus, the

competitive pressures upon employee

wages that might exist if the services

were performed by a workforce

dedicated to the Government contract

would not come into play on the

contracts within the scope of the

recommended exemption. Furthermore,

even if a contractor might be inclined

use a dedicated workforce or to reduce

wages to secure the Government

contract, the criteria would forbid that

practice.

Several comments were received

regarding the proposed criteria for

exemption. These comments will be

organized and analyzed based upon

each individual criterion.

(1) The services are commercial

services. The NPRM explained that a

basic underlying purpose of the

proposed exemption was to permit a

prospective contractor to utilize its

commercial compensation practices for

both Government and private

commercial work. If the prospective

contractor does not currently perform

the solicited services, then conforming

to the SCA requirements would not

cause the contractor to alter its

commercial compensation practices.

The AFL-CIO commented that this

criterion is easily met, covering virtually

all commercial contractors that do not

exclusively rely upon government

contracts. CODSIA commented, ‘‘if the

contracting officer is using FAR part 12,

then presumption should exist that the

service being solicited will be

COMMERCIAL.’’ CSA made comments

similar to CODSIA’s.

This criterion was not intended to be

limiting to any considerable extent. This

criterion is intended only to distinguish

services that are unique or specially

adapted for the government contract

from those that are not provided in the

commercial marketplace. The

Department agrees that services of the

type described in paragraph (f) of the

definition of ‘‘commercial item’’ at FAR

2.101 would meet the requirements of

this criterion; however, other aspects of

the definition of ‘‘commercial item’’ in

FAR 2.101 are not fully consistent with

all aspects of this proposed exemption.

Also, the definition in FAR 2.101 may

change in the future. Therefore, the

Department has not included any

reference to FAR parts 2, 10, or 12 in the

commercial service criterion, and the

final rule retains the language in the

proposal for this criterion.

(2) The prime or subcontract will be

awarded on a sole source basis or

primarily upon factors other than cost.

One of the basic purposes of the Service

Contract Act is to counteract the

negative impact that competition based

on price alone may have upon wages. If

a contract is awarded on a sole source

basis, there is no competition and price

is clearly not the basis for awarding the

contract. For the majority of other

contracts that are competitively

awarded, this criterion would attempt to

largely remove wages from

consideration by making quality of

service and other non-cost factors equal

to or more important than the bottomline price. If one assumes that the best

employees (contractors) are paid (pay)

higher wages, then this criterion would

allow these employees (contractors) to

compete on the basis of the employees’

increased productivity and higher

quality service. These employees/

contractors should not be disadvantaged

even though the employee wages and

possibly the resulting contract price are

somewhat higher than the lowest offer.

The AFL–CIO comments that ‘‘[e]ven

in best value contracting, price will

always play a critical and often decisive

role. . . If the Government truly wished

to obtain the best quality services at the

best cost, the better approach is for

agencies to fully maintain SCA rates,

and then use best value contracting to

hire the most qualified contractors that

offer the best price.’’

This criterion is not intended to imply

that all best value contracts should be

exempt from SCA. In fact, the opposite

is true and most best value service

contracts will remain subject to SCA.

This criterion is intended to operate in

conjunction with all of the other

criteria, and help to ensure that

prevailing wage and benefit rates are not

adversely affected by the application of

this exemption. This criterion is

retained without change in the final

rule.

(3) The services are furnished at

catalogue or market prices. This

criterion was designed to ensure that the

contractor will provide the services to

the Government on the same basis that

the contractor services commercial

accounts. Combined with the other

criteria, this requirement should ensure

that contractors do not decrease

employee compensation as a part of the

competitive contracting process.

The AFL–CIO commented that this

criterion differs from § 4.123(e)(1)(ii)(B)

because it contemplates that market

price information could also be

established by surveying firms in a

particular industry or market. This

additional sentence in the criterion

applicable to the new services was not

intended to imply that the market price

would or could be determined in a

manner different from the determination

of market price under

§ 4.123(e)(1)(ii)(B). To avoid any

confusion, however, this additional

sentence will be deleted from the

criterion in the final rule, and this

criterion will be consistent with the

language currently used in

§ 4.123(e)(1)(ii)(B).

(4) The service employees performing

the exempt services will spend only a

small portion of their time (a monthly

average of less than 20%) servicing the

government contract. The NPRM

explained that if the employees spend

only a small portion of their available

work hours on the Government contract,

the contractor would not likely be

willing to alter its compensation

practices simply to obtain the

Government contract. (Note: Criterion 5

would also specifically preclude any

such change in compensation practices.)

Furthermore, the criteria for exemption

would not be satisfied by rotating the

workforce and having different

employees work on the contract each

day of the week. In the Department’s

experience it would be extraordinary for

a contractor to staff a contract in this

manner. Therefore in such a case,

although each individual employee

would spend less than 20% of his/her

work hours on the Government contract,

a contracting officer or prime contractor

(in the case of a subcontract) could not

certify—as required by Criterion 6—that

all or nearly all offerors would staff the

contract with service employees who

spend only a small portion of their time

on the project.

This criterion generated considerable

comment on both sides of the issue.

CODSIA and CSA both strongly oppose

any type of hours restriction

whatsoever. CODSIA notes that several

of the proposed criteria have their

foundation in the current ADP

exemption, but it states that ‘‘the

Department has effectively eviscerated

Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Rules and Regulations 5337

the previous foundation by adding a

new qualification that requires a

potential commercial subcontractor to

perform the work without being able to

dedicate the company’s workforce in

excess of more that 20% of the service

worker’s annualized hours to the

government contract.’’ CODSIA further

states that ‘‘no commercial company

would execute a government

subcontract with the understanding

(and obligation) that its service workers

cannot be dedicated to the subcontract

until completion . . . [t]herefore, no

prudent company will seek to meet this

qualification and the SCA will apply.’’

CODSIA concludes that ‘‘SCA wages

should not be superimposed upon the

commercial market place due to an

artificial, ill-founded criterion,’’ and

‘‘the workforce requirement should be

eliminated.’’

CSA makes many of the same

comments as CODSIA but focuses those

comments on the application of the

criterion to subcontracts. CSA also

states ‘‘no commercial service

subcontractor will contract under an

obligation that clearly impairs the

efficient performance of its work.’’ CSA

concludes that ‘‘the 20% limitation

should be eliminated for commercial

service subcontractors.’’

On the other side of the issue, several

union commenters take the position that

the 20% criterion should be more

limiting. The AFL–CIO comments that

under the proposed rule a service

contract worker could spend virtually

all of his or her time performing work

that has been covered by SCA, but

receive no SCA protection. ‘‘[I]f a

contractor had numerous service

contracts with one or more government

agencies, and no employee spent more

that 19.9 percent of his or her time on

any one contract, the contractor could

be exempt from the SCA even if one or

more of its employees spent 99 percent

of his or her time on five separate

contracts, taken together.’’ The AFL–

CIO states that this criterion ‘‘would

encourage bid splitting by government

agencies and contractors to avoid SCA

coverage.’’ Therefore, it recommends

that § 4.123(e)(2)(ii)(D) require that

‘‘contractors treat the total time spent on

government contracts or subcontracts

cumulatively in calculating employee

time allocated to government contract

work.’’ Also, ‘‘[t]o further ensure that

contractors perform a significant

amount of government contract work

remain subject to the SCA,’’ AFL–CIO

recommends that ‘‘the Department

should also place a cap on the total

amount of time a contractor can devote

to government contracts and still be

eligible for the exemption.’’ AFL–CIO

suggests five percent as a reasonable

level. Finally, the AFL–CIO states that

‘‘[w]ithout recordkeeping requirements,

the contractor itself may not know if any

employee works a monthly average of

more than 20 percent of available hours

on an annualized basis on a government

contract or subcontract.’’ ‘‘To address

the exemptions’ failure to include

recordkeeping requirements,’’ the AFL–

CIO suggests that ‘‘the regulation define

a ‘small portion’ of a worker’s time as

‘no more than 20 percent in any one

month.’ ’’

The Department believes that these

comments overlook the primary purpose

of this criterion. The criterion is not

designed to dictate how the contractor

manages its workforce, but rather to

describe the nature of the services being

procured. The proposed criteria are

designed to complement each other and

to work as a whole. Therefore, each

individual criterion must be evaluated

within the context of the whole. In

evaluating this criterion, therefore, it is

important to remember that a

subsequent criterion requires that the

contracting officer (or the prime

contractor in the case of a subcontract)

determine in advance that all or nearly

all of the prospective contractors will

meet the criteria. Therefore, the 20

percent criterion should primarily serve

as a guide for the contracting officer in

evaluating the services to be procured.

A hypothetical example might illustrate

this point better. An agency is

contracting for routine maintenance on

a fleet of automobiles. The fleet is large

enough that the agency expects to have

at least five cars in the shop at all times.

In this example, a contractor could

clearly perform the government work

with a dedicated workforce. Because it

is therefore highly unlikely that all or

nearly all the bidders would perform the

contract in a way that would meet this

criterion, the contracting officer would

make the determination that the

exemption would not apply to this

procurement. The fact that a large repair

shop could divide the work and ensure

that none of its mechanics spends more

than 20 percent of his or her time (on

an annualized monthly basis) servicing

the government vehicles would not alter

the determination that SCA applies to

this contract. An example of an exempt

vehicle maintenance contract would be

one where the government’s fleet is

relatively small or dispersed so that it is

not likely that more than one or two

vehicles per month will be serviced by

one facility. In this case, the mechanics

for all or nearly all of the offerors would

clearly spend less than 20 percent of

their time servicing the government

vehicles. The contractor’s certification

that its employees will not spend more

than 20 percent of their time servicing

the government vehicles is largely a

confirmation that the contracting

officer’s evaluation of the nature of the

contract work was correct.

Because the contracting officer should

have already determined that all or

nearly all offerors would meet this

criterion, no contractor should be

required to restructure its workforce to

comply with the 20 percent limitation.

Furthermore, the limitation requires

employees to spend no more than 20

percent of their hours on the contract on

an annualized basis, thereby permitting

longer hours where required by the

interim exigencies of the contract or to

accommodate short-term workforce

fluctuations. Therefore, the underlying

basis for the CODSIA and CSA

recommendation to delete this criterion

should not exist. If a contractor could

perform the services with a dedicated

workforce, then the contracting officer

should not consider the exemption to be

applicable.

Further, with respect to the AFL–

CIO’s recommendation that the 20

percent limitation be based upon all

government work and not just the

contract in question, this is a question

for which the contracting office would

not have direct knowledge, and is

something that would change from one

contractor to the next. If the AFL–CIO’s

recommendation were adopted, one

company might be exempt because it

only had one government contract

whereas another would be subject to

SCA because it had numerous contracts.

This would convert the determination

on application of the exemption from

one based upon the overall

requirements of the contract to a

determination based upon the

individual contractor’s workforce

utilization. The Department does not

intend this exemption to permit the

situation where an exempt contractor

would compete against a nonexempt

contractor, and we have not adopted the

AFL–CIO recommendation. Similarly,

we have not adopted the AFL–CIO

recommendation to limit the overall

amount of Government work that an

exempt contractor would be allowed to

perform.

Finally, the Department has not

adopted the AFL–CIO’s

recommendation to apply the 20 percent

limitation on a month-by-month basis

rather than an annualized monthly

average. As already explained, this

criterion was established primarily to

describe the nature of the exempt

services. In the automotive maintenance

example described previously, the

5338 Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Rules and Regulations

Department does not believe that the

exemption should be denied simply

because in one month the agency’s

entire fleet of twenty vehicles needs

servicing and for the remainder of the

year no more than one car per month is

in the shop. While the contracting

officer should have informed knowledge

about the amount of work anticipated

over a normal year period, the

contracting officer may not always be

able to predict when repairs will be

needed. The application of the

exemption should not be impacted by

unexpected fluctuations in service

needs as long as the overall nature of the

contract is not changed. Accordingly,

the Department has not changed this

annualized monthly average concept.

The criterion is adopted with a minor

wording change to make it clear that the

20% limitation applies on an employeeby-employee basis, rather than an

average of all of the employees working

on the contract.

(5) The contractor utilizes the same

compensation plan for both contract

and commercial work. This criterion

would ensure that the employees

servicing the government contract will

be compensated exactly as they would

be if they were servicing a commercial

account. Thus, the prevailing labor

standards for private work would not be

impacted in any way by the award of

the Government contract. Furthermore,

because contract award is not

determined primarily on the basis of

cost (Criterion 2), the contractor paying

the lowest wages would not have a

competitive advantage over other

employers who pay average or above

average wages. These contractors would

compete for the Government work on

the same basis that they compete for

private work—quality of service and

overall value.

The AFL–CIO and LIUNA commented

that the Department improperly

substituted the term ‘‘equivalent

commercial wage’’ for the statutory term

‘‘prevailing.’’ The AFL–CIO

recommended that this criterion be

changed to require that the contractor’s

compensation plan be not less than the

SCA wages and benefits. If this

recommendation were adopted, the

exemption would serve no purpose. If

the contractor is already paying SCA

rates then it should not matter whether

SCA is applied to the contract. This

comment, however, also goes to the

issue of whether the exemption is ‘‘in

accord with the remedial purpose of the

Act to protect prevailing labor

standards.’’ The Department believes

that the criteria as a whole achieve this

goal. If the employer does not change its

pay practices to obtain the Government

contract, prevailing wages should not be

affected. Furthermore, an employer

would be unlikely to change its pay

practices in any event where no worker

spends more than 20% of his or her

time on the Government contract. In

addition, the criteria limit the

application of the exemption to

situations where employee wages are

not a primary factor in deciding which

company is awarded the contract. Thus,

the Government contract should not

serve to either increase or decrease

prevailing labor standards. This

recommendation, therefore, is not

adopted, and the criterion is retained in

the final rule as proposed.

(6) The contracting officer determines

in advance that all or nearly all of the

offerors will meet the requirements of

the criteria. This requirement was

designed to ensure that all contractors

compete on an equal basis, and that a

contractor subject to SCA would not be

forced to compete against a contractor

that would be exempt from SCA.

Furthermore, as noted in the discussion

of Criterion 4, this requirement—which

takes into consideration not only the

practices of likely offerors but also the

nature of the contract requirements—is

a necessary safeguard to prevent

individual offerors from juggling staffing

patterns simply in an effort to avoid

SCA coverage. This criterion also would

serve to protect those employees (either

contractor or Federal employees) who

might currently be engaged in

performing the solicited services on a

full-time basis.

The AFL–CIO noted that this criterion

is designed to ensure that all contractors

compete on an equal basis. The AFL–

CIO questions whether the criterion

accomplishes this goal since it only

requires that all or ‘‘nearly all’’ of the

offerors meet the requirements of the

other criteria. The AFL–CIO suggests

that this standard be changed to require

that all offerors meet the requirements.

The Department’s intention is that a

contracting officer would not make this

determination unless he or she has a

high degree of confidence that all

offerors will meet the requirements. It is

unlikely that any contracting officer

would feel able to determine absolutely

that every offeror will qualify for the

exemption. The ‘‘or nearly all’’ language

therefore would permit the

extraordinary situation where one

bidder might not qualify as exempt.

Returning to the automotive

maintenance example described

previously, an employer with a single

employee and a relatively small number

of commercial customers could bid on

the contract to maintain on average a

few vehicles a month. With that small

volume of government work, the

workforce for ‘‘nearly all’’ prospective

contractors would spend less than 20

percent of their time working on the

contract. The single employee working

for a company with relatively few

commercial accounts, however, might

spend more than 20 percent of his or her

time performing work on the contract.

While this company’s offer might be

rejected for other reasons (e.g., the

contract might require a capacity to

service more than one vehicle at a

time—a capacity that the two-person

shop might not possess), the fact that

one non-exempt contractor might bid on

the contract should not negate the

application of the exemption to

everyone else. The Department believes

that retaining some amount of flexibility

in this regard is appropriate, and the

criterion is retained.

The Department would like to

emphasize that ‘‘nearly all’’ does not

mean most or a majority. The words

‘‘nearly all’’ are intended to recognize

the possibility of exceptional

circumstances where an individual

offeror might not meet all of the criteria.

If this offeror receives the contract, of

course, the contract would be subject to

SCA prevailing wage requirements. On

the other hand, the Department realizes

that there may be circumstances where,

once bids are received, the contracting

officer determines that he or she was

incorrect in the determination that all or

nearly all bidders would meet the

exemption requirements. The regulation

has therefore been revised to provide

that in such circumstances SCA will

apply to the procurement.

(7) The exempted contractor or

subcontractor certifies to the provisions

of criteria (1) and (3) through (5). This

criterion would provide a mechanism

for addressing and correcting situations

where the exemption may have been

misapplied. If the Department of Labor,

in its enforcement, determines that the

contract is not in fact exempt, it would

require that SCA stipulations be

included in the contract. In the case of

a subcontract, the prime contractor, who

in almost all cases would have SCA

stipulations already included in its

contract, would be ultimately

responsible for compliance with the

requirements of the Act. The

Department could therefore require that

the SCA requirements be effective as of

the date of contract award. The

Department noted in the NPRM that an

exempt contractor or subcontractor

would not be required to keep any

particular records to meet its burden of

showing that the criteria are satisfied.

CODSIA and CSA both comment that

this was an unauthorized certification

Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Rules and Regulations 5339

requirement. They note that section

4301 of the Clinger-Cohen Act of 1996

(Pub. L. 104–106) prohibits the

imposition of contractor and

subcontractor certification requirements

in the Federal Acquisition Regulations

unless the certification is required by

statute or justified in writing and

approved by the FAR Council and the

Administrator of the Office of Federal

Procurement Policy (OFPP). While

CODSIA and CSA correctly identify the

procedural requirements for approval of

these certifications, the Department

does not consider this to be a

substantive deficiency since the FAR

Council and the Administrator of OFPP

recommended the certifications. The

Department notes that no contracting

officer can be expected to know whether

individual contractors in fact satisfy the

exemption. Therefore the Department

considers certification essential to

ensure that the criteria for the

exemption have been met. The FAR

Council has now made the required

justification, and it has been approved

by the Administrator of OFPP. Therefore

the certification requirement is retained,

and modified to make it clear that a

certification by a prime contractor that

it meets the criteria also constitutes a

certification that if it subcontracts the

services, the subcontractor in turn will

meet the criteria.

CSA also ‘‘recommends that the

Department adopt the same policy that

accompanies the Buy America Act

(BAA) certification. Under the BAA

policy, the contracting officer is

permitted to accept the contractor’s selfcertification.’’ In considering this

comment the Department notes that the

contracting officer or the prime

contractor has already reviewed the

requirements of the proposed contract/

subcontract and has determined that all

or nearly all of the offerors will meet the

criteria. Therefore, the contracting

officer or prime contractor should have

no reason to question the contractor/

subcontractor’s certification.

Accordingly, the Department has

concluded that it is not necessary for the

contracting officer or prime contractor

to review the contractor/subcontractor’s

certification and this requirement has

been deleted from the final rule. The

fact that the requirement for review has

been eliminated, however, does not

mean that the contracting officer or

prime contractor may not review the

certification if they choose to do so,

such as where they possess information

which causes them to question the

validity of the certification. Further, if it

is determined that the certification is

not correct, then the contracting officer

or the prime contractor should not

proceed with award of an exempt

contract or subcontract. Because the

contracting officer will no longer be

required to review the certification in

advance, the Department has also

amended the regulation to delete the

language applying SCA as of the date of

the Department’s determination. As

provided in § 4.5(c)(2) of the

regulations, the Department may require

retroactive application of the SCA

where it determines it is appropriate

under the circumstances.

The AFL–CIO, while not opposing the

criterion, commented that in the

absence of a formal monitoring system,

it is unlikely that any misapplication of

the exemption would ever be identified.

The Department shares the AFL–CIO’s

concern that this exemption not be

misapplied. Certainly, the Department

expects that contracting agencies and

prime contractors would exercise their

responsibilities to ensure that such

misapplication is minimized. At the

same time, the Department recognizes

that mistakes may be made; however,

the Department does not believe that the

mere possibility of a mistake should

preclude adopting an exemption that is

otherwise justified. The Department will

monitor allegations of abuse to

determine whether future changes in

this exemption are warranted.

3. Other Issues

Several commenters raised additional

issues that were not specifically related

or limited to a single aspect of the

proposed exemptions. Those issues are

addressed separately in this section.

Several union commenters, including

the AFL–CIO and LIUNA,

recommended that the exclusion for

contracts subject to the provisions of

section 4(c) of SCA be expanded to

include ‘‘resolicitations and other

successor contracts for substantially the

same services.’’ They also recommended

that this limitation be added to contracts

under the current ADP exemption. The

Department agrees that the regulation

should be revised to make it clear that

the exemption does not apply to any

contract which is subject to section 4(c),

as well as all options exercised and

extensions of the contract. The

Department does not believe, however,

that there is sufficient justification to

extend this limitation to all future

resolicitations for substantially the same

services, where the predecessor contract

was not subject to section 4(c). In

addition, the Department does not

believe sufficient justification has been

presented to add this requirement to the

existing ADP exemption. This

exemption has been in existence for

nearly twenty years and the Department

is not aware of any problems arising

from the absence of this requirement.

Several union commenters

recommended that the Department

promulgate a new procedure under

which the contracting agency is

required to demonstrate in advance of

issuing the solicitation that the section

4(d) requirements are satisfied for a

proposed exemption of a particular

contract or subcontract. This

recommendation is consistent with

other union comments that the

contracting officers and prime

contractors should not be delegated the

responsibility to decide whether a

contractor is exempt from SCA

coverage. The purpose of the proposed

exemptions, however, is to carefully

describe a class of contracts where

exemption from SCA is appropriate.

Every day contracting officers decide

whether SCA should be applied to a

particular contract, and the decisions

required to be made in this case are no

different. The Department does not

believe that case-by-case determination

is necessary where, as in the instant

situation, the record supports an

exemption for a particular class of

contracts.

4. Conclusion

For the reasons discussed above, the

Department has concluded that the

exemptions as set forth in this rule are

necessary and proper in the public

interest or to avoid serious impairment

of Government business, and are in

according with the remedial purpose of

the Service Contract Act to protect

prevailing labor standards. The list of

services is narrowly tailored to include

only commercial services which the

Government has had difficulty in

acquiring or where the Government is

getting limited competition because of

unique requirements imposed by the

Government. The additional criteria,

when viewed as a whole, are designed

to ensure that the contractor will not be

motivated to change its wage practices

and pay less than the prevailing wage in

order to obtain the Government

contract, and that the Government in

turn will not be motivated to award

contracts to offerors who pay less than

prevailing wages.

IV. 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 and make available

for public comment and initial

regulatory flexibility analysis that

describes the anticipated impact of

5340 Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Rules and Regulations

1The State of Small Business: A Report of the

President, 1996 (1997).

proposed rules on small entities. The

Department received no comments

regarding the Regulatory Flexibility

Analysis prepared for this rule.

(1) The Need for and Objectives of the

Rule

This rule was made at the request of

the Administrator for Federal

Procurement Policy, OFPP, in her letter

of May 12, 1999. The Administrator, on

behalf of the FAR Council, stated that

the exemption ‘‘will further the

commitment of the Administration to be

more commercial-like, encourage

broader participation in government

procurement by companies doing

business in the commercial sector, and

reinforce our commitment to reduce

government-unique terms and

conditions from our contracts. We

believe that all of this can be

accomplished without compromising

the purpose of the SCA to protect

prevailing labor standards.’’ The FAR

Council developed a short list of

services to which it believed an

exemption should apply in the best

interest of the Government and to avoid

impairment to Government business.

Pursuant to section (4)(b) of SCA, the

Secretary of Labor may grant reasonable

exemptions to the provisions of the Act,

but only in special circumstances where

the ‘‘exemption is necessary and proper

in the public interest or to avoid the

serious impairment of government

business, and is in accord with the

remedial purpose of this Act to protect

prevailing labor standards.’’

After a review of the comments and

the representations of the FAR Council,

the Department of Labor determined

that the exemption, as revised based

upon the public comments, will be both

‘‘necessary and proper in the public

interest’’ and will also be ‘‘in accord

with the remedial purpose of th[e] Act

to protect prevailing labor standards.’’

(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 proposed

exemptions. Those comments are

discussed in detail in the preamble to

this rule. The Department did not

receive separate comments concerning

its 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. The types of services covered by

the proposed exemptions span a variety

of industries. Based upon analyses done

by the U.S. Small Business

Administration, Office of Advocacy,

some of the industries affected by the

proposed exemptions are characterized

as ‘‘large-business-dominated

industries’’ (e.g., air transportation and

business credit institutions) and others

are characterized as ‘‘small-businessdominated industries’’ (e.g., automotive

repair and real estate).1 Thus, at least

some of the services covered by the

exemption would be performed

primarily by small businesses. In fact,

with the exception of those contracts for

financial services involving the issuance

and servicing of cards, the contracts for

the transportation of persons, and

contracts with equipment

manufacturers, it would appear that a

majority of the contracts affected by the

proposed exemption likely would be

performed by small businesses.

It is also difficult to determine with

precision the value of Federal contracts

that would be affected by the

exemption. Federal Procurement Data

System (FPDS) compiles and reports

information on approximately 500,000

annual transactions exceeding $25,000;

however, as discussed above, many of

the contracts covered by the exemption

(e.g., food and lodging contracts for

conferences) are currently or would

likely be less that $25,000. Also, the

criteria that must be met for the

specified services to be within the scope

of the exemption will limit the

application of the exemptions to a

relatively small subset of contracts

within a specific SIC code. Thus, FPDS

data does not provide an accurate

estimate of the contracts potentially

covered by the exemption. Nevertheless,

in view of the limiting criteria for the

listed services, the total value of the

exempt contracts should be relatively

small, and it is believed that the SCA

would no longer apply to only a

relatively small number of contracts that

currently contain SCA wage

determination provisions.

(4) Reporting, Recordkeeping and Other

Compliance Requirements of the Rule

The exemption does not impose any

new reporting or recordkeeping

requirements. Although offerors are

required to certify that the criteria for

exemption are met, offerors are not

required to maintain records to support

the certification. The certification,

which can be submitted as part of the

bid package, is an important element to

satisfy the statutory requirement that

exemptions be ‘‘in accordance with the

remedial purpose of the Act to protect

prevailing labor standards.’’ Contractors

and subcontractors to whom the

exemption applies will not be required

to comply with the wage and reporting

requirements of the SCA.

(5) Description of the Steps Taken To

Minimize the Significant Economic

Impact on Small Entities Consistent

With the Objectives of the Service

Contract Act

The exemption does not contain any

new reporting, recordkeeping, or other

compliance requirements applicable to

small business. Rather, the exemption

would relieve small businesses and

other contractors from the requirements

of the SCA on certain contracts where

the contractor certifies that the

requirements of the exemption have

been met. Furthermore, any contractor

performing on a contract within the

scope of the exemption may elect to

perform the contract under the

requirements of SCA rather than make

the necessary certifications. Because

application of the exemption will have

been determined in advance by the

contracting officer, the Department

anticipates that questions regarding

proper application of the exemption

will be rare. Contractors will not be

required to maintain any records to

support the exemption, although they

may be required to furnish payroll and

other existing records to the Department

in the event of an investigation.

V. Executive Order 12866 and 13132;

Section 202 of the Unfunded Mandates

Reform Act of 1995; Small Business

Regulatory Enforcement Fairness Act

This rule is being treated as a

‘‘significant regulatory action’’ within

the meaning of Executive Order 12866

because of the significant impact of this

rule on other agencies. Therefore, the

Office of Management and Budget has

reviewed the rule. However, the

Department concurs with the view of

the Federal Acquisition Regulatory

Council that this rule is not

‘‘economically significant’’ as defined in

section 3(f)(1) of E.O. 12866, and

therefore it does not require a full

economic impact analysis under section

6(a)(3)(C) of the Order. Under the new

exemption, contracts would not be

exempt unless price is equal to or less

important than the combination of other

non-price or cost factors in selecting the

Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Rules and Regulations 5341

contractor. Therefore it is not

anticipated that the changed rule will

have an annual effect on the economy

of $100 million or more or adversely

affect in a material way the economy, a

sector of the economy, productivity,

jobs, the environment, public health or

safety, or State, local, or tribal

governments or communities.

The Department has similarly

concluded that this rule is not a ‘‘major

rule’’ requiring approval by the

Congress under the Small Business

Regulatory Enforcement Fairness Act of

1996 (5 U.S.C. 801 et seq.). It will not

likely result in (1) an annual effect on

the economy of $100 million or more;

(2) a major increase in costs or prices for

consumers, individual industries,

Federal, State or local government

agencies, or geographic regions; or (3)

significant adverse effects on

competition, employment, investment,

productivity, innovation, or on the

ability of U.S.-based enterprises to

compete with foreign-based enterprises

in domestic or export markets.

For purposes of the Unfunded

Mandates Reform Act of 1995, this rule

does not include any federal mandate

that may result in excess of $100 million

in expenditures by state, local and tribal

governments in the aggregate, or by the

private sector. Furthermore, the

requirements of the Unfunded Mandates

Reform Act, 2 U.S.C. 1532, do not apply

here because the rule does not include

a ‘‘Federal mandate.’’ The term ‘‘Federal

mandate’’ is defined to include either a

‘‘Federal intergovernmental mandate’’

or a ‘‘Federal private sector mandate.’’ 2

U.S.C. 658(6). Except in limited

circumstances not applicable here, those

terms do not include an enforceable

duty which is ‘‘a duty arising from

participation in a voluntary program.’’ 2

U.S.C. 658(7)(A). A decision by a

contractor to bid on Federal service

contracts is purely voluntary in nature,

and the contractor’s duty to meet

Service Contract Act requirements arises

‘‘from participation in a voluntary

Federal program.’’

The Department has also reviewed

this rule in accordance with Executive

Order 13132 regarding federalism, and

has determined that it does not have

‘‘federalism implications.’’ The rule

does not ‘‘have substantial direct effects

on the States, on the relationship

between the national government and

the States, or on the distribution of

power and responsibilities among the

various levels of government.’’

VI. Document Preparation

This document was prepared under

the direction and control of Thomas M.

Markey, Deputy Administrator, Wage

and Hour Division, Employment

Standards Administration, U.S.

Department of Labor.

List of Subjects in 29 CFR Part 4

Administrative practice and

procedures, Employee benefit plans,

Government contracts, Investigations,

Labor, Law enforcement, Minimum

wages, Penalties, Recordkeeping

requirements, Reporting requirements,

wages.

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 is

revised to read as follows:

Authority: 41 U.S.C. 351 et seq.; 41 U.S.C.

38 and 39; 5 U.S.C. 301.

2. Section 4.123(e) is revised to read

as follows:

§ 4.123 Administrative limitations,

variances, tolerances , and exemptions.

* * * * *

(e) The following types of contracts

have been exempted from all the

provisions of the Service Contract Act of

1965, pursuant to section 4(b) of the

Act, which exemptions the Secretary of

Labor found are necessary and proper in

the public interest or to avoid serious

impairment of the conduct of

Government business, and are in accord

with the remedial purpose of the Act to

protect prevailing labor standards:

(1)(i) Prime contracts or subcontracts

principally for the maintenance,

calibration, and/or repair of:

(A) Automated data processing

equipment and office information/word

processing systems;

(B) Scientific equipment and medical

apparatus or equipment where the

application of microelectronic circuitry

or other technology of at least similar

sophistication is an essential element

(for example, Federal Supply

Classification (FSC) Group 65, Class

6515, ‘‘Medical Diagnostic Equipment’’;

Class 6525, ‘‘X-Ray Equipment’’; FSC

Group 66, Class 6630, ‘‘Chemical

Analysis Instruments’’; Class 6665,

‘‘Geographical and Astronomical

Instruments’’, are largely composed of

the types of equipment exempted under

this paragraph);

(C) Office/business machines not

otherwise exempt pursuant to paragraph

(e)(1)(i)(A) of this section, where such

services are performed by the

manufacturer or supplier of the

equipment.

(ii) The exemptions set forth in this

paragraph (e)(1) shall apply only under

the following circumstances:

(A) The items of equipment are

commercial items which are used

regularly for other than Government

purposes, and are sold or traded by the

contractor (or subcontractor in the case

of an exempt subcontract) in substantial

quantities to the general public in the

course of normal business operations;

(B) The prime contract or subcontract

services are furnished at prices which

are, or are based on, established catalog

or market prices for the maintenance,

calibration, and/or repair of such

commercial items. An ‘‘established

catalog price’’ is a price included in a

catalog, price list, schedule, or other

form that is regularly maintained by the

manufacturer or the contractor, is either

published or otherwise available for

inspection by customers, and states

prices at which sales currently, or were

last, made to a significant number of

buyers constituting the general public.

An ‘‘established market price’’ is a

current price, established in the usual

course of trade between buyers and

sellers free to bargain, which can be

substantiated from sources independent

of the manufacturer or contractor; and

(C) The contractor utilizes the same

compensation (wage and fringe benefits)

plan for all service employees

performing work under the contract as

the contractor uses for these employees

and equivalent employees servicing the

same equipment of commercial

customers;

(D) The contractor certifies to the

provisions in this paragraph (e)(1)(ii).

Certification by the prime contractor as

to its compliance with respect to the

prime contract also constitutes its

certification as to compliance by its

subcontractor if it subcontracts out the

exempt services. The certification shall

be included in the prime contract or

subcontract.

(iii)(A) Determinations of the

applicability of this exemption to prime

contracts shall be made in the first

instance by the contracting officer on or

before contract award. In making a

judgment that the exemption applies,

the contracting officer shall consider all

factors and make an affirmative

determination that all of the conditions

in paragraph (e)(1) of this section have

been met.

(B) Determinations of the applicability

of this exemption to subcontracts shall

be made by the prime contractor on or

before subcontract award. In making a

judgment that the exemption applies,

the prime contractor shall consider all

factors and make an affirmative

determination that all of the conditions

in paragraph (e)(1) have been met.

(iv)(A) If the Administrator

determines after award of the prime

5342 Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Rules and Regulations

contract that any of the requirements in

paragraph (e)(1) for exemption has not

been met, the exemption will be deemed

inapplicable, and the contract shall

become subject to the Service Contract

Act, effective as of the date of the

Administrator’s determination. In such

case, the corrective procedures in

§ 4.5(c)(2) shall be followed.

(B) The prime contractor is

responsible for compliance with the

requirements of the Service Contract Act

by its subcontractors, including

compliance with all of the requirements

of this exemption (see § 4.114(b)). If the

Administrator determines that any of

the requirements in paragraph (e)(1) for

exemption has not been met with

respect to a subcontract, the exemption

will be deemed inapplicable, and the

prime contractor may be responsible for

compliance with the Act effective as of

the date of contract award.

(2)(i) Prime contracts or subcontracts

principally for the following services

where the services under the contract or

subcontract meet all of the criteria set

forth in paragraph (e)(2)(ii) of this

section and are not excluded by

paragraph (e)(2)(iii):

(A) Automobile or other vehicle (e.g.,

aircraft) maintenance services (other

than contracts to operate a Government

motor pool or similar facility);

(B) Financial services involving the

issuance and servicing of cards

(including credit cards, debit cards,

purchase cards, smart cards, and similar

card services);

(C) Contracts with hotels/motels for

conferences, including lodging and/or

meals which are part of the contract for

the conference (which shall not include

ongoing contracts for lodging on an as

needed or continuing basis);

(D) Maintenance, calibration, repair

and/or installation (where the

installation is not subject to the DavisBacon Act, as provided in § 4.116(c)(2))

services for all types of equipment

where the services are obtained from the

manufacturer or supplier of the

equipment under a contract awarded on

a sole source basis;

(E) Transportation by common carrier

of persons by air, motor vehicle, rail, or

marine vessel on regularly scheduled

routes or via standard commercial

services (not including charter services);

(F) Real estate services, including real

property appraisal services, related to

housing federal agencies or disposing of

real property owned by the Federal

Government; and

(G) Relocation services, including

services of real estate brokers and

appraisers, to assist federal employees

or military personnel in buying and

selling homes (which shall not include

actual moving or storage of household

goods and related services).

(ii) The exemption set forth in this

paragraph (e)(2) shall apply to the

services listed in paragraph (e)(2)(i) only

when all of the following criteria are

met:

(A) The services under the prime

contract or subcontract are

commercial—i.e., they are offered and

sold regularly to non-Governmental

customers, and are provided by the

contractor (or subcontractor in the case

of an exempt subcontract) to the general

public in substantial quantities in the

course of normal business operations.

(B) The prime contract or subcontract

will be awarded on a sole source basis

or the contractor or subcontractor will

be selected for award on the basis of

other factors in addition to price. In

such cases, price must be equal to or

less important than the combination of

other non-price or cost factors in

selecting the contractor.

(C) The prime contract or subcontract

services are furnished at prices which

are, or are based on, established catalog

or market prices. An established price is

a price included in a catalog, price list,

schedule, or other form that is regularly

maintained by the contractor or

subcontractor, is either published or

otherwise available for inspection by

customers, and states prices at which

sales are currently, or were last, made to

a significant number of buyers

constituting the general public. An

established market price is a current

price, established in the usual course of

trade between buyers and sellers free to

bargain, which can be substantiated

from sources independent of the

manufacturer or contractor.

(D) Each service employee who will

perform services under the Government

contract or subcontract will spend only

a small portion of his or her time (a

monthly average of less than 20 percent

of the available hours on an annualized

basis, or less than 20 percent of

available hours during the contract

period if the contract period is less than

a month) servicing the government

contract or subcontract.

(E) The contractor utilizes the same

compensation (wage and fringe benefits)

plan for all service employees

performing work under the contract or

subcontract as the contractor uses for

these employees and for equivalent

employees servicing commercial

customers.

(F) The contracting officer (or prime

contractor with respect to a subcontract)

determines in advance, based on the

nature of the contract requirements and

knowledge of the practices of likely

offerors, that all or nearly all offerors

will meet the requirements in paragraph

(e)(2)(ii) of this section. Where the

services are currently being performed

under contract, the contracting officer or

prime contractor shall consider the

practices of the existing contractor in

making a determination regarding the

requirements in paragraph (e)(2)(ii). If

upon receipt of offers, the contracting

officer finds that he or she did not

correctly determine that all or nearly all

offerors would meet the requirements,

the Service Contract Act shall apply to

the procurement, even if the successful

offeror has certified in accordance with

paragraph (e)(2)(ii)(G) of this section.

(G) The contractor certifies in the

prime contract or subcontract, as

applicable, to the provisions in

paragraph (e)(2)(ii)(A) and (C) through

(E) of this section. Certification by the

prime contractor as to its compliance

with respect to the prime contract also

constitutes its certification as to

compliance by its subcontractor if it

subcontracts out the exempt services. If

the contracting officer or prime

contractor has reason to doubt the

validity of the certification, SCA

stipulations shall be included in the

prime contract or subcontract.

(iii)(A) If the Administrator

determines after award of the prime

contract that any of the requirements in

paragraph (e)(2) for exemption has not

been met, the exemption will be deemed

inapplicable, and the contract shall

become subject to the Service Contract

Act. In such case, the corrective

procedures in § 4.5(c)(2) shall be

followed.

(B) The prime contractor is

responsible for compliance with the

requirements of the Service Contract Act

by its subcontractors, including

compliance with all of the requirements

of this exemption (see § 4.114(b)). If the

Department of Labor determines that

any of the requirements in paragraph

(e)(2) for exemption has not been met

with respect to a subcontract, the

exemption will be deemed inapplicable,

and the prime contractor may be

responsible for compliance with the

Act, as of the date of contract award.

(iv) The exemption set forth in this

paragraph (e)(2) does not apply to

solicitations and contracts:

(A) Entered into under the JavitsWagner-O’Day Act, 41 U.S.C. 47;

(B) For the operation of a Government

facility or portion thereof (but may be

applicable to subcontracts for services

set forth in paragraph (e)(2)(ii) that meet

all of the criteria of paragraph (e)(2)(ii));

or

(C) Subject to section 4(c) of the

Service Contract Act, as well as any

Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Rules and Regulations 5343

options or extensions under such

contract.

Signed at Washington, DC, on this 11th day

of January, 2001.

T. Michael Kerr,

Administrator, Wage and Hour Division.

[FR Doc. 01–1337 Filed 1–17–01; 8:45 am]

BILLING CODE 4510–27–P