[Federal Register Volume 66, Number 12 (Thursday, January 18, 2001)]
[Rules and Regulations]
[Pages 5328-5343]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1337]



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Part X





Department of Labor





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Office of the Secretary



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29 CFR Part 4



Service Contract Act; Labor Standards for Federal Service Contracts; 
Final Rule

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

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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.

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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 commercial-like, 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

[[Page 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

[[Page 5330]]

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

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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 non-
government 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

[[Page 5332]]

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 one-time 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 non-application 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

[[Page 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 computer-operated 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

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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 re-negotiation, 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.

[[Page 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 Sec. 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 
on-site 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

[[Page 5336]]

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 
bottom-line 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 
Sec. 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 Sec. 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 
Sec. 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

[[Page 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 
Sec. 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

[[Page 5338]]

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 employee-by-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

[[Page 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 
self-certification.'' 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 Sec. 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

[[Page 5340]]

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-business-dominated 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.
---------------------------------------------------------------------------

    \1\ The State of Small Business: A Report of the President, 1996 
(1997).
---------------------------------------------------------------------------

    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

[[Page 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:


Sec. 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

[[Page 5342]]

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 Sec. 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 Sec. 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 Davis-Bacon Act, as provided in 
Sec. 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 Sec. 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 Sec. 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 Javits-Wagner-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

[[Page 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