19770 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules

1The prevailing wage and fringe benefit

determination scheme provided by sections 2 (a)(1)

and 2(a)(2) of the Act was modified by amendments

to the Act in 1972. As a result of a new § 2(a)(5),

the Department, in making prevailing

determinations, is also required to give due

consideration to the rates that would be paid to the

various classes of service employees if directly

hired by the Federal agency. In addition, prevailing

determinations are not applicable where the

employees of a predecessor contractor are covered

by a collective bargaining agreement. In such cases,

collectively bargained wages and fringe benefits are

specified in determinations pursuant to section 4(c)

of the Act.

2Option periods are deemed wholly new

contracts for wage determination purposes and

must include new or updated wage determinations

(see 29 CFR 4.145).

3Experience with this general practice underlies

Executive Order 12933, signed by President Clinton

on October 20, 1994. While successor contractors

on service contracts for the maintenance of public

buildings typically hire the majority of the

predecessor’s employees, the executive order seeks

to minimize the disruption in services that

otherwise would occur if a successor contractor

hires a totally new work force. The executive order,

among other things, requires solicitations for

building service contracts for public buildings to

include a clause that requires the successor

contractor to offer certain employees of the

predecessor a right of first refusal to employment

on the new, follow-on contract.

DEPARTMENT OF LABOR

Employment Standards Administration

Wage and Hour Division

29 CFR Part 4

RIN 1215–AA78

Service Contract Act; Labor Standards

for Federal Service Contracts

AGENCY: Wage and Hour Division,

Employment Standards Administration,

Labor.

ACTION: Notice of proposed rulemaking;

request for comments.

SUMMARY: The Department of Labor

(DOL or the Department) is proposing

alternative approaches for procedures to

establish minimum health and welfare

benefits requirements in the regulations

issued under the McNamara-O’Hara

Service Contract Act (SCA). Pursuant to

§ 4(b) of the SCA, a variance from the

SCA’s locality and occupational

requirements for determining prevailing

health and welfare fringe benefits is also

proposed to reflect the limitations of

available fringe benefit data. Comments

are also requested on revisions to

timeframes for section 4(c) substantial

variance proceedings.

The United States District Court for

the District of Columbia has set a

deadline for the Department of July 31,

1996, to complete this rulemaking

process. SEIU v. Reich, CA No. 91–0605

(D.D.C. January 29, 1996). To aid in the

selection of the most appropriate

methodology, the Department is in the

process of developing data on the

occupational mix of service contract

employees. This data will help provide

a basis for the regulatory impact

analysis. Due to the time constraints

imposed by the district court, however,

it is not feasible to publish the impact

analysis for comment with the proposed

rule. Instead, the analysis will be

published as soon as possible for

comment. Comments on the analysis

will be reviewed prior to promulgation

of a final rule.

DATES: Comments are due on or before

July 1, 1996.

ADDRESSES: Submit written comments

to Maria Echaveste, Administrator,

Wage and Hour Division, Employment

Standards Administration, U.S.

Department of Labor, Room S–3502, 200

Constitution Avenue NW., Washington,

DC 20210. Commenters who wish to

receive notification of receipt of

comments are requested to include a

self-addressed, stamped postcard, or to

submit them by certified mail, return

receipt requested. As a convenience to

commenters, comments may be

transmitted by facsimile (‘‘FAX’’)

machine to (202) 219–5122 (this is not

a toll-free number). If transmitted by

facsimile and a hard copy is also

submitted by mail, please indicate on

the hard copy that it is a duplicate copy

of the facsimile transmission.

FOR FURTHER INFORMATION CONTACT:

William Gross, Director, Division of

Wage Determinations, Wage and Hour

Division, Employment Standards

Administration, U.S. Department of

Labor, Room S–3506, 200 Constitution

Avenue NW., Washington, DC 20210;

telephone (202) 219–8353. This is not a

toll-free number.

SUPPLEMENTARY INFORMATION:

I. Paperwork Reduction Act

The Department is proposing

alternative procedures for determining

prevailing health and welfare fringe

benefits under SCA and seeks comments

on each alternative. The Department

does not intend, with this notice, to

introduce new or added reporting or

recordkeeping requirements subject to

the Paperwork Reduction Act of 1980

(Pub. L. 96–511). The existing

information collection requirements

contained in Regulations, 29 CFR Part 4

were previously approved by the Office

of Management and Budget under OMB

control number 1215–0150. The general

Fair Labor Standards Act (FLSA)

recordkeeping requirements which are

restated in Part 4 were approved by the

Office of Management and Budget under

OMB control number 1215–0017.

II. Background

The McNamara-O’Hara Service

Contract Act of 1965 (SCA) (41 U.S.C.

351, et seq.) applies to Federal contracts

with the principal purpose of furnishing

services through the use of service

employees. For service contracts in

excess of $2,500, the Department of

Labor is required to make

determinations of prevailing wage rates

and fringe benefits that must be paid as

a minimum by contractors and

subcontractors to employees employed

on covered contacts ‘‘* * * in

accordance with prevailing rates for

such employees in the locality, * * *’’

(see sections 2 (a)(1) and 2(a)(2) of the

Act).1

Section 4(b) of the Act as amended in

1972 authorizes the Secretary of Labor

to ‘‘provide such reasonable

limitations’’ and to ‘‘make such rules

and regulations allowing reasonable

variations, tolerances, and exemptions

to and from any or all provisions of this

Act (other than § 10), but only in special

circumstances where * * * necessary

and proper in the public interest or to

avoid the serious impairment of

Government business, and is in accord

with the remedial purposes of this Act

to protect prevailing labor standards.’’

Federal agencies award contracts for a

large variety of services which are

performed for a specific period,

typically one year with options for

additional years.2 Upon the expiration

of such contracts, through new

solicitations for bids or requests for

proposals, follow-on contracts are

commonly awarded to continue the

services at the same locality or

localities. When new contracts are

awarded, the employees of predecessor

contractors often routinely go to work

for the new contractors.3 Continuity of

services and, generally, employees from

year to year makes consistency in wage

and fringe benefit determinations a key

concern of contracting agencies,

contractors, and service employees.

Although the statutory requirements for

issuing both prevailing wage rate and

fringe benefit determinations are the

same, different procedures have been

used since the Act’s enactment in 1965

to implement them. These procedures

have been shaped by the availability of

wage and fringe benefit data, the need

for consistency and continuity over

time, and the common practice of

employers in the service contracting

industry to provide uniform fringe

benefit packages to all workers.

Prevailing wage rates are based

primarily on cross-industry surveys
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules 19771

4The term ‘‘health and welfare’’ fringe benefits

refers to all benefits provided to workers not

required by law except vacation and holiday

benefits.

5BLS is currently in the process of redesigning its

system for collecting fringe benefit data to

potentially allow for the collection and publication

of health and welfare benefit information for several

of the country’s largest metropolitan areas. The

number of localities for which such data will be

published is uncertain at this point and clearly

would not include all localities for which the

Department issues wage determinations under the

SCA. Such data is currently not available and may

be several years from publication.

6This did not include pension or other benefits

because BLS locality surveys indicated that such

benefits did not ordinarily prevail.

7When information available for a geographic

area indicated that collectively bargained wage rates

and fringe benefits were furnished to a majority of

the employees in a particular occupation, such

wage rates and fringe benefits were adopted as

prevailing. Studies of employee compensation

practices in particular industries, in contrast to

those conducted as cross-industry area wage

studies, were also sometimes used in the past for

determinations issued for service contracts in that

industry, e.g., mail hauling.

8Employer costs for employee compensation are

developed from data collected for the Bureau of

Labor Statistics Employment Cost Index (ECI)

during a March sample. The report, ‘‘Employer

Costs for Employee Compensation,’’ is published

once a year, and covers all occupations in private

industry (excluding farms and households) and

state and local governments. It is a measure of the

average cost to employers per employee hour

worked for wages and salaries and employee

benefits. See BLS Handbook of Methods, Bulletin

2414, for a full background discussion concerning

the ECI. The ECI has been designated as a principal

Federal economic indicator by the Office of

Management and Budget and ‘‘is the only measure

of labor costs that treats wages and salaries and total

compensation consistently, and provides consistent

subseries by occupation and industry.’’ Id., p. 63.

conducted by the Bureau of Labor

Statistics (BLS), either under its own

Area Wage Survey program (currently

under review) or under contract with

the Department’s Employment

Standards Administration. These

surveys are designed to provide

earnings data for selected occupations

common to many manufacturing and

nonmanufacturing industries, using a

standard set of job descriptions, within

a particular local labor market usually

described in terms of a metropolitan

area. Since 1965, the Department has

routinely issued locality-based,

occupation-specific prevailing wage rate

determinations.

Since 1965, the fringe benefit levels

specified in prevailing determinations

have been applicable to all of the listed

occupational classes in a particular

determination. The locality surveys

conducted by BLS, in addition to data

on the wages paid to workers in selected

occupations, provide information on the

overall prevalence of certain fringe

benefits, such as life insurance, sickness

and accident insurance plans,

hospitalization, surgical and medical

insurance plans, accidental death and

dismemberment insurance, long-term

disability insurance, sick leave,

retirement plans, civic and personal

leave, and other benefits. These surveys

also provide information on the

numbers of holidays and vacation days

provided by the surveyed employers.

Unlike wage data, the fringe benefit

information from these surveys is not

currently collected on an occupation-byoccupation basis; nor is data on the cost

of such benefits collected. In the past,

the Department has found that reliable

data by locality or by occupation could

not be obtained due to prohibitive costs.

It has been the Department’s general

practice to include locality-based

holiday and vacation benefits in

determinations, based on information

obtained from the locality surveys.

However, due to the absence of localitybased data up to this time, health and

welfare fringe benefits 4 have always

been specified in a determination as a

monetary amount based on survey data

collected on a nationwide basis.5 Until

1976, the Department routinely issued a

single, national ‘‘insurance’’ benefit

level for all occupations of service

employees throughout the country,6

based primarily on data from the BLS’

Biennial Survey of Employee

Compensation in the Private Nonfarm

Economy.7 This ‘‘insurance’’ benefit

level was limited to the average cost per

hour of providing life, accident, and

health insurance in all industries, based

on available information which

indicated that this fringe benefit

package was the most prevalent of the

various benefits provided by employers,

particularly small employers, and was

stated in determinations as a fixed

hourly payment amount due for each

hour paid (up to a maximum of 40 hours

per week and 2,080 per year) on behalf

of each service employee.

In the early 1970s, several large

Federal service contractors and some

contracting agencies asked the

Department to consider an alternative

methodology because the contractors

were having difficulty hiring and

retaining highly skilled workers, and

remaining competitive, at the

‘‘insurance’’ only benefit level. In

response, a second health and welfare

benefit level was developed that took

into account not only insurance, but all

types of benefits not legally required,

since these were commonly provided to

employees by larger employers. This

‘‘total benefits’’ level has since been

applied primarily to solicitations for

large base support service contracts,

solicitations (for OMB Circular A–76

actions) with potential for displacement

of federal civilian workers, and

solicitations that require bidders to be

large, national corporations, or

providers of highly technical services.

The ‘‘total benefits’’ level includes the

all-industry average hourly cost of not

only life, accident, and health

insurance, but also sick leave, pension

plans, civic and personal leave, other

leave, severance pay, and savings and

thrift plans. Rather than a fixed payment

for each hour worked, the ‘‘total

benefit’’ level is expressed in terms of

average cost—which allows variable

contributions to employees (e.g.,

contributions to a health insurance plan

typically vary depending upon the

individual employee’s marital or

employment status)—so long as total

contributions for all service employees

average at least the specified amount per

hour for each service employee. (See 29

CFR 4.175(b).)

From 1966 to 1979, the BLS Biennial

Survey of Employee Compensation in

the Private Nonfarm Economy was the

primary source for the nationwide cost

data on the health and welfare benefit

level, for both the ‘‘insurance’’ and the

‘‘total benefit’’ levels. However, in 1979,

BLS discontinued this survey. Absent a

new survey data base, benefit levels

were not adjusted between 1980 and

1986. In 1986, updated fringe benefit

levels were based on BLS Employment

Cost Index (ECI) data showing the

percentage increase in benefit costs

between 1980 and 1986, which was

applied to the 1980 base rates. At that

time, the ‘‘insurance’’ benefit level was

increased from $0.32 to $0.59 per hour,

and the ‘‘total benefit’’ level from $1.08

to $1.84 per hour.

When BLS published ECI survey data

on fringe benefit levels for the first time

in 1987,8 the average employer’s cost of

the various fringe benefit components

did not correspond with the SCA health

and welfare fringe benefit levels then

being issued (i.e., the ECI data would

have significantly increased the

‘‘insurance’’ benefit level and

comparably decreased the ‘‘total

benefit’’ level). It was decided to

evaluate alternative methodologies

which might better reflect the practices

of the type of employers who perform

contracts subject to SCA. As a

consequence, health and welfare fringe

benefits levels again were not adjusted

until 1991 (see below).

On March 21, 1991, the Service

Employees International Union (SEIU)

filed a lawsuit against the Department in

the U.S. District Court for the District of

Columbia, seeking to compel the

Secretary of Labor to immediately raise
19772 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules

9The following year (1995), Wage and Hour

decided to keep the health and welfare benefits

levels the same as were issued in August 1994, even

though the BLS ECI fringe benefit cost data,

published in March 1995, showed decreases in both

the ‘‘insurance’’ and ‘‘total benefits’’ levels (to $0.82

and $2.32, respectively). The rationale behind this

decision was three-fold. First was the concern that

issuance of decreased health and welfare benefit

rates would be disruptive to the federal services

procurement community. Second, it was perceived

to be inappropriate to decrease health and welfare

benefit rates based on a methodology which was

uncertain to continue in light of the Board’s remand

order (see below) and the pending litigation which

challenged the methodology. Third, Wage-Hour was

aware that BLS was considering significant

revisions to its survey methodology.

10SEIU re Nationwide Fringe Benefit

Determinations, BSCA Case No. 92–01 (August 23,

1992).

11Wage and Hour reasoned that cost data for

firms with fewer than 100 employees approximated

the cost of providing health and welfare benefits to

employees furnishing services of the kind required

under the vast majority of SCA-covered contracts,

and that data for firms with 100 or more employees

best approximated the cost experience of employers

with SCA-covered contracts involving large base

support contracts and other contracts involving

competition among major corporations or for highly

technical tasks.

12See SEIU re Nationwide Fringe Benefit

Determinations, BSCA Case No. 93–08 (September

23, 1993).

the fringe benefit amounts specified in

prevailing wage determinations.

At the time, the Department was

completing the development of a new

methodology for setting health and

welfare fringe benefit levels utilizing

newly published ECI size-ofestablishment breakouts. In evaluating

the new BLS ECI fringe benefit cost

data, the Department concluded that

cost distributions by size-of-firm best

approximated fringe benefit levels and

practices among the types of

establishments that performed SCAcovered contracts, and would preserve

continuity and consistency for Federal

agencies, service contractors, and

service employees. Accordingly, the

health and wealth fringe benefit level

issued for most service contracts, which

was based only on the ‘‘insurance’’

component, was raised from $0.59 to

$0.74 per hour in September 1991,

based on 1990 data for employers with

less-than-100 employees. The new BLS

ECI data on total benefits for firms with

100-or-more employees was used to

increase the ‘‘total benefits’’ level from

$1.84 to $2.07 per hour.

Actual BLS ECI fringe benefit cost

data by size-of-firm was also used as a

basis for updating the health and

welfare levels in 1992, 1993, and 1994.

Applying the same principles adopted

for the 1991 updates, the ‘‘insurance’’

level was raised to $0.83 per hour in

July 1992, to $0.89 in August 1993, and

to $0.90 in August 1994.

Correspondingly, the ‘‘total benefit’’

package was raised to $2.23 per hour in

July 1992, to $2.39 in August 1993, and

to $2.56 in August 1994.9

After the issuance of updated health

and welfare fringe benefit levels in

September 1991, SEIU amended its

complaint to seek review of the

Department’s fringe benefit

methodology, in particular the use of

BLS ECI fringe benefit data for

employers with less-than-100

employees for the ‘‘insurance’’ level. In

addition to challenging the size-ofestablishment methodology, SEIU also

challenged a number of other aspects of

the existing methodology, including the

issuance of nationwide rather than

locality-based health and welfare fringe

benefit determinations, the use of

private industry data only (the ECI

covers private industry and also state

and local governments), and the lack of

consideration of fringe benefit costs in

the Federal sector. Because no

administrative review within the

Department was sought by SEIU relating

to the size-of-establishment

methodology adopted for the September

1991 updates, the District Court

dismissed the case without prejudice,

directing SEIU to exhaust its

administrative remedies before the

Department of Labor. See SEIU v.

Martin, CA No. 91–0605 (JFP) (D.D.C.

April 1, 1992).

The size-of-establishment procedures

were subsequently reaffirmed by the

Acting Administrator of the Wage and

Hour Division on July 8, 1992, and SEIU

appealed the decision to the

Department’s Board of Service Contract

Appeals (BSCA). In a decision dated

August 28, 1992, the BSCA generally

affirmed fringe benefit practices,

including the issuance of fringe benefits

on a nationwide basis, but remanded the

issue of using size-of-establishment data

as a basis for fringe benefit rates.10 The

BSCA directed Wage and Hour to either

better support the use of the size-ofestablishment data or develop an

alternative methodology for setting

fringe benefit rates. On remand, Wage

and Hour conducted a study of service

contracts subject to the SCA and

examined other available data. This

research indicated that the great

preponderance of service establishments

employs fewer than 100 workers, and

the Acting Administrator, by letter to

SEIU dated May 28, 1993, reaffirmed the

use of BLS ECI size-of-establishment

data in the development of prevailing

fringe benefits under the Act.11

In response to SEIU’s review petition,

the BSCA decided on September 23,

1993, that Wage and Hour had not

provided sufficient justification for its

departure from the practice of basing the

‘‘insurance’’ and ‘‘total benefit’’

components on all industry data (prior

to 1991) without regard to size-ofestablishments. While the BSCA

acknowledged that the size-ofestablishment methodology addressed

certain concerns such as consistency,

ease of administration, and the ability to

update on a regular basis, it was not

convinced that these attributes and

objectives were ‘‘characteristic only of a

system that utilizes size-ofestablishment data or whether those

same objectives can be also achieved by

using other data to set the SCA rates.’’

While the BSCA upheld the use of BLS

ECI data in general and concluded that

the lack of reliable locality data was

reasonable justification for issuing

nationwide benefit rates, it again

remanded the matter to Wage and Hour

for reconsideration; the Board was not

satisfied that the size-of-establishment

data justified departure from the

previous practice of basing the fringe

benefit rates on all-industry data, or that

other data might not achieve the desired

objectives.12

Because of the variety of alternatives

that could be used to determine

prevailing fringe benefits, and the

potential effects of each of these

alternatives, the Department concluded

that resolution of the issues in the

pending litigation would be best

accomplished through rulemaking.

In the meantime, SEIU moved in

district court to reopen its case against

the Department. SEIU asked the court to

enjoin the use of the 1991 methodology

and direct DOL to immediately begin

setting minimum fringe benefit rates in

accordance with the methodology used

prior to 1991. The district court, by

Order dated January 29, 1996, dismissed

the case without prejudice to SEIU’s

right to reopen for reconsideration upon

a showing that DOL has not adopted a

final rule in this matter by July 31, 1996.

The court declined to order

reinstatement of the Department’s pre1991 methodology, stating that it would

not ‘‘impose a disruptive interim rule

that will itself be displaced by the full

participation exercise of rulemaking.’’

SEIU v. Reich, CA No. 91–0605 (CRR)

(D.D.C. January 19, 1996)

The Department has given careful

consideration to a number of alternative

methodologies involving the use of BLS

ECI fringe benefit cost data (as the best

currently available data source) and,

accordingly, is proposing to use one of

the approaches described below in

determining prevailing health and

welfare benefits under the SCA in the
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules 19773

13The cost of the benefit components in the BLS

ECI study are an average based on data of all

employers in the survey, including employers that

do not provide the particular benefit. Because

averaging in the ‘‘zeros’’ is another way of showing

prevalence, the proposal is not limited to only those

benefits that prevail. Data is not currently available

that computes the cost of benefits provided by only

employers with benefit plans. The Department is

currently exploring the possibility of obtaining such

data, and if it can be obtained, will consider its use

under the various alternatives for those benefits that

prevail.

future. In order to assist the Department

in establishing the most appropriate

method, the Department requests

commenters to consider the optional

fringe benefit methodologies discussed

below and seeks information on ease or

difficulty of compliance; administrative

and/or recordkeeping burdens;

economic and budgetary impact from

the point of view of service contractors,

service employees and Federal

procurement agencies; transitional

difficulties in departing from the current

methodology, including the

appropriateness of a phase-in alternative

for such methodologies; the nature of

SCA-covered contracts and the fringe

benefit practices typical of service

contractors; the effects on contracting

activity and employment; and any other

areas of concern that the Department

should take into consideration in

deciding this matter.

If commenters favor continued use of

the current methodology based on sizeof-establishment data, comments should

include data or other evidence that the

methodology in fact is consistent with

industry practices. Commenters are also

invited to comment on any alternative

approach for which reliable fringe

benefit cost data are available through

the ECI or otherwise, including a

discussion of how the approach would

result in fringe benefits which would

better indicate prevailing fringes on

SCA contracts, as well as the other

issues raised below.

Commenters are also requested to

comment on whether they would favor

utilization of locality-based fringe

benefit data for certain selected

metropolitan areas, should such data

become available in the future (see note

5, supra), within the framework of any

of the following proposed

methodologies favored by the

commenter.

III. Alternative Proposed Methodologies

Alternative I: Issue a Single Benefit

Level Based Upon ECI Data for Workers

in Private Industry

This methodology would utilize

employer costs per hour worked for all

benefits (excluding holidays, vacations,

and benefits otherwise required by law,

such as social security, unemployment

insurance, and workers’ compensation

payments) as reported annually by the

BLS ECI study of employer costs for

employee compensation in the private

sector (all workers, all industries, all

establishment sizes, and all

occupations). Under this ‘‘total benefits’’

approach, the Department would issue a

single nationwide health and welfare

fringe benefit level applicable to all

employees engaged in the performance

of SCA-covered contracts, based on the

average cost 13 for the following

compensation components:

(1) Sick and other leave (excluding

vacation and holiday leave);

(2) Insurance, consisting of life,

health, and sickness and accident

insurance plans;

(3) Retirement and savings, consisting

of pension and savings and thrift plans;

and

(4) Other benefits not otherwise

required by law.

Based on March 1995 BLS ECI data,

this alternative would result in a single

fringe benefit rate of $1.89 per hour.

This alternative would increase the

current benefit level (from $0.90 to

$1.89 per hour) for those SCA-covered

contracts now subject to prevailing

determinations containing the

‘‘insurance’’ fringe benefit level, and

would result in a benefit level reduction

(from $2.56 to $1.89 per hour) for SCAcovered contracts currently subject to

the ‘‘total benefit’’ fringe benefit level.

In basing the fringe benefit level on

the average compensation level for all

employees, this alternative is consistent

with the approach generally used in

determining prevailing wages in that it

does not differentiate by size of firm,

and in determining prevailing fringe

benefits in the past. It would eliminate

the two-tier benefit levels that have been

difficult to defend in the legal

proceedings before the BSCA described

above. This approach would apply the

same minimum hourly benefit level for

all service employees and would not

require any subjective judgments as to

which benefit level to apply based on

the type of contract or employee. This

determination method would be simple

to understand and to comply with, and

relatively simple to administer and

enforce by the Department. It would

allow all service contractors to offer

health benefits for their employees,

whereas at present some employers

cannot purchase health benefits at the

current ‘‘insurance’’ benefit level.

Service employees currently

employed on contracts subject to the

‘‘total benefit’’ level could experience a

reduction in fringe benefits and not

return to the current level for several

years. Further, this approach does not

recognize the real differences in types of

SCA-covered contracts that are apparent

from the occupational data. As

demonstrated by the data by

occupational groupings, discussed

below, privately-employed service

employees in relatively low-skilled,

low-wage service occupations do not

generally receive this level of fringe

benefits. On the other hand, privatelyemployed high-skilled service workers,

such as aircraft mechanics, generally

receive fringe benefits above this level.

In addressing this alternative,

comments are specifically sought on the

appropriateness of mitigating any

disruption (and the short-term costs)

caused by the increase in the current

‘‘insurance’’ level by phasing in the

changes during a transition period;

whether or not the current ‘‘total

benefit’’ level should be grandfathered

at its present level until it is overtaken

by the all-industry, all-occupation

average rate; and, whether such actions

would be consistent with statutory

requirements.

Alternative II–A: Issue a Single Benefit

Level for Each of Six Major

Occupational Groupings Based on ECI

Data for All Workers in Each Grouping

in Private Industry

The BLS ECI reports employer fringe

benefit costs for employees in broad

occupational groups compatible with

the ‘‘Standard Occupational

Classification Manual.’’ Of these

occupational groupings, six account for

most of the classifications used in the

performance of SCA-covered contracts:

(1) Professional, specialty and technical;

(2) Administrative support, including

clerical; (3) Precision production, craft

and repair; (4) Transportation and

material moving; (5) Handlers, cleaners,

helpers, laborers; and (6) Service

workers.

Under this alternative, the ‘‘total

benefit’’ level for each of these six

occupational groupings would be

specified in prevailing determinations.

Thus, a benefit amount would be

specified for each occupation listed on

an SCA-determination with the amount

applicable to a particular occupation

determined by the occupational

grouping of that occupation. Based on

the data reported by the March 1995

BLS ECI study, the hourly ‘‘total

benefit’’ amounts for the six basic
19774 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules

14The listed amounts represent close

approximations based on Wage-Hour’s reading of

1995 BLS ECI cost data and may not be exact.

occupational groupings would be as

follows: 14

1. Professional, specialty and technical (nurses, computer systems

analysts, etc.) ................................ $3.15

2. Administrative support including clerical (computer operators,

secretaries, typists, clerks, etc.) ... 1.96

3. Precision production, craft and

repair (vehicle mechanics, heavy

equipment operators, automotive

mechanics, aircraft mechanics,

machinery repairers, electrical

and electronic equipment repairers, heating/air-conditioning/refrigeration mechanics, etc.) ......... 2.73

4. Transportation and material

moving (motor vehicle operators,

truck drivers, material moving

equipment operators, operating

engineers, etc.) ............................. 2.22

5. Handlers, equipment cleaners,

helpers and laborers (helpers,

handlers, equipment cleaners, laborers, etc.) ................................... 1.24

6. Service occupations (guards,

food/beverage preparation and

service occupations, health service occupations, janitors and

cleaners, barbers, hairdressers,

amusement/recreation facility attendants, etc.) ............................... 0.62

Utilizing this approach would permit

the Department to issue prevailing

health and welfare fringe benefit

determinations for various ‘‘classes of

service employees’’ as contemplated by

the Act, thereby permitting health and

welfare benefits to correspond more

closely to the benefits such classes of

employees actually receive in the

private sector. Because many service

contracts do not involve a broad mix of

different occupations, the

administrative difficulty with multiple

fringe benefit determinations for those

contracts would be minimized. Further,

it would not result in large differences

for highly skilled employees on many

technical service contracts that

currently receive the ‘‘total benefit’’

level.

Certain administrative concerns arise

under this alternative, however,

especially regarding those SCA-covered

contracts that do involve a mix of

employees from different occupational

groups. This alternative envisions that

employers would provide different

fringe benefit plans to employees in

each occupational group, and thus

would be contrary to what we

understand to be the common employer

practice of providing the same benefits

to all employees. Not only might it be

difficult for a carrier to provide, and for

the employer or the carrier to

administer, up to six different benefit

plans, but labor-management problems

would be likely where employees

realize that their co-workers are entitled

to different benefits than they are

receiving. Furthermore, an employer

administering self-funded plans may be

restricted in providing different benefit

plans because of non-discrimination

rules of the Internal Revenue Code

which prevent providing higher-paid

employees with better health benefits.

See 26 U.S.C. 105(h); 26 CFR § 1.105–

11. An employer’s alternative, if it did

not want to, or could not, provide

different plans, would be to (1) provide

all employees benefits at the lowest

level and pay the difference to other

classes of employees in cash; (2) provide

all employees higher benefits and

absorb the difference from the

employer’s profit margin; or (3) provide

employees the same health benefits at

the lowest level, but provide other

benefits, such as pension benefits, to

employees in the other classifications.

Therefore, some mechanism such as

the use of an average cost concept,

discussed below, with which most small

service contractors and employees are

not familiar, or providing benefits to all

employees in accordance with the

predominant class, may be advisable.

On the other hand, such a mechanism

would entail significant administrative

difficulties for contractors and for the

Department in determining compliance.

Further, it would result in a substantial

decrease in benefits for large numbers of

service employees in ‘‘service’’

occupations, e.g., janitors, guards, food

service workers.

Therefore, in particular, comments are

sought regarding whether in fact

employers normally provide the same

level of fringe benefits to all classes of

employees; on the administrative

feasibility of this alternative; whether or

not the current ‘‘insurance’’ level should

be grandfathered at its present level

until it is overtaken by the ‘‘service’’

occupation average rate; and on the

practicality of assigning a single rate to

a particular service contract based on

the benefit rate applicable to the

predominant occupational group

performing the contract services.

Alternative II–B: Issue a Single Benefit

Rate Adjusted To Reflect the Difference

Between the BLS ECI Occupational

Universe and the Actual Mix of

Comparable Occupations on SCACovered Contracts

As noted above, the BLS ECI data

provide a breakout of fringe benefit

costs by broad occupational groupings.

The fringe benefit costs for employees in

each of these occupational categories is

a component factor of the all-industry,

all-occupation ‘‘total benefit’’ costs

calculated for the universe of

employees. The distribution of

employees within the six occupational

categories in the BLS ECI data (above)

may not correspond proportionately to

the actual mix of employees performing

work on SCA-covered contracts in the

same occupational categories, i.e., it is

likely that the number of SCA-covered

employees within the BLS ECI service

occupation category is proportionately

larger than the number of such

employees in the overall BLS ECI

occupational universe. Under this

proposed alternative approach, the

distribution of benefit levels in the six

BLS ECI occupational categories would

be weighted by the corresponding

distribution of SCA-covered employees

in the same occupational categories to

arrive at an adjusted ‘‘total benefit’’

level that may better reflect actual

employment experience on SCAcovered service contracts, rather than

the overall employment mix among

these occupational groups in the general

economy.

While the benefit level under this

approach would be expected to be

somewhat less than the March 1995 BLS

ECI ‘‘total benefit’’ level of $1.89, data

to compute an actual rate for this level

is not yet available. The Department is

in the process of developing information

on the occupational mix of service

contract employees utilizing

procurement data in the Federal

Procurement Data System (FPDS), and a

survey of SCA-covered contracts is

being conducted.

Because the actual mix of occupations

on SCA-covered contracts generally

would be a factor in the determination,

the benefit determination would be

more reflective of the prevailing benefit

level on SCA-type contracts than the allindustry, all-employee average.

Moreover, the single benefit level that

would be established avoids many of

the administrative and compliance

complexities associated with separate

levels for each of the occupational

groupings, is a simple determination for

contractors to understand and comply

with, and, because the same benefit

level would be applied to all employees,

does not require subjective judgment as

to which benefit level to use.

On the other hand, this alternative

would not be consistent with past

practice of using all-industry, allemployee data for wages and, until

1991, benefits. Furthermore, this

alternative would apply a lower fringe

benefit level to those service employees

currently receiving the ‘‘total benefit’’
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules 19775

15These four regions correspond to the four

Census regions. The State composition of the

regions is as follows: Northeast—Connecticut,

Maine, Massachusetts, New Hampshire, New Jersey,

New York, Pennsylvania, Rhode Island, and

Vermont; South—Alabama, Arkansas, Delaware,

District of Columbia, Florida, Georgia, Kentucky,

Louisiana, Maryland, Mississippi, North Carolina,

Oklahoma, South Carolina, Tennessee, Texas,

Virginia, and West Virginia; Midwest—Illinois,

Indiana, Iowa, Kansas, Michigan, Minnesota,

Missouri, Nebraska, North Dakota, Ohio, South

Dakota, and Wisconsin; and West—Alaska, Arizona,

California, Colorado, Hawaii, Idaho, Montana,

Nevada, New Mexico, Oregon, Utah, Washington,

and Wyoming.

level, and, thus, requires consideration

of what, if any, transition procedure

would be appropriate.

Because the alternative, unlike the

others, does not directly apply BLS ECI

data to SCA-covered contracts, the

Department is particularly interested in

receiving public comments on its

appropriateness. In commenting on this

alternative, comments are also sought

on the appropriateness of mitigating any

disruption caused by any increase in the

current ‘‘insurance’’ level by phasing in

the changes during a transition period;

whether or not the current ‘‘total

benefit’’ level should be grandfathered

at its present level until it is overtaken

by the new fringe benefit rate; and

whether such actions would be

consistent with statutory requirements.

Alternative II–C: Issue Two Benefit

Levels Based on a Combination of the

Occupational Groupings

This alternative combines some

aspects of both Alternatives II–A and II–

B. Rather than using six occupational

groupings as proposed in Alternative II–

A, occupational groups would be

combined to result in only two

groupings (or some other number). For

example, the ECI ‘‘professional,

specialty and technical’’ occupational

group could be combined with the

‘‘administrative support, including

clerical’’ group to develop a single rate

for ‘‘white-collar’’ occupations.

Similarly, the ‘‘precision production,

craft and repair;’’ ‘‘transportation and

material moving;’’ ‘‘handlers, cleaners,

helpers, laborers;’’ and ‘‘service worker’’

groupings could be combined to

develop a single rate for production

occupations, both skilled and unskilled.

Like the approach proposed under

Alternative II–B, Alternative II–C might

weight the ECI data based on the

corresponding distribution of SCAcovered employees in the same

occupational categories to arrive at an

adjusted ‘‘total benefit’’ level for each of

the two occupational groupings. In the

alternative, the ECI data could be

weighted in accordance with the

national incidence of the various

occupational groups.

Although this alternative would

reduce the potential number of different

benefit levels that might be required on

a single contract from six to two,

Alternative II–C still has the potential

for applying different benefit levels to

employees working on the same

contract. Therefore, many of the

questions and issues identified under

Alternative II–A are also applicable to

this alternative. By reducing the number

of occupational groupings, however, the

probability of having all workers

employed on the contract fall within the

same occupational grouping increases

greatly. Thus, for many contracts the

problem of multiple benefit levels

would be unlikely because the

employees performing the contract will

be clustered within a single, broad

occupational grouping.

In commenting on the feasibility and

desirability of this alternative,

commenters are asked to comment on

the appropriate number of occupational

groupings, how the occupational groups

should be combined, and the weighting

methodology which should be used.

Commenters are asked to give particular

attention to whether this smaller

number of groups would significantly

decrease any administrative and

compliance difficulties which might be

entailed in using the six groups.

Alternative III: Issue a Single Benefit

Rate for Each of Four Geographic

Regions Based on ECI Data for All

Workers in Private Industry

The BLS ECI data includes average

costs for benefit categories in four broad

regions: Northeast, South, Midwest, and

West.15 This alternative would result in

four benefit levels that would be

reflected in SCA-determinations issued

for contracts within each of these

geographic regions. Based on the March

1995 BLS ECI data, the benefit amount

for each area would be as follows:

1. Northeast—$2.30

2. South—$1.57

3. Midwest—$1.99

4. West—$1.90

The BLS ECI data base does not crosscorrelate fringe benefit costs by

occupational groupings within the four

geographic areas, and this limitation

precludes any options that would

combine this alternative with the above

occupational approaches, absent a large

increase in sample size and thus survey

costs. Utilizing this alternative would

permit the Department to issue

prevailing fringe benefit determinations

on a ‘‘locality’’ basis, as contemplated

by the Act. The single benefit level for

each geographic region would be simple

to administer, and is relatively easy for

contractors to understand and comply

with.

This option fails to reflect variations

within a region, which we believe may

be more significant than variations

among regions. Furthermore, like the

occupational approach, this option is in

potential conflict with our

understanding of the common practice

that employers, including service

contractors, provide similar fringe

benefits to all employees without regard

to either occupation or geographic

location. This alternative also raises

unique administrative questions

because some service contracts require

performance in a number of different

locations and some service contractors

bid on contracts for similar services at

various facilities and installations

throughout the country. Finally, while

the option permits all service

contractors to offer meaningful health

benefits, it could result in reduced

benefits for those service employees

currently employed on contracts subject

to the ‘‘total benefit’’ level.

Commenters are asked to address

whether service contractors typically

provide similar fringe benefits to all

employees without regard to geographic

location, and the administrative

feasibility of this alternative. In

particular, comments are sought on

what adjustments, if any, would be

appropriate in the case of a service

contract that requires performance in

more than one of the four regions, or in

those cases where service contractors

customarily bid on contracts for similar

services at various facilities and

installations throughout the country.

Alternative IV: Issue a Single Fringe

Benefit Rate (as a Percent of Wages)

Based on the Relationship Between the

ECI All-Private Industry ‘‘Total Benefit’’

Rate and the ECI All-Private Industry

Average Wage Rate

The BLS ECI data correlates employer

fringe benefit expenditures as a percent

of overall compensation. Under this

alternative, a single, nationwide fringe

benefit percentage level, determined as

the percent that all industry ‘‘total

benefit’’ costs represent of total average

wages, would be established. The March

1995 BLS ECI data reports average

straight-time wages and salaries for all

workers in private industry at $12.25

per hour. Based on a ‘‘total benefit’’

level of $1.89, the ratio of the fringe

benefit amount to the wage rate under

this methodology would be 15.4

percent, which would be specified in all

SCA-determinations. If the prevailing

wage for an occupation were $8.00 per

hour, for example, the applicable fringe

benefit amount under this alternative
19776 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules

16Currently, the ‘‘total benefit’’ level is applied to

large base support contracts, solicitations based on

OMB Circular A–76 solicitations, solicitations for

highly technical services typically provided by

large corporations, and other selected solicitations

without regard to size of contract. Such contracts

are frequently awarded to large contractors, but not

always. In practice, small contractors are most

likely awarded contracts that contain the

‘‘insurance’’ level.

17As noted previously, these rates continue to

remain in effect, even though 1995 BLS ECI data for

size-of-establishment would have resulted in

somewhat lower rates.

would be 15.4 percent of that amount,

or $1.23 an hour; a prevailing wage of

$11.00 an hour would require a fringe

benefit obligation of $1.69 an hour; and

a prevailing wage of $15.00 an hour

would compute to a fringe benefit

obligation of $2.31 an hour.

Because fringe benefits are directly

related to locality-based wage rates, this

alternative results in fringe benefit

levels that vary by occupation and

location (wages listed in a prevailing

determination for particular occupations

are survey-based by locality) and,

therefore, has the advantage of being

more consistent with the statutory

provision that contemplates

determining prevailing fringe benefits

for classes of service workers in

localities than are the other alternatives

under consideration. The ratio of

benefits to wages is easy to determine

from BLS ECI data, and should remain

relatively consistent over time; many

employers, particularly Federal service

contractors, have familiarity with the

concept in connection with contract

costing practices.

The alternative is a significant

departure from current practices, and

many contractors, particularly smaller

ones, may have difficulty with its

administrative requirements, which will

be similar to the problems with separate

benefit levels for occupational

groupings. It will also require a more

extensive revision of the current

regulations to explain the compliance

requirements. Moreover, the

methodology assumes a straight line

relationship between wages and

benefits. Finally, the option could be

problematic under IRS rules discussed

above and would be inconsistent with

the common practice of offering the

same health benefits to all employees

without variation based on individual

employees’ wage rates.

Because the wage rates paid and the

number of workers used to perform

SCA-covered contracts can fluctuate

considerably, comments are requested

on the administrative and recordkeeping

burdens associated with this alternative,

and how compliance would be

determined. Comments are also sought

on whether this alternative should be

applied on an individual employee

basis (applying the ratio to the

individual’s rate of pay to determine the

fringe amount that must be furnished) or

on a payroll basis (for example, by

applying the percentage to the total

payroll and dividing by total

employment to determine the fringe

benefit amount that must be furnished

to each service employee).

Alternative V: Issue Two Fringe Benefit

Levels Based on BLS ECI Size-ofEstablishment Data for All Workers in

Private Industry

This alternative is essentially the

same as the current methodology that

has been used since 1991. In addition,

the Department seeks public comments

on the appropriateness and feasibility of

a variation of the current methodology,

which also is under consideration:

A. Currently, the ‘‘insurance’’ benefit

level is issued based on employers’

average cost for providing insurance

benefits in establishments with fewer

than 100 employees. The ‘‘total benefit’’

level is based on the average cost for

providing all benefits in establishments

with 100 employees or more. Although

size-of-establishment data are used to

determine the different benefit levels, in

practice the two levels are applied based

primarily upon the nature rather than

the size of the contract.16 Based on the

March 1994 BLS ECI data, the

‘‘insurance’’ benefit level, as established

in August 1994, is $.90 per hour, and

the ‘‘total benefit’’ level is currently

$2.56 per hour.17

B. A variation of this methodology

would continue the issuance of two

levels but, instead, use the BLS ECI all

industry ‘‘total benefit’’ data for (1)

firms with fewer than 100 employees

and (2) firms with 100 or more

employees—perhaps to be applied,

respectively, to SCA-covered contracts

performed by fewer than 100 employees

and those performed by 100 or more

employees. On the basis of the March

1995 BLS ECI data, the ‘‘fewer than

100’’ level would be established at $1.28

per hour, and the ‘‘100 or more’’ level

would be $2.32 per hour. This

alternative, thus, differs from the

methodology applied from 1991 through

1994 in that an amount comprising

‘‘total benefits’’ is used instead of an

amount limited to the cost disclosed for

‘‘insurance,’’ and the applicable rate

would possibly be applied by the size

(rather than the nature) of the contract.

Both versions of this alternative are

consistent with the longstanding

procedure of generally applying a lower

fringe benefit level to small contractors

and a total benefit level to large

contractors. Under Alternative A, in

accordance with current practice, the

lower fringe benefit rate would be based

only on the ‘‘insurance’’ component,

derived from data from employers with

fewer than 100 employees. Under

Alternative B, the lower fringe benefit

rate would be based on the ‘‘total

benefit’’ level, also derived from data

from employers with fewer than 100

employees. In both cases, in accordance

with current practice, the ‘‘total benefit’’

level is derived from data from

employers with 100 or more employees.

These are the only alternatives which

would not appear to be greatly

disruptive to contractors and employees

in that current practices would

generally be continued. Neither would

result in any significant reduction of

benefits for employees currently

working on SCA-covered contracts—or

significant increase in costs to

contractors and to the Government—and

there would be continuity with the

benefit levels that have been issued for

the last twenty years.

The major disadvantage of both

versions of this alternative is that there

is little evidence to support the rationale

for two fringe benefit levels: i.e.,

assumptions that the average benefit

level for small firms corresponds best to

benefits paid by private employers on

contracts similar to most SCA contracts,

and that the level paid by large firms

corresponds to employers which

perform contracts to which the ‘‘total

benefit’’ package is applied. Although

most SCA-covered contracts involve

performance by fewer than 100

employees, there is not a direct

relationship in all cases between the

size of an SCA-covered contract and the

fringe benefit package (‘‘less than 100’’

and ‘‘100 or more’’ size-of-establishment

data divisions) which has been applied.

The second variation ameliorates this

problem, but instead would put small

and large contractors on an unequal

footing in bidding on contracts, unless

estimated size of contract (instead of

size of firm) is used. Also, both options

require a sometimes subjective

determination regarding which

contracts are subject to the high level

benefit and which the low level benefit.

In addition to the practical aspects of

a two-level fringe benefit approach,

commenters who favor this

methodology are also requested to

provide data to support its continued

use, including any suggestions on how

the available ECI data, or new data in

the long term, could be used to provide

a basis for its continued use consistent

with the requirements of the SCA.
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules 19777

18Under current regulations, service contractors

who elect to pay the specified benefit level as a cash

equivalent to each employee for each hour worked,

rather than administer particular health and welfare

plans, are required to pay the amount specified in

the wage determination to each employee. The

regulations do not permit variable cash

contributions.

19A variance from both provisions may not be

necessary under some of the alternatives on which

comments are solicited.

20A September 1987 BLS test survey of fringe

benefit costs in the Madison, Wisconsin, locality,

for example, used newly developed ECI concepts,

manuals, and methods. The pilot did not produce

publishable data, and the cost to upgrade the data

collection effort to produce publishable data were

viewed at the time as prohibitive.

IV. Average Cost Approach

As noted above, the lower

‘‘insurance’’ level has traditionally been

stated in determinations as a fixed

payment due for all hours paid for (up

to a maximum of 40 hours per week and

2,080 per year) on behalf of each service

employee. The ‘‘total benefits’’ level, on

the other hand, has traditionally been

stated in terms of average cost which

allows variable contributions among

employees so long as total contributions

for all service employees on a particular

contract average at least the specified

amount per hour per service employee.

Explanation of the average cost concept

is set forth in 29 CFR 4.175(b).

The average cost concept was

intended to provide flexibility to

accommodate variable employee benefit

practices. It takes into account variable

contributions based, for example, on an

employee’s election of single or family

coverage under health insurance plans,

or an employee’s election not to

participate in health insurance plans or

other supplemental plans that may be

offered like those for dental and

eyeglass coverage. It also accommodates

variable contributions to pension or

other plans like life insurance that are

commonly related to an employee’s

wages.18 It is also recognized that

certain employees may receive lesser or

even no fringe benefits when the

average cost approach is used by a

service contractor, for example, because

they are part-time and not eligible for

certain benefits, are subject to a waiting

period before becoming eligible, have

elected not to participate, or for other

reasons. Therefore this approach may be

perceived as inequitable. The

Department is seeking specific

comments on the use of the average cost

concept in conjunction with any of the

above alternative methodologies, or

other alternatives suggested by

commenters, and what changes, if any,

would be appropriate to facilitate

compliance, reduce administrative

burdens, and create fairness for service

employees, consistent with the

requirements of the SCA. In considering

the average cost approach in connection

with the above alternatives, or other

alternatives suggested by commenters,

comments are also sought on any

recordkeeping requirements which

would be necessary to document the

average cost, and whether this would

result in a greater burden on conractors,

particularly smaller contractors.

V. Variance Under Section 4(b) of the

Act

In connection with any fringe benefit

methodology that may be adopted as a

result of this rulemaking, the

Department is further proposing to

provide a corresponding variance

pursuant to § 4(b) from the Act’s

provisions for making prevailing fringe

benefit determinations for various

classes of workers on a locality basis.19

Under the Department’s longstanding

procedure, the vacation and holiday

components of the fringe benefit

determination vary based on the locality

where the contract services are to be

performed because locality data are

available for these components. The

health and welfare component has been

issued only on a national basis due to

the current absence of locality-based

data (except the large regional groupings

discussed above), and none of the

available data sources on fringe benefits

provides any occupational-based

information (except the broad

occupational groupings discussed

above).

Moreover, the Department has

researched all available data sources

over the years to ascertain the existence

of any reliable information that would

permit the making of prevailing fringe

benefit determinations on a locality and

occupation basis. The Department has

also initiated special pilot studies to test

the feasibility of collecting fringe benefit

cost data in specific geographic

localities. Based on the results of these

pilot studies by BLS, it has been the

Department’s conclusion that significant

technical problems would have to be

overcome before such data could be

collected and utilized on a routine basis,

and at probably very high cost.20 At this

time, the available BLS ECI fringe

benefit cost data is the most

comprehensive, and best information

available that shows what employers

spend for different types of fringe

benefits furnished to their employees.

While the annual ECI study provides

some locality (four geographic regions)

and occupational information (broad

occupational groupings), it does not

currently produce cost data by

occupation within each of the

geographic regions.

Under these circumstances, the

variance discussed above is believed by

the Department to be reasonable,

necessary and proper in the public

interest or to avoid the serious

impairment of Government business.

Furthermore, because it is our

understanding that many employers

normally provide the same fringe

benefit package to employees in all

locations and occupations, this variance

is believed to be in accord with the

remedial purposes of this Act to protect

prevailing labor standards.

As discussed in footnote 5 above, BLS

is currently redesigning its system for

collecting fringe benefit data to

potentially allow for collection and

publication of health and welfare

benefit information for several large

metropolitan areas. Commenters are

therefore specifically requested to

comment on whether they would favor

utilization of locality-based fringe

benefit data for selected metropolitan

areas, should such data become

available in the future.

Public commenters are requested to

specifically include in their comments

particular views on any alternative ways

to balance the Act’s ‘‘locality’’ and

‘‘class of service worker’’ requirements

with the practical problems of data

availability; and the feasibility, expense,

and burden of collecting fringe benefit

cost data in occupational and localitybased surveys in relation to the benefits

derived therefrom. Commenters are also

requested to provide information

regarding whether it is their practice to

provide different benefit packages in

different localities or to different classes

of workers, and to address the burden

on employers of providing different

benefit packages.

VI. General

In considering the various alternatives

discussed above, the Department also

seeks comments on the requirement to

give ‘‘due consideration’’ to the wage

and fringe benefit rates being paid

Federal employees in making wage

determinations applicable to SCAcovered contracts, and what

administrative procedure, if any, would

be appropriate in factoring this

information into fringe benefit

determinations (see 29 CFR 4.51(d)).

Also, see AFGE v. Donovan, 25 WH

Cases (D.D.C. 1982), aff’d 694 F.2d 280

(D.C. Cir. 1982), which interpreted the

SCA’s ‘‘due consideration’’ clause.

The Department also seeks comments

concerning whether state and local

employee data should be included in

data compiled in determining health
19778 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules

21Of course any expansion of the surveys or

development of more refined data bases would have

to be funded and could not be accomplished

immediately. Therefore, if pursued, a fringe benefit

methodology for the short-term would continue to

be required.

22Creating a Government That Works Better and

Costs Less, Reinventing Federal Procurement

(Accompanying Report of the National Performance

Review), Office of the Vice President, September

1993, page 37.

23SCA covers contract services furnished ‘‘in the

United States.’’ The geographical area included in

this term, as defined in § 8(d), requires changes to

conform to the Treaty of Friendship Between the

United States and the Republic of Kiribati, T.I.A.S.

No. 10777, ratified June 21, 19183, and the Compact

of Free Association between the United States and

the Governments of Marshall Islands and the

Federated States of Micronesia which was placed

into effect by the President on November 3, 1986,

pursuant to Pub. L. 99–239.

and welfare benefits in the future. The

BLS ECI data currently reports fringe

benefit cost information for the civilian

workforce which includes private

industry and State and local

governments. Under the current

methodology, the ‘‘insurance’’ and the

‘‘total benefit’’ levels are based on

private industry data. However, the

Department has recently changed its

methodology to include both private

and public employee data in

determining prevailing wage rates

where the data is available. The

insurance component (life, health, and

sickness and accident insurance plans)

for all workers in private industry, as

reported by March 1995 BLS ECI data,

is $1.15 an hour, whereas the

comparable cost in the State and local

government sector is $2.03; the

combined insurance cost for private and

governmental civilian workers is $1.29

an hour. The effect of including State

and local governments cost data is

similar in the other fringe benefit

components.

Also, the Department requests

comments on whether the Department

should explore the cost and feasibility

of expanding the ECI survey so that

more refined data could be obtained, or

in the alternative, developing other data

bases. For example, should the

Department consider expanding the

survey to permit determination of

prevailing fringe benefit levels by

occupation within geographic regions;

or to permit determination of whether

the individual fringe benefit

components prevail in each occupation?

In commenting on whether expanding

the survey should be pursued,

commenters are specifically asked to

comment on the value of the more

refined data which might be obtained

relative to the potential costs and

burden of conducting such surveys, as

well as to consider whether there would

be a net benefit to the Government or to

the contractors and service employees

subject to the SCA from obtaining more

refined data, thereby presumably

permitting more accurate prevailing

fringe benefit determinations.21

Finally, the Department seeks

comment on whether it should continue

to recognize different benefit levels for

certain industries. Data limitations and

the expense of conducting such surveys

make their widespread use infeasible.

Although some special surveys were

conducted in the past, they are rarely

used currently except for mail-haul

contracts. The Department notes that

these industries would be included in

existing data, and that past practice has

been to issue such special rates for lowbenefit industries (and not vice-versa).

VII. Other Proposals

The Department is also seeking

comments on the current procedures for

the conduct of substantial variance

hearings under Section 4(c) of the Act.

Under existing regulations, the

Administrator is required to respond to

the party requesting a hearing within 30

days after receipt of a request for a

hearing (29 CFR 4.10(b)(2)). Upon

submission of an Order of Reference to

the Chief Administrative Law Judge,

interested parties must submit a written

response to the Chief Administrative

Law Judge within 20 days of the date on

which the Order of Reference was

mailed (29 CFR 6.51(b)), and the hearing

is to take place within 60 days of the

Order of Reference (29 CFR 6.52). The

regulations further provide that an

expedited transcript shall be made of

the hearing (29 CFR 6.54(f)), and that

the Administrative Law Judge’s (ALJ)

decision shall be issued within 15 days

of receipt of the transcript. Any

aggrieved party within 60 days of the

ALJ’s decision may appeal to the Board

of Service Contract Appeals (the Board)

(29 CFR 8.7(b)). No time frames are

established for issuance of a decision by

the Board.

The National Performance Review

(NPR) has recommended that the

regulations be revised to require that

substantial variance hearings be held

and decisions issued within 60 calendar

days.22 In view of the NPR

recommendation, comments are

requested on the existing time frames

and how these time frames might be

reduced to conform with the NPR

recommendation. In particular,

comments are sought on a 60-day time

frame for the completion of substantial

variance hearings, and whether or not

this period accords interested parties

adequate time to prepare for the

proceeding, obtain a transcript, and file

necessary briefs, and for the ALJ to issue

a considered opinion on the merits.

Finally, it is proposed that the final

rule will include certain minor,

technical modifications necessitated by

the 1989 Amendments to the Fair Labor

Standards Act (FLSA), a 1985 court

decision, a 1983 treaty, and a 1986

intergovernmental compact.

Specifically, Section 4.2 would be

revised to delete the reference to dated

minimum wage rates, and the tip credit

example in Section 4.6(q) would be

modified to delete the example that is

based on the minimum wage rates

required by the 1978 Amendments to

the FLSA. Furthermore, the text of

Section 4.112, which was invalidated by

a 1985 court decision in AFL–CIO v.

Donovan, 757 F.2d 330 (D.C. Cir. 1985),

would be modified to reinstate the

previous regulations as they appeared in

the July 1, 1983, edition of the CFR. In

addition, necessary changes to address

more recent enactments pertaining to

the geographic scope of SCA would be

included in the restored regulatory

language.23 Also, the reference ‘‘See

Section 4.6(m)(8)’’ in the previously

existing Section 4.112(b) would be

deleted since this section was deleted

from the regulations issued October 27,

1983. If commenters have any questions

about these planned changes,

information can be obtained as

indicated above.

VIII. Executive Order 12866/Section

202 of the Unfunded Mandates Reform

Act of 1995

The Department is seeking public

comment on various optional fringe

benefit methodologies and is not

proposing any specific methodology.

The anticipated cost of some

alternatives to the existing methodology

for updating SCA health and welfare

fringe benefit rates may exceed the costs

associated with the existing

methodology. Therefore, adoption of an

alternative methodology may result in

increased procurement costs to Federal

agencies who award SCA-covered

service contracts, as well as higher

fringe benefits for many of the affected

service employees. To cover that

possibility, the Department has reached

the preliminary conclusion that this

notice may likely result in a rule

deemed an economically significant

regulatory action within the meaning of

Executive Order 12866. However, the

rule will not include any Federal

mandate requiring expenditures by

State, local or tribal governments of

$100 million or more in any one year.

Preparation of the required analyses

under the executive order and
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules 19779

24The State of Small Business: A Report of the

President Transmitted to the Congress (1991),

Together with The Annual Report on Small

Business and Competition of the U.S. Small

Business Administration (United States

Government Printing Office, Washington, D.C.,

1991), p. 19. A more detailed breakdown also used

is: under 20 employees, very small; 20–99, small;

100–499, medium-sized; and over 500, large. In

general, a business bidding on a government

contract is regarded as small if it has fewer than 500

employees (see p. 221).

25U.S. Department of the Treasury, Internal

Revenue Service, SOI Bulletin (Spring 1990) Table

19; reprinted by SBA in The State of Small Business

(1991), Id., p. 21.

26 Id., p. 220.

Unfunded Mandates Reform Act must

necessarily await the compilation of

related economic data.

As noted in the discussion under

Alternative II–B, the Department is in

the process of developing data to

establish more reliable information on

the occupational mix of service

employees engaged in the performance

of SCA-covered contracts. Based on data

collected by the Federal Procurement

Data System for Fiscal Year 1994, a

statistical survey will provide specific

information on service contract

employment by occupation within SIC

industry classifications. The

information collected should also

provide a basis for more reliable

estimates of the economic impact of the

various proposed alternatives.

Due to the time constraints imposed

by the district court, discussed above, it

is not feasible to publish the impact

analysis for comment with the proposed

rule. Instead, the analysis will be

published as soon as possible for

comment. Comments will be reviewed

prior to promulgation of a final rule. In

the meantime, if commenters have

empirical evidence which would assist

in developing the analysis or evaluating

the data, it would be welcome at this

time.

IX. Regulatory Flexibility Act

Under the Regulatory Flexibility Act,

Public Law 96–354 (94 Stat. 1164; 5

U.S.C. 601 et seq.), Federal agencies are

required to prepare and make available

for public comment an initial regulatory

flexibility analysis that describes the

anticipated impact of proposed rules on

small entities. The Department has

prepared the following Regulatory

Flexibility Analysis regarding this rule.

(1) Reasons Why Action Is Being

Considered

The McNamara-O’Hara Service

Contract Act of 1965 (SCA) requires that

the Department of Labor (DOL)

determine locally-prevailing wages and

fringe benefits for the various classes of

service employees performing contract

work subject to the SCA. Contracts over

$2,500 (if the predecessor contract was

not subject to a collective bargaining

agreement) are required to contain wage

determinations issued by DOL that

specify the minimum monetary wages

and fringe benefits that must be paid to

the various classes of workers who

perform work on the service contract,

based upon rates determined by DOL to

be prevailing in the locality where the

work is to be performed. As discussed

previously, fringe benefit data are not

generally available on an occupationspecific or on a locality basis, which

prompted DOL to issue fringe benefit

determinations for health and welfare

based on nationwide data ever since

SCA was enacted.

The Service Employees International

Union (SEIU) sued DOL in March 1991

in the United States District Court for

the District of Columbia over the

longstanding administrative practice,

since 1976, of issuing two nationwide

rates for health and welfare fringe

benefits, and for failure to periodically

update SCA H&W fringe benefit levels

which, at that time, had not been

updated since 1986 (SEIU v. Martin, CA

No. 91–0605 (JFP) (D.D.C. April 1,

1992)). In this court challenge, the

district court remanded the case to DOL

for exhaustion of administrative

remedies and final agency action, which

led to the decision of DOL’s Board of

Service Contract Appeals that remanded

the matter to the Wage and Hour

Division to consider alternative

methodologies for implementing the

statutory objectives (BSCA Case No. 92–

01 (August 28, 1992) and Case No. 93–

08 (September 23, 1993)). The proposed

rulemaking alternatives are being

considered in order to develop a

methodology for establishing prevailing

SCA fringe benefits consistent with

statutory requirements. In the

meantime, SEIU moved the district

court to reopen its case against the

Department. The district court

dismissed the case without prejudice to

SEIU’s right to reopen for

reconsideration upon a showing that

DOL has not adopted a final rule in this

matter by July 31, 1996 (SEIU v. Reich,

CA No. 91–0605 (CRR) (D.D.C. January

19, 1996)).

(2) Objectives of and Legal Basis for

Rule

These regulations are issued under

the authority of the McNamara-O’Hara

Service Contract Act of 1965 (SCA) (41

U.S.C. 351 et seq.), Public Law 89–286,

79 Stat. 1034, as amended by Public

Law 92–473, 86 Stat. 789; by Public Law

93–57, 87 Stat. 140; and by Public Law

94–489, 90 Stat. 2358. The objective of

these regulations is to provide effective

procedures for implementing SCA’s

statutory requirement that DOL

determine prevailing health and welfare

fringe benefits that are to be specified in

wage determinations included in SCAcovered service contracts, which

benefits are required to be furnished to

the various classes of service employees

performing work on SCA-covered

contracts.

(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.24

Statistics published by the Internal

Revenue Service indicate that in 1990,

an estimated 20.4 million business tax

returns were filed for 4.4 million

corporations, 1.8 million partnerships,

and 14.2 million sole proprietorships,

most of which are ‘‘small’’—fewer than

7,000 would qualify as large businesses

if an employment measure of 500

employees or less is used to define

small and medium-sized businesses.25

Federal procurement data are

compiled and reported by the Federal

Procurement Data Center (FPDC) in the

Federal Procurement Data System

Federal Procurement Report

(Washington, D.C.: U.S. Government

Printing Office). The value of Federal

contracts and volume of contract

‘‘actions’’ are currently reported

individually to the FPDC for contract

actions exceeding $25,000; actions of

less than $25,000 are reported only in

the aggregate. A contract ‘‘action’’

differs from an initial contract ‘‘award’’

because a single contract may involve

more than one action—for example, a

modification to an initial contract award

is reported to the FPDC as a separate

action and may involve the obligation or

de-obligation of funds.

Small businesses were awarded $58.8

billion of the $184.2 billion spent by the

Federal government on goods and

services in Fiscal Year (FY) 1989,

including $31.6 billion awarded directly

to small firms and $27.2 billion awarded

to small subcontractors by Federal

prime contractors.26 Small firms

accounted for more than one-half (51.3
19780 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules

27 Ibid.

28 Id., pp. 223, 226 & 235–237.

29Federal Procurement Data System Standard

Report, Fiscal Year 1992, Fourth Quarter, pp. 74–

75.

30 Id., p. 74. 31 Id., p. 34.

percent) of the value of contracts under

$25,000, but only 14.1 percent of those

over $25,000 in FY 1989.27 Since FY

1979 when the FPDC first began

reporting procurement data regularly,

the share of Federal procurement dollars

awarded to small firms has fluctuated

between 14 and 16 percent over the

entire period—for FY 1989 it was 14.1

percent overall.

Of the major product/service

categories under which contract actions

are reported to the FPDC, the ‘‘other

services’’ category (which includes a

variety of non-construction activities

ranging from technical, sociological,

administrative, and other professional

services, to installation, maintenance,

and repair of equipment) amounted to

28.9 percent of the total Federal prime

contract actions reported individually in

FY 1989. Small businesses were

awarded $6.8 billion or 14.7 percent of

the contract dollars awarded for services

in FY 1989.28

This FPDC data on small business

awards does not correlate precisely with

the number of contract actions or

contract dollars awarded that are subject

to the SCA. However, the ‘‘services’’

category can be considered a reliable

proxy for analyzing the universe of

SCA-covered contracts reported to the

FPDC that may be awarded to small

businesses. Of a total 502,138 contract

actions valued at $177.8 billion that

were individually reported to the FPDC

in FY 1992 (i.e., actions over $25,000

each), 82,957 contract actions, valued at

$18.1 billion, were classified as subject

to the SCA.29 Of these awards, we

estimate that $2.66 billion (14.7 percent)

went to small businesses. These figures,

however, do not include any portion of

the contract actions not individually

reported but reported in summary to the

FPDC, which totaled 19.6 million

contract actions valued at $22.02

billion.30 Based upon the percentage of

contract actions and contract dollars in

the services category that were reported

individually to FPDC as being subject to

SCA, we estimate that an additional

2,905,696 actions, valued at $2.2 billion,

of the actions reported in summary to

the FPDC were subject to SCA. Of these

awards, we estimate that $1.1 billion (50

percent) went to small businesses.

No current employment data are

available by size of business that would

relate to Federal contracts awarded

subject to SCA. (The SBA measures

employment change on a current basis

for each small-or large-businessdominated industry using Bureau of

Labor Statistics payroll data.31)

(4) Reporting, Recordkeeping and Other

Compliance Requirements of the Rule

This proposed rule, which relates to

the procedures to be followed by DOL

for determining prevailing health and

welfare fringe benefits to be paid to

service employees working on Federal

service contracts covered by SCA,

contains no reporting, recordkeeping, or

other compliance requirements

applicable to small businesses.

However, some of the proposed

alternatives may involve additional

recordkeeping. All SCA-covered

contractors (including small businesses)

are required to maintain records

specified under 29 CFR Part 4 that

demonstrate compliance with the

statutory requirements to furnish

equivalent fringe benefits or cash

equivalents at not less than prevailing

rates.

(5) Relevant Federal Rules Duplicating,

Overlapping or Conflicting With the

Rule

There are currently no Federal rules

that duplicate, overlap or conflict with

this proposed rule.

(6) Differing Compliance or Reporting

Requirements for Small Entities

This proposed rule, as noted, relates

to DOL procedures for determining

prevailing health and welfare fringe

benefits for service employees on SCAcovered service contracts. At this time,

the rule contains no reporting,

recordkeeping, or other compliance

requirements applicable to small

businesses. Moreover, the requirement

to provide prevailing fringe benefits

applies to all contracts in excess of

$2,500, and establishing different

requirements for small entities is not a

valid alternative under the terms of the

statute. However, under the express

terms of the statute, all SCA-covered

contractors may discharge their

obligations to furnish prevailing fringe

benefits under SCA ‘‘* * * by

furnishing any equivalent combinations

of fringe benefits or by making

equivalent or differential payments in

cash under rules and regulations

established by the Secretary * * *,’’

which are set forth at 29 CFR § 4.177.

(7) Clarification, Consolidation and

Simplification of Compliance and

Reporting Requirements

As noted, this proposed rule

pertaining to DOL procedures for

determining prevailing fringe benefits

under SCA contains no new compliance

or reporting requirements for small

entities.

(8) Use of Other Standards

Given the stated objectives of the

statute, compliance by contractors can

only be achieved through performance

rather than design standards—i.e., the

Secretary is required by the Act to

determine the prevailing wages and

fringe benefits to be paid by service

contractors. The available alternative

methodologies that are being considered

and put forth in this proposed rule are

discussed in the preamble above and are

not repeated here.

(9) Exemption From Coverage for Small

Entities

Exemption from coverage under this

rule for small entities would not be

appropriate given the statutory mandate

of SCA that all contractors (large and

small) performing on SCA-covered

contracts furnish prevailing fringe

benefits to service employees

performing on Federal service contracts.

Further exclusion of such small

businesses from data collected to

determine prevailing fringe benefits

would also be impractical, and would

distort determinations of prevailing

fringe benefits, possibly to the detriment

of small businesses.

Summary

Based upon the foregoing analysis, the

revised procedures contained in this

proposed rule are expected to have a

‘‘significant economic impact on a

substantial number of small entities’’

within the meaning of the Regulatory

Flexibility Act. This impact is mitigated

in some respects by the statutory

authority for SCA-covered contractors to

discharge their obligations to furnish

prevailing fringe benefits by furnishing

any equivalent combinations of fringe

benefits or by making equivalent or

differential payments in cash.

Document Preparation

This document was prepared under

the direction and control of Maria

Echaveste, Administrator, Wage and

Hour Division, Employment Standards

Administration, U.S. Department of

Labor.

List of Subjects in 29 CFR Part 4

Administrative practice and

procedures, Employee benefit plans,
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules 19781

Government contracts, Investigations,

Labor, Law enforcement, Minimum

wages, Penalties, Recordkeeping

requirements, Reporting requirements,

Wages.

Signed at Washington, DC, on this 26th day

of April, 1996.

Maria Echaveste,

Administrator, Wage and Hour Division.

[FR Doc. 96–10797 Filed 5–1–96; 8:45 am]

BILLING CODE 4510–27–P