Nondisplacement of Qualified Workers Under Service Contracts, 53720-53762 [2011-21261]

Agencies

• Office of the Secretary
• DEPARTMENT OF LABOR

[Federal Register Volume 76, Number 167 (Monday, August 29, 2011)]
[Rules and Regulations]
[Pages 53720-53762]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-21261]



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Vol. 76

Monday,

No. 167

August 29, 2011

Part II





Department of Labor





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29 CFR Part 9





Nondisplacement of Qualified Workers Under Service Contracts; Final 
Rule

Federal Register / Vol. 76 , No. 167 / Monday, August 29, 2011 / 
Rules and Regulations

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DEPARTMENT OF LABOR

Office of the Secretary

29 CFR Part 9

RIN 1215-AB69;1235-AA02


Nondisplacement of Qualified Workers Under Service Contracts

AGENCY: Wage and Hour Division, Labor.

ACTION: Final rule.

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SUMMARY: In this final rule, the Department of Labor (Department or 
DOL) issues final regulations to implement Executive Order 13495, 
Nondisplacement of Qualified Workers Under Service Contracts. The 
Executive Order establishes a general policy of the Federal Government 
concerning service contracts and solicitations for service contracts 
for performance of the same or similar services at the same location. 
This policy mandates the inclusion of a contract clause requiring the 
successor contractor and its subcontractors to offer those employees 
employed under the predecessor contract, whose employment will be 
otherwise terminated as a result of the award of the successor 
contract, a right of first refusal of employment under the successor 
contract in positions for which they are qualified.

DATES: The effective date for this final rule is pending, and the 
Department will publish a notice in the Federal Register announcing the 
effective date once it is determined.

FOR FURTHER INFORMATION CONTACT: Timothy Helm, Branch Chief, Division 
of Enforcement Policies and Procedures, Branch of Government Contracts 
Enforcement, Wage and Hour Division, U.S. Department of Labor, Room S-
3014, 200 Constitution Avenue, NW., Washington, DC 20210; telephone: 
(202) 693-0064 (this is not a toll-free number). Copies of this notice 
may be obtained in alternative formats (Large Print, Braille, Audio 
Tape or Disc), upon request, by calling (202) 693-0023 (not a toll-free 
number). TTY/TDD callers may dial toll-free (877) 889-5627 to obtain 
information or request materials in alternative formats.

SUPPLEMENTARY INFORMATION: This regulatory action first appeared on the 
Spring 2009 Regulatory Agenda with regulatory identification number 
(RIN) 1215-AB69. Due to an organizational restructuring which resulted 
in the Wage and Hour Division becoming a free-standing agency within 
the Department, the RIN changed to 1235-AA02. Throughout this final 
rule, citations to various statutes such as the Service Contract Act 
have been revised to reflect the recodification of those Acts in 
January 2011.

I. Executive Order 13495 Requirements and Background

    On January 30, 2009, President Barack Obama signed Executive Order 
13495, Nondisplacement of Qualified Workers Under Service Contracts 
(Executive Order 13495, E.O. 13495, or Order). 74 FR 6103 (Feb. 4, 
2009). This Order establishes that when a service contract expires and 
a follow-on contract is awarded for the same or similar services at the 
same location, the Federal Government's procurement interests in 
economy and efficiency are better served when a successor contractor 
hires the predecessor's employees. A carryover workforce reduces 
disruption to the delivery of services during the period of transition 
between contractors and provides the Federal Government the benefits of 
an experienced and trained workforce that is familiar with the Federal 
Government's personnel, facilities, and requirements. As explained in 
the Order, the successor contractor or its subcontractors often hires 
the majority of the predecessor's employees when a service contract 
ends and the work is taken over from one contractor to another. 
Occasionally, however, a successor contractor or its subcontractors 
hires a new workforce, thus displacing the predecessor's employees.
    Section 1 of Executive Order 13495 sets forth a general policy of 
the Federal Government that service contracts and solicitations for 
service contracts shall include a clause that requires the contractor 
and its subcontractors, under a contract that succeeds a contract for 
performance of the same or similar services at the same location, to 
offer those employees (other than managerial and supervisory employees) 
employed under the predecessor contract, whose employment will be 
terminated as a result of the award of the successor contract, a right 
of first refusal of employment under the contract in positions for 
which they are qualified. Section 1 also provides that there shall be 
no employment openings under the contract until such right of first 
refusal has been provided. Section 1 further stipulates that nothing in 
Executive Order 13495 is to be construed to permit a contractor or 
subcontractor to fail to comply with any provision of any other 
Executive Order or law of the United States.
    As discussed above in the DATES section, this rule will not be 
effective until the Federal Acquisition Regulatory Council (FARC) 
issues regulations. The Executive Order requires the FARC to issue 
regulations in Section 6 of the Order, which is discussed in further 
detail below.
    Section 2 of Executive Order 13495 defines service contract or 
contract to mean any contract or subcontract for services entered into 
by the Federal Government or its contractors that is covered by the 
McNamara-O'Hara Service Contract Act of 1965 (SCA), as amended, 41 
U.S.C. 6701 et seq., and its implementing regulations. Section 2 also 
defines employee to mean a service employee as defined in the SCA. 74 
FR 6103 (Feb. 4, 2009). See 41 U.S.C. 6701(3).
    Section 3 of the Order exempts from its terms (a) contracts or 
subcontracts under the simplified acquisition threshold as defined in 
41 CFR 2.101; (b) contracts or subcontracts awarded pursuant to the 
Javits-Wagner-O'Day Act, 41 U.S.C. 8501-8506; (c) guard, elevator 
operator, messenger, or custodial services provided to the Federal 
Government under contracts or subcontracts with sheltered workshops 
employing the severely handicapped as described in section 505 of the 
Treasury, Postal Services and General Government Appropriations Act, 
1995, Public Law 103-329; (d) agreements for vending facilities entered 
into pursuant to the preference regulations issued under the Randolph-
Sheppard Act, 20 U.S.C. 107; and (e) employees who were hired to work 
under a Federal service contract and one or more nonfederal service 
contracts as part of a single job, provided that the employees were not 
deployed in a manner that was designed to avoid the purposes of the 
Order. 74 FR 6103-04 (Feb. 4, 2009).
    Section 4 of Executive Order 13495 authorizes the head of a 
contracting department or agency to exempt its department or agency 
from the requirements of any or all of the provisions of the Executive 
Order with respect to a particular contract, subcontract, or purchase 
order or any class of contracts, subcontracts, or purchase orders, if 
the department or agency head finds that the application of any of the 
requirements of the Order would not serve the purposes of the Order or 
would impair the ability of the Federal Government to procure services 
on an economical and efficient basis. 74 FR 6104 (Feb. 4, 2009).
    Section 5 of the Order provides the wording for the required 
contract clause regarding the nondisplacement of qualified workers that 
is to be included in solicitations for and service contracts that 
succeed contracts for performance of the same or similar services at 
the

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same location. 74 FR 6104-05 (Feb. 4, 2009). Specifically, the new 
contract clause provides that the contractor and its subcontractors 
shall, except as otherwise provided by the clause, in good faith offer 
those employees (other than managerial and supervisory employees) 
employed under the predecessor contract whose employment will be 
terminated as a result of award of the contract or the expiration of 
the contract under which the employees were hired, a right of first 
refusal of employment under the contract in positions for which they 
are qualified. The successor contractor and its subcontractors 
determine the number of employees necessary for efficient performance 
of the contract, and may elect to employ fewer employees than the 
predecessor contractor employed in performance of the work. Except as 
provided by the contract clause, there is to be no employment opening 
under the contract, and the successor contractor and any subcontractors 
shall not offer employment under the contract to any person prior to 
having complied fully with the obligation to offer employment to 
employees on the predecessor contract. The successor contractor and its 
subcontractors must make a bona fide, express offer of employment to 
each employee including stating the time within which the employee must 
accept such offer, which must be no less than 10 days. The clause also 
provides that, notwithstanding the obligation to offer employment to 
employees on the predecessor contract, the successor contractor and any 
subcontractors (1) May employ under the contract any employee who has 
worked for the contractor or subcontractor for at least 3 months 
immediately preceding the commencement of the contract and who would 
otherwise face lay-off or discharge; (2) are not required to offer a 
right of first refusal to any employee(s) of the predecessor contractor 
who are not service employees within the meaning of the SCA, 41 U.S.C. 
6701(3); and (3) are not required to offer a right of first refusal to 
any employee(s) of the predecessor contractor whom the successor 
contractor or any of its subcontractors reasonably believes, based on 
the particular employee's past performance, has failed to perform 
suitably on the job. The contract clause also provides that, in 
accordance with Federal Acquisition Regulation (FAR) 52.222-41(n), not 
less than 10 days before completion of the contract, the contractor 
must furnish the Contracting Officer a certified list of the names of 
all service employees working under the contract and its subcontracts 
during the last month of contract performance. The list must also 
contain anniversary dates of employment of each service employee under 
the contract and its predecessor contracts either with the current or 
predecessor contractors or their subcontractors. The Contracting 
Officer must provide the list to the successor contractor, and the list 
must be provided on request to employees or their representatives. If 
it is determined, pursuant to regulations issued by the Secretary of 
Labor, that the contractor or its subcontractors are not in compliance 
with the requirements of this clause or any regulation or order of the 
Secretary, appropriate sanctions may be imposed and remedies invoked 
against the contractor or its subcontractors, as provided in the 
Executive Order, the regulations, and relevant orders of the Secretary, 
or as otherwise provided by law. Finally, the clause provides that in 
every subcontract entered into in order to perform services under the 
contract, the contractor will include provisions that ensure that each 
subcontractor will honor the requirements of the clause in the prime 
contract with respect to the employees of a predecessor subcontractor 
or subcontractors working under the contract, as well as employees of a 
predecessor contractor and its subcontractors. The subcontract must 
also include provisions to ensure that the subcontractor will provide 
the contractor with the information about the employees of the 
subcontractor needed by the contractor to comply with the prime 
contractor's requirement, in accordance with FAR 52.222-41(n). The 
contractor must also take action with respect to any such subcontract 
as may be directed by the Secretary of Labor as a means of enforcing 
these provisions, including the imposition of sanctions for 
noncompliance; provided, however, that if the contractor, as a result 
of such direction, becomes involved in litigation with a subcontractor, 
or is threatened with such involvement, the contractor may request that 
the United States enter into the litigation to protect the interests of 
the United States. 74 FR 6104-05 (Feb. 4, 2009).
    Section 6 of the Order assigns responsibility for investigating and 
obtaining compliance with the Order to the Department. In such 
proceedings, this section also authorizes the Department to issue final 
orders prescribing appropriate sanctions and remedies, including, but 
not limited to, orders requiring employment and payment of wages lost. 
The Department also may provide that where a contractor or 
subcontractor has failed to comply with any order of the Secretary of 
Labor or has committed willful violations of Executive Order 13495 or 
its implementing regulations, the contractor or subcontractor, its 
responsible officers, and any firm in which the contractor or 
subcontractor has a substantial interest will be ineligible to be 
awarded any contract of the United States for a period of up to 3 
years. Neither an order for debarment of any contractor or 
subcontractor from further Government contracts under this section nor 
the inclusion of a contractor or subcontractor on a published list of 
noncompliant contractors is to be carried out without affording the 
contractor or subcontractor an opportunity for a hearing. Section 6 
also specifies that Executive Order 13495 creates no rights under the 
Contract Disputes Act, and disputes regarding the requirement of the 
contract clause prescribed by Section 5, to the extent permitted by 
law, will be disposed of only as provided by the Department in 
regulations issued under the Order. To the extent practicable, such 
regulations shall favor the resolution of disputes by efficient and 
informal alternative dispute resolution methods. Finally, Section 6 
provides that, to the extent permitted by law and in consultation with 
the FARC, the Department will issue regulations to implement the 
requirements of the Executive Order. In addition, to the extent 
permitted by law, the FARC is to issue regulations in the Federal 
Acquisition Regulation to provide for inclusion of the contract clause 
in Federal solicitations and contracts subject to the current Order. 
See 74 FR 6105 (Feb. 4, 2009).
    Section 7 of Executive Order 13495 revokes Executive Order 13204 of 
February 17, 2001, rescinding Executive Order 12933 of October 20, 
1994, Nondisplacement of Qualified Workers Under Certain Contracts. Id. 
See also 59 FR 53559 (Oct. 24, 1994), 66 FR 11228 (Feb. 22, 2001).
    Section 8 of the Order provides that if any provision of the Order 
or its application is held to be invalid, the remainder of the Order 
and the application shall not be affected.
    Section 9 of the Order specifies that nothing in Executive Order 
13495 is to be construed to impair or otherwise affect the authority 
granted by law to an executive department, agency, or the head thereof; 
or functions of the Director of the Office of Management and Budget 
(OMB) relating to budgetary, administrative, or legislative proposals. 
In addition, the Order is to be implemented consistent with applicable 
law and subject to the availability of appropriations, and the Order is 
not intended to, and does not, create any

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right or benefit, substantive or procedural, enforceable at law or in 
equity by any party against the United States, its departments, 
agencies, or entities, its officers, employees, or agents, or any other 
person. Section 9 clarifies, however, that the Order is not intended to 
preclude judicial review of final decisions by the Department in 
accordance with the Administrative Procedure Act, 5 U.S.C. 701 et seq. 
74 FR 6105-06 (Feb. 4, 2009).
    As indicated, Section 7 of Executive Order 13495, revoked Executive 
Order 13204, signed by President Bush on February 17, 2001, which 
rescinded Executive Order 12933, Nondisplacement of Qualified Workers 
Under Certain Contracts, signed by President Clinton on October 24, 
1994. More specifically, these rescinded Executive Orders pertained to 
the obligations of successor contractors to offer employment to 
employees of predecessor contractors on Federal contracts to maintain 
public buildings. See 59 FR 53559 (Oct. 24, 1994), 66 FR 11228 (Feb. 
22, 2001). The Department promulgated regulations, 29 CFR part 9 (62 FR 
28185) to implement Executive Order 12933 (62 FR 28176 (May 22, 1997)) 
and, per Executive Order 13204, rescinded them through a Notice 
appearing in the Federal Register. 66 FR 16126 (Mar. 23, 2001). There 
are some notable differences between Executive Order 13495, and 
Executive Order 12933. For example, Executive Order 13495 covers all 
contracts covered by the SCA above the simplified acquisition 
threshold, whereas Executive Order 12933 was limited to building 
services contracts in excess of the simplified acquisition threshold 
for maintenance of public buildings. In addition, exemptions listed for 
U.S. Postal Service, NASA, military, and Veterans Administration 
installations (among others) in Executive Order 12933 have been 
eliminated. A new provision authorizes the head of a contracting 
department or agency to exempt any of its contracts from the current 
Order if the agency finds the requirements would not serve the purposes 
of the Order or would impair the Federal Government's ability to 
procure services economically and efficiently. In addition, the current 
Order expressly provides that it applies to subcontracts awarded in 
amounts equal to or above the simplified acquisition threshold, while 
coverage under Executive Order 12933 was determined at the prime 
contract level. Subsequent to publication of the proposed rule upon 
which this final rule is responsive, the simplified acquisition 
threshold was raised to $150,000 from $100,000. 75 FR 53129 (August 30, 
2010) (codified at 41 CFR 2.101).

II. Discussion of Final Rule

    The Department published and sought comments on a proposed rule 
implementing the provisions of Executive Order 13495 on March 19, 2010 
(75 FR 13382 (Mar. 19, 2010)). A total of 21 comments were received 
from labor organizations, government contractors, and government agency 
contract personnel, among others. These comments are discussed in the 
following section-by-section analysis of the final rule.

Subpart A--General

    Executive Order 13495 does not establish wage or fringe benefit 
rates. The minimum wage and fringe benefit rates established under the 
SCA to be paid service employees will apply to work performed on 
service contracts covered by the Executive Order. SCA rates will apply 
equally to successor contracts with a workforce made up of employees 
who worked under the predecessor contract and to successor contracts 
with, under one of the Executive Order's exceptions, a workforce not 
made up of employees who worked under the predecessor contract. The SCA 
requires contractors and subcontractors performing services on prime 
contracts in excess of $2,500 to pay service employees in various 
classes no less than the wage rates and fringe benefits found 
prevailing in the locality, or the rates (including prospective 
increases) contained in a predecessor contractor's collective 
bargaining agreement as provided in wage determinations issued by the 
Department. These determinations are incorporated into the service 
contract.
    The Department received several comments opposing the Executive 
Order and questioning its stated purpose. For example, the Professional 
Services Council (PSC) questioned when private employment under a 
government contract became an immutable entitlement. The PSC and the 
Society for Human Resource Management (SHRM) doubted whether the 
Executive Order would fulfill its stated goals of promoting economy and 
efficiency in government procurement, and the Associated Builders and 
Contractors, Incorporated (ABC, Inc.), stated that there was no 
evidentiary support that nondisplacement of workers would result in 
greater efficiency. Comments questioning the legality of and rationale 
for the Executive Order are clearly not within the purview of this 
rulemaking action. All other comments are summarized in the preamble 
under the relevant subsections.
    Proposed subpart A addressed general matters, including the purpose 
and scope of the rule, its definitions, coverage under the Order, and 
the exclusions it provides.

Section 9.1 Purpose and Scope

    The Department proposed in Sec.  9.1 to explain the purpose of the 
proposed rule and to reiterate policy statements from the Executive 
Order. This section articulates the Executive Order's general 
requirement that successor service contractors performing on Federal 
contracts offer a right of first refusal to suitable employment (i.e., 
a job for which the employee is qualified) under the contract to those 
employees under the predecessor contract whose employment will be 
terminated as a result of the award of the successor contract, and 
emphasizes the Executive Order's underlying principle that the Federal 
Government's procurement interests in economy and efficiency are served 
when the successor contractor hires the predecessor's employees and 
that a carryover workforce both minimizes disruption in the delivery of 
services during a period of transition between contractors and provides 
the Federal Government the benefit of an experienced and trained 
workforce that is familiar with the Federal Government's personnel, 
facilities, and requirements. No comments were received on this 
section; the final rule therefore implements Sec.  9.1 as proposed, 
except with one additional sentence as discussed below.
    Specifically, Sec.  9.1 has been revised to include the following 
sentence: ``Additionally, the Order also provides that it is to be 
implemented consistent with applicable law and subject to the 
availability of appropriations.'' This sentence has been added to 
emphasize in particular that, as stated in Section 9 of the Order, the 
Order is to be implemented consistent with applicable law. Along 
similar lines, Section 1 of the Order provides, as noted, that nothing 
in the Order shall be construed to permit a contractor or subcontractor 
to fail to comply with any provision of any other Executive Order or 
law of the United States. The applicable law encompassed by these 
Sections includes, for example, the HUBZone program established by 
title VI of the Small Business Reauthorization Act of 1997, Executive 
Order 11246 (Equal Employment Opportunity), and the Vietnam Era 
Veterans' Readjustment Assistance Act of 1974. When (and only when) the 
requirements of such laws

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would conflict with the requirements of Executive Order 13495 under the 
particular factual circumstances of a specific situation, then the 
requirements of such laws may be satisfied in tandem with--and, when 
necessary, prior to--the requirements of Executive Order 13495.
    For example, HUBZone small business concerns (SBCs) are required to 
have 35 percent of all of their employees reside in a HUBZone. When 
both the successor and the predecessor contractors are SBCs, the 
residence requirement threshold normally could be met through a 
standard application of this final rule. Under circumstances where the 
successor is a SBC but the predecessor is not, we believe that HUBZone 
SBCs can still meet both the requirements of the HUBZone program and 
the Executive Order. For instance, the successor SBC awardee could 
first extend offers of employment to the qualified predecessor 
awardee's employees that reside in a HUBZone. If necessary to reach the 
residency threshold, the successor HUBZone SBC would next extend offers 
of employment to qualified residents of a HUBZone who were not 
employees of the predecessor. The HUBZone SBC could next extend offers 
for the remaining vacancies to non-HUBZone resident qualified employees 
of the predecessor awardee. The HUBZone SBC would need to first ensure 
that it meets the statutory requirements of the HUBZone program so that 
it is not decertified, and must consider the predecessor's employees 
pursuant to the Executive Order in doing so. This approach would also 
apply in other circumstances, such as where the predecessor HUBZone SBC 
did not maintain the HUBZone residence requirement but was permitted to 
remain in the program. While the HUBZone SBC must maintain the 35 
percent HUBZone residency requirement at all times while certified in 
the program, there is an exception: an SBC may ``attempt to maintain'' 
this requirement when performing on a HUBZone contract. When that 
occurs and the HUBZone SBC is permitted to fall below the 35 percent 
threshold, it still must meet the requirement any time it submits a 
subsequent offer and wins a HUBZone contract.

Section 9.2 Definitions

    The proposed rule included definitions of several important terms, 
such as ``contractor'', ``month'', ``same or similar service'', 
``managerial employee and supervisory employee'', and ``employee or 
service employee''. The Department received comments on only two of the 
proposed definitions.
    The Department proposed to define ``employee or service employee'' 
to mean a service employee as defined in the Service Contract Act of 
1965, 41 U.S.C. 6701(3). The Service Employees International Union 
(SEIU) and Change to Win commented that they agreed with this proposed 
definition as it is based on the definition under the SCA. No other 
comments were received on this definition and it is adopted as 
proposed.
    The Department proposed to define ``managerial or supervisory 
employee'' to mean a person engaged in the performance of services 
under the contract who is employed in a bona fide executive, 
administrative, or professional capacity, as those terms are defined in 
29 CFR part 541, and specifically sought comments on this proposed 
definition. The PSC and American Federation of Labor and Congress of 
Industrial Organizations (AFL-CIO) supported the proposed definition. 
The PSC commented that ``adopting a different definition would lead to 
unnecessary confusion about the proper standard to apply in different 
situations, could lead to unintended consequences regarding coverage, 
and would create a trap for unwary contractors.''
    The American Maritime Officers Union (AMOU) suggested the 
Department define the term ``managerial or supervisory employee'' 
through reference to definitions set forth in the National Labor 
Relations Act (NLRA) or established by the National Labor Relations 
Board (NLRB). The American Maritime Association (AMA) stated that the 
proposed definition will not clarify the scope of the supervisory and 
managerial exclusion and would result in the unintended consequence of 
removing most ``supervisors'' from the scope of the exclusion. The AMA 
further commented that the proposed definition of managerial and 
supervisory employee would require the successor contractor to hire 
supervisory employees of the predecessor contractor, which would 
contradict the intent of the Executive Order. The Chamber of Commerce 
of the United States of America (Chamber) commented that the definition 
of managerial and supervisory employees should be more expansive than 
the Department proposed. The Chamber also suggested, like the AMOU, 
that the Department use the definitions of these terms under the NLRA. 
The Chamber added that the definition proposed by the Department 
renders the words ``other than managerial and supervisory employee'' in 
the Executive Order superfluous because any employee employed in a bona 
fide executive, administrative, or professional capacity, as those 
terms are defined in 29 CFR Part 541, is not a service employee under 
the SCA. The SHRM similarly urged the Department to embrace the 
definition of ``supervisor'' under the NLRA and recommended that the 
Department consider how NLRB case law treats the term ``manager.'' This 
recommendation, according to the commenter, would ``avoid a 
proliferation and possible contradiction of statutory and regulatory 
definitions making good-faith compliance more difficult.''
    The Department carefully considered the comments received on the 
definition of ``managerial or supervisory employee'' but is unconvinced 
that defining the term in accordance with the NLRA or NLRB caselaw is 
appropriate for the purpose of this Executive Order. As discussed in 
the preamble to the proposed rule, Sections 1 and 5 of the Executive 
Order parenthetically exclude from its requirements managerial and 
supervisory employees, without defining the term. It is the 
Department's view that this is a reiteration, not an expansion, of the 
exemption included in the SCA. Defining ''managerial or supervisory 
employee'' consistent with the SCA definition excludes any person 
employed in a bona fide executive, administrative, or professional 
capacity as those terms are defined in the regulations issued under the 
Fair Labor Standards Act (FLSA), 29 U.S.C. 203 et seq., at 29 CFR part 
541. Such employees are exempt from the provisions of the SCA and need 
not be offered employment on the successor contract. Thus, the 
successor contractor has complete discretion to decide whom to employ 
as managers and supervisors on the contract. If a service employee of 
the predecessor contractor is qualified for a managerial or supervisory 
position, an offer of employment in that classification would satisfy 
the successor's obligation to offer the employee employment on the 
contract, but the successor contractor is under no obligation to make 
an offer to such a position. Of course, the Department does not 
administer or enforce the NLRA and it is the Department's view that use 
of SCA definitions with which contractors are already familiar will 
facilitate good-faith compliance, rather than making compliance more 
difficult. Contrary to the view of the Chamber, the Department believes 
this definition supports and clarifies the policy statement in the 
Executive Order, which affords the right to an offer of

[[Page 53724]]

employment to those service employees who are not managerial or 
supervisory employees.
    The proposed rule defined ``same or similar service'', in relevant 
part, to mean a service that is either identical to or has 
characteristics that are alike in substance and essentials to another 
service. After consideration, the Department has altered this 
definition to avoid inconsistency with the Executive Order. The 
language of the proposed definition could have resulted in the 
exclusion of some ``similar'' services in contravention of the Order. 
For example, it is the Department's understanding that the term ``same 
or similar service'' is broader and more inclusive than the term 
``substantially the same services'' that is used in the SCA. See 41 
U.S.C. 6707(c). Therefore, the Department has refined the proposed 
definition at Sec.  9.2(13) to mean a service that is either identical 
to or has characteristics that are alike in substance to a service 
performed at the same location on a contract that is being replaced by 
the Federal Government or a contractor on a Federal service contract. 
Apart from that change, the final rule implements the definitions as 
proposed.

Section 9.3 Coverage

    Proposed Sec.  9.3 discussed application of the rule and the 
Executive Order to all service contracts and their solicitations that 
succeed contracts for the same or similar service at the same location, 
except those specifically excluded by Sec.  9.4. No comments were 
received on this proposed section and the final rule adopts proposed 
Sec.  9.3 without change.

Section 9.4 Exclusions

    Proposed Sec.  9.4 would implement the exclusions contained in 
Sections 3 and 4 of Executive Order 13495. Proposed Sec.  9.4(a)(1) 
addressed the exclusion for contracts or subcontracts under the 
simplified acquisition threshold, as defined in 41 CFR 2.101. 74 FR 
6103 (Feb. 4, 2009). The simplified acquisition threshold, at the time 
the NPRM was published was $100,000; it has since been increased to 
$150,000. 41 CFR 2.101. In contrast to the prior version of part 9, the 
proposal did not state that amount in the regulatory text so that in 
the event that a future statutory amendment changes the amount, any 
such change would automatically apply to contracts subject to part 9.
    Proposed Sec.  9.4(a)(2) explained how the exclusion applies to 
subcontracts, including when a successor contractor discontinues the 
services of a subcontractor. The Department interprets the exclusion 
for contracts and subcontracts under the simplified acquisition 
threshold as applying to subcontracts of less than $150,000, even when 
the prime contract is for a greater amount because of the definition of 
a service contract in Section 2(a) of the SCA and the express terms of 
the exclusion in Section 3(a) of Executive Order 13495. However, while 
the proposed Sec.  9.4(a)(1) exclusion would apply to subcontracts of 
less than $150,000, the covered prime contractor or higher tier 
subcontractor would still be required to comply with the requirements 
of this part. Moreover, if a covered contractor that is subject to the 
nondisplacement requirements were to discontinue the services of a 
subcontractor at any time during the contract and perform those or 
similar services itself at the same location, the contractor would be 
required to offer employment to the subcontractor's employees who would 
otherwise be displaced and would otherwise be covered in accordance 
with this part but for the size of the subcontract. As noted in the 
preamble to the proposed rule, the earlier Executive Order 12933 
excluded prime contracts under the simplified acquisition threshold but 
did not mention subcontracts. The Chamber requested additional guidance 
regarding the application of the Executive Order to subcontracts. The 
Department has concluded that proposed Sec.  9.4(a)(2) is sufficiently 
instructive; as no other comments were received on this paragraph, no 
revisions have been made to proposed Sec.  9.4(a) and it is implemented 
in the final rule without change.
    Proposed Sec.  9.4(b) implemented the exclusions applicable to 
certain contracts or subcontracts awarded for services produced or 
provided by persons who are blind or have severe disabilities. 74 FR 
6103-4 (Feb. 4, 2009). Proposed Sec.  9.4(b)(4) clarified that the 
exclusions provided by Sec.  9.4(b)(1) through (b)(3) apply when either 
the predecessor or successor contract has been awarded for services 
produced or provided by the blind or severely disabled, as described. 
To require Federal service contractors who obtain their work under the 
specified set-aside programs to offer employment to the predecessor 
contractor's employees would defeat the purpose of these programs to 
allow people to participate in the workforce who otherwise would not be 
able to do so. No comments were received on this paragraph and the 
final rule implements proposed Sec.  9.4(b) without change.
    Proposed Sec.  9.4(c) implemented the exclusion in Section 3(e) of 
Executive Order 13495 relating to employment where Federal service work 
constitutes only part of the employee's job. 74 FR 6104 (Feb. 4, 2009). 
This exclusion applies to an employee who was hired to work on the 
predecessor's contract and one or more nonfederal jobs. No comments 
were received on this paragraph and the final rule adopts proposed 
Sec.  9.4(c) without change. See Sec.  9.12(c)(5) (discussion of 
implementation of section 3(e) of the Executive Order).
Section 9.4(d) Contracts Exempted by Federal Agency
    Section 9.4(d) implements the Section 4 exclusion in the Executive 
Order that provides that the head of a contracting department or agency 
may exempt its department or agency from the requirements of any or all 
of the provisions of the Executive Order with respect to a particular 
contract, subcontract, or purchase order, or any class of contracts, 
subcontracts, or purchase orders, if the department or agency head 
finds that the application of any of the requirements of the Executive 
Order would not serve the purposes of the Executive Order or would 
impair the ability of the Federal Government to procure services on an 
economical and efficient basis. 74 FR 6104 (Feb. 4, 2009).
    A number of commenters addressed issues relating to proposed 
language concerning the exemption authority of Federal agencies, 
including the notification and timing requirements relating to the 
exemption process, the factors agencies should use when considering 
whether to exempt contracts, and whether exemption decisions should be 
reviewable by and appealable to the Secretary of Labor.
    The introductory language of paragraph (d) remains as proposed 
except for a minor clarification specifying that the authority for 
contracting department or agency heads to exempt certain contracts from 
the Executive Order stems from Section 4 of the Order.
Section 9.4(d)(1) Agency Determination No Later Than the Solicitation 
Date
    Section 9.4(d)(1) of the proposed rule limited the time in which an 
agency may decide to exempt contracts to no later than the solicitation 
date. This limitation was intended to ensure that the contract clause 
is included in the solicitation, if applicable, as required by the 
Executive Order.
    Two commenters addressed this issue. The Chamber opposed the

[[Page 53725]]

requirements that the agency exemption decision be made by the 
solicitation date and that the decision be supported by a written 
analysis in which the agency compares anticipated outcomes under both a 
carryover workforce and a non-carryover workforce scenario. It asserted 
that these requirements would significantly limit the contracting 
agency's exercise of its waiver authority and would prevent the 
contracting agency from having ``the full benefit of the contractors' 
bids/proposals, many of which might include significant cost savings or 
other improvements in contract performance if the contract was exempted 
from coverage.''
    A labor advisor with the United States Navy (Navy Labor Advisor), 
asserted that the final regulations should remove the time limitation 
for agency exemption decisions, which he characterized as ``an 
unwarranted infringement on agency deliberations and decisions that are 
essential to the mission of each agency.'' He added that the time 
limitation was not needed to ensure that the contract clause is 
included in the solicitation because, under procurement practices and 
the Federal Acquisition Regulation, ``any solicitation may be amended 
to correct oversights, errors, or changes to the originally issued 
document * * *''.
    After carefully considering the comments, the Department has 
decided to adopt the proposed time limitation for agency exemption 
decisions to ensure that solicitations accurately reflect agency 
exemption determinations, either including the contract clause required 
by the Executive Order or omitting it following an agency exemption 
determination. This time limitation will ensure that the predecessor 
contractor's service employees, as well as prospective bidders, receive 
timely notice of the agency's decision. The Department has added 
language providing that the failure to follow this procedural 
requirement shall render any agency exemption decision inoperative and 
require the inclusion or addition of the clause in Appendix A of the 
final rule in the solicitation and any resulting contract, subcontract, 
or purchase order, or class of contracts, subcontracts, or purchase 
orders.
Section 9.4(d)(2) and Sec.  9.4(d)(3) Written Notice to Affected 
Workers of Finding and Decision No Later Than Solicitation Date Using 
the Notification Method Specified in Sec.  9.11(b)
    Under Sec.  9.4(d)(2) and Sec.  9.4(d)(3), the Department proposed 
that when an agency exercises its exemption authority, it is required 
to notify ``affected workers in writing of the finding and decision no 
later than the award date'' either in an individual notice given to 
each worker or through a posting at the location where the work is 
performed. The notification would need to include facts supporting the 
decision and use the method specified in proposed Sec.  9.11(b).
    A number of commenters addressed this issue. The Chamber stated 
that requiring an agency to provide written notification to all 
affected workers that it will be exercising its exemption authority--
including the facts supporting its decision--would significantly limit 
the agency's exercise of its authority.
    A Navy Labor Advisor commented that the notification requirement is 
not supported by the language of the Executive Order and is not 
possible for agencies to fulfill under current recordkeeping rules for 
employment and protection of personally identifiable information. He 
further indicated that the prime contractor, not the contracting 
agency, should be required to notify affected workers of a waiver. He 
also stated that agencies lack ``access to workers or the ability to 
require personally identifiable information,'' and that under certain 
circumstances, contracting agencies may lack knowledge of who these 
service employees are or how to provide them with notice of the waiver 
decision. He added that agencies do not retain postal or e-mail 
addresses for these service employees; that under certain 
circumstances, there may be no appropriate place for a contracting 
agency to post a notice; that the methods called for in the proposed 
rule would infringe on the privacy of workers in question; that 
``neither the Service Contract Act nor the Executive Order provides any 
rationale or authority to collect such information and no other laws or 
regulations would require or allow contractors to provide this personal 
identifiable information (PII) to the contracting agencies,'' and that 
agencies seek to avoid establishing a `` `personal service' type 
relationship where employees are perceived to be directly employed by 
the contracting agency.'' An individual commenter also expressed 
concern that the proposed rule could lead to the appearance of personal 
services contracts.
    The AFL-CIO stated that the final rule should clarify that agencies 
must provide written notice of their intent to exempt a contract to the 
labor union, if any, that represents the incumbent workers. It also 
asserted that instead of the date of contract award, notice should be 
provided at least 180 days before the contract award to ``allow 
employees and their bargaining representative to have sufficient time 
to analyze the asserted reasons for the proposed exemption, and, if 
warranted, to challenge the exemption.''
    The SEIU and Change to Win supported the requirement that 
contracting agencies provide written notice of an exemption decision to 
affected workers, but stated that the final rule should clarify that 
notice must also be provided to the labor union, if any, that 
represents the incumbent workers. They noted that other provisions of 
the proposed rule provided for the worker representative to receive 
notice or to make a complaint on behalf of service workers. They also 
stated that the final rule should require notice of an exemption 
decision ``sufficiently in advance of the solicitation to bid'' to 
allow affected workers and their representatives the opportunity to 
respond to the exemption, and if necessary contest it through an 
administrative review process. They suggested that such notice be 
provided no later than 120 days before the solicitation date.
    After careful consideration of the comments, the Department has 
decided to adopt the proposed language requiring notification with five 
changes. It remains the Department's view that service employees are 
entitled to written notice of an agency exemption decision. However, we 
agree with the aforementioned commenters that the obligation to provide 
the notice should rest with the contractor, and not the contracting 
agency. Section 9.4(d)(2) and Sec.  9.4(d)(3) have been revised to 
reflect that the ``contracting agency shall ensure that the predecessor 
contractor notify affected workers and their collective bargaining 
representatives in writing of its determination no later than five 
business days after the solicitation date'' and that ``the agency shall 
ensure that the predecessor contractor uses the notification method 
specified in Sec.  9.11(b) of this part to inform workers and their 
collective bargaining representatives of the exemption determination.'' 
An agency exercising exemption authority will need to ensure that 
affected workers ``and their collective bargaining representatives'' 
are notified of the finding and decision, in writing, no later than 
five business days after the ``solicitation'' date, i.e., the date the 
solicitation is issued. The added language is needed to keep the 
provision consistent with other provisions in the rule and to provide 
those affected by the exemption decision with additional time to

[[Page 53726]]

consider their employment options. (See Sec.  9.11(b); Sec.  9.21(a).) 
For clarity, the Department has also added language providing that the 
failure to follow this requirement shall render any agency exemption 
decision inoperative and require the inclusion of the clause in 
Appendix A of the final rule in the solicitation and any resulting 
contract, subcontract, or purchase order, or class of contracts, 
subcontracts, or purchase orders.
    The Department considers that written notification be provided to 
affected workers and their collective bargaining representatives of its 
exemption finding and decision--including facts supporting the 
decision--by no later than the solicitation date as consistent with the 
President's commitment to openness and transparency in government. See 
January 21, 2009, Memorandum for the Heads of Executive Departments and 
Agencies. 74 FR 4685 (Jan. 21, 2009). Also in the interest of openness 
and transparency in government, language has been added to this 
subsection stating that the contracting agency shall notify the 
Department of its exemption decision and provide the Department a copy 
of its written analysis no later than 5 business days after the 
solicitation date, which the Department will post on its Web site at 
www.dol.gov. Language has been added providing that the failure to 
follow this requirement shall render any agency exemption decision 
inoperative and require the inclusion of the clause in Appendix A of 
the final rule in the solicitation and any resulting contract, 
subcontract, or purchase order, or class of contracts, subcontracts, or 
purchase orders.
    In response to comments stating that notice of the exemption 
decision needs to be made at an earlier time than the contract award 
date for affected workers or their collective bargaining 
representatives to contest the decision with the agency, the Department 
has changed the time by which notice of the exemption decision must be 
provided from the award date to no later than five business days after 
the solicitation date. This change provides increased time for affected 
workers and their collective bargaining representatives to seek 
reconsideration of an exemption decision by the head of the contracting 
department or agency without burdening the agency with providing notice 
prior to the solicitation date, the date by which the decision must be 
made. The notification requirement should not be burdensome to fulfill 
because service contractors on Federal service contracts are already 
required to maintain, and make available for inspection and 
transcription, basic employment information concerning their employees, 
including their names and addresses. See 29 CFR 4.6.
Section 9.4(d)(4) Factors and Analysis for Written Agency Determination
    Section 9.4(d)(4) of the proposed rule provided that when 
exercising the authority to exempt contracts, the agency shall prepare 
a written analysis supporting the determination that application of the 
nondisplacement provisions would not serve the purposes of the 
Executive Order or would impair the ability of the Federal Government 
to procure services on an economical and efficient basis. A number of 
commenters addressed this issue. Before addressing those comments 
individually, the Department believes that it may be helpful to 
summarize both what an exemption determination accomplishes and why the 
wage and fringe benefit costs of the predecessor contractor are rarely 
germane to such a determination.
    Executive Order 13495 and this final rule simply require a 
successor contractor and its subcontractors to offer a right of first 
refusal of employment on a successor contract to qualified service 
employees who are employed under the predecessor contract and whose 
employment would otherwise be terminated as a result of the award of 
the successor contract. When a contracting agency decides to exempt a 
contract from the Executive Order, that decision reflects a 
determination that none of the service employees on the predecessor 
contract should have a right to employment on the successor contract. A 
decision not to provide a single employee on the predecessor contract 
with a right to employment on the successor contract generally runs 
counter to the purpose of Executive Order 13495, which recognizes that 
the Federal Government's procurement interests in economy and 
efficiency are served when a successor contractor hires the 
predecessor's employees
    Although an exemption decision can be expected to have a profound 
impact on whether the employees on a predecessor contract are 
discharged or retained, it would generally have little, if any impact 
on the successor's wage and fringe benefit costs. The Executive Order 
does not establish what wages or fringe benefits the successor employer 
pays any of its employees. Regardless of whether a contracting agency 
exempts a contract from the requirements of the Executive Order, SCA-
mandated wage rates and fringe benefits still will apply to the 
successor contractor. An exemption determination simply determines who 
receives an offer of employment on the successor contract at whatever 
rate the contracting agency and/or the successor contractor choose (as 
long as that rate at least equals the applicable SCA rate). Given these 
realities, any focus at the exemption stage on wage rates or related 
cost-savings is misplaced.
    As noted, the SCA establishes the minimum wage rates and fringe 
benefits to be paid to service employees on a contract for services. 
These minimum wage rates and fringe benefits can result from the SCA 
prevailing wage and fringe benefit rates or, under Section 4(c) of the 
SCA, the wages and fringe benefits that service employees would have 
been paid under any collective bargaining agreement that would have 
applied had the predecessor contractor retained the service contract. 
47 U.S.C. 6707(c); 29 CFR 4.163(a). In either case, the SCA sets a 
floor for wage rates and fringe benefits, and, as noted, that floor 
will apply regardless of whether an agency exempts a contract from the 
requirements of the Executive Order. The SCA's wage requirements thus 
buttress the Department's view that, as noted above, wage and fringe 
benefit costs on successor service contracts could rarely serve as the 
basis for any agency to exercise its exemption authority.
    Finally, it is important to understand that a contracting agency 
remains free to consider wage rates and fringe benefits at other stages 
of the contracting process when it would normally consider such costs. 
A contracting agency can, for example, consider wage rates and fringe 
benefit costs at the solicitation stage for purposes other than 
exercising exemption authority, provided that the agency's 
consideration of such costs is in accordance with the SCA and other 
applicable law. Similarly, bidders on service contracts may base their 
bids on the minimum wage rates and fringe benefits required by the SCA 
(including, where applicable, wage rates and fringe benefits required 
by section 4(c) of the SCA). A contracting agency also may consider 
wage rates and fringe benefit costs at the contract award stage, and 
may award the contract (if it so chooses and if the award is otherwise 
consistent with applicable law) to a prospective contractor whose bid 
reflects the payment of the minimum wage rates and fringe benefits 
required by the SCA. Thus, the decision to exempt a successor from the 
requirement to offer jobs to the predecessor's workforce does not 
interfere with the agency's ability to consider the costs, including 
the labor costs, of potential contractors. However, the fact that wage 
rates thus may change between contracts should not be used to

[[Page 53727]]

deprive service employees on the predecessor contract of any right to 
an offer of employment on the successor contract.
    Turning to the specific comments received, the Chamber stated that 
the determination of relevant factors in the agency exemption analysis 
should be left to the discretion of the contracting agency because 
``[t]he contracting agency knows better than DOL what costs and other 
factors are most significant to a particular contract.'' It found 
unclear the purpose of a written determination in light of its 
conclusion that there does not appear to be any right of appeal 
regarding the agency's decision.
    The PSC stated that the contracting agency should be able to 
delegate its exemption authority to the Contracting Officer for use 
whenever it would be in the best interests of the government. It stated 
that the Contracting Officer is the government official best positioned 
to identify the government's needs and act in its best interests and 
that the delegation and less rigorous standard would ``eliminate the 
stigma that a waiver can only be considered in rare circumstances or 
represents a failure to adhere to government policy.'' It found that 
the proposed standard ``suggests that the government must first conduct 
a highly-technical, objective market survey or analysis to determine 
whether services can be economically and efficiently obtained.'' The 
PSC also stated that ``collective poor performance of an incumbent 
labor staff or its resistance to change management'' may not impair the 
government's ability to obtain services on an economical or efficient 
basis, but that in such circumstances the contract should be excludable 
because it may ``prevent the government from obtaining the highest 
quality services.'' Similarly, the HR Policy Association asked whether 
agency dissatisfaction with a predecessor contractor because of 
inefficient work or poor performance by service employees would provide 
a ``sufficient justification for the contracting agency to exempt the 
contract or for the agency to authorize certain employees with 
performance issues'' to be replaced. TechAmerica, an industry 
association representing the technology industry, requested that the 
Department consider an exception from the nondisplacement requirements 
when the predecessor contract has been terminated for default or cause.
    A Navy Labor Advisor stated that the requirement of a written 
analysis supporting an agency's determination of exemption is ``an 
unnecessary and unsupportable directive to the contracting agencies by 
DOL,'' and requested that it be removed. An individual commenter stated 
that when an agency considers the cost of the nondisplacement 
requirements for a particular contract or class of contracts, it should 
also consider the savings to successor contractors derived from ``a 
supply of qualified, experienced service employees.''
    The AFL-CIO stated that agencies should only be permitted to exempt 
contracts based on non-cost factors, and not on anticipated labor cost 
savings, after making ``a strong and affirmative showing that an 
exemption is required in order to provide an essential government 
service.'' This commenter added that the need to provide an essential 
government service in emergency circumstances could provide an 
appropriate basis to exempt a service contract. For example, the 
government's ability to provide necessary services could be seriously 
impaired as a result of ``a natural disaster, an act of war, or a 
terrorist attack [that] physically displaces incumbent employees from 
the geographic location in which they are employed, [making] it 
impossible for a successor contractor to reach such employees through 
any economically-reasonable efforts in order to extend the job offers 
required by the nondisplacement rule.''
    The SEIU and Change to Win asserted that the agency exemption 
authority should be narrowly construed and that agencies should be 
required to substantiate the findings on which they base an exemption. 
These commenters further stated that an agency should exempt a contract 
only if the agency can present clear proof that application of the 
Executive Order to the contract would seriously impair the ability of 
the Federal Government to procure services, such as in circumstances 
where ``the agency cannot procure the needed services if the Executive 
Order is applied.'' They added that there should exist an 
``irrebuttable presumption that the Executive Order does not impair the 
ability of the Federal Government to procure services'' where, in the 
past, a Federal service contract has involved the successor hiring all 
or most of the predecessor's workers, because it has been demonstrated 
that the agency is able to procure those services with a carryover 
workforce. Concerned that a broad application of the waiver authority 
could defeat the purpose of the Executive Order, the SEIU and Change to 
Win stated that the agency waiver provision of the Executive Order 
``could not have been meant to create a means by which agencies could 
easily exempt some or all of their service contracts.'' Like the AFL-
CIO, they asserted that anticipated labor cost savings, including the 
use of a workforce with less seniority, should never be an appropriate 
justification for an agency exemption.
    As with other exemptions applicable to labor standards, the 
Department interprets the exemption authority of the agencies under 
Section 4 of the Executive Order to be narrow. The Executive Order 
states that the Federal Government's procurement interests in economy 
and efficiency are served when the successor contractor hires the 
predecessor's employees. This conclusion is predicated on the 
determination that a carryover workforce reduces disruption to the 
delivery of services during the period of transition between 
contractors and provides the Federal Government the benefits of an 
experienced and trained workforce that is familiar with the Federal 
Government's personnel, facilities, and requirements. Therefore, the 
Executive Order reflects a presumption that nondisplacement is in the 
interest of the Federal Government for each contract, class of 
contracts, subcontract, or purchase order, and the head of a 
contracting department or agency should only exercise exemption 
authority in those instances when the presumption can be clearly 
overcome based on a finding that nondisplacement would not serve the 
purposes of the Executive Order or would impair the ability of the 
Federal Government to procure services on an economical and efficient 
basis. The basis for such a finding must not be arbitrary and 
capricious. The regulations require a reasoned and transparent written 
analysis to support the decision to claim the exemption, because the 
Executive Order provides that it is normally in the government's 
interest to use a carryover workforce.
    In the proposal, the Department specifically requested comments 
concerning proposed Sec.  9.4(d) and what, if any, specific guidance 
the regulation should provide regarding the consideration of cost and 
other factors in exercising an agency's exemption authority, including 
guidance regarding what information should be included in the agency's 
written analysis supporting a decision to exercise exemption authority. 
For example, the Department sought comments on what costs would be most 
appropriately considered in determining whether application of the 
Executive Order's requirements would not serve the purposes of the 
Executive Order or would impair the ability of the Federal Government 
to procure services on an economical and efficient basis,

[[Page 53728]]

and how much weight should be given to such costs. Although the AFL-CIO 
and the SEIU and Change to Win responded concerning whether the 
regulation should restrict a contracting agency's ability to exercise 
the exemption based solely on a demonstration that the cost of the 
predecessor contractor's workers is greater than the cost of hiring new 
employees, no specific responses were received to other related 
inquiries, such as how an agency could project cost savings, whether a 
contracting agency should be prohibited from making projections based 
on how it believes a successor contractor may reconfigure the contract 
or wages to be paid, and what non-cost factors are most appropriately 
considered in determining whether application of the Executive Order's 
requirements would or would not serve the purposes of the Executive 
Order or impair the ability of the Federal Government to procure 
services on an economical and efficient basis, and how much weight 
should be given to such non-cost factors.
    After careful consideration of the comments received, and based on 
the purposes of the Executive Order, the Department believes it is 
appropriate to add language to Sec.  9.4(d)(4) explaining the framework 
and factors that may be used as well as what factors shall not be used, 
when conducting an analysis of relevant facts in order to make an 
exemption decision. Language has also been added to clarify that the 
failure to properly make such a written analysis shall render the 
exemption inoperative and require the inclusion of the clause in 
Appendix A of the final rule in the solicitation and any resulting 
contract, subcontract, or purchase order, or class of contracts, 
subcontracts, or purchase orders.
    An agency determination that the nondisplacement requirements would 
not serve the purpose of the Executive Order, or would impair the 
ability of the Federal Government to procure the services on an 
economical and efficient basis, must be supported with a detailed 
written analysis. Such a written analysis, among other things, shall 
compare the anticipated outcomes of hiring predecessor contract 
employees against those of hiring a new workforce. The consideration of 
costs and other factors should reflect the basic finding in the 
Executive Order that the government's procurement interests in economy 
and efficiency are normally served when the successor contractor hires 
the predecessor's employees, and should demonstrate how, in the 
particular factual circumstances, the finding does not apply. As 
discussed earlier, because the Executive Order simply requires the 
successor to offer a job to the predecessor's employees, and because of 
the minimum wage and fringe benefit rates applicable to employees that 
are independently established by the requirements of the SCA, the 
contracting agency's exemption decision should rarely take wage and 
fringe benefit rates into account. Therefore, a contracting agency's 
decision to exercise the exemption should rarely be based on a 
demonstration that the wages and fringe benefits paid to the 
predecessor contractor's workers are in some manner greater than the 
wages and fringe benefits to be paid to new employees. Instead, the 
written analysis typically must demonstrate that the cost savings other 
than wages and fringe benefits clearly outweigh the benefits of 
retaining the predecessor's workers under the criteria provided in 
Section 4 of the Executive Order.
    As for factors other than cost, the Executive Order presumes that 
``a carryover work force reduces disruption to the delivery of services 
during the period of transition between contractors and provides the 
Federal Government the benefits of an experienced and trained work 
force that is familiar with the Federal Government's personnel, 
facilities, and requirements.'' In order for an agency to exempt itself 
from the requirements