Federal Acquisition Regulation; Labor Relations Costs, 68040-68043 [2011-27790]

Agencies

• DEPARTMENT OF DEFENSE
• National Aeronautics and Space Administration
• General Services Administration

[Federal Register Volume 76, Number 212 (Wednesday, November 2, 2011)]
[Rules and Regulations]
[Pages 68040-68043]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-27790]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 31

[FAC 2005-54; FAR Case 2009-006; Item IX; Docket 2010-0084, Sequence 1]
RIN 9000-AL39


Federal Acquisition Regulation; Labor Relations Costs

AGENCY: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

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SUMMARY: DoD, GSA, and NASA are issuing a final rule amending the 
Federal Acquisition Regulation (FAR) to implement the Executive Order 
(E.O.) on Economy in Government Contracting, issued on January 30, 
2009, and amended on October 30, 2009. This E.O. treats as unallowable 
the costs of any activities undertaken to persuade employees, whether 
employees of the recipient of Federal disbursements or of any other 
entity, to exercise or not to exercise, or concerning the manner of 
exercising, the right to organize and bargain collectively through 
representatives of the employee's own choosing.

DATES: Effective Date: December 2, 2011.

FOR FURTHER INFORMATION CONTACT: Mr. Edward N. Chambers, Procurement 
Analyst, at (202) 501-3221, for clarification of content. For 
information pertaining to status or publication schedules, contact the 
Regulatory Secretariat at (202) 501-4755. Please cite FAC 2005-54, FAR 
Case 2009-006.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 75 FR 19345 on April 14, 2010, to implement E.O. 13494, 
Economy in Government Contracting, dated January 30, 2009, published in 
the Federal Register at 74 FR 6101 on February 4, 2009, as amended on 
October 30, 2009 (published in the Federal Register at 74 FR 57239 on 
November 5, 2009). This E.O. promotes economy and efficiency in 
Government contracting by providing that certain costs that are not 
directly related to the contractor's provision of goods and services to 
the Government shall be unallowable for payment, thereby directly 
reducing Government expenditures and reinforcing the fiscally 
responsible handling of taxpayer funds. Specifically, this E.O. states 
that the costs of the activities of preparing and distributing 
materials, hiring or consulting legal counsel or consultants, holding 
meetings (including paying the salaries of the attendees at meetings 
held for this purpose), and planning or conducting activities by 
managers, supervisors, or union representatives during work hours, when 
they are undertaken to persuade employees to exercise or not to 
exercise, or concern the manner of exercising, rights to organize and 
bargain collectively are unallowable costs.
    In order to implement E.O. 13494, DoD, GSA, and NASA have amended 
FAR 31.205-21, the cost principle addressing labor relations costs. 
Currently, this cost principle states that costs incurred in 
maintaining satisfactory relations between the contractor and its 
employees, including costs of shop stewards, labor management 
committees, employee publications, and other related activities, are 
allowable. To implement the requirements of the E.O., DoD, GSA, and 
NASA issued a proposed rule that would amend this cost principle by 
adding a new paragraph addressing the handling of persuader 
activities--that is, activity involving the persuading of employees to 
exercise or not exercise their rights to organize and bargain 
collectively. By doing so, the proposed rule differentiated the 
handling of costs incurred through persuader activities, which are 
unallowable, from those incurred in maintaining satisfactory labor 
relations, which remain allowable. Specifically, the proposed rule 
stated that the costs of any activities undertaken to persuade 
employees, of any entity, to exercise or not to exercise, or concerning 
the manner of exercising, the right to organize and bargain 
collectively through representatives of

[[Page 68041]]

the employees' own choosing are unallowable. The proposed rule also 
identified examples of activities the costs of which are unallowable 
when performed in connection with persuader activities: (1) Preparing 
and distributing materials, (2) hiring or consulting legal counsel or 
consultants, (3) meetings (including paying the salaries of the 
attendees at meetings held for this purpose), and (4) planning or 
conducting activities by managers, supervisors, or union 
representatives during work hours. Based on a careful review of public 
comments, discussed below, DoD, GSA, and NASA have concluded that the 
proposed rule should be finalized with just one minor editorial change. 
Consistent with section 8 of the E.O. and standard FAR conventions (see 
FAR 1.108(d)), this rule shall apply to contracts resulting from 
solicitations issued on or after the rule's effective date.

II. Discussion and Analysis of the Public Comments

    The Civilian Agency Acquisition Council and the Defense Acquisition 
Regulations Council (the Councils) reviewed the public comments in the 
development of the final rule. Fourteen respondents submitted comments 
on the proposed rule. These responses included a total of 28 comments 
on 12 issues. Several respondents strongly supported the rule, with one 
respondent urging the proposed rule be finalized as soon as possible. 
Other respondents raised concerns which are addressed below.

A. Favors Unions

    Comment: Two respondents asserted that the rule favors unions and 
penalizes contractors.
    Response: Under this rule, the Government will treat as unallowable 
the costs of specified ``persuader'' activities that are not directly 
related to the contractor's provision of goods and services to the 
Government, in order to promote economy and efficiency in Government 
contracting. Moreover, certain costs undertaken by contractors that are 
incurred in maintaining satisfactory relations between the contractor 
and its employees continue to be allowable, whether or not the 
contractor's employees are represented by a union. In addition, certain 
activities undertaken with the union that are not otherwise unlawful, 
including costs associated with negotiating or administering collective 
bargaining agreements, are allowable under section 3 of E.O. 13494 and 
paragraph (a) of FAR 31.205-21 because they involve the maintenance of 
satisfactory labor relations between the contractor and its employees. 
Costs related to the development, implementation, and enforcement of 
neutrality agreements would also be allowable provided that none of the 
costs attributed to the agreements include unreasonable costs or costs 
of unallowable persuader activities or activities that are otherwise 
unlawful. (See comment ``F'' for additional discussion of neutrality 
agreements.) No change to the rule has been made in response to this 
comment.

B. Prohibits Certain Protected Contractor Activities

    Comment: A number of respondents interpreted the rule to prohibit 
certain protected contractor activities, such as an employers' right to 
engage in speech that does not violate the National Labor Relations Act 
(NLRA). See 29 U.S.C. 158(c). As such, these respondents argued that 
E.O. 13494 is preempted by the NLRA, particularly in light of Chamber 
of Commerce v. Brown, 554 U.S. 60 (2008), in which the United States 
Supreme Court held that a State statute was preempted by the NLRA 
because it attempted regulation of speech about union-related activity 
that was within the zone of conduct intended by Congress to be left to 
market forces.
    Response: This rule does not prohibit or otherwise regulate 
persuader activities; it only disallows the reimbursement of the costs 
of these activities under Federal contracts. The purpose of the rule is 
to promote economy and efficiency in Government contracting by 
excluding certain costs from reimbursement by the Government that are 
not directly related to the contractors' provision of goods and 
services to the Government. By doing so, the rule promotes the fiscally 
responsible handling of taxpayer funds. The State law at issue in Brown 
was rooted in ``California's policy judgment that partisan employer 
speech necessarily interferes with an employee's choice about whether 
to join or to be represented by a union.'' 554 U.S. at 69 (internal 
quotation omitted). By contrast here, neither the E.O. nor the rule in 
any way restrict the manner in which recipients of Federal funds may 
expend funds they receive from the Government or any other of their own 
funds, including funds a recipient received as a Government contractor 
for providing goods and services under Federal contracts. Instead, this 
rule preserves a contractor's freedom to spend its own funds however it 
wishes, whereas the State statute in Brown made it exceedingly 
difficult for employers to demonstrate that they had not used State 
funds for non-reimbursable purposes. (554 U.S. at 71-73). Moreover, 
unlike the State statute in Brown, this rule does not contain a 
``formidable enforcement scheme'' involving ``compliance costs and 
litigation risks * * * calculated to make union-related advocacy 
prohibitively expensive for employers.'' Id. at 63, 71. To the 
contrary, the E.O. and this rule merely identify types of costs that 
are not allowed for reimbursement under the well-established Federal 
procurement scheme, which already contains mechanisms for submission to 
and review of contract costs by Federal agencies designed to avoid 
unnecessary Government expenditures. No additional enforcement burden 
or employer liability is established by the E.O. or this rule. As a 
result, this rule is consistent with the Court's holding in Brown, and 
does not run afoul of the NLRA.

C. Unclear Language

    Comment: Several respondents stated that the proposed rule 
contained confusing or conflicting language or that the rule was 
unclear as to what costs are disallowed.
    Response: The language added to the labor relations cost principle 
does not conflict with the existing language. As explained in section 
II.A. of this preamble, the existing language, now identified as FAR 
31.205-21(a), identifies when costs are allowable. The language 
addressing the E.O., added at a new FAR paragraph 31.205-21(b), 
addresses costs incurred through persuader activities, which are 
unallowable.

D. Imposes Significant Compliance Burdens

    Comment: A number of respondents contended that the rule imposes 
significant compliance burdens and accounting costs, including those 
incurred in distinguishing between allowable and unallowable costs.
    Response: FAR 31.201-6 requires contractors to have an accounting 
system to segregate unallowable costs. The incremental costs of 
implementing and tracking an additional unallowable cost element will 
be minimal. No changes in the rule have been made in response to this 
comment.

E. Conflicts With 29 U.S.C. 433

    Comment: One respondent believed that the proposed rule was in 
conflict with 29 U.S.C. 433, which requires that employers file reports 
with the Secretary of Labor if they engage in certain ``persuader 
activities'' defined in

[[Page 68042]]

that section. The respondent stated that section 433 defines these 
activities differently and more narrowly than E.O. 13494.
    Response: The policies codified in the Labor-Management Reporting 
and Disclosure Act of 1959 (LMRDA), 29 U.S.C. 401 et seq., and the E.O. 
are not in conflict. Nothing in the E.O. or the rule affects the scope 
of employer reporting obligations for purposes of section 203 of the 
LMRDA, 29 U.S.C. 433. As discussed above, the E.O. is designed to 
promote the policies of economy and efficiency in Federal Government 
contracting established in the Federal Property and Administrative 
Services Act, by excluding certain costs that are not directly related 
to the contractor's provision of goods and services to the Government, 
and to do so in a neutral manner that is consistent with that reflected 
in 29 U.S.C. 433.

F. Unreimbursable Costs

    Comment: A respondent stated that unreimbursable costs, as 
addressed in the proposed rule, are too broad and ignore the realities 
that employers frequently reimburse employees for time spent in 
collective bargaining and further ignore the rise and prevalence of 
neutrality pacts between employers and unions, used by the parties to 
minimize labor disputes. The respondent further stated that employers 
and unions frequently cooperate to encourage employees to ratify a 
collective bargaining agreement reached by the employer and the 
employees' bargaining representative. The respondent suggested that the 
list of reimbursable expenses in FAR 31.205-21(a) be amended by adding 
immediately after the words ``employee publications'' the following: 
``the costs of preparing for and conducting collective bargaining and 
the cost attributable to the ratification of collective bargaining 
agreements.''
    Response: Inclusion of this suggested language in the rule is 
unnecessary. Under the final rule, the costs of collective bargaining 
that are not persuader activity under FAR 31.205-21(b) are covered by 
FAR 31.205-21(a), and would be allowable to the extent that the costs 
were reasonable, allocable, and not unallowable under another cost 
principle, and are otherwise lawful. (See response to comment in 
section II.A.) Neutrality agreements would be handled in similar 
fashion. These agreements are entered into by contractors and labor 
organizations and have often been used to establish mutually agreed-to 
restraints for reducing disputes associated with union representation. 
Therefore, costs associated with the development, negotiation, and 
enforcement of neutrality agreements would not normally be expected to 
involve any persuader activity. So long as that is the case, under the 
rule, costs associated with agreements of this kind would generally be 
allowable as part of the maintenance of satisfactory labor relations, 
provided that they do not represent persuader activity under FAR 
31.205-21(b), are reasonable, allocable, not unallowable under another 
cost principle, and are otherwise lawful.

G. Contractors' Indirect Litigation Costs

    Comment: A respondent stated that it is important to clarify that 
this rule applies to a contractor's indirect litigation costs which are 
directly associated with the activities described in FAR 31.205-21(b) 
and suggested that this clarification could be accomplished by adding a 
fifth example of unallowable costs to the four listed in the proposed 
rule, which states ``Costs of litigation or other legal proceedings 
arising on account of any activities described in paragraph (b) where 
it is determined by National Labor Relations Board, the National 
Mediation Board, a similar State or local administrative agency or a 
court of law that such activities were in violation of law or 
undertaken to persuade employees regarding their exercise of collective 
bargaining rights.''
    Response: This suggested clarification is not necessary since FAR 
31.201-6 already disallows costs that are directly associated with 
unallowable costs, including associated litigation costs under FAR 
31.205-47.

H. Additional Examples

    Comment: A respondent suggested that two additional examples of 
unallowable costs be added to the list of examples contained in the 
proposed rule. The first example would state that the costs of 
surveillance by video, email, or other means of employee organizing 
activities are unallowable costs. The second example would state that 
``informal polling of employees as to their preferences for or against 
unionization is unlawful under the NLRA as a means of dissuading 
employees with respect to union activities, see, e.g., Smithfield 
Foods, 347 N.L.R.B. 1225 (2006), and therefore, time spent by 
supervisors and others conducting informal polls during the pendency of 
a union organizing campaign is unrelated to contract performance and 
should be listed as an example of unallowable costs under the Executive 
Order.''
    Response: Inclusion of these examples is not necessary. The 
examples in the rule are not exhaustive, but adequately cover the 
allowability of costs for a full range of lawful activities. 
Furthermore, the costs of activities that are unlawful, including 
unlawful activities under the NLRA, are not allowed under the FAR. FAR 
31.201-3(b)(2) makes clear that costs incurred for unlawful activities 
shall not be reimbursed.

I. Contract Administration Activities

    Comment: A respondent suggested that various contract 
administration activities be addressed in this rule, including that the 
contractors be required to update their accounting systems to account 
for the costs made unallowable by this rule; that contractors 
demonstrate to contracting officers that their accounting systems can 
effectively account for these unallowable costs; that contracting 
officers, upon issuance of the final rule, undertake supplemental 
reviews of the adequacy of the contractors' accounting systems to 
account properly for unallowable union persuasion costs; that 
contracting officers undertake an additional review of cost 
reimbursement claims to ensure that this new rule is being followed and 
the Government is not overcharged; that contractors certify on each 
bill or claim whether they have undertaken any activities to persuade 
employees concerning the manner of exercising their right to organize 
or bargain collectively and whether those costs have been accounted for 
and excluded from the reimbursement sought from the Federal Government; 
and that contracting officer's representatives include in their regular 
reports whether they know of any union persuasion activities the 
contractors may have undertaken during the reporting period.
    Response: The FAR already contains coverage addressing the 
negotiation and administration of contracts that would cover these 
types of activities.

J. Role of Inspector General

    Comment: A respondent stated that each agency should designate a 
member of the agency Inspector General's staff to collect information 
related to potentially unallowable union persuasion activities from 
employees or members of the public, some of whom may wish to remain 
anonymous, and refer that information to the contracting officer to 
facilitate billing reviews and audits as well as require that the 
Inspector General from each agency perform a review of the 
implementation of this rule within one year after the final rule goes 
into effect.

[[Page 68043]]

    Response: This recommendation is outside the scope of this case, 
which was limited to the implementation of E.O. 13494 in the FAR. The 
FAR does not prescribe activities for Inspectors General.

K. Investigation of Reports of Employer Persuader Activities

    Comment: A respondent stated that the final rule should make clear 
that contracting officers are to receive and investigate instances of 
employer persuader activities reported by workers or labor union 
representatives and that FAR 3.903 protects the right of the 
contractor's employees to report such activities. The respondent 
believed that the final rule should establish a process by which 
employees of Federal contractors or others with knowledge of employer 
persuasion costs can disclose that information to designated officials 
anonymously. Finally, the respondent believed that the final rule 
should state that FAR 33.209 applies to any Federal contractor who 
submits for reimbursement any costs made unallowable by this rule.
    Response: These recommendations are outside the scope of this case, 
which was limited to the implementation of E.O. 13494. To the extent 
that FAR 3.903 and 33.209 are applicable, there is already adequate FAR 
coverage. Further, FAR subpart 3.10 also addresses contractor business 
ethics.

L. Regulatory Flexibility Act

    Comment: Two respondents stated that the rule fails to comply with 
the Regulatory Flexibility Act. Both requested the basis for the stated 
conclusions and one requested the Councils to conduct an Initial 
Regulatory Flexibility Analysis.
    Response: DoD, GSA, and NASA have certified that the rule will not 
have a significant economic impact on a substantial number of small 
entities. The Regulatory Flexibility Act certification is based upon an 
analysis of the data in the Federal Procurement Data System (FPDS). 
(See additional discussion in section IV, Regulatory Flexibility Act.) 
That certification states that most contracts awarded to small entities 
use simplified acquisition procedures or are awarded on a competitive 
fixed-price basis, and thus do not require application of the cost 
principle contained in this rule. This is supported by the most recent 
data available from the FPDS. For Fiscal Year 2010, a search of FPDS 
revealed 1,822,515 awards to small businesses. Of these, 1,814,282 were 
fixed price (99.5 percent), and 1,220,154 (67 percent) were below the 
simplified acquisition threshold.

III. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is a significant regulatory action and, therefore, was subject to 
review under section 6(b) of E.O. 12866, Regulatory Planning and 
Review, dated September 30, 1993. This rule is not a major rule under 5 
U.S.C. 804.

IV. Regulatory Flexibility Act

    The Department of Defense, the General Services Administration, and 
the National Aeronautics and Space Administration certify that this 
final rule will not have a significant economic impact on a substantial 
number of small entities within the meaning of the Regulatory 
Flexibility Act, 5 U.S.C. 601, et seq., because most contracts awarded 
to small entities use simplified acquisition procedures or are awarded 
on a competitive fixed-price basis, and do not require application of 
the cost principles contained in this rule.

V. Paperwork Reduction Act

    The final rule does not contain any information collection 
requirements that require the approval of the Office of Management and 
Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35).

List of Subjects in 48 CFR Part 31

    Government procurement.

    Dated: October 21, 2011.
Laura Auletta,
Acting Director, Office of Governmentwide Acquisition Policy, Office of 
Acquisition Policy, Office of Governmentwide Policy.

    Therefore, DoD, GSA, and NASA amend 48 CFR part 31 as set forth 
below:

PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES

0
1. The authority citation for 48 CFR part 31 continues to read as 
follows:

    Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).


0
2. Revise section 31.205-21 to read as follows:


31.205-21  Labor relations costs.

    (a) Costs incurred in maintaining satisfactory relations between 
the contractor and its employees (other than those made unallowable in 
paragraph (b) of this section), including costs of shop stewards, labor 
management committees, employee publications, and other related 
activities, are allowable.
    (b) As required by Executive Order 13494, Economy in Government 
Contracting, costs of any activities undertaken to persuade employees, 
of any entity, to exercise or not to exercise, or concerning the manner 
of exercising, the right to organize and bargain collectively through 
representatives of the employees' own choosing are unallowable. 
Examples of unallowable costs under this paragraph include, but are not 
limited to, the costs of--
    (1) Preparing and distributing materials;
    (2) Hiring or consulting legal counsel or consultants;
    (3) Meetings (including paying the salaries of the attendees at 
meetings held for this purpose); and
    (4) Planning or conducting activities by managers, supervisors, or 
union representatives during work hours.

[FR Doc. 2011-27790 Filed 11-1-11; 8:45 am]
BILLING CODE 6820-EP-P