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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: January 18, 2001

SUBJECT: Department of Labor (DOL); Service Contract Act (SCA) Labor Standards for Federal Service Contracts

SOURCE: Federal Register, January 18, 2001, Vol. 66, No. 12, page 5327

AGENCIES: Wage and Hour Division, Employment Standards Administration, DOL

ACTION: Final Rule

SYNOPSIS: DOL is amending its regulations to exempt certain contracts for commercial services meeting specific criteria from coverage under the McNamara-O'Hara Service Contract Act (SCA).

EDITOR'S NOTE: DOL's regulations on the SCA are in Title 29 of the Code of Federal Regulations (CFR), Part 4, Labor Standards for Federal Service Contracts.

For more on the proposed rule, see the July 26, 2000, FEDERAL CONTRACTS DISPATCH "Department of Labor (DOL); Service Contract Act (SCA) -- Labor Standards for Federal Service Contracts."

For more on Federal Acquisition Circular (FAC) 97-19, which amended the Federal Acquisition Regulation (FAR) to remove the SCA from the list of inapplicable laws, see the July 26, 2000, FEDERAL CONTRACT DISPATCH "Federal Acquisition Circular (FAC) 97-19, Miscellaneous Amendments."

EFFECTIVE DATE: March 19, 2001.

FOR FURTHER INFORMATION CONTACT: William W. Gross, Director, Office of Wage Determinations, Wage and Hour Division, Employment Standards Administration, U.S. Department of Labor, Room S-3028, 200 Constitution Avenue, NW, Washington, DC 20210; 202-693-0062.

SUPPLEMENTAL INFORMATION: The Federal Acquisition Streamlining Act of 1994 (FASA) (Public Law 103-355) required that the FAR include a list of laws that do not apply to subcontracts for commercial items. In 1995, the SCA was included on the list at FAR 12.504, Applicability of Certain Laws to Subcontracts for the Acquisition of Commercial Items. However, DOL maintained that it has sole authority over the applicability of the SCA. The FAR Council eventually agreed, so FAC 97-19 removed the SCA from the list of inapplicable laws at FAR 12.504.

Nevertheless, on May 12, 1999, the Office of Federal Procurement Policy (OFPP) requested that DOL exempt a more limited group of commercial service contracts (both prime contracts and subcontracts) in which "the government is having difficulty acquiring or for which the government is getting limited competition, or where the government is unable to acquire the quality of services needed because commercial sources are reluctant to do business with the government, thereby causing impairment to government business." DOL reviewed the recommended services and concurred, so it proposed on July 26, 2000, to revise paragraph (e) of 29 CFR 4.123, Administrative Limitations, Variances, Tolerances, and Exemptions, to exempt the suggested services.

DOL received 11 comments: three from contractor associations supported the proposed changes; one from a contractor association and seven from unions opposed the proposed changes. As a result, DOL is adopting the proposed rule as final with some significant changes:

• Section 4.123(e)(1) exempts from SCA coverage contracts for the maintenance and repair of automated data processing (ADP) equipment and office information/word processing systems, scientific equipment and medical apparatus or equipment, and office/business machines where such services are performed by the manufacturer or supplier of the equipment. It was proposed to modify paragraph (e)(1) to apply the exemption to subcontracts for these services, and to reflect terminology and coverage changes in the law that have occurred since the exemption was originally established, such as replacing "ADP" as defined in the Brooks Automated Data Processing Act of 1965, with "information technology" as defined by the Clinger-Cohen Act of 1996 (Public Law 104-106), and to apply the exemption to installation services where those services are not subject to the Davis-Bacon Act, such as the installation and maintenance of a local area network, new telephones, or a telephone system.
  
  While DOL has decided to adopt the SCA exemption to subcontracts, comments both in favor and opposed to the change indicated that the change from "ADP" to "information technology" would be a significant expansion of the exemption, so DOL is retaining "ADP". Also, DOL was convinced by several unions that the installation of telephones or telephone systems has been performed under the SCA for decades, so that exemption was not adopted.
  
  To qualify for the exemption, the current conditions are retained for contracts and applied to subcontracts:
  
  
  1. The items of equipment are commercial items, and are sold by the contractor or subcontractor in substantial quantities to the general public.
     
     
  2. The contract or subcontract services are furnished at prices which are, or are based on, established catalog or market prices.
     
     
  3. The contractor utilizes the same compensation plan for all service employees performing work under the contract as for employees servicing the same equipment of commercial customers.
     
     
  4. The contractor certifies in the contract or subcontract that these conditions exist.
  
  
• A new exemption is added as 29 CFR 4.123(e)(2). It exempts from SCA coverage both prime contractors and subcontractors performing specific commercial services that meet certain requirements. The commercial services are:
  
  
  1. Automobile or other vehicle (such as aircraft) maintenance services (other than contracts to operate a government motor pool or similar facility).
     
     
  2. Financial services involving the issuance and servicing of cards (including credit cards, debit cards, purchase cards, smart cards, and similar card services).
     
     
  3. Contracts with hotels/motels for conferences, including lodging and/or meals which are part of the contract for the conference. (EDITOR'S NOTE: "Lodging at hotels/motels" was included in the proposed rule, but several unions convinced DOL that "maintaining the level of benefits is particularly important in a low-wage industry such as the hotel/motel industry," so the exemption only applies to conferences.)
     
     
  4. Maintenance, calibration, repair, or installation services (where the installation is not subject to the Davis-Bacon Act) for all types of equipment where the services are obtained from the manufacturer or supplier of the equipment. (EDITOR'S NOTE: The proposed rule also would have exempted maintenance services for all types of specialized building or facility equipment such as elevators, escalators, temperature control systems, security systems, smoke and/or heat detection equipment, etc. However, several unions and the Mechanical Contractors Association of America convinced DOL that "qualified contractors and employees can and do perform these services with the application of SCA," so the exemption was not adopted.)
     
     
  5. Transportation of persons by air, motor vehicle, rail, or marine vessel on regularly scheduled routes or via standard commercial services (not including charter services).
     
     
  6. Real estate services, including real property appraisal services, related to housing federal agencies or disposing of real property owned by the government.
     
     
  7. Relocation services, including services of real estate brokers and appraisers to assist federal employees or military personnel in buying and selling homes.
  
  
  (EDITOR'S NOTE: The proposed exemption of ADP and telecommunications services was not adopted. Unlike the exemption for ADP equipment in Section 4.123(e)(1), which applies to maintenance and service of ADP hardware, the proposed exemption for ADP and telecommunications services would have exempted a broad range of software-type services within the information technology industry. As with the rejected replacement of "ADP" with "information technology" mentioned above, DOL has decided not to adopt the exemption because "the proposed ADP exemption is not as tightly focused on an area where the government has been having trouble obtaining bidders.")
  
  To qualify for the exemption, a contract or subcontract must meet the following requirements:
  
  
  1. The services are commercial: they are offered and sold regularly to the general public in substantial quantities in the course of normal business operations.
     
     
  2. The contract or subcontract will be awarded on a sole source basis, or the contractor or subcontractor will be selected for award on the basis of other factors in addition to price. In such cases, price must be equal to or less important than the combination of other non-price or cost factors in selecting the contractor.
     
     
  3. The prime contract or subcontract services are furnished at prices which are, or are based on, established catalog or market prices.
     
     
  4. The service employees who will perform the services under the contract or subcontract spend only a small portion of their time (a monthly average of less than 20% of the available hours) servicing the government contract or subcontract.
     
     
  5. The contractor utilizes the same compensation plan for all service employees performing work under the contract or subcontract as for employees servicing commercial customers.
     
     
  6. The contracting officer (or prime contractor with respect to a subcontract) determines in advance, based on the nature of the contract requirements and knowledge of the practices of likely offerors, that all or nearly all offerors will meet the above requirements.
     
     
  7. The contractor certifies in the prime contract or subcontract that these criteria exist. If the contracting officer or prime contractor has reason to doubt the validity of the certification, SCA stipulations shall be included in the contract or subcontract.
  
  If, after contract award, DOL determines that any of the criteria have not been met, the exemption will be deemed inapplicable, and the contract shall become subject to the SCA, effective as of the date of the DOL determination.
  
  Since prime contractors are responsible for its subcontractors' compliance with the SCA, if DOL determines that any of the criteria have not been met by a subcontractor, the exemption will be deemed inapplicable, and the prime contractor may be responsible for compliance with the SCA, effective as of the date of the contract award.

In conjunction with the July 26, 2000, DOL proposed rule and FAC 97-19, DOL issued an temporary rule exempting all subcontractors in the proposed exempt service industries until a final rule was published. Since DOL has now issued the final rule, this temporary rule is withdrawn.

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

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