There And Back Again Labor Department Issues New Proposed – Government Contracts, Procurement & PPP

The U.S. Department of Labor (DOL) has released a proposed regulation
that would reinstitute the requirement that contractors give offers
of employment to workers covered by the Service Contract Labor
Standards, also known as the Service Contract Act (SCA), unless the
contractor can establish an exception. The regulation would
implement Executive Order 14055, signed by President Joe Biden on
Nov. 18, 2021. Comments on the rule are due Aug. 15, 2022. After
DOL evaluates the comments, it anticipates issuing a final rule and
the Federal Acquisition Council issuing a Federal Acquisition
Regulation (FAR) clause incorporating the rule into solicitations
and contracts. DOL estimates that 74,097 to 329,470 small
businesses will be impacted by this rule.

These rules, known as the Nondisplacement of Qualified Workers
rules, have followed an on-again, off-again pattern depending on
the administration in power. They were first instituted during the
Clinton Administration, then rescinded during the second Bush
Administration. An expanded version was instituted again
during the Obama Administration, then subsequently rescinded
(again) by the Trump Administration. The newly proposed rules
represent the Biden Administration’s effort to again reinstate
the nondisplacement requirement. There are, however, key
differences from Obama-era rules that we will explore below.

Basics of the New Proposed Rule

Under the proposed rule, contractors taking over a contract
doing similar work at the same location from an incumbent
contractor will be required to give offers of employment to the
SCA-covered workforce, with some exceptions:

• Timeline of the Requirements: The easiest way
  to understand this proposed rule is to examine each party’s
  responsibility in a timeline.

First, the contracting agency must make a determination
about whether to include the clause. Should the contracting agency
determine that inclusion of the clause is appropriate, then it will
be included in the solicitation. The contracting agency does have
some discretion to waive application of the clause (or parts of
it), but that decision must be made in writing based on reasons
specified in the proposed rule, such as an emergency or because it
would impair efficiency, and is subject to reporting requirements.
If the contracting agency’s reasoning centers on the rule being
inconsistent with law, the contracting agency must consult with DOL
in most circumstances. No matter the reasoning, the contracting
agency’s senior procurement executive must make the decision
and report the decision on a public website and inform the U.S.
Office of Management and Budget of all exemptions given at least
quarterly. Interested parties may appeal this decision to the head
of the contracting department or agency.

Second, assuming the applicability of the requirements,
notice of the rule’s applicability must be sent to the covered
employees by the incumbent contractor.

Third, once the award has been made, if a new
contractor will be incoming, the outgoing contractor must provide a
list of incumbent covered employees 30 days before the contract
ends and another list 10 days before if the employee pool
changes.

Fourth, after the incumbent contractor takes over the
contract, it must give bona fide offers of employment in accordance
with the rule’s requirements. While the offers of employment
need not be for the same position, and offers do not have to be
made to every employee if the new contractor plans to reduce
staffing, contractors should take care to abide by the requirements
when offering different positions or not tendering employment for
all incumbent workers. For instance, if offers are not made to
every worker and a position opens in the first 90 days of contract
performance, the contractor must first go back to the pool of
incumbent employees and make offers there before seeking outside
candidates.

• Summary of the Contracting Agency’s
  Responsibilities: The contracting agency must place the
  clause in covered contracts in addition to ensuring that the
  contractor provides notice to its covered employees of their rights
  under these rules. The contracting agency must also conduct a
  location analysis to determine whether the efficiency of the
  contract favors keeping it in the same location. This is important
  to DOL because the requirements under these rules melt away when
  the location of the work changes. The decision not to favor or
  require the contract be performed at the same location must be made
  by the senior procurement executive within the agency and notice
  must be provided to the workers within five business days of the
  solicitation being issued.




• Summary of the Outgoing Contractor’s
  Responsibilities: The outgoing contractor must notify its
  covered employees that they are covered by the nondisplacement
  requirements. The outgoing contractor must provide to the
  contracting officer a certified list of the covered employees no
  later than 30 days before the contract ends and again 10 days
  before if the employee list has changed. The list must contain the
  employees’ names and their employment anniversary date. The
  agency then supplies the list to the incoming contractor.

The proposed rules also require the contractor to inform the
contracting agency if the clause is absent from a contract.

• Summary of the Incoming Contractor’s
  Responsibilities: The incoming contractor must make bona
  fide offers of employment to all of the incumbent employees unless
  there is a specific reason not to, including:
  

  • employees are not displaced because the outgoing contractor is
    retaining them

  
  

  • employees perform on the contract, but also perform non-federal
    jobs

  
  

  • employees’ poor past performance would lead to their
    termination

  
  

  • employees are not service workers (such as exempt employees
    working on the contract)

  
  

  • changes to staffing patterns, including reduced staffing or
    changes in positions that will be filled (though for the latter,
    several conditions must be met)

Failure to abide by the requirements could lead to an
investigation by DOL and eventual payment of wages to improperly
excluded incumbent employees or debarment proceedings.

Changes Since the Obama Administration

There are some significant changes to the proposed rule that
will alter contractor compliance:

1. Incoming Contractor’s Workforce: In the
   previous iteration of the rule, contractors were allowed to
   displace the incumbent workforce with their own employees if their
   employees had worked for the incoming contractor for at least three
   months and would be subject to discharge without being placed onto
   the new contract. The new version of the rule does not have this
   exception.




2. Unsuitable Performance: While the ability to
   not tender an offer of employment to workers based upon their
   unsuitable performance still exists, the standard for doing so is
   more employee-friendly. The previous standard for not offering
   employment was if the employee “has failed to perform suitably
   on the job.” Now the employer must demonstrate “that
   there would be just cause to discharge the employee if employed by
   the successor contractor or any subcontractor.” Evidence would
   include a recommendation to terminate the predecessor employee
   (though the process was not concluded). Of course, it would be
   difficult for the incoming contractor to obtain such records even
   if they exist.




3. Changes in Staffing Patterns: When the
   incoming contractor changes the contract’s staffing pattern,
   contractors are now required to structure their staff to offer
   employment to the greatest number of employees in positions
   equivalent to the positions that they held under the previous
   contract. In the previous version of the rule, contractors were not
   required to staff the contract in a way to offer employment for the
   same position to as many employees as possible.




4. Locality of Contract Performance: Agencies
   must now complete a locality analysis to determine whether
   performance of the new contract in the same location would promote
   efficiency. As noted above, to the extent that the agency’s
   analysis leads it to not require or prefer the work be performed in
   the same location, that conclusion must be made by the agency’s
   senior procurement executive, and workers on the contract must be
   given notice of that within five days of the issuance of the
   solicitation. This notice must be given by the contractor. This is
   a new requirement under this version of the rule.




5. Subcontracts: Under the old rule, subcontracts
   below the simplified acquisition threshold (SAT) were exempt even
   if the prime contract was above the SAT.¹ Now, all
   subcontracts are covered by the requirements when the prime
   contract is above the SAT even if the individual subcontracts are
   below the SAT.




6. Exclusion for Special Programs Eliminated:
   Contracts under the Javits-Wagner-O’Day Act, along with the
   Randolph-Sheppard Act and other special programs, were previously
   excluded from these requirements. DOL is proposing to eliminate
   that exemption so that contracts subject to those laws are required
   to comply with nondisplacement requirements.




7. Exclusion for Classes of Contracts:
   Previously, the head of a contracting agency had the option of
   excluding a class of contracts if justified. Now, exclusion must
   occur on a case-by-case basis. The process of excluding individual
   contracts also appears to be more laborious for the contracting
   agency. Each agency must also publish exemptions on a website and
   report exemptions to the Office of Management and Budget at least
   quarterly.




8. Calendar Days: Employees used to have 10
   calendar days to provide a response to a bona fide offer of
   employment. They now have 10 business days.




9. Employee Lists: Under the old rule, incumbent
   contractors had to provide their updated list of employees 10
   calendar days before contract end. They now must do so at 10
   business days.

The sum of these changes is a tightening of the rules and fewer
exceptions. There are fewer off-ramps to the rule for both agencies
and contractors.

Compliance Challenges

As with the previous version of the rule, there looks to be
compliance challenges to contractors subject to these proposed
requirements. The most significant challenge is to prospective
contractors trying to price proposals. Because employee anniversary
dates are not revealed until after contract award, potential
incoming contractors are bidding blind because they may inherit a
staff with anniversary dates going back many years. If that occurs,
contractor employees will be entitled to more vacation, and that
entitlement may change staffing plans and, inevitably, the price of
the contract.

Further, companies may find difficulties connected with offering
employment to individuals who do not meet company qualifications
but do not technically run afoul of agency requirements, or
employees who have performed unsuitably, but such performance was
not documented or otherwise does not meet the new, high “for
cause” threshold.

Finally, in the last iteration of the rule, outgoing contractors
often failed to provide the list of incumbent workers, and
contracting agencies seemingly did not enforce this requirement in
many circumstances. Greater enforcement of this requirement will
aid in compliance of this rule for the incoming contractor.

Footnotes

¹ The SAT is $250,000 as of the date of this
analysis’s original publication.