DOL Publishes Final Rule On Nondisplacement of Qualified Workers Under Service Contracts

[Federal Register: August 29, 2011 (Volume 76, Number 167)]
[Rules and Regulations]              
[Page 53719-53762]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29au11-11]                        

[[Page 53719]]

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

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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 of the Executive Order, an agency must overcome
this presumption by demonstrating why use of the carryover workforce
would not be beneficial and would be inconsistent with economy and
efficiency. When analyzing whether the application of the Executive
Order's requirements would not serve the purpose of the Order and would
impair the ability of the Federal Government to procure services on an
economical and efficient basis, the head of a contracting department or
agency shall consider the specific circumstances associated with the
services to be acquired. General assertions or presumptions of an
inability to procure services on an economical and efficient basis
using a carryover workforce shall be insufficient. Factors that may be
considered include, but are not limited to, the following:
    Whether the use of a carryover workforce would greatly
increase disruption to the delivery of services, such as during the
transition period between contracts, and in its entirety would not
yield an experienced and trained workforce that is familiar with the
Federal Government's personnel, facilities, and requirements as
pertinent to the contract, subcontract, purchase order, class of
contracts, subcontracts, or purchase orders at issue and would require
extensive training to learn new technology or processes that would not
be required of a new workforce.
    Emergency situations, such as a natural disaster or an act
of war, that physically displace incumbent employees from the locations
of the service contract work and make it impossible or impracticable to
extend offers to hire as required by the Order.
    With respect to the job performance of the predecessor contractor's
workforce, a contract, subcontract or purchase order may be exempted
under Section 4 of the Order if the head of the contracting department
or agency reasonably believes, based on the predecessor employees' past
performance, that the entire predecessor workforce failed, individually
as well as collectively, to perform suitably on the job and that it is
not in the interest of economy and efficiency to provide supplemental
training to the predecessor's workers. Under those circumstances, it
would be futile to require the successor contractor to evaluate the
predecessor service employees on an individualized basis, as provided
in Sec.  9.12 of the final rule, to determine whether they had
performed suitably on the job. A reasonable belief that some subset of
the predecessor's service employees failed to perform suitably on the
job, standing alone, would not satisfy the exemption standards of
Section 4 of the Executive Order because it would not serve the
government's procurement interests in economy and efficiency to
exercise exemption authority when the predecessor's workforce contains
qualified service employees who are familiar with the contracting
agency's personnel, facilities, and requirements. Similarly, the
termination of a service contract for default, standing alone, would
not satisfy the exemption standards of Section 4 of the Executive
Order. Such defaults, as well as other performance problems not leading
to default, may result from poor management decisions of the
predecessor contractor that have been addressed by awarding the
contract to another entity, and that do not warrant the exercise of
exemption authority, even when such management decisions have
negatively affected the overall performance of the workforce.
    A head of the contracting department or agency that makes a
reasonable determination that an entire predecessor contractor's
workforce failed to perform suitably on the job must demonstrate that
his or her belief is reasonable and is based upon credible information
that

[[Page 53729]]

has been provided by a knowledgeable source such as department or
agency officials responsible for monitoring performance under the
contract. Absent an ability to demonstrate that this belief is based
upon written credible information provided by such a knowledgeable
source, the employees working under the predecessor contract in the
last month of performance will be presumed to have performed suitable
work on the contract. The head of a contracting agency or department
may demonstrate a reasonable belief that an entire workforce, in fact,
failed to perform suitably on the predecessor contract through written
evidence that all of the employees, collectively and individually, did
not perform suitably. Information regarding the general performance of
the predecessor contractor is not sufficient to claim the exception. It
is also unlikely that the agency will be able to make this showing
where the predecessor employed a large workforce.
    Narrowly circumscribing an agency's ability to exempt a contract,
subcontract, or purchase order from the requirements of the Executive
Order based on poor performance of the predecessor contractor's
workforce is consistent with the Section 5(b)(3) of the Executive
Order, which expressly contemplates evaluating employee performance on
an individual basis. It also ensures that an agency will not claim the
exemption based on deficiencies of the predecessor contractor, even
when those deficiencies have negatively affected the quality of the
predecessor contractor's workforce.
    Further, we agree with the SEIU and Change to Win that the
seniority of the workforce is an inappropriate and irrelevant
consideration for exercising an exemption.
    Finally, a contracting agency should not base an exemption
determination on inherently speculative assessments of how a successor
contractor might reconfigure contract work. Since a contractor may
consider the size of its workforce and the job classifications that are
needed in the course of determining which employees of the predecessor
contractor should receive an offer of employment, the agency's interest
in economy and efficiency can be preserved without having to exempt an
entire contract or class of contracts from the requirements of the
Executive Order.
    As discussed, the successor's wage and fringe benefit costs on an
aggregate basis do not generally depend on whether its employees come
from the predecessor's workforce, and thus are not a permissible basis
for an agency exemption decision, absent exceptional circumstances.
This is consistent with the presumption in the Executive Order that the
Federal Government's procurement interests in economy and efficiency
are served when the successor contractor hires the predecessor's
employees. Moreover, except with respect to the nondisplacement
obligation, the Executive Order does not preclude contracting agencies
from considering aggregate wage and fringe benefit costs at the
solicitation and award stages. For example, a contracting agency may
reconfigure a contract at the solicitation stage in order to reduce
costs (including aggregate wage and fringe benefit costs) by, for
example, consolidating sites of performance, and it may also consider
bidders' calculations of aggregate wage and fringe benefit costs in
making contract awards as well. To consider such costs in connection
with an exemption decision, however, would mean that service employees
on the predecessor contract would have no right of first refusal of
employment on such a reconfigured or lower-cost successor contract.
Such an outcome would be neither consistent with the presumptions and
findings of the Executive Order nor be necessary to ensure that
contracting agencies have sufficient flexibility to consider the full
range of potential costs at the solicitation and award stages.
    Of course, there may be exceptional circumstances in which a
contracting agency could consider wage and fringe benefit costs in
exercising its exemption authority. As noted, a contracting agency
could exercise its exemption authority in emergency situations, such as
a natural disaster or an act of war, that physically displace incumbent
employees from the locations of the service contract work and make it
impossible or impracticable to extend offers to hire as required by the
Order. It could also exercise its exemption authority when a carryover
workforce in its entirety would not constitute an experienced and
trained workforce that is familiar with the Federal Government's
personnel, facilities, and requirements but rather would require
extensive training to learn new technology or processes that would not
be required of a new workforce. In each of these two scenarios--in
which exigent circumstances may make the use of a carryover workforce
prohibitively expensive--a contracting agency could consider wage and
fringe benefit costs in deciding whether to exercise its exemption
authority. There may be other, similar circumstances in which the cost
of employing a carryover workforce on the successor contract would be
prohibitive, and wage and fringe benefit costs could be considered in
such circumstances, as well. Absent such truly exceptional
circumstances, however, a contracting agency may not consider wage and
fringe benefit costs in making an exemption decision for the reasons
described above.
    The Department did not change the regulations to provide for an
``irrebuttable presumption that the Executive Order does not impair the
ability of the Federal Government to procure services'' under a service
contract where, in the past, the contract has involved the successor
hiring all or most of the predecessor's workers, as requested by the
SEIU and Change to Win. Circumstances surrounding service contracts can
change. The Department concludes that such a provision would exceed the
standard in Section 4 of the Executive Order.
    Language has been added to Sec.  9.4 stating that the written
analysis shall be prepared no later than the solicitation date and
retained in accordance with FAR 4.805. 48 CFR 4.805. This addition is
intended to clarify that the written analysis and the exemption
determination are to be made contemporaneously, and that the written
analysis is to be retained and made available for disclosure in a
manner consistent with the President's commitment to openness and
transparency in government.
Section 9.4(d)(5) Reconsideration of Exemption Decisions
    Three commenters addressed the issue of whether agency decisions to
exempt contracts are subject to challenge or review. Both the Chamber
and the SEIU and Change to Win noted that the proposed regulations do
not provide for any review of an agency decision to exempt a contract,
subcontract or purchase order from coverage of the Executive Order. The
SEIU and Change to Win and the AFL-CIO asserted that exemption
decisions should be reviewable by and appealable to the Secretary of
Labor. The SEIU and Change to Win believe that some oversight is
necessary to ensure that an agency exemption is in full compliance with
the Executive Order; otherwise, ``the Secretary would be abdicating her
responsibility'' to ensure compliance with the Executive Order and, by
allowing agencies to exempt contacts without some form of external
review, would be warranting ``a breach of fundamental due process.''
They suggested an administrative process

[[Page 53730]]

through which interested parties could challenge, and the Department of
Labor could review, an agency's exemption decision. The AFL-CIO
requested that the final rule require administrative review and
Departmental approval of an agency's contract exemption decision in
advance of the contract solicitation date.
    After careful consideration, the Department has decided not to add
provisions for Departmental review of agency exemption decisions
because it is the Department's view that the Executive Order does not
provide for such review. The Department's final rule is intended to
ensure that agencies exercise exemption authority appropriately based
on proper consideration of the relevant factors. Such safeguards,
rather than Departmental review, are designed to ensure that agencies
do not exempt contracts from the nondisplacement protections of the
Executive Order in an arbitrary or capricious manner. However, the
Department has added language stating that any requests for
reconsideration of an exemption decision shall be directed to the head
of the relevant contracting department or agency. Such reconsiderations
would, of course, be final agency actions appealable in accordance with
the Administrative Procedure Act, 5 U.S.C. 701-06.
Contracts Involving the Marine Industry
    Finally, the Marine Engineers Beneficial Association (MEBA)
requested that the final rule exempt service contracts involving U.S.
Coast Guard Licensed Officers because application of the
nondisplacement requirements would allegedly disrupt longstanding
hiring practices in the maritime industry. Similarly, the AMA and the
Seafarers International Union (SIU) requested that the final rule
exempt the maritime industry because application of the Executive Order
would ``over-ride and cancel long-established industry collectively
bargained obligations and practices and frustrate, rather than further,
the underlying goals of that Order.'' After consideration, the
Department has decided not to add a provision exempting service
contracts involving U.S. Coast Guard Licensed Officers specifically or
the maritime industry in general because the Executive Order does not
provide the Secretary with such authority.
    In addition, the Department believes that the provisions governing
exemption authority, as presently drafted, suffice to address the
concerns raised by the MEBA, the AMA, and the SIU.

Subpart B--Requirements

    Proposed subpart B established the requirements that contracting
agencies and contractors shall undertake to comply with the
nondisplacement provisions.
Section 9.11 Contracting Agency Requirements
    Proposed Sec.  9.11(a) provided the regulatory requirement to
incorporate the contract clause specified in Appendix A in covered
service contracts, and solicitations for such contracts, that succeed
contracts for performance of the same or similar services at the same
location. Appendix A of the proposed rule established the employee
nondisplacement contract clause to implement Section 5 of Executive
Order 13495. 74 FR 6105 (Feb. 4, 2009). Paragraph (e) of proposed
Appendix A required the contractor to include, in every subcontract
entered into in order to perform services under the prime contract,
provisions to ensure that each subcontractor honors the requirements of
paragraphs (a) through (b) of the employee nondisplacement contract
clause 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. Under proposed Appendix
A, the subcontract must also include provisions ensuring that the
subcontractor will provide the contractor with the information about
the employees of the subcontractor needed by the contractor to comply
with paragraph (c) of the employee nondisplacement clause. Paragraph
(d) of proposed Appendix A concerned sanctions and remedies for
noncompliance with the nondisplacement contract clause. Proposed
Appendix A also set forth additional provisions necessary to implement
the Order. With the exception of a provision that addressed
recordkeeping, similar contract clause provisions appeared in the
earlier version of part 9. See 62 FR 28188 (May 22, 1997). The
additional provisions would appear in paragraphs (f) through (i) of the
nondisplacement contract clause. Specifically, proposed paragraph (f)
provided notice that under certain circumstances the Contracting
Officer will withhold, or cause to be withheld, from the prime
contractor funds otherwise due under the subject contract or any other
Government contract with the same prime contractor for violations of
the Executive Order or these regulations. Paragraph (g) of Appendix A
required the contractor to maintain certain records to demonstrate
compliance with the substantive requirements of part 9, and specified
the records to be maintained. Paragraph (h) required the contractor, as
a condition of the contract award, to cooperate in any investigation by
the contracting agency or the Department into possible violations of
the provisions of the nondisplacement clause and to make records
requested by such official(s) available for inspection, copying, or
transcription upon request. Paragraph (i) provided that disputes
concerning the requirements of the nondisplacement clause would not be
subject to the general disputes clause of the contract. Instead, such
disputes are to be resolved in accordance with the procedures in part
9.
    The Department received three comments on the contract clause
provision. The PSC commented that it was concerned that if the
Department and the FARC contract clauses are not identical then it
would prevent efficient administration of the Executive Order. The PSC
recommended that the Department not include the contract clause
proposed at Appendix A, but instead, explicitly incorporate by
reference the mandatory contract clause promulgated in the FAR. The PSC
also stated that the final rule should include a provision similar to
that found in the SCA regulations at 29 CFR 4.5(c) indicating that when
a contract is not initially considered to be covered by the SCA but is
later determined to be, in fact, SCA-covered that the Contracting
Officer unilaterally modify the contract to include the relevant SCA
clause and wage determination. The PSC commented that a similar
provision should be included in part 9 to ensure the incumbent
contractor's obligation to timely deliver to the Contracting Officer a
list of service employees performing on the contract. The Chamber
commented that a ``safe harbor'' provision is necessary for
circumstances where the contracting agency erroneously failed to
include the nondisplacement contract clause in a contract. It asserted
that retroactive application of the clause during the course of the
contract would result in ``chaos or significant liability.'' The
Chamber stated that if contract performance had begun with non-
predecessor contractor employees, the successor contractor would be
required to terminate its workforce in sufficient numbers to
accommodate any qualified workers or pay back wages to workers who were
denied their right to an offer of employment. The Chamber also argued
that a contracting agency's

[[Page 53731]]

determination that a contract is not subject to the provisions of the
Executive Order because it is not for the same or similar service, or
for any other reason, should be dispositive for the duration of the
contract.
    The Small Business Administration, Office of Advocacy (SBA) sought
clarification concerning the effect compliance with the proposed rule
would have on non-unionized successor contractors. Specifically, it
asked whether a successor contractor who hires a predecessor
contractor's employees under Executive Order 13495 will be deemed a
successor to the predecessor's collective bargaining agreement under
the NLRA, 29 U.S.C. 151-169. It also suggested that the Department
disclose in contract bidding materials whether or not the predecessor
contractor has a collective bargaining agreement and whether it is a
union shop. The SHRM also inquired about the possible interaction of
the proposed rule with the NLRA.
    In response to the PSC's comments, the Department notes that the
Executive Order requires the FARC and the Department to consult in
regards to drafting regulations that are required for implementation of
the Order. The Department has consulted with the FARC and will continue
to work with the FARC to promote consistency in the regulations.
    The Department understands the concern raised by the Chamber;
however, we believe that inclusion of a ``safe harbor'' provision in
the regulation would be inappropriate and would exceed the Secretary's
authority under the Executive Order. The Department also notes that a
mandatory contract clause expressing a ``significant or deeply
ingrained strand of public procurement policy,'' such as the clause
mandated by Executive Order 13495 and its implementing regulations,
``is considered to be included in a contract by operation of law.''
S.J. Amoroso Constr. Co. Inc., v. United States, 12 F.3d 1072, 1075
(Fed. Cir. 1993); see also Office of Federal Contract Compliance
Programs, United States Dep't of Labor v. UPMC Braddock, UPMC
McKeesport, and UPMC Southside, Case No. 08-048, 2009 WL 1542298, at *3
(Admin. Rev. Bd. May 29, 2009). Therefore, the Department concludes
that it is not necessary to include a provision in the final rule
mirroring 29 CFR 4.5(c), as suggested by the PSC, in order to require
the Contracting Officer to modify such a contract by adding the clause
required by Executive Order 13495 and the final rule. However, where
the provisions of the Executive Order were incorrectly omitted from a
contract or a contract solicitation, the Department shall, consistent
with the Executive Order, employ informal alternative dispute
resolution to remedy the situation and may require the retroactive
application of the nondisplacement requirements of the Executive Order
and its implementing regulations. Additionally, in those instances
where the Department is notified of the potential misapplication, of
the contract clauses (such as the improper inclusion or omission of
those clauses) prior to contract award, the Department will notify the
contracting agency and provide advice concerning how to revise the
solicitation. In response to comments, the Department added paragraph
(f)(1) to Appendix A to require the predecessor contractor to provide a
certified seniority list to the Contracting Officer not less than 30
days before completion of the contract. Where changes to the workforce
are made after the submission of the list provided 30 days before
completion of the contract, the predecessor contractor shall furnish an
updated certified list to the Contracting Officer not less than 10 days
before completion of the contract. See Sec.  9.12(e) for further
discussion of this change to the contract clause. Proposed paragraph
(f) has been renumbered as (f)(2).
    Concerning the possible effect of the final rule on an employer's
obligations under the NLRA, it is the Department's conclusion that any
statement about the potential interplay between the nondisplacement
provisions of this final rule and the NLRA would exceed Departmental
authority; the Department does not administer or enforce the NLRA and
the NLRB has not ruled on whether a successor contractor under these or
similar circumstances would also be a successor in interest for NLRA
purposes. The Department declines the SBA's suggestion that the
Department supplement the bidding materials of contracting agencies
with information concerning whether the predecessor has a collective
bargaining agreement and a unionized workforce; such action would
exceed the Department's responsibilities under Executive Order 13495.
When a collective bargaining agreement governs the wage rates and
fringe benefits of service employees employed on the predecessor
contract, the provisions of section 4(c) of the SCA require the
successor contractor to pay no less than the predecessor's contractor's
collective bargaining agreement rates.
    Proposed Sec.  9.11(b) specified that contracting agencies must
provide notice to incumbent service employees when the contract on
which they are employed will be awarded to a successor contractor.
Under the proposed language in Appendix B, the Contracting Officer
shall provide written notice to such service employees of their
possible right to an offer of employment by either posting a notice in
a conspicuous place at the worksite or delivering it to the employees
individually. Under the proposal, where a significant portion of the
incumbent contractor's workforce is not fluent in English, the notice
shall be provided in both English and the language with which the
employees are more familiar. The Department would translate the notice
into several foreign languages and make the English and foreign
language versions available in a poster format to contracting agencies
via the Internet in order to allow easy access; however, another format
with the same information may be used. Multiple foreign language
notices would be required where significant portions of the workforce
speak different foreign languages and there is no common language. If,
for example, a significant portion of a workforce spoke Korean and
another significant portion of the same workforce spoke Spanish, then
the contracting agency would need to provide the information in
English, Korean, and Spanish. Under those circumstances, providing the
information only in English and Korean typically would not provide the
notice in a language with which the Spanish speakers are more familiar
than English.
    Proposed Sec.  9.11(b) did not provide for notice through
electronic communications; instead, the Department sought comments as
to whether allowing contracting agencies an electronic notification
option, in lieu of physical posting or providing a paper copy to the
worker, will provide the agencies greater flexibility and efficiency
without sacrificing the quality of the information provided to workers,
especially when contract work is performed at a location that is remote
from procurement staff.
    The Department received several comments on the notification
requirements in proposed Sec.  9.11(b). The U.S. Air Force
Installations & Sourcing Division stated that because the Contracting
Officer has no contact information for contractor employees, and
because the contract clause already puts the contractor on notice
regarding its responsibilities with respect to nondisplacement, the
requirements for agency contracting personnel to notify employees and
the contractor of their rights and responsibilities are burdensome and
redundant.

[[Page 53732]]

    A Navy Labor Advisor commented that requiring the successor
contractor to distribute the notices would result in a collection of
Personal Identifiable Information (PII) in the form of employee mailing
and email addresses. He suggested that because the contracting agency
has a direct relationship with only the prime contractor, the
requirement for direct notice to the employees should be placed upon
the prime contractor. Furthermore, this commenter expressed the concern
that contracting agency acquisition personnel are already overburdened
and that, ``regardless of the good and honorable intentions of
contracting agency acquisition officials, the notice requirements will
likely not get accomplished routinely as currently written into the
Part 9 regulations.'' However, if the requirement to provide the notice
remains with the contracting agency, he added, the contracting agency
should be allowed to distribute the notice via a general electronic
posting, since service employees often work in facilities not
controlled by the contracting agency. The AFL-CIO commented that
providing electronic notification to employees is reasonable, assuming
the agency has determined that the workforce has the ability to receive
the e-mail. This commenter added that the agency should also be
required to physically post a copy of the notice at the job site. The
PSC stated that e-mail notification would encourage compliance with the
proposed rule; however, such e-mail notification would only be
sufficient when employees hold e-mail accounts maintained by the
predecessor contractor or government.
    Concerning the proposed requirement that notice be provided in
English and, when appropriate, in other languages, the HR Policy
Association suggested that the final rule clarify what constitutes a
``significant'' portion of the workforce in terms of how many employees
speak a language other than English, as the notification requirement
would put a burden on the successor contractor if it would have to
create notices and new offer letters in multiple languages if it was
determined that a significant portion of its workforce spoke a language
other than English. A Navy Labor Advisor, along with the U.S. Air Force
Installations and Sourcing Division, also stated that because the
incumbent contractor knows best the languages of its employees, it
should be responsible for distributing notices.
    It remains the Department's view that notifying service employees
of their possible right to an offer of employment is an effective means
by which to ensure compliance with the Executive Order. However, we do
agree with the aforementioned commenters that the obligation to provide
the notice should rest with the contractor, and not the contracting
agency. Section 9.11(b) has been revised to reflect that the
``Contracting Officer will ensure that the predecessor contractor
provide written notice to service employees of the predecessor
contractor of their possible right to an offer of employment'' and that
``Contracting Officers may advise contractors to provide the notice set
forth in Appendix B * * *'' This is consistent with ``existing''
contractor obligations under the SCA with regards to providing notice
of compensation through posting ``or the delivery'' of the applicable
wage determination, and SCA poster. 29 CFR 4.183, 4.184. Therefore, the
Department believes that placement of this obligation with the
contractor is appropriate and best accomplishes the goal of employee
notification.
    Concerning providing notice through the use of electronic
communications, the Department has decided, after careful consideration
of the comments, to allow contractors to distribute the notices through
the use of effective electronic communications. The Department has
added language to the rule allowing contractors to use an effective
electronic mail communication, and describing effective electronic
communication. To be effective, such a communication must result in an
electronic delivery receipt or some other reliable confirmation that
the intended recipient received the notice. Any particular
determination of the adequacy of a notification, regardless of the
method used, must be fact-dependent and made on a case-by-case basis.
The Department recognizes that reliance on electronic communication
will increase in the future and often may provide an inexpensive and
reliable way to communicate information quickly. For example, using
electronic mail may be the most effective method to notify service
employees who work in facilities not controlled by the contractor. The
Department disagrees with the PSC that sufficient e-mail notification
would require employees to have email accounts maintained by the
predecessor contractor or the government. Additionally, the Department
declines to implement the suggestion from the Navy Labor Advisor that
contracting agencies be allowed to distribute the notice via a general
electronic posting. The Department believes that providing for
individual electronic notices to workers will result in the affected
workers receiving the notice and appropriately addresses the concern of
providing notice to service employees.
    Concerning the proposed requirement that the notice be provided in
English and in other languages, as appropriate, the Department notes
that this requirement is similar to regulatory requirements
implementing other DOL-administered and enforced statutes, such as the
Family and Medical Leave Act, the H-2A provisions of the Immigration
and Nationality Act, the Migrant and Seasonal Agricultural Worker
Protection Act, and Executive Order 13496, Notification of Employee
Rights Under Federal Labor Laws. The term ``significant portion'' has
not been defined under these other regulations, and the lack of a
definition or bright-line test has not prevented employers from
complying with the requirement. For these reasons, the term is not
defined in the final rule. If there is a question of whether a portion
of the workforce is significant and the Department has a poster in the
language common to those workers, the notice should be posted in that
language.
    Proposed Sec.  9.11(c) requires the Contracting Officer to provide
the list of employees employed by the predecessor contractor,
referenced in proposed Sec.  9.12(e), to the successor contractor and,
on request, to employees or their representatives. A Navy Labor Advisor
suggested that two lists be required: an alphabetical list, provided
long before the end of the predecessor contract and used to comply with
the Executive Order, and a list organized by date of hire, provided at
the beginning of contract performance and used for compliance with SCA-
mandated wage and fringe benefit terms. This commenter asserted that
the use of two separate lists would protect more senior employees from
discrimination by concealing their seniority during the transition
process. The Department's consideration of this comment can be found in
the discussion of proposed Sec.  9.12(e). No other comments were
received on this provision and the final rule implements this paragraph
as proposed.
    Proposed Sec.  9.11(d) addressed Contracting Officers'
responsibilities regarding complaints of alleged violations of part 9.
As under the prior version of part 9, the proposed rule provided that
contracting agencies would initially receive complaints of alleged
violations of the nondisplacement requirements and, in a compliance
assistance mode, provide information to the complainant and

[[Page 53733]]

contractor about their rights and responsibilities under the employee
nondisplacement provision of the contract.
    Under the proposed rule, contracting agencies would not be
obligated to forward to the Wage and Hour Division (WHD) any complaint
that is withdrawn because of this compliance assistance. Thus, for
example, a Contracting Officer would not need to forward to the WHD a
complaint that an employee withdraws because the employee was
previously not aware of the application of a particular exclusion. In
all other cases, the contracting agency would forward certain
information necessary for the Department to determine compliance. Under
the proposal, the Contracting Officer, within 30 days of receipt of a
complaint, would forward to the WHD headquarters any allegations of any
violation of this part; available statements by the employee or the
contractor regarding the alleged violation; evidence that a seniority
list was issued by the predecessor and provided to the successor; a
copy of the seniority list; evidence that the nondisplacement contract
clause was included in the contract or that the contract was exempted
by the agency; information concerning known settlement negotiations
between the parties (if applicable); and other pertinent information
the Contracting Officer chooses to disclose. The proposal also required
the Contracting Officer to provide copies of the information to the
successor contractor and the complainant. To assist the contracting
agency in providing information to the WHD and to protect the interests
of the contracting agency, the proposal provided for the contracting
agency to conduct an initial review of any nondisplacement complaint,
including obtaining statements of the positions of the parties and
inspecting the records of the predecessor and successor contractors
(and making copies or transcriptions thereof); questioning the
predecessor and successor contractors and any employees of these
contractors; and requiring the production of any documentary or other
evidence deemed relevant to determine whether a violation of this part
had occurred. Contracting agencies would be obligated to refer
questions of interpretations regarding part 9 to the nearest WHD local
office.
    The Department received few comments on this provision. The SEIU
and Change to Win as well as the AFL-CIO both commented that the 30-day
period for the contracting agency to forward complaints to the WHD
constituted an appropriate amount of time in order for complaints to be
handled expeditiously. A Navy Labor Advisor requested the elimination
of the entire provision, suggesting that WHD handle all complaints.
This commenter claimed that ``there is no basis for involving the
contracting agency in the receipt or resolution of complaints.'' In
addition, contracting officers from Federal agencies represented on the
FARC expressed their concerns with the implementation of this proposed
requirement. After careful consideration of these comments, the
Department has revised Sec.  9.11(d) to limit the Contracting Officer's
responsibilities with regard to handling complaints. The Contracting
Officer is no longer responsible for initial review of or compliance
assistance with complaints. Instead, the Contracting Officer shall be
responsible for reporting information to the WHD within 14 days of
WHD's request. Because the contracting agency no longer has the
responsibility of reviewing complaints, the Department believes 14 days
is an appropriate timeframe within which to require production of
information necessary to evaluate the complaint. Further consideration
of this comment can be found in the discussion of Sec.  9.21(a).
Section 9.12 Contractor Requirements and Prerogatives
General
    Proposed Sec.  9.12 articulated contractors' requirements and
prerogatives under the nondisplacement requirements. The proposed
section included the general obligation to offer employment, the method
of the job offer, exceptions, permitted staffing reductions,
obligations near the end of the contract, recordkeeping, and
obligations to cooperate with reviews and investigations.
    Proposed Sec.  (a)(1) of this section implemented the Executive
Order requirement that no employment openings may be posted before the
successor contractor has offered employment to the employees on the
predecessor contract. Under the proposed rule, except as provided under
the exclusions listed in proposed Sec.  9.4 and the exceptions in
proposed Sec.  9.12 paragraphs (c) and (d), a successor contractor or
subcontractor could not fill any employment openings under the contract
prior to making bona fide, express offers of employment, in positions
for which the employees are qualified, to those employees employed
under the predecessor contract whose employment would be terminated as
a result of award or expiration of the contract under which they were
hired. Except as provided under the aforementioned exclusions and
exceptions, all employees working on the contract at the time of
contract completion, regardless of length of tenure, would be entitled
to such an offer. The successor contractor and its subcontractors would
be required to make a bona fide, express offer of employment to each
employee and state the time within which the employee must accept such
offer, but in no case would the period within which the employee must
accept the offer of employment be less than 10 days.
    The HR Policy Association suggested that the final rule should
permit a successor contractor to post and offer positions to non-
predecessor employees within the same time frame--at least 10 days--
during which the successor contractor offers positions to predecessor
employees, in case the predecessor employees do not accept the job
offers. The HR Policy Association also commented that proposed Sec. 
9.12(a)(1) implied that if an employee was laid off because, for
instance, the successor contract has fewer positions in a particular
job, the successor contractor must permit the otherwise displaced
employee to be offered other positions for which he or she is arguably
minimally qualified, including jobs he or she never performed before.
This commenter recommended that the final rule clarify that the right
of first refusal exists for predecessor employees who would perform the
same job with the successor employer. The SEIU and Change to Win
commented that proposed Sec.  9.12(a)(1) did not specify the manner in
which such offers should be made.
    The Department disagrees with the HR Policy Association's assertion
to the extent that it suggests that the successor contractor would be
required to offer a position to an employee who is not qualified for
the position. Proposed Sec.  9.12(b)(4) described the criteria by which
a successor contractor can determine whether an employee is qualified
for the position, based upon the employee's education and employment
history, with particular emphasis on the employee's experience on the
predecessor contract, and the Department believes this section provides
appropriate guidance to successor contractors for determining whether a
particular employee is qualified. The Department also disagrees with
this commenter's suggested revision to allow the successor contractor
to make contingent offers of employment to non-predecessor employees in
the period

[[Page 53734]]

during which predecessor employees are considering the successor's
offer. The Department notes that the HR Policy Association's
suggestions to provide contingent offers to non-predecessor employees
would be contrary to the express language of the Executive Order.
    Proposed Sec.  9.12(a)(2) clarified that the successor contractor's
obligation to offer a right of first refusal exists even if the
successor contractor was not provided a list of the predecessor
contractor's employees or the list did not contain the names of all
persons employed during the final month of contract performance. The
Navy Labor Advisor suggested that this requirement should be eliminated
entirely, asserting that the successor contractor would have no reason
to know, in the absence of a seniority list, to whom it is legally
required to offer employment. He also suggested that responsibility
should be placed upon the predecessor contractor to provide an accurate
seniority list or other information on a timely basis rather than to
place what he characterized as unreasonable demands upon the successor
contractor and/or the contracting agency. The SBA Office of Advocacy
also commented that if a list of employees is not provided by the
predecessor contractor, then the successor contractor may incur costs
in trying to determine to which employees it is supposed to extend job
offers. An individual commenter recommended that if the predecessor
contractor fails to provide a list of incumbent employees, then ``the
successor contractor [should] be permitted to offer probationary
employment to incoming employees, with the understanding that
employment may be revoked upon a good faith finding that the employee
was not previously employed.'' The PSC also expressed concern about a
predecessor contractor failing to furnish a list of employees, and
suggested that the Contracting Officer should have the authority to
allocate remedies to the responsible party in an effort to encourage
compliance and allocate risks of non-compliance.
    After carefully considering the comments, the Department has
decided to adopt the proposed language without change. The Department
notes that meeting the requirement to make an offer of employment
should not be burdensome because the predecessor contractor may use the
list submitted to satisfy the requirements of the SCA contract clause
specified at 29 CFR 4.6(l)(2) to meet its list submission requirement
under part 9. In those instances where the list is not provided or is
incomplete, the Department disagrees that the nondisplacement
requirements should be extinguished or altered. While sympathetic to
the successor contractor's needs in such circumstances, the Department
concludes that waiving the predecessor employees' right of first
refusal of employment is not consistent with the Executive Order.
Furthermore, the Department is not authorized under the Executive Order
to make such an exception. The Department also does not agree that a
successor contractor should be permitted to offer probationary
employment.
    Proposed Sec.  9.12(a)(3) discussed determining the employee's
eligibility for the job offer and provided related guidance. While a
person's eligibility for a job offer usually would be based on whether
his or her name is included on the certified list of all service
employees working under the predecessor's contract or subcontracts
during the last month of contract performance, a successor contractor
would also be required to accept other credible evidence of an
employee's entitlement to a job offer. For example, even if a person's
name does not appear on the list of employees on the predecessor
contract, an employee's assertion of an assignment to work on a
contract during the predecessor's last month of performance, coupled
with contracting agency staff verification, could constitute credible
evidence of an employee's entitlement to a job offer. Similarly, an
employee could demonstrate eligibility by producing a paycheck stub
identifying the work location and dates worked for the predecessor. The
successor could verify the claim with the contracting agency, the
predecessor, or another person who worked at the facility.
    The Chamber asserted that the presumption that all employees on the
seniority list are entitled to a right of first refusal should be
reciprocal, so that the successor contractor could presume that only
those employees identified on the seniority list are entitled to a
right of first refusal. A Navy Labor Advisor requested that the
Department provide additional examples of proof of credible evidence of
entitlement to a job offer, while SEIU and Change to Win recommended
that the regulations make clear that the submission of any evidence of
employment is acceptable as long as such evidence is credible.
    The Department disagrees with the Chamber's suggestion that only
those employees whose names appear on the seniority list should be
entitled to an offer of employment under the Executive Order. To deny
an employee an offer because of a failure of the predecessor contractor
to meet its obligations under the Executive Order would unfairly
disadvantage the employee. The final rule adopts the proposed language
without change.
Section 9.12(b) Method of Job Offer
    Proposed Sec.  9.12(b) discussed the method of the job offer.
Proposed Sec.  9.12(b)(1) stated that except as otherwise provided in
part 9, a contractor must make a bona fide express offer of employment
to each employee on the predecessor contract before offering employment
on the contract to any other person. The obligation to offer employment
would cease upon the employee's first refusal of a bona fide, express
offer to employment on the contract. Proposed Sec.  9.12(b)(2) provided
that the contractor shall state the time period within which the
employee must accept the employment offer, but in no case may that time
period be less than 10 days. Proposed Sec.  9.12(b)(3) required the
successor contractor to make an oral or written employment offer to
each employee, and, in order to ensure that the offer is effectively
communicated, to take reasonable efforts to make the offer in a
language that each worker understands.
    Proposed Sec.  9.12(b)(4) clarified that the employment offer may
be for a different position on the contract than the position the
employee held on the previous contract. An offer of employment on the
successor's contract would generally be presumed to be a bona fide
offer of employment even if it was not for a position similar to the
one the employee previously held, provided that the position was one
for which the employee was qualified. Questions concerning an
employee's qualifications would be decided based upon the employee's
education and employment history with particular emphasis on the
employee's experience on the predecessor contract. A successor
contractor would have to base its decision regarding an employee's
qualifications on credible information provided by a knowledgeable
source such as the predecessor contractor, the local supervisor, the
employee, or the contracting agency. For example, an oral or written
outline of job duties or skills used in prior employment, school
transcripts, or copies of certificates and diplomas all would be
credible information. Under proposed Sec.  9.12(b)(5), the offer of
employment could be for a position providing different terms and
conditions of employment than those that applied to the employee's work
for the predecessor contractor, where the different terms

[[Page 53735]]

and conditions are not related to a desire that the employee refuse the
offer or that other employees be hired. Lastly, proposed Sec. 
9.12(b)(6) provided that, where an employee is terminated under
circumstances suggesting the offer of employment may not have been bona
fide, the facts and circumstances of the offer and the termination will
be closely examined to ensure the offer was bona fide.
    Many of the comments received on proposed Sec.  9.12(b) expressed
concern with the timing of required actions, particularly the time
frame between the successor contractor's receipt of the list of the
predecessor contractor's employees (seniority list) from the
contracting agency, the timeframe within which employees must respond
to an offer of employment, and the start date of the contract. This
issue is discussed in greater detail with respect to proposed Sec. 
9.12(e).
    CAE USA, Inc. commented that there is a possibility that positions
will be unfilled at the start of the contract, since the obligatory
offer of employment to the predecessor contractor employee has a
deadline for acceptance on or after the contract start date. A Navy
Labor Advisor commented that this section must be supplemented with
additional information because it fails to address predecessor
contractor employees that may, in fact, refuse a bona fide employment
offer. This commenter also suggested that the Department include the
full description of how determinations of qualification would be made
in the text of the final rule. TechAmerica suggested that successor
contractors be given the flexibility to review the qualifications of
incumbent personnel before those employees are offered employment. The
HR Policy Association, the Chamber, and TechAmerica commented
concerning hiring practices, stating that the final rule should
identify whether the application of the successor contractor's ``higher
standards for employment'' or ``normal hiring validation processes''
(e.g., requiring passing a drug test as a condition of employment)
would be permissible in determining whether an employee is qualified.
The SBA Office of Advocacy sought clarification on whether successor
contractors can vet the predecessor employees through means such as,
but not limited to, interviews, drug tests, and security tests.
    The AFL-CIO commented that the final rule should require all
employment offers by successor contractors to be made in writing in
order to reduce disputes about whether offers were made and whether
they were bona fide. This commenter added that having the offer in
writing would be particularly helpful for workers who are not fluent in
English. The SEIU and Change to Win stated that the proposed
requirement that an employer ``take reasonable efforts to make an offer
in a language that each worker understands'' should require that offers
be made in English and in a language that the worker understands. The
International Union of Operating Engineers (IUOE) commented that to
ensure that service workers receive an offer that affords prevailing
wage protection, there should be no presumption that an offer of
employment to a lower paying job is a bona fide offer. The IUOE
suggested that the positions offered should, as a general rule, be in
the same classifications or in higher paid classifications for
individual workers, stating that this section as proposed will
exacerbate the existing problem of deliberate misclassification of
prevailing wage workers by creating an additional incentive to
misclassify workers. The AFL-CIO stated that offers for lesser pay or
benefits cannot presumptively be considered bona fide, and should only
be considered bona fide if the successor contractor proves by clear and
convincing evidence that the reasons for the offer are not related to a
desire to reduce labor costs, to induce the incumbent employee to
refuse the offer, or to ensure that other employees are hired for the
offer. The SEIU and Change to Win stated that to allow an employer to
offer a lesser position when the person's equivalent position is
available cannot be considered a ``bona fide offer of employment.''
They suggested that the final regulations provide that a ``bona fide
offer of employment'' must be for an equivalent or better position
under the successor contract as long as such a position remains open.
The SEIU and Change to Win also commented that the provision as
proposed is inadequate because it would allow successor contractors to
hire employees who did not work for the predecessor contractor at
higher wages and benefits than it offers the predecessor's employees
for the same position.
    The Chamber commented that if the provision allowing the successor
to offer employment to a position with different terms and conditions
did not exist, Federal contractors would be significantly disadvantaged
when attempting to craft appropriate bids and could easily be locked
into inefficient business models that would further hinder the
provision of economic and efficient services. This commenter suggested
that clearer language creating a presumption in favor of the employer
and requiring more than a suggestion that the offer was not bona fide
to rebut the presumption would go a long way toward making this
important part of the regulations practically functional. The PSC
expressed concern that the provision concerning termination after
contract commencement would restrict companies from using policies of
``at will'' employment to terminate ``employees who fail to deliver
excellent services.'' It also stated that such examination of a
successor Federal service contractor's termination decisions would
contradict or preempt state at-will employment laws, and that the
proposed rule does not indicate the standard that will be used in
government investigations to determine whether a termination was bona
fide or pretextual.
    After a careful review of the comments, the Department has
concluded that a successor contractor may apply employment screening
processes (i.e., drug tests, background checks, security clearance
checks, and similar pre-employment screening mechanisms) only when such
processes are provided for by the contracting agency, are conditions of
the service contract, and (in addition to being otherwise consistent
with applicable Federal and state law) are consistent with the
Executive Order. Conversely, a successor contractor may not impose its
own hiring standards (such as college degree requirements for
particular positions) in making determinations regarding whether an
employee of a predecessor contactor is qualified. Contracting agencies
and prospective bidders and successor contractors may exchange views
during the contracting process about the need for particular employment
screening processes. For example, a prospective bidder may inform a
contracting agency that the bidder requires drug testing of all of its
service employees and may recommend that the contracting agency provide
for such drug testing in connection with the service contract; whether
drug testing would be permitted in this circumstance would depend upon
whether the contracting agency agrees with the bidder and provides for
such testing as provided in this rule. With respect to determining
employee qualifications, the Executive Order focuses on an employee's
past performance, and it specifically provides that a right of first
refusal need not be offered to an employee whom the contractor or any
of its subcontractors reasonably believes, based on the particular
employee's past performance, has failed to perform

[[Page 53736]]

suitably on the job. Consistent with the Executive Order, the final
rule provides that questions concerning an employee's qualifications
should be decided based upon the employee's education and employment
history, with particular emphasis on the employee's experience on the
predecessor contract. A contractor's hiring standards or employment
screening processes typically would not measure the employee's
performance on the predecessor contract, and use of such standards or
processes thus could not be used to determine whether an employee is
qualified unless a contracting agency provided for use of such
standards or processes and made them a condition of the service
contract. Such standards or processes would, of course, also need to be
consistent with the Executive Order; a contracting agency or successor
contractor could not, for example, determine that otherwise-qualified
service employees on a predecessor contract would not be qualified to
perform the same or similar services on a successor contract because
they lack a college degree. The Department has added language to Sec. 
9.12(b)(1) to reflect these changes.
    In response to concerns raised by some commenters regarding a
successor contractor offering employment to a qualified employee on
different terms and conditions than those under which the employee
worked for the predecessor contractor, the Department notes that
nothing in the Executive Order or in the SCA prevents a contractor from
restructuring its staff and putting its employees into other positions
for which they are qualified or from subjecting them to different terms
and conditions of employment. The Department does not agree that
continuing to provide contractors on Federal service contracts with
such flexibility will lead to an increase in employee
misclassification. The Department also disagrees that offers must be
made in writing to be sufficient. Adequate oral or written offers could
satisfy the requirements of the Executive Order.
    The Department advises that proposed Sec.  9.12(b)(6) concerns only
those terminations that suggest earlier employment offers were not bona
fide. Such terminations would circumvent the requirements of the
Executive Order. Because the Secretary is charged with enforcing
compliance with the Executive Order, it is appropriate for her to
closely examine terminations that suggest a failure to provide a bona
fide offer of employment. The Department does not agree that Sec. 
9.12(b)(6) will conflict with the requirements of state employment
laws, but notes that the Executive Order, and its implementing
regulations, will provide controlling law concerning the
nondisplacement of qualified workers under Federal Government service
contracts. The Department also does not believe that it is necessary to
articulate a standard in the final rule that will be used in
termination investigations to determine whether an employee received a
bona fide offer of employment. The final rule implements proposed Sec. 
9.12(b) with the modification noted above. No other changes were made
to the proposed provision.
Section 9.12(c) Exceptions
    In proposed Sec.  9.12(c), the Department addressed the exceptions
to the general obligation to offer employment under Executive Order
13495. These exceptions are included in the contract clause established
in section 5 of the Order and are distinct from the exclusions
discussed in Sec.  9.4. The exceptions specify both certain classes of
contracts and certain employees excluded from the provisions of
Executive Order 13495. The exception from the successor contractor's
obligation to offer employment on the contract to employees on the
predecessor contract prior to making the offer to anyone else does not
relieve the contractor of other requirements of this part (e.g., the
obligation near the end of the contract to provide a list of employees
who worked on the contract during the last month). The exceptions are
to be construed narrowly and the contractor will bear the burden of
proof regarding the appropriateness of claiming any exception.
    Under proposed Sec.  9.12(c)(1), a contractor or subcontractor
would not be required to offer employment to any employee of the
predecessor who will be retained by the predecessor contractor. The
contractor would be required to presume that all employees hired to
work under a predecessor's Federal service contract will be terminated
as a result of the award of the successor contract, absent an ability
to demonstrate a reasonable belief to the contrary based upon credible
information provided by a knowledgeable source such as the predecessor
contractor, the employee, or the contracting agency.
    Proposed Sec.  9.12(c)(2) provided that a successor contractor or
subcontractor would be allowed to employ under the contract any
employee who has worked for the successor contractor or subcontractor
for at least 3 months immediately preceding the commencement of
performance under the contract, i.e., the first date of performance of
the contract, and who would otherwise face lay-off or discharge. As
with any exception to the nondisplacement requirements, a successor
contractor bears the burden of showing how the exception applies. For
example, a successor contractor would have to demonstrate that an
employee it has employed for at least 3 months will be discharged if a
position on the contract is not offered because the employee's work on
another contract has expired and there are no other openings for which
the employee is qualified. A successor contractor could not claim this
exception to reemploy an employee who was already terminated or laid
off because such a person has not been employed for the 3 months
preceding the commencement of the successor contract. However, an
employee would still be considered to be employed during a period of
leave, such as vacation or sick leave, or a similar short-term absence.
    Under proposed Sec.  9.12(c)(3), the contractor or subcontractor
would not be required to offer employment to any employee of the
predecessor contractor who is not a service employee. Typically, this
exception would apply to a person who is a managerial or supervisory
employee on the predecessor contract. The successor contractor would be
required to presume that all persons appearing on the list required by
Sec.  9.12(e), or who have demonstrated they should have been included
on the list were service employees under a predecessor's Federal
service contract, absent an ability to demonstrate a reasonable belief
to the contrary, based upon credible information provided by a
knowledgeable source such as the predecessor contractor, the employee,
or the contracting agency. Information regarding the general business
practices of the predecessor contractor or the industry would not be
sufficient for purposes of the exception.
    The Department proposed in Sec.  9.12(c)(4) that a contractor or
subcontractor would not be required to offer employment to any employee
of the predecessor contractor whom the 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
successor contractor would be required to presume that all employees
working under the predecessor contract in the last month of performance
performed suitable work on the contract, absent an ability to
demonstrate a reasonable belief to the contrary based upon credible

[[Page 53737]]

information provided by a knowledgeable source such as the predecessor
contractor, the local supervisor, the employee, or the contracting
agency. A successor contractor could demonstrate its reasonable belief
that the employee in fact failed to perform suitably on the predecessor
contract through evidence of disciplinary action taken for poor
performance or evidence directly from the contracting agency that the
particular employee did not perform suitably. Similarly, a successor
contractor could use performance appraisal information in determining
whether an employee failed to perform suitably on the job; however, the
Department notes that this does not require a predecessor contractor to
provide performance information. Information regarding the general
performance of the predecessor contractor would not be sufficient for
purposes of this exemption. The Department sought comments as to
whether there should be any requirement that the information supporting
the contractor's or subcontractor's reasonable belief that an employee
of the predecessor contractor had failed to perform suitably on the job
be in writing and relatively contemporaneous with the employee's past
performance.
    Under proposed Sec.  9.12(c)(5), a contractor or subcontractor is
not required to offer employment to any employee hired to work under a
predecessor's Federal service contract and one or more nonfederal
service contracts as part of a single job, provided that the employee
was not deployed in a manner that was designed to avoid the purposes of
this part. The successor contractor is required to presume that all
employees hired to work under a predecessor's Federal service contract
did not work on one or more nonfederal service contracts as part of a
single job, unless the successor contractor can demonstrate a
reasonable belief to the contrary based upon credible information
provided by a knowledgeable source such as the predecessor contractor,
the local supervisor, the employee, or the contracting agency.
Information regarding the general business practices of the predecessor
contractor or the industry would not be sufficient for purposes of this
exception. For instance, claims from several employees stating that a
janitorial contractor reassigned its janitorial workers who previously
worked exclusively in a Federal building to both Federal and private
clients as part of a single job may indicate that the predecessor
deployed workers to avoid the requirements of the nondisplacement
provisions. Conversely, where the employees on the predecessor contract
were deployed to Federal and other buildings as part of their job, the
successor contractor would not be required to offer employment to the
workers. Knowledge that contractors generally deploy workers to both
Federal and other clients would not be sufficient for the successor
contractor to claim the exception because such general practices may
not have been observed on the particular predecessor contract.
    The Department received various comments on proposed Sec.  9.12(c).
A Navy Labor Advisor requested that the final rule at Sec.  9.12(c)(2)
include language concerning the eligibility of employees on leave. The
HR Policy Association commented that proposed Sec.  9.12(c)(3) is
illogical because if a successor employer determines that certain
positions will be supervisory or managerial positions, it should not be
obligated to hire predecessor employees into these non-service
positions, even if the predecessor employer elected to treat the
positions as service employee positions. The Chamber commented that the
Department should eliminate the presumption that all employees included
on the list by the predecessor and competitor contractor are ``service
employees''. The Chamber suggested that if the Department maintains the
presumption that all workers are service employees, then the
evidentiary standard for rebutting that presumption should be changed
to require only that the successor contractor have a good faith belief
that the employee is not a service employee and that the Department
should provide additional guidance and allow the successor contractor
to use information regarding general business practices.
    The Chamber also commented that the requirement that the successor
contractor presume the predecessor contractor's employees would be
terminated, absent a reasonable belief to the contrary based on
credible evidence from a knowledgeable source, involved evidentiary
standards that are too difficult to meet because a successor contractor
does not necessarily have access to the predecessor contractor or
employees. The Chamber suggested that the final rule eliminate the
presumption that all employees will be terminated as a result of the
award of a successor contract and provide additional guidance regarding
what type of evidence will support this exception.
    The PSC commented that ``unsuitable past performance'' is
inadequately defined in the proposed rule and will result in confusion
and litigation. The PSC also noted that the rule does not provide
sufficient guidance regarding the ``evidence'' on which a successor
contractor may rely to determine that a prospective employee's
performance is unsuitable. The PSC also felt that since an employee's
poor performance is often not reflected in any formal employment
action, a formal record of ``disciplinary action'' should not be among
the criteria that a contractor must demonstrate to justify employment
decisions affecting unsuitable incumbent employees. The PSC stated that
the proposed rule provides little guidance on what information the
predecessor contractor must provide to the successor contractor
concerning the performance of employees. The SBA Office of Advocacy
stated that successor contractors may not receive information about
employee performance because seniority lists do not contain performance
reviews, and should the predecessor contractor provide employee
information, it may not be reliable since the predecessor contractor
may have lost the contract due to its inability to manage personnel.
The SHRM commented that the predecessor contractor may not maintain, or
provide, thorough employment records, and recommended that when this
occurs, the successor contractor notify the contracting agency to be
relieved of its obligation to offer a right of first refusal.
    The PSC commented, and TechAmerica agreed, that an employee's prior
work experience is not necessarily the sole qualification for the job,
and recommended that the successor contractor be allowed to not make an
offer of employment to those of the predecessor's employees who are
``undesirable'' for reasons other than past instances of unsuitable
performance. The PSC opined that few contractors would be willing to
try to satisfy the proposed rule's standard for excusing a successor
contractor from the obligation to offer a predecessor's employee a
position on the contract. This commenter recommended that, should the
Department retain the presumption that an employee's prior experience
on the predecessor contract makes the employee qualified for the
successor contract, the time period should be expanded to six months of
continuous employment on the predecessor contract. The SHRM recommended
that the final rule relieve a successor contractor of any requirement
to hire any of the predecessor's employees in any situation where a
predecessor contractor

[[Page 53738]]

retains 10% or more of its workforce employed during the 90 days
preceding the completion of the Federal contract because that may
indicate that the predecessor has moved its more experienced and
valuable employees off the contract. Similarly, the SBA Office of
Advocacy and the PSC expressed concern that, under the proposed
section, a predecessor contractor might keep its best performing
employees and leave the successor contractor with less qualified
employees. These commenters argued that the standard for establishing
non-qualification should be changed to a good faith belief by the
successor contractor. The Chamber suggested that the presumption of
qualification be eliminated from the proposal because it provides an
incentive for the predecessor contractor to ``dump'' low-performing
employees from other contracts onto the contract it is about to lose.
The Chamber further commented that the proposed section did not provide
the successor contractor with access to the information required to
disprove qualification. The PSC and TechAmerica added that predecessor
contractors would not want to provide employee evaluations to successor
contractors because of privacy and legal concerns. The SBA Office of
Advocacy and the PSC recommended that the final rule contain a safe
harbor provision for those predecessor contractors who provide employee
information due to the high litigation risk disclosure produces.
TechAmerica also requested a safe harbor provision to protect the
successor contractor from litigation brought by employees of the
predecessor contractor.
    The AFL-CIO stated that the final rule should require a successor
contractor to support its belief in an employee's unsuitable
performance with written evidence of poor performance created
contemporaneously with the relied-upon disciplinary action. The SEIU
and Change to Win suggested that the final regulation require a
successor contractor to support its belief in an employee's unsuitable
performance with written evidence of poor performance created
contemporaneously with the relied-upon disciplinary action, that any
poor past performance relied on be sufficient under the contractor's
own policies to justify termination, and that the poor performance be
equivalent to ``just or proper cause'' as those terms are used under
collective bargaining agreements. The SEIU and Change to Win agreed
with the AFL-CIO's suggestion that the final rule require a successor
contractor to show that an employee engaged in a ``terminable offense''
as a basis for denying to extend the employee a job offer on the
contract.
    Regarding the exception from the requirement to offer employment to
an employee who was hired to work on the predecessor's contract and one
or more nonfederal jobs as part of a single job, the Chamber suggested
that the final rule eliminate the presumption that no employee was
hired for more than the contract at issue, or at least change the
evidentiary standard for rebutting that presumption to require only
that the successor contractor have a good faith belief that the
employee was employed on one or more nonfederal jobs as part of a
single job. The Chamber requested additional guidance on what type of
evidence will support this exception. The SEIU and Change to Win
commented that it would defeat the intent of the Executive Order if the
requirement to offer employment was not applied to employees who worked
relatively less time on nonfederal contracts and who would face layoff
because of the award of the contract to another contractor. They
suggested that the final regulations provide that an employee who
spends at least 59% of his or her time working on a Federal service
contract and who would face layoff as a result of the contract change
should not be excluded from coverage under Section 3(e) of the
Executive Order.
    The Department disagrees with the Chamber that the evidentiary
standard required to establish the exception in proposed Sec. 
9.12(c)(1) is too difficult to meet. As the proposal indicated,
credible information may be obtained from the predecessor contractor,
the employee, or the contracting agency. Therefore no changes have been
made to proposed Sec.  9.12(c)(1). The Department declines the Navy
Labor Advisor's request that Sec.  9.12(c)(2) include language
concerning the eligibility of employees on leave as not necessary. Such
employees would clearly still be employed by the predecessor while on
leave. Therefore, Sec.  9.12(c)(2) is also adopted as proposed.
    After careful review of the comments, the Department has also
decided to adopt Sec.  9.12(c)(3) without change. It is the
Department's conclusion that the provision, as proposed, suffices to
ensure job protection for eligible employees of the successor
contractor. Under the SCA, all employees performing work on the
contract are considered service employees unless they are defined as
executive, administrative, or professional employees exempt under the
Fair Labor Standards Act, 29 U.S.C. 203 et seq., and its regulation at
29 CFR Part 541. Also under the SCA, the contractor already bears the
burden to show that the workers working on a Federal service contract
are not service employees.
    The Department is not convinced that evidence of past poor
performance would be difficult to obtain. The Department's experience
from Executive Order 12933 showed that successor contractors were able
to obtain information on the predecessor's employees' job performance.
The Department does not agree that, under the proposed rule,
predecessor contractors will be encouraged to ``dump'' unsuitable
employees onto expiring contracts, nor that the inclusion of a ``safe
harbor'' provision in the regulation is appropriate or authorized by
the Executive Order. The Department also does not agree that a
different standard from what was proposed is needed for determining a
service employee's eligibility for an offer of employment from the
successor contractor. Neither lengthening the period of employment
prior to the end of the predecessor contract, nor eliminating the
requirement for an offer of employment when the predecessor retains a
certain percentage of its workforce, would address the stated concern
that the predecessor contractor may retain some of its most qualified
workforce. The Department also notes that where the predecessor
contractor retains some, but not all, of the workforce employed on the
contract during the last month of the contract, those remaining
employees will likely have more experience with the contract and
contracting agency than new hires recruited by the successor contractor
for the purpose of filling the contract requirements.
    In response to the comments, the Department has modified the
exception for unsuitable performance in Sec.  9.12(c)(4) to include the
requirement that a successor contractor must support its belief that an
employee has exhibited unsuitable job performance with written credible
evidence provided by a knowledgeable source to enhance the reliability
of such evidence. The final rule, however, does not require that such
written evidence be contemporaneous or concern a workplace offense
justifying termination because it is the Department's conclusion that
such requirements would be overly restrictive.
    Regarding the exception from the requirement to offer employment to
an employee who was hired to work on the predecessor's contract and one
or more nonfederal service contracts as part of a single job, the
Department notes that

[[Page 53739]]

this exception is required by the Executive Order and would only apply
to workers of a predecessor contractor who were deployed on Federal and
nonfederal service contracts. It is the Department's conclusion that
generally determining eligibility for this exception should not be
difficult and the Department therefore has decided to adopt Sec. 
9.12(c)(5) without change.
Section 9.12(d) Reduced Staffing
    Proposed Sec.  9.12(d) addressed the provision in paragraph (a) of
Executive Order 13495's contract clause that allows the successor
contractor to reduce staffing. 74 FR 6104 (Feb. 4, 2009).
    Proposed Sec.  9.12(d)(1)(i) allowed the contractor or
subcontractor to determine the number of employees necessary for
efficient performance of the contract and, for bona fide staffing or
work assignment reasons, to elect to employ fewer employees than the
predecessor contractor employed in performance of the work. Thus, the
successor contractor would not be required to offer employment on the
contract to all employees on the predecessor contract, but would be
required to offer employment only to the number of eligible employees
the successor believes necessary to meet its anticipated staffing
pattern. Where a successor contractor does not offer employment to all
the predecessor contract employees, the obligation to offer employment
would continue for 3 months after the successor contractor's first date
of performance on the contract. In Sec.  9.12(d)(1)(ii), the Department
proposed that if a successor contractor did not offer employment to all
the predecessor contractor's service employees, the obligation to offer
employment would continue for 90 days after the successor contractor's
first date of performance on the contract. The successor contractor's
obligation under this part would end when all of the predecessor
contract employees received a bona fide job offer or the 90-day window
of obligation expired. The Department sought comments on this issue.
    Proposed Sec.  9.12(d)(2) allowed the contractor, subject to
provisions of this part and other applicable restrictions (including
non-discrimination laws and regulations), to determine to which
employees it will offer employment. Proposed Sec.  9.12(d)(3) allowed,
in some cases, a successor contractor to reconfigure the staffing
pattern to increase the number of persons employed in some positions
while decreasing the number of employees in others, provided the
contractor examined the qualifications of each employee so as to
minimize displacement. Consistent with proposed Sec.  9.1(b), this
exception should not be construed to permit a contractor or
subcontractor to fail to comply with any provision of any Executive
Order, regulation, or law of the United States; therefore, a contractor
could not use this exemption to justify unlawful discrimination against
any worker. While the WHD would not make compliance determinations
regarding Federal contractors' compliance with nondiscrimination
requirements administered by other regulatory agencies, a finding by
the Department's Office of Federal Contract Compliance Programs,
another agency, or a court that a contractor has unlawfully
discriminated against a worker would be considered in determining
whether the discriminatory action has also violated the nondisplacement
requirements. Under the proposal, the successor contractor's obligation
would end when all of the predecessor contract employees have received
a bona fide job offer or the 90-day obligation period expires. The
proposed regulation provided several examples to demonstrate the
principle.
    The Chamber commented that the requirement to provide a right of
first refusal should cease once the contract has started, since it
would otherwise create an unnecessary regulatory burden. The SEIU and
Change to Win took the opposite position on this issue, stating that
the 90-day limit should not be included in the final rule. They
asserted that to require that the predecessor's employees be offered
employment at any time there is an opening for which they are qualified
is consistent with one of the purposes of the Executive Order, which is
to provide an experienced and trained workforce. The Department notes
that the proposal struck a balance with the obligation to provide the
predecessor's employees with a right of first refusal of employment and
successor contractor's need to address workforce needs during the
contract term. It is the Department's conclusion that to require
successor contractors to make offers to predecessor employees for
subsequently vacant positions more than 90 days after the successor's
first day of performance on the contract would be impractical and
unduly burdensome. Ninety days was selected as a reasonable period for
continuing to impose an obligation to offer a right of first refusal in
order to ensure that any necessary staffing adjustments during the
start-up period would be covered while at the same time discouraging
attempts to manipulate the starting workforce. No other comments were
received for proposed Sec.  9.12(d) and it is adopted as proposed.
Section 9.12(e) Contract Obligations Near End of Contract Performance
    Proposed Sec.  9.12(e) specified the predecessor contractor's
obligations near the end of the contract--not less than 10 days before
completion of the contract--to furnish the Contracting Officer with a
certified list of the names of all service employees working under the
contract and its subcontracts during the last month of contract
performance, including their anniversary dates of employment with
either the predecessor contractor or any subcontractors. The proposal
noted that the contractor may use the seniority list submitted to
satisfy the requirements of the SCA contract clause specified at 29 CFR
4.6(l)(2) to meet this provision. The earlier version of part 9
implementing Executive Order 12933 included a similar provision that
did not specifically state that the single list could be used to
satisfy the requirements of both parts 4 and 9; however, the Department
stated that specifying this option in the regulations may help clarify
that duplication of effort is not required to comply with this
requirement of Executive Order 13495. The earlier version of part 9
also required that the list of employees be furnished 60 days before
completion of the contract. The current proposal reflected the time
frame used in the current Executive Order and is required under 29 CFR
4.6(l)(2). In his comments, a Navy Labor Advisor suggested that the
Department require the predecessor to provide two lists, one without
dates of employment, in an effort to combat seniority-based
discrimination. The Chamber requested that the predecessor contractor
be required to note which employees it planned to keep in its
employment. The PSC commented that the predecessor contractor should be
required to identify the employees covered by the SCA, the relevant
labor category and job duties, and current contact information for each
covered service employee, as this is basic information that any
successor contractor would require to make employment decisions, and
that the predecessor contractor certify the factual accuracy and
completeness of this list. As the employee list is already a
requirement of Federal service contractors under the SCA, the
Department declines to make changes to its contents.
    Several commenters also expressed concern that the time frames
provided

[[Page 53740]]

in this section are too restrictive and would not give successor
contractors the time necessary to evaluate and hire workers prior to
contract performance. TechAmerica suggested that the predecessor
provide the list earlier in the procurement process than 10 days before
the completion of the contract to ease the burden on successors.
Afognak and the SHRM recommended that the list be provided at least 30
days before performance is to commence. In making this recommendation,
Afognak mentioned the particular complexities of classified contracts.
The U.S. Air Force Installation and Sourcing Division suggested that
the time frame be expanded to 20 days, whereas the SBA Office of
Advocacy recommended that the list of employees be provided to the
successor contractor at the time of the contract solicitation.
    The requirement that the predecessor contractor furnish the
Contracting Officer with the certified list not less than 10 days
before completion of the contract is established in the Executive
Order, and the Department therefore believes that it lacks authority to
modify that time frame. However, in response to the comments received
concerning this issue and the practical considerations they raise, the
Department has modified Sec.  9.12(e) to require the predecessor
contractor to provide a certified seniority list to the Contracting
Officer not less than 30 days before completion of the contract. Where
changes to the workforce are made after the submission of the list
provided 30 days before completion of the contract, the predecessor
contractor would be required to furnish an updated certified list to
the Contracting Officer not less than 10 days before completion of the
contract. Requiring that a list be provided 30 days before completion
of the contract will provide successor contractors with additional time
to review employment needs and make employment offers to incumbent
employees, which should promote the Executive Order's goal of economy
and efficiency. The Department anticipates that a large portion of
contractors will not make changes to their workforce in the final month
of contract performance and will therefore not be required to submit a
second certified list; in those cases where the submission of a second
list is necessary, the Department anticipates that differences between
the two certified lists will usually be minimal. The Department
encourages contracting agencies to modify their existing service
contracts (and suggests that relevant subcontracts likewise be
modified) so that the requirement to provide a preliminary seniority
list not less than 30 days before completion of the contract would
apply to existing contracts.
Section 9.12(f) Recordkeeping
    Proposed Sec.  9.12(f) established record keeping requirements for
contractors under Executive Order 13495. Proposed Sec.  9.12(f)(1)
clarified that no particular order or form of records for contractors
is prescribed, and the recordkeeping requirements apply to all records
regardless of their format (e.g., paper or electronic). A contractor is
allowed to use records developed for any purpose to satisfy the
requirements of part 9, provided the records otherwise meet the
requirements and purposes of this part.
    Proposed Sec.  9.12(f)(2) specified the records contractors must
maintain, including copies of any written offers of employment or a
contemporaneous written record of any oral offers of employment,
including the date, location, and attendance roster of any employee
meeting(s) at which the offers were extended, a summary of each
meeting, a copy of any written notice that may have been distributed,
the names of the employees from the predecessor contract to whom an
offer was made, any written record that forms the basis for any
exclusion or exemption claimed under this part, the employee list
provided to the contracting agency, and the employee list received from
the contracting agency. In addition, as proposed every contractor who
makes retroactive payment of wages or compensation under the
supervision of the WHD pursuant to proposed Sec.  9.24(b) will be
required to record and preserve for three years in the pay records the
amount, the period covered, and the date of payment to each employee,
and to report to WHD each such payment on a receipt form authorized by
the WHD, with a copy delivered to each employee. Contracting agency and
WHD staff will use these records in determining a contractor's
compliance and the propriety of any further sanctions. No comments were
received on Sec.  9.12(f), and it is adopted as proposed.
Section 9.12(g) Investigations
    Proposed Sec.  9.12(g) outlined the contractor's obligations to
cooperate during any investigation to determine compliance with part 9
and to not discriminate against any person because such person has
cooperated in an investigation or proceeding under part 9 or has
attempted to exercise any rights afforded under part 9. As proposed,
this obligation to cooperate with investigations is not limited to
investigations of the contractor's own actions, but also includes
investigations related to other contractors (e.g., predecessor and
subsequent contractors) and subcontractors. No comments were received
on this provision and it is adopted as proposed.

Subpart C--Enforcement

    Proposed subpart C addressed complaints, informal resolution
attempts, investigations, and remedies and penalties for violations.
Section 9.21 Complaints
    Under proposed Sec.  9.21(a), any former employee of the
predecessor contractor or authorized employee representative who
believes that the successor contractor violated the provisions of this
part may file a complaint with the Contracting Officer of the
appropriate Federal agency within 120 days of the alleged violation.
Proposed Sec.  9.21(b) allowed a complainant to file the complaint with
the WHD if a complainant has not been able to file a complaint with the
Contracting Officer prior to the 120-day deadline or has filed a
complaint with the Contracting Officer but has not received a report
within 30 days of filing the complaint. It also stated that a complaint
must be filed with the WHD within 180 days of the alleged violation.
    A Navy Labor Advisor commented that the Department has no basis for
involving contracting agencies in the receipt or resolution of
complaints and that the Department has exceeded its authority by
assigning such duties to the agencies. He recommended that the
complaints be sent directly to the WHD because of the Contracting
Officers' lack of training and expertise specific to enforcement of the
Executive Order. He suggested omitting any reference to the Contracting
Officer as the principal point of contact for filing complaints.
    The SEIU and Change to Win likewise suggested that complaints be
sent directly to the WHD without having to first file a complaint with
the Contracting Officer. These commenters also suggested that the final
rule define ``authorized representative'' to include a labor union
representing the affected employees. The SEIU and Change to Win added
that since the proposed regulations stated that only a complainant can
file a complaint with the WHD, there is a question of whether an
authorized representative or labor union could file a complaint. The
SEIU and Change to Win and the AFL-CIO requested that the final rule at
Sec.  9.21 allow employees and their collectively bargained
representatives to file a complaint against a contracting agency that
fails to provide notice to incumbent

[[Page 53741]]

employees of a right to an offer of employment, as required by proposed
Sec.  9.11(b), or fails to provide notice of a decision to exempt a
contract from the nondisplacement requirements, as required by proposed
Sec.  9.4(d)(2). These commenters also requested that the final rule
specify that incumbent as well as former employees may file complaints
because these issues may arise prior to the award of the successor
contract. The AFL-CIO asked that the final rule remove the words ``if
the complainant has not been able to timely file the complaint with the
Contracting Officer'' to clarify that a complainant may choose to file
a complaint with the WHD rather than with the Contracting Officer
without condition.
    After consideration, the Department has decided to change the
language of proposed Sec.  9.21 to remove the need to file a complaint
with the Contracting Officer. Instead, an employee or authorized
representative may file a complaint directly with the WHD, and the
contracting agency will be responsible for forwarding certain
information that the Department must have in order to make a
determination of compliance, when such information is requested by the
Department. It is the Department's conclusion that the proposed method
for receiving and processing complaints allows compliance concerns to
be resolved as expeditiously as possible without undue burdens on all
parties. For these reasons, the Department also agrees to remove the
words ``if the complainant has not been able to timely file the
complaint with the Contracting Officer'' and all references to the
Contracting Officer as the principal point of contact for filing
complaints. The Department also concludes that Sec.  9.21 as proposed
provides sufficient guidance on filing complaints directly with the
WHD.
    The final rule adopts proposed Sec.  9.21 with changes that allow
an employee to file a complaint directly with the WHD ``within 120 days
from the first date of contract performance. Since the contractor's
obligation to offer employment continues 90 days after the start of
performance on the contract, we believe 30 days after the end of the
contractor's obligation is appropriate, and will allow for the most
practical implementation of the rule. In addition, the final rule
replaces the term ``former employee'' with the term ``employee'' to
allow for possible circumstances when an incumbent employee could file
a complaint. The Department declines to alter the term ``authorized
representative'' because the term encompasses an employee's
collectively bargained representative. The Department also declines to
add language allowing the filing of a complaint under the Order against
a contracting agency because the Executive Order does not furnish the
Department with such authority.
Section 9.22 Wage and Hour Division Conciliation
    Proposed Sec.  9.22 established the informal complaint resolution
process for complaints referred to the WHD. Specifically, after
obtaining the necessary information from the Contracting Officer
regarding the alleged violations, the WHD could contact the successor
contractor about the complaint and attempt to conciliate and reach a
resolution that is consistent with the requirements of this part. Other
than comments that the Contracting Officer should not be involved in
enforcement of the final rule, which are addressed elsewhere in this
preamble, no comments were received on proposed Sec.  9.22. It is
adopted in the final rule without revision.
Section 9.23 Wage and Hour Division Investigation
    Proposed Sec.  9.23 outlined the authority for the WHD to
investigate complaints under Part 9. Proposed Sec.  9.23(a) addressed
initial investigations and provided that the Administrator may initiate
an investigation either as the result of the unsuccessful conciliation
of a complaint or at any time on his or her own initiative. As part of
the investigation, the Administrator would be able to inspect the
records of the predecessor and successor contractors (and make copies
or transcriptions thereof), question the predecessor and successor
contractors and any employees of these contractors, and require the
production of any documentary or other evidence deemed necessary to
determine whether a violation of this part (including conduct
warranting imposition of ineligibility sanctions pursuant to Sec. 
9.24(d)) has occurred. Proposed Sec.  9.23(b) addressed subsequent
investigations and allowed the Administrator to conduct a new
investigation or issue a new determination if the Administrator
concluded circumstances warrant the additional action, such as where
the proceedings before an ALJ reveal that there may have been
violations with respect to other employees of the contractor, where
imposition of ineligibility sanctions is appropriate, or where the
contractor failed to comply with an order of the Secretary. No comments
were received on proposed Sec.  9.23, and it is adopted without change.
Section 9.24 Remedies and Sanctions for Violations of This Part
    This proposed section outlined the appropriate remedies and
sanctions for violations of the final rule. Proposed Sec.  9.24(a)
stated that the Secretary shall have the authority to issue orders
prescribing appropriate remedies, including, but not limited to,
requiring the contractor to offer employment to employees from the
predecessor contract and the payment of wages lost. Proposed Sec. 
9.24(b) provided that, in addition to satisfying any costs imposed by
an administrative order under proposed Sec. Sec.  9.34(j) or 9.35(d), a
contractor that violates part 9 would be required to take appropriate
action to abate the violation, which could include hiring the affected
employee(s) in a position on the contract for which the employee is
qualified, together with compensation (including lost wages), terms,
conditions, and privileges of that employment. Proposed Sec.  9.24(c)
concerned the withholding of contract funds for non-compliance.
Proposed Sec.  9.24(c)(1) provided that, after an investigation and a
determination that lost wages or other monetary relief is due, the
Administrator could direct that accrued payments due on either the
contract or any other contract between the contractor and the
Government be withheld as necessary to pay the moneys due; and that,
upon final order of the Secretary, the Administrator could direct that
withheld funds be transferred to the Department for disbursement.
Proposed Sec.  9.24(c)(2) provided for the suspension of the payment of
funds if the Contracting Officer or the Secretary finds that the
predecessor contractor has failed to provide the required list of
employees working under the contract as required by proposed Sec. 
9.12(e). Proposed Sec.  9.24(d) provided for debarment from Federal
contract work for up to three years for noncompliance with any order of
the Secretary or for willful or aggravated violations of the
regulations in this part.
    The proposed withholding provisions mirror the withholding
standards of other labor standards laws such as the Davis-Bacon Act, 40
U.S.C. 3141 et seq., and the SCA. Those acts also provide for debarment
from Federal contract work under certain circumstances. No comments
were received on Sec.  9.24 and it is implemented in the final rule
without revisions.

[[Page 53742]]

Subpart D--Administrator's Determination, Mediation, and Administrative
Proceedings

    Proposed subpart D addressed informal and formal proceedings
through which to determine compliance with the requirements of part 9
and the resolution of disputes. Specifically, it addressed the
authority of the Administrator, Office of Administrative Law Judges
(ALJ), and the Administrative Review Board (ARB); it also clarified the
effects of various notices and filings. A number of commenters
addressed matters concerning proposed language in subpart D. As a
preliminary matter, the SEIU and the AFL-CIO asserted that the
Department should provide administrative review of an agency decision
to exempt a contract from coverage of the Executive Order. The SBA
Office of Advocacy forwarded a suggestion from an attorney that the
Department enforce penalties against predecessor employers who fail to
provide a seniority list. The Department has decided not to add
provisions for the administrative review of agency exemption decisions
or the enforcement of penalties against predecessor contractors for
failure to provide a seniority list because the Executive Order does
not confer such authority on the Department. See also discussion at
Sec.  9.4(d)(5). The Department notes that proposed Sec.  9.24(c)
authorizes the suspension of contract funds under such circumstances
and agrees that the Department should endeavor to pursue permissible
enforcement action to remedy such violations.
Section 9.31 Determination of the Administrator
    Proposed Sec.  9.31(a) provided that when an investigation is
completed without resolution, the Administrator will issue a written
determination of whether a violation occurred. Under the proposal, the
written determination shall contain a statement of the investigation
findings that shall address the appropriate relief and the issue of
ineligibility sanctions where appropriate. Proposed Sec.  9.31(b)
required notice of the determination to be sent by certified mail to
the parties. Under proposed Sec.  9.31(b)(1), for instances where there
are relevant facts in dispute, the notice of determination becomes the
final order of the Secretary that is not appealable in any
administrative or judicial proceeding unless a request for an ALJ
hearing is filed within 20 days. Under proposed Sec.  9.31(b)(2), for
instances where no relevant facts are in dispute, the notice of
determination becomes the final order of the Secretary and is not
appealable in any administrative or judicial proceeding unless a
petition for review is filed within 20 days with the ARB.
    The SEIU and Change to Win noted that the proposed rules do not
specify a time period in which the Administrator must issue a
determination. These commenters asserted that the Administrator should
be required to issue a determination within 60 days of a complaint
being filed with the Wage and Hour Division because ``[i]f a service
employee has been wrongfully denied a job, the need by the employee to
receive a prompt determination from the Administrator is of obvious
importance'' and a 60-day time period would give the Administrator
``ample time to weigh the evidence and draft a decision while not
placing an undue burden on the Wage and Hour Division'' and
``provid[ing] an affected employee with a relatively timely resolution
of his or her grievance.''
    After careful review, the Department has decided not to add the 60-
day time limit for the Administrator's determinations. Although the
Department supports the prompt investigation of complaints, followed by
the efficient rendering of decisions by the Administrator, a uniform
time limit could adversely affect complex and fact-intensive
investigations by the Wage and Hour Division. Section 9.31 therefore is
adopted as proposed.
Section 9.32 Requesting Appeals
    Proposed Sec.  9.32 addressed appeals of the Department's
administrative decisions. Under proposed Sec.  9.32(a) any party
desiring review of the determination of the Administrator, including
judicial review, must file a request for an ALJ hearing or petition for
review by the ARB. Proposed Sec.  9.32(b) provided procedures for
requesting review of the Administrator's determination. Proposed Sec. 
9.32(b)(1) provided the process and requirements for filing a request
for an ALJ hearing. Under the proposal, within 20 days of the issuance
of the Administrator's determination any aggrieved party may file a
request for an ALJ hearing, under the following conditions: The
complainant or any other interested party may request a hearing where
the Administrator determines that there is no basis for a finding that
a contractor has committed violation(s); the complainant or any other
interested party may request a hearing where the complainant or other
interested party believes that the Administrator has ordered inadequate
monetary relief; and the contractor or any other interested party may
request a hearing where the Administrator determines that the
contractor has committed violation(s). Proposed Sec.  9.31(b)(2)
provided the process and requirements for filing a petition for review
with the ARB. Under the proposal, any aggrieved party may seek review
by the ARB of a determination of the Administrator in which there were
no relevant facts in dispute, or of an ALJ's decision, within 20 days
of the date of the determination or decision.
    One commenter addressed the proposed language in this section. The
PSC considered the language to be overbroad where it permits ``[a]ny
aggrieved party'' or ``any other interested party'' to seek review,
rather than limiting that right to ``the actual displaced employee.''
The PSC stated that ``the rule invites parasitic litigation by employee
groups or activists'' and that, as a result, successor contractors will
have to spend time and resources defending against claims ``even when
the successors have valid, fully documented reasons for declining to
offer employment.'' This commenter argued that these increased costs to
successor contractors may be passed on to the taxpayer and also result
in fewer contractors bidding on service contracts to ``avoid the hassle
of displacement decisions [and] * * * the attendant cost and
administrative burden.''
    After carefully considering the comment, the Department has decided
to adopt the proposed language without change. While sympathetic to
potential litigation costs of contractors, the Department does not
consider the language that permits aggrieved and interested parties to
seek review to be overbroad. The Department also notes that the
Executive Order does not contemplate a private right of action, which
should reduce the potential litigation burden on successor contractors.
Section 9.33 Mediation
    Proposed Sec.  9.33 provided for the use of settlement judges to
mediate settlement negotiations when efforts to resolve disputes have
failed. Consistent with section 6(b) of Executive Order 13495, proposed
Sec.  9.33(a) generally encouraged parties to resolve disputes in
accordance with the conciliation procedures set forth at Sec.  9.22 or,
where such efforts fail, to utilize settlement judges to mediate
settlement negotiations pursuant to 29 CFR 18.9, when those provisions
apply. At any time after commencement of a proceeding, the parties
jointly could

[[Page 53743]]

move to defer the hearing for a reasonable time to permit negotiation
of a settlement or an agreement disposing of the proceeding. Proposed
Sec.  9.33(b) established a procedure for appointing a settlement judge
to mediate cases scheduled with the Office of Administrative Law
Judgers (OALJ). No comments were received on Sec.  9.33, and it is
adopted without change.
Section 9.34 Administrative Law Judge Hearings
    Proposed Sec.  9.34 provided procedures and rules applicable to ALJ
hearings. Proposed Sec.  9.34(a) provided for the OALJ to hear and
decide appeals concerning questions of law and fact from determinations
of the Administrator. Under the proposal, the ALJ would act fully as
the authorized representative of the Secretary subject to certain
limits. Specifically, the proposed rule would bar the ALJ from passing
on the validity of any provision of part 9 and from awarding attorney
fees and/or other litigation expenses pursuant to the provisions of the
Equal Access to Justice Act (EAJA), as amended. 5 U.S.C. 504. The
proposal stated that the provisions of the EAJA would not apply to any
proceeding under this part because such proceedings would not be
required by an underlying statute to be determined on the record after
an opportunity for an agency hearing.
    Under proposed Sec.  9.34(b), absent a stay to attempt settlement,
the ALJ shall notify the parties and any representatives within 15
calendar days following receipt of the request for hearing of the day,
time, and place for hearing, which is to be held not more than 60 days
from the date of receipt of the hearing request. Proposed Sec.  9.34(c)
allowed an ALJ to dismiss challenges for the failure to participate.
    Proposed Sec.  9.34(d) allowed the Administrator to participate as
a party or as amicus curiae at any time in the proceedings; it also
allowed the Administrator to petition for review of an ALJ decision in
a case in which the Administrator has not previously participated, and
added that the Administrator would participate as a party in any
proceeding in which the Administrator has found any violation of this
part, except where the challenge only concerns the amount of monetary
relief. Under proposed Sec.  9.34(e), a Federal agency that is
interested in a proceeding may participate as amicus curiae at any time
in the proceedings.
    Proposed Sec.  9.34(f) required that copies of the request for
hearing and documents filed in all cases, whether or not the
Administrator is participating, shall be sent to the Department's
Administrator, WHD, and the Associate Solicitor, Division of Fair Labor
Standards.
    Proposed Sec.  9.34(g) established, with certain exceptions, that
the rules of practice and procedure for administrative hearings before
the OALJ at 29 CFR part 18, subpart A shall apply to administrative
proceedings under this part 9. However, it also stated that the Rules
of Evidence at 29 CFR part 18, subpart B, were inapplicable and
provided that part 9 would be controlling to the extent it provides any
rules of special application that may be inconsistent with the rules in
part 18, subpart A.
    Proposed Sec.  9.34(h) required ALJ decisions (containing
appropriate findings, conclusions, and an order) to be issued within 60
days after completion of the proceeding. Proposed Sec.  9.34(i) allowed
the ALJ, upon the issuance of a decision that a violation has occurred,
to order appropriate relief, which could include that the successor
contractor hire the affected employee(s) in a position on the contract
for which the employee is qualified, together with compensation
(including lost wages), terms, conditions, and privileges of that
employment. Under the proposal, if the Administrator has sought
ineligibility sanctions, the order would also be required to address
whether debarment is appropriate. Proposed Sec.  9.34(j) authorized the
ALJ to assess against the contractor for a violation of this part an
amount equal to the employees' costs and expenses (not including
attorney fees). This amount would be awarded in addition to any unpaid
wages or other relief due. Proposed Sec.  9.34(k) stated that the
decision of the ALJ shall become the final order of the Secretary,
unless a petition for review is timely filed with the ARB. No comments
were received on Sec.  9.34 and it is implemented in the final rule
without change.
Section 9.35 Administrative Review Board Proceedings
    Proposed Sec.  9.35 provided procedures and rules applicable to ARB
appeals of an ALJ's decision or of an Administrator's determination
wherein no facts are at issue. Proposed Sec.  9.35(a)(1) provided that
the ARB shall act as the authorized representative of the Secretary and
shall act fully and finally on behalf of the Secretary concerning such
matters. Proposed Sec.  9.35(a)(2) added that the ARB shall review the
entire record before it on the basis of substantial evidence and also
placed limits on the scope of the ARB's review. Specifically, the
proposed rule barred the ARB from passing on the validity of any
provision of part 9, accepting new evidence, or awarding attorney fees
and/or other litigation expenses under the provisions of EAJA. Proposed
Sec.  9.35(b) required the ARB to issue final decisions within 90 days
of the receipt of the petition for review and to serve the decisions
upon all parties by mail to the last known address and upon the Chief
ALJ in cases involving an appeal from an ALJ's decision. Proposed Sec. 
9.35(c) provided that if the ARB concluded that the contractor had
violated this part, its final order should order action to abate the
violation, which could include hiring each affected employee in a
position on the contract for which the employee is qualified, together
with compensation (including lost wages), terms, conditions, and
privileges of that employment. If the Administrator sought
ineligibility sanctions, the proposed rule stated that the ARB's order
should address whether debarment is appropriate. Proposed Sec.  9.35(d)
authorized the ARB to assess against contractors, for a violation of
this part, a sum equal to the aggregate amount of all costs (not
including attorney fees) and expenses reasonably incurred by the
aggrieved employee(s) in the proceeding. This amount would be awarded
in addition to any unpaid wages or other relief due under Sec.  9.24(b)
of this part. Proposed Sec.  9.35(e) declared that the decision of the
ARB shall become the final order of the Secretary. No comments were
received on this provision and no revisions have been made. The heading
in the proposed table of comments for Sec.  9.35 has been corrected to
state ``Administrative Review Board Proceedings'' rather than
``Administrative Review Board Hearings.''

Appendix A to Part 9

    Proposed Appendix A to part 9 contained the text of the contract
clause required by proposed Sec.  9.11(a). The Department received
several comments concerning Appendix A. The PSC asserted that the
contents of proposed Appendix A should be omitted consistent with its
suggestion that the final rule should not include a contract clause but
incorporate by reference the contract clause that will be promulgated
in the FAR. A Navy Labor Advisor objected to paragraph (c) of the
contract clause in proposed Appendix A that required the predecessor
contractor to provide the seniority list to the Contracting Officer at
least 10 days before the contract's end because that period would not
allow sufficient time for compliance by all parties. The AFL-CIO
requested that paragraphs (f) through (h) of the contract clause in

[[Page 53744]]

proposed Appendix A be amended to conform to their comments to the
provisions of the proposed rule concerning of the contents of the
contract clause. In particular, the AFL-CIO suggested that the text
remove any reference to oral offers of employment in section (g)(1) of
the contract clause. TechAmerica commented that the requirements in
paragraphs (a) and (b) of the contract clause in proposed Appendix A
would result in eliminating those small businesses that do not have
sufficient resources to replace their workforce with the workforce on
the predecessor contract.
    The Department disagrees with the PSC's suggestion that the final
rule should omit any contract clause and, instead, incorporate by
reference the contract clause that will appear in the FAR. The
Department concludes that its charge to implement and enforce the
requirements of the Executive Order includes providing the contract
clause. The Department will work with the FARC concerning the
implementation of the contract clause in the FAR. The comments of the
Navy Labor Advisor and the AFL-CIO that repeat comments they made
concerning the requirements of the proposed rule to provide a certified
list of employees and the method for making an employment offer are
addressed in subpart B of this preamble. TechAmerica's comment, in
effect, challenges the contents of the Executive Order, and is beyond
the purview of this rulemaking. Paragraphs (a) and (b) of the contract
clause restate word for word the text of section 5(a) and (b) of
Executive Order 13495. Appendix A has been modified for editorial and
organizational purposes and to reflect changes made to the proposed
rule.

Appendix B to Part 9

    Proposed Appendix B contained the text for the notice that
contracting agencies would be required to provide to service employees
on covered contracts that have been awarded to a successor contractor.
The proposed rule stated that the Department intended to make the text
of Appendix B, should it appear in the final rule, available to
contracting agencies on the Internet in a poster format. The proposal
allowed the text of the notice to be provided to affected employees
electronically in addition to or as an alternative to posting. As
mentioned in the discussion of Sec.  9.11(b), the final rule provides
that the Contracting Officer will ensure that the predecessor
contractor provides written notice of the possible right to an offer of
employment to his employees.
    A number of commenters addressed issues relating to the proposed
text of the notice to service contract employees contained in proposed
Appendix B. The AFL-CIO suggested that changes should be made to the
notice in proposed Appendix B to reflect relevant comments they made to
the proposed rule. Specifically, the AFL-CIO suggested that the
complaints paragraph of the notice in Appendix B should be amended and
expanded to permit employees and their collectively bargained
representatives to file a complaint against a contracting agency that
fails to provide notice to incumbent employees of a right to an offer
of employment, as required by proposed Sec.  9.11(b), or fails to
provide notice of a decision to exempt a contract from the
nondisplacement requirements, as required by proposed Sec.  9.4(d)(2).
This commenter also asked that the final rule remove the words ``if the
complainant has not been able to timely file the complaint with the
Contracting Officer'' to clarify that a complainant may chose to file a
complaint with the WHD rather than with the Contracting Officer
especially in instances where the complaint names the contracting
agency. The AFL-CIO added that the notice should more clearly state
that incumbent as well as former employees may file complaints. A Navy
Labor Advisor suggested changes to the format of the notice to service
contract employees and also suggested omitting any reference to the
Contracting Officer as the principal point of contact for filing
complaints.
    After consideration, the Department has amended the notice in
Appendix B to allow any employee(s) or authorized representative(s) of
the predecessor contractor to file a complaint directly with the
Department. The Department declines to amend the notice to state that
incumbent and former employees of the predecessor contract may file
complaints because the final rule has adequately addressed the matter
through the use of the term ``employee''. The Department also removed
the words ``if the complainant has not been able to timely file the
complaint with the Contracting Officer'' and any reference to the
Contracting Officer as the principal point of contact for filing
complaints. The final rule adopts proposed Appendix B with changes that
allow an employee to file a complaint directly with the WHD and to
improve the clarity of the notice.

III. Paperwork Reduction Act

    General: In accordance with requirements of the Paperwork Reduction
Act (PRA), 44 U.S.C. 3501 et seq., and its attendant regulations, 5 CFR
part 1320, the Department seeks to minimize the paperwork burden for
individuals, small businesses, educational and nonprofit institutions,
Federal contractors, State, local and tribal governments, and other
persons resulting from the collection of information by or for the
agency. An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it displays
a currently valid OMB control number. See 5 CFR 1320.6. As required by
the PRA, the Department has submitted the information collections
contained in this rule to the OMB for approval and will publish a
notice in the Federal Register upon its approval. Specifically,
information collections for employment offers appear in Sec. Sec. 
9.12(a), (b), (e) and (f); the information collections related to the
filing of complaints appear in Sec.  9.21.
    The PRA typically requires an agency to provide notice and seek
public comments on any proposed collection of information contained in
a proposed rule. See 44 U.S.C. 3506(c)(2)(B); 5 CFR 1320.8. The NPRM
published in the Federal Register on March 19, 2010, invited comments
on the information collection burdens imposed by these regulations, and
also provided that comments regarding the information collections
within the NPRM could be sent directly to OMB. See 75 FR 13394. As
required by 5 CFR 1320.11, the Department also submitted the
information collections to the OMB for approval at the same time as the
NPRM appeared in the Federal Register. In response, the OMB filed a
comment on April 9, 2010, asking the Department to resubmit the
approval request after considering any public comments received on the
information collections. The Department received no comments regarding
ways to reduce the information collection burden; in fact, in order to
facilitate the successor contractor's evaluation of the work force,
several comments urged the Department to require predecessor
contractors to submit the list of employees earlier than the 10 days
before contract expiration proposed in the NPRM. (See e.g., Chamber of
Commerce and SBA). In response to these comments, the Department has
revised the final rule to require a predecessor contractor to provide
the list 30 days before contract expiration. The Chamber commented
that, in its view, the Department's cost calculations omitted or
underestimated several relevant costs of the rule, however; the Chamber
did not provide any estimates

[[Page 53745]]

or alternative data sources for the Department's consideration. The
Department consequently resubmitted the request, after considering the
public comments, for OMB approval, and will publish a notice in the
Federal Register upon its approval.
    It should be noted that OMB cleared the employee list mentioned in
Sec.  9.12(e)(1) under Control Number 1235-0007, as this list also
provides seniority information for vacation benefit purposes. The
Department has submitted a change request for this Control Number to
incorporate the additional regulatory citations and revise the timing
of the list, and will publish a notice in the Federal Register upon its
approval.
    A copy of the information collection requests can be obtained at
http://www.reginfo.gov/public/do/PRAMain or by contacting the Wage and
Hour Division as shown in the FOR FURTHER INFORMATION CONTACT section
of this preamble.
    Purpose and Use: As previously explained, Executive Order 13495
applies to contracts or subcontracts at or above the simplified
acquisition threshold of $150,000 and requires service contracts and
their solicitations to include an additional labor standards clause
that requires the successor contractor, and its subcontractors, under a
contract for performance of the same or similar services at the same
location, to provide a right of first refusal of employment to those
employees (other than managerial and supervisory employees) employed
under the predecessor contract during the final month of contract
performance whose employment will be terminated as a result of the
award of the successor contract. The Order also requires the successor
contractor and subcontractor to make a bona fide, express offer of
employment to each predecessor employee, with some exceptions, stating
the timeframe within which each employee must accept such offer. For
purposes of the remaining PRA discussion, the term contractor covers
both contractors and subcontractors, except as noted. The Department
has strived to make the information disclosures intuitive.
    Section 9.12 of the final rule describes the contractor's
requirements and prerogatives. The section includes third party
disclosures and recordkeeping requirements that are subject to the PRA.
Sections 9.12(a) and (b) require the contractor to make a bona fide
express offer of employment to each employee individually, either in
writing or orally. Section 9.12(f) also requires the successor service
contractor to maintain for specific periods of time copies of records
(regardless of format, e.g., paper or electronic) of its compliance,
including: (1) Any written offers of employment or a contemporaneous
written record of any oral offers of employment, including the date,
location, and attendance roster of any employee meeting(s) at which the
offers were extended; a summary of each meeting; a copy of any written
notice that may have been distributed; and the names of the employees
from the predecessor contract to whom an offer was made; (2) any record
that forms the basis for any exclusion or exemption claimed under this
part; and (3) the employee list provided to or received from the
contracting agency that meets contractor obligations near the end of a
contract. Section 9.12(f) also requires every contractor who makes
retroactive payment of wages or compensation after an investigation
pursuant to Sec.  9.24(b) of this part, to record and preserve the
amount of such payment to each employee on a receipt form provided by
or authorized by the Wage and Hour Division, deliver a copy to the
employee, and file the original with the Administrator or an authorized
representative within 10 days after payment is made.
    The Department notes that the final rule does not require
contractors to create any record regarding any basis for claiming an
exclusion or exemption from the nondisplacement provisions of Federal
service contracts; however, the contractor would need to retain any
such record if created.
    The final rule, in Sec.  9.12(e)(1), requires a predecessor
contractor near the end of a contract to provide a certified list of
the names of all service employees working under that contract (and its
subcontracts) during the last month of contract performance to the
contracting agency no later than 30 days before completion of the
contractor's performance of services on a contract. That requirement
may be met by using the seniority list submitted to satisfy the
requirements of the contract clause specified in the current SCA
regulations at 29 CFR 4.6(l)(2). Therefore, this requirement imposes no
additional burden for PRA purposes. The final rule, in Sec. 
9.12(e)(2), requires a predecessor contractor to also provide a
certified list of the names of all service employees working under that
contract (and its subcontracts) during the last month of contract
performance to the contracting agency no later than 10 days before
completion of the contractor's performance of services on a contract
where changes to the workforce have been made after the submission of
the certified list described in Sec.  9.12(e)(1). This requirement
imposes a minimal additional burden for PRA purposes. The Department
anticipates that a large portion of contractors will not make changes
to their workforce in the final month of contract performance and will
therefore not be required to submit a second certified list; in those
cases where the submission of a second list is necessary, the
Department anticipates that differences between the two certified lists
will usually be minimal.
    Section 9.21 of the final rule outlines the procedures for filing
complaints under this part. The Department has imposed no specific
reporting burden on what information complainants must provide;
however, prudent persons asserting certain employment rights normally
would provide their own contact information, contact information for
their employer, and a basis for why they are filing the complaint.
    Information Technology: There is no particular order or form of
records prescribed by the final rule. A contractor may meet the
requirements of this final rule using paper or electronic means.
    Public Burden Estimates: The final rule contains information
collection requirements for contractors and complainants. As in the
NPRM, the Department bases the following burden estimates for this
information collection on agency experience in administering the SCA,
the prior version of part 9, and consultations with contracting
agencies, except as otherwise noted.
    According to the Federal Procurement Data System's (FPDS) 2006
Federal Procurement Report, slightly less than 75,000 (74,611) Federal
government contract actions were subject to the SCA during that
reporting period. A contract action is any oral or written action that
results in the purchase, rent, or lease of supplies or equipment,
services, or construction using appropriated dollars over the micro-
purchase threshold, or modifications to these actions regardless of
dollar value. Many contract actions are modifications to or extensions
of existing Federal contracts or otherwise relate to actions where
there is no successor contractor. The Department, therefore, assumes
that about 15,000 per year (slightly more than 20 percent of all SCA
covered contract actions in 2006) would be successor contracts subject
to the nondisplacement provisions that carry a burden under the PRA.
Subcontracts are not reported in the FPDS, and the Department has not
found a reliable source on which to estimate the number of subcontracts
per SCA prime contract. Based on consultations with Federal procurement

[[Page 53746]]

officials, the Department assumes that for PRA purposes a typical SCA
contract has one prime contractor and three subcontractors; no comments
were received from procurement officials or the public suggesting the
Department use alternative data or providing an alternative estimate of
the number of subcontractors per prime contractor. Therefore, the
Department estimates the information collection requirements of part 9
would apply to approximately 60,000 contracts (15,000 covered contract
actions x 4 contractors). A review of FPDS data suggests that, while
about 110,000 contractors performed work on Federal service contracts
in FY 2006, only 44,039 contractors performed work on service contracts
in excess of $25,000. See David Berteau, et al., Structure and Dynamics
of the U.S. Federal Professional Services Industrial Base 1995-2007,
Center for Strategic and International Studies, February 2009, at 26,
http://www.csis.org/media/csis/pubs/090212_fps_report_2009.pdf (CSIS
Report). Because of the $150,000 threshold, some lesser number of
contractors would perform work on contracts subject to the
nondisplacement requirements; the Department estimates each year about
40,000 contractors and subcontractors will be subject to this
information collection.
    Based on the Wage and Hour Division's enforcement experience under
the SCA, the Department estimates that each service contract covered by
this information collection would involve an average of approximately
15 employees. Moreover, the Department expects successor contractors
typically would make oral offers of employment at all-employee meetings
where the successor contractor need only make notations on a copy of
the employee roster of the offer of employment. Otherwise, the
successor contractor would likely make offers of employment
individually by mail or electronic means. Beyond making the offer of
employment, the successor contractor would also be responsible for
maintaining copies of any written offers of employment, or
contemporaneous written records of any oral offers of employment, and
copies of any records that formed the basis for any exclusion or
exemption claimed under the proposed rule. As job offers will typically
be made in a bulk fashion, the Department estimates it would take a
successor contractor an average of approximately one and one-half
minutes per employee to make an offer, whether oral, written, or
electronic, and another half minute to file the associated paperwork
for each employee, including any paperwork forming the basis for any
exclusion or exemption from the obligation to offer employment to a
particular employee. Therefore, the Department estimates an annual
disclosure and recordkeeping burden of 30 minutes per contract for a
total annual burden of 30,000 hours (60,000 contracts x 15 third-party
disclosures x 2 minutes).
    The information collection requirement for contractors specified in
proposed Sec.  9.12(e)(1)--the certified list of employees provided 30
days before contract completion--is cleared under the SCA regulations,
29 CFR 4.6(l)(2), OMB control number 1235-0007, which requires a
certified list be provided no later than 10 days before contract
completion, and that burden is not duplicated in these estimates.
However, contractors experiencing a change in their workforce between
the 30 and 10 day periods will have to submit an additional list. Since
a certified list would have already been compiled 30 days before
completion of the contract, the list produced 10 days before contract
completion would only require updating the initial list, if necessary.
Therefore, the Department estimates the additional burden to be
minimal. For the purpose of estimating burden associated with this
requirement, the Department estimates that approximately 50% of
contracts will experience a change in workforce between 30 and 10 days
of completion of the contract, requiring an updated list. The
Department recognizes that the actual number of contractors having to
produce two lists is likely to be less, but uses 50% as an upper bound
estimate. The Department estimates it would take a predecessor
contractor an average of approximately one minute to update the
employment status of each employee on a certified list. Therefore, the
Department estimates the total burden for creating an updated certified
list to be 7,500 hours (60,000 contracts x .5 percent of contracts x 15
employees x 1 minute).
    Estimates prepared for the nondisplacement rules promulgated
pursuant to Executive Order 12933 suggested the rules applied to only
88 contract actions per year; however, the burdens calculated at that
time did not include subcontracts. Using the same criteria as used to
calculate burdens under this proposal, the Department estimates the
total number of covered contracts and subcontracts for the earlier rule
to be approximately 350; suggesting the current rule would apply to
about 170 times more successor contracts. As previously noted the Wage
and Hour Division received approximately one complaint per year under
the old rule. Extrapolating to the current estimate of contracts
subject to the current rule, the Department estimates it will receive
170 nondisplacement complaints per year. The Department estimates that
each complaint filing will take about 20 minutes; therefore, the
Department estimates the total burden for filing complaints to be about
56.6 hours (170 responses x 20 minutes).
    The Department acknowledges that for each investigation resulting
in violations remedied through the payment of back wages or
compensation under the supervision of the Administrator of the Wage and
Hour Division, Sec.  9.12(f)(2)(iv) imposes a recordkeeping requirement
for the contractor to preserve a report of such payment to each
employee on a receipt form provided by the Wage and Hour Division,
deliver a copy to the employee, and file the original with the
Administrator or an authorized representative within 10 days after
payment is made. The Department estimates that approximately 20 percent
of all complaints will result in investigations in which violations are
found and the appropriate remedy is the payment of back wages and/or
restitution, and it will take approximately one minute to record. The
Department therefore estimates the total burden to contractors for
keeping a record of retroactive payments to be about 34 minutes. (170
complaints x .20 x 1 minute).
    The total burden estimates under the PRA (including the time for
reviewing instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information) are as follows: 40,170 respondents;
1,350,170 responses; and 37,556.6 burden hours.
    Public Comments: The Nondisplacement NPRM published on March 19,
2010, included a discussion of the information collections that are
part of this regulation. The NPRM also invited public comments on the
information collections during a 60-day period and provided that
comments on the information collection aspects of the NPRM could be
submitted directly to the OMB. The Department specifically sought
public comments regarding the burdens imposed by information
collections contained in this proposed rule. In particular, the
Department sought comments that would: evaluate whether the proposed
collection of information was necessary for the proper performance of
the functions of

[[Page 53747]]

the agency, including whether the information would have practical
utility; evaluate the accuracy of the agency's estimate of the burden
of the proposed collection of information, including the validity of
the methodology and assumptions used; enhance the quality, utility and
clarity of the information to be collected; and minimize the burden of
the collection of information on those who are to respond, including
through the use of appropriate automated, electronic, mechanical, or
other technological collection techniques or other forms of information
technology, e.g., permitting electronic submissions of responses. Other
portions of this preamble discuss the substance of those comments and
the Department's response.
    The information collection burdens are summarized as follows:
    Type of Review: New collection request. [Request for a new OMB
control number for Sec. Sec.  9.12(a), (b), (f), and 9.21)]; 1235-0007,
nonmaterial change to an information collection for Sec.  9.12(e).
    Agency: Wage and Hour Division, Department of Labor.
    Title: Nondisplacement of Qualified Workers Under Service
Contracts, Executive Order 13495.
    OMB Control Numbers: 1235-XXXX for Sec. Sec.  9.12(a), (b), (f),
and 9.21; 1235-0007 for Sec.  9.12(e).
    Affected Public: Businesses or other for-profit institutions for
paragraphs 9.12(a), (b), (e), and (f); individuals for Sec.  9.21.
    Total Estimated Number of Respondents: 40,170 for 1235-XXXX; 50,812
for 1235-0007.
    Total Estimated Number of Responses: 1,350,170 for 1235-XXXX;
50,812 for 1235-0007.
    Response Frequency: On occasion for both.
    Estimated Annual Burden Hours: 37,556.6 for 1235-XXXX; 49,220 for
1235-0007.
    Estimated Annual Burden Cost (Capitol and Start-up Costs): $0.
    Estimated Annual Burden Cost (Maintenance and Operation): $0.

IV. Executive Orders 13563 and 12866

    Executive Orders 13563 and 12866 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). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility. This rule has been designated a ``significant regulatory
action'' although not economically significant, under section 3(f) of
Executive Order 12866. Accordingly, the rule has been reviewed by the
Office of Management and Budget.
    On January 30, 2009, President Barack Obama signed Executive Order
13495, Nondisplacement of Qualified Workers Under Service Contracts. 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. This final rule implements the Executive
Order.
    The first sentence of Executive Order 13495 recognizes that
successor contractors often hire most of the employees who worked on
the predecessor contract, if the contract work will continue at the
same location. As further discussed below, the Department believes the
rule will not have a significant economic impact, because the proposal
would simply require contractors to follow a practice currently used in
many cases as a good business practice. The Department expects that, as
further explained in this section, there will be few changes in the way
most contractors currently conduct business, with the exception that
they will need to ensure the appropriate contract language appears in
subcontracts. The Department also expects that a majority of remaining
contractors will comply with the new requirements by simply replacing
aspects of their existing staffing practices with similar practices
that do not entail substantial additional burden but do assure
compliance with the rule. In addition, the Department expects that in
certain instances a contracting agency will exercise its exemption
authority to exclude contracts from these requirements if it is clear
that application of the nondisplacement requirements would not serve
the purposes of the Executive Order or would impair the ability of the
agency to procure services on an economical and efficient basis.
    In estimating the costs on contractors, the Department has also
considered how current practices compare with expected actions
contractors typically will take under the nondisplacement provisions.
For example, those successor contractors that currently hire new
employees for a contract must recruit workers and evaluate their
qualifications for positions on the contract. In order to match
employees with suitable jobs under this rule, successor contractors
will evaluate the predecessor contract employees and available
positions; thus, successor contractors are likely to spend an equal
amount of time determining job suitability under the rule as under
current practices. The costs for documenting these employment decisions
will also be similar under both the rule and status quo.
    For purposes of this analysis, the Department also believes the
time contractors will save by not recruiting an entirely new workforce
from the outset will be offset by the additional time a successor
contractor will spend in recruiting a new employee when there is a
vacant position because the contractor cannot find suitable work for an
employee who worked on the predecessor contract or in considering how
to minimize displacement when the successor contractor reconfigures how
it will deploy employees performing on the successor contract. See
Sec.  9.12(d)(3). This rule will also not affect wages contractors will
pay workers, because of the existing SCA requirement for the wage
determination that establishes the minimum rate for each occupation to
be incorporated into the contract; thus, existing regulatory
requirements already set wage rates, including when the predecessor's
collectively bargained rate is incorporated into the contract, that
successors must pay. See 41 U.S.C. 6707(c); 29 CFR 4.6(b)(1). This rule
does not require successor contractors to pay wages higher than the
rate required by the SCA. The successor contractor also may offer
employment under different terms and conditions, if the reasons for
doing so are not related to a desire that the employee refuse the offer
or that other employees be hired for the offer. See Sec.  9.12(b)(5).

[[Page 53748]]

    The proposal includes a contract clause provision requiring
contractors to incorporate the nondisplacement contract clause into
each covered subcontract. This provision comes directly from Executive
Order 13495, and the Department estimates that it will take a combined
total of 30 minutes for contractors to incorporate the contract clause
into each covered subcontract and the subcontractor to review it. Thus,
assuming covered contractors spend an additional two hours (accounting
for any additional time spent in making job offers, inserting and
reviewing the contract clause in subcontracts, and maintaining records)
per contract to comply with this proposed rule and increasing the
October 2009 average hourly earnings for professional and business
workers by 40 percent to account for fringe benefits (a total of $31.32
per hour), this rule is estimated to impose annual costs of $3,758,400
on contractors (60,000 contracts x 2 hours x $31.32). See The
Employment Situation--December 2009, at 28, Table B-3, Bureau of Labor
Statistics, (http://www.bls.gov/news.release/archives/empsit_
01082010.pdf).
    As explained in the PRA section of this preamble, the final rule
requires a predecessor contractor to provide a certified list of the
names of all service employees working under that contract (and its
subcontracts) to the contracting agency no later than 30 days before
completion of the contractor's performance of services on the contract.
Where changes to the workforce have been made after the submission of
the certified list described in Sec.  9.12(e)(1), a predecessor
contractor must submit an updated certified list no later than 10 days
before completion of the contractor's performance of services on a
contract. The clause makes clear that this is the same list as the
seniority list provided under the SCA clauses. Since the list already
exists and is used by contractors in making hiring decisions under the
status quo, additional costs would only be incurred in the instance
that there is a change in the workforce necessitating submission of an
updated list. The Department does not anticipate that a large portion
of contractors will experience a change in workforce between 30 and 10
days of completion of the contract period. However, for the purpose of
estimating the cost and burden of this requirement, the Department
assumes an upper bound estimate of approximately 50 percent of
contracts will experience a change in workforce between 30 and 10 days
of completion of the contract, requiring an updated list. The
Department estimates that it will take a predecessor contractor an
average of approximately one minute to update the employment status of
each employee on a certified list, and that each service contract
covered by this rule would involve an average of approximately 15
employees (30,000 contracts x 15 minutes = 450,000 minutes, or 7,500
hours). Thus, this requirement is estimated to impose annual costs of
$234,900 on contractors (7500 hours x $31.32 = $234,900).
    Most contractors will obtain their information primarily from the
contract clause, and Wage and Hour Division offices throughout the
country are available to provide compliance assistance at no charge to
employers; however, in the course of researching compliance options
within the context of specific business needs, some contractors will
incur additional legal, accounting, and/or other costs associated with
complying with the nondisplacement requirements. For purposes of this
analysis, the Department estimates 15 percent of covered contractors
each will incur additional costs averaging $5,000 because of the
regulatory requirements, for a total of $30,000,000 (40,000 contractors
x 15% x $5000). The Department believes 10 percent of these 6,000
contractors will face complex issues that will require each spending an
average of $10,000 additional dollars, totaling $6,000,000 (6000
contractors x 10% x $10,000). The Department estimates total costs
contractors will incur to comply with this rule to be $39,758,400. The
Department expects some of these costs will be transferred to the
Federal Government in the form of higher bids; however, the Department
is not aware of a reasonable way to allocate those costs.
    Executive Order 13495 and this final rule would improve Government
efficiency and economy in those cases where the practice of offering a
right of first refusal of employment would not otherwise have been
followed because the requirements decrease or eliminate the loss of
productivity that may occur when experienced employees are terminated.
As previously indicated, the Department estimates 20 percent of all SCA
covered contract actions in 2006 would be subject to this rule.
Applying this same percentage to the total FPDS reported value of SCA
contract actions during 2006, just under $115,000,000,000
($114,935,252,182), the Department estimates the total value of
contracts subject to the nondisplacement provisions to be
$23,000,000,000 ($115,000,000,000 x 0.2).
    Some of the potential savings from any increase in economy and
efficiency will be absorbed by the expenses contracting agencies will
incur to administer the requirements. The Department has used the 2010
Rest of United States salary table to estimate salary expenses. See

http://www.opm.gov/oca/10tables/html/RUS_h.asp. The Department
believes contracting agencies will spend 30 minutes on each insertion
of the applicable contract clauses in a successor prime contract, for a
total of 7500 hours (15,000 x 0.5 hours). The Department assumes this
work will be performed by a GS-11, step 4 Federal employee, earning
$30.26 per hour, for a cost of $226,950 (7500 hours x $30.26). While it
will be clear that in most cases there is no reason for a contracting
agency to exempt a contract from the nondisplacement requirements, the
Department estimates contracting agencies will spend an average of two
hours on each covered contract and subcontract to make the
determination and that a GS-13, step 4 Federal employee earning $43.13
per hour will perform the work, for a cost of $5,175,600 (60,000
contracts and subcontracts x 2 hours x $43.13). Once this analysis is
done, the contracting agency must inform the contract employees of the
decision to exempt the contract. The Department believes this
notification will take about 30 minutes per contract and that the work
will be performed by a GS-9, Step 4 Federal employee earning $25.01,
for a cost of $750,300 (60,000 contracts and subcontracts x 0.5 hours x
$25.01). This includes the time needed to prepare the notice and post
it at the worksite or prepare a written notice that is provided in a
bulk manner to the employees. The estimated general administrative
costs equal $6,152,850.
    The rule also requires Contracting Officers to provide
documentation to the Wage and Hour Division within 14 days of the
original filing. Sec.  9.11(d). The Federal costs associated with this
requirement include the time it takes to gather the documents related
to the complaint and the reproduction and mailing cost to forward the
copies to the Wage and Hour Division. Federal costs will also include
the cost for the Wage and Hour Division to review the complaint to
determine what further action might be appropriate. The Department
estimates the Wage and Hour Division will receive 170 nondisplacement
complaints per year.
    GS-13, step 4 to review complaint at the Wage and Hour Division and
determine whether to schedule compliance action:

[[Page 53749]]

170 complaints x 10 minutes review time = 28 hours (rounded)
28 hours x $43.13 = $1,208 (rounded)

    GS-11, step 4 to compile and review the complaint and supplemental
documents for forwarding:

170 complaints x 20 minutes = 57 hours (rounded)
57 hours x $30.26 = $1,725 (rounded)

    GS-3, step 4 to photocopy & assemble complaint documents:

170 complaints x 10 minutes = 28 hours (rounded)
28 hours x $13.14 = $368 (rounded)

    Printing costs:

170 complaints x 4 pages x 3 copies x $0.05 per page = $102

    Postage:

170 complaints x 3 mailings (DOL, contractor, and complainant) x $0.47
($0.44 each + $0.03 per envelope) = $240 (rounded)

    GS 12, step 4 to investigate complaints

170 complaints x 20 hours = 3,400 hours
3400 hours x $36.27 = $123,318
Printing 60,000 notices x $0.05 per notice = $3,000
Enforcement Subtotal $129,961
Total Gross Annual Federal Cost estimate = $6,282,811

    The Department estimates that some cost savings will result from
this final rule. Some of these savings, however, may actually transfer
to contractors who are bidding on the contract, especially in light of
the additional costs they are likely to incur. After offsetting the
potential savings attributed to the Federal government from the overall
additional costs attributed to contractors, the Department estimates
the nondisplacement provisions covered by this rule could result in a
net cost savings, but is unable to estimate. The Department wishes to
emphasize that while this analysis is presented in terms of contractor
and Federal Government costs and savings, because costs and savings
will factor into final bid proposals, some of the potential savings to
the federal government are likely to transfer to contractors in the
form of higher bids. In any event, this rule is expected to have an
effect on the economy that is less than the $100,000,000 threshold for
a rule to be considered economically significant.

V. Regulatory Flexibility Analysis

    The Regulatory Flexibility Act of 1980 (RFA) as amended, requires
agencies to prepare regulatory flexibility analyses and make them
available for public comment, when proposing regulations that will have
a significant economic impact on a substantial number of small
entities. See 5 U.S.C. 603. If the rule is not expected to have a
significant economic impact on a substantial number of small entities,
the RFA allows an agency to certify such, in lieu of preparing an
analysis. See 5 U.S.C. 605. As explained in the Initial Regulatory
Flexibility Analysis section of the proposed rule, the Department did
not expect the proposed rule to have a significant economic impact on a
substantial number of small entities. 75 FR 13396 (Mar. 19, 2010).
However, in the interest of transparency and to provide an opportunity
for public comment, the Department prepared an initial regulatory
flexibility analysis rather than certifying that the proposed rule was
not expected to have a significant economic impact on a substantial
number of small entities. The Department specifically requested
comments on the initial regulatory flexibility analysis, including the
number of small entities affected by the nondisplacement requirements,
and the existence of alternatives that would reduce burden on small
entities while still meeting the requirements of Executive Order 13495.
See 75 FR 13396-13399 (Mar. 19, 2010). The Department received five
comments on the initial regulatory flexibility analysis.
    TechAmerica commented that the proposed rule should be revised to
address the negative impact on small businesses, particularly the
requirement to make an offer of employment to the predecessor
contractor's employees. This commenter stated that small businesses
often do not possess sufficient resources to both retain their current
employees and hire incumbent personnel, and it therefore recommended
that the Department exempt small business prime contractors from the
nondisplacement requirements in order to avoid displacement of
incumbent small business employees. The Department notes that the
potential for a contractor's current personnel to be displaced due to
the requirement to offer employment to a predecessor's employees is
alleviated by Section 5(b) of the Executive Order and Section
9.12(c)(2) of this final rule, which provide that a successor
contractor may employ under the contract any employee who has worked
for the contractor for at least 3 months immediately preceding the
commencement of the contract and who would otherwise face lay-off or
discharge. Therefore, the Department does not believe that revising the
rule as suggested by this commenter is necessary or appropriate.
    The Chamber stated that many of the Department's assumptions in the
initial regulatory flexibility analysis and the Executive Order 12866
analysis were not appropriately explained, making the Department's
calculations difficult to fully replicate. The Chamber specifically
commented that there is no mention of the burden on small businesses
created by the record keeping requirements of this rule. Similarly,
TechAmerica commented that it believes that the Department's initial
regulatory flexibility analysis underestimates the impact of the rule
on small businesses and that the Department's estimates were
unrealistic. TechAmerica asked the Department to conduct a more
thorough analysis based on a realistic estimate of the burdens and
costs that the requirements would impose on small businesses. The
Department used the best data available for conducting its review of
the rule under the PRA, Executive Order 12866, and the RFA. As
discussed in the preamble of the proposed rule, where the Department
was unable to find reliable data sources, the Department made
reasonable assumptions and characterized the assumptions as such. 75 FR
13393-13399 (Mar. 19, 2010). Neither the Chamber nor TechAmerica
offered any data sources or alternative assumptions for the Department
to use in determining the impact of the rule. The Department does not
believe that additional analysis of the impacts of the rule are
warranted as the analyses included in the proposed rule were based on
the best available data, the Department identified where it made
assumptions, and the commenters did not provide any alternative data or
data sources for the Department's consideration. However, in reviewing
the analyses in light of these comments, the Department determined that
it inadvertently omitted reference to the particular chart used to
determine the number of contract actions subject to the SCA in FY 2006.
The chart, Subject to Labor Statute, appears in the Federal Procurement
Report FY 2006, Section III Agency Views, available at: https://
www.fpds.gov/fpdsng_cms/index.php/reports.
    Several commenters, including SBA Office of Advocacy, the PSC, and
TechAmerica, suggested that the Department consider alternatives that
provide flexibilities for small businesses. However, only two
commenters offered alternatives for consideration. TechAmerica
recommended that the Department revise the proposed rule to include an
exception for small business prime

[[Page 53750]]

contractors, while the PSC recommended that the Department consider
exempting contracts where ten or fewer employees are employed by the
predecessor contractor. The Department appreciates these suggestions,
but believes the suggested alternatives are beyond the scope of the
Department's authority in implementing the Executive Order. The
Executive Order excludes contracts or subcontracts below the simplified
acquisition threshold, effectively excluding many small contractors
from compliance with its provisions and provides no specific authority
to the Department for creating other exemptions or exceptions from
compliance with the provisions of the Executive Order.
    The SBA Office of Advocacy questioned how this rule will work with
other requirements applicable to Federal Government contractors, such
as use of the Department of Homeland Security's e-Verify system. The
Department does not believe that application of this final rule
interferes with or impacts an employer's compliance with other
applicable Federal laws. Pursuant to Executive Order 13465, which
amended Executive Order 12989, contractors to all executive departments
and agencies are required to electronically verify employment
authorization of employees performing work under qualifying Federal
contracts. See 73 FR 33285 (Jun. 11, 2008). Nothing in this final rule
interferes with or impedes a contractor's compliance with Executive
Order 12989 as amended. Additionally, based on Sections 1 and 9(b) of
Executive Order 13495, and as discussed in connection with Section 9.1
of this final rule, the Department does not believe that application of
this final rule will interfere with or a contracting agency's or
contractor's compliance with other applicable Federal laws, such as
Executive Order 11246 (Equal Employment Opportunity), the Vietnam Era
Veterans' Readjustment Assistance Act of 1974, or the requirements of
the HUBZone program established by title VI of the Small Business
Reauthorization Act of 1997.
    This commenter also stated that the Small Business Regulatory
Enforcement Fairness Act (SBREFA) requires that the Department prepare
a Small Business Compliance Guide to assist small entities in complying
with this rule and to set up a response system to answer inquiries from
small entities about the rule. The Department is committed to providing
employers subject to this rule, regardless of whether or not the
employer is a small business, with information and assistance on
compliance with the provisions of this final rule. However, because the
Department is able to certify that this rule will not have a
significant economic impact on a substantial number of small entities
(as further discussed below), the Department is not required by SBREFA
to develop a Small Business Compliance Guide with respect to this rule.
The Department will provide compliance assistance to contracting
agencies, contractors and employees through the publication of
materials on the agency's Web site, outreach and education seminars,
and through Wage and Hour Division offices throughout the country,
which provide compliance assistance at no charge to employers.
    Based on the analysis below, the Department has estimated the
number of covered small contractors and subcontractors subject to the
rule and the financial burdens to these small contractors and
subcontractors associated with complying with the requirements of this
final rule. The Department estimates that 28,800 small contractors will
be subject to this rule, the majority of which will incur compliance
costs of less than $100. Therefore, the Department has certified to the
Chief Counsel for the Office of Advocacy of the Small Business
Administration that this rule will not have a significant economic
impact on a substantial number of small entities.
    Executive Order 13495 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. This
final rule implements the Executive Order.
    This final rule applies to entities that perform work for the
Federal Government on contracts or subcontracts subject to the SCA of
$150,000 or more. The Department has found no precise data with which
to measure the precise number of small entities that would be covered
by this final rule; however, certain available data allow for
estimates. As discussed more fully in the Paperwork Reduction Act
portion of this preamble, according to the Federal Procurement Data
System's (FPDS) 2006 Federal Procurement Report \1\, slightly less than
75,000 (74,611) Federal government contract actions were subject to the
SCA during that reporting period. A contract action is any oral or
written action that results in the purchase, rent, or lease of supplies
or equipment, services, or construction using appropriated dollars over
the micro-purchase threshold, or modifications to these actions
regardless of dollar value. Many contract actions are modifications to
or extensions of existing Federal contracts or otherwise relate to
actions where there is no successor contractor. The Department,
therefore, assumes that about 15,000 per year (slightly more than 20
percent of all SCA covered contract actions in 2006) would be successor
contracts subject to the nondisplacement provisions. The Department
also assumes, based on consultations with Federal procurement
officials, that for PRA purposes a typical SCA contract has one prime
contractor and three subcontractors; therefore, the Department
estimates the requirements of part 9 would apply to approximately
60,000 contracts (15,000 covered contract actions x 4 contractors). A
review of FPDS data suggests that only 44,039 contractors performed
work on service contracts in excess of $25,000 in FY 2006. See David
Berteau, et al., Structure and Dynamics of the U.S. Federal
Professional Services Industrial Base 1995-2007, Center for Strategic
and International Studies, February 2009, at 26, http://www.csis.org/
media/csis/pubs/090212_fps_report_2009.pdf (CSIS Report). Because of
the $150,000 threshold, some lesser number of contractors would perform
work on contracts subject to the nondisplacement requirements; the
Department estimates each year about 40,000 contractors and
subcontractors will be subject to this information collection. FPDS
data also suggest that slightly less than 55 percent of all contract
actions relate to small entities. Applying this percentage to the
40,000 estimated covered contractors and subcontractors (generically
referred to as contractors in this analysis, unless otherwise noted),
suggests this rule will apply to 22,000 small entities. The Chamber
contends that multiplying a percentage of contract actions by the
estimated number of covered contractors and subcontractors erroneously
compares apples with oranges, given that small and large entities may
not work on SCA contracts in equal proportions, particularly given

[[Page 53751]]

the indication that there may be approximately three subcontractors for
every prime contractor. However, the Chamber points to no specific data
to substantiate its stated concern, nor does it provide any concrete
basis for its own assumption that subcontractors are disproportionately
likely to be small businesses. The Department remains persuaded that
its calculation is valid based on the available data, as supplemented
by reasonable assumptions.
---------------------------------------------------------------------------

    \1\ See chart entitled Subject to Labor Statute, Federal
Procurement Report FY 2006, Section III Agency Views, available at:
https://www.fpds.gov/fpdsng_cms/index.php/reports.
---------------------------------------------------------------------------

    The CSIS Report found that 31,700 small businesses in FY 2006
undertook contracts worth at least $25,000 (72 percent of all
contractors undertaking Federal professional service contracts of at
least $25,000). CSIS Report at 26. Again, this rule would apply only to
a portion of these contractors; however, using this latter percentage
suggests the rule might apply to 28,800 small businesses. This is an
upper bound estimate, because (in addition to not applying to contracts
or subcontracts of less than $150,000) the final rule would not apply
to small entities with certain contracts or subcontracts awarded for
services produced or provided by persons who are blind or have severe
disabilities or contracts exempted by the contracting agency. The
earlier analysis showing 40,000 contractors will work on 60,000
successor contracts and subcontracts (generically referred to as
contracts in this analysis, unless otherwise noted) subject to this
rule suggests a typical contractor will work on 1.5 successor contracts
subject to the nondisplacement provisions. For purposes of this
analysis, the Department assumes each covered small contractor will
also work on an average of 1.5 covered successor contracts each year,
the same ratio as all contractors; thus, this final rule is expected to
apply to no more than 43,200 successor contracts awarded to small
contractors.
    In estimating the costs on small contractors, the Department has
considered how current practices compare with expected actions
contractors typically will take under the nondisplacement provisions.
For example, those successor contractors that currently hire new
employees for a contract must recruit workers and evaluate their
qualifications for positions on the contract. In order to match
employees with suitable jobs under this final rule, successor
contractors will evaluate the predecessor contract employees and
available positions; thus, successor contractors are likely to spend an
equal amount of time determining job suitability under the final rule
as under current practices. The costs for documenting these employment
decisions will also be similar under both the final rule and status
quo.
    For purposes of this analysis, the Department also believes the
time small contactors will save by not recruiting an entirely new
workforce from the outset will be offset by the additional time a
successor contractor will spend in recruiting a new employee when there
is a vacant position because the contractor cannot find suitable work
for an employee who worked on the predecessor contract or in
considering how to minimize displacement when the successor contractor
reconfigures how it will deploy employees performing on the successor
contract. See Sec.  9.12(d)(3). As previously mentioned, this final
rule will also not affect wages that contractors will pay workers
because of the existing SCA requirement for the wage determination that
establishes the minimum rate for each occupation to be incorporated
into the contract; thus, existing regulatory requirements already set
wage rates, including when the predecessor's collectively bargained
rate is incorporated into the contract, successors must pay. See 41
U.S.C. 353(c); 29 CFR 4.6(b)(1). This final rule does not require
successor contractors to pay wages higher than the rate required by the
SCA. The successor contractor also may offer employment under different
terms and conditions, if the reasons for doing so are not related to a
desire that the employee refuse the offer or that other employees be
hired for the offer. See Sec.  9.12(b)(5).
    The final rule includes a contract clause provision requiring
contractors to incorporate the nondisplacement contract clause into
each covered subcontract. This provision comes directly from Executive
Order 13495, and the Department estimates that it will take a combined
total of 30 minutes for contractors to incorporate the contract clause
into each covered subcontract and the subcontractor to review it. As
will be further explained later in this analysis, 85 percent of all
small contractors are expected to incur no additional costs under this
final rule. Assuming covered contractors spend an additional two hours
(accounting for any additional time spent in making job offers,
inserting and reviewing the contract clause in subcontracts, and
maintaining records) per contract to comply with this final rule and
increasing the October 2009 average hourly earnings for professional
and business workers by 40 percent to account for fringe benefits (a
total of $31.32 per hour), this rule is estimated to impose annual
costs of less than $100 on most small contractors (1.5 contracts per
contractor x 2 hours x $31.32). See The Employment Situation--December
2009, at 28, Table B-3, Bureau of Labor Statistics, (http://
www.bls.gov/news.release/archives/empsit_01082010.pdf). Aggregate
compliance costs for these general requirements are expected to be
$2,706,048 (28,800 contractors x 1.5 contracts x 2 hours x $31.32).
    As explained in the PRA section of this preamble, the final rule
requires a predecessor contractor to provide a certified list of the
names of all service employees working under that contract (and its
subcontracts) to the contracting agency no later than 30 days before
completion of the contractor's performance of services on a contract.
Where changes to the workforce have been made after the submission of
the certified list described in Sec.  9.12(e)(1), a predecessor
contractor must submit an updated certified list no later than 10 days
before completion of the contractor's performance of services on a
contract. The clause makes clear that this is the same list as the
seniority list provided under the Service Contract Act clauses. This
list already exists and is used by contractors in making hiring
decisions under the status quo. Additional costs would only be incurred
when there is a change in the workforce necessitating submission of an
updated certified list. The department anticipates that a large portion
of contractors will not make changes to their workforce in the final
month of contract performance and will therefore not be required to
submit a second certified list. However, to assure the most inclusive
approximation the Department estimates that 50 percent of small
contractors' contracts will experience a change in workforce between 30
and 10 days of completion of the contract, requiring an updated list.
The Department recognizes that the actual number of contractors having
to produce two lists is likely to be less, but uses 50 percent as an
upper bound estimate (28,800 contractors x 1.5 contracts x .5 = 21,600
contracts). The Department estimates that it will take a predecessor
contractor an average of approximately one minute to update the
employment status of each employee on a certified list, and that each
service contract covered by this rule would involve an average of
approximately 15 employees. The Department has found no precise data
with which to measure the precise number of employees on contracts
awarded to small contractors, but applies the estimate used for the
class of all contracts subject to the

[[Page 53752]]

nondisplacement provisions. The Department recognizes that this will be
an upper bound estimate, since the number of employees employed on
contracts awarded to small contractors is likely to be less than those
in the class of all contracts subject to the nondisplacement
provisions. Thus, this requirement is estimated to impose annual costs
of $169,128 on small contractors (21,600 contracts x 15 employees x 1
minute = 5,400 hours. 5,400 hours x $31.32 = $169,128).
    As with other contractors, most small contractors will obtain
information about the nondisplacement requirements primarily from the
contract clause, and Wage and Hour Division offices throughout the
country are available to provide compliance assistance at no charge to
employers. While the Department believes this rule has been drafted in
a way that should enable the vast majority of contractors to comply
with the nondisplacement requirements without the need of professional
assistance from an attorney or accountant, the Department recognizes
some contractors will seek such assistance in the course of researching
compliance options within the context of specific business needs. As a
result, for purposes of this analysis, the Department estimates 15
percent of covered contractors each will incur additional costs
averaging $5000 because of the final rule requirements, for a total of
$21,600,000 spent by 4320 small contractors (28,800 contractors x 15% x
$5000). The Department estimates that ten percent of these 4320
contractors will face complex issues for which each will spend an
average of $10,000 additional dollars to address, totaling $4,320,000
spent by 432 small contractors (4320 contractors x 10% x $10,000). The
Department estimates total compliance costs that the 28,800 small
contractors subject to this final rule will incur will be $28,626,048,
with more than 90 percent of costs being borne by 4320 of these
contractors ($26,325,907/$28,626,048). As with other contractors, the
Department expects some compliance costs will be transferred to the
Federal Government in the form of higher bids; however, the agency is
not aware of a reasonable way to allocate those costs.

VI. Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995, 2 U.S.C.
1532, this final rule does not include any Federal mandate that may
result in excess of $100 million in expenditures by state, local, and
tribal governments in the aggregate or by the private sector.

VII. Executive Order 13132 (Federalism)

    The Department has (1) Reviewed this rule in accordance with
Executive Order 13132 regarding federalism and (2) determined that it
does not have federalism implications. The final rule would not have
substantial direct effects on the States, on the relationship between
the national government and the States, or on the distribution of power
and responsibilities among the various levels of government.

VIII. Executive Order 13175, Indian Tribal Governments

    This final rule would not have tribal implications under Executive
Order 13175 that would require a tribal summary impact statement. The
final rule would not have substantial direct effects on one or more
Indian tribes, on the relationship between the Federal Government and
Indian tribes or on the distribution of power and responsibilities
between the Federal Government and Indian tribes.

IX. Effects on Families

    The undersigned hereby certifies that the final rule would not
adversely affect the well-being of families, as discussed under section
654 of the Treasury and General Government Appropriations Act, 1999.

X. Executive Order 13045, Protection of Children

    This final rule would have no environmental health risk or safety
risk that may disproportionately affect children.

XI. Environmental Impact Assessment

    A review of this final rule in accordance with the requirements of
the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321 et
seq.; the regulations of the Council on Environmental Quality, 40 CFR
part 1500 et seq.; and the Departmental NEPA procedures, 29 CFR part
11, indicates that the rule would not have a significant impact on the
quality of the human environment. There is, thus, no corresponding
environmental assessment or an environmental impact statement.

XII. Executive Order 13211, Energy Supply

    This final rule is not subject to Executive Order 13211. It will
not have a significant adverse effect on the supply, distribution, or
use of energy.

XIII. Executive Order 12630, Constitutionally Protected Property Rights

    This final rule is not subject to Executive Order 12630, because it
does not involve implementation of a policy that has takings
implications or that could impose limitations on private property use.

XIV. Executive Order 12988, Civil Justice Reform Analysis

    This final rule was drafted and reviewed in accordance with
Executive Order 12988 and will not unduly burden the Federal court
system. The final rule was: (1) Reviewed to eliminate drafting errors
and ambiguities; (2) written to minimize litigation; and (3) written to
provide a clear legal standard for affected conduct and to promote
burden reduction.

List of Subjects in 29 CFR Part 9

    Employment, Federal buildings and facilities, Government contracts,
Law enforcement, Labor.

Nancy J. Leppink,
Deputy Administrator, Wage and Hour Division.

    For the reasons set out in the preamble, the Department amends
Title 29 of the Code of Federal Regulations by adding part 9 as set
forth below:

PART 9--NONDISPLACEMENT OF QUALIFIED WORKERS UNDER SERVICE
CONTRACTS

Subpart A--General
Sec.
9.1 Purpose and scope.
9.2 Definitions.
9.3 Coverage.
9.4 Exclusions.
Subpart B--Requirements
9.11 Contracting agency requirements.
9.12 Contractor requirements and prerogatives.
Subpart C--Enforcement
9.21 Complaints.
9.22 Wage and Hour Division conciliation.
9.23 Wage and Hour Division investigation.
9.24 Remedies and sanctions for violations of this part.
Subpart D--Administrator's Determination, Mediation, and Administrative
Proceedings
9.31 Administrator's determination.
9.32 Requesting appeals.
9.33 Mediation.
9.34 Administrative Law Judge hearings.
9.35 Administrative Review Board proceedings.
Appendix A to Part 9--Contract Clause
Appendix B to Part 9--Notice to Service Contract Employees.

[[Page 53753]]

    Authority:  5 U.S.C. 301; section 6, E.O. 13495, 74 FR 6103;
Secretary's Order 9-2009, 74 FR 58836.

Subpart A--General

Sec.  9.1  Purpose and scope.

    (a) Purpose. This part contains the Department of Labor's rules
relating to the administration of Executive Order 13495,
``Nondisplacement of Qualified Workers Under Service Contracts,'' and
implements the enforcement provisions of the Executive Order. The
Executive Order assigns enforcement responsibility for the
nondisplacement requirements to the Department. 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. A carryover workforce 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. Executive Order
13495, therefore, generally requires 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.
    (b) Policy. Executive Order 13495 establishes a Federal Government
policy for service contracts and their solicitations to 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 a right of first refusal
of employment to 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
in positions for which the employees are qualified. Nothing in
Executive Order 13495 or this part shall be construed to permit a
contractor or subcontractor to fail to comply with any provision of any
other Executive Order, regulation, or law of the United States.
    (c) Scope. Neither Executive Order 13495 nor this part creates any
rights under the Contract Disputes Act or any private right of action.
The Executive Order provides that disputes regarding the requirement of
the contract clause prescribed by section 5 of the Order, to the extent
permitted by law, shall be disposed of only as provided by the
Secretary of Labor in regulations issued under the Order. It also
provides for this part to favor the resolution of disputes by efficient
and informal alternative dispute resolution methods to the extent
practicable. The Order does not preclude judicial review of final
decisions by the Secretary in accordance with the Administrative
Procedure Act. Additionally, the Order also provides that it is to be
implemented consistent with applicable law and subject to the
availability of appropriations.

Sec.  9.2  Definitions.

    For purposes of this part:
    Administrator means the Administrator of the Wage and Hour Division
and includes any official of the Wage and Hour Division authorized to
perform any of the functions of the Administrator under this part.
    Administrative Review Board means the Administrative Review Board,
U.S. Department of Labor.
    Contractor means a prime contractor and all of its first or lower
tier subcontractors on a Federal service contract.
    Contracting Officer means the individual, a duly appointed
successor, or authorized representative who is designated and
authorized to enter into procurement contracts on behalf of the Federal
contracting agency.
    Day means, unless otherwise specified, a calendar day.
    Employee or service employee means any person engaged in the
performance of a service contract other than any person employed in a
bona fide executive, administrative, or professional capacity, as those
terms are defined in 29 CFR part 541. The term employee or service
employee includes all such persons, as defined in the McNamara-O'Hara
Service Contract Act of 1965, as amended, regardless of any contractual
relationship that may be alleged to exist between a contractor or
subcontractor and such persons.
    Employment opening means any vacancy in a position on the contract,
including any vacancy caused by replacing an employee from the
predecessor contract with a different employee.
    Federal Government means an agency or instrumentality of the United
States that enters into a procurement contract pursuant to authority
derived from the Constitution and the laws of the United States.
    Managerial employee and supervisory employee 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 and delimited in 29 CFR part 541.
    Month means a period of 30 consecutive days, regardless of the day
of the calendar month on which it begins.
    Office of Administrative Law Judges means the Office of
Administrative Law Judges, U.S. Department of Labor.
    Secretary means the U.S. Secretary of Labor or an authorized
representative of the Secretary.
    Same or similar service means a service that is either identical to
or has one or more 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.
    Service contract or contract means 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, as
amended, and its implementing regulations.
    Solicitation means any request to submit offers or quotations to
the Government.
    United States means the United States and all executive
departments, independent establishments, administrative agencies, and
instrumentalities of the United States, including corporations of which
all or substantially all of the stock is owned by the United States, by
the foregoing departments, establishments, agencies, instrumentalities,
and including non-appropriated fund instrumentalities.
    Wage and Hour Division means the Wage and Hour Division, U.S.
Department of Labor.

Sec.  9.3  Coverage.

    This part applies to all service contracts and their solicitations,
except those excluded by Sec.  9.4 of this part, that succeed contracts
for the same or similar service at the same location.

Sec.  9.4  Exclusions.

    (a) Small contracts. (1) General. The requirements of this part do
not apply to contracts or subcontracts under the simplified acquisition
threshold set by the Office of Federal Procurement Policy Act, as
amended.
    (2) Application to subcontracts. While the Sec.  9.4(a)(1)
exclusion applies to subcontracts that are less than the simplified
acquisition threshold, the prime contractor must comply with the
requirements of this part, if the prime contract is at least the
threshold

[[Page 53754]]

amount. When a contractor that is subject to the nondisplacement
requirements of this part discontinues the services of a subcontractor
at any time during the contract and performs those services itself at
the same location, the contractor shall offer employment on the
contract to the subcontractor's employees who would otherwise be
displaced and would otherwise be qualified in accordance with this part
but for the size of the subcontract.
    (b) Certain contracts or subcontracts awarded for services produced
or provided by persons who are blind or have severe disabilities. (1)
The requirements of this part do not apply to contracts or subcontracts
pursuant to the Javits-Wagner-O'Day Act.
    (2) The requirements of this part do not apply to contracts or
subcontracts for 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 sec. 505 of the Treasury, Postal Services
and General Government Appropriations Act, 1995.
    (3) The requirements of this part do not apply to agreements for
vending facilities entered into pursuant to the preference regulations
issued under the Randolph-Sheppard Act.
    (4) The exclusions provided by paragraphs (b)(1) through (3) of
this section apply when either the predecessor or successor contract
has been awarded for services produced or provided by the severely
disabled, as described in paragraphs (b)(1)-(3) of this section.
    (c) Federal service work constituting only part of employee's job.
This part does not apply to 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 Executive Order
13495.
    (d) Contracts exempted by Federal agency. This part does not apply
to any contract, subcontract, or purchase order or any class of
contracts, subcontracts, or purchase orders as to which the head of a
contracting department or agency finds that the application of any of
the requirements of this part would not serve the purposes of Executive
Order 13495 or would impair the ability of the Federal Government to
procure services on an economical and efficient basis.
    (1) Any agency determination to exercise its exemption authority
under Section 4 of the Executive Order shall be made no later than the
solicitation date. As an alternative to exempting the agency from all
provisions of this part, the head of a contracting department or agency
may exempt the agency from one or more individual provisions no later
than the contract solicitation date. Any agency determination to
exercise its exemption authority under Section 4 of the Executive Order
made after the solicitation date shall be inoperative and in such a
circumstance the contract clause set forth in Appendix A of this part
shall be included in, or added to, the covered service contracts and
their solicitations.
    (2) When an agency exercises its exemption authority with respect
to any contract, subcontract, or purchase order, the contracting agency
shall ensure that the contractor notifies affected workers and their
collective bargaining representatives in writing of the agency's
determination no later than five business days after the solicitation
date. The notification shall include facts supporting the determination
that the application of one or more requirements of this part would not
serve the purposes of Executive Order 13495 or would impair the ability
of the Federal Government to procure services on an economical and
efficient basis. Where a contracting agency exempts a class of
contracts, subcontracts, or purchase orders, the contractor shall
provide the notice to incumbent workers and their collective bargaining
representatives for each individual solicitation. A contracting
agency's failure to ensure that the contractor notifies incumbent
workers and their collective bargaining representatives in writing of
the agency's determination to exercise its exemption authority under
Section 4 of the Executive Order no later than five business days after
the solicitation date shall render the exemption decision inoperative
and in such a circumstance the contract clause set forth in Appendix A
of this part shall be included in, or added to, the covered service
contracts and their solicitations. The contracting agency also shall
notify the Department of its exemption decision and provide the
Department with a copy of its written analysis no later than five
business days after the solicitation date, which the Department will
post on its Web site at http://www.dol.gov. The contracting agency's
failure to follow this requirement shall render any agency exemption
decision inoperative and in such a circumstance the clause in Appendix
A of this part shall be included in, or added to, the covered service
contracts and their solicitations.
    (3) 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. The failure by a contracting agency to ensure
that the contractor uses the notification method specified in Sec. 
9.11(b) of this part shall render the exemption decision inoperative
and in such a circumstance the contract clause set forth in Appendix A
of this part shall be included in, or added to, the covered service
contracts and their solicitations.
    (4)(i) In exercising the authority to exempt contracts under this
section based on a finding that any of the requirements of Executive
Order 13495 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, the agency shall prepare a written
analysis by the solicitation date supporting such determination. The
written analysis shall be retained in accordance with FAR 4.805. 48 CFR
4.805. Such a written analysis shall, among other things, compare the
anticipated outcomes of hiring predecessor contract employees with
those of hiring a new workforce. The consideration of cost and other
factors in exercising the agency's exemption authority shall reflect
the general finding made by 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
shall specify how the particular circumstances support a contrary
conclusion. Any agency determination to exercise its exemption
authority under Section 4 of the Executive Order without a written
analysis as required by this part shall be inoperative and in such a
circumstance the contract clause set forth in Appendix A of this part
shall be included in, or added to, the covered service contracts and
their solicitations.
    (ii) When analyzing whether the application of the Executive
Order's requirements would not serve the purposes of the Order and
impair the ability of the Federal Government to procure services on an
economical and efficient basis, the head of a contracting department or
agency shall consider the specific circumstances associated with the
services to be acquired. General assertions or presumptions of an
inability to procure services on an economical and efficient basis
using a carryover workforce shall be deemed insufficient. Factors that
may be considered include, but are not limited to the following:

[[Page 53755]]

    (A) Whether the use of a carryover workforce would greatly increase
disruption to the delivery of services during the period of transition
between contracts (e.g., the carryover workforce in its entirety would
not be an experienced and trained workforce that is familiar with the
Federal Government's personnel, facilities, and requirements as
pertinent to the contract, subcontract, purchase order, class of
contracts, subcontracts, or purchase orders at issue and would require
extensive training to learn new technology or processes that would not
be required of a new workforce).
    (B) Emergency situations, such as a natural disaster or an act of
war, that physically displace incumbent employees from the location of
the service contract work and make it impossible or impracticable to
extend offers to hire as required by the Order.
    (C) Situations where the head of the contracting department or
agency reasonably believes, based on the predecessor employees' past
performance, that the entire predecessor workforce failed, individually
as well as collectively, to perform suitably on the job and that it is
not in the interest of economy and efficiency to provide supplemental
training to the predecessor's workers.
    (iii) Factors the head of a contracting department or agency shall
not consider in making an exemption determination (because
consideration of such factors would contravene the Executive Order's
purposes and findings) include whether the use of a carryover
workforce, in general, would greatly increase disruption to the
delivery of services during the period of transition between contracts;
whether, in general, a carryover workforce would not be an experienced
and trained workforce that is familiar with the Federal Government's
personnel, facilities, and requirements; the job performance of the
predecessor contractor; the seniority of the workforce; and the
reconfiguration of the contract work by a successor contractor. The
head of a contracting department or agency also shall not consider wage
rates and fringe benefits of service employees in making an exemption
determination except in the following exceptional circumstances:
    (A) In emergency situations, such as a natural disaster or an act
of war, that physically displace incumbent employees from the locations
of the service contract work and make it impossible or impracticable to
extend offers to hire as required by the Order;
    (B) When a carryover workforce in its entirety would not constitute
an experienced and trained workforce that is familiar with the Federal
Government's personnel, facilities, and requirements but rather would
require extensive training to learn new technology or processes that
would not be required of a new workforce; or
    (C) Other, similar circumstances in which the cost of employing a
carryover workforce on the successor contract would be prohibitive.
    (5) Any request by interested parties for reconsideration of a
contracting department or agency head's determination to exercise its
exemption authority under Section 4 of the Executive Order shall be
directed to the head of the contracting department or agency.
    (e) Managerial and supervisory employees. This part does not apply
to employees who are managerial or supervisory employees of Federal
service contractors or subcontractors. See Sec.  9.2(9) of this part,
definition of managerial employee and supervisory employee.

Subpart B--Requirements

Sec.  9.11  Contracting agency requirements.

    (a) Contract Clause. The contract clause set forth in Appendix A of
this part shall be included in covered service contracts, and
solicitations for such contracts, that succeed contracts for
performance of the same or similar services at the same location.
    (b) Notice. Where a contract will be awarded to a successor for the
same or similar services to be performed at the same location, the
Contracting Officer will ensure that the predecessor contractor provide
written notice to service employees of the predecessor contractor of
their possible right to an offer of employment. Such notice shall be
either posted in a conspicuous place at the worksite or delivered to
the employees individually. Where the predecessor contractor's
workforce is comprised of a significant portion of workers who are not
fluent in English, the notice shall be provided in both English and a
language with which the employees are more familiar. Multiple foreign
language notices are required where significant portions of the
workforce speak different foreign languages and there is no common
language. Contracting Officers may advise contractors to provide the
notice set forth in Appendix B to this part in either a physical
posting at the job site, or another format that effectively provides
individual notice such as individual paper notices or effective email
notification to the affected employees. To be effective, email
notification must result in an electronic delivery receipt or some
other reliable confirmation that the intended recipient received the
notice. Any particular determination of the adequacy of a notification,
regardless of the method used, must be fact-dependent and made on a
case-by-case basis.
    (c) Disclosures. The Contracting Officer shall provide the
incumbent contractor's list of employees referenced in Sec.  9.12(e) of
this part to the successor contractor and, on request, to employees or
their representatives.
    (d) Actions on complaints. (1) Reporting. (i) Reporting time frame.
Within 14 days of being contacted by the Wage and Hour Division, the
Contracting Officer shall forward all information listed in paragraph
(d)(1)(ii) of this section to the Branch of Government Contracts
Enforcement, Wage and Hour Division, U.S. Department of Labor,
Washington, DC 20210.
    (ii) Report contents: Except as provided by paragraph (d)(3) of
this section, the Contracting Officer shall forward to the Branch of
Government Contracts Enforcement, Wage and Hour Division, U.S.
Department of Labor, Washington, DC 20210 any:
    (A) Complaint of contractor noncompliance with this part;
    (B) Available statements by the employee or the contractor
regarding the alleged violation;
    (C) Evidence that a seniority list was issued by the predecessor
and provided to the successor;
    (D) A copy of the seniority list;
    (E) Evidence that the nondisplacement contract clause was included
in the contract or that the contract was exempted by the contracting
agency;
    (F) Information concerning known settlement negotiations between
the parties, if applicable;
    (G) Any other relevant facts known to the Contracting Officer or
other information requested by the Wage and Hour Division.
    (2) [Reserved]

Sec.  9.12  Contractor requirements and prerogatives.

    (a) General. (1) No employment openings prior to right of first
refusal. Except as provided under the exclusions listed in Sec.  9.4 of
this part or paragraphs (c) and (d) of this section, a successor
contractor or subcontractor shall fill no employment openings under the
contract prior to making good faith offers of employment (i.e., a right
of first refusal to employment on the contract), in positions for which
the employees are qualified, to those employees employed under the
predecessor

[[Page 53756]]

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. The contractor and its subcontractors shall make
a bona fide, express offer of employment to a position for which the
employee is qualified to each employee and shall state the time within
which the employee must accept such offer, but in no case shall the
period within which the employee must accept the offer of employment be
less than 10 days.
    (2) No seniority list available. The successor contractor's
obligation to offer a right of first refusal exists even if the
successor contractor has not been provided a list of the predecessor
contractor's employees or the list does not contain the names of all
persons employed during the final month of contract performance.
    (3) Determining eligibility. While a person's entitlement to a job
offer under this part usually will be based on whether he or she is
named on the certified list of all service employees working under the
predecessor's contract or subcontracts during the last month of
contract performance, a contractor must also accept other credible
evidence of an employee's entitlement to a job offer under this part.
For example, even if a person's name does not appear on the list of
employees on the predecessor contract, an employee's assertion of an
assignment to work on a contract during the predecessor's last month of
performance coupled with contracting agency staff verification could
constitute credible evidence of an employee's entitlement to a job
offer, as otherwise provided for in this part. Similarly, an employee
could demonstrate eligibility by producing a paycheck stub identifying
the work location and dates worked.
    (b) Method of job offer. (1) Bona-fide offer. Except as otherwise
provided in this part, a contractor must make a bona fide express offer
of employment to each qualified employee on the predecessor contract
before offering employment on the contract to any other person. In
determining whether an employee is entitled to a bona fide, express
offer of employment, a contractor may consider the exceptions set forth
in paragraph (c) of this section and may utilize employment screening
processes (i.e., drug tests, background checks, security clearance
checks, and similar pre-employment screening mechanisms) only when such
processes are provided for by the contracting agency, are conditions of
the service contract, and are consistent with the Executive Order. The
obligation to offer employment under this part shall cease upon the
employee's first refusal of a bona fide offer to employment on the
contract.
    (2) Establishing time limit for employee response. The contractor
shall state the time within which an employee must accept an employment
offer, but in no case may the period in which the employee has to
accept the offer be less than 10 days.
    (3) Process. The successor contractor must, in writing or orally,
offer employment to each employee. See also paragraph (f) of this
section, Recordkeeping. In order to ensure that the offer is
effectively communicated, the successor contractor should take
reasonable efforts to make the offer in a language that each worker
understands. For example, if the contractor holds a meeting for a group
of employees on the predecessor contract in order to extend the
employment offers, having a co-worker or other person who fluently
translates for employees who are not fluent in English would satisfy
this provision.
    (4) Different job position. As a general matter, an offer of
employment on the successor's contract will be presumed to be a bona
fide offer of employment, even if it is not for a position similar to
the one the employee previously held but one for which the employee is
qualified. If a question arises concerning an employee's
qualifications, that question shall be decided based upon the
employee's education and employment history, with particular emphasis
on the employee's experience on the predecessor contract. A contractor
must base its decision regarding an employee's qualifications on
credible information provided by a knowledgeable source such as the
predecessor contractor, the local supervisor, the employee, or the
contracting agency.
    (5) Different employment terms and conditions. An offer of
employment to a position on the contract under different employment
terms and conditions, including changes to pay or benefits, than the
employee held with the predecessor contractor will be considered bona
fide, if the reasons are not related to a desire that the employee
refuse the offer or that other employees be hired for the offer.
    (6) Termination after contract commencement. Where an employee is
terminated under circumstances suggesting the offer of employment may
not have been bona fide, the facts and circumstances of the offer and
the termination will be closely examined during any compliance action
to ensure the offer was bona fide.
    (c) Exceptions. The successor contractor will bear the
responsibility of demonstrating the appropriateness of claiming any of
the following exceptions to the nondisplacement provisions subject to
this part.
    (1) Nondisplaced employees. (i) A contractor or subcontractor is
not required to offer employment to any employee of the predecessor
contractor who will be retained by the predecessor contractor.
    (ii) The contractor must presume that all employees hired to work
under a predecessor's Federal service contract will be terminated as a
result of the award of the successor contract, absent an ability to
demonstrate a reasonable belief to the contrary that is based upon
credible information provided by a knowledgeable source such as the
predecessor contractor or the employee.
    (2) Successor's current employees. A contractor or subcontractor
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.
    (3) Predecessor contractor's non-service employees. (i) A
contractor or subcontractor is not required to offer employment to any
employee of the predecessor who is not a service employee. See Sec. 
9.2 of this part for definitions of employee, managerial employee and
supervisory employee.
    (ii) The contractor must presume that all employees hired to work
under a predecessor's Federal service contract are service employees,
absent an ability to demonstrate a reasonable belief to the contrary
that is based upon credible information provided by a knowledgeable
source such as the predecessor contractor, the employee, or the
contracting agency. Information regarding the general business
practices of the predecessor contractor or the industry is not
sufficient to claim this exemption.
    (4) Employee's past unsuitable performance. (i) A contractor or
subcontractor is not required to offer employment to any employee of
the predecessor contractor for whom the contractor or any of its
subcontractors reasonably believes, based on the particular employee's
past performance, has failed to perform suitably on the job.
    (ii)(A) The contractor must presume that all employees working
under the predecessor contract in the last month of performance
performed suitable work on the contract, absent an ability to
demonstrate a reasonable belief to the contrary that is based upon
written

[[Page 53757]]

credible information provided by a knowledgeable source such as the
predecessor contractor and its subcontractors, the local supervisor,
the employee, or the contracting agency.
    (B) For example, a contractor may demonstrate its reasonable belief
that the employee, in fact, failed to perform suitably on the
predecessor contract through written evidence of disciplinary action
taken for poor performance or evidence directly from the contracting
agency that the particular employee did not perform suitably. The
performance determination must be made on an individual basis for each
employee. Information regarding the general performance of the
predecessor contractor is not sufficient to claim this exception.
    (5) Non-Federal work. (i) A contractor or subcontractor is not
required to offer employment to any employee hired to work under a
predecessor's Federal service contract and one or more nonfederal
service contracts as part of a single job, provided that the employee
was not deployed in a manner that was designed to avoid the purposes of
this part.
    (ii) The successor contractor must presume that no employees hired
to work under a predecessor's Federal service contract worked on one or
more nonfederal service contracts as part of a single job, unless the
successor can demonstrate a reasonable belief to the contrary. The
successor contractor must demonstrate that its belief is reasonable and
is based upon credible information provided by a knowledgeable source
such as the predecessor contractor, the local supervisor, the employee,
or the contracting agency. Information regarding the general business
practices of the predecessor contractor or the industry is not
sufficient.
    (iii) A contractor that makes a reasonable determination that a
predecessor contractor's employee also performed work on one or more
nonfederal service contracts as part of a single job must also make a
reasonable determination that the employee was not deployed in such a
way that was designed to avoid the purposes of this part. The successor
contractor must demonstrate that its belief is reasonable and is based
upon credible information that has been provided by a knowledgeable
source such as the employee or the contracting agency. For example,
evidence from a contracting agency that an employee worked only
occasionally on a Federal service contract combined with a statement
from the employee indicating fulltime employment with the predecessor
would, absent other facts, constitute the basis for a reasonable belief
that there is no obligation to offer employment to the employee. On the
other hand, information suggesting a change in how a predecessor
contractor deployed employees near the end of the contract period could
suggest an effort to evade the purposes of this part.
    (d) Reduced staffing. (1) Contractor determines how many employees.
(i) A contractor or subcontractor shall determine the number of
employees necessary for efficient performance of the contract or
subcontract and, for bona fide staffing or work assignment reasons, may
elect to employ fewer employees than the predecessor contractor
employed in connection with performance of the work. Thus, the
successor contractor need not offer employment on the contract to all
employees on the predecessor contract, but must offer employment only
to the number of eligible employees the successor contractor believes
necessary to meet its anticipated staffing pattern, except that:
    (ii) Where, in accordance with this authority to employ fewer
employees, a successor contractor does not offer employment to all the
predecessor contract employees, the obligation to offer employment
shall continue for 90 days after the successor contractor's first date
of performance on the contract. The contractor's obligation under this
part will end when all of the predecessor contract employees have
received a bona fide job offer, including stating the time within which
the employee must accept such offer, which must be no less than 10
days, or the 90-day window of obligation has expired. The following
three examples demonstrate the principle.
    (A) A contractor with 18 employment openings and a list of 20
employees from the predecessor contract must continue to offer
employment to individuals on the list until 18 of the employees accept
the contractor's employment offer or until the remaining employees have
rejected the offer. If an employee quits or is terminated from the
successor contract within 90 days of the first date of contract
performance, the contractor must first offer employment to any
remaining eligible employees of the predecessor contract.
    (B) A successor contractor originally offers 20 jobs to predecessor
contract employees on a contract that had 30 positions under the
predecessor contractor. The first 20 predecessor contract employees the
successor contractor approaches accept the employment offer. Within a
month of commencing work on the contract, the successor determines that
it must hire seven additional employees to perform the contract
requirements. The first three predecessor contract employees to whom
the successor offers employment decline the offer; however, the next
four predecessor contract employees accept the offers. In accordance
with the provisions of this section, the successor contractor offers
employment on the contract to the three remaining predecessor contract
employees who all accept; however, two employees on the contract quit
five weeks later. The successor contractor has no further obligation
under this part to make a second employment offer to the persons who
previously declined an offer of employment on the contract.
    (C) A successor contractor reduces staff on a successor contract by
two positions from the predecessor contract's staffing pattern. Each
predecessor contract employee the successor approaches accepts the
employment offer; therefore, employment offers are not made to two
predecessor contract employees. The successor contractor terminates an
employee five months later. The successor contractor has no obligation
to offer employment to the two remaining employees from the predecessor
contract, because more than 90 days have passed since the successor
contractor's first date of performance on the contract.
    (2) Contractor determines which employees. The contractor, subject
to provisions of this part and other applicable restrictions (including
non-discrimination laws and regulations), will determine to which
employees it will offer employment. See Sec.  9.1(b) regarding
compliance with other requirements.
    (3) Changes to staffing pattern. Where a contractor reduces the
number of employees in any occupation on a contract with multiple
occupations, resulting in some displacement, the contractor shall
scrutinize each employee's qualifications in order to offer positions
to the greatest number of predecessor contract employees possible.
Example: A successor contract is awarded for a food preparation and
services contract with Cook II, Cook I and dishwasher positions. The
Cook II position requires a higher level of skill than the Cook I
position. The successor contractor reconfigures the staffing pattern on
the contract by increasing the number persons employed as a Cook II and
Dishwashers but reducing the number of Cook I employees. The successor
contractor must examine the qualifications of each Cook I to see if a
position as either a Cook II or Dishwasher is possible. Conversely,

[[Page 53758]]

were the contractor to increase the number of Cook I employees,
decrease the number of Cook II employees, and keep the same number of
Dishwashers the contractor would generally be able offer Cook I
positions to some Cook II employees, because the Cook II performs a
higher level occupation. The contractor would also need to consider
whether offering Dishwasher positions to Cook I employees would result
in less overall displacement. Finally, should some Dishwashers decline
the employment offer, the Contractor would need to consider the
qualifications of the Cooks at both levels and offer positions on the
contract in a way that results in the least displacement.
    (e) Contractor obligations near end of contract performance. (1)
Certified list of employees provided 30 days before contract
completion. The contractor shall, not less than 30 days before
completion of the contractor's performance of services on a contract,
furnish the Contracting Officer with a list of the names of all service
employees working under the contract and its subcontracts at the time
the list is submitted. The list shall also contain anniversary dates of
employment of each service employee under the contract and its
predecessor contracts with either the current or predecessor
contractors or their subcontractors. Assuming there are no changes to
the workforce before the contract is completed, the contractor may use
the list submitted, or to be submitted, to satisfy the requirements of
the contract clause specified at 29 CFR 4.6(l)(2) to meet this
provision.
    (2) Certified list of employees provided 10 days before contract
completion. Where changes to the workforce are made after the
submission of the certified list described in paragraph (e)(1) of this
section, the contractor shall, not less than 10 days before completion
of the contractor's performance of services on a contract, furnish the
Contracting Officer with a certified list of the names of all service
employees employed within the last month of contract performance. The
list shall also contain anniversary dates of employment and, where
applicable, dates of separation of each service employee under the
contract and its predecessor contracts with either the current or
predecessor contractors or their subcontractors. The contractor may use
the list submitted to satisfy the requirements of the contract clause
specified at 29 CFR 4.6(l)(2) to meet this provision.
    (f) Recordkeeping. (1) Form of records. This part prescribes no
particular order or form of records for contractors. A contractor may
use records developed for any purpose to satisfy the requirements of
this part, provided the records otherwise meet the requirements and
purposes of this part and are fully accessible. The requirements of
this part shall apply to all records regardless of their format (e.g.,
paper or electronic).
    (2) Records to be retained. (i) The contractor shall maintain
copies of any written offers of employment or a contemporaneous written
record of any oral offers of employment, including the date, location,
and attendance roster of any employee meeting(s) at which the offers
were extended, a summary of each meeting, a copy of any written notice
that may have been distributed, and the names of the employees from the
predecessor contract to whom an offer was made.
    (ii) The contractor shall maintain a copy of any record that forms
the basis for any exclusion or exemption claimed under this part.
    (iii) The contractor shall maintain a copy of the employee list
received from the contracting agency. See paragraph (e) of this
section, contractor obligations near end of contract.
    (iv) Every contractor who makes retroactive payment of wages or
compensation under the supervision of the Administrator of the Wage and
Hour Division pursuant to Sec.  9.24(b) of this part, shall:
    (A) Record and preserve, as an entry on the pay records, the amount
of such payment to each employee, the period covered by such payment,
and the date of payment.
    (B) Prepare a report of each such payment on a receipt form
provided by or authorized by the Wage and Hour Division, and
    (1) Preserve a copy as part of the records,
    (2) Deliver a copy to the employee, and
    (3) File the original, as evidence of payment by the contractor and
receipt by the employee, with the Administrator or an authorized
representative within 10 days after payment is made.
    (3) Records retention period. The contractor shall retain records
prescribed by section Sec.  9.12(f)(2) of this part for not less than a
period of three years from the date the records were created.
    (4) Disclosure. The contractor must provide copies of such
documentation upon request of any authorized representative of the
contracting agency or Department of Labor.
    (g) Investigations. The contractor shall cooperate in any review or
investigation conducted pursuant to this part and shall not interfere
with the investigation or intimidate, blacklist, discharge, or in any
other manner discriminate against any person because such person has
cooperated in an investigation or proceeding under this part or has
attempted to exercise any rights afforded under this part. This
obligation to cooperate with investigations is not limited to
investigations of the contractor's own actions, but also includes
investigations related to other contractors (e.g., predecessor and
subsequent contractors) and subcontractors.

Subpart C--Enforcement

Sec.  9.21  Complaints.

    With Wage and Hour Division. Any employee(s) or authorized employee
representative(s) of the predecessor contractor who believes the
successor contractor has violated this part may file a complaint with
the Wage and Hour Division within 120 days from the first date of
contract performance. The employee may file a complaint directly with
the Branch of Government Contracts Enforcement, Wage and Hour Division,
U.S. Department of Labor, Washington, DC 20210.

Sec.  9.22  Wage and Hour Division conciliation.

    After obtaining information regarding alleged violations, the Wage
and Hour Division may contact the successor contractor about the
complaint and attempt to conciliate and reach a resolution that is
consistent with the requirements of this part and is acceptable to both
the complainant(s) and the successor contractor.

Sec.  9.23  Wage and Hour Division investigation.

    (a) Initial investigation. The Administrator may initiate an
investigation under this part either as the result of the unsuccessful
conciliation of a complaint or at any time on his or her own
initiative. As part of the investigation, the Administrator may inspect
the records of the predecessor and successor contractors (and make
copies or transcriptions thereof), question the predecessor and
successor contractors and any employees of these contractors, and
require the production of any documentary or other evidence deemed
necessary to determine whether a violation of this part (including
conduct warranting imposition of ineligibility sanctions pursuant to
Sec.  9.24(d) of this part) has occurred.
    (b) Subsequent investigations. The Administrator may conduct a new

[[Page 53759]]

investigation or issue a new determination if the Administrator
concludes circumstances warrant, such as where the proceedings before
an Administrative Law Judge reveal that there may have been violations
with respect to other employees of the contractor, where imposition of
ineligibility sanctions is appropriate, or where the contractor has
failed to comply with an order of the Secretary.

Sec.  9.24  Remedies and sanctions for violations of this part.

    (a) Authority. Executive Order 13495 provides that the Secretary
shall have the authority to issue orders prescribing appropriate
remedies, including, but not limited to, requiring the contractor to
offer employment, in positions for which the employees are qualified,
to employees from the predecessor contract and the payment of wages
lost.
    (b) Unpaid wages or other relief due. In addition to satisfying any
costs imposed under Sec. Sec.  9.34(j) or 9.35(d) of this part, a
contractor who violates any provision of this part shall take
appropriate action to abate the violation, which may include hiring
each affected employee in a position on the contract for which the
employee is qualified, together with compensation (including lost
wages), terms, conditions, and privileges of that employment.
    (c) Withholding of funds. (1) Unpaid wages or other relief. After
an investigation and a determination by the Administrator that lost
wages or other monetary relief is due, the Administrator may direct
that so much of the accrued payments due on either the contract or any
other contract between the contractor and the Government shall be
withheld as are necessary to pay the moneys due. Upon the final order
of the Secretary that such moneys are due, the Administrator may direct
that such withheld funds be transferred to the Department of Labor for
disbursement.
    (2) List of employees. If the Contracting Officer or the
Administrator, upon final order of the Secretary, finds that the
predecessor contractor has failed to provide a list of the names of
employees working under the contract in accordance with Sec.  9.12(e)
of this part, the Contracting Officer may in his or her discretion, or
upon request by the Administrator, take such action as may be necessary
to cause the suspension of the payment of contract funds until such
time as the list is provided to the Contracting Officer.
    (d) Ineligibility listing. Where the Secretary finds that a
contractor has failed to comply with any order of the Secretary, or has
committed willful or aggravated violations of this part, the Secretary
may order that the contractor and its responsible officers, and any
firm in which the contractor has a substantial interest, shall be
ineligible to be awarded any contract or subcontract of the United
States for a period of up to three 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 noncomplying contractors shall be
carried out without affording the contractor or subcontractor an
opportunity for a hearing.

Subpart D--Administrator's Determination, Mediation, and
Administrative Proceedings

Sec.  9.31  Determination of the Administrator.

    (a) Written determination. Upon completion of an investigation
under Sec.  9.23 of this part, and provided that a resolution is not
reached that is consistent with the requirements of this part and
acceptable to both the complainant(s) and the successor contractor, the
Administrator will issue a written determination of whether a violation
has occurred. The determination shall contain a statement of the
investigation findings and conclusions. A determination that a
violation occurred shall address appropriate relief and the issue of
ineligibility sanctions where appropriate. The Administrator will
notify any complainant(s); employee representative(s); contractor,
including the prime contractor if a subcontractor is implicated; and
contractor representative(s) by personal service or by registered or
certified mail to the last known address, of the investigation
findings. Where service by certified mail is not accepted by the party,
the Administrator may exercise discretion to serve the determination by
regular mail.
    (b) Notice to parties and effect. (1) Relevant facts in dispute.
Except as provided in paragraph (b)(2) of this section, the
determination of the Administrator shall advise the parties (ordinarily
any complainant, the successor contractor, and any of their
representatives) that the notice of determination shall become the
final order of the Secretary and shall not be appealable in any
administrative or judicial proceeding unless, postmarked within 20 days
of the date of the determination of the Administrator, the Chief
Administrative Law Judge receives a request for a hearing pursuant to
Sec.  9.32(b)(1) of this part. A detailed statement of the reasons why
the Administrator's ruling is in error, including facts alleged to be
in dispute, if any, shall be submitted with the request for a hearing.
The Administrator's determination not to seek ineligibility sanctions
shall not be appealable.
    (2) Relevant facts not in dispute. If the Administrator concludes
that no relevant facts are in dispute, the parties and their
representatives, if any, will be so advised and will be further advised
that the determination shall become the final order of the Secretary
and shall not be appealable in any administrative or judicial
proceeding unless, postmarked within 20 days of the date of the
determination of the Administrator, a petition for review is filed with
the Administrative Review Board pursuant to Sec.  9.32(b)(2) of this
part. The determination will further advise that if an aggrieved party
disagrees with the factual findings or believes there are relevant
facts in dispute, the aggrieved party may advise the Administrator of
the disputed facts and request a hearing by letter, which must be
received within 20 days of the date of the determination. The
Administrator will either refer the request for a hearing to the Chief
Administrative Law Judge, or notify the parties and their
representatives, if any, of the determination of the Administrator that
there is no relevant issue of fact and that a petition for review may
be filed with the Administrative Review Board within 20 days of the
date of the notice, in accordance with the procedures at Sec. 
9.32(b)(2) of this part.

Sec.  9.32  Requesting appeals.

    (a) General. If any party desires review of the determination of
the Administrator, including judicial review, a request for an
Administrative Law Judge hearing or petition for review by the
Administrative Review Board must first be filed in accordance with
Sec.  9.31(b) of this part.
    (b) Process. (1) For Administrative Law Judge hearing. (i) General.
Any aggrieved party may file a request for a hearing by an
Administrative Law Judge within 20 days of the determination of the
Administrator. The request for a hearing shall be accompanied by a copy
of the determination of the Administrator and may be filed by U.S.
mail, facsimile (FAX), telegram, hand delivery, next-day delivery, or a
similar service. At the same time, a copy of any request for a hearing
shall be sent to the complainant(s) or successor contractor, and their
representatives, if any, as appropriate; the Administrator of the Wage
and Hour Division; and the

[[Page 53760]]

Associate Solicitor, Division of Fair Labor Standards, U.S. Department
of Labor, Washington, DC 20210.
    (ii) By the complainant. The complainant or any other interested
party may request a hearing where the Administrator determines, after
investigation, that there is no basis for a finding that a contractor
has committed violation(s), or where the complainant or other
interested party believes that the Administrator has ordered inadequate
monetary relief. In such a proceeding, the party requesting the hearing
shall be the prosecuting party and the contractor shall be the
respondent; the Administrator may intervene as a party or appear as
amicus curiae at any time in the proceeding, at the Administrator's
discretion.
    (iii) By the contractor. The contractor or any other interested
party may request a hearing where the Administrator determines, after
investigation, that the contractor has committed violation(s). In such
a proceeding, the Administrator shall be the prosecuting party and the
contractor shall be the respondent.
    (2) For Administrative Review Board review. (i) General. Any
aggrieved party desiring review of a determination of the Administrator
in which there were no relevant facts in dispute, or an Administrative
Law Judge's decision, shall file a written petition for review with the
Administrative Review Board that must be postmarked within 20 days of
the date of the determination or decision and shall be served on all
parties and, where the case involves an appeal from an Administrative
Law Judge's decision, the Chief Administrative Law Judge. See also
Sec.  9.32(b)(1) of this part.
    (ii) Contents and service. (A) A petition for review shall refer to
the specific findings of fact, conclusions of law, or order at issue.
    (B) Copies of the petition and all briefs shall be served on the
Administrator, Wage and Hour Division, and on the Associate Solicitor,
Division of Fair Labor Standards, U.S. Department of Labor, Washington,
DC 20210.
    (c) Effect of filing. If a timely request for hearing or petition
for review is filed, the determination of the Administrator or the
decision of the Administrative Law Judge shall be inoperative unless
and until the Administrative Review Board issues an order affirming the
determination or decision, or the determination or decision otherwise
becomes a final order of the Secretary. If a petition for review
concerns only the imposition of ineligibility sanctions, however, the
remainder of the decision shall be effective immediately. No judicial
review shall be available unless a timely petition for review to the
Administrative Review Board is first filed.

Sec.  9.33  Mediation.

    (a) General. The parties are encouraged to resolve disputes in
accordance with the conciliation procedures set forth at Sec.  9.22 of
this part, or, where such efforts have failed, to utilize settlement
judges to mediate settlement negotiations pursuant to 29 CFR 18.9 when
those provisions apply. At any time after commencement of a proceeding,
the parties jointly may move to defer the hearing for a reasonable time
to permit negotiation of a settlement or an agreement containing
findings and an order disposing of the whole or any part of the
proceeding.
    (b) Appointing settlement judge for cases scheduled with the Office
of Administrative Law Judges. Upon a request by a party or the
presiding Administrative Law Judge, the Chief Administrative Law Judge
may appoint a settlement judge. The Chief Administrative Law Judge has
sole discretion to decide whether to appoint a settlement judge, except
that a settlement judge shall not be appointed when a party objects to
referral of the matter to a settlement judge.

Sec.  9.34  Administrative Law Judge hearings.

    (a) Authority. (1) General. The Office of Administrative Law Judges
has jurisdiction to hear and decide appeals pursuant to Sec. 
9.31(b)(1) of this part concerning questions of law and fact from
determinations of the Administrator issued under Sec.  9.31 of this
part. In considering the matters within the scope of its jurisdiction,
the Administrative Law Judge shall act as the authorized representative
of the Secretary and shall act fully and, subject to an appeal filed
under Sec.  9.32(b)(2) of this part, finally on behalf of the Secretary
concerning such matters.
    (2) Limit on scope of review. (i) The Administrative Law Judge
shall not have jurisdiction to pass on the validity of any provision of
this part.
    (ii) The Equal Access to Justice Act, as amended, does not apply to
hearings under this part. Accordingly, an Administrative Law Judge
shall have no authority to award attorney fees and/or other litigation
expenses pursuant to the provisions of the Equal Access to Justice Act
for any proceeding under this part.
    (b) Scheduling. If the case is not stayed to attempt settlement in
accordance with Sec.  9.33(a) of this part, the Administrative Law
Judge to whom the case is assigned shall, within 15 calendar days
following receipt of the request for hearing, notify the parties and
any representatives, of the day, time, and place for hearing. The date
of the hearing shall not be more than 60 days from the date of receipt
of the request for hearing.
    (c) Dismissing challenges for failure to participate. The
Administrative Law Judge may, at the request of a party or on his/her
own motion, dismiss a challenge to a determination of the Administrator
upon the failure of the party requesting a hearing or his/her
representative to attend a hearing without good cause; or upon the
failure of said party to comply with a lawful order of the
Administrative Law Judge.
    (d) Administrator's participation. At the Administrator's
discretion, the Administrator has the right to participate as a party
or as amicus curiae at any time in the proceedings, including the right
to petition for review of a decision of an Administrative Law Judge in
a case in which the Administrator has not previously participated. The
Administrator shall participate as a party in any proceeding in which
the Administrator has found any violation of this part, except where
the complainant or other interested party challenges only the amount of
monetary relief. See also Sec.  9.32(b)(2)(i)(C) of this part.
    (e) Agency participation. A Federal agency that is interested in a
proceeding may participate, at the agency's discretion, as amicus
curiae at any time in the proceedings. At the request of such Federal
agency, copies of all pleadings in a case shall be served on the
Federal agency, whether or not the agency is participating in the
proceeding.
    (f) Requesting documents. Copies of the request for hearing and
documents filed in all cases, whether or not the Administrator is
participating in the proceeding, shall be sent to the Administrator,
Wage and Hour Division, and to the Associate Solicitor, Division of
Fair Labor Standards, U.S. Department of Labor, Washington, DC 20210.
    (g) Rules of practice. (1) The rules of practice and procedure for
administrative hearings before the Office of Administrative Law Judges
at 29 CFR part 18, subpart A, shall be applicable to the proceedings
provided by this section. This part is controlling to the extent it
provides any rules of special application that may be inconsistent with
the rules in 29 CFR part 18, subpart A. The Rules of Evidence at 29 CFR
18, subpart B, shall not apply. Rules or principles designed to assure
production of the most

[[Page 53761]]

probative evidence available shall be applied. The Administrative Law
Judge may exclude evidence that is immaterial, irrelevant, or unduly
repetitive.
    (h) Decisions. The Administrative Law Judge shall issue a decision
within 60 days after completion of the proceeding at which evidence was
submitted. The decision shall contain appropriate findings,
conclusions, and an order and be served upon all parties to the
proceeding.
    (i) Orders. Upon the conclusion of the hearing and the issuance of
a decision that a violation has occurred, the Administrative Law Judge
shall issue an order that the successor contractor take appropriate
action to abate the violation, which may include hiring each affected
employee in a position on the contract for which the employee is
qualified, together with compensation (including lost wages), terms,
conditions, and privileges of that employment. Where the Administrator
has sought ineligibility sanctions, the order shall also address
whether such sanctions are appropriate.
    (j) Costs. If an order finding the successor contractor violated
this part is issued, the Administrative Law Judge may assess against
the contractor a sum equal to the aggregate amount of all costs (not
including attorney fees) and expenses reasonably incurred by the
aggrieved employee(s) in the proceeding. This amount shall be awarded
in addition to any unpaid wages or other relief due under Sec.  9.24(b)
of this part.
    (k) Finality. The decision of the Administrative Law Judge shall
become the final order of the Secretary, unless a petition for review
is timely filed with the Administrative Review Board as set forth in
Sec.  9.32(b)(2) of this part.

Sec.  9.35  Administrative Review Board proceedings.

    (a) Authority. (1) General. The Administrative Review Board has
jurisdiction to hear and decide in its discretion appeals pursuant to
Sec.  9.31(b)(2) concerning questions of law and fact from
determinations of the Administrator issued under Sec.  9.31 of this
part and from decisions of Administrative Law Judges issued under Sec. 
9.34 of this part. In considering the matters within the scope of its
jurisdiction, the Board shall act as the authorized representative of
the Secretary and shall act fully and finally on behalf of the
Secretary concerning such matters.
    (2) Limit on scope of review. (i) The Board shall not have
jurisdiction to pass on the validity of any provision of this part. The
Board is an appellate body and shall decide cases properly before it on
the basis of substantial evidence contained in the entire record before
it. The Board shall not receive new evidence into the record.
    (ii) The Equal Access to Justice Act, as amended, does not apply to
proceedings under this part. Accordingly, for any proceeding under this
part, the Administrative Review Board shall have no authority to award
attorney fees and/or other litigation expenses pursuant to the
provisions of the Equal Access to Justice Act for any proceeding under
this part.
    (b) Decisions. The Board's final decision shall be issued within 90
days of the receipt of the petition for review and shall be served upon
all parties by mail to the last known address and on the Chief
Administrative Law Judge (in cases involving an appeal from an
Administrative Law Judge's decision).
    (c) Orders. If the Board concludes that the contractor has violated
this part, the final order shall order action to abate the violation,
which may include hiring each affected employee in a position on the
contract for which the employee is qualified, together with
compensation (including lost wages), terms, conditions, and privileges
of that employment. Where the Administrator has sought imposition of
ineligibility sanctions, the Board shall also determine whether an
order imposing ineligibility sanctions is appropriate.
    (d) Costs. If a final order finding the successor contractor
violated this part is issued, the Board may assess against the
contractor a sum equal to the aggregate amount of all costs (not
including attorney fees) and expenses reasonably incurred by the
aggrieved employee(s) in the proceeding. This amount shall be awarded
in addition to any unpaid wages or other relief due under Sec.  9.24(b)
of this part.
    (e) Finality. The decision of the Administrative Review Board shall
become the final order of the Secretary.

Appendix A to Part 9--Contract Clause

Nondisplacement of Qualified Workers

    (a) Consistent with the efficient performance of this contract,
the contractor and its subcontractors shall, except as otherwise
provided herein, 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
this contract or the expiration of the contract under which the
employees were hired, a right of first refusal of employment under
this contract in positions for which employees are qualified. The
contractor and its subcontractors shall determine the number of
employees necessary for efficient performance of this contract and
may elect to employ fewer employees than the predecessor contractor
employed in connection with performance of the work. Except as
provided in paragraph (b) there shall be no employment opening under
this contract, and the contractor and any subcontractors shall not
offer employment under this contract, to any person prior to having
complied fully with this obligation. The contractor and its
subcontractors shall make a bona fide, express offer of employment
to each employee as provided herein and shall state the time within
which the employee must accept such offer, but in no case shall the
period within which the employee must accept the offer of employment
be less than 10 days.
    (b) Notwithstanding the obligation under paragraph (a) above,
the contractor and any subcontractors (1) may employ under this
contract any employee who has worked for the contractor or
subcontractor for at least 3 months immediately preceding the
commencement of this 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 Service Contract Act of 1965, as
amended, 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 contractor or any of its subcontractors
reasonably believes, based on the particular employee's past
performance, has failed to perform suitably on the job.
    (c) In accordance with Federal Acquisition Regulation 52.222-
41(n), the contractor shall, not less than 10 days before completion
of this contract, furnish the Contracting Officer a certified list
of the names of all service employees working under this contract
and its subcontracts during the last month of contract performance.
The list shall also contain anniversary dates of employment of each
service employee under this contract and its predecessor contracts
either with the current or predecessor contractors or their
subcontractors. The Contracting Officer will provide the list to the
successor contractor, and the list shall be provided on request, to
employees or their representatives.
    (d) If it is determined, pursuant to regulations issued by the
Secretary of Labor (Secretary), 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 Executive Order 13495, the
regulations, and relevant orders of the Secretary, or as otherwise
provided by law.
    (e) In every subcontract entered into in order to perform
services under this contract, the contractor will include provisions
that ensure that each subcontractor will honor the requirements of
paragraphs (a) through (b) with respect to the employees of a
predecessor subcontractor or subcontractors working under this
contract, as well as of a predecessor contractor and its
subcontractors. The subcontract shall also include provisions to
ensure that the

[[Page 53762]]

subcontractor will provide the contractor with the information about
the employees of the subcontractor needed by the contractor to
comply with paragraph (c), above. The contractor will take such
action with respect to any such subcontract as may be directed by
the Secretary as a means of enforcing such 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 such litigation to protect the interests of the United States.
    (f)(1) The contractor shall, not less than 30 days before
completion of the contractor's performance of services on a
contract, furnish the Contracting Officer with a list of the names
of all service employees working under the contract and its
subcontracts at the time the list is submitted. The list shall also
contain anniversary dates of employment of each service employee
under the contract and its predecessor contracts with either the
current or predecessor contractors or their subcontractors. Where
changes to the workforce are made after the submission of the
certified list described in this paragraph (f) (1), the contractor
shall, in accordance with paragraph (c), not less than 10 days
before completion of the contractor's performance of services on a
contract, furnish the Contracting Officer with an updated certified
list of the names of all service employees employed within the last
month of contract performance. The updated list shall also contain
anniversary dates of employment and, where applicable, dates of
separation of each service employee under the contract and its
predecessor contracts with either the current or predecessor
contractors or their subcontractors. Only contractors experiencing a
change in their workforce between the 30- and 10-day periods will
have to submit a list in accordance with paragraph (c).
    (2) The Contracting Officer shall withhold or cause to be
withheld from the prime contractor under this or any other
Government contract with the same prime contractor such sums as an
authorized official of the Department of Labor requests, upon a
determination by the Administrator, the Administrative Law Judge, or
the Administrative Review Board that there has been a failure to
comply with the terms of this clause and that wages lost as a result
of the violations are due to employees or that other monetary relief
is appropriate. If the Contracting Officer or the Administrator,
upon final order of the Secretary, finds that the contractor has
failed to provide a list of the names of employees working under the
contract, the Contracting Officer may in his or her discretion, or
upon request by the Administrator, take such action as may be
necessary to cause the suspension of the payment of contract funds
until such time as the list is provided to the Contracting Officer.
    (g) The contractor and subcontractor shall maintain the
following records (regardless of format, e.g., paper or electronic,
provided the records meet the requirements and purposes of this
subpart and are fully accessible) of its compliance with this clause
for not less than a period of three years from the date the records
were created:
    (1) Copies of any written offers of employment or a
contemporaneous written record of any oral offers of employment,
including the date, location, and attendance roster of any employee
meeting(s) at which the offers were extended, a summary of each
meeting, a copy of any written notice that may have been
distributed, and the names of the employees from the predecessor
contract to whom an offer was made.
    (2) A copy of any record that forms the basis for any exclusion
or exemption claimed under this part.
    (3) A copy of the employee list provided to or received from the
contracting agency.
    (4) An entry on the pay records of the amount of any retroactive
payment of wages or compensation under the supervision of the
Administrator of the Wage and Hour Division to each employee, the
period covered by such payment, and the date of payment, and a copy
of any receipt form provided by or authorized by the Wage and Hour
Division. The contractor shall also deliver a copy of the receipt to
the employee and file the original, as evidence of payment by the
contractor and receipt by the employee, with the Administrator or an
authorized representative within 10 days after payment is made.
    (h) The contractor shall cooperate in any review or
investigation by the contracting agency or the Department of Labor
into possible violations of the provisions of this clause and shall
make records requested by such official(s) available for inspection,
copying, or transcription upon request.
    (i) Disputes concerning the requirements of this clause shall
not be subject to the general disputes clause of this contract. Such
disputes shall be resolved in accordance with the procedures of the
Department of Labor set forth in 29 CFR part 9. Disputes within the
meaning of this clause include disputes between or among any of the
following: the contractor, the contracting agency, the U.S.
Department of Labor, and the employees under the contract or its
predecessor contract.

Appendix B to Part 9--Notice to Service Contract Employees

    The contract for (insert type of service) services currently
performed by (insert name of predecessor contractor) has been
awarded to a new (successor) contractor (insert name of successor
contractor). The new contractor's first date of performance on the
contract will be (insert first date of successor contractor's
performance). If the work is to be performed at the same location,
the new contractor is generally required to offer employment to the
employees who worked on the contract during the last 30 days of the
current contract, except as follows:
    Employees who will not be laid off or discharged as a result of
the new contract award are not entitled to an offer of employment.
    Managerial, supervisory, or non-service employees on the current
contract are not entitled to an offer of employment.
    The new contractor may reduce the size of the current workforce;
therefore, only a portion of the existing workforce may receive
employment offers. However, the new contractor must offer employment
to the displaced employees for which they are qualified if any
openings occur during the first 90 days of performance on the new
contract.
    The new contractor may employ its current employee on the new
contract before offering employment to the existing contractor's
employees only if the new contractor's current employee has worked
for the new contractor for at least 3 months immediately preceding
the first date of performance on the new contract and would
otherwise face layoff or discharge if not employed under the new
contract.
    Where the new contractor has reason to believe, based on written
credible information from a knowledgeable source, that an employee's
job performance while working on the current contract has been
unsuitable, the employee is not entitled to an offer of employment
on the new contract.
    An employee hired to work under the current Federal service
contract and one or more nonfederal service contracts as part of a
single job is not entitled to an offer of employment on the new
contract, provided that the existing contractor did not deploy the
employee in a manner that was designed to avoid the purposes of this
part.
    Time limit to accept offer: If you are offered employment on the
new contract, you will have at least 10 days to accept the offer.
    Complaints: Any employee(s) or authorized employee
representative(s) of the predecessor contractor who believes that he
or she is entitled to an offer of employment with the new contractor
and who has not received an offer, may file a complaint, within 120
days from the first date of contract performance, with the Branch of
Government Contracts Enforcement, Wage and Hour Division, U.S.
Department of Labor, Washington, DC 20210.
    For additional information: 1-866-4US-WAGE (1-866-487-9243) TTY:
1-877-889-5627, http://www.wagehour.dol.gov.

[FR Doc. 2011-21261 Filed 8-26-11; 8:45 am]
BILLING CODE 4510-27-P