DATE: July 26, 2000

FROM: Barry McVay, CPCM

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

SOURCE: Federal Register; July 26, 2000, Vol. 65, No. 144, pages 45903 and 45943

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

ACTION: Final and Proposed Rules

SYNOPSIS: Today, the SCA was removed from the list of laws that do not apply to commercial subcontracts (see Federal Acquisition Regulation (FAR) 12.504, Applicability of Certain Laws to Subcontracts for the Acquisition of Commercial Items). However, DOL is proposing an SCA exemption for a more limited group of commercial service contracts and subcontracts. In addition, if the DOL proposal becomes final as it is currently proposed, a small group of commercial subcontracts that were previously exempt under the FAR rule and that also meet the requirements of DOL's proposed rule could change from exempt to nonexempt (during the processing of the proposed DOL rule) and back to exempt. To prevent the disruption this would cause, DOL is also issuing a final rule that temporarily exempts from the SCA those commercial subcontracts which meet the criteria of the proposed rule (in other words, the temporary exemption mirrors the proposed exemption). This final rule will remain in effect for one year or until DOL completes its rulemaking process, whichever occurs first.

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

For more on today's amendment of the FAR to remove the SCA from the list of inapplicable laws, see today's FEDERAL CONTRACT DISPATCH "Federal Acquisition Circular (FAC) 97-19, Miscellaneous Amendments."

DATES: The temporary final rule is effective August 25, 2000. Comments on the proposed rule must be submitted by August 25, 2000.

ADDRESSES: Submit comments to John R. Fraser, Deputy Administrator, Wage and Hour Division, Employment Standards Administration, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue, NW, Washington, DC 20210; fax: 202-693-1432.

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

SUPPLEMENTAL INFORMATION: The Federal Acquisition Streamlining Act of 1994 (FASA) (Public Law 103-355) required that the Federal Acquisition Regulation (FAR) include a list of laws that do not apply to subcontracts for commercial items. In 1995, the SCA was included on the list at FAR 12.504, Applicability of Certain Laws to Subcontracts for the Acquisition of Commercial Items.

Since then, the FAR Council and DOL (which administers the SCA), have concluded that it is not in the best interest of the government to retain the SCA on the list of laws that are inapplicable to all subcontracts for commercial items, and that any exemption from SCA coverage for commercial subcontracts should be authorized by the Secretary of Labor under his or her SCA authority. Therefore, today the SCA is removed from FAR 12.504 by Federal Acquisition Circular (FAC) 97-19.

However, on May 12, 1999, the Office of Federal Procurement Policy (OFPP) requested that DOL exempt a more limited group of commercial service contracts (both prime contracts and subcontracts) in which "the government is having difficulty acquiring or for which the government is getting limited competition, or where the government is unable to acquire the quality of services needed because commercial sources are reluctant to do business with the government, thereby causing impairment to government business", while avoiding the selection of services "where the government may be in a position to motivate the payment of less than prevailing wages by contractors striving to win Government contracts." DOL has reviewed the recommended services and concurs, so it is proposing that its regulations be revised to exempt the suggested services.

The proposed rule addresses two issues:

DOL expects it will take about six months to process this proposed rule through the review process and issue a final rule. However, all commercial subcontractors had been exempt from SCA coverage by FAR 12.504 until its removal today by FAC 97-19. To avoid the disruption that would be caused by this interregnum to the subcontractors in the proposed service industries that would be exempt if the proposed rule becomes final (exempt, then not exempt, then exempt again), DOL is issuing a temporary final rule that duplicates the proposed rule. This temporary final rule will be in effect for 12 months or until the final rule is issued, whichever occurs first, but will apply only to subcontracts (since the blanket SCA exemption never applied to contracts for commercial items).

The exemption is limited to those subcontracts that were or would have been exempt under the exemption removed from FAR 12.504 and would be exempt under the DOL proposed rule if it becomes final in its current form. For the exemption to apply, the subcontract must meet all of the requirements and must be for one of the specified services. Subcontracts for services that are not within the scope of the services specifically listed will not be exempt from coverage of SCA even though the subcontract meets all of the other requirements.

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

Copyright 2000 by Panoptic Enterprises. All Rights Reserved.

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