Nondisplacement of Qualified Workers: Beware Predecessor and Successor Service Contractors
On January 30, 2009, President Obama signed Executive Order (“E.O.”) 13495, “Nondisplacement of Qualified Workers Under Service Contracts.” E.O. 13495 requires service contractors to offer employment to the service employees of incumbent contractors on successor contracts. The government’s stated purpose behind the mandate is to promote “economy and efficiency” and reduce “disruption” to service delivery during periods of transition between predecessor and successor service contractors. On January 18, 2013, E.O. 13495 was implemented into regulation at FAR Subpart 22.12. Service contractors should be aware that this subpart imposes new, burdensome requirements on incumbent and successor service contractors and subcontractors. Moreover, the subpart is so lined with ambiguities and loopholes that its applicability is unclear. Service contractors should tread lightly when transitioning into new contracts.
FAR Subpart 22.12’s main requirement obligates successor service contractors to offer “service employees” employed under predecessor contracts “a right of first refusal of employment” when the successor contract is for “same or similar” services and at the “same location” as the predecessor contract.1 Successor contractors are required to flow down the “right of first refusal” obligation, among others, to their subcontractors.2 Contracts and subcontracts under the simplified acquisition threshold are exempted FAR Subpart 22.12.3 Moreover, successor contractors are not required to offer employment to predecessor service employees who work on both a Federal contract and a nonfederal contract as part of a single job.4
FAR Subpart 22.12 also places requirements on incumbent contractors. Among other things, predecessor contractors are required to provide the contracting officer a certified list of the names of all its service employees working under the contract not less than 30 days before contract completion.5
Ambiguities and Loopholes
Unfortunately, as implemented, the obligation to offer “right of first refusal” to predecessor service employees is riddled with ambiguities and loopholes, leaving service contractors wondering as to when the requirement will apply.6 For example:
- “Same Location”: The “right of first refusal” obligation applies only when the successor contract performance takes place at the “same location” as the predecessor contract. “Same location,” however, is not defined in the FAR or in Title 41 of the United States Code. As one commenter to the proposed rule noted, “same location” could mean “same building, base, city, country, command, or something else.”7
- “Same or similar service”: The “right of first refusal” obligation applies only when the successor contract is for the “same or similar service” as performed under the predecessor contract. A service is “same or similar” when it is “identical to or has one or more characteristics that are alike in substance to” that performed under the predecessor contract.8 This definition is open to interpretation, and can be interpreted to lead to broad applicability of the subpart. For example, would a successor contractor be required to hire a predecessor service employees when only one of dozens of services are similar between the successor and predecessor contracts?
- Non-Qualified Predecessor Service Employees: The successor contractor need not hire a predecessor service employee who the successor contractor “reasonably believes, based on the particular service employee’s past performance, has failed to perform suitably on the job.”9 The successor contractor, however, may have difficulty taking advantage of this exception, as it must offer “credible” evidence of poor performance, but has no right to the predecessor contractor’s employee performance evaluations.10
- Lay-Off of Successor Contractor Employees: The successor contractor may extend employment offers to its own service employees, as opposed to predecessor service employees, when its employees would “otherwise face lay-off or discharge” and have worked for the successor contractor for at least three months.11 The successor contractor, however, bears responsibility for showing that such employees would be terminated.
- Reduced Staffing: A successor contractor need not offer employment to all predecessor service employees when the successor contractor plans to employ fewer service employees than the predecessor contractor.12 The regulation is silent, however, as to which predecessor contract service employees will receive hiring priority.
Despite lack of clarity in its applicability, the subpart contains strong enforcement provisions. The subpart grants the Secretary of Labor (“SOL”) authority to require the successor contractor to offer employment and pay lost wages to predecessor employees.13 The contracting officer may suspend payment on a contract, in his or her discretion or at the request of the Administrator of the Wage and Hour Division, Department of Labor (“DOL”), for a predecessor contractor’s failure to provide a certified list of the names of all its service employees working under the contract.14 Moreover, the SOL may suspend or debar a contractor or subcontractor for up to three years for violations of 29 C.F.R. part 9, the DOL’s regulations implementing E.O. 13495. Finally, disputes arising out of compliance with FAR Subpart 22.12 are not subject to the Contract Disputes Act, as outlined in FAR Subpart 33.2 and the disputes clause at FAR 52.223-1. Rather, disputes are resolved in accordance with DOL procedures set forth at 29 C.F.R. part 9.
Whatever its intentions, E.O. 13495, as implemented, is confusing and burdensome, and service contractors should act carefully and make calculated decisions when taking over for incumbent contractors. McKenna Long & Aldridge attorneys will continue to monitor legislative and regulatory activities in this area.
1 See FAR 11.1202(a).
2 See FAR 52.222-17(l).
3 See FAR 22.1203-2(a)(1). Certain other contracts, such as those awarded under the AbilityOne Program, are also exempted. See FAR 22.1203-2(a)(2)-(4).
4 See FAR 22.1203-2(a)(5). In addition, the subpart has a waiver provision. The senior procurement executive of the procuring agency may also waive the provisions of FAR Subpart 22.12 when its application “would not serve the purposes” of E.O. 13495 or would “impair” the Federal Government’s ability to “procure services on an economical and efficient basis.” FAR 22.1203-3(a).
5 See FAR 22.1204(a).
6 This is reflected in the pages of comments on the rule from industry in the Federal Register. See Federal Acquisition Regulation; Nondisplacement of Qualified Workers Under Service Contracts, 77 Fed. Reg. 75766, 75767-74 (Dec. 21, 2012).
7 77 Fed. Reg. 75768.
8 See FAR 22.1202(a); 29 C.F.R. 9.2.
9 See FAR 22.1203-5(a)(2).
10 77 Fed. Reg. 75772.
11 See FAR 22.1203-5(b).
12 See FAR 22.1203-6.
13 See FAR 22.1206(a).
14 See FAR 22.1206(c).Print PDF