[Federal Register Volume 61, Number 208 (Friday, October 25, 1996)]
[Proposed Rules]
[Pages 55239-55247]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27402]


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DEPARTMENT OF LABOR

Office of the Secretary

29 CFR Part 4

RIN 1215-AA78


Service Contract Act; Labor Standards For Federal Service 
Contracts

AGENCY: Office of the Secretary, Labor.

ACTION: Proposed rule; notice of publication of regulatory impact 
analysis; request for comments.

-----------------------------------------------------------------------

SUMMARY: By notice of proposed rulemaking published in the Federal 
Register on May 2, 1996 (61 FR 19770), the Department of Labor (DOL or 
the Department) proposed alternative approaches for procedures to 
establish minimum health and welfare benefits requirements in the 
regulations issued under the McNamara-O'Hara Service Contract Act 
(SCA). As was explained in the proposed rule, it was not feasible to 
publish a regulatory impact analysis for comment with the proposed rule 
due to judicially imposed time constraints.
    In the meantime, the Department has developed data on the 
occupational mix of service contract employees in order to provide a 
basis for the impact analysis and to aid in the selection of the most 
appropriate methodology. The analysis has been completed and is now 
being published for comment. Comments may also be submitted on the 
various alternatives set forth previously for comment. Comments on this 
document will be reviewed together with comments submitted on the May 
2, 1996 proposed rule prior to promulgation of a final rule.

DATES: Comments are due on or before November 25, 1996.

ADDRESSES: Submit written comments to Maria Echaveste, Administrator, 
Wage and Hour Division, Employment Standards Administration, U.S. 
Department of Labor, Room S-3502, 200 Constitution Avenue, NW., 
Washington, DC 20210. Commenters who wish to receive notification of 
receipt of comments are requested to include a self-addressed, stamped 
post card, or to submit them by certified mail, return receipt 
requested. As a convenience to commenters, comments may be transmitted 
by facsimile (``FAX'') machine to (202) 219-5122 (this is not a toll-
free number). If transmitted by facsimile and a hard copy is also 
submitted by mail, please indicate on the hard copy that it is a 
duplicate copy of the facsimile transmission.

FOR FURTHER INFORMATION CONTACT: William Gross, Director, Division of 
Wage Determinations, Wage and Hour Division, Employment Standards 
Administration, U.S. Department of Labor, Room S-3506, 200 Constitution 
Avenue, NW., Washington, DC 20210; telephone (202) 219-8353. This is 
not a toll-free number.

SUPPLEMENTARY INFORMATION:

Survey of Occupational Employment Covered by the McNamara-O'Hara 
Service Contract Act; Health and Welfare Benefit Level Impact Analysis

Survey Description and Findings

Background
    The McNamara-O'Hara Service Contract Act of 1965 (SCA) requires 
that contracts over $2,500 (if the predecessor contract was not subject 
to a collective bargaining agreement) contain wage determinations 
issued by DOL that specify the minimum monetary wages and fringe 
benefits that must be paid to the various classes of workers who 
perform work on the service contract, based upon rates determined by 
DOL to be prevailing in the locality where the work is to be performed. 
However, because fringe benefit data are not generally available on an 
occupation-specific or locality basis, DOL has issued fringe benefit 
determinations for health and welfare based on nationwide data ever 
since SCA was enacted.
    Following a challenge by the Service Employees International Union 
(SEIU) to the methodology utilized by DOL to determine health and 
welfare benefits, the DOL's Board of Service Contract Appeals remanded 
the matter to the Wage and Hour Division to consider alternative 
methodologies for implementing the statutory objectives. Accordingly, 
the Administrator of the Wage and Hour Division, by Notice published in 
the Federal Register on May 2, 1996 (61 FR 19770), proposed for public 
comment various alternative methodologies.
    In the meantime, the Department has developed data to determine the 
occupational mix of service employees engaged in the performance of 
SCA-covered contracts. Based on data collected by the Federal 
Procurement Data System for Fiscal Year 1994, the Department has 
conducted a survey to obtain specific information on service contract 
employment by occupation within SIC industry classifications. The 
information collected provides a basis for the following estimates of 
the economic impact of the various proposed alternatives.
    In an action filed by the SEIU in the U.S. District Court for the 
District of Columbia, the court has set a deadline

[[Page 55240]]

for publication of the final rule of December 24, 1996. SEIU v. Reich, 
CA No. 91-0605 (August 27, 1996).
Purpose and Process
    In the Fall of 1995, the Wage and Hour Division of the Employment 
Standards Administration conducted a survey of occupational employment 
under the McNamara-O'Hara Service Contract Act (SCA). Primary 
objectives of the survey were to: (1) Assist in the development of a 
process to determine prevailing health and welfare benefit levels under 
the SCA; and (2) furnish data that may be useful in assessing the costs 
of various health and welfare benefit alternatives.
    The survey population consisted of almost 20,000 contracts, and 
includes all contracts identified as SCA-covered in the Federal 
Procurement Data System (FPDS) automated data base. These contracts 
represented $20.5 billion in procurement actions during FY 1994. The 
sample, which was selected by contract value within industry group, 
consisted of 7,084 contracts, awarded by 129 Federal agencies, and 
administered by 1,039 agency contracting offices. Contracts represented 
by the sample included 35 percent of the number of contracts in the 
population, and 63 percent of population contract value.
    With the assistance of designated Federal procurement agency Survey 
Coordinators, and procurement officers who were responsible for the 
contracts in the sample, 1,430 usable survey responses were received 
and processed. This represented a usable response rate of 20.2 percent. 
The usable response contained 7.2 percent of all contracts in the 
targeted population and 19.0 percent of population contract value.
    For additional information on the survey design, survey sample and 
population, the sampling technique utilized, use of the sample to 
estimate the population, and the data collection process and response 
rate, see the Technical Note, following the Impact Analysis.
Findings
    Employment by Occupation. Based upon the Wage and Hour Division 
survey of occupational employment under the SCA, there were 275,800 
full-time equivalent positions (FTEs) under the FPDS universe of 
contracts in FY 1994 . Utilizing survey data, estimated FTEs by broad 
occupational group are presented in Table 1, below.

      Table 1.--Estimate of Full-time Equivalent Positions by Broad     
                           Occupational Group                           
------------------------------------------------------------------------
                                                            Percent of  
             Group title                    Number             total    
------------------------------------------------------------------------
Professional, Specialty, & Technical  36,900              13.4          
Administrative Support/Clerical.....  48,300              17.5          
Precision Production, Craft, &        88,200              32.0          
 Repair.                                                                
Transportation & Material Moving....  11,200              4.1           
Handlers, Cleaners, Helpers, &        33,200              12.0          
 Laborers.                                                              
Service Workers.....................  58,000              21.0          
    Total, All Groups...............  275,800             100.0         
------------------------------------------------------------------------

    By far, the occupational group with the largest numbers of FTEs was 
Precision Production, Craft, and Repair occupations, representing 
almost one-third of total employment. The Service Worker group was next 
in order of significance, having over one-fifth of total employment. 
Three broad occupational groups each accounted for close to 15 percent 
of the FTE total: Administrative Support and Clerical occupations, 17.5 
percent; Professional, Specialty, and Technical occupations, 13.4 
percent; and Handlers, Cleaners, Helpers, and Laborers, 12.0 percent. 
The broad group with the fewest positions was Transportation and 
Material Moving occupations, 4.1 percent. The most frequently listed 
occupations, under each broad occupational group, are listed in order 
of employment, in Table 2, below.

Table 2.--Frequently Listed Occupations Within Broad Occupational Groups
                                                                        
                                    Administrative         Precision    
   Professional, Technical, &     Support & Clerical  Production, Craft,
        Specialty (13.4%)               (17.5%)         Repair (32.0%)  
Engineering Technician..........  General Clerk.....  Electronic Tech,  
                                                       Maintenance.     
Licensed Practical Nurse........  Secretary.........  Aircraft Mechanic.
Computer Programmer.............  Key Entry Operator  Telecommunication 
                                                       Mechanic.        
Instructor......................  Computer Operator.  Gen Maintenance   
                                                       Worker.          
Medical Lab Technician..........  Word Processor....  Maintenance       
                                                       Electrician.     
Systems Analyst.................  Accounting Clerk..  Maintenance       
                                                       Carpenter.       
Drafter.........................  Supply Technician.  Maintenance       
                                                       Painter.         
                                  Switchboard Op/     Maintenance       
                                   Receptionist.       Plumber.         
                                    ................  Heavy Equip       
                                                       Mechanic.        
                                    ................  Heating, Refrig, &
                                                       AC Mechn.        
                                    ................  Welder.           
                                    ................  Mach Maintenance  
                                                       Mechanic.        


------------------------------------------------------------------------
                                  Handlers/Cleaners/                    
 Transportation/Material Moving    Helpers/ Laborers    Service Workers 
             (4.1%)                     (12.0%)             (21.0%)     
------------------------------------------------------------------------
Truck Driver....................  Stock Clerk.......  Nursing Assistant.
Heavy Equipment Operator........  Laborer...........  Janitor.          
Forestry Equip Operator.........  Laborer Ground      Food Service      
                                   Maintenance.        Worker.          
Driver Messenger................  Housekeeping Aide.  Guard.            
                                  Tree Planter......  Court Security    
                                                       Officer.         
                                  ..................  Cook.             
                                  ..................  Dishwasher.       
------------------------------------------------------------------------

    Information by Industry. According to survey data, more than two-
thirds of all the contract FTEs were located in five broad industry 
groups: Engineering, Accounting, Research, Management, and Related 
Services; Business Services; Health Services; Miscellaneous Repair 
Services; and Electronic & Other Electrical Equipment & Components, 
Except Computer Equipment. Specific industries included under each of 
these groups are listed in Table 3, below.

[[Page 55241]]



 Table 3.--Frequently Listed Industries within Broad SIC Industry Groups
                                                                        
  Engineering, Accounting,                                              
  Research, Management, and     Business Services      Health Services  
      Related Services                                                  
Engineering, Architectural,   Computer              Hospitals.          
 & Surveying Services.         Programming, Data                        
                               Processing, & other                      
                               Computer Related                         
                               Services.                                
Research, Development, &      Miscellaneous         Doctor & Dentist    
 Testing Services/             Business Services/    Offices & Clinics. 
 Laboratories.                 Guard Services.                          
Management & Public           Services to           Medical & Dental    
 Relations Services/Base       Dwellings & other     Laboratories.      
 Maintenance.                  Buildings/Cleaning                       
                               & Maintenance.                           


------------------------------------------------------------------------
                               Electronic & other                       
    Miscellaneous Repair      Electrical Equipment                      
          Services            & Components, except                      
                               Computer Equipment                       
------------------------------------------------------------------------
Miscellaneous & Electrical    Communications                            
 Repair Shops.                 Equipment.                               
                              Electronic                                
                               Components &                             
                               Accessories.                             
                              Miscellaneous                             
                               Electrical                               
                               Equipment &                              
                               Supplies..                               
------------------------------------------------------------------------

    Also accounting for two percent or more of total FTEs were Eating 
and Drinking Places, Miscellaneous Services/Weather Forecasting, 
Transportation Equipment, Special Trade Contractors, and Forestry.

Health and Welfare Benefit Level Impact Analysis

Purpose and Process
    Utilizing the survey data described above, and other relevant 
information, cost estimates have been developed for each of eight 
alternative methods for determining health and welfare benefit levels 
under the McNamara-O'Hara Service Contract Act. These alternatives were 
published for comment in the Federal Register on May 2, 1996 (61 FR 
19769).
    The cost estimates provided apply to the almost 20,000 SCA-covered 
contracts reported to be active in FY 1994, by the Federal Procurement 
Data System of the General Services Administration. Where required, the 
number of full-time equivalent positions (FTEs) estimated through the 
use of survey data, less the estimate of FTEs whose wages and benefits 
are determined by collective bargaining agreements (CBAs), pursuant to 
Section 4(c) of the SCA, were utilized in the development of 
alternative cost estimates. (See Table 4, below.)

                        Table 4.--Estimate of FTEs by SCA Health & Welfare Benefit Level                        
----------------------------------------------------------------------------------------------------------------
                                       Contracts                                               Employment       
----------------------------------------------------------------------------------------------------------------
                                                               Percent of                Percent of    Average  
                     Type*                          Number       total         FTEs        total         FTEs   
----------------------------------------------------------------------------------------------------------------
Insurance......................................       16,129         80.7       94,048         34.1          5.8
Total Benefits.................................        2,858         14.3      117,215         42.5         41.0
4(c)...........................................          999          5.0       64,537         23.4         64.6
                                                ----------------------------------------------------------------
    All Types, Total...........................       19,986        100.0      275,800        100.0         13.8
----------------------------------------------------------------------------------------------------------------
* These levels are currently utilized for the issuance of SCA wage determinations. The ``Insurance'' level is   
  based upon the cost of life, accident, and health insurance for establishments employing less than 100        
  workers. The ``Total Benefits'' level is based upon the cost of insurance, retirement and savings, sick leave,
  other leave, and other benefits for establishments employing 100 or more workers. Assignment of health and    
  welfare benefit level was based upon wage determination information provided by survey respondents.           

Findings
    The eight alternative methods being considered to compute SCA 
health and welfare benefit levels are fully explained in 61 FR 19770, 
published May 2, 1996. Full understanding of the implications of the 
following impact analysis requires reference to that document. However, 
a statement of each alternative in summary follows:
    Alternative I: Issue a single benefit level based upon ECI data for 
workers in private industry.
    Alternative II-A: Issue a single benefit level for each of six 
major occupational groupings based on ECI data for all workers in each 
grouping in private industry.
    Alternative II-B: Issue a single benefit rate adjusted to reflect 
the difference between the BLS ECI occupational universe and the actual 
mix of comparable occupations on SCA-covered contracts.
    Alternative II-C: Issue two benefit levels, based on a combination 
of the occupational groupings: white collar and production occupations.
    Alternative III: Issue a single benefit rate for each of four 
geographic regions based on ECI data for all workers in private 
industry.
    Alternative IV: Issue a single fringe benefit rate (as a percent of 
wages) based on the relationship between the ECI all-private industry 
``total benefit'' rate and the ECI all private industry average wage 
rate.
    Alternative V-A: Issue two fringe benefit levels--``Insurance'' and 
``Total Benefits''--(see Table 5 note), based on BLS ECI size-of-
establishment data for all workers in private industry. Apply these 
levels based upon the nature of the contract; i.e., routine contracts 
receive the Insurance level and the Total Benefits level is provided 
for large base support contracts, solicitations based on OMB circular 
A-76, solicitations for highly technical services typically provided by 
large corporations, and other selected solicitations without regard to 
size of contract.
    Alternative V-B: Issue two fringe benefit levels, using the BLS ECI 
all

[[Page 55242]]

industry Total Benefits data for (1) establishments with fewer than 100 
workers and (2) establishments with 100 or more workers. Apply these 
levels based upon the employment size of respective contracts.
    These alternatives appear to offer a narrow range of annual health 
and welfare benefit costs for FTEs whose rates are not determined by 
collective bargaining agreement (CBA). The range computed is from 
$3,551.45 for Alternative V-A to $4,100.63 for Alternative II-A. This 
range of $549.18 is just 14.1 percent of the average cost of all eight 
alternatives, $3,908.74. (See Table 5, below.) Similarly, the total 
non-CBA estimated cost for all SCA-covered contracts included in the 
FPDS data base ranges from about $750 million (V-A) to $866 million 
(II-A). As discussed in the Technical Note below, the FPDS system 
contains the best available data for determining the SCA-covered 
universe. However, the data in the system understates the size of the 
SCA-covered universe. This is due to such factors as exclusion of most 
contracts under $25,000, exclusion of contracts of the U.S. Postal 
Service and the Air Force/Army Exchange System, and possible under-
reporting of SCA-covered contracts in the FPDS system, as well as 
possible errors in determinations as to whether contracts are covered 
by SCA.

  Table 5.--Estimation of Annual Costs Per FTE of Eight Alternative SCA 
                        Health & Welfare Methods                        
------------------------------------------------------------------------
                                                               Cost Per 
                    Alternative                      Rank*    FTE--1995 
                                                                 data   
------------------------------------------------------------------------
I. Single Benefit/ECI/Private Industry............        4    $3,931.20
II-A. Single Benefit/Six Occupational Groups......        8     4,100.63
II-B. Single Benefit/ Adjusted to Employment                            
 Composition......................................        7     4,097.60
II-C. White Collar & Production Workers...........        6     4,095.98
III. Single Rate/Four BLS Regions.................        2     3,676.73
IV. Single Benefit Rate As A Percent of Wages.....        3     3,872.67
V-A. Insurance & Total Benefits Rates/Based upon                        
 Size of Establishment/Applied by Nature of                             
 Contract.........................................        1     3,551.45
V-B. Total Benefits Rates/Based upon Size of                            
 Establishment/Applied by Employment Size of                            
 Contract.........................................        5     3,943.67
------------------------------------------------------------------------
* Rank, 1 to 8, is from least to most costly. Alternative V-A is the    
  current methodology. Current costs per FTE ($3,787.05) are based upon 
  the use of Alternative V-A and 1994 ECI data. Note that cost          
  differences between Alternatives II-A, II-B, and II-C, are due to     
  rounding.                                                             

    Based upon the use of survey data, Alternatives I, IV, and V-B, the 
first two utilizing single benefit ECI data, approximate the average 
alternative cost per FTE of about $3,909. Alternatives
II-A, II-B, and II-C, each of which is controlled by occupational 
criteria, appear to be higher cost options, at about $4,100. 
Alternatives V-A and III, determined by size-of-establishment and 
regional data, are relatively lower cost options, each falling below 
$3,700. Note that the relative costs by alternative may change over 
time as FTE distribution by industry and occupation changes. For 
example, if the distribution of FTEs by occupation were to change 
significantly, one would expect corresponding changes in Alternative-II 
costs.
    As noted in the notice of proposed rule making, 61 FR 19770, each 
alternative offers certain advantages and disadvantages. The cost 
estimates provided in Table 5 furnish additional information for use in 
considering how each alternative meets relevant evaluation criteria, 
such as statistical accuracy, enforceability, administrative 
feasibility for contractors and contracting agencies, and conformance 
with statutory requirements and intent.
    The notice of proposed rulemaking (60 FR 19770), fully discusses 
the advantages and disadvantages which the Department of Labor 
currently perceives in the various alternatives. Comments were 
solicited on a number of issues to assist in preparing a final 
regulatory impact analysis and in making a determination of the 
alternatives which should be selected, including in particular 
information regarding administrative and/or recordkeeping burdens; 
economic and budgetary impact from the point of view of service 
contractors, service employees and Federal procurement agencies; 
transitional difficulties if the rule departs from the current 
methodology; the nature of SCA-covered contracts and the fringe benefit 
practices typical of service contractors; and the effects on 
contracting activity and employment.
    Without input from the commenters the Department was unable to 
include in this analysis a discussion of the administrative costs to 
contractors and to the Government of the various alternatives. 
Presumably, all alternatives except Alternative V-A would involve the 
burden of changing fringe benefit programs because of increased or 
decreased fringe benefit levels. Several alternatives (II-A and -C, IV, 
and to lesser extent III) may require that employers either provide 
different fringe benefits to different employees in their work force or 
make up the difference in cash. Because of this issue, the Department 
also requested comments on the administrative feasibility and 
recordkeeping burden of the average cost approach, which would allow 
employers to average fringe benefits costs across the work force. These 
issues will be addressed more fully in the final rule, after review of 
the comments received.
    The Department lacks sufficient data to be able to quantify the 
benefits to the affected workers and to society of providing workers 
prevailing fringe benefits, or any indirect effects on jobs, 
productivity, or the Federal deficit. The Service Contract Act was 
enacted in order to protect service employees from the practices of 
contractors who undercut prevailing wages and benefits in order to be 
the low bidder on service contracts. These workers are especially 
vulnerable since wages and benefits are frequently the predominant cost 
of service contracts. With regard to fringe benefits in particular, the 
Department believes that most contractors provide workers benefits only 
at the level provided on the wage determination. Thus SCA permits 
workers to receive fringe benefits--including in particular health 
benefits--which might not otherwise be provided because of the pressure 
of being the low bidder on the Government contract.
    A preliminary regulatory flexibility analysis discussing the 
anticipated impact of the proposed rule on small businesses was also 
included in the notice of proposed rulemaking. In most respects the 
impact on small businesses will be the same as the impact on other 
businesses, although it is anticipated that any administrative 
difficulty may be greater for smaller firms. As discussed above, some 
alternatives appear to have greater administrative difficulty than 
others. It is anticipated that any impact could be mitigated by

[[Page 55243]]

the statutory authority for SCA-covered contractors to discharge their 
obligations to furnish prevailing fringe benefits by furnishing any 
equivalent combinations of fringe benefits or by making equivalent or 
differential payments in cash. Impact may also be minimized because (1) 
Such businesses with SCA-covered contracts are currently required to 
pay their employees prevailing fringe benefits; and (2) SCA contractors 
will continue to be reimbursed by the Federal procurement agencies for 
fringe benefit expenditures.
    Tables 6 through 9 provide many of the key statistics required to 
compute cost estimates for the eight alternative methodologies. 
Following these tables are detailed presentations of each methodology's 
data requirements and computations.

     Table 6.--Occupational Group ECI Total Benefit Rates & SCA FTE     
                              Distribution                              
------------------------------------------------------------------------
                                         1995 ECI rates                 
                                     ----------------------    SCA FTE  
         Occupational group             Total               distribution
                                       benefits    Wage*      (percent) 
------------------------------------------------------------------------
Professional, Specialty, & Technical      $3.03     $20.65         13.4 
Administrative Support/Clerical.....       1.87      10.47         17.5 
Precision Production/Craft/Repair...       2.71      14.72         32.0 
Transportation & Material Moving....       2.09      11.42          4.1 
Handlers/Cleaners/Helpers/ Laborers.       1.24       8.18         12.0 
Service Workers.....................       0.65       6.35         21.0 
------------------------------------------------------------------------
* Provided for information only.                                        


                Table 7.--ECI Total Benefits Rates, 1995                
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
All Private Industry...........................................    $1.89
SCA Occupational Distribution*.................................     1.97
White Collar...................................................     2.37
Production Worker..............................................     1.79
Northeast......................................................     2.30
South..........................................................     1.64
Midwest........................................................     1.83
West...........................................................     1.84
Estabs of 100 or more Workers..................................     2.42
Estabs 1-99 Workers............................................     1.29
------------------------------------------------------------------------
* Rate weighted by FTEs in 6 broad occupational groups. Utilized in     
  Alternative II-B.                                                     


                   Table 8.--ECI Wage & Salary Levels*                  
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
Private Industry...............................................   $12.25
SCA Weighted...................................................    12.09
------------------------------------------------------------------------
* Utilized in Alternative IV.                                           


              Table 9.--SCA Expenditures and FTEs by Region             
------------------------------------------------------------------------
                                Expenditures    Percent of   Estimate of
                                 (billions)       total       SCA FTEs *
------------------------------------------------------------------------
Northeast....................            2.0            9.9       20,919
South........................           11.9           58.6      123,822
Midwest......................            1.4            6.9       14,580
West.........................            5.0           24.6       51,980
------------------------------------------------------------------------
* Excludes workers under CBAs. Source: FPDS universe data.              

Alternative Data Requirements & Cost Computations

Alternative I:
    Single benefit level based upon ECI data for workers in private 
industry.

Data Requirements

------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
1995:                                                                   
    Sick leave.......................     0.14  ........................
    Other leave......................     0.05  ........................
    Insurance........................     1.15  ........................
    Retirement & savings.............     0.52  Hours=2,080/FTE.        
    Other benefits...................     0.03  ........................
                                          1.89  ........................
------------------------------------------------------------------------

Cost Computations

Cost per FTE=Hours Worked x Benefit Rate per Hour 
=2,080 x 1.89=$3,931.20
Alternative II-A
    Single benefit level for each of six major occupational groups.

Data Requirements

                                  ECI H&W Benefit Levels of Occupational Group                                  
----------------------------------------------------------------------------------------------------------------
                                                                Sick  Other              Retire                 
                      Occupational group                       leave  leave  Insurance     &       Other   Total
                                                                 *      *               savings  benefits       
----------------------------------------------------------------------------------------------------------------
Prof., spec., & tech.........................................   N.P.   N.P.     1.67      0.91      0.05    3.03
Adm. support/clerical........................................   N.P.   N.P.     1.22      0.42      0.02    1.87
Precision, prod./craft/repair................................   N.P.   N.P.     1.67      0.82      0.06    2.71
Trans. & material moving.....................................   N.P.   N.P.     1.31      0.65      0.01    2.09
Handlers, cleaners, & helpers................................   N.P.   N.P.     0.83      0.35      0.01    1.24

[[Page 55244]]

                                                                                                                
Service workers..............................................   N.P.   N.P.     0.45      0.11      0.01   0.65 
----------------------------------------------------------------------------------------------------------------
*Not publishable.                                                                                               


                    Survey Distribution of Employment                   
------------------------------------------------------------------------
                                  Percent                               
       Occupational group            of    Number of                    
                                   total      FTEs                      
------------------------------------------------------------------------
Professional....................    13.4      28,314  Hours = 2,080.    
Administrative..................    17.5      36,978  ..................
Precision.......................    32.0      67,616  ..................
Transportation..................     4.1       8,663  ..................
Handlers........................    12.0      25,356  ..................
Service.........................    21.0      44,373  ..................
------------------------------------------------------------------------

Cost Computations

    Cost per occupation=
    FTEs x Hours x Occupation H&W Rate:

Prof., Specialty, & Tech.--$28,314 x 2080 x $3.03=$178,446,154
Admin. Support & Clerical--$36,978 x 2080 x $1.87=$143,829,629
Precision Prod./Craft & Repair--$67,616 x 2080 x $2.71=$381,137,869
Transp. & Material Moving--$8,663 x 2080 x $2.09=$37,659,794
Handlers, Cleaners, Helpers & Laborers--
$25,356 x 2080 x $1.24=$65,398,195
Service Workers--$44,373 x 2080 x $0.65=$59,992,296
Sum=$866,463,937
Cost per FTE=Total Cost/211,300=$4,100.63
Alternative II-B
    Single benefit rate adjusted to employment composition of covered 
contracts.

Data Requirements

    FTEs by Occupational Group: See II-A Data requirements. ECI H & W 
benefit levels by Occupational Group: See II-A data requirements.

Cost Computations

    Total cost=FTEs for each Occupational Group x Corresponding H & W 
Rate; Sum and Divide by Total FTEs; Multiply Product by Total FTEs and 
then by Hours.

------------------------------------------------------------------------
                                                        H & W           
             Occupational group                FTE's     rate    Product
------------------------------------------------------------------------
Prof., spec., & technical...................   28,314     3.03    85,791
Admin. support/clerical.....................   36,978     1.87    69,149
Precision prod/craft/rep....................   67,616     2.71   183,239
Trans. & material movers....................    8,663     2.09    18,106
Handlers/cleaners/helpers/ laborers.........   25,356     1.24    31,441
Service workers.............................   44,373     0.65    28,842
    Sum.....................................                     416,568
------------------------------------------------------------------------

    416,568 divided by 211,300=1.97
    Cost per FTE=1.97 x 2080=$4,097.60
Alternative II-C
    Reconfigure II-A rates into two groups: white-collar and production 
occupation rates.

Data Requirements

    White Collar=Summation of Professional, Specialists, & Technical 
Grouping and Administrative Support/Clerical Grouping.
    Production=Summation of Precision, Transportation, Handler, and 
Service Groupings.

Cost Computations

    For each combined group, obtain a weighted rate as in II-B; 
multiply each combination rate by the FTEs included and the hours 
worked; then sum the costs for the two combination groups.

----------------------------------------------------------------------------------------------------------------
                               White collar                                    FTEs      H & W rate    Product  
----------------------------------------------------------------------------------------------------------------
Prof, Specialists And Technicians........................................       28,314         3.03       85,791
Admin. Support/Clerical..................................................       36,978         1.87       69,149
                                                                          -------------             ------------
      Sum................................................................       65,292  ...........      154,940
----------------------------------------------------------------------------------------------------------------

    Combined Rate=154,940 divided by 65,292 = 2.37.
    Cost=2.37x65,292x2080 = 321,863,443.

----------------------------------------------------------------------------------------------------------------
                            Production worker                                  FTEs      H & W rate    Product  
----------------------------------------------------------------------------------------------------------------
Precision Prod./Craft/Rep................................................       67,616         2.71      183,239
Transportation And Material Movers.......................................        8,663         2.09       18,106
Handlers/Cleaners/Helpers/ Laborers......................................       25,356         1.24       31,441
Service Workers..........................................................       44,373         0.65       28,842
      Sum................................................................      146,008  ...........      261,628
----------------------------------------------------------------------------------------------------------------

    Combined Rate=261,628/146,008 = 1.79.
    Cost=1.79x146,008x2080 = 543,616,986.
    Total Cost=321,863,443+543,616,986 = 865,480,429.
    Cost per FTE=865,480,429/211,300 = $4,095.98.

    Note: Alternative II-C also could be computed by weighting in 
accordance with the national incidence of the various occupational 
groups. No cost data are provided for this option.

[[Page 55245]]

Alternative III
    Single benefit rate for each of four Bureau of Labor Statistics 
regions.

                            Data Requirements                           
  [FPDS Distribution of SCA-Covered Contract Expenditures by Region *]  
------------------------------------------------------------------------
                                             Percent   Billion    FTEs  
------------------------------------------------------------------------
Northeast.................................       9.9      $2.0    20,919
South.....................................      58.6      11.9   123,822
Midwest...................................       6.9       1.4    14,580
West......................................      24.6       5.0    51,980
  Total...................................     100.0      20.3  211,301 
------------------------------------------------------------------------
*Based upon FPDS universe data.                                         


                                         H & W Benefit Levels by Region                                         
----------------------------------------------------------------------------------------------------------------
                                                                                           Other                
                                     Sick leave  Other leave   Insurance      R & S       benefits      Total   
----------------------------------------------------------------------------------------------------------------
Northeast.........................         0.19         0.07         1.39         0.62         0.03         2.30
South.............................         0.11         0.04         1.01         0.46         0.02         1.64
Midwest...........................         0.11         0.04         1.15         0.49         0.04         1.83
West..............................         0.15         0.04         1.11         0.51         0.03         1.84
----------------------------------------------------------------------------------------------------------------

Cost Computations

    Total Cost=For each Region, FTEs x H & W Rate x Hours, then Sum for 
Total Cost.
    Northeast-- 20,919x2.30x2080=100,076,496.
    South--123,822x1.64x2080=422,381,606.
    Midwest--14,580x1.83x2080=55,497,312.
    West--51,980x1.84x2080=198,937,856 Sum=776,893,270.
    Cost per FTE=776,893,270/211,300=$3,676.73.
Alternative IV
    Single fringe benefit rate as a percent of wages.

Data Requirements

    Single total benefits rate=$1.89 (See Alternative I)
    ECI Ave. Wage & Salary for 1995=$12.25
    ECI Ave. Wage & Salary weighted to SCA for 1995=$12.09

        ECI Average Wage Weighted to SCA Occupations Distribution       
------------------------------------------------------------------------
                                    (2)--ECI     (3)--SCA   (4)--Product
     (1)--Occupational group          rate        FTE's       (2) x (3) 
------------------------------------------------------------------------
Professional, specialty &                                               
 technical......................        20.65       28,314       584,684
Administrative support/clerical.        10.47       36,978       387,160
Precision production, craft &                                           
 repair.........................        14.72       67,616       995,308
Transportation & material movers        11.42        8,663        98,931
Handlers, cleaners, helpers, &                                          
 laborers.......................         8.18       25,356       207,412
Service workers.................         6.35       44,373       281,769
                                                   211,300     2,555,264
------------------------------------------------------------------------

    Average SCA Wage=2,555,264211,300=$12.09
    Total benefits level/Average wages and salaries: 
1.8912.25=15.4%

Cost Computations

    Cost per FTE=(Hours x Average SCA Wage) (15.4%)
    =(2080 x 12.09) (.154)
    =$3,872.67

    Note: This alternative may provide for application of the 15.4 
percent to each occupational group wage. However, for the purpose of 
this cost analysis, the 15.4 percent was applied to the all-
occupational group average wage.
Alternative V-A
    ``Insurance'' and ``Total Benefits'' levels based upon size-of-
establishment ECI data but applied according to the ``nature of the 
contract.''

Data Requirements

    Insurance level=Insurance for establishments of 1-99 workers=0.82
    Total benefits=Summation of Insurance, Sick Leave, Other Leave, 
Retirement and Savings, and Other Benefits for establishments of 100 
workers or more:

Ins..........................   1.45  FTEs by National Health and       
                                       Welfare Level:                   
SL...........................   0.17  ..................................
OL...........................   0.06  Insurance=94,048                  
R & S........................   0.69  ..................................
OB...........................   0.05  Total Benefits=117,215            
                                2.42  ..................................
                                                                        
Source: See Table 4.                                                    

Cost Computations

    Cost: For each level, multiply FTEs x Benefit Rate X Hours; then 
sum to obtain total costs.

Insurance Cost=FTEs  x  Benefit Rate  x  Hour
              =94,048  x  0.82  x  2080
              =160,408,269
Total Benefit Cost = FTEs  x  Benefit Rate  x  Hours
              =117,215  x  2.42  x  2080
              =590,013,424
Cost per FTE=(160,408,269+590,013,424)/211,300
              =$3,551.45

    Note: For comparison purposes, 1995 data are utilized. Actual 
Health and Welfare benefit levels for FY 1996 continue to utilize 
1994 ECI data.

    Comparable computations utilizing rates currently issued, based 
upon 1994 ECI data:

Insurance=94,048  x  0.90  x  2080 = 176,057,856
    Total Benefits=117,215  x  2.56  x  2080 = 624,146,432
    Cost per FTE=(176,057,856 + 624,146,432)/211,300
              =$3,787.05

[[Page 55246]]

Alternative V-B
    Total Benefit levels, based upon size of establishment data, 
applied by employment size of establishments.

Data Requirements

                             Total Benefits                             
------------------------------------------------------------------------
                                          Establishments  Establishments
                                              of 1-99     of 100 workers
                                              workers         or more   
------------------------------------------------------------------------
SL......................................            0.10                
OL......................................            0.03           $2.42
Ins.....................................            0.82                
R&S.....................................            0.33                
OB......................................            0.01                
                                                   $1.29                
------------------------------------------------------------------------

    FTEs for contracts not subject to Section 4(c) collective 
bargaining agreements, 1-99 workers and 100 workers or more:
     Distribution of employment for known 4(c) contracts by 
establishment size--1-99: 13.6%; 100 & over: 86.4%.
     Obtain distribution of employment for 4(c) contracts by 
establishment size by multiplying the above percents by 64,537.
     Subtract 4(c) employment for each establishment category 
from the corresponding employment total.
    100 & over: 169,084-55,760=113,324
    1-99: 106,746-8,777=97,969
    Compute percent distribution of non-4(c) contracts by establishment 
category:
    100 & over: 113,324--53.6%
    1-99: 97,969--46.4%
    Total: 211,293--100.0%

Cost Computations

    Cost = For each size group, FTEs  x  Corresponding Benefit Rate  x  
Hours
    Sum two size group totals:
    100 & over: 113,324 x 2.42 x 2080=570,427,686
    1-99: 97,969 x 1.29 x 2080=262,870,421
    Cost per FTE=(579,427,686 + 262,870,421)/211,300
    =$3,943.67

Technical Note

Survey Design
    Design of the survey benefited from guidance provided by 
representatives of the U.S. Army, the Bureau of Labor Statistics, the 
Office of Federal Procurement Policy, and the Federal Procurement Data 
System. In addition, a pilot test of the survey instruments and 
procedures was conducted with the assistance of the General Services 
Administration and the U.S. Air Force. Design of the survey's 
proportionate, systematic sampling, mailing of the survey materials, 
and data collection and processing were accomplished by the University 
of Tennessee, under contract to the Wage and Hour Division.
Sample and Population
    The most comprehensive universe of detailed information about 
contracts under the McNamara-O'Hara Service Contract Act is the Federal 
Procurement Data System (FPDS) operated by the General Services 
Administration. This automated system is routinely and continually 
updated by information provided by Federal procurement officers on the 
contracts they administer. While the FPDS represents a rich source of 
statistical information, it is recognized that this data base is not 
all-inclusive. For example, it does not contain data from the U.S. 
Postal Service, the Air Force/Army Exchange Service, and most contracts 
under $25,000. Therefore, since the Impact Analysis is based upon a 
sample drawn from the FPDS population, estimates made only represent 
the covered contracts included in the FPDS, and should not be 
considered as representing the universe of all covered contracts. For 
this reason, the focus of the Impact Analysis is on the relative 
differences among costs likely to be generated by each alternative 
listed. It should be noted that although contracts for which the 
required wages and fringe benefits were determined by collective 
bargaining agreements in accordance with Section 4(c) of the SCA were 
included in the universe and survey to determine contract employment, 
these contracts were excluded from the cost computations. Since fringe 
benefits on these contracts are not determined on the basis of 
prevailing fringe benefits, the cost of these contracts is not affected 
by the methodology selected.
Sample Selection
    Sample selection was proportional and systematic, by two-digit 
Standard Industrial Classification (SIC) Major Group. For example, 
assume that out of $20 billion in covered contracts, total contract 
value in SIC 01 was $100 million. A sample ratio of 0.005 (100,000,000/
20,000,000,000) is computed for SIC 01. If we further assume that the 
survey sample within the FPDS data base includes a total of 7,000 
covered contracts, then 7,000 X 0.005 or 35 would be the number of 
contracts selected for SIC 01. To randomly select the 35 contracts, 
first, the total number of FPDS contracts in SIC 01--further assumed to 
be 105--are arranged sequentially from most to least costly. One of the 
first three contracts is selected by chance, and then every third 
contract (105/35) is systematically selected.
Using Sample Data to Estimate the Population
    Population estimates were developed by computing the ratio of Full 
Time Equivalent positions (FTEs) by occupation to total contract value 
for each SIC Major Group; population estimates by occupation for all 
SICs were added together to compute occupational population estimates; 
and population estimates for all occupations were added together to 
provide industry totals, and the all industry sum.
    Continuing the above example, assume that six usable responses to 
the survey were received in SIC 01. Further assume that the employment 
data provided on the completed questionnaires revealed FTEs in six 
occupations. To obtain population estimates for employment in 
Occupation #1 for SIC 01, the total employment reported on the six 
questionnaires--8--is divided by the total contract value for the six 
contracts represented ($10,000,000). The resulting ratio--0.0000008--is 
then multiplied by the total contract value of all contracts in SIC 01 
in the FPDS population--$100,000,000. The product of this 
multiplication--80--is the population estimate for Occupation #1, SIC 
01. Like calculations for the other five occupations found in SIC 01 
would be completed to permit the estimation of the remaining population 
employment in SIC 01. Once these calculations are completed for all 
SICs and occupations, employment totals by occupation, industry, and 
total employment may be obtained.
    Note that the survey data were collected by occupational groupings 
and definitions contained in the Service Contract Act Directory Of 
Occupations, a resource tool utilized in the issuance of Service 
Contract Act wage determinations, and generally familiar to contractors 
with covered contracts. For those contractors not familiar with the 
Directory's standard job titles and definitions, copies were made 
available. Once the survey data were received and verified, the 
occupational entries were reclassified into the six Census groups for 
which health and welfare benefit information is available from the 
Bureau of Labor Statistics. FTEs represent the number of annual full-
time equivalents budgeted to the contract in FY 1994 from the obligated 
funds for each occupation listed. Since FTEs represent 2080 work hours 
per year, and sample data were collected and population estimates 
developed on this basis, and cost estimates developed reflect this 
definition.

[[Page 55247]]

Data Collection and Response Rate
    Collection of survey data was through a network of Federal 
Procurement Executives and Federal agency Data Collection Coordinators 
designated for this survey. Survey introductory materials were 
transmitted to the Federal Procurement Executives in September 1995. In 
October, all Data Collection Coordinators were provided with a 
comprehensive package of survey orientation materials. Later in 
October, and early November, agency procurement offices responsible for 
contracts selected for the sample were provided with survey 
questionnaires and materials. From December through March, Data 
Collection Coordinators were provided with their agency response rates 
and the list of contracts for which data were not yet received; an 
additional mailing was made to the Federal Procurement Executives; 
copies of the Service Contract Act Directory Of Occupations were 
provided on request; and data review and follow-up with submitting 
offices were carried-out.
    The survey usable response rate--20.2 percent--varied somewhat by 
industry and Federal agency. In general the highest response rates, 
weighted by value, were for those industries that account for the 
majority of covered employment. For example, for the four industries 
that account for over two-thirds of population contract value (SICs 87, 
73, 37, and 89), the sample contracts represented in the responses were 
valued at over $3.4 billion, or 39.7 percent of the total value in the 
sample for those industries, and averaged over $850 million per SIC 
(and not falling below $303 million). The responses therefore appear to 
be similar to the FPDS data in the universe by industry, providing a 
measure of external validity that appears to limit the potential for 
bias of the estimates obtained from the sample data. For this reason it 
is believed that the responses received follow the general industry 
framework and represent the best picture the Department was able to 
obtain of employment in the various industries that make up the SCA 
universe. The process whereby FTE/contract value ratios (by 
occupational group within industry group), once established, are 
applied to the population (not the sample) to estimate FTE totals (as 
explained more fully in ``Using Sample Data to Estimate the 
Population'', above), is another factor that would tend to limit the 
potential for bias caused by the low response rate. However, the low 
response rate does not allow for a reasonable measure of internal 
validity to be assigned to the sample data.

    Document Preparation: This document was prepared under the 
direction and control of Maria Echaveste, Administrator, Wage and 
Hour Division, Employment Standards Administration, U.S. Department 
of Labor.

List of Subjects in 29 CFR Part 4

    Administrative practice and procedures, Employee benefit plans, 
Government contracts, Investigations, Labor, Law enforcement, Minimum 
wages, Penalties, Recordkeeping requirements, Reporting requirements, 
Wages.

    Signed in Washington, DC, on this 21st day of October, 1996.
Maria Echaveste,
Administrator, Wage and Hour Division.
[FR Doc. 96-27402 Filed 10-24-96; 8:45 am]
BILLING CODE 4510-27-P