[Federal Register Volume 65, Number 144 (Wednesday, July 26, 2000)]
[Proposed Rules]
[Pages 45943-45952]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-18636]


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DEPARTMENT OF LABOR

Office of the Secretary

29 CFR Part 4

RIN 1215-AB26


Service Contract Act; Labor Standards for Federal Service 
Contracts

AGENCY: Wage and Hour Division, Employment Standards Administration, 
Labor.

ACTION: Proposed rule.

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SUMMARY: Pursuant to Section 4(b) of the McNamara-O'Hara Service 
Contract Act (SCA), the Department of Labor (DOL or the Department) is 
proposing exemptions from coverage for certain contracts for commercial 
services. The proposed exemptions were requested by the Administrator 
for Federal Procurement Policy, Office of Federal Procurement Policy 
(OFPP), in a May 12, 1999, letter to the Secretary of Labor 
representing that the requested exemptions were both necessary and 
proper in the public interest, and in accord with the remedial purpose 
of the SCA to protect prevailing labor standards.

DATES: Comments are due on or before August 25, 2000.

ADDRESSES: Submit written 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, N.W., Washington, DC 20210. Commenters who wish to receive 
notification of receipt of comments are requested to include a self-
addressed, stamped postcard, 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) 693-1432 (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 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, N.W., Washington, D.C. 20210; telephone (202) 693-0062. This is 
not a toll-free number.

SUPPLEMENTARY INFORMATION:

I. Paperwork Reduction Act

    This rule contains no reporting or recordkeeping requirements 
subject to the Paperwork Reduction Act of 1980 (Pub. L. 96-511). The 
existing information collection requirements contained in Regulations, 
29 CFR Part 4 were previously approved by the Office of Management and 
Budget under OMB control number 1215-0150.

II. Background

    On October 1, 1995, the Federal Acquisition Regulations were 
amended to implement provisions of the Federal Acquisition Streamlining 
Act (FASA). One provision of the final regulation, 48 CFR 
12.504(a)(10), provided that the requirements of the McNamara-O'Hara 
Service Contract Act (SCA) are not applicable to subcontracts at any 
tier for the acquisition of commercial items or services.
    After a subsequent review of the issue by the FAR Council the 
Administrator for Federal Procurement Policy wrote to the Secretary of 
Labor and requested that the Department propose an exemption for a more 
limited group of commercial service contracts (both prime contracts and 
subcontracts). The Administrator stated that the FAR Council had 
concluded that a blanket exemption of all subcontracts for commercial 
items may not adequately serve the Administration's policy of 
supporting exemptions of the SCA only where they do not undermine the 
purposes for which the SCA was enacted. Therefore the FAR Council 
agreed that any exemption from the coverage of SCA for subcontracts for 
the acquisition of commercial items or components should be 
accomplished under the Secretary of Labor's authority in the SCA, and 
stated that it would withdraw the FAR provision.
    The FAR Council indicated that the adoption of their 
recommendations will further the commitment of the Administration to be 
more commercial-like, encourage broader participation in government 
procurement by companies doing business in the commercial sector, and 
reinforce their commitment to reduce government-unique terms and 
conditions from their contracts. Furthermore, the FAR Council 
represented that the limited exemptions that it proposed could be 
accomplished without compromising the remedial purpose of the SCA to 
protect prevailing labor standards.
    The Department of Labor has reviewed the requested exemptions and 
the representations of the FAR Council and has concluded that a 
sufficient showing has been made to propose to

[[Page 45944]]

implement the exemptions requested by the FAR Council. Based on the 
representations, the Department has preliminarily determined that the 
exemption would meet the requirements of Section 4(b) of the Act that 
exemptions be necessary and proper in the public interest or to avoid 
serious impairment of Government business, and in accord with the 
remedial purpose of the SCA to protect prevailing labor standards. 
Comments are requested on this determination.
    Contemporaneously with publication of this NPRM in the Federal 
Register, the FAR Council is publishing a final rule removing the SCA 
from the list of laws inapplicable to subcontracts for commercial 
items, currently in the FAR at 48 CFR 12.504(a)(10). As a result, a 
small group of commercial subcontracts that were previously exempted 
under the FAR rule and that also meet the requirements of DOL's 
proposed rule could change from exempt to nonexempt and back to exempt 
if the DOL proposal becomes final as it is currently proposed. To 
prevent the disruption that could be caused by such changes, including 
the possible disruption of services if the current subcontractor does 
not agree to continue the subcontract services under the requirements 
of SCA, the Department has published a final rule in today's Federal 
Register, temporarily exempting from the SCA those commercial 
subcontracts which meet the criteria of this NPRM. This final rule will 
remain in effect for one year from today's date or until the Department 
completes its rulemaking on this NPRM, whichever occurs first. The 
Department notes that it intends to proceed expeditiously with this 
rulemaking and anticipates that a final rule, after review of all of 
the comments, will be issued within six months.

III. Summary of the Proposed Exemptions

    This proposal, as requested by the FAR Council, addresses two 
separate but somewhat related issues. First, the current exemption for 
the maintenance and repair of Automated Data Processing (ADP) 
equipment, 29 CFR 4.123(e)(1), is proposed to be modified to reflect 
terminology changes in law that have occurred since the exemption was 
originally established; broaden the exemption to cover information 
technology as currently defined; apply the exemption to installation 
services; and apply the exemption to subcontracts as well as prime 
contracts. Second, a new exemption is proposed, similar to the current 
ADP exemption, to exempt both prime contractors and subcontractors for 
a specified subset of commercial services that meet certain criteria.

Proposed Revision of the Current ADP Exemption

    The Clinger-Cohen Act of 1996, Divisions D and E of Pub. L. 104-
106, repealed the Brooks Automatic Data Processing Act, 40 U.S.C. 759, 
and set forth a new framework for the management and acquisition of 
information technology, replaced the ``ADP'' terminology originally in 
the Brooks ADP Act with ``information technology'' to reflect the 
convergence of ADP and telecommunications equipment and technology. See 
40 U.S.C. 1401 et seq. This proposal would reflect this change in the 
regulations.
    Further, as recommended by the FAR Council, the exemption would be 
updated to reflect the current statutory definition of ``information 
technology'' and be consistent with other regulations. As defined at 40 
U.S.C. 1401(3) and incorporated in the FAR, 48 CFR 2.101, the term 
``information technology,'' with respect to an executive agency, means 
``any equipment or interconnected system or subsystem of equipment that 
is used in the automatic acquisition, storage, manipulation, 
management, movement, control, display, switching, interchange, 
transmission, or reception of data or information.'' Under this 
definition, equipment is considered to be used by an executive agency 
if the agency uses the equipment directly or if the equipment is used 
by a contractor under a contract which requires the use of such 
equipment, or requires the use of such equipment to a significant 
extent in the performance of a service or the furnishing of a product. 
The term ``information technology'' does not include any equipment that 
is acquired by a contractor incidental to a contract; or any equipment 
that contains imbedded information technology that is used as an 
integral part of the product, but the principal function of which is 
not the acquisition, storage, manipulation, management, movement, 
control, display, switching, interchange, transmission, or reception of 
data or information. For example, HVAC (heating, ventilation, and air 
conditioning) equipment such as thermostats or temperature control 
devices and medical equipment where information technology is integral 
to its operation, is not information technology.
    This proposal would also add installation services to the current 
regulatory exemption where those services are not subject to the Davis-
Bacon Act, 40 U.S.C. 276a et seq. See 29 CFR 4.116(c)(2). Service 
contracts often involve installation of information technology (IT) 
equipment, for example installing and maintaining a local area network, 
or installing and maintaining new telephones or a telephone system. The 
same employees are performing installation as are performing 
maintenance and repair services. Thus, the same conditions that support 
the exemption for the maintenance services also support an exemption 
for installation services, and the addition of installation services 
will simply reflect what is happening in the market place.
    Finally, the current exemption would indicate that the exemption 
applies to subcontracts meeting the regulatory criteria as well as 
prime contracts. The Department requests comments on whether there is 
any reason that the exemption at the prime contract level should not 
apply equally to subcontracts which meet the criteria, as well as on 
the other proposed modifications to Sec. 4.123(e)(1). Because the prime 
contractor is responsible for compliance with all of the contract 
requirements, including the SCA, if the Department determines that the 
exemption has been incorrectly applied to a subcontract, the proposed 
regulation provides that it may require that SCA stipulations be 
included in the subcontract effective as of the date of contract award.

New Exemption for Certain Commercial Service Contracts

    In certain situations, an employee's work on a government contract 
represents a small portion of his or her time and the balance of the 
time is spent on commercial work. In such cases, the FAR Council 
represents that the Government loses the full benefits of competition 
for its service contracts because some contractors decline to compete 
for Government work due to specific government requirements. To remedy 
this situation, the FAR Council has recommended an exemption framework 
that it believes will protect prevailing labor standards and avoid the 
undercutting of such standards by contractors. The factual basis for 
the FAR Council's view that the proposed exemption is necessary and 
proper in the public interest or to avoid the serious impairment of 
Government business is set forth below. In addition, in order that the 
exemption comport with the statutory requirement that it be in accord 
with the remedial purposes of the Act to protect prevailing labor 
standards, the proposed regulation provides a number of criteria which 
must be satisfied. The rationale for these

[[Page 45945]]

criteria is also explained below. Comments are requested for each 
listed service as to whether the proposed exemption, given its criteria 
and limitations, is necessary and proper in the public interest or to 
avoid the serious impairment of Government business, and in accord with 
the remedial purpose of the SCA to protect prevailing labor standards.
    As recommended by the FAR Council, this proposal would exempt from 
SCA a short list of services, when the procurement for those services 
meets the criteria below. The recommended criteria are intended to 
limit the exemption to those procurements where the services being 
procured are such that it would be more efficient and practical for an 
offeror to perform the services with a workforce that is not primarily 
assigned to the performance of government work. Thus, contracts for 
base support services where the work is performed by an on-site 
dedicated workforce would not meet the exemption criteria, and 
contracts where the services have been performed by a dedicated group 
of federal employees (A-76 procurements) would be unlikely to meet the 
exemption criteria since the nature of the services would not meet the 
requirement that the workers perform only a small part of their time on 
the contract; however, it is possible that some subcontracts for a 
portion of those services might meet the criteria for exemption.
    The criteria are designed to ensure that the remedial purpose of 
the Act to protect prevailing labor standards is preserved. This would 
be accomplished in two ways. First, the proposed exemption would apply 
only when the contract award is not determined primarily upon the 
factor of cost. Therefore, the contractor providing the best service at 
a somewhat higher or lower cost would not be at a competitive 
disadvantage. Second, the criteria would limit the application of the 
exemption to circumstances where the nature of the procurement dictates 
that the most efficient and practical performance of the workload can 
be accomplished with a workforce that is not dedicated to working 
primarily on the Government contract. Thus, the competitive pressures 
upon employee wages that might exist if the services were performed by 
a workforce dedicated to the Government contract would not come into 
play on the contracts within the scope of the recommended exemption. 
Furthermore, even if a contractor might be inclined to reduce wages to 
secure the Government contract, the criteria would forbid that 
practice.
    Under this proposal, the following criteria for the new exemption 
would be applied to a short list of services. The exemption would apply 
only if the services under the contract or subcontract meet all of the 
criteria. The Department seeks comments regarding whether these 
criteria are appropriate to protect prevailing labor standards.
    (1) The services under the contract are commercial--i.e., they are 
offered and sold regularly to non-Governmental customers, and are 
provided by the contractor (or subcontractor in the case of an exempt 
subcontract) to the general public in substantial quantities in the 
course of normal business operations.
    The basic underlying purpose of the proposed exemption is to permit 
a prospective contractor to utilize its commercial compensation 
practices for both Government and private commercial work. If the 
prospective contractor does not currently perform the solicited 
services, then conforming to the SCA requirements would not cause the 
contractor to alter its commercial compensation practices.
    (2) The prime contract or subcontract will be awarded on a sole 
source basis or the contractor will be selected for award on the basis 
of other factors in addition to price. In such cases, price must be 
equal to or less important than the combination of other non-price or 
cost factors in selecting the contractor.
    One of the basic purposes of the Service Contract Act is to 
counteract the negative impact that competition based on price alone 
may have upon wages. If a contract is awarded on a sole source basis, 
there is no competition and price is clearly not the basis for awarding 
the contract.
    For the majority of other contracts that are competitively awarded, 
this criterion would attempt to largely remove wages from consideration 
by making quality of service and other non-cost factors equal to or 
more important than the bottom line price. If one assumes that the best 
employees (contractors) are paid (pay) higher wages, then this 
criterion would allow these employees (contractors) to compete on the 
basis of the employees' increased productivity and higher quality 
service. These employees/contractors should not be disadvantaged even 
though the employee wages and possibly the resulting contract price are 
somewhat higher than the lowest offer.
    (3) The prime contract or subcontract services are furnished at 
prices which are, or are based on, established catalog or market 
prices. An established price is a price included in a catalog, price 
list, schedule, or other form that is regularly maintained by the 
contractor, is either published or otherwise available for inspection 
by customers, and states prices at which sales are currently, or were 
last, made to a significant number of buyers constituting the general 
public. An established market price is a current price, established in 
the usual course of trade between buyers and sellers free to bargain, 
which can be substantiated from sources independent of the manufacturer 
or contractor. Normally, market price information is taken from 
independent market reports, but market price could be established by 
surveying the firms in a particular industry or market.
    This criterion ensures that the contractor will provide the 
services to the Government on the same basis that the contractor 
services commercial accounts. Combined with the other criteria, this 
requirement should ensure that contractors do not decrease employee 
compensation as a part of the competitive contracting process.
    (4) All of the service employees who will perform the services 
under the Government contract or subcontract spend only a small portion 
of their time (a monthly average of less than 20 percent of the 
available hours on an annualized basis, or less than 20 percent of 
available hours during the contract period if the contract period is 
less than a month) servicing the Government contract.
    If the employees spend only a small portion of their available work 
hours on the Government contract, the contractor would not likely be 
willing to alter its compensation practices simply to obtain the 
Government contract. (Note: Criterion 5 would also specifically 
preclude any such change in compensation practices.) Furthermore, the 
criteria for exemption will not be satisfied by rotating the workforce 
and having different employees work on the contract each day of the 
week. In the Department's experience it would be extraordinary for a 
contractor to staff a contract in this manner. Therefore in such a 
case, although each individual employee would spend less than 20% of 
his/her work hours on the Government contract, a contracting officer or 
prime contractor (in the case of a subcontract) could not certify--as 
required by Criterion 6--that all or nearly all offerors would staff 
the contract with service employees who spend only a small portion of 
their time on the project.
    (5) The contractor utilizes the same compensation (wage and fringe 
benefits) plan for all service employees performing work under the 
contract or subcontract as the contractor uses for these employees and 
for equivalent

[[Page 45946]]

employees servicing commercial customers.
    This criterion ensures that the employees servicing the government 
contract will be compensated exactly as they would be if they were 
servicing a commercial account. Thus, the prevailing labor standards 
for private work would not be impacted in any way by the award of the 
Government contract. Furthermore, because contract award is not 
determined primarily on the basis of cost (Criterion 2), the contractor 
paying the lowest wages will not have a competitive advantage over 
other employers who pay average or above average wages. These 
contractors will compete for the Government work on the same basis that 
they compete for private work: quality of service and overall value.
    (6) The contracting officer (or prime contractor with respect to a 
subcontract) determines in advance, based on the nature of the contract 
requirements and knowledge of the practices of likely offerors, that 
all or nearly all offerors will meet the above requirements. If the 
services are currently being performed under contract, the contracting 
officer or prime contractor shall consider the practices of the 
existing contractor in making a determination regarding the above 
requirements.
    This requirement is designed to ensure that all contractors compete 
on an equal basis, and eliminate the possibility that a contractor 
subject to SCA would be forced to compete against a contractor that 
would be exempt from SCA. Furthermore, as noted in the discussion of 
Criterion 4, this requirement, which takes into consideration not only 
the practices of likely offerors but also the nature of the contract 
requirements, is a necessary safeguard to prevent individual offerors 
from juggling staffing patterns simply in an effort to avoid SCA 
coverage. This criterion also serves to protect those employees (either 
contractor or Federal employees) who might currently be engaged in 
performing the solicited services on a full-time basis.
    (7) The exempted contractor or subcontractor certifies in the 
contract to the provisions in paragraphs (1), and (3) through (5). The 
contracting officer or prime contractor, as appropriate, shall review 
available information concerning the contractor or subcontractor and 
the manner in which the contract will be performed. If the contracting 
officer or prime contractor has reason to doubt the validity of the 
certification, SCA stipulations shall be included in the contract or 
subcontract.
    This criterion provides a mechanism for addressing and correcting 
situations where the exemption may have been misapplied. (It is not 
anticipated that the contracting officer or prime contractor will do a 
complete investigation into the application of the exemption to the 
contractor, but rather will do a review based on known information 
regarding the contractor or subcontractor, including information 
submitted in the solicitation process.) Furthermore, if the Department 
of Labor, in its enforcement, determines that the contract is not in 
fact exempt, it shall require that SCA stipulations be included in the 
contract. In the case of a subcontract, the prime contractor, who in 
almost all cases will have SCA stipulations included in its contract, 
will be ultimately responsible for compliance with the requirements of 
the Act. The Department may therefore require that the SCA requirements 
be effective as of the date of contract award. The Department notes 
that an exempt contractor or subcontractor is not required to keep any 
particular records to meet its burden of showing that the criteria are 
satisfied.
    The FAR Council has recommended that these criteria be applied only 
to a small group of commercial services which it believes would 
constitute the overwhelming majority of cases meeting the above 
criteria for the proposed exemption. The FAR Council and the Department 
of Labor agree that it is appropriate to consider comments not only 
regarding the services for which the exemption is being proposed, but 
also for any additional services that commenters believe should be 
added to the list. If sufficient justification is received for adding 
any additional services to the list, the Department of Labor will issue 
a proposal to add the new service. If the proposed rule is adopted in 
whole or in part, the final rule will not apply to any service for 
which the opportunity for public comment was not provided.
    As recommended by the FAR Council, the proposed exemption would not 
be applied to any contract entered into under the Javits-Wagner-O'Day 
Act, or to any contract subject to the provisions of Section 4(c) of 
SCA. Furthermore, contracts for operation of a Government facility or a 
portion thereof would not meet the required criteria, and are also 
excluded from the proposed exemption; however, it is possible that some 
subcontracts under such procurements would be for the listed services, 
and would fall within the scope of the proposed exemption, provided all 
the criteria are met.
    In selecting the services to which it believed the new exemption 
should apply, the FAR Council focused on services 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. The FAR Council stated that it avoided selecting 
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. The Department agrees that it is appropriate to 
propose to exempt such a limited group of services.
    For each of the services included on the list of services to which 
the new exception would apply, the type of services covered is 
explained and the difficulties which the FAR Council stated have been 
encountered in procuring the services are cited.
    Automatic data processing and telecommunications services.
    For several years the Department of Labor regulations implementing 
the Service Contract Act have contained an exemption for contracts 
principally for the maintenance, calibration and/or repair of (1) 
automated data processing and office information/word processing 
systems; (2) scientific equipment and medical apparatus or equipment of 
microelectronic circuitry or other technology of at least similar 
sophistication; and (3) office/business machines not otherwise exempt 
where services are performed by the manufacturer or supplier of the 
equipment. In short, the current exemption applies exclusively to 
hardware maintenance when certain criteria are met. In addition to the 
recommendation that the current ADP exemption be expanded to include 
installation services as well as hardware maintenance, the FAR Council 
has recommended that an exemption for software and other ADP support 
services be considered in conjunction with the criteria listed above.
    Provided the specified criteria are met, the proposed new exemption 
would cover a broader range of automatic data processing and 
telecommunications services including: ADP facility operation and 
maintenance services provided at the contractor's facility, ADP 
telecommunications and transmission services, ADP teleprocessing and 
timesharing services, ADP systems analysis services, information and 
data broadcasting or data distribution services, ADP backup and 
security services, ADP data conversion services, computer aided

[[Page 45947]]

design/computer aided manufacturing (CAD/CAM) services, digitizing 
services (including cartographic and geographic information), 
telecommunications network management services, automated news 
services, data services or other information services (e.g., buying 
data, the electronic equivalent of books, periodicals, newspapers, 
etc.) and data storage on tapes, compact disks, etc. As recommended by 
the FAR Council, however, the new exemption would not apply to ADP data 
entry services or ADP optical scanning services.
    The FAR Council explains that in this information age, the Federal 
Government is contracting for more and more information technology (IT) 
services. This is driven by the need to maximize the use of technology 
to improve the efficiency and effectiveness of agency performance. 
However, increasingly the Government is less of a player in the IT 
marketplace in terms of market share (less than 3%). IT providers have 
an abundance of work in an industry with a tight labor market. IT 
providers are often reluctant or unwilling to deal with Government 
unique requirements such as the Service Contract Act when they have an 
abundance of work available and are experiencing difficulty keeping 
pace with their commercial work.
    The FAR Council states that unless the Federal Government can more 
closely align the Government's contracting practices and requirements 
with commercial practice, it will not be able to generate enough 
interest to permit the Federal Government to take full advantage of the 
opportunities to use information technology and to obtain the requisite 
quality of services needed to satisfy critical agency mission needs.
    Automobile or other vehicle (e.g., aircraft) maintenance services 
(other than contracts to operate a Government motor pool or similar 
facility).
    Federal agencies that maintain a fleet of automobiles have a need 
for services such as normal maintenance (e.g., changing oil and 
filters, rotating tires, etc.), mechanical repairs, paint and body 
work, glass replacement, and other repairs needed to maintain the 
automobile or other vehicle. Unless the agency has a dedicated 
Government facility for such work, it is contracted out to commercial 
firms.
    The FAR Council states that the General Services Administration 
(GSA), which is responsible for providing Interagency Fleet Management 
Services, has been unsuccessful in contracting for these services 
because of the unwillingness of commercial sources to deal with 
Government unique requirements such as the Service Contract Act for the 
small amount of Government work involved. As a result, GSA and other 
agencies often acquire these services on an as needed basis using 
micro-purchase procedures and the Government Purchase Card.
    The FAR Council states that unless GSA and other agencies can more 
closely align the Government's contracting practices and requirements 
with commercial practice, it will not be able to generate enough 
interest or business to permit the Federal Government to take advantage 
of the quality improvements and lower prices that will likely result 
from establishing contractual relationships with commercial service 
centers. While the individual transactions are small (typically under 
$2,500), the aggregate volume and dollar value of transactions across 
the nation is substantial. The real benefit for the Federal Government 
of a contractual relationship is the lower prices it can negotiate for 
parts and supplies used to service vehicles if it is able to contract 
for services rather than treat each transaction individually. 
Additionally, the Federal Government can expect to receive better 
service because it will be viewed as a ``corporate'' customer who gives 
its business to a particular contractor(s) in a certain location. The 
FAR Council states that an exemption is necessary to permit the 
Government to enhance the quality of service while reducing its cost 
through leveraging the Federal Government's collective buying power.
    For example, the Department of Interior's Office of Aircraft 
Services in Boise, ID, contracts for maintenance of about 100 of its 
own aircraft and also provides contract support for other agencies such 
as the U.S. Forest Service. The Office of Aircraft Services reports 
that it has about a dozen contracts at various locations around the 
country. These are commercial services procured from commercial sources 
where the maintenance of Government aircraft is performed alongside 
regular non-government aircraft. Contractors' work is predominantly 
non-government. Some commercial contractors have refused to do work for 
the Government because of concerns with the SCA requirements. The 
result has been limited competition for such contracts.
    Financial services involving the issuance and servicing of cards 
(including credit cards, debit cards, purchase cards, smart cards, and 
similar card services).
    Increasingly, the Government is contracting for and using the 
services of financial institutions that provide credit, debit, or 
purchase cards. These cards are used by Federal employees while 
traveling or to make small purchases for commercial items to meet the 
day-to-day needs of their organizations. The providers of these 
services use the financial networks of firms like VISA, MASTERCARD, and 
American Express to provide the services. While the Federal 
Government's use of these services is significant, it represents a 
small fraction of the transactions that flow through the financial 
infrastructure. Transactions flowing through the networks are processed 
in the same fashion and by the same workforce regardless of the 
ultimate user of the cards. As a result, the FAR Council states that it 
is very difficult to get competition for these services when the 
Federal Government imposes unique requirements on the contractors. They 
state that contractors will not change their way of doing business to 
accommodate a customer that represents a small portion of their 
business; it is impossible for them to segregate what is done for the 
Federal Government from commercial activity.
    Lodging at hotels/motels and contracts with hotels/motels for 
conferences, including lodging and/or meals, which are part of the 
contract for the conference.
    Agencies of the Federal Government often contract with hotels/
motels for meeting rooms for conferences of limited duration (e.g., one 
to five days). These contracts may be for conferences where attendance 
is limited to Government employees or may involve attendance by other 
organizations and/or the public. These contracts may also involve 
furnishing lodging and meals to those participating in the conference.
    In other cases, agencies establish contractual arrangements with 
hotels/motels to obtain special rates for lodging when the agency has a 
large number of employees that frequently travel to a particular 
location. The hotel/motel agrees to special reduced rates in exchange 
for being designated a preferred provider for the agency travelers to 
that city/location.
    In both of these cases, the FAR Council states that hotels/motels 
are unwilling to agree to contract with the Government when it would 
mean they would have to pay different rates to employees as a result of 
a Service Contract Act wage determination or would have to keep 
special/different payroll or other records. Typically these contracts 
are for relatively small dollar amounts (less than $25,000). The FAR 
Council states that this severely limits the Governments ability to 
contract for these services when needed.

[[Page 45948]]

    Maintenance services for all types of specialized building or 
facility equipment such as elevators, escalators, temperature control 
systems, security systems, smoke and/or heat detection equipment, etc.
    Agencies that operate and maintain Government owned and/or operated 
buildings often contract for operation and maintenance of the building 
or facility and the prime contractor will then typically subcontract 
for services related to specialized equipment. In other cases, the 
Government will contract directly for the maintenance and servicing of 
such equipment. In either case, the FAR Council reports that it is very 
difficult to acquire the quality of service needed from contractors who 
are not authorized representatives of the manufacturer and therefore do 
not have access to parts needed for repairs and training that is 
essentially only available from the original equipment manufacturer. 
While there may be other contractors who indicate they have the 
capability to provide the service, experience often shows that the 
quality of service obtained from such sources is not satisfactory.
    The FAR Council states that the Government, as a result of the 
reluctance of some of the best contractors to accept Government unique 
requirements such as those related to the Service Contract Act, is 
deprived of the opportunity to improve the quality of service for the 
maintenance and servicing of critical building equipment and systems.
    Installation, maintenance, calibration or repair services for all 
types of equipment where services are obtained from the equipment 
manufacturer or supplier of the equipment.
    Agencies acquire a wide range of equipment and often have a need to 
acquire services to install, maintain, calibrate, service or repair the 
equipment from the manufacturer or original supplier in order to avoid 
compromising a warranty or because proprietary information needed to 
perform the work is only available from the manufacturer, an authorized 
representative of the manufacturer or the supplier of the equipment. 
Typically, these contracts involve sophisticated equipment that 
requires access to proprietary information or requires employees 
involved in performing the work to have extensive training that is 
often only available through the manufacturer or equipment supplier. In 
such cases, the Government's need to contract with a particular source 
or a limited number of sources must be properly justified and approved, 
if applicable, under the statutory competition requirements outlined in 
48 CFR Part 6 of the Federal Acquisition Regulation. Examples of the 
type of equipment include automated building control systems, HVAC 
equipment, building security systems, and elevators or escalators.
    The FAR Council reports that in many of these cases, the Government 
has limited leverage to negotiate with the contractor to accept 
Government unique requirements such as those related to the Service 
Contract Act and has had great difficulty obtaining services from 
commercial sources who are unwilling to accommodate such requirements.
    Transportation of persons by air, motor vehicle, rail, or marine on 
regularly scheduled routes or via standard commercial services (not 
including charter services).
    The General Services Administration (GSA) enters into contracts 
with airlines called ``City Pairs'' so that Federal employees traveling 
on Government business can get discount air fares. Under these 
contracts, Federal employees typically obtain tickets through travel 
management contracts awarded by GSA or other agencies and the Federal 
employee travels on regularly scheduled routes of commercial airlines 
but receive tickets at a substantial discount. While the Federal 
Government's use of these services is significant, it represents a 
small fraction of the transactions that flow through the airlines. 
Tickets that are issued to Federal travelers flow through the same 
networks and are processed in the same fashion as other travelers. As a 
result, the FAR Council reports that it is very difficult to get 
competition for these services if the Federal Government imposes unique 
requirements like those in the Service Contract Act on the contractors. 
The airlines will not change their way of doing business to accommodate 
a customer that represents a small portion of their business. It is 
impossible for them to segregate what is done for the Federal 
Government from commercial activity. The Federal Government also enters 
into similar contracts for the carriage of passengers by other modes of 
transportation.
    Real estate services, including real property appraisal services, 
related to housing federal agencies or disposing of real property owned 
by the Federal Government.
    Federal agencies involved in acquiring and disposing of real 
property often contract for real estate services, including lease 
acquisition, real property appraisal, broker, space planning, lease re-
negotiation, tax abatement, and real property disposal services. The 
primary classes of workers that are involved in performing the work are 
appraisers, leasing specialists, brokers, space planners, interior 
designers, fire safety engineers, and project managers. In many cases, 
the employees are required by contracts with the Government to be 
licensed. In many cases, the Department of Labor has not established 
wage determinations that apply to these classes of workers.
    The individual requirements are typically relatively low dollar 
value (under $25,000) and require that services be performed in a 
variety of different geographic locations. Knowledge of the local real 
estate market is required to effectively perform the services. 
Therefore, individual employees, particularly in rural areas, spend 
only a small fraction of their time working on Government contracts.
    While the Federal Government's use of these services is 
significant, it represents a small fraction of the transactions that 
flow through the industry/commercial sources. As a result, the FAR 
Council reports that it is very difficult to get competition for these 
services where the Federal Government imposes unique requirements like 
those in the Service Contract Act on the contractors. The contractors 
will not change their way of doing business to accommodate a customer 
that represents a small portion of their business. The FAR Council 
states that as the Government continues to downsize, it must rely more 
and more on commercial sources for these services and it is critical 
that the Federal Government has access to well-qualified sources of 
supply for these types of services.
    Relocation services, including services of real estate brokers and 
appraisers, to assist federal employees or military personnel in buying 
and selling homes.
    Employee relocation services are available for Federal employees or 
military personnel and their families being transferred to new duty 
stations anywhere within the continental United States and Puerto Rico. 
These contracts offer a multitude of flexible services to customize a 
solution that best meets the employee's needs. The contracts save time 
and money and reduce stress by offering Federal employees and military 
these services: home marketing assistance, home sales services, 
destination area services, management reporting services, mortgage 
counseling, property management services, and other related services.
    The individual requirements are typically relatively low dollar 
value (under $25,000) and require that

[[Page 45949]]

services be performed in a variety of different geographic locations. 
Knowledge of the local real estate market is required to effectively 
perform the services. Therefore, individual employees, particularly in 
rural areas, spend a fraction of their time working on Government 
contracts.
    While the Federal Government's use of these services is 
significant, the FAR Council states that it represents a small fraction 
of the transactions that flow through the industry/commercial sources. 
As a result, it is very difficult to get competition for these services 
if the Federal Government imposes unique requirements like those in the 
Service Contract Act on the contractors. The contractors will not 
change their way of doing business to accommodate a customer that 
represents a small portion of their business. The FAR Council states 
that it is in the Government's interest to maximize the availability of 
these services to its personnel; accordingly it is detrimental to the 
Government's interests when it is unable to attract commercial sources 
as providers of these services

IV. Regulatory Flexibility Act

    Under the Regulatory Flexibility Act, Public Law 96-354 (94 Stat. 
1164; 5 U.S.C. 601 et. seq.), Federal Agencies are required to prepare 
and make available for public comment and initial regulatory 
flexibility analysis that describes the anticipated impact of proposed 
rules on small entities. The Department has prepared the following 
Regulatory Flexibility Analysis regarding this rule.

(1) Reasons Why Action Is Being Considered

    The current proposal is made at the request of the Administrator 
for Federal Procurement Policy, OFPP, in her letter of May 12, 1999. 
The Administrator, on behalf of the FAR Council, stated that the 
proposed exemption ``will further the commitment of the Administration 
to be more commercial-like, encourage broader participation in 
government procurement by companies doing business in the commercial 
sector, and reinforce our commitment to reduce government-unique terms 
and conditions from our contracts. We believe that all of this can be 
accomplished without compromising the purpose of the SCA to protect 
prevailing labor standards.'' The FAR Council has developed a short 
list of services to which it believes an exemption should apply in the 
best interest of the Government and to avoid impairment to Government 
business. Based on the representations of the FAR Council, the 
Department has made a preliminary determination that such an exemption 
is appropriate, and therefore is issuing this proposed rule.

(2) Objectives of and Legal Basis for Rule

    Pursuant to Section (4)(b) of SCA, the Secretary of Labor may grant 
reasonable exemptions to the provisions of the Act, but only in special 
circumstances where the ``exemption is necessary and proper in the 
public interest or to avoid the serious impairment of government 
business, and is in accord with the remedial purpose of this Act to 
protect prevailing labor standards.''
    After a review of the representations of the FAR Council, the 
Department of Labor has made a preliminary determination that the 
exemption would be ``necessary and proper in the public interest'' and 
would also be ``in accord with the remedial purpose of th[e] Act to 
protect prevailing labor standards.'' Therefore the Department has 
determined that it is appropriate to seek comment on the proposed 
criteria and services which are proposed to be exempted from the Act.

(3) Number of Small Entities Covered Under the Rule

    The definition of ``small business'' varies considerably depending 
upon the policy issues and circumstances under review, the industry 
being studied, and the measures used. The Small Business 
Administration's Office of Advocacy generally uses employment data as a 
basis for size comparisons, with firms having fewer than 100 employees 
or fewer than 500 employees defined as small. The types of services 
covered by the proposed exemptions span a variety of industries. Based 
upon analyses done by the U.S. Small Business Administration, Office of 
Advocacy, some of the industries affected by the proposed exemptions 
are characterized as ``large-business-dominated industries'' (e.g., air 
transportation and business credit institutions) and others are 
characterized as ``small-business-dominated industries'' (e.g., 
automotive repair and real estate).\1\ Thus, at least some of the 
services covered by the proposed exemption would be performed primarily 
by small businesses. In fact, with the exception of those contracts for 
financial services involving the issuance and servicing of cards, the 
contracts for the transportation of persons, and contracts with 
equipment manufacturers, it would appear that a majority of the 
contracts affected by the proposed exemption likely would be performed 
by small businesses.
---------------------------------------------------------------------------

    \1\ The State of Small Business: A Report of the President, 1996 
(1997).
---------------------------------------------------------------------------

    It is also difficult to determine with precision the value of 
Federal contracts that would be affected by the proposed exemption. 
Federal Procurement Data System (FPDS) compiles and reports information 
on approximately 500,000 annual transactions exceeding $25,000; 
however, as discussed above, many of the contracts covered by the 
proposed exemption (e.g., food and lodging contracts for conferences) 
are currently or would likely be less that $25,000. Also, the criteria 
that must be met for the specified services to be within the scope of 
the proposed exemption will limit the application of the proposed 
exemptions to a relatively small subset of contracts within a specific 
SIC code. Thus, FPDS data does not provide an accurate estimate of the 
contracts potentially covered by the proposed exemption. Nevertheless, 
in view of the limiting criteria that have been proposed for the listed 
services, the total value of the exempt contracts should be relatively 
small, and it is believed that the SCA would no longer apply to only a 
relatively small number of contracts that currently contain SCA wage 
determination provisions.

(4) Reporting, Recordkeeping and Other Compliance Requirements of the 
Rule

    The proposed exemption does not contain any new reporting, 
recordkeeping, or other compliance requirements applicable to small 
business. Rather, the proposed exemption would relieve small businesses 
and other contractors from the requirements of the SCA on certain 
contracts where the contractor certifies that the requirements of the 
exemption have been met. Furthermore, any contractor performing on a 
contract within the scope of the proposed exemption may elect to 
perform the contract under the requirements of SCA rather than make the 
necessary certifications. Because application of the exemption will 
have been determined in advance by the contracting officer, the 
Department anticipates that questions regarding proper application of 
the exemption will be rare. Contractors will not be required to 
maintain any records to support the exemption, although they may be 
required to furnish payroll and other existing records to the 
Department in the event of an investigation.

(5) Relevant Federal Rules Duplicating, Overlapping or Conflicting With 
the Rule

    The Federal Acquisition Regulation provision regarding the 
application of

[[Page 45950]]

SCA to subcontracts for commercial services has been withdrawn, and 
there are no Federal rules duplicating, overlapping or conflicting with 
the proposed exemption.

(6) Differing Compliance or Reporting Requirements for Small Entities

    The proposed exemptions do not contain any differing compliance or 
reporting requirements for small entities.

(7) Clarification, Consolidation and Simplification of Compliance and 
Reporting Requirements

    The proposed exemption does not impose any new reporting or 
recordkeeping requirements. Although offerors are required to certify 
that the criteria for exemption are met, offerors are not required to 
maintain records to support the certification. The certification, which 
can be submitted as part of the bid package, is an important element to 
satisfy the statutory requirement that exemptions be ``in accordance 
with the remedial purpose of the Act to protect prevailing labor 
standards.'' Contractors and subcontractors to whom the exemption 
applies will not be required to comply with the wage and reporting 
requirements of the SCA.

(8) Use of Other Standards

    The Service Contract Act requires that any exemption be in 
accordance with the remedial purpose of the act to protect prevailing 
labor standards. The proposed exemptions are structured to satisfy this 
requirement; however, the exemption is not mandatory and any contractor 
may choose to perform the services in accordance with the SCA 
requirements.

(9) Exemption From Coverage for Small Entities

    The proposed rule is an exemption from coverage under the Service 
Contract Act. The proposed exemption would apply equally to both small 
and large entities. In addition to protecting prevailing labor 
standards, a key element of SCA is to ensure that all bidders are on an 
equal footing, and the proposed exemption is consistent with that 
purpose.

V. Executive Order 12866 and 13132; Sec. 202 of the Unfunded 
Mandates Reform Act of 1995; Small Business Regulatory Enforcement 
Fairness Act

    This proposed rule is being treated as a ``significant regulatory 
action'' within the meaning of Executive Order 12866 because of the 
significant impact of this rule on other agencies. Therefore, the 
Office of Management and Budget has reviewed the proposed rule. 
However, the Department has determined that this proposed rule is not 
``economically significant'' as defined in section 3(f)(1) of E.O. 
12866, and therefore it does not require a full economic impact 
analysis under section 6(a)(3)(C) of the Order. Under the new exemption 
proposed by this rule, contracts would not be exempt unless price is 
equal to or less important than the combination of other non-price or 
cost factors in selecting the contractor. Therefore it is not 
anticipated that the changes proposed by this rule will have an annual 
effect on the economy of $100 million or more or adversely affect in a 
material way the economy, a sector of the economy, productivity, jobs, 
the environment, public health or safety, or State, local, or tribal 
governments or communities.
    The Department has similarly concluded that this proposed rule is 
not a ``major rule'' requiring approval by the Congress under the Small 
Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et 
seq.). It will not likely result in (1) an annual effect on the economy 
of $100 million or more; (2) a major increase in costs or prices for 
consumers, individual industries, Federal, State or local government 
agencies, or geographic regions; or (3) significant adverse effects on 
competition, employment, investment, productivity, innovation, or on 
the ability of U.S.-based enterprises to compete with foreign-based 
enterprises in domestic or export markets.
    For purposes of the Unfunded Mandates Reform Act of 1995, this 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. Furthermore, the requirements of 
the Unfunded Mandates Reform Act, 2 U.S.C. 1532, do not apply here 
because the proposed rule does not include a ``Federal mandate.'' The 
term ``Federal mandate'' is defined to include either a ``Federal 
intergovernmental mandate'' or a ``Federal private sector mandate.'' 2 
U.S.C. 658(6). Except in limited circumstances not applicable here, 
those terms do not include an enforceable duty which is ``a duty 
arising from participation in a voluntary program.'' 2 U.S.C. 
658(7)(A). A decision by a contractor to bid on Federal service 
contracts is purely voluntary in nature, and the contractor's duty to 
meet Service Contract Act requirements arises ``from participation in a 
voluntary Federal program.''
    The Department has also reviewed this rule in accordance with 
Executive Order 13132 regarding federalism, and has determined that it 
does not have ``federalism implications.'' The rule does 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.''

VI. Document Preparation

    This document was prepared under the direction and control of John 
R. Fraser, Deputy 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.
    Accordingly, for the reasons set out in the preamble, 29 CFR part 4 
is proposed to be amended as set forth below:

PART 4--LABOR STANDARDS FOR FEDERAL SERVICE CONTRACTS

    1. The authority citation for Part 4 continues to read as follows:

    Authority: 41 U.S.C. 351, et seq., 79 Stat. 1034, as amended in 
86 Stat. 789, 90 Stat. 2358: 41 U.S.C. 38 and 39; 5 U.S.C. 301; and 
108 Stat. 4101(c).

    2. Section 4.123(e) is proposed to be amended by revising paragraph 
(e)(1)(i) introductory text and paragraphs (e)(1)(i)(A), (e)(1)(ii), 
(e)(1)(iii), (e)(1)(iv), and (e)(2) to read as follows:


Sec. 4.123  Administrative limitations, variances, tolerances, and 
exemptions.

* * * * *
    (e) * * *
    (1)(i) Prime contracts or subcontracts principally for the 
maintenance, calibration, repair, and/or installation (where the 
installation is not subject to the Davis-Bacon Act, as provided in 
Sec. 4.116(c)(2) of this part) of:
    (A) Information technology--The term ``information technology'' 
means any equipment or interconnected system or subsystem of equipment 
that is used in the automatic acquisition, storage, manipulation, 
management, movement, control, display, switching, interchange, 
transmission, or reception of data or information. The term information 
technology does not include equipment that contains imbedded 
information technology that is used as an integral part of the product, 
but the principal function of which is not the acquisition, storage, 
manipulation, management,

[[Page 45951]]

movement, control, display, switching, interchange, transmission, or 
reception of data or information. For example, HVAC (heating, 
ventilation, and air conditioning) equipment such as thermostats or 
temperature control devices and medical equipment where information 
technology is integral to its operation, are not information 
technology.
* * * * *
    (ii) The exemptions set forth in this paragraph (e)(1) shall apply 
only under the following circumstances:
    (A) The items of equipment are commercial items which are used 
regularly for other than Government purposes, and are sold or traded by 
the contractor (or subcontractor in the case of an exempt subcontract) 
in substantial quantities to the general public in the course of normal 
business operations;
    (B) The prime contract or subcontract services are furnished at 
prices which are, or are based on, established catalog or market prices 
for the maintenance, calibration, repair, and/or installation of such 
commercial items. An ``established catalog price'' is a price included 
in a catalog, price list, schedule, or other form that is regularly 
maintained by the manufacturer or the contractor, is either published 
or otherwise available for inspection by customers, and states prices 
at which sales currently, or were last, made to a significant number of 
buyers constituting the general public. An ``established market price'' 
is a current price, established in the usual course of trade between 
buyers and sellers free to bargain, which can be substantiated from 
sources independent of the manufacturer or contractor; and
    (C) The contractor utilizes the same compensation (wage and fringe 
benefits) plan for all service employees performing work under the 
contract as the contractor uses for these employees and equivalent 
employees servicing the same equipment of commercial customers;
    (D) The contractor certifies in the contract or subcontract, as 
applicable, to the provisions in this paragraph (e)(1)(ii).
    (iii)(A) Determinations of the applicability of this exemption to 
prime contracts shall be made in the first instance by the contracting 
officer prior to contract award. In making a judgment that the 
exemption applies, the contracting officer shall consider all factors 
and make an affirmative determination that all of the above conditions 
have been met.
    (B) Determinations of the applicability of this exemption to 
subcontracts shall be made by the prime contractor prior to subcontract 
award. In making a judgment that the exemption applies, the prime 
contractor shall consider all factors and make an affirmative 
determination that all of the above conditions have been met.
    (iv)(A) If the Department of Labor determines after award of the 
prime contract that any of the above requirements for exemption has not 
been met, the exemption will be deemed inapplicable, and the contract 
shall become subject to the Service Contract Act, effective as of the 
date of the Department of Labor determination. In such case, the 
corrective procedures in section 4.5(c)(2) of this part shall be 
followed.
    (B) The prime contractor is responsible for compliance with the 
requirements of the Service Contract Act by its subcontractors, 
including compliance with all of the requirements of this exemption 
(see Sec. 4.114(b) of this part). If the Department of Labor determines 
that any of the above requirements for exemption has not been met with 
respect to a subcontract, the exemption will be deemed inapplicable, 
and the prime contractor may be responsible for compliance with the 
Act, effective as of the date of contract award.
    (2)(i) Prime contracts or subcontracts for the following services 
where the services under the contract or subcontract meet all of the 
criteria set forth in paragraph (e)(2)(ii) and are not excluded by 
paragraph (e)(2)(iii):
    (A) Automated data processing and telecommunications services, 
including ADP facility operation and maintenance services provided at 
the contractor's facility, ADP telecommunications and transmission 
services, ADP teleprocessing and timesharing services, ADP systems 
analysis services, information and data broadcasting or data 
distribution services, ADP backup and security services, ADP data 
conversion services, computer aided design/computer aided manufacturing 
(CAD/CAM) services, digitizing services (including cartographic and 
geographic information), telecommunications network management 
services, automated news services, data services or other information 
services (e.g., buying data, the electronic equivalent of books, 
periodicals, newspapers, etc.) and data storage on tapes, compact 
disks, etc. This category does not include ADP data entry services or 
ADP optical scanning services;
    (B) Automobile or other vehicle (e.g., aircraft) maintenance 
services (other than contracts to operate a Government motor pool or 
similar facility);
    (C) Financial services involving the issuance and servicing of 
cards (including credit cards, debit cards, purchase cards, smart 
cards, and similar card services);
    (D) Lodging at hotels/motels and contracts with hotels/motels for 
conferences, including lodging and/or meals, which are part of the 
contract for the conference;
    (E) Maintenance services for all types of specialized building or 
facility equipment such as elevators, escalators, temperature control 
systems, security systems, smoke and/or heat detection equipment, etc;
    (F) Maintenance, calibration, repair or installation (where the 
installation is not subject to the Davis-Bacon Act, as provided in 
Sec. 4.116(c)(2) of this part) services for all types of equipment 
where the services are obtained from the manufacturer or supplier of 
the equipment;
    (G) Transportation of persons by air, motor vehicle, rail, or 
marine vessel on regularly scheduled routes or via standard commercial 
services (not including charter services);
    (H) Real estate services, including real property appraisal 
services, related to housing federal agencies or disposing of real 
property owned by the Federal Government; and
    (I) Relocation services, including services of real estate brokers 
and appraisers to assist federal employees or military personnel in 
buying and selling homes.
    (ii) The exemption set forth in this paragraph (e)(2) shall apply 
to the services listed in paragraph (e)(2)(i) of this section only when 
all of the following criteria are met:
    (A) The services under the prime contract or subcontract are 
commercial--i.e., they are offered and sold regularly to non-
Governmental customers, and are provided by the contractor (or 
subcontractor in the case of an exempt subcontract) to the general 
public in substantial quantities in the course of normal business 
operations;
    (B) The prime contract or subcontract will be awarded on a sole 
source basis or the contractor or subcontractor will be selected for 
award on the basis of other factors in addition to price. In such 
cases, price must be equal to or less important than the combination of 
other non-price or cost factors in selecting the contractor.
    (C) The prime contract or subcontract services are furnished at 
prices which are, or are based on, established catalog or market 
prices. An established price is a price included in a catalog, price 
list, schedule, or other form that is regularly maintained by the 
contractor or

[[Page 45952]]

subcontractor, is either published or otherwise available for 
inspection by customers, and states prices at which sales are 
currently, or were last, made to a significant number of buyers 
constituting the general public. An established market price is a 
current price, established in the usual course of trade between buyers 
and sellers free to bargain, which can be substantiated from sources 
independent of the manufacturer or contractor. Normally, market price 
information is taken from independent market reports, but market price 
could be established by surveying the firms in a particular industry or 
market;
    (D) All of the service employees who will perform the services 
under the Government contract or subcontract spend only a small portion 
of their time (a monthly average of less than 20 percent of the 
available hours on an annualized basis, or less than 20 percent of 
available hours during the contract period if the contract period is 
less than a month) servicing the government contract or subcontract;
    (E) The contractor utilizes the same compensation (wage and fringe 
benefits) plan for all service employees performing work under the 
contract or subcontract as the contractor uses for these employees and 
for equivalent employees servicing commercial customers;
    (F) The contracting officer (or prime contractor with respect to a 
subcontract) determines in advance, based on the nature of the contract 
requirements and knowledge of the practices of likely offerors, that 
all or nearly all offerors will meet the above requirements. If the 
services are currently being performed under contract, the contracting 
officer or prime contractor shall consider the practices of the 
existing contractor in making a determination regarding the above 
requirements; and
    (G) The exempted contractor certifies in the prime contract or 
subcontract to the provisions in paragraphs (e)(2)(ii) (A) and (C) 
through (E) of this section. The contracting officer or prime 
contractor, as appropriate, shall review available information 
concerning the contractor or subcontractor and the manner in which the 
contract will be performed. If the contracting officer or prime 
contractor has reason to doubt the validity of the certification, SCA 
stipulations shall be included in the contract or subcontract.
    (iii)(A) If the Department of Labor determines after award of the 
prime contract that any of the above requirements for exemption has not 
been met, the exemption will be deemed inapplicable, and the contract 
shall become subject to the Service Contract Act, effective as of the 
date of the Department of Labor determination. In such case, the 
corrective procedures in Sec. 4.5(c)(2) of this part shall be followed.
    (B) The prime contractor is responsible for compliance with the 
requirements of the Service Contract Act by its subcontractors, 
including compliance with all of the requirements of this exemption 
(see Sec. 4.114(b) of this part). If the Department of Labor determines 
that any of the above requirements for exemption has not been met with 
respect to a subcontract, the exemption will be deemed inapplicable, 
and the prime contractor may be responsible for compliance with the 
Act, effective as of the date of contract award.
    (iv) The exemption set forth in this paragraph (e)(2) does not 
apply to solicitations and contracts:
    (A) Entered into under the Javits-Wagner-O'Day Act, 41 U.S.C. 47;
    (B) For the operation of a Government facility or portion thereof 
(but may be applicable to subcontracts for services set forth in 
paragraph (3)(2)(ii) that meet all of he criteria of paragraph 
(e)(2)(ii)); or
    (C) Subject to Section 4(c) of the Service Contract Act.

    Signed at Washington, D.C., on this 19th day of July, 2000.
T. Michael Kerr,
Administrator, Wage and Hour Division.
[FR Doc. 00-18636 Filed 7-25-00; 8:45 am]
BILLING CODE 4510-27-P