Service Contracts and Incumbent Employees

This is an update to our posting of May 3, 2012 wherein we described the proposed regulations to implement Executive Order (EO) 13495, "Non-displacement of Qualified Workers Under Service Contracts", issued by the President back in January 2009. Those regulations were finalized and became effective on solicitations issued after January 18, 2013. The regulations require that workers on a federal service contract who would otherwise lose their jobs as a result of the completion or expiration of a contract be given the right of first refusal for employment with the successor contractor. The regulations apply to all service contracts (both prime contracts and subcontracts) above the simplified acquisition threshold (currently $150,000) that succeed contracts for the same or similar services at the same location.

Virginia thinks this new rule is a good one. She was 62 years old and described herself as an excellent worker with good appraisals and extremely reliable. She and everyone else over 60 years old were not offered their jobs by a successor contractor. Stan thinks its a bad rule. Stan says that this rule denies companies who have full responsibility for performance under the contract, their ability to select a worforce they believe is best suited to meeting the contract requirements.

According to the Department of Labor, the Federal Government's procurement interests in economy and efficiency are served when the successor contractor hires the predecessor's employees. A carryover work force reduces disruption to the delivery of services during the period of transition between contractors and provides the Federal Government the benefits of an experienced and trained work force that is familiar with the Federal Government's personnel, facilities, and requirements. The EO recognizes that successor contractors or subcontractors already often hire the majority of the predecessor's employees when a service contract expires and follow-on contract is awarded for the same or similar services at the same location. Sometimes, however, a successor contractor or subcontractor displaces the predecessor's employees and hires a new workforce.

Contracts under the $150,000 simplified acquisition threshold are exempt from this EO. So are contracts awarded for services produced or provided by persons who are blind or have severe disabilities. Agency can also exclude contracts and subcontracts if the head of a contracting department or agency finds that the application of any of its requirements would not serve the purposes of the EO or would impair the ability of the Federal Government to procure services on an economical and efficient basis (the so-called "union-busting" provision). Any such decision must be made no later than the contract solicitation date, and incumbent workers and their collective bargaining representatives are to be notified in writing of the agency determination no later than 5 business days after the solicitation date.

Service employees must be advised of their right of first refusal by either a poster or individual notice. DOL has a poster here. The predecessor contractor must provide the contracting officer a list of all service employees working under the contract (and subcontracts) within 30 days before the end of the contract. The contracting officer will furnish the list to the successor contractor. The successor contractor is required to offer the right of first refusal of employment to all qualified employees whose names appear on the predecessor's list except that the successor contractor may employ on the contract employees who worked for that contractor for at least three months immediately preceding commencement of the contract and who would otherwise face lay-off or discharge.

Successor contractors have the discretion to determine how many employees are needed for efficient performance of the contract. They may employ fewer employees than the predecessor contract. Also, offers made to employees of predecessor contractors must be "bona fide" offers. There is nothing in the regulation that requires successor contractors to match the pay or benefits of the predecessor contractors but contractors won't be permitted to "low-ball" employment offers simply to discourage incumbents from accepting positions (more on what constitutes "bona fide" offers of employment in 29 CFR 9.12).