Successor Service Contractors Must Justify New Hires

by Perkins Coie

The Federal Acquisition Regulatory Council recently issued a final rule that implements Executive Order 13495 (Jan. 30, 2009) for nondisplacement of qualified workers employed under contracts covered by the Service Contract Act, 41 U.S.C. § 6701, et seq.  See 77 Fed. Reg. 75766 (Dec. 21, 2012).  This final rule, effective January 18, 2013, adds new provisions at Federal Acquisition Regulation (FAR) Subpart 22.12 and a contract clause at FAR 52.222-17.

According to Executive Order 13495, the government's interest in efficiency is better served when a successor contractor at the same location for the same or similar services hires predecessor employees.  The government believes that an incumbent workforce reduces service disruption during the transition period and provides the government with the benefit of an experienced workforce that is familiar with the government's personnel, facilities and requirements.

The new contract clause, FAR 52.222–17, includes the following requirements:

  • Not less than 10 days before completion of a contract, the predecessor contractor must provide the contracting officer with a certified list of the names of all service employees working under the contract and its subcontracts during the last month of contract performance.
  • The successor contractor and its subcontractors may not offer employment under the contract to anyone before complying fully with the obligation to offer employment to employees on the predecessor contract.
  • The successor contractor and its subcontractors must make a bona fide express offer of employment to each service employee and state the time (not less than 10 days) within which the service employee must accept such offer.

The following are the rule's primary exceptions:

  • The requirement to offer employment to incumbent employees does not apply to employees who are not service employees within the meaning of the Service Contract Act.  A "service employee" is a person engaged in the performance of a service contract other than any person employed in a bona fide executive, administrative or professional capacity.
  • The successor contractor is not required to offer a position to an incumbent employee whom the contractor or its subcontractors reasonably believe has failed to perform suitably on the job.
  • The successor contractor may retain employees who have worked for the contractor for at least three months preceding commencement of the contract if those employees would otherwise face layoff or discharge.
  • The rule does not apply to contracts below the simplified acquisition threshold ($150,000).

Service contractors bidding on follow-on contracts often hire qualified incumbent employees.  This extraordinary regulation, though, requires that, unless it can obtain a waiver from a senior procurement official or prove that one or more exceptions apply, the contractor must hire all incumbent staff covered by the Service Contract Act.  (A Clinton-era Executive Order (E.O. 12933) was much narrower in scope.  It was limited to prime contracts for maintenance of public buildings on certain department and agency installations.)  Under the new rule, bringing in a trusted successor workforce or otherwise "starting fresh" will take substantial time and effort.  Perkins Coie has been tracking the development of the rule in order to fully understand how service contractors can meet its requirement.

Please contact counsel for a more detailed summary of the final rule or how this may impact your company.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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