On Thursday, May 3, 2012, the Federal Acquisition Regulatory Council issued a proposed rule to add a new subpart and contract clause to the Federal Acquisition Regulation that will require successor contractors to offer a right of first refusal of employment to qualified incumbent employees under service contracts.

The Federal Acquisition Regulatory Council (FARC) published a notice in the Federal Register at 77 FR 26232 on May 3, 2012, announcing a proposed rule to the Federal Acquisition Regulation (FAR). The proposed rule would implement an executive order that instructs successor contractors to offer employment to qualified incumbent workers under service contracts and the corresponding Department of Labor (DOL) regulations.


The members of the FARC are proposing to amend the FAR to implement Executive Order (E.O.) 13495, Nondisplacement of Qualified Workers Under Service Contracts, dated January 30, 2009, published in the Federal Register at 74 FR 6103 on February 4, 2009, and the corresponding DOL regulations, published in the Federal Register at 76 FR 53720, August 29, 2011, with an effective date still yet to be established.

Executive Order 13495 expresses the federal government's policy and preference that a predecessor contractor's employees are not displaced when a service contract expires and a follow-on contract is awarded for the same service. The executive order explains that the "Federal Government's procurement interests in economy and efficiency are served when the successor contractor hires the predecessor's employees." Consistent with this preference, E.O. 13495 mandates that service contracts and solicitations for service contracts include a clause that requires the contractor, and its subcontractors, to offer a right of first refusal of employment to incumbent service workers in positions for which they are qualified under a follow-on contract for performance of the same or similar services at the same location. The DOL final rule advances this policy, but its effective date is pending, as the FARC must first issue final regulations for the inclusion of the nondisplacement contract clause in covered federal solicitations and contracts. The DOL regulations are published at 29 C.F.R. part 9.

The Proposed Rule

The FARC's proposed rule would add FAR subpart 22.12, entitled Nondisplacement of Qualified Workers Under Service Contracts, and an associated clause at FAR 52.222-XX, entitled Nondisplacement of Qualified Workers. The requirements in the FAR subpart and contract clause are taken directly from the executive order and DOL implementing regulations; however, the FAR provisions do not restate the components of the investigative methods, available reviews, or enforcement mechanisms established by DOL, except as necessary to ensure that contractors and contracting officers are aware of their obligations.

The new subpart defines "service contract" at FAR 22.1201 as "any Government contract, the principal purpose of which is to furnish services in the United States through the use of service employees, except as exempted under the Service Contract Labor Standards (41 U.S.C. chapter 67; see 22.1003–3 and 22.1003–4), or any subcontract at any tier thereunder." "Service employee" is defined at FAR 22.001 as "any person engaged in the performance of a service contract other than any one person employed in a bona fide executive, administrative, or professional capacity, as those terms are defined in 29 CFR part 541. The term 'service employee' includes all such persons regardless of any contractual relationship that may be alleged to exist between a contractor or subcontractor and such persons."

The proposed FAR provisions detail the respective rights and responsibilities of the incumbent contractor, successor contractor, and contracting officer leading up to and throughout the transition process. To implement these requirements, the proposed FAR subpart provides that the contracting officer shall insert the relevant contract clause in all covered solicitations and contracts.

Consistent with the policy articulated in E.O. 13495, under the proposed rule, the successor contractor and its subcontractors must offer positions to those incumbent service workers whose employment would otherwise be terminated as a result of the award of the successor contract. The incumbent workers must be qualified for the positions offered, and the successor contractor is not required to offer positions to incumbent managerial and supervisory employees. The FAR provisions prohibit employment openings under the successor contract, and prohibit the contractor and its subcontractors from offering employment under the successor contract, to any person before all covered incumbent employees have been offered positions.

For the proposed FAR provisions to apply, the successor contract must follow a contract for performance of the same or similar services at the same location. Specific types of contracts and subcontracts are exempt from application, including, for example, contracts and subcontracts under the simplified acquisition threshold. The proposed rule also provides for limited exceptions to its application if such an exception is warranted based on the circumstances of a particular employee.

In addition, the head of a contracting agency or department has authority to exempt a contract, subcontract, or purchase order from all or part of the proposed rule's requirements under certain conditions and upon following certain procedures. The agency head must determine in writing that the application of the rule would not serve the purposes of E.O. 13495 or would impair the ability of the federal government to procure services on an economical and efficient basis. For the waiver to be effective, it must be reflected in a written analysis and completed prior to the contract solicitation date.

Under the proposed rule, the predecessor contractor is required to submit to the contracting officer a certified list of the names of all service employees working under the contract and its subcontracts no later than thirty days before performance of the predecessor contract is scheduled to be completed. This list must be accurate at the time of submission, and if any changes occur before the predecessor contract expires, the contractor must submit a revised list.

The proposed FAR provisions also outline the procedures that the successor contractor must follow when offering employment to the incumbent contractor's workers. The successor contractor and its subcontractors must, among other requirements, make a "bona fide express offer of employment to each employee" and state the time within which the employee must accept that offer, which cannot be less than ten days.

Finally, the proposed FAR contract clause imposes recordkeeping obligations on the contractors, provides remedies and sanctions for the violation of its terms, and describes the procedures for resolving any disputes concerning the requirements of the clause.