Effective January 18, 2013, successor contractors must now offer a first right of refusal for employment to employees on the predecessor contract when such contract falls under the Service Contract Act (SCA) and the contract is for performance of the same or similar services.

On December 21, 2012, the Federal Acquisition Regulatory Council issued a final rule to implement Executive Order 13495, Nondisplacement of Qualified Workers Under Service Contracts, dated January 30, 2009.  In implementing this Order, the Federal Acquisition Regulation (FAR) is hereby amended to add subpart 22.12 and a new clause at FAR 52.222-17.

When a contract is subject to SCA, the new FAR language will now require a successor contractor (a contractor that wins an award for work that was previously being completed by another contractor) to offer employment to workers subject to SCA qualification, that otherwise would be terminated by the change in contractor.  As is often the case with the Government, the new requirement is full of clarifications and exceptions.  For example, the requirement applies when the successor contract is for same or similar services at the same location as the predecessor contract.  29 CFR 9.2 defines “same or similar service” to mean “a service that is either identical to or has one or more characteristics that are alike in substance to a service performed at the same location on a contract that is being replaced by the Federal Government or a contractor on a Federal service contract.”

There will be some exceptions from the requirement to provide the right of first refusal, such as if the successor’s current employees, who would otherwise face termination themselves, are qualified for this contract and subject to SCA.  Another exception is for predecessor employees with documented past unsuitable performance.  If the successor will be working with a smaller workforce than the predecessor due to efficiency, the successor is only required to offer employment to those eligible employees who would be qualified to fill the positions that will exist on the contract.

If a successor wins a contract award due to termination for performance on the predecessor, the successor contractor is not to assume it was the fault of the service employees; the assumption to be made is that the employees were performing suitable work in support of the contract and the fault lay with management.  If the Government determines that the poor performance of the predecessor contract was due to the entire predecessor workforce, then FAR 22.12 may be waived.

As a result of this ruling, the successor contractor is going to have to jump through some additional hoops to make their required offers of employment, including trying to obtain the necessary contact information of the eligible employees.  FAR 52.222-41(n), Service Contract Act of 1965, already requires the predecessor contractor to provide to the contracting officer a certified list not less than 10 days prior to completion of an existing contract of the names of all service employees on the contractor’s or subcontractor’s payroll during the last month of the contract performance.  This list must contain the anniversary dates of employment on the contract.  Under the new rule, this list will be required no less than 30 days prior to completion instead of 10.  If the list is not provided, the Government will have the right to suspend contract payments until it is provided.  But it is interesting to note that since DOL does not require contact information (or even what labor categories these employees held), the FAR will not require this information either.  Successor contractors will have to reach out to these employees by any means possible, such as holding job fairs in the area of the performance location or asking the contracting officer to schedule a meeting at the performance site to meet with the employees.

Cherry Bekaert has worked with many clients regarding various SCA issues.  Please contact us if you have specific matters that you would like to discuss.