Crafting a robust service agreement is crucial for any business, but when you’re contracting with the U.S. government, the stakes are even higher. Beyond the typical clauses covering scope of work and payment terms, you need to be aware of specific labor regulations, particularly the Service Contract Labor Standards statute. While this statute is designed to protect service employees, there are certain exemptions that may apply to your service agreements. Understanding these exemptions is essential for ensuring compliance and accurately pricing your government contracts.
Navigating the Service Contract Labor Standards Statute
The Service Contract Labor Standards statute is a U.S. law that requires contractors and subcontractors performing services for the federal government to pay their service employees prevailing wages and fringe benefits. This law aims to level the playing field and prevent contractors from undercutting labor standards in government contracting. However, recognizing that a rigid application might not always be practical or in the public interest, the statute allows for certain exemptions.
When Service Contracts Are Exempt: Exploring Legal Exceptions
The Secretary of Labor is authorized to establish reasonable limitations, variations, tolerances, and exemptions to the Service Contract Labor Standards statute (excluding section 6707(f) concerning safety and health). These exceptions are not granted lightly. They are reserved for special circumstances where it’s determined that an exemption is both “necessary and proper in the public interest” or crucial to “avoid the serious impairment of Government business,” all while remaining consistent with the statute’s core purpose of safeguarding prevailing labor standards.
These exemptions can be broadly categorized and come with specific conditions that must be met. Let’s explore some key categories of service contract exemptions:
Types of Service Agreement Exemptions
Carriage of Mail, Freight, or Personnel:
Certain transportation contracts are exempt. This includes contracts with common carriers for:
- Mail Carriage: Transporting mail by rail, air (excluding air star routes), bus, and ocean vessel on regularly scheduled routes. A key condition is that this mail carriage must be an “insubstantial portion” of the carrier’s total revenue.
- U.S. Postal Service Owner-Operators: Contracts with individual owner-operators for mail service are exempt if, at the time of the contract, there’s no anticipation of hiring service employees, except for very short-term needs like vacation, illness, or emergencies.
- Freight or Personnel Carriage: Transportation of freight or personnel is exempt if the rates are already governed by section 10721 of the Interstate Commerce Act.
Maintenance, Calibration, or Repair of Specific Equipment:
Contracts primarily focused on the maintenance, calibration, or repair of particular types of equipment can be exempt, provided stringent conditions are fulfilled. The equipment categories include:
- Automated Data Processing (ADP) and Office Information/Word Processing Systems: This covers a wide range of computer systems and office technology.
- Scientific and Medical Equipment: Exemption applies if the equipment relies on micro-electronic circuitry or similarly advanced technology. Examples include medical and surgical instruments, imaging equipment, chemical analysis instruments, and geophysical instruments.
- Office/Business Machines (Manufacturer/Supplier Services): Maintenance of office machines (not already exempt under ADP) is exempt only if performed by the original manufacturer or supplier of the equipment.
Conditions for Equipment Maintenance Exemption:
For the maintenance, calibration, or repair exemption to apply, all of the following must be true:
- Commercial Use and Sales: The equipment being serviced must be regularly used for non-government purposes and sold or traded to the general public in significant quantities by the contractor as part of their normal business.
- Established Pricing: Service prices must be based on established catalog or market prices.
- Established Catalog Price: A price listed in a regularly maintained catalog, price list, or schedule, available for customer inspection, showing prices of recent sales to a substantial number of general public buyers.
- Established Market Price: A current price set through normal buyer-seller trade, where both parties can freely negotiate, and verifiable from independent sources.
- Consistent Compensation Plan: The contractor must use the same compensation (wages and benefits) plan for service employees working on the government contract as they do for their employees (and equivalent roles) servicing commercial customers’ identical equipment.
- Offeror Certification: The contractor must certify that they meet conditions 1-3.
Contracts for Specific Services (Under Certain Conditions):
A broader exemption category exists for contracts primarily providing certain listed services, again subject to specific conditions:
- Vehicle Maintenance: Automobile and other vehicle maintenance (including aircraft), excluding contracts to operate government motor pools.
- Financial Card Services: Services related to issuing and servicing cards like credit, debit, purchase, and smart cards.
- Conference Hotel/Motel Services: Hotel/motel services for conferences, including lodging and meals tied to the conference contract (excluding ongoing lodging contracts).
- Sole Source Equipment Maintenance (Manufacturer/Supplier): Maintenance, calibration, repair, and installation (if not subject to Construction Wage Rate Requirements) of all equipment types, if sourced directly from the equipment manufacturer or supplier on a sole source basis.
- Common Carrier Passenger Transportation: Transportation of people by air, motor vehicle, rail, or marine vessel via scheduled routes or standard commercial services (excluding charter services).
- Real Estate Services: Real estate services, including property appraisal, related to housing federal agencies or disposing of government real estate.
- Relocation Services: Relocation services, including real estate brokers and appraisers assisting federal employees or military personnel with home buying/selling (excluding moving and storage).
Conditions for Specific Services Exemption:
These service exemptions have their own set of conditions:
- Source Selection or Sole Source:
- Generally, for services other than sole-source equipment maintenance, the contractor selection must be based on factors beyond just price, with non-price factors being at least as important as price.
- Sole source contracts are also eligible.
- Regular Commercial Offering: The services must be regularly offered and sold to non-government customers and provided to the general public in substantial quantities in the contractor’s normal business operations.
- Established Pricing (Catalog or Market): Similar to the equipment maintenance exemption, prices must be based on established catalog or market prices.
- Limited Government-Specific Work: Each service employee working on the government contract should spend only a small portion of their time on it – averaging less than 20% of their available hours monthly (annualized) or less than 20% during the contract period if it’s shorter than a month.
- Consistent Compensation Plan: The contractor must use the same compensation plan for service employees on the government contract as for equivalent employees serving commercial clients.
- Contracting Officer’s Pre-Solicitation Determination: The contracting officer (or prime contractor for subcontracts) must determine before solicitation, based on contract requirements and offeror practices, that most or all likely offerors will meet conditions 2-5. Past contractor practices are considered if the services are already under contract.
- Offeror Certification:
- The contractor must certify they meet conditions 2-5.
- For non-sole source awards, the contracting officer must ensure substantially all other offerors in the competitive range (or responsive offerors if no discussions) also provide this certification.
Contract Award and Department of Labor Oversight
Contracting officers play a crucial role in determining exemption applicability before contract award. They must make a written determination. If an exemption applies, the Service Contract Labor Standards clauses are not included in the contract.
However, even after award, the Department of Labor (DOL) can review and determine if exemption conditions are actually met. If the DOL finds conditions were not met, the exemption becomes invalid, and the contract becomes subject to the Service Contract Labor Standards statute from the date of the DOL’s determination. Similar procedures apply to subcontracts.
Exceptions to the “Certain Services” Exemption
It’s important to note that even if a service falls into one of the “certain services” categories, the exemption does not apply to:
- Contracts awarded under the Javits-Wagner-O’Day (JWOD) Act (now the AbilityOne Program), which prioritizes purchasing from organizations serving people with disabilities.
- Contracts for operating a government facility (although subcontracts for services within such contracts may be eligible).
- Contracts subject to 41 U.S.C. 6707(c), which relates to contracts for laundry, dry cleaning, custodial, food services, and other similar services at federal facilities.
Integrating Labor Standards into Your Service Agreement Template
While these exemptions exist, it’s crucial to understand they are exceptions, not the rule. When developing your Service Agreement Template, especially for potential U.S. government contracts, it’s prudent to:
- Include clauses that address compliance with the Service Contract Labor Standards statute as a default.
- Develop a checklist to assess if any exemptions might apply to a specific contract.
- Consult with legal counsel to ensure your service agreement template and your practices are fully compliant with all applicable labor laws.
Understanding these exemptions can be complex, but it’s a necessary part of navigating service agreements in the realm of U.S. government contracting. By being informed and proactive, you can ensure your service agreements are both legally sound and contribute to fair labor practices.
