Nondisplacement of Qualified Workers Under Service Contracts; Rescission of Regulations

Section 553(b)(B) of the Administrative Procedure Act (APA) provides that an agency is not required to publish a notice of proposed rulemaking in the Federal Register and solicit public comments when the agency has good cause to find that doing so would be “impracticable, unnecessary, or contrary to the public interest.” 5 U.S.C. 553(b)(B). Section 553(d) of the APA further provides that substantive rules should take effect not less than 30 days after the date they are published in the Federal Register unless “otherwise provided by the agency for good cause found[.]” 5 U.S.C. 553(d)(3).

Since the sole authority for the regulations at 29 CFR part 9 no longer exists, the Department finds that good cause exists to dispense with public notice-and-comment rulemaking procedures in this final rule because such procedures are unnecessary. Executive Order 14055 was the sole authority for those regulations. Further, the express purpose of the regulations was to administer and implement that executive order (29 CFR 9.1(a)). With the rescission of Executive Order 14055, the nondisplacement regulations are ultra vires and serve no purpose. No public comment could affect those underlying considerations and therefore such public process is unnecessary. See EME Homer City Generation, L.P. v. E.P.A., 795 F.3d 118, 134 (D.C. Cir. 2015) (upholding agency's invocation of the “unnecessary” prong where “commentators could not have said anything during a notice and comment period that would have changed” the need to issue the rule in response to a court order). For the same reason, the Department similarly finds good cause under 5 U.S.C. 553(d)(3) to make this final rule immediately effective.

Furthermore, this final rule is considered a deregulatory action for the purposes of Executive Order 14192, Unleashing Prosperity Through Deregulation, 90 FR 9065. Details on reduced burdens and cost savings of this final rule can be found in the rule's economic analysis.

The information collection requirements contained in the regulations at 29 CFR part 9 were previously approved by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1980 (Pub. L. 96-511) and assigned OMB Control Number 1235-0033. In light of the rescission of these regulations, the Department has submitted a request to OMB to discontinue the information collection under OMB control number 1235-0033.

V. Executive Order 12866, Regulatory Planning and Review; Executive Order 13563, Improved Regulation and Regulatory Review

Under Executive Order 12866, OMB's Office of Information and Regulatory Affairs (OIRA) determines whether a regulatory action is significant and, therefore, subject to the requirements of the Executive Order and OMB review.\1\ Section 3(f) of Executive Order 12866 defines a “significant regulatory action” as a regulatory action that is likely to result in a rule that may: (1) have an annual effect on the economy of $100 million or more, or adversely affect in a material way a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities (also referred to as economically significant); (2) create serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees or loan

programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order. OIRA has determined this rule to be “economically significant” under Executive Order 12866 section 3(f)(1), and is therefore subject to review under section 6(a)(3)(C) of that order.

\1\ See 58 FR 51735, 51741 (Oct. 4, 1993).

Executive Order 13563 directs agencies to, among other things, propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs; that it is tailored to impose the least burden on society, consistent with obtaining the regulatory objectives; and that, in choosing among alternative regulatory approaches, the agency has selected those approaches that maximize net benefits. Executive Order 13563 recognizes that some costs and benefits are difficult to quantify and provides that, when appropriate and permitted by law, agencies may consider and discuss qualitatively values that are difficult or impossible to quantify, including equity, human dignity, fairness, and distributive impacts. The analysis below outlines the impacts that the Department anticipates may result from this rescission and was prepared pursuant to the above-mentioned executive orders.

To determine the number of firms that could potentially be affected by this rulemaking, the Department used a broad measure of firms that may incur regulatory familiarization costs. To determine the number of firms that could potentially be affected by this rulemaking, the Department estimated a range of potentially affected firms. The more narrowly defined population (firms actively holding SCA-covered contracts) includes 119,695 firms (Table 1). The broader population consists of those bidding on SCA contracts but without active contracts (33,708) as well as those considering bidding in the future (409,053), for a total of 442,761 firms. 1. Firms Currently Holding SCA Contracts

USASpending.gov--the official source for spending data for the U.S. Government--contains Government award data from the Federal Procurement Data System Next Generation (FPDS-NG), which is the system of record for Federal procurement data. The Department used these data to identify the number of firms that currently hold SCA contracts.4 5 Although more recent data are available, the Department used data from 2019 to avoid any shifts in the data associated with the COVID-19 pandemic in 2020. Because many Federal employees were working remotely throughout 2020 and 2021, reliance on service contracts for Federal buildings may have been reduced during those years and may not reflect the level of employment on and incidence of SCA contracts going forward.\6\

\4\ The Department recognizes that some SCA-covered contracts that would be covered by this rule are not reflected in USASpending.gov (i.e., they are SCA-covered contracts that are not procuring services directly for the Federal Government, including certain licenses, permits, cooperative agreements, and concessions contracts, such as, for example, delegated leases of space on a military base from an agency to a contractor whereby the contractor operates a barber shop). However, the Department estimates that the number of firms holding such SCA-covered nonprocurement contracts is a small fraction of the number of firms identified based on USASpending.gov.

\5\ The Department also acknowledges that prime contracts that are less than $250,000 and their subcontracts would not be covered by this regulation, but the Department has not made an adjustment for these contracts in the estimation of covered contractors. Therefore, this estimate may be an overestimate of the number of contractors that are actually affected.

\6\ The Department estimated the number of prime contractors using the 2021 USASpending.gov data and found that there were fewer contractors in 2021 than in 2019. The number of prime contractors in 2019 was 85,987 and the number of prime contractors in 2021 was 78,347. This finding is in line with the Department's hypothesis that remote work for Federal employees could have reduced the demand for SCA contractors in 2021.

To identify firms with SCA contracts, the Department included all firms with the “Labor Standards” element equal to “Y” for any of their contracts, meaning that the contracting agency flagged the contract as covered by the SCA. However, because this flag is often listed as “not applicable” and appears at times to be reported with error, the Department also included some other firms. Of the contracts not flagged as SCA, the Department excluded (1) those for the purchase of goods \7\ and (2) those covered by the DBA.\8\ The Department also excluded (1) awards for financial assistance such as direct payments, loans, and insurance; and (2) contracts performed outside the U.S. because SCA coverage is limited to the 50 states, the District of Columbia, and certain U.S. territories. The firms for the remaining contracts are included as potentially impacted by this rulemaking.

\7\ For example, the Government purchases pencils; however, a contract solely to purchase pencils is not covered by the SCA and so would not be covered by the Executive Order. Contracts for goods were identified in the USASpending.gov data if the product or service code begins with a number (the code for services begins with a letter).

\8\ Contracts covered by DBA were identified in the USASpending.gov data where the “Construction Wage Rate Requirements” element for a contract is marked “Y,” meaning that the contracting agency flagged that the contract is covered by the DBA.

In 2019, there were approximately 86,000 unique prime contractors in USASpending.gov that fit the parameters discussed above, and the Department has used this number as an estimate of prime contractors with active SCA contracts. However, subcontractors are also impacted by this rule. The Department examined 5 years of USASpending.gov data (2015 through 2019) and identified 33,708 unique subcontractors that did not hold contracts as prime contractors in 2019.\9\

The Department used 5 years of data for the count of subcontractors to compensate for lower-tier subcontractors that may not be included in USASpending.gov.

\9\ For subcontractors, the Department was unable to make restrictions to limit the data to SCA contracts because none of the necessary variables are available in the USASpending.gov database (i.e., the Labor Standards variable, the Construction Wage Rate Requirements variable, or the product or service code variable).

In total, the Department estimates 119,695 firms currently hold SCA contracts and could potentially be affected by this rulemaking under the narrow definition. Table 1 shows these firms by 2-digit NAICS code. 10 11

\10\ The North American Industry Classification System (NAICS) is a method by which Federal statistical agencies classify business establishments in order to collect, analyze, and publish data about certain industries. Each industry is categorized by a sequence of codes ranging from 2 digits (most aggregated level) to 6 digits (most granular level). https://www.census.gov/naics/.

\11\ In the data, a NAICS code is assigned to the contract and identifies the industry in which the contract work is typically performed. If a firm has contracts in several NAICS, the Department has assigned it to only one NAICS based on the ordering of the contracts in the data (this approximates a random assignment to one NAICS).

The Department also cast a wider net to identify other potentially affected contractors, both those directly affected (i.e., holding contracts) and those that plan to bid on SCA-covered contracts in the future. To determine the estimated number of firms, the Department identified firms registered in the General Services Administration's (GSA) System for Award Management (SAM) since all entities bidding on Federal procurement contracts or applying for grants must register in SAM. The Department believes that firms registered in SAM represent those that may be affected if they decide to bid on an SCA contract in the future. However, it is also possible that some firms that are not already registered in SAM may be considering bidding on SCA-covered contracts, but due to the uncertainty about the existence and potential number of these firms, no additional firm counts were included in the Department's estimate.

The Department used October 2022 SAM data and identified 409,053 registered firms.\12\ The Department excluded firms with expired registrations, firms only applying for grants,\13\ government entities (such as city or county governments),\14\ foreign organizations, and companies that only sell products and do not provide services. SAM includes all prime contractors and some subcontractors (those that are also prime contractors or that have otherwise registered in SAM). However, the Department is unable to determine the number of subcontractors that are not in the SAM database. Therefore, the Department added the subcontractors identified in USASpending to the estimate from the SAM database. Adding these 33,708 firms identified in USASpending to the number of firms in SAM (409,053) results in a total of 442,761 potentially affected firms.

\12\ Data released in monthly files. Available at: https://www.sam.gov/SAM/pages/public/extracts/samPublicAccessData.jsf.

\13\ Entities registering in SAM are asked if they wish to bid on contracts. If the firm answers “yes,” then they are included as “All Awards” in the “Purpose of Registration” column in the SAM data. The Department included only firms with a value of “Z2,” which denotes “All Awards.”

\14\ While there are certain circumstances in which state and local government entities act as contractors that enter into contracts covered by the SCA, the number of such entities is minimal and including all government entities would result in an inappropriate overestimation.

Table 1--Range of Number of Potentially Affected Firms By Industry

Lower-bound estimate Upper-bound estimate

Industry NAICS Subcontractors Subcontractors

Total Primes from from Total Firms fromUSASpending.gov USASpending.gov from SAM USASpending.gov

Agriculture, forestry, fishing and hunting......... 11 2,482 2,482 0 5,769 5,769 0 Mining............................................. 21 145 102 43 959 916 43 Utilities.......................................... 22 1,596 1,541 55 2,485 2,430 55 Construction....................................... 23 13,708 5,457 8,251 56,126 47,875 8,251 Manufacturing...................................... 31-33 13,958 5,637 8,321 51,299 42,978 8,321 Wholesale trade.................................... 42 1,205 564 641 18,092 17,451 641 Retail trade....................................... 44-45 344 317 27 7,979 7,952 27 Transportation and warehousing..................... 48-49 3,387 2,998 389 17,921 17,532 389 Information........................................ 51 4,061 3,735 326 13,350 13,024 326 Finance and insurance.............................. 52 475 429 46 3,365 3,319 46 Real estate and rental and leasing................. 53 2,822 2,821 1 19,439 19,438 1 Professional, scientific, and technical services... 54 37,739 26,103 11,636 115,007 103,371 11,636 Management of companies and enterprises............ 55 3 3 0 604 604 0 Administrative and waste services.................. 56 15,120 11,509 3,611 36,187 32,576 3,611 Educational services............................... 61 3,609 3,359 250 17,600 17,350 250 Health care and social assistance.................. 62 7,004 6,987 17 36,758 36,741 17 Arts, entertainment, and recreation................ 71 916 915 1 5,172 5,171 1 Accommodation and food services.................... 72 3,037 3,031 6 10,474 10,468 6 Other services..................................... 81 8,084 7,997 87 24,175 24,088 87

Total private.................................. ......... 119,695 85,987 33,708 442,761 409,053 33,708

Some covered contractors will choose to read and review this rule rescinding the Nondisplacement final rule and will thus incur direct costs. To estimate these “regulatory familiarization costs,” three pieces of information must be estimated: (1) the number of affected firms; (2) a wage level for the employees reviewing the rule; and (3) the amount of time spent reviewing the rule.

As discussed above, the Department estimates an upper-bound of 442,761 potentially affected firms.\15\ This is likely an overestimate as not all of the firms that are registered in SAM are predecessor contractors or will bid on an SCA contract, and because firms that are not interested in bidding on an SCA contract do not need to review the rescission final rule.

\15\ See Table 1, Range of Number of Potentially Affected Firms.

The Department estimates that, on average, affected firms will spend an average of 19 minutes reviewing this rule. The Department assumes that a Compensation, Benefits, and Job Analysis Specialist (SOC 13-1141) with a median hourly wage of $30.83 will review this rulemaking. The Department also assumes that benefits are paid at a rate of 46 percent of the base wage and overhead costs are paid at a rate of 17 percent of the base wage, resulting in an hourly rate of $50.25 per hour. Using the GDP deflator to inflate this into 2024 dollars corresponds to a rate of $57.10 per hour.

The Department assumes that each reviewer will spend 1 minute per page reviewing the rule,\16\ which is equivalent to 19 double-spaced pages at the time of publication. Therefore, the Department has estimated the undiscounted regulatory familiarization costs to be $8.01 million ($57.10 per hour x (19 minutes / 60) hour x 442,761 contractors).

\16\ Brysbaert, Marc (April 12, 2019), “How many words do we read per minute? A review and meta-analysis of reading rate,” https://doi.org/10.31234/osf.io/xynwg.

The Department believes that this average estimate is appropriate as some firms will spend more time reviewing the rescission, but as discussed above, many others will spend less or no time reviewing the rescission.\17\ The Department has included all regulatory familiarization costs in Year 1.

\17\ This includes the median base wage of $30.83 from the 2021 OEWS plus benefits paid at a rate of 46 percent of the base wage, as estimated from the BLS's Employer Costs for Employee Compensation (ECEC) data, and overhead costs of 17 percent. OEWS data available at: https://www.bls.gov/news.release/ocwage.t01.htm.

Because section 11 of Executive Order 14055 stated that the Executive order applied to solicitations issued on or after the effective date of the final regulations issued by the FAR Council, and because the FAR Council never promulgated regulations to implement Executive Order 14055, the requirements of the Nondisplacement final rule were effectively never applicable to the regulated community. The Department is unaware of any solicitations that incorporated the provisions outlined by either Executive Order 14055 or the Department's implementation regulations at 29 CFR part 9, so assessing the cost savings of the rescission relative to the current practice would result in non-monetized cost savings. 1. Implementation Cost Savings

The Nondisplacement final rule included a contract clause provision requiring contracting agencies to ensure that covered service contracts and subcontracts that succeed a contract for performance of the same or similar work, and solicitations for such contracts and subcontracts, include the nondisplacement contract clause. In the Nondisplacement final rule, the Department estimated that it would take an average of 30 minutes total for contractors to incorporate the contract clause into their covered subcontracts. With the rescission of the rule, these contractor costs to incorporate this contract clause into covered subcontracts will not be incurred. The Nondisplacement final rule also would have required that a contractor provide notices to affected workers and their collective bargaining representatives, if any, in writing of an agency's determination to grant an exception to the Executive Order 14055 requirements, and of the opportunity to provide information relevant to an agency's location continuity determination pursuant to 29 CFR 9.11(c)(3). Additionally, predecessor contractors would have been required to provide written notice to service employees employed under the contract of their possible right to an offer of employment on the successor contract. Contractors may have also been required to retroactively incorporate a contract clause into subcontracts when it was not initially incorporated. In the Nondisplacement final rule, the Department estimated that these requirements would take an average of 45 minutes for each contractor.

For these cost savings estimates, the Department used the lower- bound of potentially affected firms (119,695), because only the firms with a covered contract would incur these implementation costs. The cost of this time is the median loaded wage for a Compensation, Benefits, and Job Analysis Specialist of $57.10 per hour. Therefore, the Department has estimated the undiscounted cost savings of these requirements to be $8.54 million ($57.10 per hour x 1.25 hour x 119,695 contractors). This is likely an underestimate because many SCA contracts last for several years.

Under the Nondisplacement final rule, contracting agencies would also, among other things, have been required to ensure contractors provide notice to employees on predecessor contracts of their possible right to an offer of employment, and consider whether performance of the work in the same locality or localities in which a predecessor contract is currently being performed is reasonably necessary to ensure economical and efficient provision of services. Contracting agencies would also have been required to provide the list of employees on the predecessor contract to the successor contractor, to forward complaints and other pertinent information to the Department, and to retroactively incorporate the contract clause when it was not initially incorporated. Contracting agencies will not incur these costs because of this rescission.

In the Nondisplacement final rule, the Department estimated that it would take the contracting agencies an extra 2.5 hours of work on average on each covered contract, and that the work would be performed by a GS 14, Step 1 Federal employee contracting officer, with a fully loaded hourly wage of $97.04.\18\ This includes the median base wage of $52.17 from Office of Personnel Management salary tables,\19\ plus benefits paid at a rate of 69 percent of the base wage,\20\ and overhead costs of 17 percent. Using the GDP deflator to inflate this into 2024 dollars corresponds to a rate of $110.26 per hour. Using the USASpending data mentioned above, the Department

estimated that there were 576,122 contracts. To estimate the share of these contracts that are new in a given year, the Department has used 20 percent (115,224), because the average length of an SCA contract is about 5 years. Therefore, the estimated undiscounted cost savings to contracting agencies is $31.76 million ($110.26 per hour x 2.5 hours x 115,224 contracts).

\18\ Because the work of the contracting agency may be split among different positions, the Department has used the wage of a more senior position for the estimate.

\19\ The Department has used the 2025 Rest of United States salary table to estimate salary expenses. See https://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary-tables/21Tables/html/RUS_h.aspx.

\20\ See Congressional Budget Office, “Comparing the Compensation of Federal and Private-Sector Employees, 2011 to 2015,” April 25, 2017, https://www.cbo.gov/publication/52637.

The rescinded rule would have required a predecessor contractor to, no less than 30 calendar days before completion of the contractor's performance of services on a contract, furnish the contracting officer a list of the names of all service employees under the contract and its subcontracts at that time. This list would have needed to include the anniversary dates of employment for each service employee under the contract and its predecessor contracts with either the current or predecessor contractors or their subcontractors. If changes to the workforce were made after the submission of this certified list, the rule also would have required a contractor to furnish 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 not less than 10 business days before completion of the contract.

The rule specified the records successor contractors would have been required to maintain, including copies of or documentation of any written or oral offers of employment, a copy of any written notice that may have been distributed, and the names of the employees from the predecessor contract to whom an offer was made. The rule also would have required contractors to maintain a copy of any record that forms the basis for any exclusion or exception claimed, the employee list provided to the contracting agency, and the employee list received from the contracting agency.

The Department estimates that the extra time associated with keeping and providing these records, including the list of employees, to be an average of 1 hour per firm per year, and that the work will be completed by a Compensation, Benefits, and Job Analysis Specialist, at a rate of $50.25 per hour. Using the GDP deflator to inflate this into 2024 dollars corresponds to a rate of $57.10 per hour. The estimated undiscounted cost savings from eliminating the recordkeeping requirement is $6.83 million ($57.10 per hour x 1 hour x 119,695). 3. Displacement of Successor Contractor Employees

There may be some limited cases of cost savings when a successor contractor has existing employees that they planned to assign to a newly-awarded contract, but the requirement to offer employment to predecessor contract workers might make their existing employees redundant. In this situation, if the successor contractor truly could not find another position for the employee on the new contract or on any of their other existing projects, the continued employment of a predecessor contract worker could be offset by the successor contract worker being laid off. The rescission of the rule may yield some additional cost savings to successor contractors in these cases.

In order to determine the number of small businesses that will be affected by the rulemaking, the Department followed the same methodology laid out in section V.B.2. of the economic analysis. For the data fromUSASpending.gov, the business determination was based on the inclusion of “small” or “SBA” in the business type. For GSA's System for Award Management (SAM) for October 2022, if a company qualified as a small business in any reported NAICS, they were classified as “small.” Table 3 shows the range of potentially affected small firms by industry. The total number of potentially affected small firms ranges from 74,097 to 329,470.

Table 2--Range of Number of Potentially Affected Small Firms by Industry

Lower-bound estimate Upper-bound estimate

Small Small

Industry NAICS Small primes from subcontractors Small subcontractors

Total USASpending.gov from Total firms fromUSASpending.gov from SAM USASpending.gov

Agriculture, forestry, fishing and hunting......... 11 2,198 2,198 0 3,849 3,849 0

Mining............................................. 21 94 72 22 888 866 22 Utilities.......................................... 22 374 358 16 1,601 1,585 16 Construction....................................... 23 8,290 4,348 3,942 45,683 41,741 3,942 Manufacturing...................................... 31-33 6,621 4,243 2,378 39,631 37,253 2,378 Wholesale trade.................................... 42 516 411 105 15,810 15,705 105 Retail trade....................................... 44-45 227 222 5 7,500 7,495 5 Transportation and warehousing..................... 48-49 2,120 1,989 131 14,854 14,723 131 Information........................................ 51 2,352 2,218 134 11,208 11,074 134 Finance and insurance.............................. 52 179 154 25 2,299 2,274 25 Real estate and rental and leasing................. 53 2,068 2,068 0 7,654 7,654 0 Professional, scientific, and technical services... 54 24,371 20,164 4,207 90,547 86,340 4,207 Management of companies and enterprises............ 55 0 0 0 290 290 0 Administrative and waste services.................. 56 10,251 9,060 1,191 30,932 29,741 1,191 Educational services............................... 61 2,224 2,123 101 11,800 11,699 101 Health care and social assistance.................. 62 4,060 4,054 6 16,904 16,898 6 Arts, entertainment, and recreation................ 71 546 546 0 3,944 3,944 0 Accommodation and food services.................... 72 2,102 2,098 4 9,321 9,317 4 Other services..................................... 81 5,504 5,479 25 14,755 14,730 25

Total private.................................. ......... 74,097 61,805 12,292 329,470 317,178 12,292

This rule could result in costs for small business firms in the form of rule familiarization costs, and cost savings through the elimination of implementation and recordkeeping costs that would otherwise have been imposed by the Nondisplacement final rule. 1. Rule Familiarization Costs

As mentioned previously in section V, the Department estimates that, on average, affected firms will spend an average of 19 minutes reviewing this rule. Some firms will spend more time reviewing the rule, but many others will spend less or no time reviewing the rule, so the Department believes that this average estimate is appropriate. The Department assumes that a Compensation, Benefits, and Job Analysis Specialist (SOC 13-1141) with a median hourly wage of $30.83 will review this rulemaking. The Department also assumes that benefits are paid at a rate of 46 percent of the base wage and overhead costs are paid at a rate of 17 percent of the base wage, resulting in a per firm cost of $50.25. Using the GDP deflator to inflate this into 2024 dollars and applying the 19 minutes to review the rule corresponds to a rate of $18.08 per small firm. 2. Cost Savings

Small entities should experience cost savings due to the elimination of the implementation costs that would otherwise have been imposed by the Nondisplacement final rule. In the Nondisplacement final rule, the Department estimated that it would take an average of 30 minutes total for contractors to incorporate the contract clause into their covered subcontracts and another 45 minutes for contractors to retroactively incorporate a contract clause into subcontracts when it was not initially incorporated. The Department has estimated the cost savings of eliminating this requirement to be $62.81 per hour ($50.25 per hour x 1.25 hours). Using the GDP deflator to inflate this into 2024 dollars corresponds to a rate of $71.35 per small firm.

For cost savings incurred from the elimination of the recordkeeping requirement, the Department estimates that the extra time associated with keeping and providing these records to be an average of 1 hour and be completed by Compensation, Benefits, and Job Analysis Specialist of $50.25 per hour. Using the GDP deflator to inflate this into 2024 dollars corresponds to a cost savings of $57.10 per small firm.