On January 18, 2013, the Federal Acquisition Regulatory (“FAR”) Council implemented Executive Order (“E.O.”) 13495 (“Nondisplacement of Qualified Workers Under Service Contracts”) into regulation at FAR Subpart 22.12.  Our colleagues at McKenna Long & Aldridge’s Government Contracts Advisor blog report: 

FAR Subpart 22.12 requires successor service contractors and subcontractors (whose contracts are above the simplified acquisition threshold) to offer “service employees,” who were employed under predecessor contracts, “a right of first refusal of employment” when the successor contract is for the “same or similar service[s]” and at the “same location” as the predecessor contract.  As we outlined in our recent client advisory, service contractors and subcontractors must carefully review this regulation to understand its impact on hiring processes, especially in light of the ambiguities, loopholes, and strong enforcement provisions contained in the regulation.  For example, FAR Subpart 22.12 does not define the phrase “same location,” leaving it open to various interpretations: the “same location” could be limited to the same building or expanded to include all services performed in the same city.  As one can imagine, such interpretations could dramatically affect the reach of this regulation.  On the enforcement side, this regulation allows the contracting officer to suspend payment on a contract or suspend or debar a contractor, in certain instances.  Further, disputes arising from FAR Subpart 22.12 will not be subject to the Contract Disputes Act; they will be resolved in accordance with Department of Labor procedures set forth at 29 C.F.R. part 9.

In a client advisory and blog post published when President Obama issued E.O. 13495, we observed the potential labor relations impact of the Order:

The Order expressly states that it is intended to promote “economy and efficiency” by “reduc[ing] disruption” to services and ensuring “an experienced and trained work force.” Pursuant to labor law “successorship” principles, however, the Order will also have the effect of securing the continued recognition of the predecessor’s union representative and preventing the successor from unilaterally setting initial terms of employment. Under well-settled law, unless it is "perfectly clear" that a new employer intends to hire all of a predecessor’s employees, the new employer is free to set the initial terms and conditions of employment. However, where it is “perfectly clear” that all prior union-represented employees will be retained, the successor must maintain the pre-existing wages and benefits for those employees while bargaining with the union over terms and conditions of employment.

Service contractors should continue to act carefully and make calculated decisions when considering taking over for incumbent contractors. We, and our friends at the Government Contracts Advisor, will continue to monitor legislative and regulatory activities in this area.