[Federal Register Volume 76, Number 212 (Wednesday, November 2, 2011)]
[Rules and Regulations]
[Pages 68040-68043]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-27790]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Part 31
[FAC 2005-54; FAR Case 2009-006; Item IX; Docket 2010-0084, Sequence 1]
RIN 9000-AL39
Federal Acquisition Regulation; Labor Relations Costs
AGENCY: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Final rule.
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SUMMARY: DoD, GSA, and NASA are issuing a final rule amending the
Federal Acquisition Regulation (FAR) to implement the Executive Order
(E.O.) on Economy in Government Contracting, issued on January 30,
2009, and amended on October 30, 2009. This E.O. treats as unallowable
the costs of any activities undertaken to persuade employees, whether
employees of the recipient of Federal disbursements or of any other
entity, to exercise or not to exercise, or concerning the manner of
exercising, the right to organize and bargain collectively through
representatives of the employee's own choosing.
DATES: Effective Date: December 2, 2011.
FOR FURTHER INFORMATION CONTACT: Mr. Edward N. Chambers, Procurement
Analyst, at (202) 501-3221, for clarification of content. For
information pertaining to status or publication schedules, contact the
Regulatory Secretariat at (202) 501-4755. Please cite FAC 2005-54, FAR
Case 2009-006.
SUPPLEMENTARY INFORMATION:
I. Background
DoD, GSA, and NASA published a proposed rule in the Federal
Register at 75 FR 19345 on April 14, 2010, to implement E.O. 13494,
Economy in Government Contracting, dated January 30, 2009, published in
the Federal Register at 74 FR 6101 on February 4, 2009, as amended on
October 30, 2009 (published in the Federal Register at 74 FR 57239 on
November 5, 2009). This E.O. promotes economy and efficiency in
Government contracting by providing that certain costs that are not
directly related to the contractor's provision of goods and services to
the Government shall be unallowable for payment, thereby directly
reducing Government expenditures and reinforcing the fiscally
responsible handling of taxpayer funds. Specifically, this E.O. states
that the costs of the activities of preparing and distributing
materials, hiring or consulting legal counsel or consultants, holding
meetings (including paying the salaries of the attendees at meetings
held for this purpose), and planning or conducting activities by
managers, supervisors, or union representatives during work hours, when
they are undertaken to persuade employees to exercise or not to
exercise, or concern the manner of exercising, rights to organize and
bargain collectively are unallowable costs.
In order to implement E.O. 13494, DoD, GSA, and NASA have amended
FAR 31.205-21, the cost principle addressing labor relations costs.
Currently, this cost principle states that costs incurred in
maintaining satisfactory relations between the contractor and its
employees, including costs of shop stewards, labor management
committees, employee publications, and other related activities, are
allowable. To implement the requirements of the E.O., DoD, GSA, and
NASA issued a proposed rule that would amend this cost principle by
adding a new paragraph addressing the handling of persuader
activities--that is, activity involving the persuading of employees to
exercise or not exercise their rights to organize and bargain
collectively. By doing so, the proposed rule differentiated the
handling of costs incurred through persuader activities, which are
unallowable, from those incurred in maintaining satisfactory labor
relations, which remain allowable. Specifically, the proposed rule
stated that the costs of any activities undertaken to persuade
employees, of any entity, to exercise or not to exercise, or concerning
the manner of exercising, the right to organize and bargain
collectively through representatives of
[[Page 68041]]
the employees' own choosing are unallowable. The proposed rule also
identified examples of activities the costs of which are unallowable
when performed in connection with persuader activities: (1) Preparing
and distributing materials, (2) hiring or consulting legal counsel or
consultants, (3) meetings (including paying the salaries of the
attendees at meetings held for this purpose), and (4) planning or
conducting activities by managers, supervisors, or union
representatives during work hours. Based on a careful review of public
comments, discussed below, DoD, GSA, and NASA have concluded that the
proposed rule should be finalized with just one minor editorial change.
Consistent with section 8 of the E.O. and standard FAR conventions (see
FAR 1.108(d)), this rule shall apply to contracts resulting from
solicitations issued on or after the rule's effective date.
II. Discussion and Analysis of the Public Comments
The Civilian Agency Acquisition Council and the Defense Acquisition
Regulations Council (the Councils) reviewed the public comments in the
development of the final rule. Fourteen respondents submitted comments
on the proposed rule. These responses included a total of 28 comments
on 12 issues. Several respondents strongly supported the rule, with one
respondent urging the proposed rule be finalized as soon as possible.
Other respondents raised concerns which are addressed below.
A. Favors Unions
Comment: Two respondents asserted that the rule favors unions and
penalizes contractors.
Response: Under this rule, the Government will treat as unallowable
the costs of specified ``persuader'' activities that are not directly
related to the contractor's provision of goods and services to the
Government, in order to promote economy and efficiency in Government
contracting. Moreover, certain costs undertaken by contractors that are
incurred in maintaining satisfactory relations between the contractor
and its employees continue to be allowable, whether or not the
contractor's employees are represented by a union. In addition, certain
activities undertaken with the union that are not otherwise unlawful,
including costs associated with negotiating or administering collective
bargaining agreements, are allowable under section 3 of E.O. 13494 and
paragraph (a) of FAR 31.205-21 because they involve the maintenance of
satisfactory labor relations between the contractor and its employees.
Costs related to the development, implementation, and enforcement of
neutrality agreements would also be allowable provided that none of the
costs attributed to the agreements include unreasonable costs or costs
of unallowable persuader activities or activities that are otherwise
unlawful. (See comment ``F'' for additional discussion of neutrality
agreements.) No change to the rule has been made in response to this
comment.
B. Prohibits Certain Protected Contractor Activities
Comment: A number of respondents interpreted the rule to prohibit
certain protected contractor activities, such as an employers' right to
engage in speech that does not violate the National Labor Relations Act
(NLRA). See 29 U.S.C. 158(c). As such, these respondents argued that
E.O. 13494 is preempted by the NLRA, particularly in light of Chamber
of Commerce v. Brown, 554 U.S. 60 (2008), in which the United States
Supreme Court held that a State statute was preempted by the NLRA
because it attempted regulation of speech about union-related activity
that was within the zone of conduct intended by Congress to be left to
market forces.
Response: This rule does not prohibit or otherwise regulate
persuader activities; it only disallows the reimbursement of the costs
of these activities under Federal contracts. The purpose of the rule is
to promote economy and efficiency in Government contracting by
excluding certain costs from reimbursement by the Government that are
not directly related to the contractors' provision of goods and
services to the Government. By doing so, the rule promotes the fiscally
responsible handling of taxpayer funds. The State law at issue in Brown
was rooted in ``California's policy judgment that partisan employer
speech necessarily interferes with an employee's choice about whether
to join or to be represented by a union.'' 554 U.S. at 69 (internal
quotation omitted). By contrast here, neither the E.O. nor the rule in
any way restrict the manner in which recipients of Federal funds may
expend funds they receive from the Government or any other of their own
funds, including funds a recipient received as a Government contractor
for providing goods and services under Federal contracts. Instead, this
rule preserves a contractor's freedom to spend its own funds however it
wishes, whereas the State statute in Brown made it exceedingly
difficult for employers to demonstrate that they had not used State
funds for non-reimbursable purposes. (554 U.S. at 71-73). Moreover,
unlike the State statute in Brown, this rule does not contain a
``formidable enforcement scheme'' involving ``compliance costs and
litigation risks * * * calculated to make union-related advocacy
prohibitively expensive for employers.'' Id. at 63, 71. To the
contrary, the E.O. and this rule merely identify types of costs that
are not allowed for reimbursement under the well-established Federal
procurement scheme, which already contains mechanisms for submission to
and review of contract costs by Federal agencies designed to avoid
unnecessary Government expenditures. No additional enforcement burden
or employer liability is established by the E.O. or this rule. As a
result, this rule is consistent with the Court's holding in Brown, and
does not run afoul of the NLRA.
C. Unclear Language
Comment: Several respondents stated that the proposed rule
contained confusing or conflicting language or that the rule was
unclear as to what costs are disallowed.
Response: The language added to the labor relations cost principle
does not conflict with the existing language. As explained in section
II.A. of this preamble, the existing language, now identified as FAR
31.205-21(a), identifies when costs are allowable. The language
addressing the E.O., added at a new FAR paragraph 31.205-21(b),
addresses costs incurred through persuader activities, which are
unallowable.
D. Imposes Significant Compliance Burdens
Comment: A number of respondents contended that the rule imposes
significant compliance burdens and accounting costs, including those
incurred in distinguishing between allowable and unallowable costs.
Response: FAR 31.201-6 requires contractors to have an accounting
system to segregate unallowable costs. The incremental costs of
implementing and tracking an additional unallowable cost element will
be minimal. No changes in the rule have been made in response to this
comment.
E. Conflicts With 29 U.S.C. 433
Comment: One respondent believed that the proposed rule was in
conflict with 29 U.S.C. 433, which requires that employers file reports
with the Secretary of Labor if they engage in certain ``persuader
activities'' defined in
[[Page 68042]]
that section. The respondent stated that section 433 defines these
activities differently and more narrowly than E.O. 13494.
Response: The policies codified in the Labor-Management Reporting
and Disclosure Act of 1959 (LMRDA), 29 U.S.C. 401 et seq., and the E.O.
are not in conflict. Nothing in the E.O. or the rule affects the scope
of employer reporting obligations for purposes of section 203 of the
LMRDA, 29 U.S.C. 433. As discussed above, the E.O. is designed to
promote the policies of economy and efficiency in Federal Government
contracting established in the Federal Property and Administrative
Services Act, by excluding certain costs that are not directly related
to the contractor's provision of goods and services to the Government,
and to do so in a neutral manner that is consistent with that reflected
in 29 U.S.C. 433.
F. Unreimbursable Costs
Comment: A respondent stated that unreimbursable costs, as
addressed in the proposed rule, are too broad and ignore the realities
that employers frequently reimburse employees for time spent in
collective bargaining and further ignore the rise and prevalence of
neutrality pacts between employers and unions, used by the parties to
minimize labor disputes. The respondent further stated that employers
and unions frequently cooperate to encourage employees to ratify a
collective bargaining agreement reached by the employer and the
employees' bargaining representative. The respondent suggested that the
list of reimbursable expenses in FAR 31.205-21(a) be amended by adding
immediately after the words ``employee publications'' the following:
``the costs of preparing for and conducting collective bargaining and
the cost attributable to the ratification of collective bargaining
agreements.''
Response: Inclusion of this suggested language in the rule is
unnecessary. Under the final rule, the costs of collective bargaining
that are not persuader activity under FAR 31.205-21(b) are covered by
FAR 31.205-21(a), and would be allowable to the extent that the costs
were reasonable, allocable, and not unallowable under another cost
principle, and are otherwise lawful. (See response to comment in
section II.A.) Neutrality agreements would be handled in similar
fashion. These agreements are entered into by contractors and labor
organizations and have often been used to establish mutually agreed-to
restraints for reducing disputes associated with union representation.
Therefore, costs associated with the development, negotiation, and
enforcement of neutrality agreements would not normally be expected to
involve any persuader activity. So long as that is the case, under the
rule, costs associated with agreements of this kind would generally be
allowable as part of the maintenance of satisfactory labor relations,
provided that they do not represent persuader activity under FAR
31.205-21(b), are reasonable, allocable, not unallowable under another
cost principle, and are otherwise lawful.
G. Contractors' Indirect Litigation Costs
Comment: A respondent stated that it is important to clarify that
this rule applies to a contractor's indirect litigation costs which are
directly associated with the activities described in FAR 31.205-21(b)
and suggested that this clarification could be accomplished by adding a
fifth example of unallowable costs to the four listed in the proposed
rule, which states ``Costs of litigation or other legal proceedings
arising on account of any activities described in paragraph (b) where
it is determined by National Labor Relations Board, the National
Mediation Board, a similar State or local administrative agency or a
court of law that such activities were in violation of law or
undertaken to persuade employees regarding their exercise of collective
bargaining rights.''
Response: This suggested clarification is not necessary since FAR
31.201-6 already disallows costs that are directly associated with
unallowable costs, including associated litigation costs under FAR
31.205-47.
H. Additional Examples
Comment: A respondent suggested that two additional examples of
unallowable costs be added to the list of examples contained in the
proposed rule. The first example would state that the costs of
surveillance by video, email, or other means of employee organizing
activities are unallowable costs. The second example would state that
``informal polling of employees as to their preferences for or against
unionization is unlawful under the NLRA as a means of dissuading
employees with respect to union activities, see, e.g., Smithfield
Foods, 347 N.L.R.B. 1225 (2006), and therefore, time spent by
supervisors and others conducting informal polls during the pendency of
a union organizing campaign is unrelated to contract performance and
should be listed as an example of unallowable costs under the Executive
Order.''
Response: Inclusion of these examples is not necessary. The
examples in the rule are not exhaustive, but adequately cover the
allowability of costs for a full range of lawful activities.
Furthermore, the costs of activities that are unlawful, including
unlawful activities under the NLRA, are not allowed under the FAR. FAR
31.201-3(b)(2) makes clear that costs incurred for unlawful activities
shall not be reimbursed.
I. Contract Administration Activities
Comment: A respondent suggested that various contract
administration activities be addressed in this rule, including that the
contractors be required to update their accounting systems to account
for the costs made unallowable by this rule; that contractors
demonstrate to contracting officers that their accounting systems can
effectively account for these unallowable costs; that contracting
officers, upon issuance of the final rule, undertake supplemental
reviews of the adequacy of the contractors' accounting systems to
account properly for unallowable union persuasion costs; that
contracting officers undertake an additional review of cost
reimbursement claims to ensure that this new rule is being followed and
the Government is not overcharged; that contractors certify on each
bill or claim whether they have undertaken any activities to persuade
employees concerning the manner of exercising their right to organize
or bargain collectively and whether those costs have been accounted for
and excluded from the reimbursement sought from the Federal Government;
and that contracting officer's representatives include in their regular
reports whether they know of any union persuasion activities the
contractors may have undertaken during the reporting period.
Response: The FAR already contains coverage addressing the
negotiation and administration of contracts that would cover these
types of activities.
J. Role of Inspector General
Comment: A respondent stated that each agency should designate a
member of the agency Inspector General's staff to collect information
related to potentially unallowable union persuasion activities from
employees or members of the public, some of whom may wish to remain
anonymous, and refer that information to the contracting officer to
facilitate billing reviews and audits as well as require that the
Inspector General from each agency perform a review of the
implementation of this rule within one year after the final rule goes
into effect.
[[Page 68043]]
Response: This recommendation is outside the scope of this case,
which was limited to the implementation of E.O. 13494 in the FAR. The
FAR does not prescribe activities for Inspectors General.
K. Investigation of Reports of Employer Persuader Activities
Comment: A respondent stated that the final rule should make clear
that contracting officers are to receive and investigate instances of
employer persuader activities reported by workers or labor union
representatives and that FAR 3.903 protects the right of the
contractor's employees to report such activities. The respondent
believed that the final rule should establish a process by which
employees of Federal contractors or others with knowledge of employer
persuasion costs can disclose that information to designated officials
anonymously. Finally, the respondent believed that the final rule
should state that FAR 33.209 applies to any Federal contractor who
submits for reimbursement any costs made unallowable by this rule.
Response: These recommendations are outside the scope of this case,
which was limited to the implementation of E.O. 13494. To the extent
that FAR 3.903 and 33.209 are applicable, there is already adequate FAR
coverage. Further, FAR subpart 3.10 also addresses contractor business
ethics.
L. Regulatory Flexibility Act
Comment: Two respondents stated that the rule fails to comply with
the Regulatory Flexibility Act. Both requested the basis for the stated
conclusions and one requested the Councils to conduct an Initial
Regulatory Flexibility Analysis.
Response: DoD, GSA, and NASA have certified that the rule will not
have a significant economic impact on a substantial number of small
entities. The Regulatory Flexibility Act certification is based upon an
analysis of the data in the Federal Procurement Data System (FPDS).
(See additional discussion in section IV, Regulatory Flexibility Act.)
That certification states that most contracts awarded to small entities
use simplified acquisition procedures or are awarded on a competitive
fixed-price basis, and thus do not require application of the cost
principle contained in this rule. This is supported by the most recent
data available from the FPDS. For Fiscal Year 2010, a search of FPDS
revealed 1,822,515 awards to small businesses. Of these, 1,814,282 were
fixed price (99.5 percent), and 1,220,154 (67 percent) were below the
simplified acquisition threshold.
III. Executive Orders 12866 and 13563
Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). E.O.
13563 emphasizes the importance of quantifying both costs and benefits,
of reducing costs, of harmonizing rules, and of promoting flexibility.
This is a significant regulatory action and, therefore, was subject to
review under section 6(b) of E.O. 12866, Regulatory Planning and
Review, dated September 30, 1993. This rule is not a major rule under 5
U.S.C. 804.
IV. Regulatory Flexibility Act
The Department of Defense, the General Services Administration, and
the National Aeronautics and Space Administration certify that this
final rule will not have a significant economic impact on a substantial
number of small entities within the meaning of the Regulatory
Flexibility Act, 5 U.S.C. 601, et seq., because most contracts awarded
to small entities use simplified acquisition procedures or are awarded
on a competitive fixed-price basis, and do not require application of
the cost principles contained in this rule.
V. Paperwork Reduction Act
The final rule does not contain any information collection
requirements that require the approval of the Office of Management and
Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35).
List of Subjects in 48 CFR Part 31
Government procurement.
Dated: October 21, 2011.
Laura Auletta,
Acting Director, Office of Governmentwide Acquisition Policy, Office of
Acquisition Policy, Office of Governmentwide Policy.
Therefore, DoD, GSA, and NASA amend 48 CFR part 31 as set forth
below:
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES
0
1. The authority citation for 48 CFR part 31 continues to read as
follows:
Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42
U.S.C. 2473(c).
0
2. Revise section 31.205-21 to read as follows:
31.205-21 Labor relations costs.
(a) Costs incurred in maintaining satisfactory relations between
the contractor and its employees (other than those made unallowable in
paragraph (b) of this section), including costs of shop stewards, labor
management committees, employee publications, and other related
activities, are allowable.
(b) As required by Executive Order 13494, Economy in Government
Contracting, costs of any activities undertaken to persuade employees,
of any entity, to exercise or not to exercise, or concerning the manner
of exercising, the right to organize and bargain collectively through
representatives of the employees' own choosing are unallowable.
Examples of unallowable costs under this paragraph include, but are not
limited to, the costs of--
(1) Preparing and distributing materials;
(2) Hiring or consulting legal counsel or consultants;
(3) Meetings (including paying the salaries of the attendees at
meetings held for this purpose); and
(4) Planning or conducting activities by managers, supervisors, or
union representatives during work hours.
[FR Doc. 2011-27790 Filed 11-1-11; 8:45 am]
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