Fact Sheet #67A: Nondisplacement of Qualified Workers Under Service Contracts

This fact sheet provides general information concerning the McNamara-O’Hara Service Contract Act.

On December 14, 2023, the Department of Labor (Department) published a final rule, Nondisplacement of Qualified Workers Under Service Contracts, to implement Executive Order 14055, “Nondisplacement of Qualified Workers Under Service Contracts,” which was signed by President Joseph R. Biden, Jr. on November 18, 2021. The Executive Order (E.O.) states that when a service contract expires and a follow-on contract is awarded for the same or similar services, the Federal Government’s procurement interests in economy and efficiency are best served when the successor contractor or subcontractor hires the predecessor’s employees, thus avoiding displacement of these employees.

Executive Order 14055 mandates the inclusion of a contract clause titled “Nondisplacement of Qualified Workers” in covered service contracts. This contract clause provides that contractors and subcontractors performing on covered Federal service contracts must in good faith offer service employees employed under the predecessor contract a right of first refusal of employment.

The final rule codifies requirements of Executive Order 14055 in 29 CFR part 9 of the Code of Federal Regulations (CFR). The nondisplacement requirements are enforced by the Wage and Hour Division (WHD) within the Department. The nondisplacement requirements will apply to solicitations issued on or after the effective date of final regulations that the Federal Acquisition Regulatory Council (FAR Council) issues to implement Executive Order 14055. For solicitations issued between the date of Executive Order 14055 and the effective date of the FAR Council’s regulations, contracting agencies are strongly encouraged, to the extent permitted by law, to include in the relevant solicitation the contract clause described in section 3 of Executive Order 14055.

What contracts are covered by Executive Order 14055 and the final rule?

Executive Order 14055 and the final rule apply to any contract, contract-like instrument, or subcontract for services entered into by the Federal Government or its contractors that is covered by the Service Contract Act (SCA).

The final rule provides that the nondisplacement requirements apply to subcontracts of any tier below a covered prime contract. The prime contractor is responsible for compliance of any subcontractor or lower-tier subcontractor with the nondisplacement requirements. A new prime contractor must ensure that employees of subcontractors on a predecessor contract are provided employment offers on the new contract, whether direct offers from the new prime contractor itself or offers from subcontractors of the new prime contractor.

Are prime contracts below the simplified acquisition threshold covered by Executive Order 14055 and the final rule?

Executive Order and the final rule do not apply to prime contracts under the simplified acquisition threshold set by the Office of Federal Procurement Policy Act, as amended (41 U.S.C. 134), and any subcontracts of any tier under such prime contracts.  As of [X date], the threshold amount is $250,000.

What are the responsibilities of contracting agencies in complying with Executive Order 14055 and the final rule?

In implementing the E.O., contracting agencies’ responsibilities include:

• Determining whether a solicitation and ensuing contract is covered by the E.O.
• Deciding whether to exercise authority under Section 6 of the E.O. to grant an exception from the E.O. requirements for a solicitation and ensuing contract that would otherwise be covered.
• Inserting the applicable contract clause into the solicitation and contract where the agency decides that no exception is warranted for that contract.
• Conducting a “location continuity” analysis to determine whether to include a location-continuity requirement or preference in a covered solicitation.
• Taking steps to ensure that the predecessor contractor provides written notice to service employees employed under the predecessor contract of their possible right to an offer of employment on the successor contract.
• Ensuring that contractors provide required notices regarding exceptions and location continuity determinations.
• Within the last month of contract completion, sending to the successor contractor (meaning, contractors awarded contracts that follow another contract for the same or similar work) a certified list of names and addresses (provided to the agency by the predecessor contractor) of all the employees working under the prime contract and any subcontract.

Can contracting agencies waive requirements of Executive Order 14055 and the final rule?

Yes. The Executive Order and the final rule provide limited exception (i.e., waiver) authority to contracting agencies. Specifically, a contracting agency may waive the application of some or all of the requirements of the E.O. and the final rule as to a prime contract if the senior procurement executive within the agency issues a written determination that at least one of the following circumstances exists with respect to that contract:

• Adhering to the requirements of the E.O. or the final rule would not advance the Federal Government’s interest in achieving economy and efficiency in federal procurement;
• Based on a market analysis, adhering to the requirements of the E.O. or final rule would substantially reduce the number of potential bidders so as to frustrate full and open competition and not be reasonably tailored to the agency’s needs for the contract; or
• Adhering to the requirements of the E.O. or final rule would otherwise be inconsistent with statutes, regulations, Executive Orders, or Presidential Memoranda.
• Contracting agencies will publish written determinations of agency exceptions on a publicly available centralized website.

What are the responsibilities of predecessor contractors in complying with Executive Order 14055 and the final rule?

In implementing the E.O., predecessor contractors’ responsibilities include:

• Not less than 30 calendar days before completion of the predecessor contractor’s performance of services on a contract, the predecessor contractor must furnish the contracting officer with a certified list of the names, mailing addresses, and if known, phone numbers and email addresses of all service employees working under the contract and its subcontracts at the time the list is submitted. The list must also contain anniversary dates of employment of each service employee under the contract and its predecessor contracts with either the current or predecessor contractors or their subcontractors.
• If changes to the contractor’s workforce are made after submitting the certified list, the contractor must, not less than 10 business days before completion of the contractor’s performance of services on a contract, furnish the contracting officer with an updated certified list of names, mailing addresses, anniversary dates, and if known, phone numbers and email addresses of all service employees.
• Before contract completion, the contractor also must provide written notice to service employees employed under the contract of their possible right to an offer of employment on the successor contract. Such notice must either be posted in a conspicuous place at the worksite or delivered to the employees individually. Furthermore, where the workforce is comprised of a significant portion of workers who are not fluent in English, notice of their possible right to an offer of employment on the successor contract must be provided in both English and a language in which the employees are fluent.
• The predecessor contractor also may be required, in the timeframes requested by the contracting agency, to notify employees under the contract, and their representatives, if any, of any agency determination to except a successor contract from the nondisplacement requirements, and to notify collective bargaining representatives of the opportunity to provide information relevant to the contracting agency’s location continuity determination in the solicitation for a successor contract.
• The contractor must maintain records as specified in the final rule.
• The contractor must cooperate in any investigation conducted pursuant to the final rule and must not interfere with the investigation or discriminate against any person because such person has cooperated in an investigation or proceeding under the final rule or has attempted to exercise any rights afforded under the final rule.

What are the responsibilities of successor contractors in complying with Executive Order 14055 and the final rule?

In implementing the E.O., successor contractors’ responsibilities include:

• On contracts subject to the nondisplacement requirements, successor contractors must make bona fide, express job offers to service employees who were employed under the predecessor contract in positions for which they are qualified, unless one of the exceptions listed in the final rule applies. These offers must be in writing and each employee must have at least 10 business days to consider the offer.
• The contractor must offer employment even if it does not receive timely a list of workers on the predecessor contract. For example, the successor contractor may still determine which employees should be given offers by relying upon certain types of evidence, such as a worker’s paystub showing the work location and applicable dates worked.
• Where a successor contractor employs fewer employees than were employed on the predecessor contract and therefore does not offer employment to all the predecessor contract employees, the contractor's obligation to offer employment continues for 90 calendar days after its first date of performance on the contract.
• The contractor must maintain records as specified in the final rule.
• The contractor must cooperate in any investigation conducted pursuant to the final rule and must not interfere with the investigation or discriminate against any person because such person has cooperated in an investigation or proceeding under the final rule or has attempted to exercise any rights afforded under the final rule.
• Contractors and subcontractors have an affirmative obligation to ensure a covered contract contains the nondisplacement contract clause and must notify the contracting officer if it appears the clause was mistakenly omitted.

How are complaints addressed by the Department?

Complaints may be filed with any WHD office within 120 days from the first date of contract performance. After review of the complaint, WHD may initiate an investigation and may also seek to resolve the complaint through conciliation.

What happens if a contractor violates Executive Order 14055 or the final rule?

If WHD determines that a contractor has not complied with the requirements of the Executive Order and the final rule, WHD will request that the contractor remedy the violation. WHD may also direct the contracting agency to withhold payments due to the contractor in order to ensure funds are available to pay workers the full amount of lost wages due under the Executive Order. Upon the conclusion of administrative proceedings, the Department may order the contractor to hire the affected employee(s), together with compensation (including lost wages and interest) as well as other terms, conditions, and privileges of that employment. In addition, contractors found to be in violation of the Executive Order may be subject to debarment from future contracts for a period up to three years.