EP 1180-1-1
1 Aug 01
3-27. Exemption for Certain Commercial Service Contracts. Based on a request from the Office of
Federal Procurement Policy to the Secretary of Labor, the Secretary has determined that certain
contracts for commercial services meeting specific criteria may be exempt from the Act's coverage.
Proponents of such exemptions have maintained that in certain situations, an employee's work on a
government contract represents a small portion of his or her time and the balance of the time is spent on
commercial work. The Office of Federal Procurement Policy reasoned that in such cases the Government
loses the full benefits of competition for its service contracts because some contractors decline to
compete for Government work due to specific government requirements. In recognition of such
situations, the Secretary of Labor has developed an exemption framework that would protect prevailing
labor standards and avoid the undercutting of such standards by contractors. These criteria are intended
to limit the exemption to those procurements where the services being procured are such that it would be
more efficient and practical for an offeror to perform the services with a workforce that is not primarily
assigned to the performance of government work. Thus, contracts for base support services where an on-
site dedicated workforce performs the work would not meet the exemption criteria. Also, contracts
where the services have been performed by a dedicated group of federal employees (A-76
procurements) would be unlikely to meet the exemption criteria since the nature of the services would not
meet the requirement that the workers perform only a small part of their time on the contract. However, it
is possible that some subcontracts for a portion of those services might meet the criteria for exemption.
The paragraphs below summarize the Secretary of Labor's Final Rule with respect to "commercial item"
exemptions. The rule, published in the Federal Register on 18 January 2001, amending 29 CFR 4.123,
became effective on 19 March 2001. Each of the criteria must be satisfied and the Secretary of Labor
has reserved the right to review such determinations.
a. The services under the contract are commercial--i.e., they are offered and sold regularly to
non-Governmental customers, and are provided by the contractor (or subcontractor in the case of an
exempt subcontract) to the general public in substantial quantities in the course of normal business
operations.
b. The prime contract or subcontract will be awarded on a sole source basis or the contractor will
be selected for award on the basis of other factors in addition to price. In such cases, price must be equal
to or less important than the combination of other non-price or cost factors in selecting the contractor.
c. The prime contract or subcontract services are furnished at prices which are, or are based on,
established catalog or market prices. An established price is a price included in a catalog, price list,
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