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Contract winner must hire predecessor's employees, new rule says

Aug. 30, 2011 - 06:00AM   |  
By SARAH CHACKO   |   Comments
The new Labor Department rule stems from a 2009 executive order issued by President Obama that sought to reduce disruption during a contractor transition and retain experienced workers.
The new Labor Department rule stems from a 2009 executive order issued by President Obama that sought to reduce disruption during a contractor transition and retain experienced workers. (Win McNamee / Getty Images)

A company that wins an established services contract would have to hire the predecessor firm's employees under a rule issued Monday by the Labor Department.

The rule, which would cover service contracts valued at more than $150,000, is opposed by industry groups, which say the rule dictates who companies should hire and predetermines who is best qualified to do the work.

The Labor Department, using 2006 federal procurement data, estimates that 40,000 contractors and subcontractors will be subject to the rule annually.

The rule stems from a 2009 executive order issued by President Obama that sought to reduce disruption during a contractor transition and retain experienced workers.

Labor officials issued a draft rule in March and sought public comments through May. The final rule was made in consultation with the Federal Acquisition Regulatory Council, but the council has not yet published it as an addition to the federal regulation, which would require agencies to add the rule as a clause in contracts.

Agencies would have to give the right of first refusal to most incumbent employees but not managers or supervisors.

Opponents of the rule include the Professional Services Council, TechAmerica and the U.S. Chamber of Commerce. In separate comments to the Labor Department, they say the rule limits a contractor's ability to make sweeping changes that may be needed and potentially guarantees work for some poor-performing employees.

While the successor contractor does not have to offer employment to an incumbent employee if there is evidence of past poor performance, the outgoing contractor may not provide meaningful performance information because of employee privacy rights or corporate liability issues, said PSC executive vice president Alan Chvotkin.

The rule states that federal contracting officers will help determine which employees would stay on their jobs when contracted work changes hands.

But Navy and Air Force officials said in public comments on the rule that this presents challenges for federal contract officials.

Navy labor adviser Frank Dean, for example, said federal contracting officers often do not know or work with contractor employees and thus are not in a good position to help make those decisions.

Patrick Rhode, chief of the Air Force Installations and Sourcing Division, said complications could arise if, for example, a new contractor is forced to hire a predecessor's employees and then performs poorly. The contractor, in that case, could argue that the poor performance was the result of employees it was forced to hire and, thus, was not its fault.

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