Location, Location, Location – Coming to a Government Contract Near You

It is an old cliché that location is everything in real estate. Now, it will be taking on a new importance in government contracts as well.

Earlier this month, regulations took effect implementing President Joe Biden's Executive Order 14055, “Nondisplacement of Qualified Workers Under Service Contracts.” That EO and the implementing rules require contractors and subcontractors that work on covered federal service contracts to, in good faith, offer service employees employed under the predecessor contract a right of first refusal of employment on the successor contract. 

In plain English, if Company A wins a covered service contract that, until now, was performed by Company B, Company A must make good faith job offers to many of the employees of Company B. That's the general idea, though there are lots of details and caveats to familiarize oneself with. (Covered contracts will be most contracts that are valued at or above $250,000 and are covered by the Service Contract Act, but check the solicitation to see whether the appropriate implementing language has been included.)

This EO is not new; similar orders were issued by President Bill Clinton and by President Barack Obama. But there is something very new and significant here. Clinton's and Obama's orders applied only when the new contractor would perform the contract in the same locality as the predecessor contractor. Thus, as a practical matter, those orders applied only to contracts performed in government facilities or which had to be performed near a specific government facility. 

If a contractor was performing work off-site, even if it was near the government facility, and the successor contractor chose for whatever reason to perform in a different city, the nondisplacement rules did not apply. (Contractors might have made that decision in order to stay near their corporate headquarters, to take advantage of lower labor rates, or for many other reasons.)

In contrast, President Biden's order directs agencies to consider, during the preparation of a covered solicitation, whether performance of the work in the same locality or localities in which the contract is currently being performed is reasonably necessary to ensure economical and efficient provision of services and, if so, to include a requirement or preference for location continuity in the solicitation. In other words, offerors may now be required continue performance in the same location where the predecessor chose to perform. Or, that might not be a requirement, but offerors may be given evaluation preference for offering to do that. In the preamble to the new regulations, the U.S. Department of Labor (DOL) states (all the quotations below are from 88 Federal Register 86,760 (Dec. 14, 2023)):

“The new requirements seek to increase the government’s opportunity to benefit from carryover workforces even where a contract location changes, but the requirements also place significantly more emphasis on the potential benefits of keeping contract locations constant.”

The regulations include “location continuity” factors that agencies are supposed to consider in making this decision.

Moreover, even if the government does not require performance in the same location, and “even if the place of performance for a successor contract will be in a different locality from the predecessor contract, the successor contract will still be required to include the nondisplacement contract clause and the successor contractor will still be required to provide workers on the predecessor contract with a right of first refusal for positions on the new contract.” 

This may not be as onerous as it seems because, as DOL notes, “these requirements should not be construed to require or recommend the payment of relocation costs to workers who exercise their right to take a new position when a contract location is moved.” Moreover, a good faith job offer does not necessarily mean offering the same pay the worker has now. Thus, if wages in the new location are lower than in the old location, the contractor can still take advantages of that lower pay scale. And, if the new contractor has a technical approach that requires fewer workers it does not need to offer jobs to all of the predecessor's workers.

Nevertheless, these new rules will have a major impact on how contractors manage their workforces. They also may open the door to new bid protests, as disputes will arise about whether the government has properly applied the factors to determine whether to require “location continuity.”

Should be interesting times ... and locations.