
[Code of Federal Regulations]
[Title 29, Volume 1]
[Revised as of July 1, 2001]
From the U.S. Government Printing Office via GPO Access
[CITE: 29CFR4]

[Page 50-75]
 
                             TITLE 29--LABOR
 
PART 4--LABOR STANDARDS FOR FEDERAL SERVICE CONTRACTS--Table of Contents
 
Subpart C--Application of the McNamara-O'Hara Service Contract Act

                              Introductory

Sec. 4.101  Official rulings and interpretations in this subpart.

    (a) The purpose of this subpart is to provide, pursuant to the 
authority cited in Sec. 4.102, official rulings and interpretations with 
respect to the application of the McNamara-O'Hara Service Contract Act 
for the guidance of the agencies of the United States and the District 
of Columbia which may enter into and administer contracts subject to its 
provisions, the persons desiring to enter into such contracts with these 
agencies, and the contractors, subcontractors, and employees who perform 
work under such contracts.

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    (b) These rulings and interpretations are intended to indicate the 
construction of the law and regulations which the Department of Labor 
believes to be correct and which will be followed in the administration 
of the Act unless and until directed otherwise by Act of Congress or by 
authoritative ruling of the courts, or if it is concluded upon 
reexamination of an interpretation that it is incorrect. See for 
example, Skidmore v. Swift & Co., 323 U.S. 134 (1944); Roland Co. v. 
Walling, 326 U.S. 657 (1946); Endicott Johnson Corp. v. Perkins, 317 
U.S. 501, 507-509 (1943); Perkins v. Lukens Steel Co., 310 U.S. 113, 128 
(1940); United States v. Western Pacific Railroad Co., 352 U.S. 59 
(1956). The Department of Labor (and not the contracting agencies) has 
the primary and final authority and responsibility for administering and 
interpreting the Act, including making determinations of coverage. See 
Woodside Village v. Secretary of Labor, 611 F. 2d 312 (9th Cir. 1980); 
Nello L. Teer Co. v. United States, 348 F.2d 533, 539-540 (Ct. Cl. 
1965), cert. denied, 383 U.S. 934; North Georgia Building & Construction 
Trades Council v. U.S. Department of Transportation, 399 F. Supp. 58, 63 
(N.D. Ga. 1975) (Davis-Bacon Act); Curtiss-Wright Corp. v. McLucas, 364 
F. Supp. 750, 769-72 (D.N.J. 1973); and 43 Atty. Gen. Ops. ____ (March 
9, 1979); 53 Comp. Gen. 647, 649-51 (1974); 57 Comp. Gen. 501, 506 
(1978).
    (c) Court decisions arising under the Act (as well as under related 
remedial labor standards laws such as the Walsh-Healey Public Contracts 
Act, the Davis-Bacon Act, the Contract Work Hours and Safety Standards 
Act, and the Fair Labor Standards Act) which support policies and 
interpretations contained in this part are cited where it is believed 
that they may be helpful. On matters which have not been authoritatively 
determined by the courts, it is necessary for the Secretary of Labor and 
the Administrator to reach conclusions as to the meaning and the 
application of provisions of the law in order to carry out their 
responsibilities of administration and enforcement (Skidmore v. Swift & 
Co., 323 U.S. 134 (1944)). In order that these positions may be made 
known to persons who may be affected by them, official interpretations 
and rulings are issued by the Administrator with the advice of the 
Solicitor of Labor, as authorized by the Secretary (Secretary's Order 
No. 16-75, Nov. 21, 1975, 40 FR 55913; Employment Standards Order No. 2-
76, Feb. 23, 1976, 41 FR 9016). These interpretations are a proper 
exercise of the Secretary's authority. Idaho Sheet Metal Works v. Wirtz, 
383 U.S. 190, 208 (1966), reh. den. 383 U.S. 963 (1966). References to 
pertinent legislative history, decisions of the Comptroller General and 
of the Attorney General, and Administrative Law Judges' decisions are 
also made in this part where it appears they will contribute to a better 
understanding of the stated interpretations and policies.
    (d) The interpretations of the law contained in this part are 
official interpretations which may be relied upon. The Supreme Court has 
recognized that such interpretations of the Act ``provide a practical 
guide to employers and employees as to how the office representing the 
public interest in its enforcement will seek to apply it'' and 
``constitute a body of experience and informed judgment to which courts 
and litigants may properly resort for guidance'' (Skidmore v. Swift & 
Co., 323 U.S. 134 (1944)). Interpretations of the agency charged with 
administering an Act are generally afforded deference by the courts. 
(Griggs v. Duke Power Co., 401 U.S. 424, 433-34 (1971); Udall v. 
Tallman, 380 U.S. 1 (1965).) Some of the interpretations in this part 
relating to the application of the Act are interpretations of provisions 
which appeared in the original Act before its amendments in 1972 and 
1976. Accordingly, the Department of Labor considers these 
interpretations to be correct, since there were no amendments of the 
statutory provisions which they interpret. (United States v. Davison 
Fuel & Dock Co., 371 F.2d 705, 711-12 (C.A. 4, 1967).)
    (e) The interpretations contained herein shall be in effect until 
they are modified, rescinded, or withdrawn. This part supersedes and 
replaces certain interpretations previously published in the Federal 
Register and Code of Federal Regulations as part 4 of this chapter. 
Prior opinions, rulings, and interpretations and prior enforcement 
policies which are not inconsistent

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with the interpretations in this part or with the Act as amended are 
continued in effect; all other opinions, rulings, interpretations, and 
enforcement policies on the subjects discussed in the interpretations in 
this part, to the extent they are inconsistent with the rules herein 
stated, are superseded, rescinded, and withdrawn.
    (f) Principles governing the application of the Act as set forth in 
this subpart are clarified or amplified in particular instances by 
illustrations and examples based on specific fact situations. Since such 
illustrations and examples cannot and are not intended to be exhaustive, 
or to provide guidance on every problem which may arise under the Act, 
no inference should be drawn from the fact that a subject or 
illustration is omitted.
    (g) It should not be assumed that the lack of discussion of a 
particular subject in this subpart indicates the adoption of any 
particular position by the Department of Labor with respect to such 
matter or to constitute an interpretation, practice, or enforcement 
policy. If doubt arises or a question exists, inquiries with respect to 
matters other than safety and health standards should be directed to the 
Administrator of the Wage and Hour Division, Employment Standards 
Administration, U.S. Department of Labor, Washington, DC 20210, or to 
any regional office of the Wage and Hour Division. Safety and health 
inquiries should be addressed to the Assistant Secretary for 
Occupational Safety and Health, U.S. Department of Labor, Washington, DC 
20210, or to any OSHA regional office. A full description of the facts 
and any relevant documents should be submitted if an official ruling is 
desired.

Sec. 4.102  Administration of the Act.

    As provided by section 4 of the Act and under provisions of sections 
4 and 5 of the Walsh-Healey Public Contracts Act (49 Stat. 2036, 41 
U.S.C. 38, 39), which are made expressly applicable for the purpose, the 
Secretary of Labor is authorized and directed to administer and enforce 
the provisions of the McNamara-O'Hara Service Contract Act, to make 
rules and regulations, issue orders, make decisions, and take other 
appropriate action under the Act. The Secretary is also authorized to 
make reasonable limitations and to make rules and regulations allowing 
reasonable variations, tolerances, and exemptions to and from provisions 
of the Act (except section 10), but only in special circumstances where 
it is determined that such action is necessary and proper in the public 
interest or to avoid serious impairment of the conduct of Government 
business and is in accord with the remedial purposes of the Act to 
protect prevailing labor standards. The authority and enforcement powers 
of the Secretary under the Act are coextensive with the authority and 
powers under the Walsh-Healey Act. Curtiss Wright Corp. v. McLucas 364 
F. Supp. 750, 769 (D NJ 1973).

Sec. 4.103  The Act.

    The McNamara-O'Hara Service Contract Act of 1965 (Pub. L. 89-286, 79 
Stat. 1034, 41 U.S.C. 351 et seq.), hereinafter referred to as the Act, 
was approved by the President on October 22, 1965 (1 Weekly Compilation 
of Presidential Documents 428). It establishes standards for minimum 
compensation and safety and health protection of employees performing 
work for contractors and subcontractors on service contracts entered 
into with the Federal Government and the District of Columbia. It 
applies to contracts entered into pursuant to negotiations concluded or 
invitations for bids issued on or after January 20, 1966. It has been 
amended by Public Law 92-473, 86 Stat. 798; by Public Law 93-57, 87 
Stat. 140; and by Public Law 94-489, 90 Stat. 2358.

Sec. 4.104  What the Act provides, generally.

    The provisions of the Act apply to contracts, whether negotiated or 
advertised, the principal purpose of which is to furnish services in the 
United States through the use of service employees. Under its 
provisions, every contract subject to the Act (and any bid specification 
therefor) entered into by the United States or the District of Columbia 
in excess of $2,500 must contain stipulations as set forth in Sec. 4.6 
of this part requiring: (a) That specified minimum monetary wages and 
fringe benefits determined by the Secretary

[[Page 53]]

of Labor (based on wage rates and fringe benefits prevailing in the 
locality or, in specified circumstances, the wage rates and fringe 
benefits contained in a collective bargaining agreement applicable to 
employees who performed on a predecessor contract) be paid to service 
employees employed by the contractor or any subcontractor in performing 
the services contracted for; (b) that working conditions of such 
employees which are under the control of the contractor or subcontractor 
meet safety and health standards; and (c) that notice be given to such 
employees of the compensation due them under the minimum wage and fringe 
benefits provisions of the contract. Contractors performing work subject 
to the Act thus enter into competition to obtain Government business on 
terms of which they are fairly forewarned by inclusion in the contract. 
(Endicott Johnson Corp. v. Perkins, 317 U.S. 501, 507 (1943).) The Act's 
purpose is to impose obligations upon those favored with Government 
business by precluding the use of the purchasing power of the Federal 
Government in the unfair depression of wages and standards of 
employment. (See H.R. Rep. No. 948, 89th Cong., 1st Sess. 2-3 (1965); S. 
Rep. No. 798, 89th Cong., 1st Sess. 3-4 (1965).) The Act does not permit 
the monetary wage rates specified in such a contract to be less than the 
minimum wage specified under section 6(a)(1) of the Fair Labor Standards 
Act, as amended (29 U.S.C. 206(a)(1)). In addition, it is a violation of 
the Act for any contractor or subcontractor under a Federal contract 
subject to the Act, regardless of the amount of the contract, to pay any 
of his employees engaged in performing work on the contract less than 
such Fair Labor Standards Act minimum wage. Contracts of $2,500 or less 
are not, however, required to contain the stipulations described above. 
These provisions of the Service Contract Act are implemented by the 
regulations contained in this part 4 and are discussed in more detail in 
subsequent sections of subparts C, D, and E.

Sec. 4.105  The Act as amended.

    (a) The provisions of the Act (see Secs. 4.102-4.103) were amended, 
effective October 9, 1972, by Public Law 92-473, signed into law by the 
President on that date. By virtue of amendments made to paragraphs (1) 
and (2) of section 2(a) and the addition to section 4 of a new 
subsection (c), the compensation standards of the Act (see Secs. 4.159-
4.179) were revised to impose on successor contractors certain 
requirements (see Sec. 4.1b) with respect to payment of wage rates and 
fringe benefits based on those agreed upon for substantially the same 
services in the same locality in collective bargaining agreements 
entered into by their predecessor contractors (unless such agreed 
compensation is substantially at variance with that locally prevailing 
or the agreement was not negotiated at arm's length). The Secretary of 
Labor is to give effect to the provisions of such collective bargaining 
agreements in his wage determinations under section 2 of the Act. A new 
paragraph (5) added to section 2(a) of the Act requires a statement in 
the government service contract of the rates that would be paid by the 
contracting agency in the event of its direct employment of those 
classes of service employees to be employed on the contract work who, if 
directly employed by the agency, would receive wages determined as 
provided in 5 U.S.C. 5341. The Secretary of Labor is directed to give 
due consideration to such rates in determining prevailing monetary wages 
and fringe benefits under the Act's provisions. Other provisions of the 
1972 amendments include the addition of a new section 10 to the Act to 
insure that wage determinations are issued by the Secretary for 
substantially all service contracts subject to section 2(a) of the Act 
at the earliest administratively feasible time; an amendment to section 
4(b) of the Act to provide, in addition to the conditions previously 
specified for issuance of administrative limitations, variations, 
tolerances, and exemptions (see Sec. 4.123), that administrative action 
in this regard shall be taken only in special circumstances where the 
Secretary determines that it is in accord with the remedial purpose of 
the Act to protect prevailing labor standards; and a new subsection (d) 
added to section 4 of the Act providing for the award of service 
contracts for terms not more than 5

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years with provision for periodic adjustment of minimum wage rates and 
fringe benefits payable thereunder by the issuance of wage 
determinations by the Secretary of Labor during the term of the 
contract. A further amendment to section 5(a) of the Act requires the 
names of contractors found to have violated the Act to be submitted for 
the debarment list (see Sec. 4.188) not later than 90 days after the 
hearing examiner's finding of violation unless the Secretary recommends 
relief, and provides that such recommendations shall be made only 
because of unusual circumstances.
    (b) The provisions of the Act were amended by Public Law 93-57, 87 
Stat. 140, effective July 6, 1973, to extend the Act's coverage to 
Canton Island.
    (c) The provisions of the Act were amended by Public Law 94-489, 90 
Stat. 2358, approved October 13, 1976, to extend the Act's coverage to 
white collar workers. Accordingly, the minimum wage protection of the 
Act now extends to all workers, both blue collar and white collar, other 
than persons employed in a bona fide executive, administrative, or 
professional capacity as those terms are used in the Fair Labor 
Standards Act and in part 541 of title 29. Public Law 94-489 
accomplished this change by adding to section 2(a)(5) of the Act a 
reference to 5 U.S.C. 5332, which deals with white collar workers, and 
by amending the definition of service contract employee in section 8(b) 
of the Act.
    (d) Included in this part 4 and in parts 6 and 8 of this subtitle 
are provisions to give effect to the amendments mentioned in this 
section.

Sec. 4.106  [Reserved]

                 Agencies Whose Contracts May Be Covered

Sec. 4.107  Federal contracts.

    (a) Section 2(a) of the Act covers contracts (and any bid 
specification therefor) ``entered into by the United States'' and 
section 2(b) applies to contracts entered into ``with the Federal 
Government.'' Within the meaning of these provisions, contracts entered 
into by the United States and contracts with the Federal Government 
include generally all contracts to which any agency or instrumentality 
of the U.S. Government becomes a party pursuant to authority derived 
from the Constitution and laws of the United States. The Act does not 
authorize any distinction in this respect between such agencies and 
instrumentalities on the basis of their inclusion in or independence 
from the executive, legislative, or judicial branches of the Government, 
the fact that they may be corporate in form, or the fact that payment 
for the contract services is not made from appropriated funds. Thus, 
contracts of wholly owned Government corporations, such as the Postal 
Service, and those of nonappropriated fund instrumentalities under the 
jurisdiction of the Armed Forces, or of other Federal agencies, such as 
Federal Reserve Banks, are included among those subject to the general 
coverage of the Act. (Brinks, Inc. v. Board of Governors of the Federal 
Reserve System, 466 F. Supp. 116 (D DC 1979); 43 Atty. Gen. Ops. ______ 
(September 26, 1978).) Contracts with the Federal Government and 
contracts entered into ``by the United States'' within the meaning of 
the Act do not, however, include contracts for services entered into on 
their own behalf by agencies or instrumentalities of other Governments 
within the United States, such as those of the several States and their 
political subdivisions, or of Puerto Rico, the Virgin Islands, Guam, or 
American Samoa.
    (b) Where a Federal agency exercises its contracting authority to 
procure services desired by the Government, the method of procurement 
utilized by the contracting agency is not controlling in determining 
coverage of the contract as one entered into by the United States. Such 
contracts may be entered into by the United States either through a 
direct award by a Federal agency or through the exercise by another 
agency (whether governmental or private) of authority granted to it to 
procure services for or on behalf of a Federal agency. Thus, sometimes 
authority to enter into service contracts of the character described in 
the Act for and on behalf of the Government and on a cost-reimbursable 
basis may be delegated, for the convenience of the contracting agency, 
to a prime contractor which has the responsibility for

[[Page 55]]

all work to be done in connection with the operation and management of a 
Federal plant, installation, facility, or program, together with the 
legal authority to act as agency for and on behalf of the Government and 
to obligate Government funds in the procurement of all services and 
supplies necessary to carry out the entire program of operation. The 
contracts entered into by such a prime contractor with secondary 
contractors for and on behalf of the Federal agency pursuant to such 
delegated authority, which have such services as their principal 
purpose, are deemed to be contracts entered into by the United States 
and contracts with the Federal Government within the meaning of the Act. 
However, service contracts entered into by State or local public bodies 
with purveyors of services are not deemed to be entered into by the 
United States merely because such services are paid for with funds of 
the public body which have been received from the Federal Government as 
a grant under a Federal program. For example, a contract entered into by 
a municipal housing authority for tree trimming, tree removal, and 
landscaping for an urban renewal project financed by Federal funds is 
not a contract entered into by the United States and is not covered by 
the Service Contract Act. Similarly, contracts let under the Medicaid 
program which are financed by federally-assisted grants to the States, 
and contracts which provide for insurance benefits to a third party 
under the Medicare program are not subject to the Act.

Sec. 4.108  District of Columbia contracts.

    Section 2(a) of the Act covers contracts (and any bid specification 
therefor) in excess of $2,500 which are ``entered into by the * * * 
District of Columbia.'' The contracts of all agencies and 
instrumentalities which procure contract services for or on behalf of 
the District or under the authority of the District Government are 
contracts entered into by the District of Columbia within the meaning of 
this provision. Such contracts are also considered contracts entered 
into with the Federal Government or the United States within the meaning 
of section 2(b), section 5, and the other provisions of the Act. The 
legislative history indicates no intent to distinguish District of 
Columbia contracts from the other contracts made subject to the Act, and 
traditionally, under other statutes, District Government contracts have 
been made subject to the same labor standards provisions as contracts of 
agencies and instrumentalities of the United States.

[48 FR 49762, Oct. 27, 1983; 48 FR 50529, Nov. 2, 1983]

Sec. 4.109  [Reserved]

                       Covered Contracts Generally

Sec. 4.110  What contracts are covered.

    The Act covers service contracts of the Federal agencies described 
in Secs. 4.107-4.108. Except as otherwise specifically provided (see 
Secs. 4.115 et seq.), all such contracts, the principal purpose of which 
is to furnish services in the United States through the use of service 
employees, are subject to its terms. This is true of contracts entered 
into by such agencies with States or their political subdivisions, as 
well as such contracts entered into with private employers. Contracts 
between a Federal or District of Columbia agency and another such agency 
are not within the purview of the Act; however, ``subcontracts'' awarded 
under ``prime contracts'' between the Small Business Administration and 
another Federal agency pursuant to various preferential set-aside 
programs, such as the 8(a) program, are covered by the Act. It makes no 
difference in the coverage of a contract whether the contract services 
are procured through negotiation or through advertising for bids. Also, 
the mere fact that an agreement is not reduced to writing does not mean 
that the contract is not within the coverage of the Act. The amount of 
the contract is not determinative of the Act's coverage, although the 
requirements are different for contracts in excess of $2,500 and for 
contracts of a lesser amount. The Act is applicable to the contract if 
the principal purpose of the contract is to furnish services, if such 
services are to be furnished in the United States, and if service 
employees will be used in providing such services.

[[Page 56]]

These elements of coverage will be discussed separately in the following 
sections.

Sec. 4.111  Contracts ``to furnish services.''

    (a) ``Principal purpose'' as criterion. Under its terms, the Act 
applies to a ``contract * * * the principal purpose of which is to 
furnish services * * *.'' If the principal purpose is to provide 
something other than services of the character contemplated by the Act 
and any such services which may be performed are only incidental to the 
performance of a contract for another purpose, the Act does not apply. 
However, as will be seen by examining the illustrative examples of 
covered contracts in Secs. 4.130 et seq., no hard and fast rule can be 
laid down as to the precise meaning of the term principal purpose. This 
remedial Act is intended to be applied to a wide variety of contracts, 
and the Act does not define or limit the types of services which may be 
contracted for under a contract the principal purpose of which is to 
furnish services. Further, the nomenclature, type, or particular form of 
contract used by procurement agencies is not determinative of coverage. 
Whether the principal purpose of a particular contract is the furnishing 
of services through the use of service employees is largely a question 
to be determined on the basis of all the facts in each particular case. 
Even where tangible items of substantial value are important elements of 
the subject matter of the contract, the facts may show that they are of 
secondary import to the furnishing of services in the particular case. 
This principle is illustrated by the examples set forth in Sec. 4.131.
    (b) Determining whether a contract is for ``services'', generally. 
Except indirectly through the definition of service employee the Act 
does not define, or limit, the types of services which may be contracted 
for under a contract ``the principal purpose of which is to furnish 
services''. As stated in the congressional committee reports on the 
legislation, the types of service contracts covered by its provisions 
are varied. Among the examples cited are contracts for laundry and dry 
cleaning, for transportation of the mail, for custodial, janitorial, or 
guard service, for packing and crating, for food service, and for 
miscellaneous housekeeping services. Covered contracts for services 
would also include those for other types of services which may be 
performed through the use of the various classes of service employees 
included in the definition in section 8(b) of the Act (see Sec. 4.113). 
Examples of some such contracts are set forth in Secs. 4.130 et seq. In 
determining questions of contract coverage, due regard must be given to 
the apparent legislative intent to include generally as contracts for 
services those contracts which have as their principal purpose the 
procurement of something other than the construction activity described 
in the Davis-Bacon Act or the materials, supplies, articles, and 
equipment described in the Walsh-Healey Act. The Committee reports in 
both the House and Senate, and statements made on the floor of the 
House, took note of the labor standards protections afforded by these 
two Acts to employees engaged in the performance of construction and 
supply contracts and observed: ``The service contract is now the only 
remaining category of Federal contracts to which no labor standards 
protections apply'' (H. Rept. 948, 89th Cong., 1st Sess., p. 1; see also 
S. Rept. 798, 89th Cong., 1st Sess., p. 1; daily Congressional Record, 
Sept. 20, 1965, p. 23497). A similar understanding of contracts 
principally for services as embracing contracts other than those for 
construction or supplies is reflected in the statement of President 
Johnson upon signing the Act (1 Weekly Compilation of Presidential 
Documents, p. 428).

Sec. 4.112  Contracts to furnish services ``in the United States.''

    (a) The Act and the provisions of this part apply to contract 
services furnished ``in the United States,'' including any State of the 
United States, the District of Columbia, Puerto Rico, the Virgin 
Islands, Outer Continental Shelf lands as defined in the Outer 
Continental Shelf Lands Act, American Samoa, Guam, the Commonwealth of 
the Northern Mariana Islands, Wake Island, and Johnston Island. The 
definition expressly excludes any other territory under the jurisdiction 
of the United States and any United States

[[Page 57]]

base or possession within a foreign country. Services to be performed 
exclusively on a vessel operating in international waters outside the 
geographic areas named in this paragraph would not be services furnished 
``in the United States'' within the meaning of the Act.
    (b) A service contract to be performed in its entirety outside the 
geographical limits of the United States as thus defined is not covered 
and is not subject to the labor standards of the Act. However, if a 
service contract is to be performed in part within and in part outside 
these geographic limits, the stipulations required by Sec. 4.6 or 
Sec. 4.7, as appropriate, must be included in the invitation for bids or 
negotiation documents and in the contract, and the labor standards must 
be observed with respect to that part of the contract services that is 
performed within these geographic limits. In such a case the 
requirements of the Act and of the contract clauses will not be 
applicable to the services furnished outside the United States.

[61 FR 68664, Dec. 30, 1996]

Sec. 4.113  Contracts to furnish services ``through the use of service 
          employees.''

    (a) Use of ``service employees'' in a contract performance. (1) As 
indicated in Sec. 4.110, the Act covers service contracts only where 
``service employees'' will be used in performing the services which it 
is the purpose of the contract to procure. A contract principally for 
services ordinarily will meet this condition if any of the services will 
be furnished through the use of any service employee or employees. Where 
it is contemplated that the services (of the kind performed by service 
employees) will be performed individually by the contractor, and the 
contracting officer knows when advertising for bids or concluding 
negotiations that service employees will in no event be used by the 
contractor in providing the contract services, the Act will not be 
deemed applicable to the contract and the contract clauses required by 
Sec. 4.6 or Sec. 4.7 may be omitted. The fact that the required services 
will be performed by municipal employees or employees of a State would 
not remove the contract from the purview of the Act, as this Act does 
not contain any exemption for contracts performed by such employees. 
Also, as discussed in paragraph (a)(3) of this section, where the 
services the Government wants under the contract are of a type that will 
require the use of service employees as defined in section 8(b) of the 
Act, the contract is not taken out of the purview of the Act by the fact 
that the manner in which the services of such employees are performed 
will be subject to the continuing overall supervision of bona fide 
executive, administrative, or professional personnel to whom the Act 
does not apply.
    (2) The coverage of the Act does not extend to contracts for 
services to be performed exclusively by persons who are not service 
employees, i.e., persons who are bona fide executive, administrative or 
professional personnel as defined in part 541 of this title (see 
paragraph (b) of this section). A contract for medical services 
furnished by professional personnel is an example of such a contract.
    (3) In addition, the Department does not require application of the 
Act to any contract for services which is performed essentially by bona 
fide executive, administrative, or professional employees, with the use 
of service employees being only a minor factor in the performance of the 
contract. However, the Act would apply to a contract for services which 
may involve the use of service employees to a significant or substantial 
extent even though there is some use of bona fide executive, 
administrative, or professional employees in the performance of the 
contract. For example, contracts for drafting or data processing 
services are often performed by drafters, computer operators, or other 
service employees and are subject to the Act even though the work of 
such employees may be performed under the direction and supervision of 
bona fide professional employees.
    (4) In close cases involving a decision as to whether a contract 
will involve a significant use of service employees, the Department of 
Labor should be consulted, since such situations require consideration 
of other factors such as the nature of the contract work, the

[[Page 58]]

type of work performed by service employees, how necessary the work is 
to contract performance, the amount of contract work performed by 
service employees vis-a-vis professional employees, and the total number 
of service employees employed on the contract.
    (b) ``Service employees'' defined. In determining whether or not any 
of the contract services will be performed by service employees, the 
definition of service employee in section 8(b) of the Act is 
controlling. It provides:

    The term service employee means any person engaged in the 
performance of a contract entered into by the United States and not 
exempted under section 7, whether negotiated or advertised, the 
principal purpose of which is to furnish services in the United States 
(other than any person employed in a bona fide executive, 
administrative, or professional capacity, as those terms are defined in 
part 541 of title 29, Code of Federal Regulations, as of July 30, 1976, 
and any subsequent revision of those regulations); and shall include all 
such persons regardless of any contractual relationship that may be 
alleged to exist between a contractor or subcontractor and such persons.
It will be noted that the definition expressly excludes those employees 
who are employed in a bona fide executive, administrative, or 
professional capacity as defined in part 541 of this title and as 
discussed further in Sec. 4.156. Some of the specific types of service 
employees who may be employed on service contracts are noted in other 
sections which discuss the application of the Act to employees.

[48 FR 49762, Oct. 27, 1983; 48 FR 50529, Nov. 2, 1983]

Sec. 4.114  Subcontracts.

    (a) ``Contractor'' as including ``subcontractor.'' Except where 
otherwise noted or where the term Government prime contractor is used, 
the term contractor as used in this part 4 shall be deemed to include a 
subcontractor. The term contractor as used in the contract clauses 
required by subpart A in any subcontract under a covered contract shall 
be deemed to refer to the subcontractor, or, if in a subcontract entered 
into by such a subcontractor, shall be deemed to refer to the lower 
level subcontractor. (See Sec. 4.1a(f).)
    (b) Liability of prime contractor. When a contractor undertakes a 
contract subject to the Act, the contractor agrees to assume the 
obligation that the Act's labor standards will be observed in furnishing 
the required services. This obligation may not be relieved by shifting 
all or part of the work to another, and the prime contractor is jointly 
and severally liable with any subcontractor for any underpayments on the 
part of a subcontractor which would constitute a violation of the prime 
contract. The prime contractor is required to include the prescribed 
contract clauses (Secs. 4.6--4.7) and applicable wage determination in 
all subcontracts. The appropriate enforcement sanctions provided under 
the Act may be invoked against both the prime contractor and the 
subcontractor in the event of failure to comply with any of the Act's 
requirements where appropriate under the circumstances of the case.

                           Specific Exclusions

Sec. 4.115  Exemptions and exceptions, generally.

    (a) The Act, in section 7, specifically excludes from its coverage 
certain contracts and work which might otherwise come within its terms 
as procurements the principal purpose of which is to furnish services 
through the use of service employees.
    (b) The statutory exemptions in section 7 of the Act are as follows:
    (1) Any contract of the United States or District of Columbia for 
construction, alteration, and/or repair, including painting and 
decorating of public buildings or public works;
    (2) Any work required to be done in accordance with the provisions 
of the Walsh-Healey Public Contracts Act (49 Stat. 2036);
    (3) Any contract for the carriage of freight or personnel by vessel, 
airplane, bus, truck, express, railway line, or oil or gas pipeline 
where published tariff rates are in effect;
    (4) Any contract for the furnishing of services by radio, telephone, 
telegraph, or cable companies, subject to the Communications Act of 
1934;
    (5) Any contract for public utility services, including electric 
light and power, water, steam, and gas;
    (6) Any employment contract providing for direct services to a 
Federal agency by an individual or individuals;

[[Page 59]]

    (7) Any contract with the Post Office Department, (now the U.S. 
Postal Service) the principal purpose of which is the operation of 
postal contract stations.

Sec. 4.116  Contracts for construction activity.

    (a) General scope of exemption. The Act, in paragraph (1) of section 
7, exempts from its provisions ``any contract of the United States or 
District of Columbia for construction, alteration and/or repair, 
including painting and decorating of public buildings or public works.'' 
This language corresponds to the language used in the Davis-Bacon Act to 
describe its coverage (40 U.S.C. 276a). The legislative history of the 
McNamara-O'Hara Service Contract Act indicates that the purpose of the 
provision is to avoid overlapping coverage of the two acts by excluding 
from the application of the McNamara-O'Hara Act those contracts to which 
the Davis-Bacon Act is applicable and in the performance of which the 
labor standards of that Act are intended to govern the compensation 
payable to the employees of contractors and subcontractors on the work. 
(See H. Rept. 798, pp. 2, 5, and H. Rept. 948, pp. 1, 5, also Hearing, 
Special Subcommittee on Labor, House Committee on Education and Labor, 
p. 9 (89th Cong., 1st sess.).) The intent of section 7(1) is simply to 
exclude from the provisions of the Act those construction contracts 
which involve the employment of persons whose wage rates and fringe 
benefits are determinable under the Davis-Bacon Act.
    (b) Contracts not within exemption. Section 7(1) does not exempt 
contracts which, for purposes of the Davis-Bacon Act, are not considered 
to be of the character described by the corresponding language in that 
Act, and to which the provisions of the Davis-Bacon Act are therefore 
not applied. Such contracts are accordingly subject to the McNamara-
O'Hara Act where their principal purpose is to furnish services in the 
United States through the use of service employees. For example, a 
contract for clearing timber or brush from land or for the demolition or 
dismantling of buildings or other structures located thereon may be a 
contract for construction activity subject to the Davis-Bacon Act where 
it appears that the clearing of the site is to be followed by the 
construction of a public building or public work at the same location. 
If, however, no further construction activity at the site is 
contemplated the Davis-Bacon Act is considered inapplicable to such 
clearing, demolition, or dismantling work. In such event, the exemption 
in section 7(1) of the McNamara-O'Hara Act has no application and the 
contract may be subject to the Act in accordance with its general 
coverage provisions. It should be noted that the fact that a contract 
may be labeled as one for the sale and removal of property, such as 
salvage material, does not negate coverage under the Act even though 
title to the removable property passes to the contractor. While the 
value of the property being sold in relation to the services performed 
under the contract is a factor to be considered in determining coverage, 
where the facts show that the principal purpose of removal, dismantling, 
and demolition contracts is to furnish services through the use of 
service employees, these contracts are subject to the Act. (See also 
Sec. 4.131.)
    (c) Partially exempt contracts. (1) Instances may arise in which, 
for the convenience of the Government, instead of awarding separate 
contracts for construction work subject to the Davis-Bacon Act and for 
services of a different type to be performed by service employees, the 
contracting officer may include separate specifications for each type of 
work in a single contract calling for the performance of both types of 
work. For example, a contracting agency may invite bids for the 
installation of a plumbing system or for the installation of a security 
alarm system in a public building and for the maintenance of the system 
for one year. In such a case, if the contract is principally for 
services, the exemption provided by section 7(1) will be deemed 
applicable only to that portion of the contract which calls for 
construction activity subject to the Davis-Bacon Act. The contract 
documents are required to contain the clauses prescribed by Sec. 4.6 for 
application to the contract obligation to furnish services through the 
use of service employees,

[[Page 60]]

and the provisions of the McNamara-O'Hara Act will apply to that portion 
of the contract.
    (2) Service or maintenance contracts involving construction work. 
The provisions of both the Davis-Bacon Act and the Service Contract Act 
would generally apply to contracts involving construction and service 
work where such contracts are principally for services. The Davis-Bacon 
Act, and thus the exemption provided by section 7(1) of the Act, would 
be applicable to construction contract work in such hybrid contracts 
where:
    (i) The contract contains specific requirements for substantial 
amounts of construction, reconstruction, alteration, or repair work 
(hereinafter referred to as construction) or it is ascertainable that a 
substantial amount of construction work will be necessary for the 
performance of the contract (the word ``substantial'' relates to the 
type and quantity of construction work to be performed and not merely to 
the total value of construction work (whether in absolute dollars or 
cost percentages) as compared to the total value of the contract); and
    (ii) The construction work is physically or functionally separate 
from, and as a practical matter is capable of being performed on a 
segregated basis from, the other work called for by the contract.

[48 FR 49762, Oct. 27, 1983; 48 FR 50529, Nov. 2, 1983]

Sec. 4.117  Work subject to requirements of Walsh-Healey Act.

    (a) The Act, in paragraph (2) of section 7, exempts from its 
provisions ``any work required to be done in accordance with the 
provision of the Walsh-Healey Public Contracts Act'' (49 Stat. 2036, 41 
U.S.C. 35 et seq.). It will be noted that like the similar provision in 
the Contract Work Hours and Safety Standards Act (40 U.S.C. 329(b)), 
this is an exemption for ``work'', i.e., specifications or requirements, 
rather than for ``contracts'' subject to the Walsh-Healey Act. The 
purpose of the exemption was to eliminate possible overlapping of the 
differing labor standards of the two Acts, which otherwise might be 
applied to employees performing work on a contract covered by the 
Service Contract Act if such contract and their work under it should 
also be deemed to be covered by the Walsh-Healey Act. The Walsh-Healey 
Act applies to contracts in excess of $10,000 for the manufacture or 
furnishing of materials, supplies, articles or equipment. Thus, there is 
no overlap if the principal purpose of the contract is the manufacture 
or furnishing of such materials etc., rather than the furnishing of 
services of the character referred to in the Service Contract Act, for 
such a contract is not within the general coverage of the Service 
Contract Act. In such cases the exemption in section 7(2) is not 
pertinent. See, for example, the discussion in Secs. 4.131 and 4.132.
    (b) Further, contracts principally for remanufacturing of equipment 
which is so extensive as to be equivalent to manufacturing are subject 
to the Walsh-Healey Act. Remanufacturing shall be deemed to be 
manufacturing when the criteria in paragraph (b)(1) or (2) of this 
section are met.
    (1) Major overhaul of an item, piece of equipment, or materiel which 
is degraded or inoperable, and under which all of the following 
conditions exist:
    (i) The item or equipment is required to be completely or 
substantially torn down into individual components parts; and
    (ii) Substantially all of the parts are reworked, rehabilitated, 
altered and/or replaced; and
    (iii) The parts are reassembled so as to furnish a totally rebuilt 
item or piece of equipment; and
    (iv) Manufacturing processes similar to those which were used in the 
manufacturing of the item or piece of equipment are utilized; and
    (v) The disassembled componets, if usable (except for situations 
where the number of items or pieces of equipment involved are too few to 
make it practicable) are commingled with existing inventory and, as 
such, lose their identification with respect to a particular piece of 
equipment; and
    (vi) The items or equipment overhauled are restored to original life 
expectancy, or nearly so; and
    (vii) Such work is performed in a facility owned or operated by the 
contractor.

[[Page 61]]

    (2) Major modification of an item, piece of equipment, or materiel 
which is wholly or partially obsolete, and under which all of the 
following conditions exist:
    (i) The item or equipment is required to be completely or 
substantially torn down; and
    (ii) Outmoded parts are replaced; and
    (iii) The item or equipment is rebuilt or reassembled; and
    (iv) The contract work results in the furnishing of a substantially 
modified item in a usable and serviceable condition; and
    (v) The work is performed in a facility owned or operated by the 
contractor.
    (3) Remanufacturing does not include the repair of damaged or broken 
equipment which does not require a complete teardown, overhaul, and 
rebuild as described in paragraphs (b)(1) and (2) of this section, or 
the periodic and routine maintenance, preservation, care, adjustment, 
upkeep, or servicing of equipment to keep it in usable, serviceable, 
working order. Such contracts typically are billed on an hourly rate 
(labor plus materials and parts) basis. Any contract principally for the 
work described in this paragraph (b)(3) is subject to the Service 
Contract Act. Examples of such work include:
    (i) Repair of an automobile, truck, or other vehicle, construction 
equipment, tractor, crane, aerospace, air conditioning and refrigeration 
equipment, electric motors, and ground powered industrial or vehicular 
equipment;
    (ii) Repair of typewriters and other office equipment (see 
Sec. 4.123(e));
    (iii) Repair of appliances, radios television, calculators, and 
other electronic equipment;
    (iv) Inspecting, testing, calibration, painting, packaging, 
lubrication, tune-up, or replacement of internal parts of equipment 
listed in paragraphs (b)(3)(i), (ii), and (iii) of this section; and
    (v) Reupholstering, reconditioning, repair, and refinishing of 
furniture.
    (4) Application of the Service Contract Act or the Walsh-Healey Act 
to any similar type of contract not decided above will be decided on a 
case-by-case basis by the Administrator.

Sec. 4.118  Contracts for carriage subject to published tariff rates.

    The Act, in paragraph (3) of section 7, exempts from its provisions 
``any contract for the carriage of freight or personnel by vessel, 
airplane, bus, truck, express, railway line or oil or gas pipeline where 
published tariff rates are in effect''. In order for this exemption to 
be applicable, the contract must be for such carriage by a common 
carrier described by the terms used. It does not, for example, apply to 
contracts for taxicab or ambulance service, because taxicab and 
ambulance companies are not among the common carriers specified by the 
statute. Also, a contract for transportation service does not come 
within this exemption unless the service contracted for is actually 
governed by published tariff rates in effect pursuant to State or 
Federal law for such carriage. The contracts excluded from the reach of 
the Act by this exemption are typically those where there is on file 
with the Interstate Commerce Commission or an appropriate State or local 
regulatory body a tariff rate applicable to the transportation involved, 
and the transportation contract between the Government and the carrier 
is evidenced by a Government bill of lading citing the published tariff 
rate. An administrative exemption has been provided for certain 
contracts where such carriage is subject to rates covered by section 
10721 of the Interstate Commerce Act and is in accordance with 
applicable regulations governing such rates. See Sec. 4.123(d). However, 
only contracts principally for the carriage of ``freight or personnel'' 
are exempt. Thus, the exemption cannot apply where the principal purpose 
of the contract is packing, crating, handling, loading, and/or storage 
of goods prior to or following line-haul transportation. The fact that 
substantial local drayage to and from the contractor's establishment 
(such as a warehouse) may be required in such contracts does not alter 
the fact that their principal purpose is other than the carriage of 
freight. Also, this exemption does not exclude any contracts for the 
transportation of mail from the application of the Act, because the term 
freight does not include the mail. (For an administrative exemption of 
certain contracts

[[Page 62]]

with common carriers for carriage of mail, see Sec. 4.123(d).)

Sec. 4.119  Contracts for services of communications companies.

    The Act, in paragraph (4) of section 7, exempts from its provisions 
``any contract for the furnishing of services by radio, telephone, 
telegraph, or cable companies, subject to the Communications Act of 
1934.'' This exemption is applicable to contracts with such companies 
for communication services regulated under the Communications Act. It 
does not exempt from the Act any contracts with such companies to 
furnish any other kinds of services through the use of service 
employees.

Sec. 4.120  Contracts for public utility services.

    The Act, in paragraph (5) of section 7, exempts from its provisions 
``any contract for public utility services, including electric light and 
power, water, steam, and gas.'' This exemption is applicable to 
contracts for such services with companies whose rates therefor are 
regulated under State, local, or Federal law governing operations of 
public utility enterprises. Contracts entered into with public utility 
companies to furnish services through the use of service employees, 
other than those subject to such rate regulation, are not exempt from 
the Act. Among the contracts included in the exemption would be those 
between Federal electric power marketing agencies and investor-owned 
electric utilities, Rural Electrification Administration cooperatives, 
municipalities and State agencies engaged in the transmission and sale 
of electric power and energy.


(See H. Rept. No. 948, 89th Cong., 1st sess., p. 4)

Sec. 4.121  Contracts for individual services.

    The Act, in paragraph (6) of section 7, exempts from its provisions 
``any employment contract providing for direct services to a Federal 
agency by an individual or individuals.'' This exemption, which applies 
only to an ``employment contract'' for ``direct services,'' makes it 
clear that the Act's application to Federal contracts for services is 
intended to be limited to service contracts entered into with 
independent contractors. If a contract to furnish services (to be 
performed by a service employee as defined in the Act) provides that 
they will be furnished directly to the Federal agency by the individual 
under conditions or circumstances which will make him an employee of the 
agency in providing the contract service, the exemption applies and the 
contract will not be subject to the Act's provisions. The exemption does 
not exclude from the Act any contract for services of the kind performed 
by service employees which is entered into with an independent 
contractor whose individual services will be used in performing the 
contract, but as noted earlier in Sec. 4.113, such a contract would be 
outside the general coverage of the Act if only the contractor's 
individual services would be furnished and no service employee would in 
any event be used in its performance.

Sec. 4.122  Contracts for operation of postal contract stations.

    The Act, in paragraph (7) of section 7, exempts from its provisions 
``any contract with the Post Office Department, [now the U.S. Postal 
Service], the principal purpose of which is the operation of postal 
contract stations.'' The exemption is limited to postal service 
contracts having the operation of such stations as their principal 
purpose. A provision of the legislation which would also have exempted 
contracts with the U.S. Postal Service having as their principal purpose 
the transportation, handling, or delivery of the mails was eliminated 
from the bill during its consideration by the House Committee on 
Education and Labor (H. Rept. 948, 89th Cong., 1st sess., p. 1).

Sec. 4.123  Administrative limitations, variances, tolerances, and 
          exemptions.

    (a) Authority of the Secretary. Section 4(b) of the Act as amended 
in 1972 authorizes the Secretary to ``provide such reasonable 
limitations'' and to ``make such rules and regulations allowing 
reasonable variations, tolerances, and exemptions to and from any or all 
provisions of this Act (other than Sec. 10), but

[[Page 63]]

only in special circumstances where he determines that such limitation, 
variation, tolerance, or exemption is necessary and proper in the public 
interest or to avoid the serious impairment of Government business, and 
is in accord with the remedial purpose of this Act to protect prevailing 
labor standards.'' This authority is similar to that vested in the 
Secretary under section 6 of the Walsh-Healey Public Contracts Act (41 
U.S.C. 40) and under section 105 of the Contract Work Hours and Safety 
Standards Act (40 U.S.C. 331).
    (b) Administrative action under section 4(b) of the Act. The 
authority conferred on the Secretary by section 4(b) of the Act will be 
exercised with due regard to the remedial purpose of the statute to 
protect prevailing labor standards and to avoid the undercutting of such 
standards which could result from the award of Government work to 
contractors who will not observe such standards, and whose saving in 
labor cost therefrom enables them to offer a lower price to the 
Government than can be offered by the fair employers who maintain the 
prevailing standards. Administrative action consistent with this 
statutory purpose may be taken under section 4(b) with or without a 
request therefor, when found necessary and proper in accordance with the 
statutory standards. No formal procedures have been prescribed for 
requesting such action. However, a request for exemption from the Act's 
provisions will be granted only upon a strong and affirmative showing 
that it is necessary and proper in the public interest or to avoid 
serious impairment of Government business, and is in accord with the 
remedial purpose of the Act to protect prevailing labor standards. If 
the request for administrative action under section 4(b) is not made by 
the headquarters office of the contracting agency to which the contract 
services are to be provided, theviews of such office on the matter 
should be obtained and submitted with the request or the contracting 
officer may forward such a request through channels to the agency 
headquarters for submission with the latter's views to the Administrator 
of the Wage and Hour Division, Department of Labor, whenever any wage 
payment issues are involved. Any request relating to an occupational 
safety or health issue shall be submitted to the Assistant Secretary for 
Occupational Safety and Health, Department of Labor.
    (c) Documentation of official action under section 4(b). All papers 
and documents made a part of the official record of administrative 
action pursuant to section 4(b) of the Act are available for public 
inspection in accordance with the regulations in 29 CFR part 70. 
Limitations, variations, tolerances and exemptions of general 
applicability and legal effect promulgated pursuant to such authority 
are published in the Federal Register and made a part of the rules 
incorporated in this part 4. For convenience in use of the rules, they 
are generally set forth in the sections of this part covering the 
subject matter to which they relate. (See, for example, Secs. 4.5(b), 
4.6(o), 4.112 and 4.113.) Any rules that are promulgated under section 
4(b) of the Act relating to subject matter not dealt with elsewhere in 
this part 4 will be set forth immediately following this paragraph.
    (d) In addition to the statutory exemptions in section 7 of the Act 
(see Sec. 4.115(b)), the following types of contracts have been exempted 
from all the provisions of the Service Contract Act of 1965, pursuant to 
section 4(b) of the Act, prior to its amendment by Public Law 92-473, 
which exemptions the Secretary of Labor found to be necessary and proper 
in the public interest or to avoid serious impairment of the conduct of 
Government business:
    (1) Contracts entered into by the United States with common carriers 
for the carriage of mail by rail, air (except air star routes), bus, and 
ocean vessel, where such carriage is performed on regularly scheduled 
runs of the trains, airplanes, buses, and vessels over regularly 
established routes and accounts for an insubstantial portion of the 
revenue therefrom;
    (2) Any contract entered into by the U.S. Postal Service with an 
individual owner-operator for mail service where it is not contemplated 
at the time the contract is made that such owner-operator will hire any 
service employee to

[[Page 64]]

perform the services under the contract except for short periods of 
vacation time or for unexpected contingencies or emergency situations 
such as illness, or accident; and
    (3) Contracts for the carriage of freight or personnel where such 
carriage is subject to rates covered by section 10721 of the Interstate 
Commerce Act.
    (e) The following types of contracts have been exempted from all the 
provisions of the Service Contract Act of 1965, pursuant to section 4(b) 
of the Act, which exemptions the Secretary of Labor found are necessary 
and proper in the public interest or to avoid serious impairment of the 
conduct of Government business, and are in accord with the remedial 
purpose of the Act to protect prevailing labor standards:
    (1)(i) Prime contracts or subcontracts principally for the 
maintenance, calibration, and/or repair of:
    (A) Automated data processing equipment and office information/word 
processing systems;
    (B) Scientific equipment and medical apparatus or equipment where 
the application of microelectronic circuitry or other technology of at 
least similar sophistication is an essential element (for example, 
Federal Supply Classification (FSC) Group 65, Class 6515, ``Medical 
Diagnostic Equipment''; Class 6525, ``X-Ray Equipment''; FSC Group 66, 
Class 6630, ``Chemical Analysis Instruments''; Class 6665, 
``Geographical and Astronomical Instruments'', are largely composed of 
the types of equipment exempted under this paragraph);
    (C) Office/business machines not otherwise exempt pursuant to 
paragraph (e)(1)(i)(A) of this section, where such services are 
performed by the manufacturer or supplier of the equipment.
    (ii) The exemptions set forth in this paragraph (e)(1) shall apply 
only under the following circumstances:
    (A) The items of equipment are commercial items which are used 
regularly for other than Government purposes, and are sold or traded by 
the contractor (or subcontractor in the case of an exempt subcontract) 
in substantial quantities to the general public in the course of normal 
business operations;
    (B) The prime contract or subcontract services are furnished at 
prices which are, or are based on, established catalog or market prices 
for the maintenance, calibration, and/or repair of such commercial 
items. An ``established catalog price'' is a price included in a 
catalog, price list, schedule, or other form that is regularly 
maintained by the manufacturer or the contractor, is either published or 
otherwise available for inspection by customers, and states prices at 
which sales currently, or were last, made to a significant number of 
buyers constituting the general public. An ``established market price'' 
is a current price, established in the usual course of trade between 
buyers and sellers free to bargain, which can be substantiated from 
sources independent of the manufacturer or contractor; and
    (C) The contractor utilizes the same compensation (wage and fringe 
benefits) plan for all service employees performing work under the 
contract as the contractor uses for these employees and equivalent 
employees servicing the same equipment of commercial customers;
    (D) The contractor certifies to the provisions in this paragraph 
(e)(1)(ii). Certification by the prime contractor as to its compliance 
with respect to the prime contract also constitutes its certification as 
to compliance by its subcontractor if it subcontracts out the exempt 
services. The certification shall be included in the prime contract or 
subcontract.
    (iii)(A) Determinations of the applicability of this exemption to 
prime contracts shall be made in the first instance by the contracting 
officer on or before contract award. In making a judgment that the 
exemption applies, the contracting officer shall consider all factors 
and make an affirmative determination that all of the conditions in 
paragraph (e)(1) of this section have been met.
    (B) Determinations of the applicability of this exemption to 
subcontracts shall be made by the prime contractor on or before 
subcontract award. In making a judgment that the exemption applies, the 
prime contractor shall consider all factors and make an affirmative 
determination

[[Page 65]]

that all of the conditions in paragraph (e)(1) have been met.
    (iv)(A) If the Administrator determines after award of the prime 
contract that any of the requirements in paragraph (e)(1) for exemption 
has not been met, the exemption will be deemed inapplicable, and the 
contract shall become subject to the Service Contract Act, effective as 
of the date of the Administrator's determination. In such case, the 
corrective procedures in Sec. 4.5(c)(2) shall be followed.
    (B) The prime contractor is responsible for compliance with the 
requirements of the Service Contract Act by its subcontractors, 
including compliance with all of the requirements of this exemption (see 
Sec. 4.114(b)). If the Administrator determines that any of the 
requirements in paragraph (e)(1) for exemption has not been met with 
respect to a subcontract, the exemption will be deemed inapplicable, and 
the prime contractor may be responsible for compliance with the Act 
effective as of the date of contract award.
    (2)(i) Prime contracts or subcontracts principally for the following 
services where the services under the contract or subcontract meet all 
of the criteria set forth in paragraph (e)(2)(ii) of this section and 
are not excluded by paragraph (e)(2)(iii):
    (A) Automobile or other vehicle (e.g., aircraft) maintenance 
services (other than contracts to operate a Government motor pool or 
similar facility);
    (B) Financial services involving the issuance and servicing of cards 
(including credit cards, debit cards, purchase cards, smart cards, and 
similar card services);
    (C) Contracts with hotels/motels for conferences, including lodging 
and/or meals which are part of the contract for the conference (which 
shall not include ongoing contracts for lodging on an as needed or 
continuing basis);
    (D) Maintenance, calibration, repair and/or installation (where the 
installation is not subject to the Davis-Bacon Act, as provided in 
Sec. 4.116(c)(2)) services for all types of equipment where the services 
are obtained from the manufacturer or supplier of the equipment under a 
contract awarded on a sole source basis;
    (E) Transportation by common carrier of persons by air, motor 
vehicle, rail, or marine vessel on regularly scheduled routes or via 
standard commercial services (not including charter services);
    (F) Real estate services, including real property appraisal 
services, related to housing federal agencies or disposing of real 
property owned by the Federal Government; and
    (G) Relocation services, including services of real estate brokers 
and appraisers, to assist federal employees or military personnel in 
buying and selling homes (which shall not include actual moving or 
storage of household goods and related services).
    (ii) The exemption set forth in this paragraph (e)(2) shall apply to 
the services listed in paragraph (e)(2)(i) only when all of the 
following criteria are met:
    (A) The services under the prime contract or subcontract 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 or subcontractor 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, 
schedule, or other form that is regularly maintained by the contractor 
or subcontractor, is either published or otherwise available for 
inspection by customers, and states prices at which sales are currently, 
or were last, made to a significant number of buyers constituting the 
general public. An established market price is a current price, 
established in the usual course of trade between buyers and sellers free 
to bargain, which can

[[Page 66]]

be substantiated from sources independent of the manufacturer or 
contractor.
    (D) Each service employee who will perform services under the 
Government contract or subcontract will spend only a small portion of 
his or her time (a monthly average of less than 20 percent of the 
available hours on an annualized basis, or less than 20 percent of 
available hours during the contract period if the contract period is 
less than a month) servicing the government contract or subcontract.
    (E) The contractor utilizes the same compensation (wage and fringe 
benefits) plan for all service employees performing work under the 
contract or subcontract as the contractor uses for these employees and 
for equivalent employees servicing commercial customers.
    (F) The contracting officer (or prime contractor with respect to a 
subcontract) determines in advance, based on the nature of the contract 
requirements and knowledge of the practices of likely offerors, that all 
or nearly all offerors will meet the requirements in paragraph 
(e)(2)(ii) of this section. Where the services are currently being 
performed under contract, the contracting officer or prime contractor 
shall consider the practices of the existing contractor in making a 
determination regarding the requirements in paragraph (e)(2)(ii). If 
upon receipt of offers, the contracting officer finds that he or she did 
not correctly determine that all or nearly all offerors would meet the 
requirements, the Service Contract Act shall apply to the procurement, 
even if the successful offeror has certified in accordance with 
paragraph (e)(2)(ii)(G) of this section.
    (G) The contractor certifies in the prime contract or subcontract, 
as applicable, to the provisions in paragraph (e)(2)(ii)(A) and (C) 
through (E) of this section. Certification by the prime contractor as to 
its compliance with respect to the prime contract also constitutes its 
certification as to compliance by its subcontractor if it subcontracts 
out the exempt services. If the contracting officer or prime contractor 
has reason to doubt the validity of the certification, SCA stipulations 
shall be included in the prime contract or subcontract.
    (iii)(A) If the Administrator determines after award of the prime 
contract that any of the requirements in paragraph (e)(2) for exemption 
has not been met, the exemption will be deemed inapplicable, and the 
contract shall become subject to the Service Contract Act. In such case, 
the corrective procedures in Sec. 4.5(c)(2) shall be followed.
    (B) The prime contractor is responsible for compliance with the 
requirements of the Service Contract Act by its subcontractors, 
including compliance with all of the requirements of this exemption (see 
Sec. 4.114(b)). If the Department of Labor determines that any of the 
requirements in paragraph (e)(2) for exemption has not been met with 
respect to a subcontract, the exemption will be deemed inapplicable, and 
the prime contractor may be responsible for compliance with the Act, as 
of the date of contract award.
    (iv) The exemption set forth in this paragraph (e)(2) does not apply 
to solicitations and contracts:
    (A) Entered into under the Javits-Wagner-O'Day Act, 41 U.S.C. 47;
    (B) For the operation of a Government facility or portion thereof 
(but may be applicable to subcontracts for services set forth in 
paragraph (e)(2)(ii) that meet all of the criteria of paragraph 
(e)(2)(ii)); or
    (C) Subject to section 4(c) of the Service Contract Act, as well as 
any options or extensions under such contract.

[48 FR 49762, Oct. 27, 1983, as amended 66 FR 5134, Jan. 18, 2001]

Secs. 4.124--4.129  [Reserved]

         Particular Application of Contract Coverage Principles

Sec. 4.130  Types of covered service contracts illustrated.

    (a) The types of contracts, the principal purpose of which is to 
furnish services through the use of service employees, are too numerous 
and varied to permit an exhaustive listing. The following list is 
illustrative, however, of the types of services called for by such 
contracts that have been found to

[[Page 67]]

come within the coverage of the Act. Other examples of covered contracts 
are discussed in other sections of this subpart.
    (1) Aerial spraying.
    (2) Aerial reconnaissance for fire detection.
    (3) Ambulance service.
    (4) Barber and beauty shop services.
    (5) Cafeteria and food service.
    (6) Carpet laying (other than part of construction) and cleaning.
    (7) Cataloging services.
    (8) Chemical testing and analysis.
    (9) Clothing alteration and repair.
    (10) Computer services.
    (11) Concessionaire services.
    (12) Custodial, janitorial, and housekeeping services.
    (13) Data collection, processing, and/or analysis services.
    (14) Drafting and illustrating.
    (15) Electronic equipment maintenance and operation and engineering 
support services.
    (16) Exploratory drilling (other than part of construction).
    (17) Film processing.
    (18) Fire fighting and protection.
    (19) Fueling services.
    (20) Furniture repair and rehabilitation.
    (21) Geological field surveys and testing.
    (22) Grounds maintenance.
    (23) Guard and watchman security service.
    (24) Inventory services.
    (25) Keypunching and keyverifying contracts.
    (26) Laboratory analysis services.
    (27) Landscaping (other than part of construction).
    (28) Laundry and dry cleaning.
    (29) Linen supply services.
    (30) Lodging and/or meals.
    (31) Mail hauling.
    (32) Mailing and addressing services.
    (33) Maintenance and repair of all types of equipment, e.g., 
aircraft, engines, electrical motors, vehicles, and electronic, 
telecommunications, office and related business, and construction 
equipment (See Sec. 4.123(e).).
    (34) Mess attendant services.
    (35) Mortuary services.
    (36) Motor pool operation.
    (37) Nursing home services.
    (38) Operation, maintenance, or logistic support of a Federal 
facility.
    (39) Packing and crating.
    (40) Parking services.
    (41) Pest control.
    (42) Property management.
    (43) Snow removal.
    (44) Stenographic reporting.
    (45) Support services at military installations.
    (46) Surveying and mapping services (not directly related to 
construction).
    (47) Taxicab services.
    (48) Telephone and field interview services.
    (49) Tire and tube repairs.
    (50) Transporting property or personnel (except as explained in 
Sec. 4.118).
    (51) Trash and garbage removal.
    (52) Tree planting and thinning, clearing timber or brush, etc. (See 
also Secs. 4.116(b) and 4.131(f).).
    (53) Vending machine services.
    (54) Visual and graphic arts.
    (55) Warehousing or storage.

Sec. 4.131  Furnishing services involving more than use of labor.

    (a) If the principal purpose of a contract is to furnish services in 
the performance of which service employees will be used, the Act will 
apply to the contract, in the absence of an exemption, even though the 
use or furnishing of nonlabor items may be an important element in the 
furnishing of the services called for by its terms. The Act is concerned 
with protecting the labor standards of workers engaged in performing 
such contracts, and is applicable if the statutory coverage test is met, 
regardless of the form in which the contract is drafted. The proportion 
of the labor cost to the total cost of the contract and the necessity of 
furnishing or receiving tangible nonlabor items in performing the 
contract obligations will be considered but are not necessarily 
determinative. A procurement that requires tangible items to be supplied 
to the Government or the contractor as a part of the service furnished 
is covered by the Act so long as the facts show that the contract is 
chiefly for services, and that the furnishing of tangible items is of 
secondary importance.
    (b) Some examples of covered contracts illustrating these principles 
may be helpful. One such example is a contract for the maintenance and 
repair of

[[Page 68]]

typewriters. Such a contract may require the contractor to furnish 
typewriter parts, as the need arises, in performing the contract 
services. Since this does not change the principal purpose of the 
contract, which is to furnish the maintenance and repair services 
through the use of service employees, the contract remains subject to 
the Act.
    (c) Another example of the application of the above principle is a 
contract for the recurrent supply to a Government agency of freshly 
laundered items on a rental basis. It is plain from the legislative 
history that such a contract is typical of those intended to be covered 
by the Act. S. Rept. 798, 89th Cong., 1st Sess., p. 2; H. Rept. 948, 
89th Cong., 1st Sess., p. 2. Although tangible items owned by the 
contractor are provided on a rental basis for the use of the Government, 
the service furnished by the contractor in making them available for 
such use when and where they are needed, through the use of service 
employees who launder and deliver them, is the principal purpose of the 
contract.
    (d) Similarly, a contract in the form of rental of equipment with 
operators for the plowing and reseeding of a park area is a service 
contract. The Act applies to it because its principal purpose is the 
service of plowing and reseeding, which will be performed by service 
employees, although as a necessary incident the contractor is required 
to furnish equipment. For like reasons the contracts for aerial spraying 
and aerial reconnaissance listed in Sec. 4.130 are covered, even though 
the use of airplanes, an expensive item of equipment, is essential in 
performing such services. In general, contracts under which the 
contractor agrees to provide the Government with vehicles or equipment 
on a rental basis with drivers or operators for the purpose of 
furnishing services are covered by the Act. Such contracts are not 
considered contracts for furnishing equipment within the meaning of the 
Walsh-Healey Public Contracts Act. On the other hand, contracts under 
which the contractor provides equipment with operators for the purpose 
of construction of a public building or public work, such as road 
resurfacing or dike repair, even where the work is performed under the 
supervision of Government employees, would be within the exemption in 
section 7(1) of the Act as contracts for construction subject to the 
Davis-Bacon Act. (See Sec. 4.116.)
    (e) Contracts for data collection, surveys, computer services, and 
the like are within the general coverage of the Act even though the 
contractor may be required to furnish such tangible items as written 
reports or computer printouts, since items of this nature are considered 
to be of secondary importance to the services which it is the principal 
purpose of the contract to procure.
    (f) Contracts under which the contractor receives tangible items 
from the Government in return for furnishing services (which items are 
in lieu of or in addition to monetary consideration granted by either 
party) are covered by the Act where the facts show that the furnishing 
of such services is the principal purpose of the contracts. For example, 
property removal or disposal contracts which involve demolition of 
buildings or other structures are subject to the Act when their 
principal purpose is dismantling and removal (and no further 
construction activity at the site is contemplated). However, removal or 
dismantling contracts whose principal purpose is sales are not covered. 
So-called ``timber sales'' contracts generally are not subject to the 
Act because normally the services provided under such contracts are 
incidental to the principal purpose of the contracts. (See also 
Secs. 4.111(a) and 4.116(b).)

Sec. 4.132  Services and other items to be furnished under a single 
          contract.

    If the principal purpose of a contract is to furnish services 
through the use of service employees within the meaning of the Act, the 
contract to furnish such services is not removed from the Act's coverage 
merely because, as a matter of convenience in procurement, the service 
specifications are combined in a single contract document with 
specifications for the procurement of different or unrelated items. In 
such case, the Act would apply to service specifications but would not 
apply to any specifications subject to the

[[Page 69]]

Walsh-Healey Act or to the Davis-Bacon Act. With respect to contracts 
which contain separate specifications for the furnishing of services and 
construction activity, see Sec. 4.116(c).

Sec. 4.133  Beneficiary of contract services.

    (a) The Act does not say to whom the services under a covered 
contract must be furnished. So far as its language is concerned, it is 
enough if the contract is ``entered into'' by and with the Government 
and if its principal purpose is ``to furnish services in the United 
States through the use of service employees''. It is clear that Congress 
intended to cover at least contracts for services of direct benefit to 
the Government, its property, or its civilian or military personnel for 
whose needs it is necessary or desirable for the Government to make 
provision for such services. For example, the legislative history makes 
specific reference to such contracts as those for furnishing food 
service and laundry and dry cleaning service for personnel at military 
installations. Furthermore, there is no limitation in the Act regarding 
the beneficiary of the services, nor is there any indication that only 
contracts for services of direct benefit to the Government, as 
distinguished from the general public, are subject to the Act. 
Therefore, where the principal purpose of the Government contract is to 
provide services through the use of service employees, the contract is 
covered by the Act, regardless of the direct beneficiary of the services 
or the source of the funds from which the contractor is paid for the 
service, and irrespective of whether the contractor performs the work in 
its own establishment, on a Government installation, or elsewhere. The 
fact that the contract requires or permits the contractor to provide the 
services directly to individual personnel as a concessionaire, rather 
than through the contracting agency, does not negate coverage by the 
Act.
    (b) The Department of Labor, pursuant to section 4(b) of the Act, 
exempts from the provisions of the Act certain kinds of concession 
contracts providing services to the general public, as provided herein. 
Specifically, concession contracts (such as those entered into by the 
National Park Service) principally for the furnishing of food, lodging, 
automobile fuel, souvenirs, newspaper stands, and recreational equipment 
to the general public, as distinguished from the United States 
Government or its personnel, are exempt. This exemption is necessary and 
proper in the public interest and is in accord with the remedial purpose 
of the Act. Where concession contracts, however, include substantial 
requirements for services other than those stated, those services are 
not exempt. The exemption provided does not affect a concession 
contractor's obligation to comply with the labor standards provisions of 
any other statutes such as the Contract Work Hours and Safety Standards 
Act (40 U.S.C. 327 et seq.), the Davis-Bacon Act (40 U.S.C. 276a et 
seq.; see part 5 of this title) and the Fair Labor Standards Act (29 
U.S.C. 201 et seq.).

Sec. 4.134  Contracts outside the Act's coverage.

    (a) Contracts entered into by agencies other than those of the 
Federal Government or the District of Columbia as described in 
Secs. 4.107-4.108 are not within the purview of the Act. Thus, the Act 
does not cover service contracts entered into with any agencies of 
Puerto Rico, the Virgin Islands, American Samoa, or Guam acting in 
behalf of their respective local governments. Similarly, it does not 
cover service contracts entered into by agencies of States or local 
public bodies, not acting as agents for or on behalf of the United 
States or the District of Columbia, even though Federal financial 
assistance may be provided for such contracts under Federal law or the 
terms and conditions specified in Federal law may govern the award and 
operation of the contract.
    (b) Further, as already noted in Secs. 4.111 through 4.113, the Act 
does not apply to Government contracts which do not have as their 
principal purpose the furnishing of services, or which call for no 
services to be furnished within the United States or through the use of 
service employees as those terms are defined in the Act. Clearly outside 
the Act's coverage for these reasons are

[[Page 70]]

such contracts as those for the purchase of tangible products which the 
Government needs (e.g. vehicles, office equipment, and supplies), for 
the logistic support of an air base in a foreign country, or for the 
services of a lawyer to examine the title to land. Similarly, where the 
Government contracts for a lease of building space for Government 
occupancy and the building owner furnishes general janitorial and other 
building services on an incidental basis through the use of service 
employees, the leasing of the space rather than the furnishing of the 
building services is the principal purpose of the contract, and the Act 
does not apply. Another type of contract which is outside the coverage 
of the Act because it is not for the principal purpose of furnishing 
services may be illustrated by a contract for the rental of parking 
space under which the Government agency is simply given a lease or 
license to use the contractor's real property. Such a contract is to be 
distinguished from contracts for the storage of vehicles which are 
delivered into the possession or custody of the contractor, who will 
provide the required services including the parking or retrieval of the 
vehicles.
    (c) There are a number of types of contracts which, while outside 
the Act's coverage in the usual case, may be subject to its provisions 
under the conditions and circumstances of a particular procurement, 
because these may be such as to require a different view of the 
principal purpose of the contract. Thus, the ordinary contract for the 
recapping of tires would have as its principal purpose the manufacture 
and furnishing of rebuilt tires for the Government rather than the 
furnishing of services through the use of service employees, and thus 
would be outside the Act's coverage. Similarly, contracts calling for 
printing, reproduction, and duplicating ordinarily would appear to have 
as their principal purpose the furnishing in quantity of printed, 
reproduced or duplicated written materials rather than the furnishing of 
reproduction services through the use of service employees. However, in 
a particular case, the terms, conditions, and circumstances of the 
procurement may be such that the facts would show its purpose to be 
chiefly the furnishing of services (e.g. repair services, typesetting, 
photocopying, editing, etc.), and where such services require the use of 
service employees the contract would be subject to the Act unless 
excluded therefrom for some other reason.

Secs. 4.135--4.139  [Reserved]

                     Determining Amount of Contract

Sec. 4.140  Significance of contract amount.

    As set forth in Sec. 4.104 and in the requirements of Secs. 4.6--
4.7, the obligations of a contractor with respect to labor standards 
differ in the case of a covered and nonexempt contract, depending on 
whether the contract is or is not in excess of $2,500. Rules for 
resolving questions that may arise as to whether a contract is or is not 
in excess of this figure are set forth in the following sections.

Sec. 4.141  General criteria for measuring amount.

    (a) In general, the contract amount is measured by the consideration 
agreed to be paid, whether in money or other valuable consideration, in 
return for the obligations assumed under the contract. Thus, even though 
a contractor, such as a wrecker entering into a contract with the 
Government to raze a building on a site which will remain vacant, may 
not be entitled to receive any money from the Government for such work 
under his contract or may even agree to pay the Government in return for 
the right to dispose of the salvaged materials, the contract will be 
deemed one in excess of $2,500 if the value of the property obtained by 
the contractor, less anything he might pay the Government, is in excess 
of such amount. In addition, concession contracts are considered to be 
contracts in excess of $2,500 if the contractor's gross receipts under 
the contract may exceed $2,500.
    (b) All bids from the same person on the same invitation for bids 
will constitute a single offer, and the total award to such person will 
determine the amount involved for purposes of the Act. Where the 
procurement is made without formal advertising, in

[[Page 71]]

arriving at the aggregate amount involved, there must be included all 
property and services which would properly be grouped together in a 
single transaction and which would be included in a single advertisement 
for bids if the procurement were being effected by formal advertising. 
Therefore, if an agency procures continuing services through the 
issuance of monthly purchase orders, the amount of the contract for 
purposes of application of the Act is not measured by the amount of an 
individual purchase order. In such cases, if the continuing services 
were procured through formal advertising, the contract term would 
typically be for one year, and the monthly purchase orders must be 
grouped together to determine whether the yearly amount may exceed 
$2,500. However, a purchase order for services which are not continuing 
but are performed on a one-time or sporadic basis and which are not 
performed under a requirements contract or under the terms of a basic 
ordering agreement or similar agreement need not be equated to a yearly 
amount. (See Sec. 4.142(b).) In addition, where an invitation is for 
services in an amount in excess of $2,500 and bidders are permitted to 
bid on a portion of the services not amounting to more than $2,500, the 
amounts of the contracts awarded separately to individual and unrelated 
bidders will be measured by the portions of the services covered by 
their respective contracts.
    (c) Where a contract is issued in an amount in excess of $2,500 this 
amount will govern for purposes of application of the Act even though 
penalty deductions, deductions for prompt payment, and similar 
deductions may reduce the amount actually expended by the Government to 
$2,500 or less.

Sec. 4.142  Contracts in an indefinite amount.

    (a) Every contract subject to this Act which is indefinite in amount 
is required to contain the clauses prescribed in Sec. 4.6 for contracts 
in excess of $2,500, unless the contracting officer has definite 
knowledge in advance that the contract will not exceed $2,500 in any 
event.
    (b) Where contracts or agreements between a Government agency and 
prospective purveyors of services are negotiated which provide terms and 
conditions under which services will be furnished through the use of 
service employees in response to individual purchase orders or calls, if 
any, which may be issued by the agency during the life of the agreement, 
these agreements would ordinarily constitute contracts within the 
intendment of the Act under principles judicially established in United 
Biscuit Co. v. Wirtz, 17 WH Cases 146 (C.A.D.C.), a case arising under 
the Walsh-Healey Public Contracts Act. Such a contract, which may be in 
the nature of a bilateral option contract or basic ordering agreement 
and not obligate the Government to order any services or the contractor 
to furnish any, nevertheless governs any procurement of services that 
may be made through purchase orders or calls issued under its terms. 
Since the amount of the contract is indefinite, it is subject to the 
rule stated in paragraph (a) of this section. The amount of the contract 
is not determined by the amount of any individual call or purchase 
order.

                      Changes in Contract Coverage

Sec. 4.143  Effects of changes or extensions of contracts, generally.

    (a) Sometimes an existing service contract is modified, amended, or 
extended in such a manner that the changed contract is considered to be 
a new contract for purposes of the application of the Act's provisions. 
The general rule with respect to such contracts is that, whenever 
changes affecting the labor requirements are made in the terms of the 
contract, the provisions of the Act and the regulations thereunder will 
apply to the changed contract in the same manner and to the same extent 
as they would to a wholly new contract. However, contract modifications 
or amendments (other than contract extensions) that are unrelated to the 
labor requirements of a contract will not be deemed to create a new 
contract for purposes of the Act. In addition, only significant changes 
related to labor requirements will be considered as creating new 
contracts. This limitation on the application of the Act has been found 
to be in accordance

[[Page 72]]

with the provisions of section 4(b) of the Act.
    (b) Also, whenever the term of an existing contract is extended, 
pursuant to an option clause or otherwise, so that the contractor 
furnishes services over an extended period of time, rather than being 
granted extra time to fulfill his original commitment, the contract 
extension is considered to be a new contract for purposes of the 
application of the Act's provisions. All such ``new'' contracts as 
discussed above require the insertion of a new or revised wage 
determination in the contract as provided in Sec. 4.5.

Sec. 4.144  Contract modifications affecting amount.

    Where a contract which was originally issued in an amount not in 
excess of $2,500 is later modified so that its amount may exceed that 
figure, all the provisions of section 2(a) of the Act, and the 
regulations thereunder are applicable from the date of modification to 
the date of contract completion. In the event of such modification, the 
contracting officer will immediately request a wage determination from 
the Department of Labor and insert the required contract clauses and any 
wage determination issued into the contract. In the event that a 
contract for services subject to the Act in excess of $2,500 is modified 
so that it cannot exceed $2,500, compliance with the provisions of 
section 2(a) of the Act and the contract clauses required thereunder 
ceases to be an obligation of the contractor when such modification 
becomes effective.

Sec. 4.145  Extended term contracts.

    (a) Sometimes service contracts are entered into for an extended 
term exceeding one year; however, their continuation in effect is 
subject to the appropriation by Congress of funds for each new fiscal 
year. In such event, for purposes of this Act, a contract shall be 
deemed entered into upon the contract anniversary date which occurs in 
each new fiscal year during which the terms of the original contract are 
made effective by an appropriation for that purpose. In other cases a 
service contract, entered into for a specified term by a Government 
agency, may contain a provision such as an option clause under which the 
agency may unilaterally extend the contract for a period of the same 
length or other stipulated period. Since the exercise of the option 
results in the rendition of services for a new or different period not 
included in the term for which the contractor is obligated to furnish 
services or for which the Government is obligated to pay under the 
original contract in the absence of such action to extend it, the 
contract for the additional period is a wholly new contract with respect 
to application of the Act's provisions and the regulations thereunder 
(see Sec. 4.143(b)).
    (b) With respect to multi-year service contracts which are not 
subject to annual appropriations (for example, concession contracts 
which are funded through the concessionaire's sales, certain operations 
and maintenance contracts which are funded with so-called ``no year 
money'' or contracts awarded by instrumentalities of the United States, 
such as the Federal Reserve Banks, which do not receive appropriated 
funds), section 4(d) of the Act allows such contracts to be awarded for 
a period of up to five years on the condition that the multi-year 
contracts will be amended no less often than once every two years to 
incorporate any new Service Contract Act wage determination which may be 
applicable. Accordingly, unless the contracting agency is notified to 
the contrary (see Sec. 4.4(d)), such contracts are treated as wholly new 
contracts for purposes of the application of the Act's provisions and 
regulations thereunder at the end of the second year and again at the 
end of the fourth year, etc. The two-year period is considered to begin 
on the date that the contractor commences performance on the contract 
(i.e., anniversary date) rather than on the date of contract award.

                           Period of Coverage

Sec. 4.146  Contract obligations after award, generally.

    A contractor's obligation to observe the provisions of the Act 
arises on the date the contractor is informed that award of the contract 
has been made,

[[Page 73]]

and not necessarily on the date of formal execution. However, the 
contractor is required to comply with the provisions of the Act and 
regulations thereunder only while the employees are performing on the 
contract, provided the contractor's records make clear the period of 
such performance. (See also Sec. 4.179.) If employees of the contractor 
are required by the contract to complete certain preliminary training or 
testing prior to the commencement of the contract services, or if there 
is a phase-in period which allows the new contractor's employees to 
familiarize themselves with the contract work so as to provide a smooth 
transition between contractors, the time spent by employees undertaking 
such training or phase-in work is considered to be hours worked on the 
contract and must be compensated for even though the principal contract 
services may not commence until a later date.

Secs. 4.147--4.149  [Reserved]

                      Employees Covered by the Act

Sec. 4.150  Employee coverage, generally.

    The Act, in section 2(b), makes it clear that its provisions apply 
generally to all service employees engaged in performing work on a 
covered contract entered into by the contractor with the Federal 
Government, regardless of whether they are the contractor's employees or 
those of any subcontractor under such contract. All service employees 
who, on or after the date of award, are engaged in working on or in 
connection with the contract, either in performing the specific services 
called for by its terms or in performing other duties necessary to the 
performance of the contract, are thus subject to the Act unless a 
specific exemption (see Secs. 4.115 et seq.) is applicable. All such 
employees must be paid wages at a rate not less than the minimum wage 
specified under section 6(a)(1) of the Fair Labor Standards Act (29 
U.S.C. 206(a)(1)), as amended. Payment of a higher minimum monetary wage 
and the furnishing of fringe benefits may be required under the 
contract, pursuant to the provisions of sections 2 (a)(1), (2), and 4(c) 
of the Act.

Sec. 4.151  Employees covered by provisions of section 2(a).

    The provisions of sections 2(a) and 4(c) of the Act prescribe labor 
standards requirements applicable, except as otherwise specifically 
provided, to every contract in excess of $2,500 which is entered into by 
the United States or the District of Columbia for the principal purpose 
of furnishing services in the United States through the use of service 
employees. These provisions apply to all service employees engaged in 
the performance of such a contract or any subcontract thereunder. The 
Act, in section 8(b) defines the term service employee. The general 
scope of the definition is considered in Sec. 4.113(b) of this subpart.

Sec. 4.152  Employees subject to prevailing compensation provisions of 
          sections 2(a)(1) and (2) and 4(c).

    (a) Under sections 2(a)(1) and (2) and 4(c) of the Act, minimum 
monetary wages and fringe benefits to be paid or furnished the various 
classes of service employees performing such contract work are 
determined by the Secretary of Labor or his authorized representative in 
accordance with prevailing rates and fringe benefits for such employees 
in the locality or in accordance with the rates contained in a 
predecessor contractor's collective bargaining agreement, as 
appropriate, and are required to be specified in such contracts and 
subcontracts thereunder. All service employees of the classes who 
actually perform the specific services called for by the contract (e.g., 
janitors performing on a contract for office cleaning; stenographers 
performing on a contract for stenographic reporting) are covered by the 
provisions specifying such minimum monetary wages and fringe benefits 
for such classes of service employees and must be paid not less than the 
applicable rate established for the classification(s) of work performed. 
Pursuant to section 4.6(b)(2), conforming procedures are required to be 
observed for all such classes of service employees not listed in the 
wage determination incorporated in the contract.
    (b) The duties which an employee actually performs govern the 
classification and the rate of pay to which the

[[Page 74]]

employee is entitled under the applicable wage determination. Some job 
classifications listed in an applicable wage determination are 
descriptive by title and have commonly understood meanings (e.g., 
janitors, security guards, pilots, etc.). In such situations, detailed 
position descriptions may not be included in the wage determination. 
However, in cases where additional descriptive information is needed to 
inform users of the scope of duties included in the classification, the 
wage determination will generally contain detailed position descriptions 
based on the data source relied upon for the issuance of the wage 
determination.
    (c)(1) Some wage determinations will list a series of classes within 
a job classification family, e.g., Computer Operators, Class A, B, and 
C, or Electronic Technicians, Class A, B, and C, or Clerk Typist, Class 
A and B. Generally, the lowest level listed for a job classification 
family is considered to be the entry level and establishment of a lower 
level through conformance (Sec. 4.6(b)(2)) is not permissible. Further, 
trainee classifications cannot be conformed. Helpers in skilled 
maintenance trades (e.g., electricians, machinists, automobile 
mechanics, etc.) whose duties constitute, in fact, separate and distinct 
jobs, may also be used if listed on the wage determination, but cannot 
be conformed. Conformance may not be used to artificially split or 
subdivide classifications listed in the wage determination. However, 
conforming procedures may be used if the work which an employee performs 
under the contract is not within the scope of any classification listed 
on the wage determination, regardless of job title.
    (2) Subminimum rates for apprentices, student learners, and 
handicapped workers are permissible under the conditions discussed in 
Sec. 4.6 (o) and (p).

Sec. 4.153  Inapplicability of prevailing compensation provisions to 
          some employees.

    There may be employees used by a contractor or subcontractor in 
performing a service contract in excess of $2,500 which is subject to 
the Act, whose services, although necessary to the performance of the 
contract, are not subject to minimum monetary wage or fringe benefit 
provisions contained in the contract pursuant to section 2(a) because 
such employees are not directly engaged in performing the specified 
contract services. An example might be a laundry contractor's billing 
clerk performing billing work with respect to the items laundered. In 
all such situations, the employees who are necessary to the performance 
of the contract but not directly engaged in the performance of the 
specified contract services, are nevertheless subject to the minimum 
wage provision of section 2(b) (see Sec. 4.150) requiring payment of not 
less than the minimum wage specified under section 6(a)(1) of the Fair 
Labor Standards Act to all employees working on a covered contract, 
unless specifically exempt. However, in situations where minimum 
monetary wages and fringe benefits for a particular class or classes of 
service employees actually performing the services called for by the 
contract have not been specified in the contract because the wage and 
fringe benefit determination applicable to the contract has been made 
only for other classes of service employees who will perform the 
contract work, the employer will be required to pay the monetary wages 
and fringe benefits which may be specified for such classes of employees 
pursuant to the conformance procedures provided in Sec. 4.6(b).

Sec. 4.154  Employees covered by sections 2(a)(3) and (4).

    The safety and health standards of section 2(a)(3) and the notice 
requirements of section 2(a)(4) of the Act (see Sec. 4.183) are 
applicable, in the absence of a specific exemption, to every service 
employee engaged by a contractor or subcontractor to furnish services 
under a contract subject to section 2(a) of the Act.

Sec. 4.155  Employee coverage does not depend on form of employment 
          contract.

    The Act, in section 8(b), makes it plain that the coverage of 
service employees depends on whether their work for the contractor or 
subcontractor on a covered contract is that of a service employee as 
defined in section 8(b) and

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not on any contractual relationship that may be alleged to exist between 
the contractor or subcontractor and such persons. In other words, any 
person, except those discussed in Sec. 4.156 below, who performs work 
called for by a contract or that portion of a contract subject to the 
Act is, per se, a service employee. Thus, for example, a person's status 
as an ``owner-operator'' or an ``independent contractor'' is immaterial 
in determining coverage under the Act and all such persons performing 
the work of service employees must be compensated in accordance with the 
Act's requirements.

Sec. 4.156  Employees in bona fide executive, administrative, or 
          professional capacity.

    The term service employee as defined in section 8(b) of the Act does 
not include persons employed in a bona fide executive, administrative, 
or professional capacity as those terms are defined in 29 CFR part 541. 
Employees within the definition of service employee who are employed in 
an executive, administrative, or professional capacity are not excluded 
from coverage, however, even though they are highly paid, if they fail 
to meet the tests set forth in 29 CFR part 541. Thus, such employees as 
laboratory technicians, draftsmen, and air ambulance pilots, though they 
require a high level of skill to perform their duties and may meet the 
salary requirements of the regulations in part 541 of this title, are 
ordinarily covered by the Act's provisions because they do not typically 
meet the other requirements of those regulations.

Secs. 4.157--4.158  [Reserved]
