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CCASE:
NATIONAL CANCER INSTITUTE
DDATE:
19931230
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[1] BOARD OF SERVICE CONTRACT APPEALS
UNITED STATES DEPARTMENT OF LABOR
WASHINGTON, D. C.
In the Matter of:
NATIONAL CANCER INSTITUTE BSCA Case No. 93-10
BEFORE: Charles E. Shearer, Jr., Chairman
Ruth E. Peters, Member
DATED: December 30, 1993
DECISION OF THE BOARD OF SERVICE CONTRACT APPEALS
This matter is before the Board of Service Contract Appeals pursuant
to the McNamara-O'Hara Service Contract Act of 1965, as amended (41 U.S.C.
[sec] 351 et seq.; "SCA"), and the regulations of the Department of
Labor at 29 C.F.R. Part 8. The case is pending on the petition of
Program Resources, Inc. ("Petitioner" or "PRI"), seeking review of the
May 14, 1993 Wage and Hour Division Administrator's ruling, declining to
reconsider a previous Administrator's ruling -- affirmed by the Deputy
Secretary /FN1/ -- that a contract with the National Cancer Institute to
conduct research on the prevention, diagnosis, and treatment of cancer
and AIDS was subject to the SCA's prevailing wage labor standards
provisions. PRI is joined in this petition by Interested Person United
States Department of Health and Human Services, National Cancer
Institute ("NCI"), which agency was the petitioner of record in the case
previously before the Deputy Secretary. For the following reasons, the
Wage and Hour Division's May 14, 1993 ruling is affirmed. Furthermore,
the Board -- in reconsideration of the prior, Deputy Secretary's
decision in National Cancer Institute, Case No. 87-SCA-OM-9 (Feb. 28,
1989) ("NCI I") -- concludes that previous decision was correct as a
matter of law and that PRI's NCI contract is properly subject to the
SCA. [1]
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
/FN1/ Prior to establishment of the Board of Service Contract Appeals on
July 10, 1992, Administrator's rulings issued pursuant to the Act were
appealable to the Deputy Secretary of Labor pursuant to delegation of
authority by the Secretary of Labor. [1]
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[2] I. BACKGROUND
The SCA coverage question presented in this matter concerns Petitioner's
contract with NCI to operate the Frederick Cancer Center (the "Center"),
located in Frederick, Maryland. This contract is one of five which NCI
has entered for operation of the Center, which was established in 1972.
During its initial years, the Center was operated for NCI under a single
contract by a single prime contractor. However, in 1982 the unitary
contract ended and NCI awarded five "individual five-year contracts for
various elements of Frederick Cancer Center operations. . . ."
Petitioner's Statement ("Statement") in Support of Petition for Review,
page 6. In 1987, NCI again awarded five contracts for the Center's
operation; these contracts -- including No. NOI-DO-74012 awarded to PRI
-- were for a term of seven years and will not expire until 1994.
PRI -- self-described in this proceeding as the Center's "primary
contractor" -- holds the largest of the five contracts. Petitioner
states that its contract " accounts for 85.7 percent of costs incurred
by the National Cancer Institute at the Frederick Cancer Center. Id. at 7.
As noted above, the issues raised in this matter have previously been
before the Administrator and this Board's predecessor. In 1986, a Wage
and Hour Division representative notified NCI that the Department had
reviewed the Request for Proposals for the five contracts anticipated
for award in the 1987- 1994 period, and that Wage and Hour considered
the multiple contract configuration to be subject to the SCA's
requirements. NCI was invited to submit its views on the question of
coverage and did so.
On August 6, 1987, the Administrator issued a ruling that "[t]o the
extent that each contract awarded under this solicitation is principally
for the furnishing of services through the use of service employees, SCA
would apply. In this regard, based on our review of the information
available concerning the five proposed areas under this solicitation, we
would consider each of the five contracts which may be awarded to be a
contract for services within the purview of the SCA and . . . the
regulations." Administrative Record ("AR") Tab 2, p. 2. In reaching the
1986 decision, the Administrator concluded that a possible exemption
from SCA coverage -- the "GOCO" (Government-owned, contractor operated)
principle -- was unavailable given the undisputed fact that there was
not a single, unitary operation (contract) at the NCI facility, as
required under the Department of Labor's regulations.
Following the Administrator's coverage ruling (which was issued to the
contracting agency), NCI appealed the determination to the Office of the
Deputy Secretary of Labor, which as previously noted, acted in this
Board's place prior to its establishment. It is undisputed that the
five contractors -- including PRI -- were not participants in the
proceeding before the Deputy Secretary. [2]
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[3] On February 28, 1989, the Deputy Secretary affirmed the
Administrator's determination that the SCA was applicable to the five
contracts in NCI I. The Deputy Secretary's final ruling on behalf of the
Department of Labor turned on his interpretation of the SCA regulation
defining a true GOCO contract -- which is indisputably exempt from the
SCA -- and another regulation in part defining a key term of statutory
coverage which makes the SCA applicable to federal contracts "the
principal purpose of which is to furnish services in the United States
through the use of service employees." 41 U.S.C. 351(a).
The record does not disclose any Wage and Hour Division efforts to
ensure implementation of the Deputy Secretary's 1989 decision. Nor is
there indication that NCI -- which participated in the administrative
proceedings before the Administrator and the Deputy Secretary -- ever
informed any of the contractors at NCI of the decision that the SCA was
applicable to their contracts. Nearly four years after the Deputy
Secretary's decision, counsel for NCI began directing requests to
officials of the Department of Labor (the Solicitor of Labor, Wage and
Hour's Acting Administrator, and the Acting Assistant Secretary for
Employment Standards), requesting that the Deputy Secretary's decision
"be revised to reflect that the SCA does not apply to the PRI contract
with NCI." (September 28, 1992 letter to Solicitor of Labor, p. 19).
PRI's counsel alleged procedural error in the Department of Labor's
failure to include PRI in the earlier administrative proceedings, and
raised arguments in support of the merits of PRI's position which were
allegedly not addressed in the earlier administrative proceedings.
Apparently in response to PRI's request to Wage and Hour to "revise[]
and reverse[]" the Deputy Secretary's decision, the Acting Administrator
issued a ruling on May 14, 1993, declining to reconsider the Wage and
Hour Division's earlier determination of SCA coverage for PRI's
contract, on the basis that no new information had been submitted which
would warrant reversal of Wage and Hour's previous position.
PRI filed the instant petition for review in response to the Acting
Administrator's May 14, 1993 letter. This Board accepted jurisdiction
of the merits raised in the petition for review, the parties filed
statements in support of their respective positions and the Board
conducted oral argument on November 10, 1993.
II. DISCUSSION
A. The issue of stare decisis
As noted in the foregoing treatment of the procedural background of
this matter, PRI has alleged that it was not a party to and that NCI did not
inform it [3]
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[4] of the previous administrative proceedings conducted before the
Administrator and the Deputy Secretary. PRI argues that given the
Department's failure to notify it of those proceedings, this Board
should examine the question of SCA coverage de novo. PRI further argues
the possibility that the Deputy Secretary's decision is without force or
effect because the Department failed to constitute a Board of Service
Contract Appeals as authorized under the regulations at 29 C.F.R. Part
8. See Nationwide Building Maintenance, Inc. v. McLaughlin, 30 WH Cases
1676 (N.D. Ohio 1992).
The Administrator, on the other hand, argues that the Board should
dismiss the petition for review, without reaching the merits of SCA
coverage in this dispute. Wage and Hour contends that the
Administrator's 1986 ruling was appealed to a duly authorized official
of the Department of Labor -- the Deputy Secretary -- pursuant to a
valid delegation of authority and that the Deputy Secretary's decision
in NCI I therefore constitutes precedent binding upon PRI in the instant
matter under the doctrine of stare decisis.
The Board has accepted jurisdiction over the merits of this dispute;
however, on the facts of this case, we decline to rule that either PRI's
due process rights were violated in the first proceeding or that the
result in this case is controlled by the conclusions and decision
reached by the Deputy Secretary in NCI I. Rather, the Board treats our
review of this matter as a question of reconsideration -- albeit later
than would be entertained in the ordinary course of events -- of the
Deputy Secretary's decision. The Board will not void the final
Department of Labor decisions issued by the Deputy Secretary on the
basis of the district court's limited holding in the Nationwide Building
Maintenance litigation. We will, however, review and reconsider the
Deputy Secretary's decision in this matter, given the unique facts of
this case, where there is a question of statutory coverage and a prime
contractor has alleged that it had no notice of the administrative
proceedings.
Prior to reaching PRI's contentions regarding the merits of SCA coverage
for its contract, we also address the question of NCI's participation in
this case. There is no contention that NCI's participation in the
earlier proceedings was somehow tainted and therefore insufficient to
bind that federal agency to the Deputy Secretary's holding in NCI I.
Petitioner has referenced the fact that in the earlier proceedings NCI
was not represented by counsel. However, there is no requirement that
any party or interested person be represented before the Board by
counsel (nor, at the time, before the Deputy Secretary of Labor). NCI's
elected to proceed without counsel during the first round of
administrative proceedings and the Deputy Secretary's accession to this
choice was not error. On the basis of NCI's participation in the first
proceedings, the Board concludes that the contracting agency is bound by
the decision of the Deputy Secretary as well as by the present decision
of the Board. [4]
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[5] B. Statutory coverage of PRI's contract
The central issue before the Board is the question of whether the SCA's
labor standards provisions are applicable as a matter of law to the PRI
contract. The SCA applies to all contracts (in excess of $2500), "the
principal purpose of which is to furnish services in the United States
through the use of service employees." 41 U.S.C. 351(a); emphasis
supplied. Petitioner contends that the "principal purpose" of its
contract is not to furnish services through the use of service
employees, but to "conduct and support basic, applied, and developmental
research into the cause, treatment, and cure of AIDS and cancer."
Petitioner's Statement, pp. 2-3.
The Administrator did not accept this characterization of the PRI
contract. Given the language of the SCA, its legislative history and
the Department's regulations, the Board too must reject this view of the
PRI contract which is more appropriately seen as a contract for research
and development services. There is no exemption from SCA requirements
for research or development contracts and -- to the extent that PRI's
contract is seen as one for AIDS and cancer research and development of
treatments and cures -- no exemption from the general rule of SCA
coverage for federal service contracts is available. The Administrator
correctly argues that a specific exemption for research and development
contracts was considered and rejected by the Department after notice and
comment in rule making procedures which led to adoption of the
regulations at 29 C.F.R. Part 4. As the Department stated in adopting
the final SCA regulations:
R&D [research and development] contracts have always been considered
subject to SCA when they are principally for the furnishing of a
service (such as collection and analysis of information or testing),
provided that there is more than a minor use of service employees in
performing the contract services.
* * *
In deciding whether R&D contracts are subject to SCA, the question
must be whether they are contracts, "the principal purpose of which
is to furnish services * * * through the use of service employees."
If R&D contracts meet this test, they are covered by the Act. DOD
[Department of Defense] has suggested that although an R&D contractor
engages in collection and analysis of technical and scientific
information and the conduct of sophisticated tests, the principal
purpose of R&D contracts is to buy a product, i.e., the information
obtained. To the contrary, it is our view that the principal purpose
of such contracts is the service of collection and analysis of
information, testing, etc. [5]
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[6] although the information obtained is generally manifested in
a report. See Descomp Inc. v. Sampson, 577 F.Supp. 254, 261 (D.
Del. 1974).
48 Fed. Reg. 49751 (Oct. 27, 1983). The Department of Labor reached
the conclusion that the rulemaking record did not provide an adequate
basis to support an exemption for research and development contracts.
Congress clearly intended the SCA to provide prevailing wage
labor standards protection for a class of government contract workers:
service employees. Similar protection had long been afforded
contractors' employees on federally funded construction projects through
the Davis-Bacon Act (40 U.S.C. 276a et seq.) and related statutes and
contracts for procurement of supplies, materials and equipment under the
Walsh-Healey Act (41 U.S.C. 35 et seq.). The SCA's legislative
history indicates a clear Congressional intent "to close a gap in the
otherwise comprehensive net of federal contract legislation." Menlo
Service Corp. v. United States, 765 F.2d 805, 809 (9th Cir. 1985). The
Department's regulations further clarify the SCA coverage provision:
"The Act is applicable to the contract if the principal purpose of the
contract is to furnish services ... and if service employees will be
used in providing such services." 29 C.F.R. 4.110.
Given the remedial purpose of the SCA, the Administrator's
interpretation of this regulation is a reasonable application of the
statute's mandate to cover contracts "the principal purpose of which is
to furnish services ... through the use of service employees." The
Board defers to the Administrator's consistent and reasonable
interpretation of the Department's regulations. See Titan IV Mobile
Service Tower, WAB Case No. 89-14 (May 10, 1991); 29 C.F.R. 8.1(b).
Petitioner reads the SCA's coverage requirement far too narrowly.
The Board cannot agree that the work of the service employees under NCI's
contract are "ancillary to the principal purpose of the contract ... to
find cures for AIDS and cancer." Petitioner's Statement at p. 16.
Petitioner argues that the sought- after cures will not be found by the
non-exempt personnel under the contract and that the service workers
therefore do not contribute to the principal purpose of the contract.
However, the Board concludes that the performance of services by service
employees is the principal purpose of the PRI contract. This is clearly
demonstrated by the uncontested fact that a majority of the positions
under the contract are not exempt from coverage by the SCA's provisions.
While bona fide executive, administrative and professional employees
perform indisputably important duties under PRI's contract, these
employees do not perform the contract essentially [*]on their own[*]. [6]
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[7] The SCA's regulations specify the conditions under which coverage
determinations are made in the case where -- as here -- there is a mixed
use of exempt and non-exempt positions under a particular contract. 29
C.F.R. 4.113(a)(3) provides in pertinent part:
. . . [T]he 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.
[Emphasis supplied].
In practice, the Wage and Hour Division interprets "significant or
substantial" to mean those situations where more than 20 per cent of
positions are non- exempt. See Military Sealift Command (T-AGOS
Vessels), Dep. Sec'y Case No. 86-SCA-OM-1 (Apr. 15, 1991), slip op. at
p. 5. Where use of service employees is less than 10 per cent, there is
no SCA coverage; if service employees comprise between 10 and 20 per
cent of the contract work force, Wage and Hour considers the totality of
contract circumstances to make a determination as to whether the
contract is covered. Id.
Petitioner further argues that an exemption from coverage should
be found by this Board within the provisions of 29 C.F.R. 4.113(a)(4),
which outlines the inquiry where the question of service employee use is
a close one, i.e., where between 10 and 20 per cent of the work force is
to be service employees. This regulation provides that:
[*]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 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. [7]
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[8] [*]Emphasis supplied.[*] The Board concludes that resort to this
regulation is not appropriate. There is no serious contention that the
PRI contract is a "close case" given the employment pattern of
Petitioners' contract. The record demonstrates that at the time the
contract's Request for Proposals was issued, NCI estimated that
approximately 647 labor years (out of a total of more than 865 labor
years) were positions which are considered non-exempt under the
regulations. AR Tab 6. Thus, the contracting agency's own estimate of
non- exempt work was nearly 75% of the labor under the contract. Even
PRI's conservative estimate of actual employment under its contract is
that "only" 51.6 per cent of the contract labor force is non-exempt.
Both Petitioner's and NCI's estimates are clearly "significant or
substantial" employment of service employees within the meaning of 29
C.F.R. 4.113(a)(3) and the PRI contract is therefore placed squarely
within SCA coverage.
In this regard, the record demonstrates that PRI provides the
following "traditional" service employee positions under its contract
services:chemical testing and analysis; custodial, janitorial and
housekeeping;data collection, processing and analysis; laboratory analysis;
laundryand dry cleaning; operation and maintenance of a Federal facility;
and visual and graphic arts. Each of these services is listed in the
Department's regulations as being subject to the provisions of the SCA
if the contract is otherwise covered.
The Board also rejects Petitioner's secondary argument that its contract
should be considered exempt from SCA coverage as a GOCO contract within
the meaning of the Department's regulation at 29 C.F.R. 4.107(b). As
noted in the Administrator's initial 1986 ruling, the Wage and Hour
Division's "longstanding position [is] that the GOCO principle applies
on a very limited basis, i.e., only in situations where a single
contractor is charged with the full responsibility for operating a
Government-owned production plant or facility." AR, Tab 2. The
exemption from the SCA for a GOCO facility is codified in the regulation
at 29 C.F.R. 4.107(b), which provides, in pertinent part, exemption
where:
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 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 [8]
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[9] to be contracts entered into by the United States and
contracts with the Federal Government within the meaning of the Act.
NCI's division of the total Center operations into five separate
contracts precludes application of the GOCO exemption to the PRI
contract. Petitioner does not have the responsibility for [*]all
work[*] conducted at the Center; rather, there are five separate prime
contractors, each of which has responsibility for its own contract work.
The allegation that PRI is the "primary" or "critical" contractor at the
Center is not the same thing as being the sole prime contractor.
Moreover, although PRI has alleged -- without dispute by the
Administrator -- that it has the authority to directly obligate federal
funds on NCI's behalf, Petitioner has not alleged that this fund
obligation extends to the procurement of all supplies and services for
the entire program or operation at NCI. The Board likewise the rejects
Petitioner's argument that the five NCI contracts should be treated as a
single contract within the meaning of 29 C.F.R. 4.107(b) since the
contracts are "interdependent." Petitioner has not demonstrated that
its NCI is a GOCO facility, the exemption for which -- as all exemptions
to coverage of remedial statutes such as the SCA -- is to be narrowly
construed. The applicable regulation plainly precludes exemption of
PRI's contract on the facts presented here.
For the foregoing reasons, the Board concludes that Petitioner's
contract with NCI is subject to the prevailing wage labor standards
provisions of the SCA.
BY ORDER OF THE BOARD:
Charles E. Shearer, Jr., Chairman
Ruth E. Peters, Member
GERALD F. KRIZAN, ESQ.
Executive Secretary [9]
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