EVALUATION OF PROFESSIONAL EMPLOYEE COMPENSATION Old Policies Never Die They Wont Even Fade Away Yo

37 Nash & Cibinic Rep. NL ¶ 48

Nash & Cibinic Report | July 2023

The Nash & Cibinic Report

Procurement Management

Vernon J. Edwards

¶ 48. EVALUATION OF PROFESSIONAL EMPLOYEE COMPENSATION: Old Policies Never Die, They Won’t Even Fade Away, You Have To Strangle Them

Federal Acquisition Regulation 15.304, Evaluation factors and significant subfactors, prescribes the proposal evaluation factors that must or should be considered when conducting a source selection pursuant to FAR Part 15, Contracting by Negotiation. The mandatory factors are, in the order listed: (1) price or cost to the Government, (2) quality of the product or service, (3) past performance, and (4) proposed small business subcontracting. However, there is another mandatory factor—professional employee compensation—which is prescribed by FAR Subpart 22.11, Professional Employee Compensation.

FAR 22.1101, Applicability, despite its title, states only:

The Service Contract Act of 1965, now codified at 41 U.S.C. chapter 67, Service Contract Labor Standards, was enacted to ensure that Government contractors compensate their blue‐collar service workers and some white‐collar service workers fairly, but it does not cover bona fide executive, administrative, or professional employees.

FAR 22.1102. Definition, defines “professional employee” in terms of Department of Labor regulation 29 CFR Part 541, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees. FAR 22.1103, Policy, procedures, and solicitation provision, is the meat and potatoes of the policy and is brief:

All professional employees shall be compensated fairly and properly. Accordingly, the contracting officer shall insert the provision at [FAR] 52.222‐46, Evaluation of Compensation for Professional Employees, in solicitations for negotiated contracts when the contract amount is expected to exceed $750,000 and services are to be provided which will require meaningful numbers of professional employees. This provision requires that offerors submit for evaluation a total compensation plan setting forth proposed salaries and fringe benefits for professional employees working on the contract. Supporting information will include data, such as recognized national and regional compensation surveys and studies of professional, public, and private organizations, used in establishing the total compensation structure. Plans indicating unrealistically low professional employee compensation may be assessed adversely as one of the factors considered in making an award.

FAR 52.222‐46, Evaluation of Compensation for Professional Employees, states, in part:

(a) …As part of their proposals, offerors will submit a total compensation plan setting forth salaries and fringe benefits proposed for the professional employees who will work under the contract. The Government will evaluate the plan to assure that it reflects a sound management approach and understanding of the contract requirements. This evaluation will include an assessment of the offeror’s ability to provide uninterrupted high‐quality work. The professional compensation proposed will be considered in terms of its impact upon recruiting and retention, its realism, and its consistency with a total plan for compensation….

(b) The compensation levels proposed should reflect a clear understanding of work to be performed and should indicate the capability of the proposed compensation structure to obtain and keep suitably qualified personnel to meet mission objectives. The salary rates or ranges must take into account differences in skills, the complexity of various disciplines, and professional job difficulty. Additionally, proposals envisioning compensation levels lower than those of predecessor contractors for the same work will be evaluated on the basis of maintaining program continuity, uninterrupted high‐quality work, and availability of required competent professional service employees. Offerors are cautioned that lowered compensation for essentially the same professional work may indicate lack of sound management judgment and lack of understanding of the requirement.

(c) The Government is concerned with the quality and stability of the work force to be employed on this contract. Professional compensation that is unrealistically low or not in reasonable relationship to the various job categories, since it may impair the Contractor’s ability to attract and retain competent professional service employees, may be viewed as evidence of failure to comprehend the complexity of the contract requirements.

(d) Failure to comply with these provisions may constitute sufficient cause to justify rejection of a proposal.

For an in‐depth analysis of the mechanics of this policy, see Professional Employee Compensation Under FAR 52.222‐16, 19‐12 Briefing Papers 1 (Nov. 2019), by our late friend and colleague Steven Feldman. See also Victorino & Molinski, Competing for Professional Services Contracts, 94‐10 Briefing Papers 1 (Sept. 1994). In this piece we want to discuss the origin of the policy and question its continued application.

Origin Of The Policy

The origin of the professional employee compensation policy can be traced back to the early 1970s, when some contractor professional employees working under expiring Government contracts for long‐term support services complained that offerors in “recompetitions” or “recompetes” of expiring contracts were engaging in “wage busting.” According to the General Accounting Office (now the Government Accountability Office) “‘Wage busting’ is the practice of lowering employee wages and fringe benefits by a successor contractor as a result of the contractor’s effort to be a low bidder or offeror on a Government service contract when the employees continue to perform the same jobs on the successor contract.” Joule Technical Corp., Comp. Gen. Dec. B‐192125, 58 Comp. Gen. 550, 79‐1 CPD ¶ 364, 1979 WL 15046. The problem surfaced during 1971–72 recompetes of three expiring Air Force and NASA support service contracts in Government facilities in Florida, and similar employee complaints were made in the mid‐to‐late 1970s.

The Service Contract Act of 1965 (SCA), 41 USCA §§ 6701–6707, does not protect professional employees from wage busting, and by the mid‐1970s professional employee complaints about the practice had become bitter. Congress took note. See 122 Cong. Rec. S13208 (May 11, 1976) (statement of Sen. Lawton Chiles):

In the Cape Canaveral area of Florida alone, particularly at Patrick Air Force Base and Kennedy Space Center, 40 percent of some 9,000 workers have been suddenly removed from the coverage, according to Labor Department estimates. Those estimates also show that, on a nationwide scale, some 20 percent of the workers would be denied protection pursuant to Judge Young’s ruling [in Federal Electric Corp. v. Dunlop, 419 F. Supp. 221 (Md. Fla. 19760], some 175,000 to 200,000 workers.

I cannot emphasize strongly enough the human dimension of the problem and the urgency to take corrective action since some $500 million worth of contracts are about to be recompeted at the Florida installations. As it stands now, new companies who could bid and win these service contracts could pay substantially lower wages to these workers, throwing into question the families’ financial stability, their ability to keep children in schools, their ability to pay the mortgage and the security of the wage‐earner’s livelihood. Time and time again, “wage‐busting” competitions have completely disrupted the financial stability of these workers’ families and, in aggregate, undercut the whole economy of localities heavily dependent on service contracts with major Federal installations.

This uncertainly and unfairness cannot continue.

The bill I am introducing today I do not expect to be the final answer to the problem. It is just a starting point so that we can begin the legislative machinery turning. What the bill is intended to do in Its present form is basically redress the effects of the district court decision by including under the Service Contract Act all company employees who, If they worked for the Government, would be classified or paid at a rate up to and including a GS‐11 on the general schedule.

Chiles’s bill, S.3414, was not enacted into law.

In 1976, during the next go‐round of National Aeronautics and Space Administration and Air Force recompetes of support service contracts, the agencies, aware of employee complaints and congressional interest and concern, adopted special source selection procedures with regard to professional employee compensation. The GAO described those procedures in a 1978 report to Congress, Special Procurement Procedures Helped Prevent Wage Busting Under Federal Service Contracts in the Cape Canaveral Area, HRD‐78‐49, at 17–26 (Feb. 28, 1978). In those competitions, the contractors agreed to pay the professional employees wages and fringe benefits comparable to those paid under the predecessor contracts. According to the GAO:

[T]he procedures helped prevent wage busting on the three contracts. We believe that the procedures should be incorporated in the agencies’ procurement regulations and that a Government‐wide procurement policy to discourage wage busting of professional employees not covered by the SCA should be established.

What were the procedures? According to the GAO:

The [Requests for Proposals] used for recompetition on the three contracts contained specific provisions encouraging the contractors to (1) propose a suitable compensation structure and realistic payment plan to employ and retain professional and administrative personnel, (2) maintain a stable work force, and (3) employ persons from the local labor market area (Brevard County, Fla.). The RFPs also contained criteria for both agencies to evaluate the contractors’ adherence to these provisions and reject any offer they believed nonresponsive because of low wages proposed.

Eventually, congressional discussions of wage busting boiled down to three possible responses. The first was for Congress to expand the coverage of the SCA to include professionals. The second was for Congress to enact a law prohibiting agencies from awarding contracts when offerors submitted proposals that involved wage busting. The third was for the Government to publish a procurement regulation directing agencies to prevent wage busting.

It is not clear in retrospect how widespread the problem was, if widespread at all. All of the discussions we found in the public record mention NASA and Air Force contracts in Florida, Houston, Texas, and Huntsville, Alabama. We did not find any study documenting that wage busting was a widespread phenomenon and problem. A hearing conducted by the House of Representatives, Subcommittee of the Committee on Government Operations, 95th Cong., on March 15, 1978, Compensation of Professional Employees on Service Contracts, did not describe the extent of the problem.

Application of the SCA to professional employees was something that agencies, industry, and even the GAO did not want. The thought of the Department of Labor issuing determinations of minimum wages and fringe benefits for professionals was not appealing. An industry group, The National Council of Professional Services Firms (NCPSF), a predecessor of today’s Professional Services Council, claiming a membership of thousands of such firms, wrote to the committee asserting that the term wage busting “is designed more to create an emotional impact than to illustrate the issued involved,” but agreeing that the practice, if used, was a bad one. The NCPSF adamantly opposed expansion of the SCA to include professionals:

We believe that it is totally inappropriate to expand the Service Contract Act coverage to include professional employees, because the concept, the legislative debate, the history, the language, the implementing regulations, and the enforcement history and experience of the Act have all focused on problems of the non‐professional persons employed on Service Contracts awarded to private companies by the Government. Professional employees have historically been exempted from the rigidity of wage and hour regulatory provisions of legislation such as the Fair Labor Standards Act as well as the Service Contract Act, and this exemption has been, in our opinion, for good cause. We believe that it is a contradiction in terms to propose to “protect” professional employees by adding them as an afterthought to the list of non‐professional employees covered by an Act uniquely intended to deal with problems encountered by non‐professional employees.

NCPSF’s preference was for a Government‐wide regulation that required agencies to follow the practices used by NASA and the Air Force in the 1976 recompetes described by the GAO.

OFPP Issues A Policy Letter

On May 2, 1978, the Administrator of the Office of Federal Procurement Policy issued Policy Letter 78‐2, Preventing Wage Busting for Professionals: Procedures for Evaluating Contractor Proposals for Service Contracts, 43 Fed. Reg. 18805 (May 2, 1978). The procedures described therein appear to have been based on the special procedures used by the Air Force and NASA in their 1976 procurements, as reported by the GAO. The policy letter stated, in pertinent part:

Unwarranted reductions in salaries and fringe benefits can occur during competition for Government service contracts. Since the costs of wage and fringe benefits constitute the largest cost element in a service contract, competitors [sic] often have driven down wage rates to unrealistically low levels, even though the employees that will perform the work under the new contract are the same performing the work under the predecessor contract.

• * *

The Government shares a deep concern for inequities such as “wage busting” practices generated in our procurement system. The Government should not inadvertently contribute to unwarranted, severe, and abrupt reductions in compensation provided to Federal service contract employees.

• * *

Therefore, pursuant to the authority vested in me under Pub. L. 93‐400, it is the declared policy of the Federal Government that all service employees, including professional employees, employed by contractors providing services to the U.S. Government, be fairly and properly compensated. Federal procurement procedures shall be developed to assure equitable compensation for all such employees. This policy clearly recognizes the fact that there is a predictable and essential link between personnel compensation and work performance. Therefore, evaluation of bids and proposals for service contract work shall take into account the realism of the offeror’s proposed personnel compensation plan to assure that the offeror has a proper understanding of the resources required to perform high quality work on an uninterrupted basis.

Therefore, all future solicitations shall include the language contained in the attachment to this Policy whenever professional employees are expected to be needed to perform the services. If the procuring agency feels that a particular procurement covered by this policy statement does not warrant the use of such language in the solicitation, the agency shall request approval from the Administrator, Office of Federal Procurement Policy (OFPP) before omitting the criteria from any solication [sic].

The policy letter went on to provide the text of instructions to “bidders,” setting forth evaluation factors, evaluation procedures instructions about the conduct of written or oral discussions, and instructions about contract terms. Especially noteworthy was the following final paragraph:

The Contract: The bidder’s proposed total compensation plan will be incorporated into any contract resulting from this solicitation. This will serve to lend authenticity to the plan proposed and reflect a commitment of the bidder to pay the compensation stated therein.

Thus, the purpose of the policy was two‐fold. First, it was designed to protect the interests of contractor professional employees from the ravages of price competition in light of the fact that they were not protected by the SCA. Second, it was designed to ensure that the Government would receive quality services from a qualified and stable professional workforce.

Implementation Of The OFPP Policy Letter

NASA was the first to implement the OFPP policy letter in its procurement regulation. See 41 CFR Ch. 18, Part 12, Subpart 10, § 12.1053, Procedures for Evaluating Professional Employee Compensation, 45 Fed. Reg. 78125 (Nov. 25, 1980). The procedure was very similar to the coverage in FAR 22.1103(c), but more detailed, as was evident from 41 CFR § 12.1053(c):

(c) The weighted and scored evaluation criterion, Total Compensation Plan (Professional Employees), shall be included under the Mission Suitability Factor—Understanding the Requirement. This criterion shall be accorded sufficient weight and relative order of importance to be effective under the particular circumstances involved. In this respect, when there is a significant number of professional employees involved, and the period of performance is lengthy and the cost relatively large, or there is continuity of the same or similar services at the same location, the weight and relative importance of the criterion should be in the most important category.

Noteworthy was the lack of any direction about or mention of incorporating the successful offeror’s professional employee compensation plan into the contract, as had been required by the OFPP.

Modern Concerns

All of the above transpired before enactment of the Competition in Contracting Act of 1984 and the ensuing emphasis on “best value,” during a time when “formal advertising” (now “sealed bidding”) was the mandatory method of awarding contracts unless a statutorily specified exception applied, and when Congress was deeply suspicious of contracting by negotiation and obsessively concerned about excessive prices.

When the new Federal Acquisition Regulation took effect on April 1, 1984, it included implementation of the 1978 OFPP policy letter in Subpart 22.11, Professional Employee Compensation, and in the solicitation provision at FAR 52.222‐46, Evaluation of Compensation for Professional Employees. Those texts have not changed significantly in 39 years, but the world of professional services contracting has changed greatly. In the post‐CICA world of best value, is it still necessary to require the submission of professional employee compensation plans and to evaluate them in order to prevent wage busting? Or is it just a needless and time‐consuming burden on Contracting Officers and proposal evaluators? Is it yet just another potential protest pitfall? The GAO considers the evaluation of professional employee compensation to be a form of cost or price realism analysis, depending on the prospective contract type. As such, it is a high risk protest issue, as Ralph pointed out in Postscript: Price Realism Analysis, 27 NCRNL ¶ 47. See also Feldman, Professional Employee Compensation Under FAR 52.222‐16, 19‐12 Briefing Papers 1, at 3–5 (Nov. 2019).

FAR 22.1103 applies the policy to all negotiated procurements for professional services in excess of a dollar threshold. But wage busting was a recompete phenomenon. That being the case, why apply the policy to new contracts without predecessors? Unlike the OFPP policy letter, the FAR does not require incorporation of the successful offeror’s compensation plan into the contract. FAR 52.222‐46 is a solicitation provision, not a contract clause. The FAR does not prescribe a contract clause addressing professional employee compensation. Offeror compensation plans must be evaluated, and the evaluation must have a bearing on the award decision, but the successful offeror’s plan need not be binding on the contractor during contract performance. Why not simplify the policy by applying it only in recompetes and say that an offeror may not propose to pay lower wages than are being paid under the current (predecessor) contract?

The widespread use of multiple award, multi‐agency task order contracts raises questions about policy application that have not been addressed in the FAR. Should an agency conducting a competition to award such a contract evaluate professional employee compensation when awarding the contract or should using agencies do it when issuing task orders? It seems questionable whether there would be a single standard of sufficiency of compensation that would apply to all and various future orders for all and various tasks issued by all and various agencies to be performed at all and various places over the course of many years. So, should the evaluation be done as part of the task order fair opportunity process? That seems to be the case with respect to General Services Administration multiple award schedule contracts. See Skyward IT Solutions, LLC, Comp. Gen. Dec. B‐421105.2, 2023 CPD ¶ 108, 2023 WL 3226201, in which the GAO decided that an agency placing an order against a GSA MAS contract in accordance with FAR Subpart 8.4 failed to evaluate professional employee compensation as required. According to the GAO the evaluation was required at the time of the task order competition because FAR 52.222‐46, a solicitation provision, not a clause, had been incorporated into the terms of the GSA MAS contract.

Is Evaluation Of Professional Employment Compensation Still Necessary?

Wage busting does not seem to come up very often these days. Is that because the evaluation of professional employee compensation has been an effective policy or is it because wage busting was never a widespread practice? We do not know. We are not sure how reliable agencies have been in complying with the policy or how effective.

We have not been able to find any documentation of how widespread, if at all, wage busting ever was. The policy requiring evaluation of professional employee compensation may be the product of a congressional overreaction and bureaucratic response. Is it noteworthy in this regard that the 2007 final report of the Acquisition Advisory Panel created by the Services Acquisition Reform Act of 2003, Pub. L. No. 108‐136, § 1423, made no mention of professional employee compensation or wage busting?

Why not conduct all professional services acquisitions the way the Government buys architect‐engineer services—without price competition? No price competition, no wage busting. Why not choose a prospective professional services contractor based on professional experience and reputation, then ask that firm to submit a price proposal for analysis and negotiation? Congress’s historical obsession with contract pricing through competitive bidding has no place in the acquisition of professional support services. Why not let agencies select a contractor candidate based on its qualifications and then negotiate performance terms and price? Why have Government personnel sit around reading and scoring ChatGPT‐generated essay proposals and employee compensation plans the contractor won’t have to follow? VJE

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