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rios0311

Are We Inciting Contractors to Poach Employees from Encumbent Contractors?

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It is typical for government employees to get accustomed to on-site contractor staff, especially when they've been providing services under contract for an extended period of time. By extended, I mean at least one year. And I'm not referring to non-exempt contractor employees covered by the Service Contract Act. I'm specifically referring to exempt employees with formal educations, extensive experience and training; i.e., professionals.

Executive Order (EO) 13495, “Nondisplacement of Qualified Workers Under Service Contracts,” signed by President Obama on January 30, 2009, became effective on January 18, 2013 and the associated clause has made it into the FAR (FAR 52.222-17). I think part of the rationale behind this new statute is simply to keep people who have jobs employed. I don't foresee this being terribly problematic for the incumbent contractor for several reasons. For example:

1. Per the clause, the incumbent has the option to retain its employees;

2. The cost and effort required to recruit and train a non-exempt employee is likely lower than the cost and effort required to recruit and train a professional; e.g., software engineer, business consultant, etc...; and

3. Often times the contractor has no work for its employees once a contract ends.

However, I'm working on re-competing several follow-on contracts for services that require non-exempt contractors (mostly IT). Each of the customers I'm working with has stated that they wish to keep the current contractor staff in place even if the soon-to-end contract is awarded to a different contractor. They say that the learning curve is steep and that training will take months. I'm used to hearing this. In order to address this, language such as the one that follows has begun to appear in some of our solicitations. I believe it was drafted by an attorney:

RIGHT OF FIRST REFUSAL

The Contractor and its Subcontractors shall in good faith offer those employees (other than Key Personnel) employed under the predecessor contract whose employment will be terminated as a result of the award of this contract, a right of first refusal of employment under this contract in positions for which the employees are qualified.

In evaluating proposals one of the things we consider is an offeror's staffing plan. With this language in the solicitation we would consider it a plus if their staffing plan includes retention of the current staff.

My concern, and the reason for this topic, is that I'm not sure that we should be doing this on a service contract for professional services. At least not the way I'm seeing it done. In contracts covered by the SCA both the incumbent's contract and the successor's contract contain the appropriate language. So both parties are aware of this and no one can claim wrongdoing or poaching. But in my scenario, the predecessor contractor has no knowledge that we're requiring (see use of the word "shall" in the italicized language above) potential successors to try to poach employees from the incumbent contractor. The word "poach" may be too strong, but I'm trying to illustrate my point.

I can see were this is fine if the contractor has no use for these individuals after the contract ends, but generally this type of employee is considered a valuable asset to a business. A business may need these individuals who possess specialized knowledge and education for other projects. Without them, their proposals may not be as strong. To lose their intellectual capital at the behest of the government with no forewarning could spark some anger at the least.

Is this simply the nature of the game, or are there ethical or legal issues that we haven't considered? If we're including this language in solicitations, should we notify incumbent contractors that we're requiring this of offerors? I don't have the answer to these questions, so I'd like to hear some different point of views before including this language in my solicitations.

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We're in the early stages, so we haven't narrowed them down. We're still working on the statement of work because we're combining several requirements. Normally I could weigh heavily offerors' past performance and previous experience, but in this case, we're going to compete this under a small business GWAC. The current large business won't be able to compete.

We usually evaluate past performance and price, along with their technical approach. The technical usually has 3 subfactors that we evaluate - the technical capability, their proposed personnel and a task management plan.

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I do not believe that the terms of the solicitation/contract that will be awarded will have a real impact because of this section of the clause "...whose employment will be terminated as a result of the award of this contract...". If the incumbent does not terminate their employees in the case it does not win the follow on contract, then the clause is irrelevant.

I believe that the Right of First Refusal clause is primarily for SCA covered employees who will be terminated if the incumbent does not win the follow on contract. In cases where professional employees are involved, I believe the dynamic is much different because the relationship between the professional employees and the company is different than that found in non-professional employees (landscaping, refuse collection, custodial, etc.) and their companies.

My organization is currently transitioning betweet an incumbent professional IT services contractor and a new multiple award contract with 2 or 3 contracts, and we did not even include a Right of First Refusal clause in the soliticiation. I would really be surprised if any of the incumbent contractor employees were terminated should the incumbent not be selected for award unless that company was downsizing for some other reason.

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In my experience it has always been standard practice for potential new contractors to attempt to recruit incumbent contractor employees to come work for them if they get awarded the contract. This is nothing new. I would guess most incumbent contractors have come to expect this to happen. In fact I have seen some instances where incumbent contractors have their employees sign no compete agreements in an attempt to prevent their employees from swtiching over to a competitor who they will most likely compete against for the contract requirement. Also keep in mind that it is entirely up to the incumbent contractor employee whether they wish to go to work for a new employer (contractor) or stay with their current employer. Again in my experience, employees working for small contractors usually will be very interested in keeping a job and going to work for the new company. A lot of the big companies however have work elsewhere that they can move their employees to. But again it is up to the employee to decide what is best for them.

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rios0311,

Other than what you've already found, I know of no special requirements in the FAR regarding displacement of workers under service contracts.

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...

The current large business won't be able to compete.

wouldn't you be lucky if some enterprising SB were to team up with your incumbent to learn the ropes.

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In the past I have found this Executive Order interesting, and have seen it come across my desk as a provision of solicitations. I always redline the Executive Order from the solicitation.

Once the Department of Labor and the FAR Council have seen fit to insert a 52.222-xx clause, I will comply with its prescription. While this is one of those times that a Contracting Officer should consider what regulations or policies (or in this case Executive Orders) exist outside of the FAR which could affect the tailoring of a contract, until such time that the Department of Labor is willing to enforce the Executive Order it's really a moot issue.

Aside from that, it creates an artificial control which would take away the business decision of offerors as to how they will staff the contract for which they are responsible for the performance. I am wary of telling a contractor who they will hire. Further, doing so serves to dillute the source selection process because this is yet one more area on a service contract where prospective offerors will not have an opportunity to differentiate themselves from their competition.

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While researching a different subject I read FAR 52.237-3 - Continuity of Services. I wasn't aware of this prior to reading the clause, but paragraph ( c ) of the clause provides for compulsory transfer of the incumbent's personnel to the successor contractor, provided that 1) the successor wants them, and 2) the employees are amenable to the change. Here is the language.

( c ) The Contractor shall allow as many personnel as practicable to remain on the job to help the successor maintain the continuity and consistency of the services required by this contract. The Contractor also shall disclose necessary personnel records and allow the successor to conduct on-site interviews with these employees. If selected employees are agreeable to the change, the Contractor shall release them at a mutually agreeable date and negotiate transfer of their earned fringe benefits to the successor.

So requiring a successor to retain the incumbent's employees in accordance with the provisions of 52.237-3 should not create a problem. I think then that this is a requirement that can be included in solicitations. One other thing; some contractors have their employees sign non compete agreements. Does this clause language trump an incumbent's no compete agreement it may have with its employees?

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So requiring a successor to retain the incumbent's employees in accordance with the provisions of 52.237-3 should not create a problem.

I wouldn't read too much into 52.237-3( c) if I were you. For one thing, it does not require the successor to retain the incumbent's employees.

Sloppy reading, rios. You know better than that.

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I'm guessing that this is considered a "commercial item," to boot.

To me, requiring "incumbent capture" is somewhat antithetical to the concept of CI.

.

fyi,

I have had an Army CO tell me that an "Incumbent Capture" Clause was a standard clause.

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Sloppy reading, rios. You know better than that.

You're right; I do know better. Retention of the incumbent contractor employees isn't a requirement. Thanks for the correction.

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