General Services Administration Acquisition Regulation (GSAR); Construction Labor Requirements for Lease Acquisitions

SUPPLEMENTARY INFORMATION:

I. Background

The Federal Government is the largest single lessee of space in the United States. General Services Administration (GSA), as one of the nation's largest public real estate organizations, provides workspace for over one million Federal workers located in space owned by the Federal government and in leased properties including buildings, land, and sites across the country.

Since 1994, GSA has applied the Construction Wage Rate Requirements (CWRR), also known as the Davis-Bacon Act (DBA), clauses in contracts and subcontracts specifically for new building construction, whether planned lease construction or the complete rehabilitation or reconstruction of an existing building, where the Government is the sole or predominant tenant of the facility.

On August 23, 2023, the Department of Labor (DOL) published a final rule updating the regulations that implement the Davis-Bacon and Related Acts (DBRA) (see 88 FR 57526). The DOL rule, among other things, clarified the regulatory definitions of a “building or work” and “public building or public work” to include a portion of a building or work, or the installation of equipment or components into a building or work, even where the entire building or work is not owned, leased, or used by a Federal agency, so long as other requirements for coverage are met. Examples of other requirements for coverage include the Federal government's sufficient involvement with the lease, and the existence of a contract for construction that is authorized or financed by the Federal government.

In reviewing the clarifying language in DOL's recent revisions to the DBRA regulations, the Federal Acquisition Regulation (FAR) subpart 22.4 Labor Standards for Contracts Involving Construction, and GSAR Part 570 Acquiring Leasehold Interests in Real Property, GSA determined that proposing a new subpart addressing all of the requirements for lease contracts with a CWRR qualifying construction event was necessary.

II. Discussion and Analysis

The rule proposes to amend GSAR Subpart 570.1, General by creating a new section GSAR 570.119 Construction labor requirements for lease acquisitions to assist the leasing acquisition workforce in implementing the changes to the CWRR clauses. The new subpart will identify:

• When CWRR applies;
• Common terminology to ensure the Government, offeror, lessor, and subcontractors clearly understand the application and associated requirements;
• Why the Service Contract Labor Standards usually does not apply to lease contracts;
• Procedures for compliance monitoring and reporting; and
• All applicable clauses and executive orders required for lease contracts with a qualifying construction event.

A. Identify When CWRR Applies

The rule will require the application of the CWRR in all new and existing lease contracts with a qualifying construction event provided that the construction work itself is performed in whole or in part within the United States, District of Columbia, or the Commonwealth of Northern Mariana Islands.

B. Common Terminology

The key component of the rule is defining a qualifying construction event which prompts a lease contract to include the CWRR requirements. This rule also defines ancillary terms including tenant improvements, building shell and building specific amortized capital. These terms have long been used in GSA lease contracts.

C. Service Contract Labor Standards

The rule clarifies that the Service Contract Labor Standards (SCLS), also known as Service Contract Act (SCA), generally does not apply to contracts for the lease of space for government occupancy because these contracts usually do not have the principal purpose of furnishing services, as required for coverage under the SCLS. (See 41 U.S.C. 6702, 29 CFR 4.134(b)). In addition, workers carrying out the construction activities on lease contracts with a qualifying construction event are covered by the CWRR and therefore are exempt from coverage under the SCLS. (See 29 CFR 4.115(b)).

D. Procedures for Requirements, Compliance Monitoring and Reporting

The rule directs contracting officers to the Federal Acquisition Regulation (FAR) guidance to implement CWRR requirements in lease acquisitions involving qualifying construction events, including wage determinations (FAR 22.404), payroll certification and work safety and health (FAR 22.407), and compliance and monitoring (FAR 22.406-7).

E. List of All Applicable Clauses

The rule will add CWRR labor clauses to GSAR section 570.701 FAR provisions and clauses for all lease contracts with a qualifying construction event including the clauses that incorporate Executive Order (E.O.) 13706, Establishing Paid Sick Leave for Federal Contracts, and E.O. 14026, Increasing the Minimum Wage for Federal Contractors.

Although the majority of the required CWRR labor clauses were previously included in leasing contract templates per the DOL's All Agency Memorandum 176 and the remaining clauses were included as a result of the two applicable E.O.s, the application of the CWRR affected only a small number of lease contracts. The DOL DBRA final rule's clarification of the term “public building or public works” expanded GSA's application of CWRR for lease contracts involving construction and prompted this change.

F. Severability

If any portion ( e.g., section, clause, sentence) of this rule, as finalized, is held to be invalid or unenforceable facially, or as applied to any entity or circumstance, it shall be severable from the remainder of the rule, and shall not affect the remainder thereof, or its application to entities not similarly situated or to other dissimilar circumstances. The various portions of this proposed rule are independent and serve distinct purposes. Even if one aspect as finalized were rendered invalid, the other benefits of the rule would still be applicable. As an illustrative but not exhaustive example, were a court to stay or invalidate any changes to GSAR subpart 570.1 as finalized regarding the definition of “public building or public works”, GSA would intend the broader proposed restructuring of GSAR 570 to remain effective.

III. Expected Impact of the Rule

This section is divided into an analysis of the qualitative and quantitative impact the rule will have on the public and the Government. The associated costs were calculated by analyzing Fiscal Years 2021 through Fiscal Year 2023 data from the Real Estate Across the United States (REXUS) database.

According to the review of REXUS data, the estimated annual number of lease contract actions with a qualifying construction event is 727, of which 70 percent, or 509, were with small business entities. In this section, GSA based the calculations for the Regulatory Impact Analysis on the 2024 General Schedule Grade 12 Step 5 pay scale (using the rate for the rest of the United States) with a burden of 100% for fringe benefits. The following paragraphs detail activities which are required by this rule for lease contracts with a qualifying construction event:

A. Overall Impact

Although the rule will expand GSA's application of CWRR from less than 10 lease contracts per year to an estimated average of 727 annually, existing resources will greatly reduce the impact of this rule. Specifically, existing DOL training resources, GSA leasing guide and templates, and stakeholders' familiarity with the CWRR requirements and the two E.O.s will significantly reduce the impact of this rule. GSA analyzed the effects of the rule in four significant areas:

• Wage determinations;
• Payroll reviews and certifications;
• Familiarization of applicable clauses; and
• Monitoring and reporting.

A.1. Wage Determinations

First, GSA reviewed the process for incorporating the appropriate wage determinations throughout the lease contract with a qualifying construction event's life cycle. This rule will require the contracting officer to incorporate the wage determinations with the solicitation package and update with the most recent wage determinations at the time of a qualifying construction event. Lessors and their subcontractors are responsible for ensuring laborers and mechanics are being paid in accordance with the CWRR wage determination, accrue the correct sick time, and are paid at or above the E.O. 14026 minimum wage rate.

GSA estimates that lessors with qualifying construction events may initially take an average of 2 hours to implement the procedures for ensuring the wage determinations are included in any subcontract awarded to carry out the qualifying construction event. The 2 hours estimation is based on historical estimates from GSA construction contractors. GSA estimates that there will be an average of 1 subcontractor for each qualifying construction event, which takes into consideration circumstances in which lessors use their own employees to carry out the construction and circumstances in which more than one subcontractor work on the project. GSA estimated the regulatory cost for this part of the rule to be $137,316 (= 2 hours × $94.44 × 727 (rounded)).

A.2. Payroll Reviews and Certifications

Next GSA reviewed the CWRR requirement for contractors and subcontractors to submit weekly certified payroll to the contracting agency. (See FAR clause 52.222-8(b)). In analyzing the impact of the rule on payroll reviews and certifications, GSA found that most businesses use automated payroll software to process their payrolls. The impact of this rule associated with the use of these automated systems will be reduced because the majority of the data such as employee identifiers, number of withholdings/exemptions, hours worked, and rate of pay is already being captured.

GSA recognizes that for leasing, the payroll review and certification process will only apply to lease contracts with a qualifying construction event and will terminate at the successful completion of the qualifying construction event work. Therefore, lessors will not necessarily be required to review and submit the payroll data for an entire 52-week timeframe.

GSA also discovered, due to the frequency of the payroll data submissions, that after the completion of the first payroll review and certification, subsequent reviews required less time and effort. This reduction in review and certification time could be traced back to the lack of variances or major changes to the contractor payroll data. Most changes were due to employee turnover, new hires, and apprenticeship to journeyman ratios. Currently, GSA is looking at an enterprise-type solution to the payroll review and certification process through the procurement of commercial off-the-shelf products.

GSA estimates that lessors with qualifying construction events may initially take an average of 1.5 hours to develop and implement procedures for reviewing and certifying payroll data. GSA's calculation also includes the average weeks a qualifying construction event takes to complete the work, which is 24 weeks . GSA estimated the regulatory cost for the above scenario to be $2,471,684 (= 1.5 hours × $94.44 × 727 × 24 weeks (rounded)).

A.3. Labor Clause Familiarization

In analyzing the impact of the rule associated with the need to become familiar with the added clauses, GSA found that all of the clauses being applied through GSAR 570.701 already exist in current leasing contract templates. Therefore, the leasing acquisition workforce and the lessor community have general familiarity with the majority of the changes proposed in the rule.

GSA estimates that lessors with qualifying construction events may initially take an average of 2 hours to familiarize themselves with CWRR. The 2 hours estimation is based on historical information, complexity of the clause and the detailed training available to the lessor. GSA estimated the regulatory cost for this part of the rule to be $137,316 (= 2 hours × $94.44 × 727 (rounded)).

In addition, lessors are estimated to require 5 additional hours based on the complexity of the information to familiarize themselves with E.O. 13706. GSA estimated the regulatory cost for this part of the rule to be $343,289 (= 5 staff hours × $94.44 × 727).

Lessors were also estimated to take 3 hours to familiarize themselves with E.O. 14026. Minimum wage requirements have been part of the Federal, State and local laws for decades. The 3 hours accounts for some of the nuances made in the E.O. application. GSA estimated the regulatory cost for this part of the rule to be $205,974 (= 2 hours × $94.44 × 727).

A.4. Monitoring and Reporting

In analyzing the monitoring and reporting requirements, GSA found the initial impact would be on the increased number of leasing contracting officers, lessors, and subcontractors affected by the updated DOL rule. Although the CWRR clauses were in GSA templates, GSA did not apply the CWRR requirements to the majority of the lease contracts and did not require the development of internal processes to resolve payroll discrepancies, if needed, or reporting to DOL.

GSA will be responsible for submitting two enforcement or compliance reports annually, as necessary, to DOL. These reports include the submission or updating of the 3-year forecast report and the submission of semi or annual compliance reports.

GSA estimates that lessors with qualifying construction events may take an average of 1.5 hours to provide responses to payroll discrepancies with supplemental payroll review documents or other information if required for investigations, which can be generated from databases very quickly. GSA estimated the regulatory cost for this part of the rule to be $102,987 (= 1.5 hours × $94.44 × 727 (rounded)).

B. Benefits

GSA believes that applying the DOL DBRA final rule through the CWRR statute to lease contracts with a qualifying construction event will result in benefits to the government, laborers and mechanics, and lessors and their subcontractors. Some possible benefits for each group are provided below:

B.1. For the Government

In updating its regulation, the DOL clearly explained the benefits to the Federal Government. For GSA, this change will ensure GSA leases are performed in accordance with current regulations. GSA has an interest in only contracting with those lessors that comply with all applicable Federal regulations, for that provides the greatest confidence that they will support the requirements of their lease contract.

B.2. For Laborers and Mechanics

Affected laborers and mechanics are expected to significantly benefit from the implementation of the changes to CWRR to the extent they increase the wages and fringe benefits paid to these workers. Any increase in wages will increase their ability to buy groceries, pay for housing ( i.e., rent or mortgage payments), purchase gasoline and other necessities as well as entertainment. In addition, laborers and mechanics will be provided with compliance and protections that may increase worker's job satisfaction and productivity levels.

B.3. For Lessors and Subcontractors

Lessors and their subcontractors, especially small businesses, will be knowledgeable of the regulations and well positioned to comply thus avoiding the risk of enforcement action from the DOL. Also, some proponents to modernizing DBA argue that DBA, also known as CWRR, payment of no less than prevailing wages to eligible workers may attract a more experienced level of laborers and mechanics to work on Government construction contracts.

C. Summary of Total Costs

The overall annual total cost, including both Public and Government costs, is outlined in the table below: