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(41 U.S.C. 40; 5 U.S.C. 556) (32 FR 7704, May 26, 1967)

PART 50-206—THE WALSH-HEALEY

PUBLIC CONTRACTS ACT INTERPRETATIONS

Subpart A-General

Sec. 50-206.1 The Walsh-Healey Public Con

tracts Act. 50-206.2 Administration of the Act. 50-206.3 Purpose and scope of this part.

Subpart B-[Reserved)

$ 50-205.8 Reports of inspections.

The State agency shall furnish the Department of Labor with a report of its inspection when the following circumstances exist:

(a) The inspection was requested by the Department of Labor;

(b) The inspection discloses serious violations of the safety and health requirements of Part 50-204 of this chapter by an employer apparently subject to the Act;

(c) The inspection discloses minor violations of the safety and health requirements of Part 50-204 of this chapter by an employer apparently subject to the Act which are not corrected promptly when such apparent violations are brought to the attention of the employer or as to which fully reliable assurances of future compliance are not or cannot be obtained.

Subpart C—Contractors QUALIFICATIONS OF CONTRACTORS 50-206.50 To whom covered contracts may

be awarded-eligibility. 50-206.51 Manufacturer. 50-206.52 Assembler. 50-206.53 Regular dealer. 50-206.54 Regular dealer in particular

products. 50-206.55 Agents. 50-206.56 Administrative exemptions.

AUTHORITY: Sec. 4, 49 Stat. 2038, 41 U.S.C. 38, Secretary of Labor's Order No. 16-75, 40 FR 55913, and Employment Standards Order 2-76, 41 FR 9016.

SOURCE: 43 FR 22975, May 30, 1978, unless otherwise noted.

Subpart A-General

$ 50-205.9 Inspections by the Department

of Labor. The Director may conduct such inspections as he may find appropriate to assure compliance with the safety and health provisions of the Act or whenever he may find that a safety and health inspection should be carried out along with investigation under other provisions of the Act or the Fair Labor Standards Act of 1938. Whenever an inspection by the Director discloses apparent violations of State safety and health requirements, the Director shall report such disclosures to the State agency. (41 U.S.C. 40; 5 U.S.C. 556) (32 FR 7704, May 26, 1967)

$ 50-206.1 The Walsh-Healey Public Con.

tracts Act. The Walsh-Healey Public Contracts Act, as amended (41 U.S.C. 35-45), hereinafter referred to as the Act, was enacted “to provide conditions for the purchase of supplies and the making of contracts by the United States.” It is not an act of general applicability to industry. The Supreme Court has described it as an instruction by the Government to its agents who were selected and granted final authority to fix the terms and conditions under which the Government will permit goods to be sold to it. Its purpose, according to the Supreme Court "was to impose obligations upon those favored with Government business and to obviate the possibility that any part of our tremendous national expenditures would go to forces tending to depress wages and purchasing power and offending fair social standards of employment." (Perkins V. Lukens Steel Co.," 310

$ 50-205.10 Modification or termination of

agreement. Any agreement entered into this part may be modified at any time with the consent of both parties, and may be terminated by either party after notifying the other party 60 days prior thereto.

U.S. 113, 128 (1940); “Endicott Johnson Corp. V. Perkins," 317 U.S. 501 (1943).) To this end, the Act requires those who enter into contracts to perform Government work subject to its terms to adhere to specifically prescribed representations and stipulations as set forth in 41 CFR 50-201.1 pertaining to qualifications of contractors, minimum wages, overtime pay, safe and sanitary working conditions of workers employed on the contract, the use of child labor or convict labor on the contract work, and the enforcement of such provisions. Except as otherwise specifically provided, these representations and stipulations are required to be included in every contract “for the manufacture or furnishing of materials, supplies, articles, and equipment in any amount exceeding $10,000" which is made and entered into by an agency of the United States or other entity as designated in section 1 of the Act, hereinafter referred to as "contracting agency.” Contractors performing work subject to the Act thus "enter into competition to obtain Government business on terms of which they are fairly forwarned by inclusion in the contract.” (Endicott Johnson Corp. v. Perkins, supra,” 317 U.S. at 507.) The Act also provides for enforcement of the required representations and stipulations by various methods. Certain exemptions from the application of the Act are provided in section 9 of the statute. Other exemptions, variations, and tolerances may be provided under section 6 of the statute by the Secretary of Labor or the President.

tion of the Act to the judgment of the Secretary of Labor, not to the judgment of the courts.” An amendment to the Act in 1952 added specific provisions for judicial review (see section 10). The Secretary has promulgated regulations to carry out provisions of the Act, which are set forth elsewhere in this chapter (Part 50-201 (general regulations); Part 50-202 (minimum wage determinations); Part 50-203 (rules of practice); and Part 50-204 (Safety and Health Standards)). The Secretary of Labor has delegated to the Administrator of the Wage and Hour Division through the Assistant Secretary for Employment Standards the authority to promulgate regulations and to issue official rulings and interpretations. So long as such regulations, rulings, and interpretations are not modified, amended, rescinded, or determined by judicial authority to be incorrect, they may be relied upon as provided in section 10 of the Portalto-Portal Act of 1947 (61 Stat. 84, 29 U.S.C. 251, et seq., discussed in 29 CFR Part 790). Furthermore, these interpretations are intended to indicate the construction of the law 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 rulings of the courts. (“Skidmore v. Swift & Co.", 323 U.S. 134 (1944), “Roland Co. V. Walling”, 326 U.S. 657 (1946); “Endicott Johnson Corp. v. Perkins, supra”, and “Perkins v. Lukens Steel Co., supra”.)

(b) The courts have held that the “interpretations of the Walsh-Healey Act and the regulations adopted thereunder, as made by the Secretary of Labor acting through his Administrator, are both correct and reasonable.” (“Jno. McCall Coal Company v. United States," 374 F. 2d 689, 692 (C.A. 4, 1967); see also "United States v. Davison Fuel and Dock Company,” 371 F. 2d 705, 711-714 (C.A. 4, 1967).) These policies are designed to protect not only employees but also the competitive interest of all firms qualified to compete for covered contracts.

$ 50-206.2 Administration of the Act.

(a) The Secretary of Labor is authorized and directed to administer the provisions of the Act, to make investigations, findings, and decisions thereunder, and to make, amend, and rescind rules and regulations with respect to its application (see sections 4 and 5). The Supreme Court has recognized that the Secretary may issue rulings defining the coverage of the Act. (“Endicott Johnson Corp. v. Perkins, supra”.) According to the Court (ibid.), in the statute as originally enacted "Congress submitted the administra

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$ 50-206.3 Purpose and scope of this part.

It is the purpose of this part 50-206 to make available, in codified form for the guidance of agencies of the United States or other entities designed in section 1 the Act and persons or firms contracting therewith, official rulings and interpretations with respect to the Walsh-Healey Public Contracts Act. This part constitutes the official statement of the position of the Department of Labor in matters relating to this Act. The interpretative rules herein stated supersede, to the extent of any inconsistency, Rulings and Interpretations No. 3 and all other rulings, interpretations, and enforcement policies not set forth in this chapter. This Part 50-206 illustrates the principles stated herein by showing their application to situations which frequently arise. Since it cannot include every possible situation, no inference should be drawn from the fact that a subject or illustration is omitted. If doubt arises, inquiries should be directed to the Administrator of the Wage and Hour Division, United States Department of Labor, Washington, D.C. 20210, or to any Regional Office of the Wage and Hour Division.

goods to the Government, by requiring, among other things, that the Gov. ernment award contracts only to bona fide manufacturers or regular dealers. A breach of this required stipulation is a violation of the Act; however, a contractor who has been awarded a contract in spite of its failure to qualify as a manufacturer or regular dealer is not relieved of its obligation to comply with the other requirements of the Act and regulations, which are also contract stipulations.

(2) In implementing Section 1(a) of the Act, the Secretary of Labor has defined in 41 CFR 50-201.101 the terms “manufacturer” and “regular dealer" by stating the affirmative requirements that must be met by potential contractors before they may receive Government contracts subject to the Act. Every bid from any bidder who is not a manufacturer or regular dealer, as defined therein and in accordance with this subpart, must be rejected by the contracting officer. (See 41 CFR 50-201.101(a)(3)(i).)

(3) The provisions of 41 CFR 50201.1 require that the representations and stipulations prescribed in section 1 of the Act must be included in invitations to bid and in contracts subject to the Act, either in full or by incorporation by reference. Since no qualifications may be placed on the required representations and stipulations, any bid which seeks to avoid full compliance with the Act by any qualificationi or reservation must be rejected. (See 16 Comp. Gen. 593.)

(b) The responsibility for applying the stated eligibility requirements in order to determine whether or not a bidder is qualified as a manufacturer or regular dealer before award rests in the first instance with the contracting agency pursuant to authority delegated by the Secretary of Labor in accordance with section 4 of the Act (Circular Letter 8-61), as detailed in $ 50-201.101(b) of Part 50-201 of this chapter. It is the obligation of the contracting agencies to obtain and consider all factual evidence essential to eli. gibility determinations for all bidders in line for award of contracts subject to the Act.

Subpart B-[Reserved)

Subpart C—Contractors

QUALIFICATIONS OF CONTRACTORS

$ 50-206.50 To whom covered contracts

may be awarded-eligibility. (a)(1) Section 1(a) of the Act requires that every contract subject to the Act shall contain a representation and stipulation by the contractor that it is either "the manufacturer of or a regular dealer in" the commodities to be manufactured or used in the performance of the contract. As noted in the following sections, these terms are defined by regulation. The legislative history makes it clear that this statutory requirement is intended, among other things, to eliminate the award of contracts to "bid brokers," and to provide labor standards protection for employees who actually engage in the manufacture or furnishing of the

$ 50-206.51 Manufacturer.

(a)(1) Section 50-201.101(a)(1) of Regulations 41 CFR Part 50-201, defines a manufacturer as a “person who owns, operates, or maintains a factory or establishment that produces on the premises the materials, supplies, articles, or equipment required under the contract and of the general character described by the specifications."

(2) Generally, there should be no question as to a bidder's eligibility. The bidder either has, or has not, the requisite plant, equipment and personnel to produce on its own premises the goods called for under the Government contract.

(b) A bidder who desires to qualify for an award as a manufacturer must show before the award that it is (1) an established manufacturer of the particular good or goods of the general character sought by the Government (i.e., that the bidder has a plant, equipment and personnel to manufacture on its own premises the goods called for under the contract) or (2) if the bidder is “newly entering" into such manufacturing activity that the bidder has made all necessary prior arrangements and definite commitments for (i) manufacturing space, (ii) equipment, and (iii) personnel to perform on its own premises the manufacturing operations required for the fulfillment of the contract. A new firm which, prior to the award of a contract, has made such definite prior arrangements and commitments in order to enter a manufacturing business which will qualify it should not be barred from receiving the award because it has not yet done any manufacturing, even if such arrangement and commitments are contingent upon the award of a Goverment contract. However, in order to meet the “definite commitment” test for “newly entering” firms, the bidder must have entered into written, legally binding arrangements and commitments prior to, even though contingent upon, award, under which the bidder would acquire for itself plant, equipment and personnel if awarded the Government contract. This would be evidence of a bona fide intent to establish a continuing manufacturing entity and, as such,

to become an eligible manufacturer. This requirement is intended to exclude from eligibility bidders who make unsubstantiated assertions that they are eligible and then totally subcontract or broker the contract after award.

(c)(1) In general, such “newly entering” firm must show that the manufacturing activity in question is not one which has been set up solely to produce on a Government contract and whose operations will be terminated upon completion of that contract. In effect, the firm must have established arrangements on a continuing basis for production of the goods desired by the Government.

(2) The documentation required to evidence prior arrangements and definite commitments will vary depending upon the facts and circumstances of the particular case. The contents and bona fides of all documentation and arrangements must be examined to determine if the spirit and intent of the Act and the regulations have been met. The following are exa ple of what the Department of Labor considers as sufficient evidence of all necessary prior arrangements and definite commitments:

(i) Manufacturing space can be either owned or leased by and in the name of the bidder. A recorded deed to the bidder's property in which the manufacturing is to take place, or a copy of a properly executed bona fide lease agreement clearly identifying the manufacturing space and setting forth the terms and conditions of the lease, would generally be considered evidence of prior arrangements and definite commitments for space. In addition, as noted above, any such lease agreement must be legally binding on the part of both parties to the agreement, the space must be for the exclusive and unrestricted use of the lessee, and the term of the lease must be of sufficient duration so that the bidder will be able to clearly fulfill the contract before the lease expires.

(ii)(A) The bidder must own or have made written, legally binding definite commitments to purchase or lease sufficient equipment to manufacture the goods, materials, or articles required

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for contract fulfillment. A bidder must have full, complete and unrestricted control of the necessary equipment. A · bill of sale or a purchase order may evidence definite commitments for equipment. The general requirements with respect to a bill of sale or purchase order are that it be dated and signed by the bidder, specifically identifying and describing the equipment and the terms of payment for the equipment purchased or to be purchased, and containing the date by which the vendor delivered or is required to deliver the equipment.

(B) The vendor must provide written evidence of acceptance, such as a bill or invoice, acknowledging receipt of the purchase order, as written, and setting forth the terms of payment in accordance with prevailing business practice. Such documentation is normally associated with the consummation of a sale in the usual conduct of business transactions.

(C) Letters of intent for space and equipment or vendor quotations or offers to sell or lease space or equipment, or affidavit that a sale or conveyance has occurred, do not constitute legally binding contractual agreements or definite commitments.

(iii) The best evidence of available personnel is the presence on the payroll of the manufacturing employees necessary to fulfill the contract. How. ever, affirmative evidence which the bidder submits showing what prior arrangements and definite commitments it has made to hire its own manufacturing personnel will be considered.

(d) A bidder's mere representation or affirmation that he is a qualified manufacturer or has fulfilled the above applicable conditions is insufficient. Evidence must be presented to the contracting agency which shows that these conditions are, in fact, met prior to any award of a contract subject to the Act. If it is discovered after an award that the bidder did not act in good faith by actually fulfilling these acquisition requirements, such contract award shall, in accordance with $ 50-201.101(a)(3)(i)(A) immediately upon such discovery, be subject to termination by the contracting officer.

(e) The plain language of the Act and regulations makes it clear that covered contracts are to be awarded only to contractors who are currently capable of manufacturing on their premises the goods called for under the contract or who, if newly entering into manufacturing, have made binding commitments before award to enable them to produce such goods as discussed above. Thus, a bidder's arrangements to use, rent, or share the equipment, personnel, or space of another legal entity on a time and material or “as needed” basis do not constitute the making of all necessary prior arrangements definite commitments, (See “In re Metalcraft Mfg. Sale Corp.”, 15 WH Cases 557, 566 (1962).) The Department has consistently held that the availability of the manufacturing and producing establishments of others does not qualify the contractor as a manufacturer as the term is defined herein. See, for example, "In re Electric Ventilating Corp.”, 13 WH Cases 220, “In re Dimensional Displays”, 12 WH Cases 847, and “In re Paramount Industries, Inc.", 11 WH Cases 721.

(f) Every bidder must qualify in its own right as a manufacturer under the Act. Therefore, all evidence documenting a bidder's eligibility must be in the name of the bidder. Arrangements or proposals for subcontracting, or a bidder's affiliation or relation with another firm, even one having the same officers or ownership, are not definite commitments nor are they evidence of the bidder's own eligibility as a manufacturer, even though such affiliate or subcontractor might be a qualified manufacturer. The fact that one legal entity may qualify as a manufacturer does not confer such status upon another legal entity. (See Deci. sion of the Hearing Examiner, “In re Alden Industries, Inc.,” PC-551, March 16, 1954; “In re Alsco Commercial Furniture Co., Inc.,” PC-469, July 16, 1952.)

(g) A bidder's eligibility status on a previous Walsh-Healy contract or its performance as a subcontractor on Walsh-Healy contracts are not determinative evidence of the bidder's present eligibility as a manufacturer.

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