FAR 52.222-53—Exemption from Application of the Service Contract Labor Standards to Contracts for Certain Services-Requirements.
Plain-English Summary
FAR 52.222-53 sets out the conditions under which certain service contracts can be exempted from the Service Contract Labor Standards (SCLS), formerly the Service Contract Act. This clause addresses the threshold requirements for the exemption: the services must be regularly sold to non-Governmental customers and provided to the general public in substantial quantities; the prices must be established catalog or market prices; each service employee must spend only a small portion of time on the Government contract; and the contractor must use the same compensation plan for Government and commercial service employees. It also covers subcontracting rules, including how exempt subcontractors must be selected, the contractor’s duty to verify that likely subcontractors meet the exemption conditions, what happens if the Department of Labor rejects the exemption, and the requirement to flow the clause down to subcontracts. In practice, this clause is important because it can remove SCLS wage and fringe benefit obligations from qualifying service work, but only if every condition is satisfied and maintained. Contractors must document their basis for the exemption carefully, and contracting officers should understand that the exemption is narrow, fact-specific, and vulnerable to loss if the commercial nature of the work changes or subcontracting practices do not support the exemption.
Key Rules
Commercial service availability
The services must be offered and sold regularly to non-Governmental customers and provided to the general public in substantial quantities during normal business operations. This requirement ensures the exemption applies only to genuinely commercial services, not work created primarily for the Government.
Established price basis
The contract services must be furnished at prices that are, or are based on, established catalog or market prices. The clause defines both terms and requires that the pricing be supportable from regular commercial pricing practices or independent market sources.
Limited employee time
Each service employee performing the contract must spend only a small portion of time on the Government contract, defined as less than 20 percent of available hours on an annualized monthly average, or less than 20 percent during the contract period if shorter than a month. If employees spend more than that, the exemption may fail.
Uniform compensation plan
The contractor must use the same wage and fringe benefit plan for service employees on the Government contract as it uses for those employees and equivalent employees serving commercial customers. This prevents the contractor from using a special Government-only compensation structure to qualify for the exemption.
Subcontracting safeguards
For exempt services, subcontractors must either be selected on a basis where factors other than price or cost are at least as important as price or cost, or the subcontract must be awarded on a sole-source basis, except for the limited exception referenced in the clause. The contractor must also determine in advance that likely subcontractors will meet the exemption conditions.
Contractor accountability for subs
The prime contractor is responsible for compliance by subcontractors and must consider the practices of any existing subcontractor when making the exemption determination. If there is reason to doubt a subcontractor’s certification, the contractor must include SCLS requirements in the subcontract.
Loss of exemption if challenged
If the Department of Labor determines that any exemption condition was not met, the exemption is treated as inapplicable and the contract becomes subject to the SCLS statute. The clause points to DOL procedures that govern how the contract is brought under SCLS coverage.
Flowdown requirement
The contractor must include the substance of the clause, including the flowdown paragraph, in subcontracts for exempt services. This ensures subcontractors are bound by the same exemption-related conditions and compliance obligations.
Responsibilities
Contracting Officer
Insert the clause when prescribed by FAR 22.1006(e)(4) and evaluate whether the contractor’s claimed exemption basis appears supportable. The contracting officer should understand that the exemption depends on factual conditions and may be lost if the Department of Labor later finds the conditions were not met.
Contractor
Establish and maintain evidence that the services are commercial, priced on an established catalog or market basis, performed by employees who spend less than 20 percent of their time on the Government contract, and supported by a uniform compensation plan. The contractor must also ensure subcontracting arrangements satisfy the clause, flow the clause down, and include SCLS requirements if there is doubt about a subcontractor’s eligibility.
Subcontractor
Meet the exemption conditions for exempt services if relying on the exemption, comply with the flowed-down clause, and provide information needed for the prime contractor to assess whether the exemption applies. If the subcontract does not qualify, the subcontractor may be subject to SCLS requirements.
Department of Labor
Review and determine whether the exemption conditions have been met and, if not, deem the exemption inapplicable and apply the SCLS statute. DOL also follows the procedures referenced in the clause when the exemption fails.
Agency/Program Office
Support acquisition planning by identifying whether the services are truly commercial and whether the contractor’s staffing and subcontracting approach are consistent with the exemption. Program offices should avoid structuring requirements in a way that undermines the commercial nature of the work.
Practical Implications
This clause is not a blanket exemption for commercial services; every condition must be satisfied, and the contractor should be able to prove it. A weak record on pricing, employee time allocation, or commercial sales can cause the exemption to collapse.
The 20 percent time test is a common failure point. Contractors need reliable labor tracking and should monitor whether employees drift above the threshold as performance changes.
Subcontracting is a major risk area. If the prime cannot reasonably conclude in advance that likely subcontractors meet the exemption conditions, it must include SCLS requirements instead of assuming the exemption will hold.
The compensation-plan requirement means contractors cannot use a special lower-cost Government staffing model and still claim the exemption. Wage and fringe practices should be consistent across commercial and Government work for equivalent employees.
If DOL later rejects the exemption, the contract can become subject to SCLS after award, creating potential wage, fringe, and administrative exposure. Contractors should treat exemption determinations as living compliance decisions, not one-time paperwork.
Official Regulatory Text
As prescribed in 22.1006 (e)(4) , insert the following clause: Exemption from Application of the Service Contract Labor Standards to Contracts for Certain Services-Requirements (May 2014) (a) The services under this contract are offered and sold regularly to non-Governmental customers, and are provided by the Contractor to the general public in substantial quantities in the course of normal business operations. (b) The contract services are furnished at prices that are, or are based on, established catalog or market prices. An "established catalog price" is a price included in a catalog, price list, schedule, or other form that is regularly maintained by the manufacturer or the Contractor, is either published or otherwise available for inspection by customers, and states prices at which sales currently, or were last, made to a significant number of buyers constituting the general public. An "established market price" is a current price, established in the usual course of ordinary and usual trade between buyers and sellers free to bargain, which can be substantiated from sources independent of the manufacturer or Contractor. (c) Each service employee who will perform the services under the contract will spend only a small portion of his or her time (a monthly average of less than 20 percent of the available hours on an annualized basis, or less than 20 percent of available hours during the contract period if the contract period is less than a month) servicing the Government contract. (d) The Contractor uses the same compensation (wage and fringe benefits) plan for all service employees performing work under the contract as the Contractor uses for these employees and for equivalent employees servicing commercial customers. (e) (1) Except for services identified in FAR 22.1003-4 (d)(1)(iv), the subcontractor for exempt services shall be selected for award based on other factors in addition to price or cost with the combination of other factors at least as important as price or cost; or (2) A subcontract for exempt services shall be awarded on a sole source basis. (f) The Contractor is responsible for compliance with all the conditions of this exemption by its subcontractors. The Contractor shall determine in advance, based on the nature of the subcontract requirements and knowledge of the practices of likely subcontractors, that all or nearly all likely subcontractors will meet the conditions in paragraphs (a) through (d) of this clause. If the services are currently being performed under a subcontract, the Contractor shall consider the practices of the existing subcontractor in making a determination regarding the conditions in paragraphs (a) through (d) of this clause. If the Contractor has reason to doubt the validity of the certification, the requirements of the Service Contract Labor Standards statute shall be included in the subcontract. (g) If the Department of Labor determines that any conditions for exemption at paragraphs (a) through (e) of this clause have not been met, the exemption shall be deemed inapplicable, and the contract shall become subject to the Service Contract Labor Standards statute. In such case, the procedures in at 29 CFR 4.123(e)(2) (iii) and 29 CFR 4.5 (c) will be followed. (h) The Contractor shall include the substance of this clause, including this paragraph (h), in subcontracts for exempt services under this contract. (End of clause)