Service Contract Act (SCA)
A contract to perform services for a federal agency, unless one of the rare SCA exemptions applies, will typically contain a wage determination which specifies, for each occupation, the minimum hourly (or hourly equivalent) rate. Fringe benefits are also specified and must be furnished, or they may be paid as cash equivalents under very stringent rules. There are regulatory record keeping requirements.
Federal service contractors are usually subject to overtime standards of the Contract Work Hours and Safety Standards Act (CWHSSA) and the Fair Labor Standards Act (FLSA). Under either CWHSSA or FLSA, there are a few overtime exemption possibilities. Contractors who believe that the overtime standards do not apply should verify the accuracy of such conclusions.
The SCA rules are so complex that there are myriad possible types of violations or reasons for a contractor not to be in compliance. Failure to pay correct wage rates and/or to deal with required fringe benefits correctly are obviously expensive mistakes.
Utilization of owner-operators of vehicles or other equipment without maintaining adequate records and/or ensuring compliance with wage payment and fringe benefit standards also leads to SCA violation assertions. This is a common problem area for USPS mail haul contractors. Transportation contracts with other agencies, such as the DOD, also result in SCA coverage and the difficulties of maintaining compliance when owner-operators drive their rigs. In these scenarios, the owner-driver is a service employee of the contractor. If the owner-driver utilizes a co-driver, the SCA provisions apply also to the co-driver. It is possible for an owner-driver to be a service employee of the contractor with respect to his/her own hours of work, and a subcontractor with respect to the co-drivers.
As an enforcement officer with the DOL Wage and Hour Division, I found that SCA violations were very common, even when the contractors were large national firms. One reason is that the responsibility for compliance is often assigned to managers or other employees without providing sufficient training.
Failure of subcontractors to comply often occurs when prime contractors do not fully apprise the subs of their obligations and how to meet them. It is important that prime contractors fully inform subcontractors of the SCA requirements, and the prime contractor should be alert to indications that subs are not complying with the labor standards.
Payment of wage rates that are less than those specified in the wage determination causes back pay liabilities. A common reason for such underpayments is failure to correctly classify employees.
Expenses (job related) that are borne by employees, or improper deductions from wages, result in wages actually received by employees being less than the hourly requirements (again - a back wage liability exists).
Failure to pay for all hours of work (examples are travel time, waiting time, preparatory and concluding activities, and attendance at meetings or training sessions) is another practice that precipitates violation assertions.
Fringe benefit provisions of the Service Contract Act are entirely separate from the wage rate requirements. A contractor's failure to separately deal with fringe benefits (or cash in lieu of fringe benefits) is a common cause of back wage assertions by DOL.
Aside from the back wage obligations mentioned above, there are other repercussions of SCA compliance failures:
· SCA and/or CWHSSA violations can result in debarment action against the prime contractor and/or the subcontractor. Many SCA contractors are just one investigation away from being placed on a list of ineligible bidders (for three years). When debarment occurs, the contractor is entitled to a hearing before a DOL administrative law judge. Such an appeal is expensive and time consuming, but it might keep you off of the list of ineligibles. A better solution is to get into compliance and stay that way, so that you will not face this predicament.
· Under certain circumstances, such as fraudulent records or false evidence of back wages paid, the U. S. Department of Justice may file criminal charges against the offending contractor(s).
Davis-Bacon & Related Acts (DBRA)
Synopsis - from the DOL Wage and Hour Division web site:
The Davis-Bacon and Related Acts apply to contractors and subcontractors performing on federally funded or assisted contracts in excess of $2,000 for the construction, alteration, or repair (including painting and decorating) of public buildings or public works. Davis-Bacon Act and Related Act contractors and subcontractors must pay their laborers and mechanics employed under the contract no less than the locally prevailing wages and fringe benefits for corresponding work on similar projects in the area. The Davis-Bacon Act directs the Department of Labor to determine such locally prevailing wage rates. The Davis-Bacon Act applies to contractors and subcontractors performing work on federal or District of Columbia contracts. The Davis-Bacon Act prevailing wage provisions apply to the “Related Acts,” under which federal agencies assist construction projects through grants, loans, loan guarantees, and insurance.
There are myriad statutes ("related acts") that affect federal construction contractors, subcontractors, and lower-tier subcontractors. Failure to comply with the Davis-Bacon Act or a related act results in back wage liabilities and possible debarment. The DOL occasionally submits an investigation file to the U. S. Department of Justice for criminal litigation (e.g., submission of false certified payroll documents).
Much of the information in the "Service Contract Act" discussion is applicable to the Davis-Bacon and Related Acts. However, the rules are very different in many respects.
How can a Wage and Hour consultant assist a federal service or construction contractor/subcontractor?
A contractor, subcontractor, or lower-tier subcontractor will find it to be a good investment to seek the counsel and advice of a consultant whose previous career was the enforcement of these statutes. Time and money can be saved by getting issues and questions resolved prior to the accumulation of a back wage liability and resulting repercussions.
The services that I provide are related to the Fair Labor Standards Act (FLSA). I no longer offer consultation regarding the SCA and DBRA (Service Contract Act and Davis-Bacon and Related Acts) except when the concerns are limited to the resolution of a specific issue (e.g., how to compute proper overtime wages when multiple pay rates are involved). I can recommend a consultant who has vast experience in the SCA/DBRA arena. Please submit the “Request a Consultation” form on the “Contact” page; I shall email a recommended name and contact information to you.