The U.S. Department of Labor (DoL) just announced that the Wage and Hour Division (WHD) recovered a record $304 million in wages owed to workers in the Fiscal Year 2018 (read more here). This includes violations of labor laws unique to federal contractors, such as the McNamara-O’Hara Service Contract Act (SCA). On September 13, 2018, the DOL found that a California-based contractor and five of its subcontractors had violated the SCA. WHD determined the contractor owed over $3.5 million to 1,416 workers (both their own and subcontractor personnel) for failing to pay federal prevailing wages and required health and welfare benefits (read more here).
For federal contractors, compliance with the SCA is fraught with the potential for mistakes, starting before bid submission. Failure to understand the obligations of the Act or to obtain the information necessary to properly bid an SCA-covered contract can lead to costly errors in bidding labor costs and prevent the contractor from collecting under the economic price adjustment clause(s).
If the clause 52.222-41, Service Contract Labor Standards is in your contract, you must comply with the applicable Wage Determination (WD) provided by the Contracting Officer. The SCA’s wage and benefit requirements apply to all types of employees (full-time, part-time, temporary, etc.). Contractors are required to flow-down FAR 52.222-41 to subcontractors.
The penalties for failing to comply are significant. In addition to back wages and penalties imposed by the DoL, the contractor is also subject to “holds” on contract payments by the agency (including contracts beyond the specific contract in question), contract termination and re-procurement costs, personal liability for corporate officials and others who exercise control, supervision, or management of contract performance, and debarment for a three-year term from all government contracts (debarment applies to a contractor in its capacity both as a prime contractor and a subcontractor).
Common Mistakes in Complying with SCA
- Using an incorrect WD. The contracting officer must include the applicable WD in the contract. Contractors should not independently select the WD(s) from the DoL WHD website.
- Incorrectly classifying employees. Match the Statement of Work (SoW) and actual job duties with the SCA Directory of Occupations—don’t rely on job descriptions alone.
- Inadequate time charging such as not segregating time spent on SCA-covered and non-SCA covered work, or not recording and properly paying an employee for hours worked by an individual in two or more classifications during a day.
- Not separating the Health & Welfare fringe payment amount from the prevailing wage on the employee’s pay stub. Fringe benefit cash payments must be separately listed on the employee’s pay summary or DoL will not give credit. Higher wage payments (above the SCA rate) may not be used to offset fringe benefit payments due to employees.
- Failing to pay holiday pay. Holiday benefits must be provided regardless of the length of time the employee has worked for the employer at the time a holiday occurs and regardless of whether the employee works the day before or after the holiday (as some employers require).
- Failing to pay part-time, temps, or independent consultants the required prevailing wages and benefits, including pro-rata paid holiday and vacation time.
- Failing to properly flow-down the requirement to subcontractors. The prime contractor is responsible for including FAR 52.222-41 and the applicable Wage Determination in subcontracts, including commercial subcontracts. Despite the limitations on flow-downs permitted by FAR 52.212-5, primes are required to flow-down FAR 52.222-41 to all subcontractors expected to perform related services for the prime. Prime contractors may be liable for their subcontractor’s non-compliance.
For more information on compliance, visit the Department of Labor Wage and Hours Division website and review their Prevailing Wage Resource Book on SCA Compliance Issues.
Please reach out to a member of Maynard Cooper’s Government Solutions Group if you have any questions or need assistance.