The complexities of government contract compliance are a double-edged sword.
On the one hand, it’s a challenge to sort out all the requirements that apply to a federal contract, from pre-bid to contract administration. All that effort brings a major benefit, though: Understanding your obligations also allows you to evaluate whether a contract opportunity matches your firm’s strengths and profit goals.
Nowhere does this compliance diligence play a more significant role than in contracts covered by the McNamara-O’Hara Service Contract Act of 1965 (SCA). Congress passed the law to protect nonunionized employees and prevent unionized workplaces from being undercut in the competitive government marketplace.
The intricacies of SCA compliance have challenged both new and experienced Government Contractors since it became law. Your firm will benefit if you begin to consider how the SCA impacts a contract at the pre-award stage.
The following Q&A presents some SCA basics:
How do I know if the SCA applies to a contract?
Look in the bid solicitation for Federal Acquisition Regulation Clause 52.222-41, the FAR clause that applies to SCA or 29 CFR Part 4, Section 4.6 Labor Standards clause. Also, there is an Area Wage Determination (AWD) from the Wage and Hour Division (WHD) of the Department of Labor (DOL) as an exhibit or referenced.
Or the solicitation or contract can simply state that it is subject to the SCA. Note that the SCA is enforced solely by the DOL. If a contract does not have the clause, the DOL may instruct the agency to add the clause and related AWDs.
Each Area Wage Determination is specific to a geographic location and is updated periodically as wages and benefits change. Area Wage Determinations are available on https://wdolhome.sam.gov.
What challenges with wages and benefits am I likely to encounter?
Accurate calculation of contract wages/benefits not only helps ensure SCA compliance, it allows you to determine if you can develop a pricing strategy that will be profitable for your firm. Here is a basic list of SCA wage/benefit requirements:
- Identify the specific job duties for each employee and “map” those duties to the appropriate DOL wage determination labor category.
- Maintain documentation for your labor category mapping decisions. Even if the agency bid solicitation provides guidance, the contractor is responsible for choosing the appropriate labor categories and is liable for inaccurate mapping.
- Identify the minimum hourly wage rate for each labor category expected to be used on the contract.
HEALTH & WELFARE COSTS (H&W)
- Each Area Wage Determination identifies the minimum amount to be spent to provide Health and Welfare benefits.
- Health and Welfare benefits include the following types of benefits:
- Medical Insurance
- Dental Insurance
- Vision Insurance
- Life Insurance
- Disability Insurance (STD and LTD)
- Retirement Contributions (Pension and 401K)
- Depending on the Area Wage Determination the cost of providing Sick Leave may be included in the calculation of H&W benefit costs.
- In lieu of providing benefits, the company may elect to provide the minimum value of H&W in cash.
- Each Area Wage Determination identifies the Holidays to be provided to the covered employees.
- Each Area Wage Determination identifies the Vacation Leave Accrual Schedule to be provided to the covered employees.
Are there substantial SCA administrative requirements once the service contract is underway?
Yes, SCA administrative provisions are extensive. Here’s a general list of contractor performance monitoring requirements:
- Maintain records to ensure you are paying the correct wage and fringe benefits.
- Monitor whether DOL has issued revised wage determinations that the contracting officer has incorporated into the contract.
- Assess whether any changes to the Statement of Work require new labor categories.
- Assess whether changes in job duties require revised labor category assignments.
- Monitor SCA compliance of subcontractor(s).
Is DOL diligent about SCA compliance monitoring?
Yes. The department’s Wage and Hour Division (WHD) sends teams nationwide to monitor SCA contract compliance through audits and investigations. Keeping required compliance records up to date is crucial to avoid penalties for SCA violations, which can be steep:
- Contract termination.
- Liability for any resulting costs to the government.
- Withholding of contract payments to cover wage/fringe benefit underpayments and legal action to recover underpayments (plus penalties and interest).
- Debarment from future contracts for three years.
Is it possible to DIY with SCA compliance?
Unless your firm includes an experienced SCA compliance team, it’s easy to become confused by, or inadvertently skip over, detailed, complex requirements. If you’re new to service contracts or don’t have the resources for a dedicated SCA operation, feel free to reach out to the experts at CAVU for advice.