Service contracting with the federal government is FAR different than the commercial market due to what is commonly referred to as the Service Contract Act (SCA), renamed the Service Contract Labor Standards under FAR Part 22. The key part of this regulation is the wage determination which is incorporated in all contracts that furnish service employees who are otherwise not exempted (i.e. executives, administrative, or professional). The wage determination is set by the Department of Labor taking into consideration the applicability of previous wage determinations assigned for the work and governing collective bargaining agreements. Accordingly, when working a contract subject to the SCA be mindful of the wages needed to comply with regulation, submit timely request for price adjustments, and follow the administrative requirements.
The wage determination sets the minimum compensation and fringe benefits that must be paid to each service employee. You may pay the employees more than the wage specified, but you cannot pay anything less. Furthermore, you will need to do your market research when proposing to a service requirement in order to determine if you can retain the necessary employees at the minimum wage rate. If you don’t, you may discover after award that the employee market drives a higher wage rate than defined in the wage determination. In this situation, if the higher rate was not factored into the proposed price, you will not be able to pass on the additional labor costs to the government after award in a firm fixed price situation. Similarly, be sure to access how to approach the fringe benefits you offer to attract the best employees. They may be paid in the form of a defined benefits package, a cash payment equivalent to the amount listed in the wage determination, or a combination of both.
On the one-year anniversary of a service contract, the latest wage determination will be incorporated and, at the start of the next performance period, employees are to be paid based on the new wages and benefits. It is very important to be aware of this change since you will only have 30 days to submit a request for a contract price adjustment for increases in wages and benefits paid. For example, if the wage determination requires $19/hour for a specific labor category and the new wage rate mandates $20/hour, an adjustment can be applied for the extra dollar if in fact the employees were paid $19/hour. However, if they were paid $19.50/hour then the adjustment would be based on $0.50/hour and if they were paid $20/hour, or more, than no adjustment would be due. The adjustment calculation takes into account the effect on employee taxes and workers’ compensation insurance, but G&A and profit cannot be adjusted. One other item to consider is that the adjustment is limited to the actual increase/decrease in wages and benefits paid. For this reason, the contracting officer will likely request to look at payroll records from the proceeding period. These records will be used as the baseline for the adjustment since manning levels often differ from what was proposed. Therefore, always include information to substantiate the hours claimed when submitting the request and provide rationale for any change in hours over the previous period or from what was originally proposed.
From an administrative standpoint, the prime and subcontractors are required to keep records for three years documenting employee information, labor classification, wages and benefits paid, hours worked, wage deductions applied, and contract information. You are also required to notify all employees of the minimum wage for their positions and place in a public location the WG 1313 SCA Poster which notifies employees of their rights and where to go for help. Therefore, expect that employees will know your SCA obligations and what they are to be paid along with any pending changes. It only takes one unhappy employee to place a call with the Department of Labor before you are having to open your books for closer scrutiny.
Just as in other regulations, there will be unique situations which warrant a closer look on a case-by-case basis. When this occurs, always start with the contracting officer to address specific contract questions, but then turn to the Agency Labor Advisor and the Skyway Team to help navigate any SCA issue.