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10May2012

The Service Contract Act – Part 1

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The Service Contract Act (SCA) generally requires that government contractors on service contracts, with certain limited exceptions, pay a “prevailing wage” to their employees in each specified locality where they have work.  Today, we will address the regulatory language and supporting case law that dictate how and at what point contractors should apply new labor rates in the context of the Department of Labor (DOL) wage determinations.  The rules are confusing and not intuitive.  Moreover, they are different depending on whether or not wages are set by a collective bargaining agreement (CBA).

 

DOL regulations and applicable law make clear that new wage determinations are not binding on a contractor until incorporated into a modification which exercises an option, extends the contract, or adds labor requirements.  29 C.F.R. § 4.143.  Specifically, any wage determination issued by DOL will apply to a contract “entered into thereafter and before such determination has been rendered obsolete by a withdrawal, modification, or supersedure.”  29 C.F.R. § 4.3(b).  Wage determinations issued by the DOL are not self-executing, are not retroactive, and do not apply to a contractor until the exercise of the next option period after issuance.  Accord Guardian Moving and Storage Company, Inc. v. Hayden, 421 F.3d 1268 (Fed. Cir. 2005).  This coincides with the regulatory language, which provides that qualifying modifications creates a new contract.  29 C.F.R. § 4.143.

 

Under applicable statutes and DOL regulation, the review and implementation of new wage determinations has to be, at least, every two years.  29 C.F.R. § 4.4.  This review and implementation also coincides with the type of money on the contract.  Id.  For annual appropriation contracts, this review is conducted every year.  Id.  For all other applicable contracts the review is no less frequently than every two years.  Id.  Moreover, until it is incorporated into the contract, the old rates should remain in effect, but not for longer than two years.  Id. 

 

 

When operating under a CBA, the application of the SCA shifts.  See generally 41 U.S.C. §§ 351, et seq.  Contracts employing CBAs are not treated the same as those without CBAs.  Specifically, while new wage determinations issued by the DOL are obligated to be reviewed and incorporated into the contract no less frequently than every two years, but more commonly every option period, the rates detailed in a CBA become effective immediately due to the arms length nature of the negotiation process of the new CBA.  Accord Guardian Moving and Storage Company, Inc. v. Hayden, 421 F.3d 1268 (Fed. Cir. 2005).  These rates stay in effect, regardless of any subsequent wage determination or contract successor, until modified with a new CBA.  29 C.F.R. §§ 4.4 & 4.163.  The SCA contemplates such a distinction as well, as they have provided for it in Section 4(c) of the SCA.  This is different than what is expected of contracts that do not operate under a CBA, as the language of 4(d) of the SCA is not self-executing until a new contract is in place.

 

Bryant S. Banes
Managing Shareholder
Neel, Hooper & Banes, P.C.
Houston, Texas

 

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