The Service Contract Act Gets More AttentionBy James C. FontanaContributing WriterAs federal information technology service contracts continue to flourish, and the competition for this business

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The Service Contract Act Gets More Attention

As federal information technology service contracts continue to flourish, and the competition for this business becomes increasingly intense, contractors are paying more attention to the vast array of federal laws that regulate government service contractor employees. Key among these laws is the Service Contract Act.

The SCA applies to government service contracts and subcontracts in excess of $2,500 that principally involve services performed within the United States and its territories. The law does not apply outside the country.

Under the SCA, "service employees" must be paid the prevailing wages and fringe benefits in the locality in which the work is performed, as determined by the U.S. Department of Labor in formally issued area wage determinations. Such AWDs may vary depending on the job classification listed in the AWD and the locality in which the work is being performed.

For example, a computer systems analyst position may have several wage levels depending on the expertise required for the job. In addition, that analyst position described in a Jackson, Miss., AWD will likely have a different wage and fringe benefit level then the same job classification set forth in an AWD released for San Jose, Calif., or some other locality.

At the very least, SCA-covered employees must be paid the minimum wage as determined under the Fair Labor Standards Act. If a union agreement exists, then in most cases the wages and fringe benefits in such agreements effectively become the AWD, so long as the union rates exceed the locally prevailing rates and are not at "substantial variance" with such local rates.

The SCA defines "service employee" to include any person engaged in the performance of a federal government service contract, regardless of any contractual relationship between the contractor or subcontractor and such person. This encompasses both blue collar and white collar workers, both temporary and permanent employees. It excludes those employed in a professional, administrative or supervisory capacity and who are exempt under the FLSA. For example, the SCA will apply to such traditional nonexempt positions as a key entry operator or data librarian, but will not apply to an advanced software engineer or someone who supervises a group of data librarians.

There are a number of statutory and regulatory exemptions to the SCA's coverage. The statutory exemptions include (a) contracts covered exclusively by the Davis-Bacon Act (for construction contracts) and Walsh-Healey Public Contract Act (for supply contracts); (b) contracts for the carriage of freight or personnel by vessel, airplane, bus, truck, express, railway line or oil or gas pipeline where published tariff rates are in effect; (c) contracts for the furnishing of services by radio, telephone, telegraph or cable companies, subject to the Communications Act of 1934; (d) contracts for public utility services (including electric light and power, water, steam and gas); (e) employment contracts providing direct services to a federal agency by an individual or individuals; and (f) contracts with the U.S. Postal Service, the principal purpose of which is the operation of postal contract stations. Regulatory exemptions include (a) contracts for common mail carriage; (b) certain freight carriage contracts; and (c) certain contracts for the maintenance, calibration or repair of automated data processing equipment.

The SCA imposes particular requirements on successor contractors. If a contract involving a union succeeds another and provides essentially the same services as those of the predecessor contract that paid wages pursuant to a union agreement, then the successor contractor must pay at least the wage and fringe benefit levels of that predecessor contract. The exception here is when the rates negotiated with the union are at a "substantial variance" with locally prevailing rates as set forth in the AWD.

Where contract performance may involve work by service employees in classifications not included in the AWD, the contractor is obligated to initiate a "conformance" procedure. This complex process allows the contractor to employ workers in occupations not listed in a governing AWD.

Pricing direct labor costs under an SCA-controlled contract can be tricky. Misuse of the labor classifications can make your management and staffing proposal nonresponsive, and may later lead to an underpayment claim by the Labor Department. Bidding classifications and associated labor and fringe rates too high will unnecessarily increase costs and diminish any competitive advantage.

Using classifications that have low rates but do not bear a reasonable relation to the job requirements risk bid rejection, or at least agency adjustments based on the concept of "cost realism."

In any event, paying close attention to the SCA is critical to the success of a federal service contractor.

James C. Fontana is vice president and corporate counsel of Wang Government Services Inc. in McLean, Va.

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