The troubling implications of the Biden administration's involvement in a single federal contract

There is a dangerous precedent being set by the Biden administration and its impact on federal contractors will have damaging consequences for years, if not decades, to come.

In September 2022, the Centers for Medicare & Medicaid Services awarded Maximus a nine-year, $6.6 billion contract to run the Contact Center Operations for 1-800-Medicare.

In the contract announcement, CMS lauded Maximus for supporting the contact center for 10 years at that point and stated the company “will continue to deliver high quality customer service for the people served by our programs.”

Maximus employees have handled more than 40 million inquiries a year and serve as the public face of the program when people need help or assistance.

Despite Maximus meeting every objective and metric, CMS decided not to renew the options on the contract beyond the current one.

Shortly thereafter, the contract went out for rebid with only one notable addition – a labor harmony agreement. That agreement is a pledge by contractors to work with unions and not experience a labor stoppage.

As the Washington Post reported, “There is little precedent for the federal government to abruptly end such a large contract and insert a labor harmony agreement.”

The issue goes beyond one contract and one union. It cuts across the entire federal government and how much government contractors can pay their employees. Indeed, there are quite a few federal contractors who would like to pay their workers more.

The U.S. Department of Labor conducts prevailing wage surveys and gathers data on wages and fringe benefits. They use that data to issue new wage determinations setting the rates of pay and fringe benefits paid by US government contractors.

We think of prevailing wage laws like the Service Contract Act (SCA for service work) or the better-known Davis-Bacon Act (DBA for construction work) as providing ample worker protections and assuring a living wage.

But the dirty little secret is that while the SCA is a prevailing minimum wage and employers are free to pay more -- to win the work they must often closely adhere to the SCA rates.

Thus, SCA minimum wage rates become the de facto maximum too because any contractor who bids in excess of those prevailing wages will end up being higher priced, and thus will not win the award. Price, after all, is a mandatory consideration for all service contracts.  

As full disclosure, I have known Maximus for years, and believe they are a responsible, responsive, and conscientious business. One way they have proved to be a model contractor has been the company’s efforts lobbying Congress to overhaul the SCA and modernize how prevailing wages are set.

This difference between actual living wages and the wages set by the SCA causes a breach. And into that breach fall unions, who legitimately wish to expand their membership.

The Communications Workers of America has been attempting for years to organize Maximus call center workers and bargain for wages and benefits in excess of the SCA. That, of course, is not a problem.

Indeed, the SCA is a law intended to be favorable to union organizing and gives incentives to workers and employers alike to engage in collective bargaining.

Once the union obtains the consent of a majority of the workers, they can bargain, and those higher wages become the new SCA wage determinations and can even be imposed upon successor contractors.

However, the workers have to want and vote to become a union, which has yet to come close to happening for Maximus. Still, CWA leaders have organized demonstrations and lobbied agency leaders, Biden Administration officials, and members of Congress to pressure Maximus.

That leads us to the decision to recompete the contract, which has President Biden and the federal government picking sides, instead of being an honest broker. That deviates from the long adhered to policy of government neutrality. Maximus is being punished for holding the union to its normal obligation to gather the support of a majority of the workers before any bargaining occurs.

A dangerous example is being made of Maximus, which should raise the eyebrows of every single federal contractor. A contract where the work has been performed above and beyond standards has been terminated. A new solicitation has been issued, which will force the winning contractor to accede to the demands of the union.

While Maximus has filed a bid protest on the new procurement, the issue at hand is larger than a single contract. It is the use of the procurement system to benefit a specific union (CWA) and to punish a fully compliant contractor.

If the federal government genuinely wants higher wages, it should reform the SCA, as Maximus has urged, and specify those wages. And, of course, then find the funds to pay for it. It should not be terminating duly awarded contracts simply to add labor harmony clauses and provisions. That is not how the procurement system is supposed to work. It is no way to conduct responsible government business.

Taken to its obvious conclusion, it means the end of competitive bidding for government contracts and the beginning of contracts awarded to cronies who then bestow favors on loyal constituencies.

Our government is supposed to remain impartial in labor relations matters. The golden rule is that a procurement agency shall not participate in, facilitate, interfere with, or influence disputes between contractors and labor organizations.

It is plain wrong to award contracts, and then take that work away over a problem caused by the government.

Mr. Abrahams is a founding partner of Abrahams Wolf-Rodda, LLC, a boutique government contracts and wage & hour law firm in the Washington DC metropolitan area. The practice includes traditional government contracts work (bid protests, claims, compliance advice, prime-sub disputes, etc.) and a wage & hour practice (spanning the Fair Labor Standards Act, the Service Contract Act, the Davis-Bacon Act, various Executive Orders, and state wage laws). In the latter, Mr. Abrahams represents mostly employers in class and collective actions, individual lawsuits, federal and state wage investigations, and self-audit compliance.