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© 2013 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 3

WIPP is a national nonpartisan public policy organization,

advocating on behalf of nearly 1 million women-owned

businesses representing 68 business organizations.

WIPP provides timely economic policy information and

identifies important trends and opportunities to its

membership.

www.WIPP.org

http://www.wipp.org/

Give Me 5

• National program from WIPP & American Express OPEN designed to

educate women business owners on how to apply for and secure federal procurement opportunities.

• Give Me 5 works to increase the representation of Women Business Owners that win government contracts. We provide accessible business education tools to assist both new and experienced federal contractors.

• Women Business Owners could gain more than $4 billion in annual revenues if the 5% contracting goal set by Congress was reached.


• What/When/Where/Who • Wages and Fringe Benefits • Pricing • Contract Administration • Contract Compliance

Agenda


What/When/Where/Who


McNamara-O’Hara Service Contract Act of 1965

• Sets the minimum wages and fringe benefits that contractors and their subcontractors must pay service employees working on covered contracts. Similar to the Davis-Bacon Act (construction) and Walsh-Healey (supply)

• Pub. L. 89-286, 79 Stat. 103; Codified at 41 USC §§ 351-57

• Amended twice: – 1972 – Successor Employer Obligation § 4(c) – 1976 – Extension to White Collar Employees

• Regulations – 29 CFR Part 4, Section 4.6, Last major changes 1/30/84 – FAR 52.222-41 Service Contract Act of 1965 – FAR 52.222-17 Nondisplacement of Qualified Workers

What is SCA?


To contracts that are…

• From any Federal Agency or any other Federal Government entity or ARRA funded projects;

• To be performed in the U.S, its territories and possessions;

• Principally for services (>50% of contract effort);

• Performed through the use of service employees; and

• In excess of $2,500.

When Does SCA Apply?


To contracts that are….

• For leasing of space

• For professional services (performed almost exclusively by employees that meet the exemptions under 29 CFR Part 541)

• For maintenance, calibration or repair of IT and office equipment

• For federally-assisted contracts for services entered into by state governments (e.g. Medicaid, Medicare programs)

• Other Statutory exemptions (e.g. construction, freight, carriage)

When Does SCA NOT Apply?


Where Does SCA Apply?

• Any State

• The District of Columbia

• Puerto Rico

• Commonwealth of Northern Mariana Islands

• Guam

• American Samoa

• Johnston Island

• Wake Island

• The Virgin Islands

• Outer Continental Shelf Islands as defined in the Outer Continental Shelf Lands Act.

Geographical Limits The SCA applies to all work performed within the United States. For purposes of the SCA, the term “United States” includes:


Requests for Proposal or Contracts incorporating either of the following two clauses:

• FAR 52.222-41 Service Contract Act of 1965, as Amended

FAR (Federal Acquisition Regulations) are the rules and regulations that implement acquisition policies for federal agencies and Contractors

-OR-

• 29 CFR Part 4, Section 4.6

The Code of Federal Regulations (CFR) is a compilation of the regulations that implement federal laws

How to Determine if SCA Applies to an RFP/Contract?


AND

Area Wage Determination (AWD)

• Attached as an exhibit; or

• By reference (not recommended)

How to Determine if SCA Applies to an RFP/Contract?


The “Christian Doctrine”

• Mandatory clauses automatically become part of the contract despite their omission from the contract.

FAR 22.1006

• Details the mandatory clauses for service contracts government by the Service Contract Act; therefore, they would be included in contracts even if they are inadvertently omitted.

What if SCA is NOT in Contract?


• SCA is enforced solely by DOL

• Contracting agencies have certain responsibilities but no authority.

• If contract is subject to SCA but agency does not specify SCA in contract, DOL will notify agency to insert SCA contract clauses & applicable Wage Determinations.

• Reliance on advice from contracting agency officials is not a defense against a contractor’s back wages under the Act (29 CFR 4.187 (e) (5)).

Who Interprets & Administers It?


Employees who qualify for exemption as executive, administrative or professional as defined by 29 CFR Part 541…

• Executive – Must be paid on a salary basis at least $455/week

• Administrative – Must be paid on a salary basis at least $455/week

• Professional – May be paid salary, fixed fee, or hourly basis at least

$455/week

• Computer Professional – May be paid on a hourly basis if paid more than

$27.63/hour; otherwise, – Must be paid on a salary basis at least $455/week

Which Employees are NOT Covered by SCA?


A WD sets the minimum wages and fringe benefits for job classifications for a specific geographical region.

• Minimum hourly Wage for the job position

• Minimum hourly Health & Welfare Benefit

• Minimum annual Vacation Benefit

• Minimum Holiday Benefit

Note: As a rule, SCA does NOT provide for Sick Leave Benefit. (That benefit if given, is governed by the Contractor’s company policy. An exception to this rule – Collective Bargaining Agreements (CBAs) may contain a Sick Leave requirement)

What is an Area Wage Determination (WD)?


Area (Standard) WDs

• Generic, issued per locality, reflect prevailing wages

• Locality is county or group of counties, or larger

• Area WDs list over 200 worker classifications

Non-Standard WDs

• e.g., fast food, elevator maintenance, diving, moving household goods, urinalysis, etc.

• Reflect wages prevailing in specific industry

Types of SCA WDs


Collective Bargaining Agreement (CBA) WDs • Based on predecessor collective bargaining

agreements under SCA Sec. 4(c)

Contract-Specific WDs • WDs issued by specific request to DOL for unique

(often sole-sourced) contracts • Cannot be used for any other contract

Types of SCA WDs


• For Standard and Non-Standard WDs, the Directory defines classifications and duties

• Published by DOL

• Contains federal grade equivalent levels

• Located on the Library Page at www.WDOL.gov

SCA Directory of Occupations

http://www.wdol.gov/


• For Contractors – look in your contract – WDs must be incorporated into the contract by

the contracting officer to be applicable

• Contracting officers obtain WDs from www.wdol.gov – WDOL is a menu-driven database for

contracting agencies to use – Accessible by the general public for

informational purposes only

Where do You get SCA WDs?

http://www.wdol.gov/


Wages and Fringe Benefits


• DOL Issues two Standard WDs for each locality – odd-numbered – even-numbered

• Labor classifications, wage rates, H&W rate, holidays and vacation benefits are the same on both WDs.

• However, the method required to be used by employers in providing the H&W benefit is different for each WD…

SCA Wage Determination


• Odd-numbered WDs (i.e., 2005-2011) require a contractor to pay the H&W rate for all hours paid each week (work time and paid leave time) up to a maximum of 40 hours each week

• Referred to as the “Fixed Cost”

– Most frequently used

SCA WD – Odd Numbered


• The prevailing rate established by the contract Wage Determination (WD) is the minimum rate of pay.

• Wages and hours worked must be calculated on a fixed and regularly recurring “work week” of seven consecutive 24-hour workday periods. – Payroll Records must be kept on this basis – A bi-weekly or semi-monthly pay period may be used

if advance notice is given to affected employees.

• No distinction is recognized in wage compensation requirements between full-time, part-time, and temporary employees.

Payment of Wages


Prevailing WDs identify fringe benefits

• Vacation, generally stated as X weeks/year

• Holidays, generally stated as X days/year

• Health and Welfare (H&W) Benefits – Stated as an hourly amount – Issued nationwide (one rate for all localities,

except Hawaii) – Revised by DOL every June 1st (applicable to

contract awards/options issued thereafter)

SCA Fringe Benefits (FBs)


Vested and becomes due after the SCA employee’s Anniversary date determined by total length of time: • Working for present employer in any capacity • And/or working for predecessor contractors

in performance of similar services at the same facility.

SCA Vacation Benefits


• Employee is entitled to holiday pay if they work in or receive sick/vacation pay in the holiday workweek.

• Holiday Pay is generally not applicable to days in which the Federal Government is closed by proclamation, such as the day before Christmas or on snow days, in other words, any holiday not named in the Contract or Wage Determination.

SCA Holiday Benefits


Part-time employees must be paid a proportionate amount of the mandated fringe benefits.

Examples: – A full-time employee is entitled to 2 weeks (80 hours ) of

vacation. A part-time employee who works 20 hours per week would be entitled to ½ (40 hours) the paid vacation benefits at the end of the anniversary year.

– The same part-time employee would be entitled to ½ the holiday pay benefits (e.g., 4 hours)

– Temporary or part-time employees working irregular schedule of hours are entitled to holiday pay proportionate to the number of hours worked in the week prior to the holiday.

– The same part-time employee would be entitled to the same hourly rate of the health & welfare (e.g. $3.59/hour).

Part-Time & Temp Employees


• Reference 29 CFR Part 4, Sec. 4.175 (a) and (b)

• Under both types of Standard WDs, employers discharge the H&W requirement by – Providing bona fide benefits to the workers – Or cash payment for the H&W rate – Or paying a combination of cash and

bona fide benefits • Currently $3.71 hour

SCA H&W Benefits


• Cash payments in lieu of fringe benefits must be paid on regular pay date (29 CFR § 4.165(a))

• Payments into bona fide FB plans must be made no less often than quarterly (29 CFR § 4.175(d))

• Excess wages over WD minimum may not be credited toward H&W requirements (29 CFR § 4.170)

• Excess FB costs may not be credited toward wage requirements (29 CFR § 4.167)

Payment H&W Benefits


Typical Benefits that satisfy the H&W requirement are: • Health Insurance • Dental Insurance • Life Insurance • Accidental Death & Dismemberment • Disability Insurance • Vision Care Insurance • Sick Leave Paid, if not required by WD • Employer Contributions to 401(k) Savings Plan • ESOP, Pension Plan, or Thrift Plan • Educational Assistance, if not required by the job • Severance Pay Plans • Paid Vacation or holiday in excess of WD requirement • Jury Duty, Military, bereavement, and other paid leave in excess

of that required by law • Cash paid in lieu of benefit plans

What Benefits Satisfy H&W


Typical Benefits NOT ELIGIBLE for Satisfying the H&W requirement are:

• Statutory payments (FICA, Unemployment Insurance, Worker’s Compensation)

• Benefits provided for the benefit or convenience of the company:

– Relocation

– Incentive Awards

– Tools

– Uniforms, not required by WD

– Social functions, gifts, celebrations

– Professional or club membership dues

– Administrative costs incurred in providing benefits

– Paid leave required by the WD

Benefits NOT Satisfying H&W


• Based on Collective Bargaining Agreement (CBA)

• Required to be paid by successor contractor under section 4 (c) of SCA

• FBs specifically stipulated in CBA are not required. Equivalent benefits may be provided

• Cash equivalent payments can be used to offset the FBs due

Collectively Bargained FBs


Pricing


• Labor

• Fringe – Health & Welfare (generally priced on billable hours but

paid on all hours up to 40/wk) – Vacation – Holiday – Sick Leave (if offered) – Statutory payments (FICA, unemployment insurance

workers compensation) – Miscellaneous (Tuition reimbursement, etc.)

• Overhead

• General & Administration (G&A)

• Profit

SCA Basic Pricing Elements


Contract Administration


• When the contract is modified to require new SCA or FLSA rates, a contractor may be entitled to a change in contract price – New (most current) SCA rates will be incorporated

into the contract at each option, extension, substantial change in scope of work, or no less than every two years if not funded annually.

SCA Price Adjustments


• Under cost-reimbursable contracts, contract price relies on “reasonable, allowable, and allocable” determinations

• Under fixed-price contracts, a contract price can be changed only under – The Changes Clause, OR – The SCA/FLSA Price Adjustment Clause (FAR

52.222-43)

SCA Price Adjustments


Contract Compliance


The Prime Contractor

• Must “flow down” the applicable SCA contract clauses to subcontractors (includes independent subcontractor – i.e., 1099s) (29 CFR 4.155)

• “Joint and severally” liable for subcontractor’s non-compliance with SCA (29 CFR 4.114(b))

Who is Liable for Compliance?


• Keeping an excel spreadsheet which tracks wages and benefits in comparison to SCA wage determination requirements.

• Factors that add to the complexity of compliance:

– Multiple pay rates and/or positions during the year

– Multiple benefits costs during the year

– OCONUS deployments not subject to SCA

How to Implement a Compliance Program?


SCA Sanctions & Remedies (29 CFR 4.187 thru 4.190)

For violations, the U.S. Government may….

• Withhold from payment for the contract a sum adequate to pay back wages or fringe benefits to underpaid employees;

• Bring legal action against the Contractor or surely for the amount of underpayment;

• Terminate contract and hold Contractor liable for any resulting cost to the government; and

• Not award contracts to a violator for up to 3 years (debarment).

Why Should I Comply?


DOL Investigations

• FY2008 thru FY2011 – Averaged annually 650 SCA Investigations

• FY 2012 – Goal is 1800 SCA investigations

• Debarments – Currently – 36 government contracting

companies are in various stages of the Debarment process

Why Should I Comply?


• Are SCA stipulations included in contract?

• Are the SCA poster & WD, including any Conformance actions, posted at the site or made available to employees?

• Does WD contain necessary classifications?

• Is a Conformance necessary?

• Are employees properly classified (WD & FLSA)?

• Are fringe benefits properly paid?

• Is Overtime correctly paid under the FLSA or CWHSSA, if appropriate?

• Has employer kept accurate payroll records?

DOL Investigation Issues


Hope A. Lane, CPA leads Aronson LLC’s Government Contract Consulting Group with over 20 years of broad-based experience in the government contracting arena. She earned her Bachelor of Science Degree in Accounting from the University of North Carolina at Charlotte and is responsible for assisting clients in all areas of government contracting-related financial compliance and contract administration. With an exclusive focus on government contracting, Ms. Lane possesses in-depth understanding and intensive hands-on experience. She has served in financial management positions with several regional federal contractors and has extensive experience in the management of all accounting and finance functions. Hope is actively involved in the National Contract Management Association, and the Professional Services Council. Ms. Lane is a guest speaker and lecturer for associations and industry trade groups and a featured speaker on GSA Schedules at Aronson LLC’s Executive Briefings. Additionally, her industry expertise is frequently sought out by GSA.

Hope Lane, Partner


Hope Lane Partner Aronson LLC 805 King Farm Boulevard, Suite 300 Rockville, MD 20850 [email protected] (301) 231-6266

Connect with me on

Visit our Fed Point blog at: http://www.aronsonblogs.com/gcsg/

See our blog post on February 22 for Aronson responses to commonly asked SCA questions.

Contact Information

mailto:[email protected]

http://www.aronsonblogs.com/gcsg/

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