What are SCA Contracts?
SCA Contracts, short for Service Contract Act Contracts, are an important part of the federal service contracts landscape. Under the Service Contract Act ("SCA" or "SCA", 41 U.S.C. § 6701 et seq., formerly known as the Walsh-Healey Act), contractors and their employees are provided with various guarantees and benefits for the successful performance of federal government work. SCA contracts are the primary vehicle with which the federal government buys professional services from commercial concerns.
The SCA covers most government service contracts and federal contracts valued over $2,500 . For federal contractors, the SCA generally provides strict limitations on the labor force composition, provides for minimum wage requirements, and establishes additional benefits requirements.
With its general purpose to establish prevailing wage and fringe benefit laws for federal contractors performing services, the SCA contract obligations and regulations are strictly enforced by the Department of Labor ("DOL"), both at the prime and subcontractor levels. And with the new Federal Acquisition Regulation changes on the horizon, expecting the government to strictly monitor and enforce SCA contract provisions is key to avoiding a pricing challenge or overcharging dispute with the government.
Distinctive Attributes of SCA Contracts
The SCA requires government contractors to compensate their service employees based on applicable wage determinations issued by the applicable Wage and Hour Division (WHD) administrator. The wage determination lists the minimum monetary compensation and fringe benefits that must be paid to the employees working on the contract. The SCA also includes requirements for the payment of prevailing wage rates to security personnel and guards used in federal buildings, and under certain circumstances, the payment of minimum wages to employees performing janitorial or custodial work in federal buildings. The Wage and Hour Division does not issue a wage determination for Guam, American Samoa, Wake Island, or the Outer Continental Shelf, however, as previously discussed, there is a separate set of wage determinations issued for Guam, the Northern Mariana Islands, American Samoa and the U.S. Territories of the Virgin Islands.
The SCA mandates that covered contracts entitle service workers to paid time off for 10 holidays, 8 hours of paid sick leave, and, for contractors with a contract value of $1 million or greater, paid vacation leave. The SCA also includes several non-negotiable clauses that must be incorporated into any covered contract.
The SCA also requires that contractors post the applicable wage determination and the SCA notice provided by the Wage and Hour Division at the workplace.
Who Needs an SCA Contract?
SCA Contracts are generally entered into by the Federal Government and its civil servants or "civilian" employees, either directly or indirectly. SCA Contracts are required for Federal contracts that are subject to the provisions of Section 2(c)(2) of the SCA which obligates Federal Prime Contractors to enter into a collective bargaining agreement with a union when more than 50 percent of employees on a contract are members of a union. SCA Contracts are also entered into by Federal contractors who, by their collective bargaining agreement, require that all of their employees be union members. And, in turn, any subcontractor hired by the Prime Contractor who is subject to the CBA is required by its Federal Prime contractor to enter into an SCA Contract when its collective bargaining agreement requires the same.
Ensure You’re in Compliance with SCA Contracts
Government contractors must comply with the regulations detailed in the Code of Federal Regulations (CFR) in order to be a partner to the U.S. government. Particularly for government contractors in the service industry, this includes complying with the Davis-Bacon Act as amended, also known as the Davis-Bacon Act (40 U.S.C. 3141-3148), and the McNamara-O’Hara Service Contract Act as amended (41 U.S.C. 351-358), also known as the SCA. These acts and their accompanying regulations are enforced by the Department of Labor (DOL). The DOL enforces labor laws to protect the wages and benefits of employees on government contracts, including ensuring workers are being properly compensated and ensuring subcontractors are properly paying their workers. The SCA requires the DOL to organize wage determinations to be used for federal and federal-aid construction contracts. The regulations outline provisions requiring that service employees on Harris County contracts be paid at least the prevailing wages in its area. Salaries are based on the type of work performed, the location of the work, the skill set required, the supervisory level and the complexity of the task. Those prevailing wages are set for 37 different classifications in Houston and surrounding areas based on the area’s labor market but applied only to service employees working on federal contracts . The DOL also publishes prevailing wage rates, which indicate the area’s greater metropolitan area, geographical region or state, including city-specific areas, for all construction workers on federally funded contracts. The DOL’s Wage and Hour Division has jurisdiction over violations of the SCA and the Davis-Bacon Act. The agency may investigate complaints, using subpoenas and other tools, and is responsible for informing the public and establishing policies to ensure SCA and Davis-Bacon contracts adhere to the law. The division is regulated under the Employment Standards Administration, whose mission is to foster and create an environment that provides workers and employers with access to information, tools and services necessary for achieving compliance with the law. WDOL.com will list SCA wage determinations in the "Wage Determination" section of each posting. Contractors and subcontractors won’t have the ability to post a wage determination with the DOL until they have a specific contract. They far enough in the bidding process with an awarded contract will receive a notice the DOL has post the wage determination as a "new general decision." Those notices will be posted on Monday through Friday at the end of each day.
The Benefits and Pitfalls of SCA Contracts
The primary benefit of SCA contracts to employers is the elimination of the variable cost of maintaining fringe benefits. SCA contracts permit employers to pay a single estimate of the cost of fringe benefits based on historical data. The contract established the needed fringe benefits fund with a lump sum contribution. The major drawback to employers for SCA contracts is that they are required to pay the costs for health and welfare packages determined to be unfair or inadequate by DOL or other agencies and for fringe benefits that are legally deficient under applicable law. An additional disadvantage for some employers is the potential payment of large sums of back pay for past violations if the employers did not properly fund the fringe benefits package during contract performance. For employees, the advantage of the SCA contract is that in some instances a lower contribution may be offered in the contract for fringe benefits than the actual cost of the benefit to the employees. The disadvantage for employees is that if the actual cost of a benefit is lower than the estimate contained in the contract, most employers will not return the difference to an employee who uses the benefit.
How to Obtain an SCA Contract
Obtaining a SCA contract takes a lot of advance preparation and preparation. Unlike many other contract opportunities, the SCA negotiation and filing process begins before solicitation for a program is even released. In fact, most companies pursue SCA contracts as part of a long-term strategy, rather than for any one particular requirement.
A potential offeror interested in submitting a proposal for a SCA contract can take several steps to position itself for a successful award. While these steps are only one part of developing SCA proposals, they provide an important framework for an offeror’s approach. First, determine the appropriate labor category for the contract. Based on the labor category and type of services required, the offeror must determine whether to seek placement on the SCA Directory of Multiple Award Schedules (FSS) or a SCA Letter of Supply. These two factors will largely determine the scope of the proposal effort required in support of the SCA proposal.
Getting FSS placement requires obtaining a GSA schedule contract for the relevant products or services. Generally, if the offeror already holds a GSA schedule contract, obtaining FSS placement is fairly straightforward. The current SCA Wage Determination, the Offeror’s FSS contract and Price Proposal will be incorporated by reference into a SCA Modification that will be issued by GSA on behalf of the offeror. Once the SCA Modification is awarded, the offeror will be listed in the SCA Directory of Multiple Award Schedules and the specific SCA Labor Categories will be visible on the GSA Schedule Contract.
For larger product orders, GSA will issue a Letter of Supply to the offeror that lists the relevant SCA Labor Categories that will apply. When supplying products against a task order or IDIQ award, the offerors pricing will be determined based on the schedule rates, the applicable SCA Labor Category, and the discounts off schedule rates offered.
The second piece of the puzzle is to ensure that the Offeror provides the Contracting Officer with timely notification that it intends to subcontract to multiple subcontractors. The SCA stipulates two distinct obligations in this regard. First, Contracting Officers must provide a list of SCA labor categories to be performed under the contract clause at FAR 52.222-41, Service Contract Act of 1965, in each solicitation for SCA services exceeding $2,500. 48 C.F.R. § 22.1205(a). Moreover, "before placement, a contractor shall notify the contracting officer in writing of any addition to or deletion from the list of positions." 48 C.F.R. § 22.1205(b).
Importantly , The Department of Labor at times interprets these two notice requirements as operating independently in the context of SCA task orders. That is, strictly speaking, even if a Task Order includes SCA Labor Categories, the offeror must still provide an SCA Notification of Subcontracting to the Contracting Officer for each anticipated subcontractor.
Filing SCA wage determinations and choosing Ministry of Labor of Iraq (MOLI) Jurisdictions must also be carefully reviewed in light of the SCA Letter of Supply. For example, for unincorporated Iraqi firms, the Ministry of Finance has prescribed a 7% firm profit rate to be applied on the prime’s cost of performing the contract in Iraq. Another area of difficulty is obtaining Local Rating approval for MOLI bidders. The cost of obtaining approval can be relatively low ($2,000.00 for a non-Wakf rate) but the time and effort can be intense. In some cases, it might take several years to obtain approval. Some authorities suggest that obtaining MALI approval will take even longer. Accordingly, the timeframes for obtaining these documents must be considered when preparing proposals under this MILI.
SCA contracts could potentially carry with them both DOL or MOLI jurisdiction. As a practical matter, many SCA contractors contend that the majority of their SCA Labor Categories will not require DoL certification due to the underreporting of wages by employees of the SCA workforce captured through SCA makeshift timekeeping methods. Further, the combined requirements for DoL Certification and SCA Labor Category Contracting are often thought to be impracticable.
However, the Offeror is well-advised to coordinate with the Contracting Officer early on in the process to determine the degree to which the costs associated with the additional DOL requirements may be included in submitted proposals. In particular, determining whether such costs may be recovered as direct costs under a cost-reimbursement contract, or as overhead and General and Administrative costs under a time and materials or labor hour contract, can be the difference between profitability and no profit at all.
Finally, an SCA Contractor must maintain a compliance system to manage and track employee time in a manner that reflects the applicable SCA wage rates. It also must maintain detailed time and resource budgets to account for all compensation provided to its employees. Of course, these systems must also be supported by written policies and procedures that demonstrate compliance with the SCA.