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Avoidance of SCA


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So many subcategories, it's hard to figure out where to post this question.  It is rather basic, so I'll post here.

As an accounting consultant (not an HRO specialist), I have a customer who would rather face the guillotine than to deal with SCA.  They want to hire the cheapest person they can find, and then classify as an overglorified whatever to avoid paying benefits.  Paying a guy $15 an hour to sweep the floor and then classifying him as a Cyber Engineer just so they won't have to pay him a lousy $4.50 an hour for benefits.

Please comment on this gross misrepresentation, and discuss what can happen to a government contractor as a result.

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46 minutes ago, Corduroy Frog said:

so they won't have to pay him a lousy $4.50 an hour for benefits.

Well I could imagine the contractor getting away with it until at some point a wise employee complains to the DOL.  In a quick view DOL's investigation and resulting enforcement action could include payment of the fringe, fines or possibly both.  I am not sure how far they might reach back to previous contracts to determine a contractors misgivings but my bet whatever statute of limitations applies they would pursue to the extent allowed.

Consider a real life story.   Contractor pays the required hourly wage and inflates it to include the fringe.   Using your numbers lets say wage is $15.00 and hourly fringe is $4.50.   So contractor pays employee $19.50 per hour and this is reflected on the contractors accounting records as the per hour wage.  There is noting booked as fringe on the contractors books.  Employee complains they are not getting the required fringe to DOL as check stub reflects no fringe.   DOL investigates.  DOL's enforcement ruling was the contractor was not paying the required fringe as accounting records did not support that he (it was a he) was.  The contractor had to do a back pay to the tree planting crew for the fringe benefits that were not paid.   It amounted to almost a years worth.  I was there, saw it happen and the extent of the DOL action in my view was predicated on a contractor who had demonstrated less than full cooperation on other current and past contracts in complying with SCA.

Your contractor is playing with fire and while he may not want to face the guillotine today, but when he finally does through a DOL enforcement action he will be a lot unhappier then than he is now.

And bluntly regardless of what position I might have with a contractor and with knowledge of possible inappropriate and  fraudulent activities of a firm I would dis-associate myself as I would be concerned of the risk of being pulled in as accomplice.   Or from a broader view, hard to complain about on how the Federal government works when part and parcel to assisting in an injustice with regard to compliance of something like SCA.

As an alternative disregard all my comments above and have the contractor sit down with a DOL wage and hour representative and have the contractor explain, debate, and conclude on the actions he is taking to possibly avoid SCA.   Maybe the DOL will assist him in the right way to best apply SCA in a more economical way as I get the feeling the contractor is rather naïve with regard to SCA in total.  Educating might go along way.

Lots of times when engaged in discussions about the this and that of SCA I refer folks to this as a helpful overview.....

https://www.dol.gov/agencies/whd/field-operations-handbook/Chapter-14 

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Thank you Mr. Culham.  I agree with your comments.  Maybe I could pose a question:

Is there a wage so low that the SCA cannot be avoided?  Like if an employee is paid only $20/hr. is it possible that he could be classified as something other than an SCA Labor Category.

Vern, are you out there my friend???

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Wage amount is irrelevant for determining wage application.  Rather, it is the nature and purpose of the work and the employee that matter.  

If a brain surgeon was doing brain surgery work at $20/hr, it would not be SCA because brain surgery is not service work done by service employees.

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On 5/15/2021 at 11:32 AM, Corduroy Frog said:

Please comment on this gross misrepresentation, and discuss what can happen to a government contractor as a result.

Combined with fraud? The possibilities are not quite endless, but include:

  1. termination for default;
  2. excess costs of reprocurement;
  3. fines;
  4. penalties;
  5. personal liability for corporate officials;
  6. civil law suits;
  7. debarment; and
  8. jail.

The last one is my personal favorite.

Just Google <violations of Service Contract Act>. You'll find all kinds of articles on the websites of law firms.

You've got an idiot for a client, and you can tell them I said so.

 

 

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15 hours ago, Corduroy Frog said:

Thank you Mr. Culham.  I agree with your comments.  Maybe I could pose a question:

Is there a wage so low that the SCA cannot be avoided?  Like if an employee is paid only $20/hr. is it possible that he could be classified as something other than an SCA Labor Category.

Vern, are you out there my friend???

Well I am left slightly confused as now the scenario changes by my read.  In the OP it was benefits now it appears that hourly wage is the issue along with classification.  I tend to defer to ji20874's comments regarding the new info.  Let me support his comment with this....

29 CFR 541.2 Job titles insufficient.

A job title alone is insufficient to establish the exempt status of an employee. The exempt or nonexempt status of any particular employee must be determined on the basis of whether the employee's salary and duties meet the requirements of the regulations in this part.

Has your client ever paid attention to the exact wording of SCA and these two words "bona fide" with regard to when an exemption is allowed for a professional employee as provided by Section 8(b) for SCA?   Maybe he should read the full content 29 CFR Part 541.

Has your client ever read a wage determination and aware of the Service Contract Act Directory of Occupations and its connection to the wage categories stated in wage determination?  If not you may want to visit it based on this statement found in wage determinations....

** SERVICE CONTRACT ACT DIRECTORY OF OCCUPATIONS **
The duties of employees under job titles listed are those described in the 
""Service Contract Act Directory of Occupations"" Fifth Edition (Revision 1) 
dated September 2015 unless otherwise indicated.

Has your client read the leading statement of a wage determination in these current times?  If not here it is....

Note: Under Executive Order (EO) 13658 an hourly minimum wage of $10.95 for 
calendar year 2021 applies to all contracts subject to the Service Contract 
Act for which the contract is awarded (and any solicitation was issued) on or 
after January 1 2015. If this contract is covered by the EO the contractor 
must pay all workers in any classification listed on this wage determination 
at least $10.95 per hour (or the applicable wage rate listed on this wage 
determination if it is higher) for all hours spent performing on the contract 
in calendar year 2021. The EO minimum wage rate will be adjusted annually. 
Additional information on contractor requirements and worker protections under 
the EO is available at www.dol.gov/whd/govcontracts.

Is your client familiar with the  the "conformed occupation"  process of a wage determination?   If not here is a teaser....

Conformance Process:
The contracting officer shall require that any class of service employee which is 
not listed herein and which is to be employed under the contract (i.e. the work to 
be performed is not performed by any classification listed in the wage 
determination) be classified by the contractor so as to provide a reasonable 
relationship (i.e. appropriate level of skill comparison) between such unlisted 
classifications and the classifications listed in the wage determination (See 29 CFR 
4.6(b)(2)(i)). 

 

Now go let you client know what Vern Edwards said, which I second and then give serious consideration to letting your client know that you no longer will represent him.   

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Part of the issue is geographical area.  If this were to occur in New Jersey or somewhere in the unionized states, an employee could invoke the DOL in a heartbeat.  Where I live, and in AL, GA, MS, AR, employees are not knowledgeable of the SCA, and even so will not blow the whistle on their employer for fear of being terminated.

My client is not so obtuse as I have presented.  I have dramatized this in order to paint the picture.  Yet it is true that SCA is avoided, even though money is available to cover it.  Some COs are not anxious to fund money, but none of them will refuse something they know to be legal.

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It’s unfortunate that the government doesn’t conduct any labor interviews or review payrolls on service contracts, if this behavior (breach) is prevalent anywhere. 

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Joel,

You mention "the government" -- but the government (DOL) is free to do all the labor interviews and payroll reviews for service contracts that it wants to.  The contracting officer has no responsibility for such, unlike Davis Bacon, and I am okay with that.

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14 hours ago, ji20874 said:

The contracting officer has no responsibility for such, unlike Davis Bacon, and I am okay with that.

Not so fast and not so true.  With absolutely no apologies any CO who feels that they can just put SCA in a contract and have no responsibility for administration of the requirements is not fulfilling their duty pursuant to the guidance of the FAR.  It may not be specifically stated in FAR part 22 like it is for D-B but it sure is provided for in the guiding principles.   And any senior CO who advocates such with "I am okay with that" is an equal to the OP's client. 

Let me pick just one example.  In applying  ji20874's suggestion it would seem that it is okay for a CO to just sit around and wait for for the DOL to come in and determine if a contractor is in violation of SCA before the CO takes action suggested in FAR 22.1023.   Or even more unimaginable a CO sitting around knowing that a contractors employees are working in unsanitary, hazardous, or dangerous conditions that threaten the health or safety of the service employees and be okay with that.  Sorry but I just shake my head and say REALLY! 

And I would add that such a general statement is not correct as some agencies have stepped up and fulfilled the responsibility that has always existed.  Too bad others do not follow.      https://www.fs.usda.gov/detail/r6/workingtogether/contracting/?cid=fseprd488842

15 hours ago, joel hoffman said:

It’s unfortunate that the government doesn’t conduct any labor interviews or review payrolls on service contracts, if this behavior (breach) is prevalent anywhere. 

The government "must".  FAR 1.602-2.

 

16 hours ago, Corduroy Frog said:

Part of the issue is geographical area.  If this were to occur in New Jersey or somewhere in the unionized states, an employee could invoke the DOL in a heartbeat.  Where I live, and in AL, GA, MS, AR, employees are not knowledgeable of the SCA, and even so will not blow the whistle on their employer for fear of being terminated.

My client is not so obtuse as I have presented.  I have dramatized this in order to paint the picture.  Yet it is true that SCA is avoided, even though money is available to cover it.  Some COs are not anxious to fund money, but none of them will refuse something they know to be legal.

There you have it.  Knowledge of a gross injustice, possible fraud, statute violation, you name it and rather than contact the Inspector General or even the DOL, an individual involved closely in government work just casts off the matter as oh well its the geographical area, employees unwilling and government officials who close a minds eye.   

I guess in the scheme of things none of us have responsibilities so one might as well follow a suggestion made in another thread and throw out all contracting statutes and  rather than re-write them simply have none because everybody is "okay with that".

 

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34 minutes ago, C Culham said:

There you have it.  Knowledge of a gross injustice, possible fraud, statute violation, you name it and rather than contact the Inspector General or even the DOL, an individual involved closely in government work just casts off the matter as oh well its the geographical area, employees unwilling and government officials who close a minds eye.   

I'm reminded of a story from the early '00's, when a COTR and contractor conspired to avoid DOL-mandated wage increases by strategically reclassifying employees and even demoting them, in order to avoid funding constraints and to make the base "competitive" for receiving repair work. Funny thing, though, that wasn't the behavior that brought them to the attention of the Army CID and IG auditors and GAO auditors and DoJ attorneys, but that behavior surfaced during electronic discovery and interviews. Among other behaviors that were, shall we say, inappropriate.

Where was the CO in all this? Hah! More than 1,000 miles away, kept dumb and happy by the COTR's (and contractor's) reporting. 

I'd give you a link to the GAO report where (some) of this came out, but GAO got the facts way wrong. How do I know they got the facts way wrong? I was the team lead who spent several months at the base, doing the forensic accounting analysis--hired by the contractor to see just how bad the situation was. I had the pleasure of briefing CID folks and DoJ attorneys, and answering their questions.

The contractor ended-up paying a pretty penny, including back wages to the impacted employees. (But as I noted above, that was only the tip of the iceberg.) The COTR was charged with some felonies and I think he pleaded, but I also believe he lost his pension (18 months from retirement). As for the CO, I have no idea. The CO was simply not a factor because all they did was follow the COTR's directions, which including modding the contract and MIPR'ing the money as directed.

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6 hours ago, C Culham said:

And any senior CO who advocates such with "I am okay with that" is an equal to the OP's client. 

Wrong.  And also unfair.

I said nothing about a contracting officer being complicit in illegality.  But it is a fact that the contracting officer DOES NOT have enforcement authority for SCA (unlike DB, where the contracting officer does have some enforcement authority).  

I am okay with DOL having exclusive enforcement jurisdiction for SCA.  That said, it goes without saying (and is therefore unnecessary to say) that a contracting officer with knowledge of a SCA noncompliance may refer the matter to DOL.

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3 hours ago, ji20874 said:

That said, it goes without saying (and is therefore unnecessary to say) that a contracting officer with knowledge of a SCA noncompliance may refer the matter to DOL.

It might also go without saying that an accounting consultant with knowledge of SCA noncompliance might refer the matter to DOL or other appropriate authorities.  In many jurisdictions, when a client seeks advice in order to commit a crime, such communications generally aren't privileged from disclosure.

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5 hours ago, ji20874 said:

I am okay with DOL having exclusive enforcement jurisdiction for SCA.  That said, it goes without saying (and is therefore unnecessary to say) that a contracting officer with knowledge of a SCA noncompliance may refer the matter to DOL

“May” refer the matter to DOL???? Are you saying that it’s an option for a KO whether or not to report knowing non-compliance with the contract requirements to the enforcement authority??

 

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On 5/16/2021 at 5:03 PM, ji20874 said:

The contracting officer has no responsibility for such, unlike Davis Bacon, and I am okay with that.

This is what you initially said (emphasis added).   To help weave my cut and paste together you lead this statement with the fact that the DOL is free to do interviews and payroll reviews.   So is it not true that the CO is also?

21 hours ago, ji20874 said:

But it is a fact that the contracting officer DOES NOT have enforcement authority for SCA (unlike DB, where the contracting officer does have some enforcement authority). 

Next you attempt to wiggle out of your statement with the above (emphasis added).   Not a true statement and it is in my view a gross misrepresentation of the CO's responsibilities in contract administration as supported by the guiding principles of the FAR and specifically of SCA.  By specific example 52.222-41 requires the CO to be a part of the conformance process, the CO shall suspend a contract if asked by the DOL to do so if records are not provided as requested by authorized parties, and the CO may independently without DOL approval withhold such sums as the CO decides may be necessary to pay underpaid employees.  All in all pursuant to a contract, and not specific only to SCA, the CO is in the position to compel a contractor to observe and comply with the contract and its rules, laws, and statutes contained therein (aka enforcement).  

My statement stands.

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18 hours ago, MBrown said:

It might also go without saying that an accounting consultant with knowledge of SCA noncompliance might refer the matter to DOL or other appropriate authorities. 

Whoa!  Accountants, perhaps more than any other profession, encounter things that are not right, and are dishonest.  Some of us are even requested to alter the books.  We are often requested to put lipstick on a pig and call it something else.

If we blew the whistle on everything we saw, we would not be able to find a job.  However, my response to anyone who requires me to change the financial reporting results, is that I'll hit the door.  If you have someone who will lie for you, you also have someone who will lie to you.  This has cost me at least one job in my career.

You should be able to put a glass eye in a duck's butt and be able to see this.

 

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See FAR 52.222-41, paragraph (k):

Quote

(k) Withholding of payments and termination of contract. The Contracting Officer shall withhold or cause to be withheld from the Government Prime Contractor under this or any other Government contract with the Prime Contractor such sums as an appropriate official of the Department of Labor requests or such sums as the Contracting Officer decides may be necessary to pay underpaid employees employed by the Contractor or subcontractor. In the event of failure to pay any employees subject to the Service Contract Labor Standards statute all or part of the wages or fringe benefits due under the Service Contract Labor Standards statute, the Contracting Officer may, after authorization or by direction of the Department of Labor and written notification to the Contractor, take action to cause suspension of any further payment or advance of funds until such violations have ceased. Additionally, any failure to comply with the requirements of this clause may be grounds for termination of the right to proceed with the contract work. In such event, the Government may enter into other contracts or arrangements for completion of the work, charging the Contractor in default with any additional cost.

See also paragraph (t):

Quote

(t) Disputes concerning labor standards. The U.S. Department of Labor has set forth in 29 CFR parts 4, 6, and 8 procedures for resolving disputes concerning labor standards requirements. Such disputes shall be resolved in accordance with those procedures and not the Disputes clause of this contract. Disputes within the meaning of this clause include disputes between the Contractor (or any of its subcontractors) and the contracting agency, the U.S. Department of Labor, or the employees or their representatives.

I think it is fair to say that the CO has some responsibility, especially when he or she suspects or has reason to believe that a contractor has violated the SCA. But that responsibility seems to be to report any suspicions to the Wage and Hour Division. See 29 CFR § 4.191.

The CO's authority to enforce the SCA is extremely limited. See 29 CFR 4.189. The findings of the DoL are binding on all agencies, that includes a finding that the contractor has not violated the SCA. Thus, I think a CO would be a fool to take any action against a contractor without a finding by and direction from the DoL. And few if any CO's and agency attorneys have the knowledge or administrative apparatus needed to conduct SCA investigations. In any case, a CO's investigative findings would have no legal effect given the DoL's exclusive authority.

As for termination for default, since the Contract Disputes Act does not apply to disputes pertaining to SCA compliance, and since a T for D is considered a final decision of a CO under the Disputes clause, a CO has no authority to terminate a contract on grounds of SCA noncompliance without a finding of a violation by the DoL. That means the CO's effective authority to enforce the SCA is limited if not non-existent. 

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Just now, Vern Edwards said:

That means the CO's effective authority to enforce the SCA is limited if not non-existent. 

Appreciate the attempt to clarify.   However emphasized should have been this as well especially considering the "or".... .

52.222-41 (k)  The Contracting Officer shall withhold or cause to be withheld from the Government Prime Contractor under this or any other Government contract with the Prime Contractor such sums as an appropriate official of the Department of Labor requests or such sums as the Contracting Officer decides may be necessary to pay underpaid employees employed by the Contractor or subcontractor.

Overlooked as well is -

52.212-4(q) -  (q) Other compliances. The Contractor shall comply with all applicable Federal, State and local laws, executive orders, rules and regulations applicable to its performance under this contract.

As to a comparison to D-B I believe most overlook the fact that the emphasis of the DOL regulations relate to D-B and related acts.  So how about the fact that 52.212-4 at (r) the Contract Work Hours and Safety Standards 41 USC Chapter 87 are incorporated specifically in the contract noting that (r) can not be tailored.   I especially like the read of paragraph 3703.

https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/safe01.pdf

Overall my thoughts and comments are related to specifically a long ordeal in my past experience as a CO related to SCA where finger pointing always was at the other guy - the contractor, the COR, the CO, the agency local authority, and the head of the agency who in the end sat in front of a congressional hearing.  Through this ordeal it was clear to me that everyone has responsibility and dare I say authority to do something if and when they encounter someone where they as an individual know a contractor is violating SCA.

 I cringe at the tenor of the comments that suggest that anyone is okay with leaving observation, compliance and enforcement on SCA to the DOL solely.  So I guess the next time a CO, COR, inspector observe a drunk driving a truck on a forest road maintenance project they should simply report the matter to the DOL as a SCA violation, let the work continue, and be okay with that?  Oh too egregious you say?  Where is the line?  Not okay for the drunk but okay for a contractor to avoid paying a lousy $4.50 an hour for benefits?  The questions are forever but action nips it in the bud. 

You all pick your line, I know mine!    I am out.

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There are vast differences between the KO’s authorities and responsibilities for administration as well as enforcement of the labor clauses for Construction vs. Service contracts.

Whether right or wrong, I sense that many offices who primarily  deal with service contracts probably aren’t actively or proactively administering the labor requirements for construction contracts and might be “looking the other way”, hands off, laissez-faire, dont get too involved.

I can understand that there isn’t too much visibility of the details in service Contracting, so it is easy not to get involved.
 

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On 5/18/2021 at 9:40 AM, C Culham said:

To help weave my cut and paste together you lead this statement with the fact that the DOL is free to do interviews and payroll reviews.   So is it not true that the CO is also?

What gives a contracting officer the authority to conduct interviews with contractor employees?  Can a contracting officer compel such interviews?

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2 hours ago, Retreadfed said:

What gives a contracting officer the authority to conduct interviews with contractor employees?  Can a contracting officer compel such interviews?

 

1 hour ago, Vern Edwards said:

Under the Service Contract Act clause? No

Where in 52.222-41, and its implementing law (statute or case law) or regulation is a CO conducting interviews prevented?   Likewise where in 52.222-41 does it state that a CO must have the DOL authorization to do interviews.  Specific references would be appreciated such as statute or case law.

As to CO's compelling such interviews CO's use all kinds of tools in a contract beyond a specific term, condition, clause, provision etc. to compel inspection to determine if a contractor is in compliance with the contract.

 

 

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Carl,

I'm in favor of correct principles, and am opposed to confusion.  Too many contracting officers don't understand correct principles for SCA and too many don't understand correct principles for DB.  They are different.  I think your insistence on treating them the same may increase confusion.

I think I understand each.  I would never do wage interviews on a SCA contract because I know the difference.  If I ever suspected anything on a SCA contract, I would refer the matter to DOL -- or if a contractor employee complained, I would refer the matter or the employee to DOL.

I want our audience to know that a contracting officer's roles are very different on SCA and DB contracts.

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