Complying with the Service Contract Act



Overview

The McNamara-O'Hara Service Contract Act (SCA) covers prime contracts of over $2,500 entered into by the federal government and the District of Columbia in which the principal purpose of the contract is to furnish services in the U.S. through the use of service employees. Under the SCA, covered employers must pay the prevailing union wages and benefits in the locality—as determined by the U.S. Department of Labor (DOL) in a wage determination—to employees even when the workplace is not unionized. The SCA takes away some of the competitive advantage nonunionized businesses have over unionized businesses.

Background

The SCA serves the dual purpose of protecting employees of certain nonunionized employers by requiring compensation and benefits on par with unionized employers, and protecting unionized employers from being undercut in the competitive marketplace by bids from nonunionized employers. The SCA is among the last in a series of federal statutes regulating labor relations in the United States.

SCA Basics

The SCA applies to contracts entered into by federal government and District of Columbia agencies in which the principal purpose of the contract is to furnish services in the U.S. through the use of service employees. The definition of "service employee" includes any employee engaged in performing services on a covered contract other than a bona fide executive, administrative or professional employee who meets the exemption criteria set forth in 29 C.F.R. §541.

The SCA requires contractors and subcontractors performing services on prime contracts in excess of $2,500 to pay service employees in various classes no less than the wage rates and fringe benefits found prevailing in the locality, or the rates (including prospective increases) contained in a predecessor contractor's collective bargaining agreement. The DOL issues wage determinations on a contract-by-contract basis in response to specific requests from contracting agencies. These determinations are incorporated into the contract.

For contracts equal to or less than $2,500, contractors are required to pay the current federal minimum wage and overtime pay for all hours worked over 40 in a workweek as provided in the Fair Labor Standards Act (FLSA) and the Contract Work Hours and Safety Standards Act (CWHSSA). The SCA provides covered service workers on federal service contracts the right to receive at least the locally prevailing wage rate and fringe benefits, as determined by the DOL, for the type of work performed.

Employers must notify employees working in connection with the contract of the compensation due them under the wage and fringe benefits provisions of the contract.

See:

Fact Sheet #67: The McNamara-O'Hara Service Contract Act (SCA)

McNamara-O'Hara Service Contract Act

Nondisplacement of Qualified Workers Under Service Contracts

When a service contract expires, and a follow-on contract is awarded for the same or similar service, the successor contractor or its subcontractors often hires the majority of the predecessor's employees. On some occasions, however, a successor contractor or its subcontractors hires a new work force, thus displacing the predecessor's employees.

In 2021, President Joe Biden reinstated by executive order, a requirement that successor service contracts and subcontracts include a clause that requires the contractor, and its subcontractors, to offer those individuals employed under the predecessor's contract a right of first refusal of employment under the new contract in positions for which they are qualified.

According to the executive order, "Using a carryover work force reduces disruption in the delivery of services during the period of transition between contractors, maintains physical and information security, and provides the Federal Government with the benefits of an experienced and well-trained work force that is familiar with the Federal Government's personnel, facilities and requirements."

Wage Determinations

The U.S. Government's Wage Determinations website provides a single location for federal contracting officers to use in obtaining appropriate SCA and Davis-Bacon Act (DBA) wage determinations for each official contract action.  

If a contracting officer cannot obtain an appropriate SCA wage determination within the Wage Determinations database for use in an official contract action, the contracting officer must request an official SCA wage determinations from the DOL by completing Form 98. Most requests are processed immediately. Some requests will require research, and the DOL may need additional time to respond. See SCA Conformances and Frequently Asked Questions Pertaining to the Issuance of Wage Determinations.

The DOL provides an automated method of accurately calculating SCA price adjustments that is specifically designed to streamline the price adjustment process and timeline. The application is called Price Adjustment Calculation Tool (PACT). "It consists of a format for contractors to submit their price adjustment proposals (the CSF) and a Government component that calculates and helps contract specialist to analyze the proposals for accuracy, allowability and consistency."

PACT is an award winning streamline program developed by the Navy and implemented on WDOL through the Integrated Acquisition Environment; an e-business initiative under the Office of Management and Budget. Naval Research Laboratories has filed a patent application (publication number: 2010-0179898) and all rights are delegated to the Secretary of the Navy.

The SCA, like the FLSA, allows an employer to pay employees who have disabilities for the work to be performed a special minimum wage less than the prevailing wage required by the wage determination. Regulation 29 C.F.R. §4.6(o) instructs the employer to follow the same "conditions and procedures" required for the employment of workers with disabilities under §14(c) of the FLSA.

However, this exception is from the prevailing wage only. Employers are still required to pay service employees who have disabilities the full fringe benefits, or the equivalent dollar cash payment in lieu of providing the benefits, for the work performed. See Fact Sheet #39F: The Payment of Special Minimum Wages to Workers with Disabilities Who Are Employed on Federal Service Contracts Subject to the McNamara-O'Hara Service Contract Act

Exemptions from the SCA

The SCA "does not apply to certain types of contractual services. These statutory exemptions include:

• Contracts for construction, alteration, and/or repair of public buildings or public works, including painting and decorating (those covered by the Davis-Bacon Act);
• Work required in accordance with the provisions of the Walsh-Healey Public Contracts Act;
• Contracts for transporting freight or personnel where published tariff rates are in effect;
• Contracts for furnishing services by radio, telephone, telegraph, or cable companies subject to the Communications Act of 1934;
• Contracts for public utility services;
• Employment contracts providing for direct services to a federal agency by an individual;
• Contracts with the United States Postal Service, the principal purpose of which is the operation of postal contract stations;
• Services performed outside the U.S. (except in territories administered by the U.S., as defined in the Act); and
• Contracts administratively exempted by the Secretary of Labor in special circumstances because of the public interest or to avoid serious impairment of government business."

See Federal Contracts-Working Conditions: Prevailing Wages in Service Contracts

Enforcement

The compensation requirements of the SCA are enforced by the DOL's Wage and Hour Division. The SCA safety and health requirements are enforced by the Occupational Safety and Health Administration (OSHA) within the DOL.

Violations of the SCA may result in contract terminations and liability for any resulting costs to the government, withholding of contract payments in sufficient amounts to cover wage and fringe benefit underpayments, legal action to recover the underpayments, and debarment from future contracts for up to three years.

Contractors and subcontractors may challenge determinations of violations and debarment before an administrative law judge (ALJ). Contractors and subcontractors may appeal decisions of ALJs to the Administrative Review Board (ARB). Final ARB determinations on violations and debarment may be appealed to and are enforceable through the federal courts.

The Wage and Hour Division manages complaints regarding violations of the various laws and regulations it administers. To file a complaint concerning one of these laws, one may contact the nearest Wage and Hour Division office or call the department's toll-free helpline at 1-866-4-US-WAGE (1-866-487-9243).

Text of SCA, Implementing Regulations and Executive Order

The actual text of the SCA and the regulations implementing it can be found at:

• SCA—Requires payment of prevailing wage rates and fringe benefits to service employees employed on contracts to provide services to the federal government.
• 29 C.F.R. §4—Regulations describing the labor standards for federal service contracts.
• 29 C.F.R. §6—Regulations describing the rules of practice for administrative proceedings enforcing labor standards in federal and federally assisted construction contracts and federal service contracts.
• 29 C.F.R. §8—Regulations describing practice before the Administrative Review Board with regard to federal service contracts.

Record-Keeping

Each contractor and subcontractor performing work subject to the SCA must maintain certain records for each employee performing work on the covered contract. The following is a list of the basic records that must be maintained for three years from completion of the work:

• Name, address, and Social Security number of each employee.
• The correct work classifications, wage rates and fringe benefits provided (or cash equivalent payments provided in lieu of fringe benefits).
• The total daily and weekly compensation of each employee.
• The number of daily and weekly hours worked by each employee.
• Any deductions, rebates or refunds from each employee's compensation.
• Any list of a predecessor contractor's employees showing employees' length of service information.

See 29 C.F.R. §4.6(g) and 29 C.F.R. §4.185 for further information.

Some of the records required to be kept under this law are also required under the FLSA. See Fact Sheet #21: Recordkeeping Requirements under the Fair Labor Standards.

HR's Role

HR professionals have several important responsibilities:

• Making sure that managers are aware of the SCA requirements when they bid for federal or District of Columbia contracts and negotiate the compensation for employees providing services under such contracts.
• Performing job analyses and preparing job descriptions that will facilitate compliance with the SCA.
• Posting SCA requirements in the workplace. See Workplace Posters.
• Maintaining records required by the SCA.
• Staying abreast of changes in regulations promulgated under the SCA.
• Facilitating SCA audits by the DOL.

Compliance Assistance

The Wage and Hour Division enforces the wage and hour requirements of the act. Employers can find more detailed compliance assistance information, including copies of explanatory brochures and regulatory and interpretative materials, by contacting their local offices of the Wage and Hour Division. Compliance assistance information is also available on the Wage and Hour Division website or through the division helpline at 1-866-4USWAGE (1-866-487-9243). Pursuant to the U.S. DOL's Confidentiality Protocol for Compliance Assistance Inquiries, information provided by a telephone caller will be kept confidential within the bounds of the law. See U.S. DOL Prevailing Wage Seminars.