The Service Contract Act and GSA Schedules

Yes, it does apply (but may not affect you)
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Many GSA Schedule contractors operate under the mistaken belief that the Service Contract Act (“SCA”) does not apply to GSA Schedules. In fact, until just recently, there were also many GSA Schedule Contracting Officers that believed the same thing.

by Andrew Mohr and Kelly Kroll

The Department of Labor, Wage and Hour Division, however, will tell you otherwise. With the recent enactment of the American Recovery and Reinvestment Act and the influx of procurement dollars, DOL’s investigative task force has been revitalized and a new legion of investigators has been hired and dispatched with the renewed goal of ensuring that service employees working under federal contracts are paid prevailing wage and benefits. In other words, a DOL inspector could be knocking on your door sooner rather than later.

One of DOL’s recent activities was to review the various GSA Schedule solicitations and ensure that the applicable wage determinations were in fact included. As a result, you may have noticed a sudden flurry of Refresh Modifications issued that, among other things, made clear that SCA was applicable. Individual contracting officers also starting reaching out to their vendors to remind them of the requirements.

The SCA applies to federal contracts and subcontracts that are predominately for services, so the good news is that the SCA does not apply to GSA Schedule orders for goods, where installation services are incidental. If the SCA applies, however, there is no exception for small businesses and the exception for “commercial” services is very limited and includes only a small subset of services, such as relocation and equipment maintenances services.

Certain employees are considered exempt, such as those who qualify as executive, administrative, or professionals under the definitions of 29 C.F.R. Part 541. These employees generally must be salaried employees not paid on an hourly basis, and either supervise others, make decisions of importance and significance using independent judgment and/or perform work primarily requiring advanced knowledge and schooling. However, independent contractors such as 1099 employees are not exempt as a rule. Determining whether a contract is predominately for services, what employees are covered, and what employees are exempt requires a very careful reading of the rules and regulations.

Failure to pay the applicable wages and benefits can result in fines, debarment or suspension and the withholding of contract funds so that the contractor can retroactively pay the proper wages and benefits to the employees.

If you are currently performing work under a GSA Schedule task order that is predominately for services, the first thing you need to do is to review your contract to see if a wage determination is included. Again, GSA has been very busy recently incorporating wage determinations into the various GSA Schedules through modifications, so it is highly likely that the wage determination is in there somewhere. Next, if “service employees” are being utilized under the contract, a contractor is then required to map its employees to one of the approximate 200 labor categories listed in the DOL’s Directory of Occupations.

The Directory of Occupations provides general descriptions for each labor category and a contractor must find a fit or seek a conformance. Once the contractor’s employees are mapped to the labor categories in the Directory of Occupations, the contractor must then pay those employees the prevailing wage and benefits as identified in the applicable wage determination of their contract.

Under the wage determinations, employers must provide the required wage and the required benefits, which include health and welfare, vacation, holidays and other “bona fide benefits.” Jury duty is a bona fide benefit, for example, but unemployment insurance and other taxes such as FICA are not. The benefits can be paid out in cash equivalencies but your payment records must reflect that the benefits were paid separately from the employees’ wages on a line item basis. There are wage determinations for every county in the United States, and it is up to the Contracting Officer to determine which wage determination applies to the work being performed.

Parsing through the regulations on the SCA can be a bit like wading hip deep through a pond of melted marshmallows, but the risks of having to pay employees retroactively necessitates the trip.

Andrew Mohr is a partner of, and C. Kelly Kroll is Of Counsel to, the law firm of Cohen Mohr LLP in Washington, D.C., specializing in government and commercial contracts, including GSA schedules, security clearance, contract administration and compliance, subcontracts, dealer contracts, and bid protests and claims. They can be reached at amohr@cohenmohr.com or kkroll@cohenmohr.com or at (202) 342-2550. © Copyright Andrew Mohr & C. Kelly Kroll 2010, All Rights Reserved.

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