Service Conrracr Act Amendments of 1972

• Author: Captain Clifford D. Brooks
• Pages: 02

I. INTRODUCTIONS

In 1972, Congress amended the Service Contract Act of 1965' with the passage of Public Law 92.471,' The amended Serrice Contract .kt and the implementing regulations promulgated by the Department of Labor pose unique problems in the procurement area for federal contracting agencies. In order to understand what those problems are and haw thev can best be minimized, it is necessary to examine the original Act-its purpose and its failures-and how Congress hoped to cure these failures with Public Law 92-173.

Congress hoped the Service Contract Act, hereinafter referred to as the SCA, would accomplish a desired socio-economic objective through the vehicle of federal contracts. The SCA is a labor standards statute that requires certain employers performing serrice contracts for the United Stater. and within the United States as defined in the Act, to pay their serrice employees working on federal contracts minimum wages generally higher than those required by the Fair Labor Standards Act.S Thus, it is one of a series of similar statutes designed to protect workers, improve working conditions, and raise wages of government contractor employees.

11. HISTORICAL ASTECEDENTS OF THE SERVICE COSTR.4CT ACT A.\IEND.\IENTS

The history of labor standards legislation for federal contracts began with the passage of the Davis-Bacon Act in 1931.' In addition to its other provisions, the still vital Davis-Bacon 4cr requires

'The opmoni and ~en~lusimspresented herm I~Lrhare of the author m d do

nor ncc~ss~~ily

~eprerenr the views of The Judge Adiacite General'r School ormy other governmental agency.

** JAGC. U.S Army. Inmucror, Procuremrnf Lsu Diiirron, TJ.AGSA. B.A. 1966. huguirini College (111 ), J D.. 1969, Duke Unlrerriry, LL.U , 1971, Tho George Il'zrhmpn Uni~errw \lember of the Birr of Illinaa, Covrr of \hhrar, App~ilr and the Coun of Claims

X41 U.S.C. $ 3 151-157 (1970)286 Stat. 790 (1972). 41 CS.C. $ 3 151-157 (19701, ZSer 29USC. a 206(1)(1) (1970)'40US.C. !I 2761-2761-7 (1970).

151-118 (Supp. 11) (19,2).

employers to par rhe prevailing wage rares and to par [he prevail-in- fringe bene& to laborers and mechanics performi& n ork under fezera1 construction conrracts being performed Irirhiri rhe Unired Stares; the Daiii-Bacon Act applies ro contracts 111 CXCCES of j:000.' In 1936. Congress added contram for manufactured goods in excess of $10,000 to the list of federal contracts impressed wirh special minimum wage requirements vhen 1t passed the lValsh-Heale!-Public Contracrs Since the Davis-Bacon k t cmered construction contracts and rhe lT'&h-Hede!- .Xct corered supply conrracrs, by 1936 "service contracts" was rhe onl! major class of federal contracts uhere free marker considerations determined employee wage rares.

In 1965 Congress decided that minimum wages in service contracts should be federally regulated and passed Public Law 89.286. the Seriice Conrract Acr.' IT'ith the enactment of the SC.4. all mainr categories of federal contracrs \+ere covered b>- wage standard legisIat1an.

A. REASOSS FOR THE THREE STATCTESAll three w g e srandard statutes have the same bmc purpose. the protection of waee rares from rhe effect of the procurement pracess. The House Report on the SC.4 explained why rhere was a need for such protection:

Many of rhr ernploiees performing uorh on irdrrd s e r ~ m cencim~ are

p001Iy paid. The uork IS generillg rninuil uork and ~n addition le crafr uork. mm be rernirkillsd or unrlilled

. . .

8 H R. REP \o 948. 6d;h Cong , Lbf Serr 2 , 1965,

SERVICE CONTRACT ACTAll three wage standards statures have the same basic purpose; therefore, why are there three statutes. Aside from the political considerations, there are two major ICPSOI~S: the namre of the three

industries affected by the statutes and the differing impact of government contracts upon those industries; that is to sav, regulatiane appropriate for the manufacturing and retail (supplyj industry are nor necessarily appropriate for the construction or service ind;srry. With this realization Congress passed different statutes and consequently the Department of Labor promulgated separate administrative procedures to achieve the statutory goal of protecting employee wage rates from the effect of government contracts.

By their nature, contracts for the furnishing of supplies, whether with manufacturers or retailers, can be performed virtually anywhere. Thus a contract let by A\SCO\I in St. Louis, could be performed by a COIITIPC~OT in'Baneor, hlame; a COII~ILC~OI in San

Diego, California, or a c~ntractor rn Birmingham, Alabama. If the a\erage wage rates paid by bidders in these three cities were 55.00 per hour, $4.00 per hour, and S2.00 per hour respectivelv, the contract would, in all likelihood, be awarded to a firm in Birmingham. The advantage a Birmingham firm has by rirme of its lower wage rates not only adversely affects other firms paying higher wages, bur also has an impact upon their workers who have to accept lower wages or face potential unemployment since their employer cannot compete far government contracts while paying a higher wage rate. The IValsh-Healev Act was an attempt to ameliorate this bidding disadvantage by ;equiring employers awarded gorernment supply- contracts to pay a prevailmg minimum wage bared on minimum wages that prerailed either on a national or a very broad regional basis for the type of manufacmrinp or retail industry which would perform the

Unlike supply contracts, construction C O ~ T P C ~ S , as udl as most

service contrracls. can be performed at only one location. For ex-ample, while firms from across the country mav bid on a const~uction contract to be performed in Neu Ybrk City, actual performance will be in New Yark City. \Vith no wage standards required of contracrars, invariably the employers payinp his employees the lowesr aages would get the job regardless of his principal place of business. This was particularly odious in construction contracts

66 MILIT&RY LAB REVIER- because a conrracror from Sebraika or .\labam could moie hi> whole labor force to S e u York Clrr to perform rhe vork. Local workers would see jobs generared bj- iederal co~~srruct~on prqecrs

\I age scales \,ere roo hieh to airhirand liariondl

, K appeared as if the federal gwernmenr was he expense of rhe local econonw The Daxis-Bacon Act solurion ro chis problem w a s nor rhe indusrr!--n-ide approach raken b!- the \!.alsh-Healey Acr. bur rarher ir required emplo)-ers awarded federal conitmcrion conrracts to pa\ \\-age rares bawd on rhe nagei preiailine ~n the ea,"'^ ''area'' being iubsequenrly defined by rhe DepGrment of Labor as a ceographic subdirismn. for ewnple, ciry, counr>--. r m nship.: Thus the Daris-Bacon Acr n hile allowm~ emplo\-ers from acrnsi rhe counrrv rn bid on conmumon COLI~T;C~E, required thar bidders base their bids

on rhe prerailino Sew I-ork Cirv wage rare5 for bulldines can-srrucred under ;

federal coiitncr 'in S e v York City In addirion ro prarecting local rage scales from an invasion of cheap labor occasioned bra federal conrra~t, rhe Dan-Bacon hct had rhe auT- dm!- effect of allouing local cmsrrwmn firms ro effecrirel!- cnnipere for federal contracri.

The rimre of rhe señ c e lndurrrv and rhe impacr of p eriimenr

conrracrs upon rhe seri~ce industry are much rhe same 2s m rhe cmitrucrim mduirr>-. ITork can usually be performed in on11 one locarion. far example. a conrracr for lanirmial senices ar Farr Hood. Teui can od>- be periormcd a[ rorr Hood, Texas. Since gavernmenr cmtrmi can precipirarc .an "invmon of labor" that works at a cheaper xvage rate rhan locallv a ailable labor. I[ W ~ F

nor

surprising rhar Congrcss decided ro follov the Dai~s-Bacon model in enacting the SC.4.

The Service Conrracr .\cr of 3965 requmd emplovers aa-arded federal reriice conrracrs to pa? rheir empla~ees nor'leii rhan rhe "prci-ailing rates for such emplo>-ees in rh i a i l m rate concepr as ir applies ro the S W

SERVICE CONTRACT ACT

Co~irracr.'~

The Department of Labor responds to this nonce uith a nage determinarion which lists rhe prevailing wage rates by employee clasnfication for the localitv in which rhe aork IS to be performed. This wage determinariAn is made bp a Department of Labor area mage surrey. The agency attaches rhir wage derermination to the solicitation and rhe solicitation informs the bidder that he must pay his employees not less than the wage rates and fringe benefits attached." The solicitarion also provider for rhe enforcement of the wage determination and for penalties in the erent of irs vi~lation.'~

The prevailing rate concept is "fair" to all individuals affected by the performance of a federal conrract. For blue collar aorkers performing under a contract, the pre, ailins rate requiremenr ensures that they are paid minimum wvages and fringe benefits thar prevail m rhe work localirl-; their wage scmcturcs and emplopenr oppor[unities would not be completely undermined b>- an employer forced to reduce wages beloir those which prevail locally in order ro effectively compete for a federal contmcr. For employers, rhe prevailing rare concepr allows wage srructwes IO be establirhed in lighr of local economic conditions wirhout precludinp. as a prscrical niatrer, their beins awarded federal conrracts For local cammuniriea. the prevailing rate concept prerentr lacall? performable federal conrracts from inflating or deflating local labor economics, it may increase the wage structure of contractor emplorees, bur inot beyond rhar which local economic conditions hare dictated to be just compensation. For rhe federal governmenr, rhe prei ailing rare system assuces the procurement of its needs at an equitable. if

somm hat higher. price and dirsiparea any appearance of the federal gorernment subsidizing substandard wages by its system of aaarding contracts.

R. FAILCRE OF ORIGIS.1L SC.4

The pre\ailing rare model of rhe Davis-Bacon Act had worked remarkably well in accomplishing Its Congressional...