Service Contract Act 2016 Summary of Develpments
This piece is an excerpt from the Year in Review Presentation of Daniel Abrahams taken from the 2016 Thomson Reuters/West conference in Washington DC. Reprinted with permission of Thomson Reuters for educational purposes. Copyright © 2017 Thomson Reuters/West.
I. The Service Contract Act (“SCA”)
A. No Increase in Health and Welfare (“H&W”) Rates
Traditionally, the U.S. Department of Labor (“DOL”) has announced an increase in the SCA H&W rate every July. This, year DOL announced that the rate would remain the same in the coming year as last year (except in Hawaii). Therefore, the H&W benefit rates remain as follows: (a) $4.27 per hour, $170.80 week or $740.13 per month, per employee, for hours paid for up to 40 hours per week; or (b) $4.27 per hour, based on the contractor’s average fringe benefit cost for hours actually worked by all employees on the contract, including overtime, but not leave time. The applicable wage determination (“WD”) will specify which formula applies.
For SCA-covered contracts in Hawaii, where state law requires most employers to provide health insurance, DOL traditionally sets lower SCA H&W rates to offset the state mandate. The new H&W rates in Hawaii are $1.78 per hour, $71.02 per week, or $308.53 per month for all employees on whose behalf the employer provides benefits pursuant to the Hawaii Prepaid Health Care Act. For those employees not receiving such benefits, the applicable rate is $4.27 per hour. See All Agency Memorandum (“AAM”) No. 221, July 28, 2016, available at http://www.wdol.gov/aam/aam221.pdf.
B. Federal Court Decisions
1. Call Henry, Inc. v. United States, 125 Fed.Cl. 282 (2016), appeal filed Fed. Cir. Case No. 16-1732
Held: Government was not obligated by the SCA Price Adjustment clause to reimburse a contractor that incurred a withdrawal liability when its workers voted to leave a union pension fund. Section 4(c) only requires a contractor to provide a level of fringe benefits no lower than what the predecessor paid; it does not require a contractor to adhere to the terms of a collective bargaining agreement (“CBA”). Therefore, the court held that withdrawal liability was not a fringe benefit or a contractual obligation; rather, it was deemed a distinct statutory debt that was not the contracting agency’s responsibility to reimburse under the SCA Price Adjustment clause. Note that the CBA did not specify any specific withdrawal liability payment obligation, suggesting that the outcome might be varied by the terms of a different CBA.
2. Dellew Corporation v. United States, 128 Fed.Cl. 187 (2016)
Held: Agency conducted a rational cost realism analysis in awarding contract notwithstanding the offeror’s misclassification of a non-exempt employee as exempt, where the agency has demonstrated that it “considered the information available and did not make ‘irrational assumptions or critical miscalculations’.”
3. Tri-County Contractors, Inc. v. Perez, 155 F.Supp.3d 81 (D.D.C. 2016)
Held: Action by former contractor challenging its debarment due to violations of the SCA and the Contract Work Hours and Safety Standards Act (“CWHSSA”) was not rendered moot by the expiration of the debarment period, since the expired debarment would impede the contractor from obtaining federal contracts in the future. On the merits, however, the court found that the debarment was justified.
4. Service Employees International Union National Industry Pension Fund v. Scientific and Commercial Systems Corporation, --- F.Supp.3d ---- (D.D.C. 2016)
Held: Special rules approved by the Pension Benefit Guaranty Corporation (“PBGC”), which narrowed withdrawal liability under the Multiemployer Pension Plan Amendments Act for certain SCA-covered employers contributing to a particular fund, did not apply to an employer contributing to a different fund. Therefore, that employer, which had its subcontract to provide services on federal government contract terminated by the prime contractor, could not avoid withdrawal liability to a union pension fund.
5. Longo v. Trojan Horse Ltd., --- F.Supp.3d ---- (E.D.N.C. 2016)
Held: Claims under the Employee Retirement Income Security Act (“ERISA”), brought by an employer and administrators of a 401(k) plan by employees who participated in the employer’s 401(k) plan, were not barred by the SCA. The contributions were appropriately considered plan assets governed by ERISA and thus subject to claims thereunder.
C. Board of Contract Appeals (“BCA”) Decisions
1. Puget Sound Environmental Corp., ASBCA No. 58828, 16-1 BCA ¶36,435
Held: Contracting officer is not obligated to wait for the conclusion of DOL administrative proceedings before terminating a contract for SCA violations. And, a contractor cannot successfully object to a contracting officer’s decision not to exercise an option in the face of clear SCA violations, even if parallel DOL proceedings are ongoing. (See related Administrative Review Board decision below.)
2. SecTek, Inc. v. National Archives and Records Administration, CBCA 5084, 2016 WL 3524418 (June 22, 2016), on reconsideration, CBCA 5084-R, 16-1 BCA ¶36,466
SecTek negotiated a new CBA which failed to enumerate a specific dollar wage rate for the base contract period. The CBA simply required payment of no less than the predecessor’s CBA and fixed specific increased wages and benefits only for the option years. In the original decision, the Board of Contract Appeals held that the base year of a contract is not a section 4(c) “predecessor contract” to the first option period for purposes of a price adjustment, if the contractor did not actually pay the union members under the new CBA until the start of the first option year. SecTek sought reconsideration on jurisdictional grounds, and the Board subsequently voided its earlier decision and held that whether a particular CBA “should be the basis of a revised wage determination” applicable to the option year is for DOL to decide, not for a Board of Contract Appeals. The agency argued that the question here is not what the appropriate wage determination is, but whether the agency is required to adjust the task order price for the option year. However, the Board concluded, those two issues are not easily separated and regulations leave it to DOL to decide whether the 2015 CBA should have formed the basis of a wage determination for the contracting officer to apply when considering a price adjustment under Federal Acquisition Regulation (“FAR”) clause 52.222-43(d). By then, SecTek had already appealed to DOL and argued that the wage and fringe benefit terms of the CBA were valid and effective, and the CBA itself was properly made effective during the base contract period. That appeal is pending.
D. Government Accountability Office (“GAO”) Bid Protest Decisions
1. Trandes Corporation, B- 411742.4, 2016 CPD ¶61
Held: Protest that the agency would make award based on stale pricing, including based on outdated wage determinations, was denied because the offerors had confirmed that the acceptance period for their offers was still open, the contract would be a cost-plus-fixed-fee contract designed to permit regular rate increases, and the same increases would be allowed no matter who the awardee was.
2. DynCorp International, LLC, B-412451, 2016 CPD ¶75
Held: Where solicitation required offerors to propose conformed rates, offeror did not deviate from solicitation requirements when it proposed conformed rates based on data other than the national wage determination attached to the solicitation. (The decision was redacted to delete the source of the data the contractor actually used.)
3. MicroTechnologies, LLC, B-413091, 2016 CPD ¶219
Held: Protest allegation that the agency was required to evaluate SCA-covered labor rates was dismissed as an untimely challenge to a solicitation ambiguity because, if the solicitation were interpreted to contain such a requirement, it would create a patent ambiguity given that the solicitation plainly stated that only professional compensation would be evaluated. (However, the protest was sustained on other grounds.)
E. Administrative Review Board (“ARB”) Decisions
1. Administrator v. Garcia Forest Service, LLC, ARB No. 14-052 (April 8, 2016)
Held: Contractor failed to meet its evidentiary burden of showing unusual circumstances that would relieve it from debarment where the Administrative Law Judge (“ALJ”) found that the contractor’s foreman misled the investigators during the initial investigation and that the investigators encountered obviously falsified hourly work records; the ALJ noted that the company had recently been investigated and warned of the necessity for compliance; and the ALJ found that the contractor knew that the contract provided for hourly pay and chose to switch the crew to a production-based pay system.
2. Administrator v. Puget Sound Environmental Corp., ARB No. 14-068 (May 4, 2016)
Held: Even if there were facts showing that the contracting agency misled the contractor about the classification of certain employees, the contractor would still be liable for the misclassification because SCA regulations state expressly that “[r]eliance on advice from contracting agency officials . . . is not a defense against a contractor’s liability for back wages under the Act.”