Walsh to Jake in the movie "Chinatown":  "Forget it, Jake, it's Chinatown."

SecTek and the National Archives and Record Administration (NARA) entered into a fixed-price service contract wherein SecTek agreed to provide security guard services at NARA’s locations in College Park, Maryland and Washington, D.C.  The contract provided at least two subsequent year-long options which NARA could exercise.  Because this contract qualified as a service contract, the wage determination (WD) requirements were controlled by the Service Contract Act (SCA).  Under the SCA, WDs are set by the Wage and Hour Division (WHD) of the Department of Labor (DOL).  The WHD bases WDs on either (1) the prevailing wage in that locality, or (2) a predecessor collective bargaining agreement (CBA).  Section 4(c) of the SCA controls when, as was the case here, there exists a predecessor CBA.  Under section 4(c), the successor contractor must pay its employees no less than those employees would have received under the predecessor CBA.  Prior to qualifying as a predecessor CBA, however, the subject employees must have been “actually paid” under that CBA.  As illustrated below, whether employees were “actually paid” under a CBA can become a point of significant tension.

Prior to the end of the base year, NARA informed SecTek of its decision to exercise Option Year One, and instructed SecTek to send a new CBA if one existed. SecTek and the Local 153 of the International Guards Union of America (IGUA) agreed upon a CBA (the CBA or SecTek CBA) approximately two months before the conclusion of the base year.  The CBA incorporated the wage and fringe benefits of the predecessor CBA for the remaining base year period, and increased the same following the commencement of Option Year One.  The CBA expressly stated it became effective following the signing of the CBA by SecTek and IGUA.  Following the signing of the CBA, SecTek sent the CBA, as well as a request for price adjustment, to NARA. Although NARA exercised Option Year One, it refused to consider the SecTek CBA as a predecessor contract under section 4(c) of the SCA.  In NARA’s view, SecTek had not “actually paid” its employees under the CBA during the base year.  SecTek modified the CBA to expressly provide payments during the base year, but NARA still rejected it, citing a lack of actual payment under the CBA.

Initially, SecTek appealed the contracting officer’s denial to the Civilian Board of Contract Appeals (CBCA).  SecTek lost its appeal. See SecTek v.National Archives and Records Admin., CBCA No. 5084 dated June 22, 2016)  The CBCA agreed with NARA, holding that the SecTek CBA was not a predecessor contract because the union employees were not “actually paid” under the CBA as required by section 4(c) of the SCA. The CBCA assumed SecTek may have bound itself to pay higher fees during the Option Year One, but “the successor contractor provision of the Act did not require such compensation ‘by operation of law.’”  The CBCA held that payment under the new CBA began September 1, 2015 which was the first day of Option Year One and thus, outside of the base year.   As it would turn out, the CBCA not only incorrectly interpreted the law, but lacked jurisdiction to hear the matter.

FAR 52.222-41, Service Contract Labor Standards clause, which was incorporated into the CBA, requires disputes about labor standards, including WDs, to be resolved pursuant to the DOL dispute procedures.  Once SecTek raised this issue before the CBCA on reconsideration, the Board revisited SecTek’s appeal, and promptly vacated its prior ruling due to a lack of jurisdiction.  See SecTek v. National Archives and Records Administration, CBCA No. 5084-R dated August 3, 2016.

SecTek then brought its appeal before the proper forum, the Department of Labor’s (DOL’s) Branch of Government Contract Enforcement (BGCE) of the WHD.  The BGCE agreed with the parties that the central question was whether SecTek “actually paid” its employees under the CBA during the base year.  Contrary to the CBCA’s ruling, BGCE found that such payment existed.  Focusing its analysis on Article 21 of the SecTek CBA, BGCE held that the CBA compelled SecTek to pay wages and fringe benefits during the base year.  A failure to pay the employees in accordance with the CBA would have constituted a breach of SecTek’s contractual obligations. See DOL Letter ruling dated June 21, 2017.

The WHD determined the appropriate remedy was retroactive incorporation of the CBA into Option Year One.  NARA appealed the BGCE’s decision to the Wage and Hour Administrator, and lost again. In a decision issued by the Acting Administrator on May 8, 2018, SecTek prevailed, and the DOL ordered NARA to incorporate the CBA-based WD retroactively into the contract. Mercifully, NARA decided to pay the claim and did not challenge the retroactivity ruling to the Administrative Review Board.  SecTek improbably, given the case history, emerged triumphant almost three years after the start of the dispute.

SecTek was represented in the second CBCA decision and the two DOL decisions by Daniel Abrahams, now managing partner of Abrahams Wolf-Rodda, LLC. A more detailed explanation of the case is expected to be published in the Thomson Reuters West Government Contractor newsletter soon.