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The Government Contractor

Vol. 60, No. 29; August 8, 2018

Focus

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FEATURE COMMENT: If You Can’t Beat ‘Em, Then Change The Forum: SecTek, Inc. v. The National Archives

The Service Contract Act (SCA) recognizes two types of wage determinations (WDs) issued by the Wage and Hour Division (WHD) of the Department of Labor (DOL). They are (1) prevailing determinations for that service in that locality (i.e. area-wide WDs), or (2) collective bargaining agreement (CBA)-based WDs. This Feature Comment focuses on CBA-based WDs.

Section 4(c) of the SCA controls CBA-based WDs, and states that when one contract succeeds another contract, the successor contractor must provide its service employees with, at a minimum, the wage rates and fringe benefits those service employees would have received under the predecessor CBA. Before § 4(c) applies, however, the previous employees must have been “actually paid” under the predecessor CBA. Incumbent contractors are not supposed to enter into CBAs that do not bind them and purport to bind only the successor contractor. It is this provision that proved bedeviling in a string of four recent rulings by the Civilian Board of Contract Appeals (CBCA) and the WHD involving a security services contractor named SecTek, Inc.

In this case, SecTek and the National Archives and Records Administration (NARA) entered into a service contract wherein SecTek agreed to provide security guard services at NARA’s locations in College Park, Md. and Washington, D.C. for Sept. 1, 2014–Aug. 31, 2015. (Think of the Nicholas Cage movie, National Treasure, where he breaks into the Archive and steals the Declaration of Independence—those guards would be working under this contract.)

The contract provided at least two year-long options that NARA could exercise. The predecessor contractor, American Security Programs (ASP), paid its service employees’ wages and fringe benefits pursuant to a CBA. Once SecTek contracted with NARA to provide similar services, SCA § 4(c) required SecTek to pay its employees hourly wages and fringe benefits equivalent to, or greater than, ASP’s wages and benefits.

On April 2, 2015, approximately five months before the expiration of the base year, NARA informed SecTek of its intention to exercise the first year-long option (option year 1). Additionally, NARA told SecTek that if SecTek negotiated a new CBA, it should submit said CBA to NARA no later than June 30, 2015.

On June 29, 2015, SecTek and Local 153 of the International Guards Union of America (IGUA) signed a CBA (the CBA, or the SecTek CBA). Section 1 of the CBA stated that the CBA became effective upon signing (i.e. effective June 29, 2015). Appendix A of the CBA increased wages, health and welfare contributions, and pension contributions starting Sept. 1, 2015 and Sept. 1, 2016. A separate cover letter, timely sent with the CBA to the Government, set forth the current wages and benefits found in the predecessor’s CBA.

Although Appendix A contained express numerical figures for the increased hourly wage and fringe benefits starting at the beginning of option year 1, and there was a separate cover letter with these details, neither Appendix A nor any other provision in the CBA contained a numerical hourly wage and fringe benefit amount for the remainder of the existing base year (i.e. the period of June 29, 2015–Aug. 31, 2015). In lieu of an explicit mention of a numerical dollar sum for wages, Article 21 of the CBA stated that “all provisions of employment … shall be maintained at not less than the highest minimum standard in effect at the time of the signing of this Agreement.” Furthermore, Article 21 improved the conditions of employment “wherever specific provisions for improvements are made elsewhere in this agreement.” In sum, Article 21 incorporated the terms of the predecessor CBA, thus leaving intact those hourly wage and fringe benefit payments for the remainder of the base period.

Notwithstanding the language of Article 21 and the cover letter it received, NARA informed SecTek that it did not view the SecTek-Aniti CBA as the applicable CBA for option year 1. NARA disagreed that payments were made under the CBA during the base-year period, and concluded that the CBA was not a predecessor CBA under the SCA. According to NARA, it did not explicitly set forth any wages and benefits until the option year.

Once NARA notified SecTek of this disagreement, SecTek submitted a new CBA to NARA on Aug. 28, 2015, changing the effective start date of Appendix A from Sept. 1, 2015 to Aug. 31, 2015. Additionally, SecTek appealed NARA’s rejection of the CBA to the CBCA. The CBCA denied SecTek’s claim, ruling that the CBA had not identified any wages and benefits that were “actually paid” during the predecessor period of performance. See SecTek, Inc. v. Nat’l Archives & Records Admin., CBCA 5084, 16-1 BCA ¶ 36,403 (June 22, 2016).

Following that ruling, SecTek engaged new counsel (the undersigned), and successfully sought to vacate the CBCA’s ruling on jurisdictional grounds. See SecTek, Inc. v. Nat’l Archives & Records Admin., CBCA 5084-R, 16-1 BCA ¶ 36,466 (Aug. 3, 2016). On reconsideration, only a month or so later, the CBCA revisited and dismissed SecTek’s appeal after determining that it lacked jurisdiction to rule on the merits of the issue. The CBCA stated that Federal Acquisition Regulation clause 52.222-41, Service Contract Labor Standards, which was incorporated into the CBA, requires disputes about labor standards, including WDs, to be resolved pursuant to DOL dispute procedures. Therefore, the CBCA held that the proper forum to hear this matter was the WHD of the DOL. Following this ruling, SecTek continued to seek a review before the DOL Branch of Government Contract Enforcement (BGCE) of the WHD.

Eventually, in an unpublished ruling dated June 21, 2017, 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, however, the BGCE found that such payment existed.

Focusing its analysis on Article 21 of the SecTek CBA, the 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. The BGCE also stated that the June 29, 2015 cover letter from SecTek, disclosing the current wages and benefits, should have resolved any NARA con- fusion regarding the terms of the CBA.

After the decision by the BGCE, NARA appealed to the WHD administrator. In yet a fourth ruling on the case, the acting administrator, in an unpublished letter ruling dated May 8, 2018, agreed with the BGCE. The acting administrator added that if NARA had any doubts regarding the terms of the CBA, it could have sought the advice of other entities. Ultimately, the acting administrator held that the appropriate remedy was retroactive incorporation of the CBA into option year 1 of the contract. SecTek thus became entitled to reimbursement for all its CBA-based increased wage and fringe benefits costs under the SCA/Fair Labor Standards Act Price Adjustment clause. This ruling marked an incredible reversal of fortunes given that the CBCA had decided the case precisely the opposite, meaning that SecTek was originally left holding the bag for all the option year 1 wage and fringe benefit increases over the entire life of the contract.

Although NARA could have appealed to the DOL Administrative Review Board, SecTek had already waited more than three years to be paid for its price adjustment. Mercifully, NARA decided to pay the claim and did not challenge the retroactivity ruling. SecTek improbably, given the case history, emerged triumphant.

Comment—This tale proves that jurisdiction is more than a mere formality; it ensures that the most competent entity evaluates the issues at hand. Different reviewing bodies may have opposing methods of interpreting the issues of a case, and different scopes of competency. Alternate methods of interpretation can lead to conflicting results, and ultimately, improper rulings. Apart from the legal issues, contractors themselves can avoid a SecTek situation by using more precise language in their contracts, and by clearly identifying in their CBAs the prior and new wages and benefits required.

Focusing on the jurisdictional issue, this case illustrates the potential dangers of choosing the incorrect forum. As mentioned above, the central issue was whether SecTek “actually paid” its employees under the CBA. The CBCA’s interpretation of Article 21 differed entirely from the interpretations by the BGCE and the acting administrator. The plain language of Article 21 of the CBA incorporated the terms of the predecessor CBA, thus requiring SecTek to pay its employees wage and fringe benefits equal to, or greater than, those provided by the predecessor contractor. Article 21, and the remainder of the CBA, came into effect when SecTek and IGUA signed it. Based on this language, the payments occurring for the remainder of the base year should have been attributed to the SecTek CBA. However, the CBCA said that no payment occurred during the base year; the BGCE and the acting WHD administrator said the opposite. Much to the relief of SecTek, the CBCA was proved wrong, and DOL had the last word.

Determining whether a forum has jurisdiction can be an outcome-determinative issue that must be scrupulously analyzed by the attorneys working the case. One cannot rely on courts or other reviewing entities to catch these jurisdictional issues. As seen here, the CBCA failed to realize its lack of jurisdiction on its own. To its credit, the CBCA acted expeditiously when its error was brought to its attention. Particularly in the field of overlapping wage and hour and Government contracts requirements, counsel must pay close attention to jurisdiction because, as evidenced here, jurisdiction matters. And when it comes to wage and hour-related Government contract disputes, that jurisdiction likely lies with DOL, and not with the contracting officer, the boards of contract appeals or the courts. Although the resolution of jurisdictional issues rests ultimately with counsel, contractors are not helpless in preventing a SecTek issue from arising. The issue in this case could have been avoided had the SecTek CBA contained more precise wording on wage and fringe benefit payments during the remaining portion of the base year. The parties herein could have provided express numerical wages and fringe benefits for both the current contract year and the new option year in the SecTek CBA. NARA’s argument rested primarily on the lack of wage and fringe benefits enumeration for the current year. If SecTek had explicitly stated a dollar sum, rather than only referring to the predecessor CBA, NARA likely would have never raised an issue with the payment scheme.

If contractors use more specific language, they may avoid spending time and money to resolve the jurisdictional issues seen here.

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This Feature Comment was written for The Government Contractor by Daniel Abrahams (dabrahams@awrcounsel.com) and Jacob Talcott. Mr. Abrahams is the founding partner of Abrahams Wolf-Rodda, LLC in Potomac, Md. Mr. Talcott was a summer associate at Abrahams Wolf-Rodda, LLC, and now is a third-year law student at The George Washington University Law School.