GWAC Out of Whack: How a GWAC shifted liability for SCA violations to the Government
“It’s not my job man” — Chico
So, whose job is it to figure out what workers on a federal contract are covered under the Service Contract Act? Usually, it’s up to the contractor, except when it’s not.
A recent case at the Civilian Board of Contract appeals held that an agency that procured services using a task order issued under a Government-wide Acquisition Contract (“GWAC”) bore the responsibility for a contractor’s duty to pay service employees prevailing wages and provide mandatory benefits under the Service Contract Act (“SCA”)
Contractors that provide services to the federal government regularly contend with the intricacies of the Service Contract Act and generally understand that it’s the Contractor’s obligation to comply with the SCA. This means the contractor has to pull out the Wage Determination (“WD”) in their contract and figure out what labor classifications apply to their SCA-covered employees. Then, they have to compensate the covered employees and provide benefits applicable to them under the WD.
The previous paragraph, however, is loaded with some general assumptions that can be riddled with exceptions:
Assumption 1: the Contracting Officer correctly determined that the contract is covered by the SCA (if the Contracting Officer determines that the contract is not covered, then the contractor is off the SCA hook).
Assumption 2: the Contracting Officer included the SCA clauses in the contract (usually FAR 52.222-41 and FAR 52.222-43 (if the Contracting Officer doesn’t include the SCA clauses, the SCA duties aren’t in the contract and, uh, the contractor is off the SCA hook).
Assumption 3: there is a wage determination in the contract (click here for the Department of Labor’s (“DOL”) wage determination website found at beta.sam.gov) (if the Contracting Officer doesn’t include a WD, then the contractor is off the SCA hook - but beware of exceptions here).
Assumption 4: it’s the contractor’s job to figure out who’s covered and how the employees should be classified and paid (yes, unless…..)
The Civilian Board of Contract Appeals’ decision in the appeal of Sotera Defense Solutions, Inc. v. Dep’t of Agriculture, CBCA No. 6029, 6030 (Aug. 29, 2019) illustrates what happens when those assumptions come apart.
In Sotera, the Food Service Inspection Service of the Department of Agriculture (“USDA”) sought IT maintenance and support services including help desk support. The Contracting Officer chose to procure those services using an IT services GWAC contract vehicle issued by the National Institutes of Health (“NIH”). Sotera Defense Solutions (“Sotera”) was among the contractors who had been awarded one of the NIH contracts. Accordingly, Sotera was eligible to provide products and services to federal agencies pursuant to task orders issued under the NIH contract. USDA determined that Sotera could fulfill its needs and issued three task orders that ultimately were at issue in the case.
Now, the procurement powers that be at NIH determined that the overall GWAC contract was not, itself, covered by the SCA based on the NIH Contracting Officer’s determination that all contract positions were exempt from the SCA. However, NIH “advised that an ordering contracting officer [here, the USDA contracting officer] would have to determine whether the SCA applied to any position requested on a task order.” Sotera, slip op. at 2. In particular, the NIH contract stated:
The preponderance of the GWAC’s labor categories are considered bona fide executive, administrative, professional labor and are generally exempt from the Service Contract Act (SCA). To the extent that any labor is subject to the SCA and is within scope of a Task Order and the GWAC, the [ordering contracting officer] must identify such work under a separate CLIN [contract line item] on the task order and apply wages as required under FAR [Federal Acquisition Regulation] 22.10 [48 CFR 22.10 (2012)], Service Contract Act Wage Determinations.
Id. (quoting NIH contract) (emphasis added). Because the NIH contracting officer had determined that the NIH contract was not covered by the SCA, the SCA clauses were not included in the NIH contract.
Pity the hapless USDA Contracting Officer who, for whatever reason, did not include the SCA clauses in the first of the three USDA task orders because roughly six months after the task order was issued, the DOL notified the Contracting Officer that the task order contract included SCA-covered positions and that the SCA clause and applicable wage determinations needed to be added. DOL then conducted an investigation of Sotera for SCA violations and directed the USDA to withhold over $700k due to Sotera. Simultaneously, DOL ordered Sotera to make back payments to the affected workers. Only after Sotera had paid the workers did DOL authorize USDA to release the unpaid funds.
While the DOL investigation was underway, USDA issued two other task orders to Sotera. The second task order did not include the SCA clause. However, before executing the task order, the bitten-by-a-snake contractor wisely asked “whether the task order had any applicable wage determinations.” The contracting officer provided the applicable WDs to Sotera; Sotera then asked USDA to incorporate the SCA clauses. USDA did so along with its determination that only a single clerk position category would be covered by the SCA.
Later, the third task order entered the picture to take the place of the second for clerical reasons. There was a lot of back-and-forth between Sotera and the Contracting Officer over whether additional labor categories were to be SCA covered and whether USDA would prospectively commit to executing an equitable adjustment to cover the addition of labor categories that would be required be covered by DOL. USDA would not make that promise, but Sotera ultimately signed the task order without provision for a equitable adjustment. Later, DOL determined that a number of other labor categories were SCA covered other than the clerk position that USDA previously had agreed was subject to the SCA.
After the dust settled on the DOL investigation and Sotera knew what its increased costs of performance would be on account of the addition of the SCA requirement to the first task order and the addition of labor categories to all three task orders, Sotera submitted requests for equitable adjustment for the costs. Not having received a response, Sotera converted the REAs into claims the combined amounts of which were roughly $4,000,000.
This case presented two scenarios. The first was the circumstance in which a Contracting Officer erroneously determines that the contract is not SCA covered. The second is the situation is one in which particular categories of workers should have received SCA wages and benefits but did not even though the Contracting Officer found that the SCA is applicable and included the requisite clauses and WDs.
The first scenario is what happened under the first task order. The USDA Contracting Officer did not insert the SCA clauses and did not include wage determinations as required by FAR 22.1006 and 22.1007. When the Government adds a new wage determination after the award of a contract, it is a straightforward rule of law that the Government is required to equitably adjust the contract price so that the contractor will not be harmed through no fault of its own. See 29 C.F.R. § 4.5(c)(1) & (2) (“the contracting officer shall pay any necessary additional costs. . . [and] include in the contract any wage determination); see also FAR 22.1015 (the Government “shall equitably adjust the contract price to reflect [the] changed cost of performance resulting from incorporating a wage determination”). Specifically, the FAR provides in pertinent part:
22.1015 Discovery of errors by the Department of Labor.
If the Department of Labor discovers and determines, whether before or after a contract award, that a contracting officer made an erroneous determination that the Service Contract Labor Standards statute did not apply to a particular acquisition or failed to include an appropriate wage determination in a covered contract, the contracting officer, within 30 days of notification by the Department of Labor, shall include in the contract the clause at 52.222-41 and any applicable wage determination issued by the Administrator. If the contract is subject to 41 U.S.C. 6707(f), the Administrator may require retroactive application of that wage determination. The contracting officer shall equitably adjust the contract price to reflect any changed cost of performance resulting from incorporating a wage determination or revision.
FAR 22.1015 (emphasis added). Accordingly, both the DOL regulation and the FAR provide that the contractor “shall” be entitled to an adjustment, and the FAR makes it clear it covers “any changed cost of performance” from incorporating the new WD. Such an adjustment is akin to a change under the standard Changes clauses. Such a Changes clause-related equitable adjustment is, therefore, not limited by the SCA Price Adjustment clause (FAR 52.222-43) which addresses increased costs of SCA compliance under an existing WD (or revision thereof) after the passage of the base period of performance.
In Sotera, the CBCA easily concluded that the Contracting Officer erred and held that the company was entitled to an equitable adjustment. In so holding, the Board stated “[i]f USDA had properly evaluated whether the SCA applied to the task order prior to award, it would have identified the labor categories and the applicable wage determinations and Sotera would have incorporated those wage rates into its offer or faced liability for its failure to do so.” Sotera, slip op. at 9. Because USDA did not, it “is responsible for Sotera’s inability to do so prior to award” and therefore liable for Sotera’s increased costs of performance as a result of the addition of SCA obligations. Id. at 9, 10.
The second and third task orders, however, differed from the first task order insofar as they had the requisite clauses and WDs. Ordinarily, under FAR 52.222-41, the contractor would be responsible for determining which of the contract positions matched the WDs and then to pay those workers accordingly. Id. at 9. However, this case was not ordinary. Remember the NIH contract? It stated that each ordering agency bore the obligation to determine whether there were service employees who would be employed on the task order; therefore, according to the Board, the USDA Contracting Officer bore “the burden . . . to determine which positions were required to be paid SCA wages.” Id. Having declined to identify covered labor categories in the second and third task orders prior to the conclusion of the DOL investigation, USDA “proceed[ed] with the execution of the replacement task order [and h]aving failed to undertake the effort, USDA now owe[d] the costs.” Id.
So, returning to the four assumptions identified above, I think contractors owe it to themselves to keep these assumptions in mind when they are preparing their proposals for a contract that calls for the provision of services by service employees. If it looks like it might be SCA covered, does the contract have the requisite clauses and applicable WDs? If not, one should consider addressing a question to the Contracting Officer so as to ensure that the clauses are in and you know what you’re bidding on (or at least to make a record that the Contracting Officer determined that the contract was not SCA covered). If you’re responding to a task order RFQ being issued under a multi-agency contract vehicle such as the NIH GWAC or the Federal Supply Schedule, you should be mindful of those contracts’ requirements and consider whether they impose different or greater obligations than what is set forth in the task order.
It’s easy to engage in after-the-fact back seat contract administration in a circumstance such as this. A reading of the Sotera decision suggests that the problems could have been avoided if either or both the Government and the contractor had realized that the Government had the burden not just to figure out that the SCA applied but that it also the further duty to identify the labor categories that were covered so that the contractor could submit a proper bid.