You Can’t Always Get What You Want: Under Service Contract Act, Emergency Contract Was Subject to Predecessor’s CBA

No, you can't always get what you want
You can't always get what you want
You can't always get what you want
But if you try sometime you find
You get what you need

Rolling Stones, You Can’t Always Get What You Want

Under Section 4(c) of the Service Contract Act (“SCA”) a successor contractor is required to pay not less than the wage and fringe benefits that a predecessor contractor agreed to pay pursuant to a collective bargaining agreement (“CBA”) entered into during the predecessor contract period. Specifically, Section 4(c) provides that:

Under a contract which succeeds a contract subject to this chapter, and under which substantially the same services are furnished, a contractor or subcontractor may not pay a service employee less than the wages and fringe benefits the service employee would have received under the predecessor contract, including accrued wages and fringe benefits and any prospective increases in wages and fringe benefits provided for in a [CBA] as a result of arm's-length negotiations.

29 C.F.R. § 4.163(c)(1).  Accordingly, Section 4(c) thus operates as a floor to the wages and benefits, but it is not a ceiling. A successor contractor is free to pay more, albeit outside of any successorship requirement, and the act of paying more will have an impact on any future option year price adjustment.  

I know these rules intimately, having litigated a request for reconsideration at the Armed Services Board of Contract Appeals (“ASBCA”), and getting two decisions for the U.S. Department of Labor on the application of the successor contractor rule to a CBA negotiated by my client, SecTek, Inc. And I have posted about the journey in older blogs this website. See https://www.awrcounsel.com/blog/2018/7/5/who-says-you-cant-fight-city-hall-sectek-v-nara?rq=SecTek; https://www.awrcounsel.com/blog/2018/9/19/if-you-cant-beatem-then-change-the-forum-sectek?rq=SecTek. The bottom line is that SecTek was able to vacate a ASBCA decision as lacking jurisdiction, take its appeal to DOL, enforce the section 4(c) application of its CBA, and require National Archives and Record Administration (“NARA”) to give it a price adjustment for the opinion year costs. But the defense was not a complete success since it took a long time for the legal process to work things out, and meanwhile SecTek was exposed to economic risks when NARA was going to deny it part of the next option year price adjustment. SecTek  allegedly was “voluntarily” paying more than the SCA required, because they were contractually obligated to do so by a CBA that NARA didn’t recognize as binding under the SCA. SecTek pushed back to NARA and threatened to reduce wages to the level NARA was willing to pay for. Of course, that would have caused some labor unrest. Ultimately, NARA decided to award an emergency sole source contract to another offeror for the work rather than exercise SecTek next year option. In essence, NARA punished SecTek for appealing by swapping them out for a competitor. At least SecTek was relieved of the obligation to perform a losing contract while it pursued its DOL appeal.  

Three years later, it became clear that NARA had just traded one dispute with SecTek for a new dispute with a higher cost successor contractor. There is a son of SecTek which spawned its own sequel of administrative appeals.  Rather than exercise SecTek options and pay them a SCA price adjustment for their CBA costs, NARA awarded an emergency sole source contract to a competitor contractor named American Securities Programs, Inc. (“ASP”). ASP was already unionized and had a CBA in place requiring that it pay even higher wages and benefits than SecTek. It isn’t clear whether ASP loaded those extra costs into its bid price. But what is clear is that after award of its emergency contract, ASP attempted to get a price adjust out of the gate for the higher labor costs required by its own CBA. ASP argued it was the appropriate successor contractor and claimed its CBA should go into effect under section 4(c). What isn’t clear from the DOL decision is whether ASP paid SecTek’s CBA rates or its own higher rates to the workers pending this appeal. The decision suggests that ASP paid under the SecTek /NARA CBA. However, if they were really contractually bound by their own CBA, presumably they would have paid the higher ASP wages and benefits.   

ASP appealed to the Administrator of the Wage and Hour Division. They lost the first appeal and sought reconsideration. The Administrator determined that Section 4(c) of the SCA required a wage determination for ASP's full term contract based on SecTek's CBA, rather than ASP's subsequent CBA. The Administrator opined that under the applicable regulations, ASP's sole-source contract was a temporary interim contract that did not break the predecessor/successor contract relationship under Section 4(c) between the SecTek/NARA full term contract.  Consequently,  the Administrator concluded that Section 4(c) required ASP to pay its workers during the base year of the ASP/NARA contract no less than the wages and fringe benefits that the workers would have received under the SecTek CBA. Of course, ASP didn’t want the SecTek CBA to apply since it required less generous wages than ASP’s own CBA, and thus ASP was contractually bound to pay more than the section 4(c) rates. The impact of that  ruling was that not only did ASP fail to get a price adjustment for emergency contract base year, but if they were already “voluntarily” paying more than the SCA rate, the price adjustment due in the next new contract year would exclude the extra amount of wages being paid by ASP in the prior base year. Here the new award was a new contract, so presumably the wages were priced into the off that ASP made. However, if it had been a new option year, the failure to recognize the ASP CBA might have a ripple effect for the life of the contract. Whatever the actual cost impact, NARA went from unsuccessfully trying to burn SecTek to fighting a worse battle with a  successor contractor (at least for the base year emergency contract) who stepped into SecTek’s shoes.  

After getting two decisions from the Wage and Hour Division, ASP filed an appeal at the Administrative Review Board (“ARB”) to overturn the result. The ARB decision came out on March 25, 2021 and affirmed the Administrator’s ruling:  

[I]n support of its request to NARA for a price adjustment to the base year of the ASP/NARA contract, ASP's overarching argument is that it should be allowed to pay its workers higher wages and fringe benefits pursuant to its own CBA negotiated with the union, rather than the lower wages of the SecTek CBA. The primary thrust of ASP's challenge to the Administrator's decision is that the Administrator erred in determining that the sole source contract was a temporary interim contract and that the SecTek/NARA contract was the full term predecessor contract to the ASP/NARA contract. ASP specifically argues that the Administrator should have determined the sole-source contract between NARA and ASP was a full term successor contract. Consequently, ASP submits that the sole-source contract is the Section 4(c) successor contract to the SecTek/NARA contract and that the ASP CBA governs the wage determination for the base year of the APS/NARA successor contract. Upon our review of the record, the parties' arguments, and the applicable law, we conclude that the Administrator reached a well-reasoned decision based on undisputed facts. For the reasons set forth below, we affirm the Administrator's decision the sole-source contract is a temporary interim contract, the SecTek/NARA full term contract is a predecessor to the ASP/NARA contract, and the SecTek CBA governs the wage determination for the base year of ASP/NARA Contract. Therefore, the Administrator determined Section 4(c) requires ASP to provide wages and fringe benefits that are no less than those provided in the SecTek CBA.

See  https://www.dol.gov/sites/dolgov/files/OALJ/PUBLIC/ARB/DECISIONS/ARB_DECISIONS/SCA/19_084_SCAP.PDF at 5-6.  And so it goes. Temporary interim contracts that provide sufficient time for a contracting agency to resolicit for a new award “do not negate the application of section 4(c) to the full term contract.” Id. at 7.  And here, SecTek’s CBA was deemed to be the predecessor to that full term contract, not ASP’s own CBA, particularly if ASP didn’t pay in accordance with its own CBA during the base emergency term.   

It is hard to declare a winner after all this litigation. To me at least, it looks like DOL and the ARB got it right in both cases. The SecTek case engendered four separate decisions across DOL and the ASBCA. And NARA lost. But SecTek lost its government contract.  In Son of SecTek, ASP and NARA generated three more decisions at DOL. NARA came out on top. But no one wins when that much legal effort is expended.