Through the Looking Glass: Section 4(c) of the Service Contract Act and Vacation Leave Carry Forward CBA Provisions

I went home with the waitress
The way I always do
How was I to know
She was with the Russians too

I was gambling in Havana
I took a little risk
Send lawyers guns and money
Dad get me out of this (ha)

--Warren Zevon, Lawyers, Guns and Money

The Service Contract Act (“SCA”) rules can be turned on their head if a collective bargaining agreement (“CBA”) is in the picture.

 An example of this was posed the other day when a law firm client wrote me (yes, we consult for other lawyers!) and asked:

Our client is bidding on a [service contract where wages/benefits are governed by a CBA.  The CBA provides for the accrual of vacation … leave, subject to caps.  Interestingly, accrued leave is not paid out at the end of the contract.  Rather, the CBA purports to require the successor to preserve each employee’s accrued vacation… leave bank when it takes over.  The CBA permits the accrual of … up to 80 hours of vacation.  So, if an employee had 80 hours of unused vacation, … the successor would be required to maintain those levels at the start of the successor contract.  I have not seen this before. 

Our client has asked us if they would be bound by this CBA provision. 

And here is my reply:

Yes, I have seen such CBA sick and vacation leave carry forward provisions before. And I agree with your assessment that that CBA provision likely constitutes a bona fide benefit under section 4(c) of the SCA.

Of course, ordinarily SCA benefits are not carried forward to the successor contractor, and, instead, are paid out at the end of performance by the predecessor contractor. See 29 CFR 4.173(c)- (d). But section 4(c) can alter those standard rules. Id. at 4.163(j). Here you tell me that is exactly what the CBA purports to do. It alters those ordinary SCA rules and requires the successor contractor to honor and carry forward the accrued but unused … vacation leave benefits.

I think that provision is likely enforceable per its terms under section 4(c) of the SCA. So, I think the successor is likely required to step into the shoes of the predecessor and maintain the … vacation leave benefits. Accordingly, they should include those costs in their bid price.

However, I am not aware of any controlling case law or regulations.  And I will give you a caveat. If this provision was negotiated and first added to the CBA here at the very end of performance, after the predecessor had lost the re-procurement, then it may be subject to a challenged as not at arm’s length or substantially at variance to the practice in the locality.  Take a look at Trinity Services, Inc. v. Marshall, 593 F. 2nd 1250 (D.C. Cir. 1978). It involves severance pay imposed by a predecessor’s CBA which obligation was never assumed by the predecessor contractor. The Court said that wasn’t a bona fide fringe benefit. If the predecessor contractor never assumed responsibility for this leave carry forward, and it was just negotiated and imposed on the successor contractor as a ruse to save it money at termination of their contract, that to may be challenged as non-bona fide, IF A TIMELY CHALLENGE IS RAISED. 

In short, once you have a CBA governing the predecessor contractor’s contract, get prepare for the ordinary fringe benefit rules of the SCA to be potentially turned upside down.