DOL Extends Coverage of the Service Contract Act to Job Corps Prime Contracts

“Look Simba: Everything the light touches is our kingdom.” - The Lion King

In what seems like a recent push to expand the coverage of the Service Contract Act (“SCA”), the Department of Labor (“DOL”) recently removed the exemption from coverage of the SCA for certain “Job Corps” contracts. These Job Corp contracts are contracts entered into by federal contractors for the purpose of running Job Corps centers. These centers are no-cost education and vocational training programs that help young people from the ages of 16-24 increase their experience, vocational training, and education in order to be eligible for better jobs.

Previously these contracts were exempted by DOL from coverage as part of the “GOCO” exemption for Government Owned, Contractor Operated facilities. This exemption is provided for in 29 C.F.R. 4.107(b) which allows the Government to enter into contracts and essentially delegate its responsibilities on a cost-reimbursement basis. Here is what the regulations say. 

Thus, sometimes authority to enter into service contracts of the character described in the Act for and on behalf of the Government and on a cost-reimbursable basis may be delegated, for the convenience of the contracting agency, to a prime contractor which has the responsibility for all work to be done in connection with the operation and management of a Federal plant, installation, facility, or program, together with the legal authority to act as agency for and on behalf of the Government and to obligate Government funds in the procurement of all services and supplies necessary to carry out the entire program of operation. The contracts entered into by such a prime contractor with secondary contractors for and on behalf of the Federal agency pursuant to such delegated authority, which have such services as their principal purpose, are deemed to be contracts entered into by the United States and contracts with the Federal Government within the meaning of the Act.

29 C.F.R. 4.107(b) (emphasis added).

This occurs at Job Corps sites, ammunition facilities, and other locations where the government has determined that it would be easier and less expensive for a federal contractor with more experience in the field to run the show. The prime contractor actually stands in the shoes of the government and enters into subcontracts much like the government enters into contracts for supplies or services. In this case, the subcontracts would be covered by the SCA even when the prime contract is not.

This exemption was very clearly laid out in DOL’s Field Operations Handbook (FOH) that gives informal regulatory guidance on the Fair Labor Standards Act, Service Contract Act, Davis-Bacon Act, and others. In Chapter 14, DOL specifically exempted Job Corps prime contracts pursuant to 29 C.F.R. 4.107(b). However, it has been reported by Crowell and Moring that DOL will be revising the current FOH and applying the SCA to these Job Corp prime contracts. See https://www.governmentcontractslegalforum.com/2022/08/articles/labor/job-corps-center-prime-contractors-will-now-be-subject-to-the-service-contract-act-requirements/. In our recent experience, DOL has been expanding the reach of the SCA to apply to contracts or contract like instruments that have traditionally been uncovered. In the past year, the SCA has been applied to cooperative agreements, which were traditionally exempt from the provisions of the act in the same way that grants are exempted. DOL has also attempted to incorporate the SCA into Medical Disability Examination contracts where the contractor gives active duty military and veterans access to a healthcare network to conduct disability examinations.

This change however is likely a consequence of a different policy change, which is to increase cost certainty in Job Corps contracting. In 2019, DOL issued a news release stating that it intends to issue future Job Corps prime contracts on a fixed-price basis rather than a cost-reimbursement basis. See https://www.dol.gov/newsroom/releases/eta/eta20190815-0. Practically, this means that the federal contractor will be taking more risk when entering into a contract, but they also may receive a higher profit margin if they can find efficiencies in performance. Because it is fixed-price, the prime contract no longer fits the exemption contained in 29 C.F.R. 4.107(b). In other words, this change in SCA coverage is a consequence of a different issue in Job Corp contracting.

DOL made this change to the Field Operations Handbook on June 23, 2022 by removing section 14e03 of the FOH. Although, confusingly they have two links to different versions of the FOH under the Chapter 14 entry on their website. To view the newly revised version, please see their website here: https://www.dol.gov/sites/dolgov/files/WHD/foh/Ch_14.pdf/