When the Service Contract Act Prevailing Wage Is Just Not Enough: 1-800-MEDICARE Becomes 1-800-GOTMONEY.
Please, sir, I want some more.”
—Charles Dickens, Oliver Twist
The US Department of Labor (“DOL”) conducts surveys and otherwise gathers data on wages and fringe benefits. They use that data to issue new wage determinations. We think of prevailing wage laws like the Service Contract Act (“SCA”) as providing ample worker protections and assuring them a living wage. But in high cost areas of America, the protections afforded by the prevailing wage laws sometimes prove illusory, with the survey data and wage determinations languishing and the wages and benefits being eroded by rapid inflation. And in low wage rural back waters, the SCA invariably reflects that depressed labor market, at least for low skilled occupations. In this manner, a case can be made that our existing labor standards laws are inadequate, and they fail to provide workers engaged for government contracts with a living wage for an honest days work.
Indeed, I have worked with quite a few federal contractors who would like to pay their workers more. But the dirty little secret is that while the SCA is a prevailing minimum wage, and employers are free to pay more, nonetheless, to win the work (particularly on low skilled commoditized service contracts) they must often closely adhere to the SCA rates. Thus, the SCA minimum wage rates become the de facto maximum too, because any contractor who bids in excess of those prevailing wages will end up being higher priced, and thus won’t win the award.
Into that breach falls contractors with the best of intentions but not the means to implement them. One example of that is Maximus, a Mclean, VA company who runs call centers for the Government, including 1-800-MEDICARE. Now for full disclosure, I have known Maximus for many years and I think the world of them. They are a responsible, responsive, and conscientious business. I am not just saying that because of my dealings with them. Indeed, I have had many clients for whom I wouldn’t make that claim. (Yes, everyone deserves legal representation, but not everyone deserves my representation.) Maximus, in my admittedly biased opinion, is on the higher end of ethical government contracting. The company is a 8(a) Program success story which we should be celebrating. Indeed, Maximus has been working on trying to get Congress to overhaul the SCA and modernize how the prevailing wages are set. Simply put -- Maximus is a model contractor and not a labor standards abuser.
Yet poor Maximus is demonstrating the proverb that no good deed goes unpunished. In September 2022 the Department of Health and Human Services (“HHS”) awarded a $6.6 billion nine year contract to Maximus to help manage Medicare call centers across the country. With the annual options, the contract has at least seven more years to run. But now, less than two years later, the Biden Administration has decided to terminate that contract and recompete it, purportedly due to labor unrest. See https://www.washingtonpost.com/health/2024/06/28/medicare-hotline-contract-hhs-maximus.
Briefly, as reported by the Washington Post, the Communications Workers of America (“CWA”) union wants to organize the call center workers and bargain for wages and benefit sin excess of the SCA. That in itself is not a problem. As part of their union organizing campaign and efforts to get higher wages, they have organized the walkout of workers during some of the busiest times of year, and otherwise lobbied DOL, HHS, the Biden Administration, and members of Congress to pressure Maximus to meet the union demands. Unfortunately, Mr. Biden, who proudly declares himself to be “the most pro worker president” in US history, is now taking sides in the dispute and putting his foot on the scale. Maximus is being punished for holding the line to the prevailing wages and not surrendering to the union demands for wages and fringe benefits far in excess of the SCA. Rather than being an honest broker, the Government is picking sides.
A dangerous example is being made of Maximus. The Medicare Call Center contract is being terminated. A new solicitation is being issued. It will have a “labor harmony requirement“ which will force the winning offeror to essentially accede to the demands of the union. Maximus is fighting back, and the company reportedly has filed a bid protest challenging the new procurement. But the larger problem is the use of the procurement system to benefit a specific union (CWA) and to punish a fully compliant contractor. If the Federal Government truly wants higher wages, it should reform the SCA and specify those wages. And, of course, then find the funds to pay for it. But it just isn’t Queensberry rules to terminate contracts duly awarded contracts simply to add labor harmony clauses and provisions meant to benefit loyal organized labor constituencies. That is not how the procurement system is supposed to work.