Conforming with the Service Contract Act | DCR Workforce Blog

Conforming with the Service Contract Act

Anyone who wishes to bid for a federal service contract must prepare to meet the tenets of the McNamara-O’Hara Service Contract Act (SCA) of 1965, and develop stringent internal processes necessary to support compliance.

The SCA was enacted to prevent wage busting and displacement of qualified workers. The act specifies wages, benefits, vacation and holiday policies and a variety of other working conditions for employees who fall into specific SCA classifications.

You must fully understand the financial and operational implications of SCA prior to deciding whether to bid on a project or when negotiating the contract price.

The SCA enforces compensation requirements on the general contractors and their subcontractors providing services to the federal government. It is important to note that the SCA applies to service contracts performed within America when the contract value exceeds $2500. It will not apply to any portion of a contract where the work is performed outside the US. It is also not uniformly applicable to all federal contracts as some of them are exempt.

Checklist for Determining Applicable Wages and Benefits:

Contractors and subcontractors who are required to compensate service employees under the Service Contract Act would do well to follow a checklist to make sure that they are compliant with the act and its tenets:

  • The SCA’s Directory of Occupations classifies a given job based upon the duties an employee actually performs; and decides the applicable wage determination by the rate of pay, to which that employee is entitled.
  • When starting a federal contract afresh, a contractor would need to offer the previous or incumbent employees first right of refusal within 10 days. This can be handled by obtaining copies of the predecessor’s service employment contract.
  • Wages payable to service employees in various classes by a contractor must meet prevailing wage rates (or the rates contained in a predecessor contractor’s collective bargaining agreement) and fringe benefits.
  • The regular pay rate of such an employee shall not include any fringe benefit payments which are excluded from the regular rate under the FLSA.
  • When employing workers with disabilities, an employer may be able to apply a Special Minimum Wage that is less than the prevailing wage. The employer must obtain the appropriate certification from the Department of Labor. However, this exception applies to the prevailing wage only, not the full fringe benefits, or the equivalent dollar cash payment in lieu of providing the benefits.
  • SCA specifies a distinction between temporary, part-time, and full-time employees and entitles them to an amount of the fringe benefits that is proportionate to the amount of time spent in work subject to the SCA.
  • The extensive record keeping requirements of the SCA can be fulfilled by keeping a record of every employee’s basic information (like name, address and social security number) with correct work classification, wage rates and fringe benefits provided; hours worked; pay rates applied, paid vacation and holidays for 3 years from the completion of a given work assignment – available for ready reference.

Consequences of Non-Compliance: The SCA provides the Department of Labor (DOL) with the authority to withhold the violators’ contract funds in order to reimburse underpaid employees.  The DOL may also terminate the contract, hold the contractor liable for associated costs to the government, and prohibit the contractor from participating in future government contracts for a period of three years.

The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.