The Service Contract Act and its Application to...
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Baker Tilly refers to Baker Tilly Virchow Krause, LLP, an independently owned and managed member of Baker Tilly International. The Service Contract Act and its Application to Multiple Award Schedule Contracting
Transcript of The Service Contract Act and its Application to...
Baker Tilly refers to Baker Tilly Virchow Krause, LLP,an independently owned and managed member of Baker Tilly International.
The Service Contract Act and its Application to Multiple AwardSchedule Contracting
Agenda
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> Introductions
> Overview
> Related Acts and Regulations
> MAS Contracts with SCA
> Pre-Award Issues
> Post-Award Issues
> Recommendations and Guidance
> Questions
Overview
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Service Contract Act (SCA)
The McNamara-O’Hara Service Contract Act of 1965 (SCA) requires contractors andsubcontractors to pay their service employees no less than the minimum monetary wagesand fringe benefits found prevailing in a particular locality in accordance with the applicablewage determination or collective bargaining agreement.
The SCA applies to contracts:
> in excess of $2,500 with Federal Government
> performed in the U.S., its territories and possessions
> principally for services
> performed through the use of service employees
SCA coverage is triggered via inclusion of the SCA clause (FAR 52.222-41) and one ormore incorporated Wage Determinations (“WDs”)
Act intended to remove wages as a bidding factor in the competition offederal service contracts and to provide wage protection to serviceemployees.
Wage Determination (WD)
> Wages and H&W are stipulated as hourly rates
> Vacation and Holiday require minimum weeks and days, respectivelyas set forth in WD
> H&W payment requirements are different between standard oddnumbered WDs and even WDs
– Odd WDs require H&W payment “per employee” for all hours compensated
– Even WDs require payment by “average cost” for all hours worked by serviceemployees
> Employees must be notified of WDs applicable to their projects
• Sets the minimum wages and fringe benefits for job classificationsfor a specific geographical region. ALL four must meet minimum.• Minimum hourly Wage for the job position• Minimum hourly Health & Welfare (H&W) Benefit• Minimum annual Vacation Benefit• Minimum Holiday Benefit
WageDetermination
(WD)
EBX1
Slide 5
EBX1 what is the difference between odd and even wage determinations?Edwards, Brian X., 2/5/2015
Compliance Requirements: Wages
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> Wages may be paid by hourly rate(s), salary, piecework, bonuses,or any combination of these
> Regardless of pay method, employer must maintain a record of allhours worked
– And ensure that the proper SCA rate is paid for all covered hours in each week
– The difference between SCA and DBA is that DBA requires certified payroll
> Pay records must separately report wages paid vs. fringe benefitspaid in cash
Compliance Requirements: Health &Welfare
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> Under both types of Standard WDs, employers may comply withthe required benefits by providing
– Cash payment for the H&W rate
– Or providing bona fide benefits to the workers
– Or paying a combination of cash and bona fide benefits
– Benefits must be provided to part-time and temporary employees on a proratabasis. No exceptions.
> “Bona Fide Benefits” are defined as:
– “a legally-enforceable obligation, communicated in writing to workers, providingpayment of benefits under a definite formula for determining amount ofcontribution and benefits provided, and paid by the employer irrevocably to anindependent trustee or third-party administrator pursuant to a fund or plan”
– Reference 29 CFR Part 4, Sec. 4.171
SCA Compliance Issues
> Compliance with SCA seems straightforward at face value, butimplementation is far more complex
> Contractors face a host of SCA compliance challenges such as:
– Making determinations on SCA coverage of a given contract
– Navigating simultaneous compliance with other labor laws (e.g., Davis Bacon Act)
– Identifying covered personnel
– Properly mapping internal labor categories to Wage Determinations
– Recognizing positions exempt from SCA (e.g., professional employees)
– Calculating fringe benefits in compliance with the regulations
Related Acts and Regulations
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Non-Displacement of Qualified Workers
> Final Rule became effective January 18, 2013
> Requires service contractors to offer employment to the service employeesof incumbent contractors on successor contracts
– Government’s stated purpose behind the mandate is to promote “economy andefficiency” and reduce “disruption” to service delivery during periods of transition
– Implemented into regulation at FAR Subpart 22.12
> Obligates successor service contractors to offer “service employees”employed under predecessor contracts “a right of first refusal ofemployment” when the successor contract is for “same or similar” servicesand at the “same location” as the predecessor contract
– Successor contractors are required to flow down the “right of first refusal”obligation, among others, to their subcontractors
– Contracts and subcontracts under the simplified acquisition threshold areexempted
– Exceptions do exist (e.g., NOT required to offer employment to predecessorservice employees who work on both a Federal contract and a nonfederal contractas part of a single job.)
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Affordable Care Act
> The employer healthcare mandate of the Affordable Care Act (ACA) isdelayed until 2015, but will have significant impact on SCA contractors
> ACA generally applies to employees with at least 50 full-time employees
– Full-time employees are employees working on average 30+ hours a week
– Look back periods should be no less than 3 months and no more than 12
> ACA will require employers to: 1) offer health care coverage and 2) offeraffordable coverage at or exceeding a minimum benefit level
– If one or both of these requirements are not met penalties are assessed
> Penalties for non-compliance can be upwards of $3,000 annually peremployee
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Affordable Care Act
> Despite the employer mandate delay, planning should begin now!
> Cash in lieu of fringe benefits, at least medical coverage, will likely expireas a viable option for satisfying H&W requirements
> It will become increasingly important to select the right plan and keepthose plans affordable
– H&W rates have increased on average 3-3.5% each year in comparison toincreases in the cost of single health insurance coverage of >5%
– Consider requiring employees to take company medical coverage
> To stay competitive and avoid penalties, contractors should pay up to theH&W rate to fund compliant health care programs, and provide cash in lieuor other benefits with any remaining H&W required
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Minimum Wage
> Applies to new contract awards and bi-lateralcontract modifications over 6 months effectiveJanuary 1, 2015
> Applies to SCA & DBA act work- Expands definition for minimum wage purposes of covered employee
- Any employee who spends more than 20% of their time supportingcovered contracts
> Wage determinations may still show prevailingwages less than $10.10
MAS Contracts With SCA
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MAS Contracts With SCA
> SCA appears in a number of Federal Supply Schedules including:
– IT Schedule 70
» Mostly exempt labor categories, but help-desk and web development may notbe
– Mission Oriented Business Integrated Solutions (MOBIS), ProfessionalEngineering Services (PES), Financial and Business Solutions (FABS), HumanResources and Equal Employment Opportunity (Schedule 738X)
» Most receive professional exemption; administrative personnel are generallycovered
– Temporary and Administrative Professional Staffing (TAPS), Allied Healthcare(VA Schedule 621 I)
» VA has stated that doctors are the only exempt classifications among medicalcommunity
– Security (Schedule 84), Logistics Worldwide (Schedule 874V), FacilitiesMaintenance (03FAC), Office, Imaging, and Document Solutions (Schedule 36)
» Significant SCA coverage of labor categories offered
SCA in MAS Contracts
> SCA and MAS contracts have inherent complexities for servicecontractors on their own
> Compliance with SCA within an MAS contract raises a number ofadditional complexities unique to this contract environment
– E.g., SCA affects pricing within a contracting vehicle intended for commercialitems and services (but SCA is not found in the commercial marketplace)
> The Department of Labor has not issued guidance on how to dealwith these increased complexities
– GSA quietly issued internal guidance December 2013
– Further guidance expected soon
MAS Contracts With SCA
> Solicitations will contain:
– The SCA clause (FAR 52.222-41)
– An “index of wage determinations” – approximately 40 pages of WDscovering various U.S. locations and specific types of work
» Not all solicitation include this. Other WDs are only incorporated at the taskorder level
– Direction to complete a matrix of:
» All SCA eligible labor categories proposed
» Each SCA equivalent labor classification
» The WD the offered prices are based on
– A description of the three price adjustment methods offered
MAS Contracts With SCA
> Example of SCA Matrix included in solicitations:
> Contractors are directed to include a statement with the SCA Matrix like thefollowing:
– "The Service Contract Act (SCA) is applicable to this contract and it includes SCAapplicable labor categories. The prices for the indicated (**) SCA labor categories arebased on the U.S. Department of Labor Wage Determination Number(s) identified in theSCA matrix. The prices offered are based on the preponderance of where work isperformed and should the contractor perform in an area with lower SCA rates, resultingin lower wages being paid, the task order prices will be discounted accordingly."
SCA Matrix
SCA Eligible Contract Labor Category SCA Equivalent Code - Title WD Number
Administrative Assistant 01011 - Accounting Clerk I 05-2059
Secretary 01311 - Secretary I 05-2059
Pre-Award Issues
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Pre-Award Issues
> Prices are negotiated/compared using commercial sales; however,SCA is not a commercial marketplace requirement
– WD requirements may be higher than rates and benefits provided toemployees on commercial contracts
> SCA requirements vary by locality whereas GSA rates generally do not
> Often the location where work will be performed is unknown duringnegotiations, but this information is crucial to pricing decisions.
Pre-Award Issues
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>Unless a contractor can successfully eliminate the PriceReductions Clause (PRC) from the contract, some price-discount relationship between the GSA/SCA contract and acommercial customer(s) will likely result– GSA’s going in position for the Basis of Award is “all commercial customers”
– An SCA contract price may now be tied to a non-SCA contract? At a differentlocation?
>GSA already routinely scrutinizes labor categoryclassifications and the fulfillment of stated qualifications byperforming resources. Contractors now must also ensurelabor categories are appropriately mapped to WDclassifications– If it is unclear whether or how a labor category on the contract is covered by a
wage determination, the contractor should contact the CO to request aconformance
Pre-Award Issues
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> Contractors will have three methods for price adjustment :
– Method 1: SCA adjustment clause (52.222-43) for incorporated WD revisions
» Contractors must notify the CO of any increase/decrease from the revised WD orindex of WDs within 30 days
– Method 2 : Fixed escalation negotiated prior to award (MAS clause I-FSS-969)\
» This eliminates post-award adjustments from WD revisions and places additional risk on thecontractor
» Generally, GSA does not negotiate fixed escalation greater than 3% (health care coverageis increasing by more than 5% per year)
– Method 3 : Adjustments based on a commercial price list refresh (MAS clause 552.216-70)
» Not applicable to many service contractors
Post-Award Issues
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Post-Award Issues
> Post-Award compliance will vary based on contract termsnegotiated
> SCA rates change based on geographical location, whereas GSArates usually do not– SCA matrix requires contractors to lower their SCA eligible GSA rates in locations
where lower wages are paid
– This requires an extra tracking mechanism GSA contractors would not otherwiseneed
> Depending on the PRC clause and BOA customer(s), GSA pricesmay fall below originally negotiated prices. However, employeesmust be paid in accordance with minimum wage and benefitrequirements
Recommendations and Guidance
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Recommendations for MAS Contracting
> Consider use of the cost-build approach for pricing– Unless commercial rates are both available and more favorable
> May attempt to negotiate a price premium
on the basis of onerous SCA compliance
costs not present in commercial work
> Negotiate price using the highest WD
requirements where work is expected
to be performed, then discount accordingly
after award– Certain GSA acquisition centers may allow
for the establishment of rates by location as
new work is won
Cost Build-up ModelSCA Wage
Health & Welfare
Other Fringes
Overhead
General & Administrative
Target Profit
+ Industrial Funding Fee (0.75%)
= Proposed MAS Pricing
Recommendations for MAS Contracting
> Attempt to negotiate the PRC out of the contract (very difficult task),otherwise:– Request a different trigger for SCA labor categories
– Request a price floor equal to SCA minimums + burdens
– Tie pricing to another customer with SCA labor categories (will not be commercial)
> Price adjustment decisions will be based on contractor circumstances andrisk appetite
Guidance
> GSA anticipated to issue guidance on SCA compliance in theGSA/VA schedules in the near future…..
> In the meantime, a contractors’ best recourse is to engage the COand DOL when questions or issues arise– Obtain responses in writing to demonstrate a good faith effort to comply
Questions ?
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