DOL Debars Contractor for Wage and Hour Violations

The Department of Labor (“DOL”) recently debarred Garcia Forest Service LLC (“Garcia”) and its president for three years for violating the McNamara-O’Hara Service Contract Act (“SCA”) and the Contract Work Hours and Safety Standards Act (“CWHSSA”).

The SCA requires that contractors performing services on covered federal contracts pay their service workers no less than the wages and fringe benefits prevailing in the locality. Garcia violated the law by paying its employees on a production-based wage, rather than the required hourly wages that were incorporated into its Forest Services contract. Garcia failed to pay its employees working on a reforestation project the required fringe benefits, minimum wage, overtime, and holiday way. The contractor also failed to maintain accurate pay and time records.

The president testified that he made the decision to pay one of his crews on a production basis to ensure that the work would be completed on time. The DOL investigation revealed that although the workers all traveled to and from the worksite together, they had “wildly inconsistent hours of work.” The DOL determined that “it was clear from this that the time sheets had been manipulated to make it appear that they were being paid on an hourly basis.”

Although it appeared that Garcia’s decision to switch the employees to a production-based wage was motivated by a good faith attempt to incentivize the workers to complete the contract on time, the SCA requires mandatory debarment for most violations absent “unusual circumstances.” The burden of establishing unusual circumstances lies with the contractor. DOL considers the seriousness of the violation; whether the violation was deliberate, willful, or the result of deliberate neglect; whether the contractor cooperated with the investigation, repaid amounts owed, and assured future compliance; and whether the contractor has previously been investigated for non-compliance.

In recent years, the DOL has increased the number of investigators in the Wage and Hour Division workforce. While SCA audits are often initiated as a result of an employee complaint, the DOL had recently started initiating audits on its own, conducting both random audits as well as following up on previous offenders. Now more than ever, contractors must make sure that their human resources department and back office are knowledgeable about the SCA and the requirements for compliance.

Stephanie Wilson is an attorney at the Washington, DC business law firm, Berenzweig Leonard, LLP. She can be reached at SWilson@BerenzweigLaw.com. 

What’s the Real Impact of the New Federal Contractor Minimum Wage Increase?

On February 12, 2014, President Obama signed an Executive Order raising the minimum wage to $10.10 per hour for federal contractors, starting January 1, 2015. Although the Administration has stated that the increase will apply only to new federal contracts, in reality it may end up applying to some existing federal contracts as well. The immediate impact of the minimum wage increase will vary depending on job and locality, but there are potential long-term implications of which companies should be aware. 

The Service Contract Act requires federal contractors performing service contracts to pay service employees no less than the wage rates set forth in Department of Labor wage determinations that are based upon local prevailing wages. The Service Contract Act recognizes that prevailing wages may change during the course of a service contract, and new wage determinations are incorporated into existing contracts when option years are exercised.

It is likely that, beginning no later than January 1, 2015, the prevailing wages set in the Department of Labor’s wage determinations will be at least $10.10, as that will be the new “prevailing wage” for the lowest-paid labor categories. If this happens, then when an option period on an existing service contract is exercised following the issuance of the new wage determination, these new minimum wages will apply. As with all increases in wage determinations, contractors will be entitled to a price adjustment to reflect any increases in wages and fringe benefits required by a new wage determination.

Because the majority of federal contractors are already being paid wages greater than $10.10 an hour, the immediate impact of the wage increase is minimal for most contractors in most areas of the country. The impact will be the greatest in the middle of the country where prevailing wages are lower, and for workers throughout the country working in lower-skilled service jobs, such as janitorial and food service positions. Raising the minimum wage of these traditionally lower-paid positions will likely cause a ripple effect eventually leading to an increase in the prevailing wages for other labor classifications and nearby regions, which will in time come to be reflected in the Department of Labor’s wage determinations.

Federal contractors should keep in mind both the immediate and long-term impact this minimum wage increase may have on their existing contracts and be aware of their right to request a price adjustment for any increases to the wages and fringe benefits required by a new wage determination.  The lawyers at Berenzweig Leonard have experience helping government contractors navigate the complexities of the Service Contract Act.

Stephanie Wilson is an attorney at Berenzweig Leonard, LLP, a business law firm in the Washington metro area. She can be reached at swilson@berenzweiglaw.com.

The President’s Minimum Wage Announcement Ignores Current Rates

President Obama recently announced his intent to sign an Executive Order which would unilaterally increase the minimum wage for certain workers on federal projects. The current federal minimum wage rate is $7.25 an hour, and President Obama is looking to raise it to $10.10 per hour. At first glance, one may think that such an increase will have a widespread impact on the Washington, DC metro area, given its large concentration of federal contractors.

This will not be the case. Such a change would only apply to new or revised federal contracts, and not to current federal contracts. More significantly, the majority of federal contractors are already being paid wages that are over the proposed minimum $10.10 rate, depending on their wage classification.

For example, a bulldozer operator on a federal project in Fairfax County can make a minimum rate of $20.40 per hour, and a court security officer in Washington, D.C. can make a minimum rate of $24.72 per hour. These rates are controlled by the Department of Labor through the Davis-Bacon Act and the Service Contract Act. Additionally, many federal contractors are union members, meaning that their wage rates and benefits are controlled by collective bargaining agreements. As a result, the President is targeting an issue that is already largely covered by federal law, wage determinations and collective bargaining.

President Obama plans to highlight his Executive Order in tonight’s State of the Union address. While the potential increase may derive from good intentions, it imposes a requirement on an already heavily-regulated industry, and many business owners know that they are already in compliance with the increase.

Katie Lipp is an attorney with the Washington, DC regional business law firm Berenzweig Leonard, LLP. Katie can be reached at klipp@berenzweiglaw.com.

Small Business Subcontractors: Accelerated Payments

The Office of Management and Budget has told federal agencies that they should accelerate their payments to prime contractors in order for the primes to pay their subcontractors sooner.  Instead of paying primes 23-30 days after they submit an invoice as is typical, agencies should now pay the prime’s invoices 15 days after submission and the primes are “required …to the maximum extent practicable” to make accelerated payments to their subcontractors.

The new policy is being carried out by a new clause in the Federal Acquisition Regulation (FAR), FAR Sec. 52.232-99, Providing Accelerated Payment to Small Business Subcontractors (DEVIATION).

Although technically this new policy can apply only to government solicitations issued on or after August 16, 2012, agencies can insert this new clause into existing contracts “with appropriate consideration.”
Berenzweig Leonard’s government contract experience is something prime contractors as well as small business subcontractors can count on to help them take advantage of this new accelerated payment policy.

Terrence M. O’Connor is the Director of Government Contracts at Berenzweig Leonard, LLP, a business law firm in the Washington, DC area. He can be reached at TOConnor@BerenzweigLaw.com.