McNamara-O’Hara Service Contract Act

Posted on August 24, 2020 Compliance

The McNamara-O’Hara Service Contract Act (SCA) (41 U.S.C. §§ 6701-6707) establishes standards for prevailing compensation and safety and health protections for employees performing work for contractors and subcontractors on service contracts entered with the federal government and with the District of Columbia. SCA provisions are applicable to contracts for which the principal purpose is to provide services in the United States through use of service employees. The Act defines “service employee” as any employee engaged in performing services on a covered contract other than a bona fide executive, administrative or professional employee who meets the exemption criteria set forth in 29 C.F.R. §541.

The SCA requires contracting agencies to incorporate new or revised SCA wage determinations (WDs) into contracts for services for each solicitation, award, or modification to exercise an option, extend the contract, or change the scope of work (whereby labor requirements are significantly affected). The Department of Labor (DOL) issues wage determinations on a contract-by-contract basis in response to specific requests from contracting agencies. These determinations are incorporated into the contract. For service contracts $2,500 and under, SCA Section 2(b) (1) requires payment of the minimum wage in the Fair Labor Standards Act. For service contracts over $2,500, the act requires the contracting officer to incorporate into the contract.

For prime contracts in excess of $100,000, contractors and subcontractors must also, under the provisions of the Contract Work Hours and Safety Standards Act, as amended, pay laborers and mechanics, including guards and watchmen, at least one and one-half times their regular rate of pay for all hours worked over 40 in a workweek. The overtime provisions of the Fair Labor Standards Act may also apply to SCA-covered contracts.

Additionally, employers may pay subminimum wages to workers with disabilities who are performing on SCA contracts, as is permitted by Section 14(c) of the FLSA. Regulations. 29 C.F.R. Part 4.6(o) instructs the employer to follow the same “conditions and procedures” required for the employment of workers with disabilities under section 14(c) of the FLSA. However, this exception is from the prevailing wage only. Employers are still required to pay the full fringe benefits, or the equivalent dollar cash payment in lieu of providing the benefits, to service employees who have disabilities for the work performed.

The SCA does not apply to certain types of contract services. The contracts exempt from SCA coverage include:

  • Contracts for construction, alteration, or repair, including painting, and decorating, of public buildings or public works (these are covered by the Davis-Bacon Act);
  • Work required in accordance with the provisions of the Walsh-Healey Public Contracts Act;
  • Contracts for transporting freight or personnel where published tariff rates are in effect;
  • Contracts for furnishing services by radio, telephone, telegraph, or cable companies subject to the Communications Act of 1934;
  • Contracts for public utility services;
  • Employment contracts providing for direct services to a federal agency by an individual or individuals;
  • Contracts for operating postal contract stations for the U.S. Postal Service;
  • Services performed outside the U.S. (except in territories administered by the U.S., as defined in the Act); and
  • Contracts subject to administrative exemptions granted by the Secretary of Labor in special circumstances because of the public interest or to avoid serious impairment of government business.

Violations of the SCA may result in the withholding of contract payments in sufficient amounts to cover wage and fringe benefit underpayments, contract termination and liability for any resulting costs to the government, legal action to recover the underpayments, and debarment from future contracts for up to three years. The SCA’s compensation requirements are enforced by DOL’s Wage and Hour Division. The SCA safety and health requirements are enforced by the DOL’s Occupational Safety and Health Administration (OSHA).

Contractors and subcontractors may challenge determinations of violations and debarment before a DOL Administrative Law Judge (ALJ). Interested parties may appeal ALJ decisions to the Department of Labor’s Administrative Review Board. Final Board determinations on violations and debarment may be appealed to and are enforceable through the federal courts.

Typical SCA compliance problems that contractors face include

  • Underpayment of service workers due to misclassification;
  • Erroneously considering workers exempt without regard to 29 C.F.R. Part 541 rules;
  • Failure to make timely payment of wages or fringe benefit contributions;
  • Lack of proper recordkeeping when cash payments are made to satisfy fringe benefit requirements;
  • Failure to notify service employees of the applicable wage and fringe benefit requirements, or failure to post the “Notice to Employees Working on Government Contracts” at a prominent and accessible place at the worksite;
  • Failure to use the conformance procedure for unlisted classes of employees;
  • Failure to segregate and keep records on hours spent on contract work and non-contract work for employees who do both; and
  • Failure to implement rate increases (if any) in a new wage determination in a multi-year contract subject to annual appropriations.

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