The U.S. federal government mandates certain wage standards for companies performing on government contracts. Two of the most significant pieces of legislation in this realm are the Service Contract Labor Standards (SCLS), formerly the Service Contract Act, and the Davis-Bacon Act (DBA). While both acts aim to ensure fair wages for workers, they cater to different sectors. The SCLS focuses on service employees in contracts with the federal government, whereas the DBA is specific to federal construction contracts. Given the complexities of these acts and the recent updates, understanding their intricacies is crucial for contractors to ensure they are meeting the pay requirements therein.
The SCLS ensures that service employees working on federal contracts receive compensation commensurate with the prevailing private sector wages and benefits in localities across the United States. This mandate allows for accurate pricing of contracts as citizens would be less inclined to take a federal contract job at a lower wage than the private sector’s counterpart as well as ensuring that employees are being paid a fair wage for their work. Depending on the contract’s nature, different provisions might apply, making it essential for contractors to be well-informed.
On July 31st, 2023, an increase to Health & Welfare (H&W) fringe benefits was released by the U.S. Department of Labor’s memorandum. Based on the latest Bureau of Labor Statistics Employment Cost Index summary, the adjustment to the H&W fringe benefit rate increases the rate from $4.80 per hour to $4.98 per hour. This rate, effective June 27, 2023, applies to the prevailing H&W benefits issued under the SCLS.
The SCLS’s regulations specify two health and welfare fringe benefit levels: a low-level benefit determined individually for each employee, and a high-level benefit based on the contractor’s average cost for all services. Additionally, where a contractor is obligated to comply with Executive Order 13706 sick leave obligations, the rates have increased from $4.41 per hour to $4.57 per hour. Contractors must recognize these differences and apply the appropriate rates and methods based on the terms of their specific contracts.
Key Points for Contractors:
Contracts Affected:
- Most H&W rates do not need to be updated immediately across all SCLS The relevant rate is the one defined in the wage determination of the government contract. New wage determinations become effective only when incorporated into a contract through modification.
- New solicitations must include the latest wage determinations if they are issued 30 days (8/27/23) post the new determination announcement. For existing contracts, the update is introduced at the option year via contract modification.
Price/Rate Adjustment Considerations:
- Contractors are likely entitled to price adjustments when the new wage determination is incorporated, covering the difference between old and new payments to employees per FAR 52.222-43. This adjustment also encompasses any related tax or insurance cost increases.
- Preemptively advancing the rate of ongoing contracts without proper authorization might nullify future price adjustment opportunities. The amount recoverable is pegged to the actual difference between the amount paid to employees and the new wage determination, not between wage determinations.
If a new wage determination hasn’t been received by a Contracting Officer (CO) in a significant time, it’s prudent for the contractor to notify the CO. This proactive approach can prevent potential compliance issues and disputes.
Contractors should stay informed and updated on these changes to ensure full compliance and informed decision-making. For areas of uncertainty, Chess Consulting has experts ready to help contractors ensure compliance and facilitate timely implementation of the new rates.
Revisions to the Davis-Bacon Act
On August 23, 2023, a landmark change to the DBA occurred. The Department of Labor (DOL) announced their final rule revising the DBA and Davis-Bacon Related Acts (Related Acts) regulations. This change was the most significant change to the Act in 40 years. Among the many updates, the main three revisions include:
- Return to the “Three Step Method”: Previously used from the DBA’s inception until its 1983 amendments, this method is used to determine if a wage is prevailing in an area. The change is expected to elevate prevailing wage rates in numerous areas. This impact will be most pronounced in regions where between 30% and 50% of the wages are set by union agreements.
- Enforcement of Wage Determinations as Law: The DOL will now have the authority to uphold DBRA stipulations even if an executive agency failed to include specific DBA clauses or wage determinations in the contract. This adjustment implies that contractors might face accountability for oversights committed by the executive agency during the contract drafting phase.
- Modifications to Conformance and Debarment Protocols: Instead of case-by-case approvals for wage determinations, the DOL will start listing positions that are frequently conformed, streamlining the process.
Based on the changes to these two laws, contractors should be vigilant in how they manage their current and future contracts and understand the internal processes and controls regarding employee compensation. Some key takeaways contractors should consider include:
- Maintain a listing of contracts with the SCLS requirements and relevant contract details (i.e., period of performance, agency, key personnel, anniversary date, applicable wage determinations, applicable occupation codes, etc.)
- Establish internal procedures for ensuring current wage determination rates are maintained and available to relevant functions (i.e., HR, Enrollment Operations, etc.)
- Coordinate with Program Managers to assign contract responsibilities, discussing judgements relating to wage determinations and document reasoning, and performing periodic touchpoints to confirm operational compliance.
- Liaise with the Internal Audit function to establish and maintain a SCLS /DBA audit workplan.
- Develop and deliver training to operational personnel at contract outset and periodically over the contract lifecycle.