Regulations are unquestionably mandatory. There are two important laws that federal contractors and subcontractors must be aware of:
- The Davis-Bacon Act applies to U.S. Government contracts in excess of $2,000 for the construction, alteration or repair (including painting and decorating) of public buildings or public works in the United States. (40 U.S.C. – 3141 et seq.)
It requires that all laborers or mechanics employed directly on the site receive at least the prevailing wage rates, including benefits, as determined by the Secretary of Labor in a wage determination. (Federal Acquisition Regulation (FAR) 22.403-1)
- The Service Contract Act of 1965 requires that contractors performing on service contracts in excess of $2,500 must pay their employees at least the wages and fringe benefits found by the Department of Labor to prevail in the locality as stated in the relevant wage determination. (41 U.S.C. – 351 et seq. and FAR 22.2001-1)
Service contracts include, but are not limited to, custodial, janitorial, housekeeping, guard services, food service, lodging, snow, trash and garbage removal, electronic equipment maintenance and operation and maintenance or logistics support of a federal facility. (FAR 22.1003-5)
Are these wage determinations mandatory, or are they simply guidelines for a contractor?
One case at the Armed Services Board of Contract Appeals (“ASBCA”) reminds us that wage determinations are unquestionably mandatory, and not mere guidelines.
Facts of the case: A laundry and dry cleaning contractor was seeking reimbursement of nearly $64,000 from the Army and Air Force Exchange Service related to back wages it had to pay for failure to comply with Labor Department wage laws. The contract was for laundry, clothing alterations and dry cleaning services at Shaw Air Force Base in South Carolina.
Shawview claimed that the Army and Air Force Exchange Service misrepresented that the Wage Determination included in its service contract was a guideline and not a mandatory contract requirement. The ASBCA held that Shawview was wrong on every one of its contentions.
Shawview asserted that two Army and Air Force Exchange Service employees known as “Service Business Managers” told company representatives that the wage determination in their contract was a mere “suggestion” or “guideline” and the actual wages “were up to” Shawview.
After the Department of Labor examined the contract, it required Shawview to pay back wages because of wage determination underpayments. Shawview then filed an appeal.
To begin with, under the terms of the contract, only the contracting officer was authorized to waive or change contract terms, and neither of the Service Business Managers was a contracting officer. Nor did the Service Business Managers have written authority to change a wage determination.
The Board denied Shawview’s appeal. It noted: “The general rule is that even a contracting officer does not have the authority to waive requirements imposed by statute unless the statute so provides.” Only the Secretary of Labor possesses that authority. (Shawview Cleaners, LLC, ASBCA No. 56938, 2010)
Tips for Wage Determinations
- If a wage determination is included or incorporated by reference in your contract, and the contract is subject to the Davis Bacon Act or Service Contract Act, which will be stated in the contract clauses, payment of at least the minimums in the wage determination is mandatory. The wage determinations are not mere “guidelines.”
- Except for the Secretary of Labor (who you are unlikely to encounter at any time during your contract performance), no one can modify, waive or exempt your contract from the Service Contract Act or Davis Bacon Act. Never assume that anyone has such authority except for the Labor Secretary, regardless of what any person tells you.
- A wage determination states a mandatory minimum amount of wages and benefits. Regardless of the wages and benefits you included in your offer (proposal or bid) to the government, you must pay the minimums when you actually perform the contract. Failure to pay them is likely to result in audits and significant penalties.
- If you fail to pay minimums required by a wage determination, the Secretary of Labor may recommend that your company be debarred from federal contracting, which means you will no longer receive new government contracts.
- You can always pay more than the required wages and benefits in the wage determination in your contract, but you can never pay less.