Department of Homeland Security 

Office of Inspector General 

DHS Contracts With Low Wage Payments 


OIG-10-10 November 2009 
 

Office of Inspector General 

U.S. Department of Homeland Security

Washington, DC 20528 

November 5, 2009 

MEMORANDUM FOR: The Honorable Elaine C. Duke 

Under Secretary for Management 

FROM: Richard L. Skinner 

 Inspector General 

SUBJECT: Letter Report: DHS Contracts With Low Wage Payments 

(OIG-10-10) 

We initiated a review of Department of Homeland Security’s contracts with a 

predominance of low-wage positions to determine whether the actual wages paid for 

subcontracted low-wage work complied with prevailing wage structures and the prime 

contractor’s initial wage schedule. The current federal government contracting process, 

the Department of Labor’s significant role and responsibilities regarding wages and labor 

management, and the absence of subcontractor information maintained in the Federal 

Procurement Data System Next Generation, the federal government’s electronic database 

for specific contract data, affected our efforts to address this review’s objectives. 

Therefore, we reported on the processes and procedures that cover contractor and 

subcontractor wage payment activities. 

The report does not contain recommendations. DHS agreed with our report and we 

incorporated their technical comments. 

Consistent with our responsibility under the Inspector General Act, as amended, we are 

providing copies of our report to appropriate congressional committees with oversight 

and appropriation responsibility over the Department of Homeland Security. The report 

will be posted on our website. 

Should you have any questions, please call me, or your staff may contact 

Carlton I. Mann, Assistant Inspector General for Inspections at (202) 254-4100. 
Background 

This report presents the results of our review, DHS Contracts With Low Wage Payments. 

We conducted this review to address concerns raised by Representative Bennie 

Thompson, Chairman, House of Representatives Committee on Homeland Security, 

regarding findings in the Center for American Progress December 2008 report, Making 

Contracting Work for the United States – Government Spending Must Lead to Good Jobs. 

That report concluded that in instances where contractors had subcontracted work in lowskilled occupation categories, the subcontractors had not followed the wage schedules the 

contractors had promised, despite prevailing wage requirements. 

Results of Review 

The following points summarize the results of contracting information that we identified 

during our review, which impacted our ability to determine whether actual wages paid for 

subcontracted low-wage work complied with prevailing wage structures and wage 

schedules. 

•	 Government contracts for services such as food, guard, maintenance, and 

janitorial services are subject to wage, hour, benefits, safety, and health standards 

under the McNamara-O’Hara Service Contract Act of 1965 (SCA), as amended.1 

Under such contracts, DHS and other federal departments are responsible for 

obtaining the appropriate wage determination(s) from the Department of Labor 

(DOL) and incorporating them into the solicitations and resulting contracts. DOL 

is responsible for not only establishing and maintaining prevailing wage 

determinations, but also for enforcing the payment of prevailing wage rates under 

Government contracts subject to the Service Contract Act. 

•	 During our review, we learned that the DOL has not defined the term “low wage;” 

therefore, based on discussions with Chairman Thompson’s senior staff, we 

focused our contract selections on janitorial and food service occupations, which 

were services specifically identified in Chairman Thompson’s request. From FY 

2006 to FY 2008, DHS maintained three service contracts for janitorial and food 

services; however, information in the contracting database did not indicate 

whether subcontractors performed the services under these contracts. Also, there 

is no indication whether the services provided under these contracts would be 

considered as low-wage services. 

1

 41 U.S.C. 351 et seq. 

Page 1 
 

Overview of DHS’ Contracting Structure 

The Office of the Chief Procurement Officer (OCPO) supports and oversees DHS’ 

acquisition program. Procurement offices within the following components are headed 

by a designated Head of Contracting Activity (HCA) responsible for managing 

procurement functions: 

• Customs and Border Protection (CBP) 

• Customs and Border Protection’s Secure Border Initiative (CBP SBInet) 

• Federal Emergency Management Agency (FEMA) 

• Federal Law Enforcement Training Center (FLETC) 

• Headquarters Office of Procurement Operations (OPO) 

• Immigration and Customs Enforcement (ICE) 

• Headquarters Office of Selective Acquisitions (OSA) 

• Transportation Security Administration (TSA) 

• U.S. Coast Guard (USCG) 

• U.S. Secret Service (USSS) 

An OCPO official explained that the chief procurement officer (CPO) has warrant 

authority over each HCA, which allows them to execute contracts on behalf of DHS.2 To 

ensure accountability of HCAs’ compliance with applicable acquisition and contracting 

rules, regulations, policies and procedures, the CPO maintains the ability to revoke an 

HCA’s warrant authority. An OCPO official informed us that the CPO has never used 

this revocation authority, but has elevated issues to component heads. 

OCPO’s Oversight and Strategic Support (OSS) division is responsible for conducting 

oversight reviews to ensure compliance with applicable statutes, regulations, and DHS 

policies. OSS has contract pricing experts on staff to determine whether contract prices 

are negotiated with proper consideration of labor laws, including required wage 

determinations. 

OCPO’s Acquisition Policy and Legislation (APL) branch develops DHS contracting 

policies and processes to ensure compliance with DOL standards. Within APL, an 

agency labor advisor serves as the DOL liaison. At the component level, HCAs for CBP, 

FEMA, and OPO appointed a labor advisor to serve as point of contact for contract labor 

or wage issues.3

 For those components that have not designated a labor advisor at the 

component level, any labor or wage issues are directed to the component’s policy 

branch/division. 

2

 Warrant authority is a delegated authorization to enter into contractual relationships and commit the government to 


the expenditure of funds. 


3

 Homeland Security Acquisition Manual (HSAM) 3022.101-170. 


Page 2 
DOL Maintains Authority and Responsibility for Enforcing Service Contract Act 

Labor Requirements 

DOL’s Employment Standards Administration (ESA) mission is to enhance the welfare 

and protect the rights of American workers. ESA’s Wage and Hour Division (WHD) 

enforces the prevailing wage requirements of the Davis-Bacon Act4

 and the SCA 

applicable to federal contracts for construction and services. 

Government contracts for services such as food, maintenance, janitorial, and guard and 

security services are subject to wage, hour, benefits, safety, and health standards under 

the SCA, as amended.5

 The SCA requires DOL to set locally prevailing wage rates and 

other labor standards for employees of contractors furnishing services to the federal 

government. 

WHD administers and enforces the SCA by providing compliance assistance and 

conducting investigations. WHD is the sole enforcement authority of the SCA, while 

DHS plays a supportive role, as shown in figure 1. 

4

 The Davis-Bacon Act and related acts apply to contractors and subcontractors performing on federally funded or 

assisted contracts in excess of $2,000 for the construction, alteration, or repair (including painting and decorating) of 

public buildings or public works. Under the Davis-Bacon Act and related acts, contractors and subcontractors must pay 

their laborers and mechanics employed under the contract no less than the locally prevailing wages and fringe benefits 

for corresponding work on similar projects in the area. 

5

 The SCA gives labor standards protection to employees working under contracts and subcontracts for federal 

agencies. It requires that, for contracts more than $2,500, contractors pay their employees, at a minimum, the wage 

rates and fringe benefits that the DOL determined to be prevailing in the locality where the contracted work is 

performed. 

Page 3 
Role of WHD 

 

Figure 1. Roles of WHD and DHS 

Role of DHS 

Serves as the enforcement authority of 

the SCA requirements for prevailing 

wages 

Makes initial determination of whether 

contracted services are under the SCA, 

which requires a wage determination 

Provides SCA compliance assistance to 

agencies in determining coverage 

Receives SCA compliance assistance 

from DOL 

Sets prevailing wage rates and wage 

determinations 

Obtains wage determinations from DOL 

and includes them in solicitation for 

contract awards 

Reviews inquiries and makes decisions 

on wage determination challenges 

Directs wage determination inquiries to 

DOL 

Determines whether contractors and 

subcontractors are in compliance with 

applicable requirements 

Notifies contractors of requirements to 

advise workers of their rights 

Processes wage complaints Forwards wage complaints to DOL 

Initiates and conducts wage 

investigations 

Cooperates with DOL in investigations 

Determines recoverable damages and 

provides agency notifications 

Responds to DOL notifications 

Debars or suspends contractors and 

notifies agencies 

Reviews DOL list of excluded 

contractors prior to awarding contracts 

WHD conducts investigations of potential SCA violations. These investigations are 

primarily complaint-driven, but may also be initiated by WHD in response to DOL 

strategic plans or other agency initiatives. Contractors are required to provide notice to 

workers regarding their wages and benefits, and must post a WHD publication before 

contract performance begins. Federal agencies include specific clauses in contracts to 

inform the contractor of the labor standards requirements.6 

Workers are the primary source of wage complaints to WHD, although contractors, 

subcontractors, agencies, or other interested parties may also file complaints. When an 

agency receives a wage complaint, it must forward the complaint to WHD on behalf of 

the complainant. Typically, a WHD investigation may include a review of wage 

determinations; adherence to applicable labor, safety, and health laws; benefits; and 

placement of required worker rights notices. 

If WHD investigators determine that a prime contractor or subcontractor is in violation of 

wage payment standards, the investigators notify the contracting agency of the violation 

6

 Federal Acquisitions Regulations (FAR) 22.1018 and 52.222-41. 

Page 4 
and the amount of underpayment. The contracting officer is required to withhold that 

amount from the prime contractor regardless of whether the prime contractor or the 

subcontractor committed the violation.7 

DHS Does Not Maintain a Direct Relationship With Subcontractors 

In federal government contractual relationships, labor laws apply to both the prime and 

subcontractor. The federal government maintains oversight responsibility for the prime 

contractor; however, the prime contractor assumes responsibility for subcontractor 

activities in support of the prime contract. This limits DHS’ ability to ensure compliance 

with entities other than the prime contractor.8 

The Defense Contract Audit Agency (DCAA) provides audit-related services for federal 

government contracts. Where a contractor has contracts with more than one Government 

agency, the Single Audit Act requires that only one set of Government auditors are 

permitted to conduct reviews of the contractor’s books and records. That agency is 

generally DCAA. Even in those rare instances where DHS is the only Government 

agency that has contracts with a particular contractor business segment, DHS relies on 

DCAA to perform the audits of the contractor’s books and records, because DCAA has 

the audit expertise to perform these reviews. 

Wage Information for Contract Workers Is Absent From the Contract Database 

The Federal Procurement Data System Next Generation (FPDS-NG) is the federal 

government’s electronic database for specific contract data. FPDS-NG includes a field to 

indicate when a contract award requires a subcontracting plan; however, the requirement 

is only for subcontracts that are required in order to satisfy a specific socioeconomic goal, 

and does not include any other specific subcontract information. Additional data about 

subcontracts are contained in the Electronic Subcontract Reporting System (ESRS). 

However, subcontractor information maintained in the ESRS does not include wage 

determinations or any information regarding wages paid to contracted workers. 

To obtain a sample of contracts for our review, we asked OCPO to provide (1) open and 

closed janitorial and food service contracts with subcontracts awarded during FYs 2006 

to 2008, and (2) any such contracts that remained open during the first half of FY 2009, 

regardless of when awarded. Data provided showed that from FY 2006 to 2008, there 

were only three DHS contracts for janitorial services. No janitorial or food service 

contracts remained open during the first half of FY 2009. 

The three DHS contracts identified were for janitorial services, totaling approximately $2 

million for services performed from FY 2006 to 2008. Information obtained from FPDSNG showed that the contracts included a code indicating that a subcontracting plan was 

required to satisfy a specific socioeconomic goal. 

7

 FAR 52.222-41(k). 

8

 FAR 42.505(b)(1). 

Page 5 
Conclusion 

The current federal government contracting process, DOL’s significant role and 

responsibilities regarding wages and labor management, and the absence of subcontractor 

information maintained in the FPDS-NG impacted efforts to address our review 

objectives. Therefore, we have reported on the processes and procedures that cover 

contractor and subcontractor wage payment activities; however, we did not include any 

recommendations. 

Page 6 
Appendix A 

Purpose, Scope, and Methodology 

We conducted this review in response to a January 5, 2009, request 

from Representative Bennie Thompson, Chairman of the House 

Committee on Homeland Security, regarding concerns over 

contracting processes in which contractors may have subcontracted 

work in low-wage occupation categories, but subcontractors had 

not followed the wage schedules promised by contractors. His 

request made no specific references to DHS contracts. Our 

objectives were to (1) review selected DHS contracts with a 

predominance of low-wage positions, and (2) determine whether 

the actual wages paid for subcontracted low-wage work complied 

with prevailing wage structures and the prime contractor’s initial 

wage schedule. 

Since DOL has not defined the term “low wage,” we focused our 

contract selections on janitorial and food service occupations, 

which were services specifically identified in Chairman 

Thompson’s request, and designated by his senior staff as types of 

“low wage” services. 

To obtain a sample of contracts for our review, we asked OCPO to 

provide (1) open and closed janitorial and food service contracts 

with subcontracts awarded during FYs 2006 to 2008, and (2) any 

such contracts that remained open during the first half of FY 2009, 

regardless of when awarded. We reviewed and analyzed 

applicable laws, policy documents, and records governing 

contracting and related areas. We also interviewed DOL officials, 

and DHS OCPO officials responsible for contracting and 

acquisition activities. We conducted our fieldwork from March to 

July 2009. 

This review was conducted under the authority of the Inspector 

General Act of 1978, as amended, and according to the Quality 

Standards for Inspections, issued by the Council of the Inspectors 

General on Integrity and Efficiency. 

Page 7 
Appendix B 

Major Contributors to This Report 

Deborah Outten-Mills, Chief Inspector 

Annie Glenn, Senior Inspector 

Lawrence Anderson, Inspector 

Page 8 
Appendix C 

Report Distribution 

Department of Homeland Security 

Secretary 

Deputy Secretary 

Chief of Staff for Operations 

Chief of Staff for Policy 

Deputy Chiefs of Staff 

General Counsel 

Executive Secretariat 

Director, GAO/OIG Liaison Office 

Assistant Secretary for Office of Policy 

Assistant Secretary for Office of Public Affairs 

Assistant Secretary for Office of Legislative Affairs 

Chief Information Officer 

Chief Information Security Officer 

Chief Procurement Officer 

OCPO Audit Liaison 

DHS Audit Liaison 

CBP Audit Liaison 

ICE Audit Liaison 

TSA Audit Liaison 

FEMA Audit Liaison 

USCG Audit Liaison 

USSS Audit Liaison 

FLETC Audit Liaison 

Office of Management and Budget 

Chief, Homeland Security Branch 

DHS OIG Budget Examiner 

Congress 

Congressional Oversight and Appropriations Committees, as 

appropriate 

Page 9 
ADDITIONAL INFORMATION AND COPIES 

To obtain additional copies of this report, please call the Office of Inspector General (OIG) at (202) 254-4100, 

fax your request to (202) 254-4305, or visit the OIG web site at www.dhs.gov/oig. 

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misconduct relative to department programs or operations: 

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Attention: Office of Investigations - Hotline, 

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