U.S. DEPARTMENT OF LABOR

PREVAILING WAGE CONFERENCE 2010 4(c)HEARINGS 

 ADMINISTRATIVE HEARINGS 

 REGARDING APPLICATION OF 

 SECTION 4(c) 

 “SUBSTANTIAL VARIANCE” AND 

 “ARM’S-LENGTH” NEGOTIATIONS 
U.S. DEPARTMENT OF LABOR

PREVAILING WAGE CONFERENCE 2010 4(c)HEARINGS 

INTRODUCTION TO SECTION 4(c) 

“SUBSTANTIAL VARIANCE” AND “ARM’S-LENGTH” 

ADMINISTRATIVE HEARINGS

REQUEST PROCEDURES AND RELEVANT TIME FRAMES

APPEALS TO THE ADMINISTRATIVE REVIEW BOARD 
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U.S. DEPARTMENT OF LABOR

PREVAILING WAGE CONFERENCE 2010 4(c)HEARINGS 

INTRODUCTION TO 

 SECTION 4(c) 

 “SUBSTANTIAL VARIANCE” AND “ARM’S-LENGTH” 

 ADMINISTRATIVE HEARINGS 

There are two types of hearing appeals under the SCA concerning 

section 4(c) wage determinations: 

◊ an appeal based on “substantial variance” issues; or 

◊ an appeal based on issues concerning “arm’s-length negotiations.” 

Section 4(c) of the SCA and its implementing regulations provide that whenever a section 

4(c) wage determination is issued: 

◊ the successor contractor is required to pay the wage rates and fringe benefits 

contained therein as based on the predecessor contractor’s collective bargaining 

agreement (CBA). 

◊ These rates are to be paid unless there is found to be a “substantial variance” 

between the collectively bargained rates and those prevailing in the locality, and/or 

the lack of “arm’s-length negotiations” in arriving at the collectively bargained 

rates. 

◊ The implementing regulations are at 29 C.F.R. §§ 4.10 – 4.11. 

“Substantial Variance” (29 C.F.R. § 4.10): 

A finding that a 4(c) “substantial variance” exists, at a hearing before an Administrative Law 

Judge (ALJ), requires that such wage rates and/or fringe benefits in the CBA are found to 

vary substantially from those that would otherwise prevail for services of a similar character 

in the locality. 

◊ The SCA does not define the term “substantial variance,” however, the plain 

meaning of the term requires that a considerable disparity in rates must exist before 

the successorship obligation may be avoided. Furthermore, no discrete comparison 

rate is conclusive. Collectively-bargained rates often can be expected to exceed 

service industry “prevailing rates,” and where some variance should be the norm, a 

finding of “substantial variance” would require a collectively bargained rate clearly 

to fall out of line when compared to a comprehensive mix of rates. 
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U.S. DEPARTMENT OF LABOR

PREVAILING WAGE CONFERENCE 2010 4(c)HEARINGS 

◊ A request for a hearing must contain information and analysis concerning the 

differences between the collectively bargained rates issued and the rates contained 

in: 

 (a) Corresponding federal wage board rates and surveys. While it is not necessary 

that the challenged rate be higher than the corresponding federal rate, this is an 

important factor. 

 (b) Relevant Bureau of Labor Statistics survey data and the comparable SCA area 

wage determination. 

 (c) Other relevant wage data. For example, rates paid in local hospitals would be 

appropriate for comparison on contracts for hospital aseptic services, while the 

rates paid in local schools could be of value in comparison for janitorial or food 

service workers. 

 (d) Other collectively bargained wages and benefits. 

◊ It is expected that a request for a hearing will address all relevant issues. 

◊ However, it is recognized that a petitioner may not be able to submit complete data 

at the time the hearing request is made. Where efforts to obtain supporting 

evidence are in progress, information must be provided concerning the approximate 

time necessary to complete the gathering of additional data. Merely providing a 

statement that data are not available is not sufficient. The request must adequately 

demonstrate the effort made to obtain or develop such information. 

◊ The WHD Administrator can grant or deny the “substantial variance hearing” 

request. A request is granted only if the review results in a determination that there 

may exist a “substantial variance.” The WHD must respond to the request within 

30 days of receipt. 

If a “substantial variance” is found to exist, a new wage determination must be issued which 

reflects prevailing rates for the locality rather than those found in the predecessor 

contractor’s CBA. The collectively bargained rates in the 4(c) wage determination apply 

until a final decision from the ALJ or ARB. 

“Arm’s-Length Negotiations” (29 C.F.R. § 4.11). 

Under section 4(c), the wages and fringe benefits provided in the predecessor’s CBA must be 

reached “as a result of arm’s-length negotiations.” 
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U.S. DEPARTMENT OF LABOR

PREVAILING WAGE CONFERENCE 2010 4(c)HEARINGS 

◊ This provision precludes arrangements by parties to a CBA who either separately or 

together, act with an intent to take advantage of the wage determination process. In 

short, it addresses the "Sweetheart Agreement," between contractor and union, 

which includes making a CBA contingent upon the issuance of a supporting wage 

determination requiring reimbursement of the contractor by the funding agency. 

◊ The primary example of these types of agreements involves contingent CBA 

provisions that attempt to limit the contractor’s obligations by such means as 

requiring issuance of a wage determination by the WHD, requiring the contracting 

agency to include the wage determination in the contract, or requiring the 

contracting agency to adequately reimburse the contractor. Such contingent 

arrangements are evidence of an intent to take advantage of the wage determination 

scheme under the SCA and, generally, reflect a lack of “arm’s-length negotiations.” 

◊ The determination as to whether the CBA has application for section 4(c) purposes 

must be made pursuant to the SCA and its implementing regulations by the WHD, 

not by the contracting agency. 

◊ As a result of a section 4(c) “arm’s-length” hearing, investigation or otherwise 

pursuant to the SCA, if it is found that the CBA itself or any of the wage rates or 

fringe benefits contained therein were not established through “arm’s-length 

negotiations,” the wage rates cannot be issued for wage determination purposes. If 

a lack of “arm’s-length negotiations” is found to exist, a new wage determination 

must be issued that reflects the prevailing rates for the locality rather than those 

found in the predecessor contractor’s CBA. 

For “arm’s-length negotiations” issues, however, a two-step process may be needed. 

◊ The Administrator must first issue findings in response to a request before a hearing 

can be initiated. 

◊ Such findings may result in a direct referral of the case to an ALJ or the ARB. 

◊ If the Administrator’s findings do not include a direct referral of the case, the 

interested party must then request the hearing though a subsequent letter. 
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U.S. DEPARTMENT OF LABOR

PREVAILING WAGE CONFERENCE 2010 4(c)HEARINGS 

 REQUEST PROCEDURES AND RELEVANT TIME FRAMES

The following information on section 4(c) appeals discusses the use of the ALJ and the ARB 

hearing processes to adjudicate “substantial variance” or “arm’s-length negotiations” issues. 

“Substantial Variance” Hearing and “Arm’s-Length” Determination Request

Either request can be submitted by any affected interested party, including, but not limited to, 

contracting agencies, incumbent contractors, prospective contractors, contractor and 

employer associations, employees or their representatives, or other interested government 

agencies. The interested party submits a written request for the “substantial variance” 

hearing or “arm’s-length” determination to the WHD Administrator. 

The request must contain information as specified in the regulations at 29 C.F.R. 

§ 4.10(b)(1)(i) for “substantial variance” proceedings, and at 29 C.F.R. § 4.11(b)(1) for 

“arm’s-length” determinations, including the following information: 

◊ The number of all wage determinations at issue, name of the contracting agency 

involved, and a brief description of the services to be performed under the contract 

(“substantial variance” request only). 

◊ A statement regarding the status of the procurement and any estimated procurement 

dates, such as bid opening, contract award, or commencement date of the contract 

or its follow-up option period. 

◊ That the applicable CBA wage rates and fringe benefits contained therein were not 

reached as a result of “arm’s-length negotiations,” or that the CBA rates 

substantially vary from those prevailing in the locality. 

 (Note: Supportive evidence such as data concerning wages and/or fringe benefits 

prevailing in the locality or information concerning “arm’s-length negotiations” should be included. If the only information submitted concerning a 

“substantial variance” of fringe benefits is an SCA wage determination, it is 

insufficient, and the party requesting the hearing will be so advised.) 

◊ Names and addresses (to the extent known) of any interested parties. 

For either type of request, information must be submitted as follows (according to 29 C.F.R. 

§ 4.10(b)(3) for “substantial variance” hearing requests; and 29 C.F.R. § 4.11(b)(2) for 

“arm’s-length” determinations): 

◊ Prior to 10 days before contract award of an advertised contract; or 
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U.S. DEPARTMENT OF LABOR

PREVAILING WAGE CONFERENCE 2010 4(c)HEARINGS 

◊ Prior to the contract or option period start date, if a negotiated contract, or existing 

contract with an option extension period. 

Administrator’s “Arm’s-Length” Ruling

◊ For “arm’s-length” determination requests, the WHD Administrator issues findings 

as to whether “arm’s-length negotiations” did or did not take place, or a finding that 

there is insufficient evidence to make a determination, thereby referring the case 

directly to the ALJ. The regulations do not state a required response time frame for 

the Administrator’s decision. 

“Arm’s-Length” Hearing Requests

For those cases not submitted directly for a hearing before an ALJ, any interested party may 

subsequently request a hearing before the ARB as follows: 

◊ Submit a written request for a hearing to the Administrator within 20 days of the 

Administrator’s ruling. 

◊ Include in the request a detailed statement of the following: 

 ◊◊ Reasons why the Administrator’s finding is incorrect. 

 ◊◊ Facts alleged to be disputed. 

If no hearing is requested within the time limit, the Administrator’s ruling stands. If an 

arm’s-length hearing is requested, the Administrator refers the request to the: 

◊ ARB, or the Chief ALJ if the Administrator finds facts to be in dispute. 

ALJ Hearing Granted

◊ Once a hearing is granted by the Administrator, an Order of Reference, completed 

with various supporting documentation attached is submitted by the Administrator 

to the Chief ALJ and mailed, with a Certificate of Service, to all interested parties. 

Hearings are conducted by a designated ALJ in accordance with procedures 

outlined in 29 C.F.R. Part 6. 

◊ Within 20 days of the Order of Reference mailing date as indicated by the 

Certificate of Service, interested parties wishing to participate in the hearing must 

submit a hearing response to the Chief ALJ. The Chief ALJ appoints an ALJ to 

hear the case who will then notify all interested parties of the time and place for the 

prehearing conference and subsequent hearing. These must be scheduled within 60 

days from the mailing date of the Order of Reference. 
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U.S. DEPARTMENT OF LABOR

PREVAILING WAGE CONFERENCE 2010 4(c)HEARINGS 

APPEAL TO THE ADMINISTRATIVE REVIEW BOARD

◊ An appeal of an ALJ decision may be submitted to the ARB pursuant to the procedures 

set forth in 29 C.F.R. Part 8: “Practice before the Administrative Review Board with 

regard to Federal Service Contracts,” 

◊ Where material facts are not in dispute, the request shall be referred to the ARB. 

◊ “Substantial variance” or “arm’s-length” hearing requests denied by the WHD 

Administrator, where material facts are in dispute shall be referred to the Chief ALJ.