Service Contract Act: Wage Determination Process Could Benefit from Greater Transparency, and Better Use of Violation Data Could Improve Enforcement
Published: 2005-12-07T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Recipients of federal government contracts for services are subject to wage, hour, benefits, and safety and health standards under the McNamara-O'Hara Service Contract Act (SCA) of 1965, as amended, which specifies wage rates and other labor standards for employees of contractors. SCA requires the Department of Labor (DOL) to set locally prevailing wage rates and other labor standards for employees of contractors furnishing services to the federal government. DOL's Employment Standards Administration's Wage and Hour Division (WHD) administers the SCA and each year determines prevailing wage and fringe benefit rates for over 300 standard service occupations in 205 metropolitan areas. SCA also authorizes DOL to enforce contractor compliance with SCA provisions. This report describes how DOL (1) establishes locally prevailing wages and fringe benefits and (2) enforces SCA.
section_title: What GAO Found
paragraphs: When making a wage determination, WHD analysts consult several sources of information, such as its SCA directory of occupations and data collected through two Bureau of Labor Statistics national wage surveys, for wage data on occupations. Relying on these tools and their own expertise, analysts calculate prevailing wages and fringe benefit amounts for specific geographic locations. The wage determination process produces a wealth of nationwide wage data for service occupations that WHD makes available online and strives to update annually. However, stakeholders (e.g., unions, contractors, employees, and others) contend that the wage determination process is not transparent and that the resulting wages do not necessarily reflect local wage conditions. For example, WHD does not include a description of the methodology used to derive the wage rates in its wage determinations, such as wage data sources used or the procedures analysts follow. As a result, analysts spend considerable time responding to inquiries about the methodology used to determine wages. WHD enforces SCA by conducting investigations, ensuring contractor payments, and providing compliance assistance to stakeholders. WHD investigates complaints from service contract employees, federal agencies, unions, and others who allege that contractors have failed to pay either the wages or fringe benefits, or both, specified in SCA contracts. WHD collects violation data, but it does not fully use these data to plan compliance assistance, target specific service industries or geographic locations for SCA investigation, or set strategic enforcement goals. As a result, WHD may be overlooking some SCA violators and industries that need further enforcement. A review of prior SCA violation data could provide WHD assurance that it is using the most effective mix of available compliance assistance and investigative efforts.

section_title: Letter
paragraphs: Recipients of federal government contracts for services are subject to  wage, hour, benefits, and safety and health standards under the  McNamara-O’Hara Service Contract Act (SCA) of 1965, as amended, which  specifies wage rate and other labor standards for employees of  contractors. In fiscal year 2003, federal agencies spent over $45 billion on  contract services covered under SCA, an increase of about $13 billion from  fiscal year 2000. In 2002, the Department of Labor (DOL) estimated there  were about 60,000 federal service contracts. SCA requires DOL to set  locally prevailing wage rates and other labor standards for employees of  contractors furnishing services to the federal government. DOL’s  Employment Standards Administration’s (ESA) Wage and Hour Division  (WHD) administers the SCA and each year determines prevailing wage and  fringe benefit rates for approximately 300 standard service occupations,  such as janitor and cafeteria worker, in 205 metropolitan areas. SCA also  authorizes DOL to conduct investigations to enforce contractor  compliance with SCA provisions.
SCA requires federal contracting agencies to include a wage determination  from WHD in their advertisement for a service contract with the private  sector. Over the years, contractors, employees, and others have raised  concerns to us that WHD-determined wage and benefit rates are either too  high or too low, and do not reflect current employment conditions in their  vicinity. In addition, they contend that the way in which WHD arrives at its  determinations is unclear. In this context, you asked us to describe how  DOL (1) establishes locally prevailing wages and fringe benefits and   (2) enforces SCA. You also asked that we identify potential areas of  improvement found in the course of our work.
To respond to your request, we reviewed literature on SCA and its  corresponding regulations. We interviewed officials in DOL headquarters  and field offices, the Bureau of Labor Statistics (BLS), and the two federal  contracting agencies with the largest proportion of service contract  activity—the Department of Defense (DOD) and the General Services  Administration. In addition, we interviewed representatives from several  service industry unions and key trade associations. We analyzed data  obtained from DOL, including data on WHD investigations; national,  regional and district office training and outreach efforts; and file data on  debarments. We also reviewed BLS national wage survey data in order to  better understand the wage determination process. In addition, we  contacted state and private sector groups who also produce wage and  benefit rates to better understand DOL’s method of arriving at wage  determinations. See appendix I for detailed information on the scope and  methodology of our work.
We performed our work in accordance with generally accepted  government auditing standards between November 2004 and September  2005.
subsections: section_title: Background
paragraphs: SCA was enacted to give labor standards protection to employees of  contractors and subcontractors providing services to federal agencies in  the United States. SCA requires that, for contracts exceeding   $2,500, contractors pay their employees, at a minimum, the wage rates and  fringe benefits that have been determined by DOL to be prevailing in the  locality where the contracted work is performed. The types of service jobs  covered by the act include, for example, security guard services, food  service, maintenance, janitorial services, clerical workers, and certain  health and technical occupations.
Until recently, DOL regulations required that federal contracting agencies  complete and submit a form to DOL indicating their intention to offer a  service contract and requesting current wage and benefit determinations  for the occupational class(es) and geographic area(s) involved in the  contract. Since the mid-1990s, however, some contracting agencies have  been able to obtain wage determinations through a DOL online wage  determination database, rather than requesting one from DOL. Many of  their covered service contracts were renewals and the applicable SCA  wage determinations for these contracts were already well established and  posted online for information purposes. For these reasons, DOL entered  into memoranda of understanding with several agencies to allow them to  use posted standard wage determinations without first formally requesting  a new one. On August 26, 2005, DOL issued regulations that allow all  federal contracting agencies to use its www.wdol.gov Web site to meet  their obligation to obtain SCA wage determinations from DOL. This final  rule eliminates the required paper form when requesting a wage  determination.
Under SCA, WHD establishes wage rates that apply to the United States,  including the District of Columbia, and certain territories. WHD issues  SCA wage determinations that are location-specific, listing nearly all  standard occupations on each wage determination. These wage  determinations are generally referred to as “consolidated” wage  determinations. WHD strives to update its list of consolidated wage  determinations annually, issuing 410 consolidated wage determinations  covering almost 300 standard occupations in 205 geographic locations.  These consolidated wage determinations altogether, contain  approximately 61,500 individual wage determinations. In addition,  between August 1, 2004, and July 31, 2005, WHD issued at least 15,786  other wage determinations upon request, including those for non-standard  occupations and conformance requests. See appendix II for an example of  a consolidated and a nonstandard wage determination for a specific  geographic locality.
subsections: section_title: Western
paragraphs: FPDS statistics indicate that federal service contracts continue to increase  in number and total dollar volume each year. According to ESA’s fiscal  year 2003 Annual Performance Plan, federal contractors and  subcontractors employed nearly 25 percent of the civilian workforce— about 26 million workers—in the U.S. economy. Although the exact  number of workers in the subset covered by SCA is unknown, it has been  estimated that hundreds of thousands of federal service contract workers  are employed annually under such contracts.
section_title: Wage Determination Process Relies on Multiple Data Sources and Professional Judgment but Lacks Transparency
paragraphs: WHD consults multiple wage data sources and relies on analysts’  professional judgment when making wage determinations, but the process  lacks transparency and leaves wage determinations prone to criticism.  When making a wage determination, WHD analysts consult several  sources of information, such as its SCA directory of occupations and data  collected through two BLS national wage surveys, for wage data on  occupations. Relying on these tools and their own expertise, analysts  calculate prevailing wages and fringe benefit amounts for specific  geographic locations. Stakeholders contend that the wage determination  process is not transparent and that the resulting wages do not always  reflect local wage conditions. As a result, analysts spend considerable time  responding to inquiries about the methodology used to determine wages.  Stakeholders with these concerns, such as unions and contractors, told us  that they might have fewer questions about the process if WHD made more  information available. In addition, WHD last issued a comprehensive  edition of its SCA directory of occupations in 1993 and has no systematic  process in place for updating it. As a result, the directory does not include  a broad range of emerging occupations that are covered under SCA.
subsections: section_title: WHD Relies on Multiple Data Sources and Staff’s Professional Judgment When Making Wage Determinations
paragraphs: WHD analysts consult the SCA directory of occupations as a first step in  the process of determining wages. They then consult a number of different  sources of data when calculating wage rates. Finally, analysts must also  include the fringe benefit rate for the specific locality in each wage  determination.
subsections: section_title: Directory of Occupations
paragraphs: WHD analysts use the SCA directory of occupations, a reference tool that  describes standard service occupations typically utilized in the  performance of SCA-covered contracts, to develop wage determinations.  The directory is not just an information document–it is a critical part of  the wage determination process throughout the federal contracting  system. However, the process that WHD uses to update its SCA directory  of occupations is not written down and is essentially ad hoc. There are  neither written procedures that describe how or when WHD updates the  directory, nor a required or standard time interval for how often the  directory should be updated.
DOL has no systematic process for updating its SCA directory of  occupations, but instead, updates it periodically. The current edition of the  directory was issued in 1993. Since then, there have been three  supplements to the directory. According to WHD officials, when there is a  sufficient volume of smaller-scale changes proposed by stakeholders, they  will issue a supplement to the directory. Stakeholders usually bring the  need for supplements to WHD’s attention. Supplements can involve adding  some classes of jobs as well as editing or removing others. WHD can make  these changes to job classes either with or without getting stakeholder  approval. A recent effort to update and release a new edition of the  directory, begun in 2002, was initiated after federal contracting agencies,  contractors, trade associations, and unions raised concerns that the  existing directory did not meet their needs. In fact, stakeholders  independently drafted an update to the directory and presented it to WHD.  While WHD is not legally required to include outside parties in the update  process, WHD has encouraged stakeholders to participate, allowing them  to review all suggested changes. According to WHD officials, the update  has been long in the making, due in part to the number of suggested  changes received from and deliberated by the stakeholders.
Some stakeholders, however, have expressed frustration with the length of  time the update has taken. In response, one senior WHD official we spoke  to explained that, in some cases, directory changes could have significant  cost implications for both wages and fringe benefits at the local level and  that careful consideration is necessary to make proper adjustments.  Stakeholders, the official contended, may not realize the implications of  the changes or additions that have been proposed. For example, an issue  was raised of whether it was more appropriate to classify the occupation  “truck dispatcher” as an administrative, clerical, technical, or professional  position, when each category brings with it a different level of wages and  benefits.
Throughout the update process, several job categories and occupational  classes have been added to, or deleted from, the directory. WHD analysts  responded to stakeholder needs for job classifications that were not  available in the directory. For example, WHD added a job classification in  response to a DOD need for an “unexploded ordnance technician.” WHD  worked with DOD to develop an accurate description for placement in the  directory. Similarly, the job category of “detention officer” was added at  the request of U.S. Citizenship and Immigration Services because of the  volume of hiring and the uniqueness of the duties performed. In these  cases, WHD did not involve additional agencies in the process of changing  the directory. Ultimately, WHD has the authority to decide which jobs are  included in the directory.
Despite recent efforts to update the directory, some common service  occupations are still missing. Specifically, the directory does not contain  the occupations “customer service representative” or “telemarketer.”  Contracting agencies that need such services performed cannot acquire  the wage rate from DOL’s online wage determination system and must  request a separate wage determination from a WHD analyst. In addition,  WHD officials told us that analysts sometimes receive multiple wage  determination requests for the same unlisted occupations, thereby  increasing their workload. The directory also does not list an occupational  title for “call center representative.” A contractor told us that as a result,  wage determinations for call center contracts with federal agencies  generally listed these occupations as “general clerk I, II, and III.”  According to this contractor, the wage determination for a general clerk is  usually lower than the market rate for a call center representative. The  contractor pointed out that federal agencies will likely have an increased  need for call center representatives in the years ahead. Some contractors  told us that, while they often must pay additional amounts to meet the  market rate to be able to recruit qualified workers, they cannot submit the  higher rates in their bid without risking the loss of the contract to a  competitor. Contractors warned that, in cases like these where they lose a  contract to a lower bidder, federal agencies may be at risk of contracting  with employers who will provide a lower quality of services. According to  these contractors, the difference in wage rates paid to workers on SCA- covered contracts and those not working on SCA-covered contracts can  lead to some workers feeling demoralized. WHD officials told us that after  the current update is issued, which is expected to occur in October 2005,  no plans are underway for the next update.
section_title: Process for Determining Wages
paragraphs: WHD analysts rely on professional judgment when calculating wage rates.  WHD provides analysts with methodology worksheets that assist them in  determining a wage. These worksheets provide an outline of how an  analyst should proceed when certain conditions exist (such as, when  survey data are not available for a specific occupation). The worksheets  are intended to guide analysts without dictating the exact determination  process.
More specifically, to determine a wage rate, analysts review the available  wage data sources as well as previously issued wage determinations.  Analysts base most wage determinations on nationwide survey data  collected by BLS under the National Compensation Survey (NCS) and the  Occupational Employment Statistics (OES) survey, or other data showing  the rates that prevail in a specific locality. Analysts also take into account  previously issued wage determinations when setting a new or revised  wage rate. For example, to maintain general consistency from year to year,  WHD instructs its analysts to not issue a rate lower than or more than   10 percent above the previously issued wage rate. In addition, when wages  have been set by a collective bargaining agreement, analysts are required  by SCA to carry over those negotiated wages to contractors who take over  ongoing contracts. Finally, analysts use the union dominant rate, when  applicable.
After selecting a data source, analysts review the wage information for  different classes of the same occupation (e.g., the different classes, I, II,  and III, of the occupation “secretary” require successively more advanced  skills) and the pay relationships that exist between these job classes (i.e.,  the different classes of secretary are paid successively more for their  advanced skills), and make adjustments as needed to address data  abnormalities or inconsistencies. For example, an analyst would make an  adjustment if the data showed lower wages for a secretary III than for a  secretary I or II. Analysts also review occupations in the same broad job  category (e.g., administrative support and clerical occupations) to ensure  that different occupations performing commensurate duties receive  similar pay.
When data for an occupation are not included in existing wage surveys,  analysts can establish a prevailing wage rate through a procedure called  “slotting,” which involves comparing equivalent or similar job duties and  skills between surveyed classifications and other classifications for which  no survey data are available. For example, analysts may adopt the rate for  a “computer operator” and use it for a “peripheral equipment operator”  (whose duties include taking corrective actions to return equipment that  directly supports computer operations, such as printers, to proper working  order) because the job duties and skills required for both classifications  are rated at the same level under the grading system for federal  employees. Further, when the survey lists varying wage rates for several  similar occupations, such as the “general maintenance trades,” analysts  will determine the average wage and use that rate as the prevailing wage  for the entire group of occupations. See figure 2 for a graphic illustration  of some of the factors an analyst may consider when determining a wage  rate.
An additional reason why analysts must rely on professional judgment  when determining wage rates is that BLS’s wage surveys were not  designed for the purpose of determining wages and fringe benefit rates.  While the BLS surveys may provide the most comprehensive wage data  available, WHD analysts must perform some manipulation of BLS’s data  when calculating wage rates. As a result, WHD’s reliance upon these data  may not ensure that the wage rates it sets reflect labor market conditions.  For example, because the survey responses may include the wage rates for  some SCA service contract workers whose rates are set by a wage  determination, analysts may not be using data that fully reflect the local  labor market conditions. In other words, WHD, in trying to determine the  market rate for certain occupations, may be referencing survey responses  of its own derived rates. However, we did not attempt to determine the  extent to which BLS data includes such information. In addition, one BLS  survey used by WHD excludes smaller employers with fewer than   50 employees from its sample population. As a result, the survey results  could inflate or deflate actual wages for the types of occupations typically  employed by smaller employers. Another reason that BLS survey data may  affect WHD’s ability to set rates that reflect market conditions is that the  occupational classifications in DOL’s SCA directory of occupations do not  always match OES occupational classifications, making it difficult for  WHD analysts to match the OES wage data to the SCA occupation without  significant analysis. Because OES does not collect data for each  classification for every locality surveyed, WHD must sometimes use the  “slotting” procedure to derive a wage determination.
section_title: Process for Determining Fringe Benefit Rates
paragraphs: In addition to a wage rate, each SCA wage determination also includes the  fringe benefit rate for the specific locality. Analysts generally set a  universal fringe benefit rate that employers must pay to all workers in a  specific geographic area regardless of their occupational class. The fringe  benefit amount typically includes health and life insurance coverage, sick  leave, retirement plans—items that are typically referred to as health and  welfare (H&W) benefits—as well as vacations and holidays. WHD  analysts arrive at the H&W rate used in wage determinations by consulting  nationwide data from BLS’s Employer Cost for Employee Compensation  (ECEC) survey. In contracts awarded since new regulations became  effective in June 1997, the fringe benefit rate has most often been  calculated on a “fixed cost per employee” basis, where each employee  receives the same benefit amount. Employers may meet their fringe  benefit obligations by paying the employee the cash equivalent of the  specified fringe benefits. In June 2005, the “fixed cost per employee” SCA  health and welfare benefit rate was increased to $2.87 per hour, which  equates to about $497 per month.
section_title: Lack of Transparency Leaves Wage Determinations Prone to Criticism
paragraphs: The wage determination process requires analysts to apply professional  judgment in selecting both the appropriate source and method for  calculating the prevailing wage rate. Contractors and other stakeholders  contend that the process that analysts follow when determining a wage is  not transparent and that determinations do not necessarily reflect local  wage conditions. In fact, WHD does not include a description of the  methodology used to derive the wage rates in its wage determinations,  such as the wage data source used or the procedures analysts’ follow. As a  result, analysts spend considerable time responding to inquiries from  contractors, employees, union representatives, and others regarding how  they determine wages. According to WHD officials, analysts received  about 23,000 telephone inquiries in a recent 12-month period, mostly from  service contract employees who want to know how their wage rate was  calculated or why their rate differed from a similar rate in a neighboring  locality. Congress, unions, and others also contact WHD staff to inquire  on behalf of their constituents or members. WHD assigns these inquiries to  analysts as they are received. WHD officials told us that the specific  methodology of calculating a wage rate for a certain occupation in a  certain geographic location can change from year to year based on a series  of elements, such as the availability of survey data or an analysts  professional judgment. While analysts do provide details to those who  inquire, WHD does not provide individual methodology worksheets in  writing, stating that doing so would result in additional inquiries as to why  rates are not calculated by the same method as in the previous year and  take analysts away from their primary task of issuing new and revised  wage determinations. Stakeholders with concerns told us, however, that it  would be helpful to them if more information about the process was made  available.
WHD receives criticism that its wage determination rates do not reflect  market conditions. Some contractors say that private-sector wage data  provide a more accurate measure of local labor market conditions than  BLS survey data that were not designed for the purpose of determining  wages and fringe benefit rates. However, WHD officials told us that to the  extent its wage rates are perceived as not reflective of the market rate, one  possible reason could be that WHD sets internal parameters for wage  determinations (e.g., not issuing a wage rate lower than or more than   10 percent above the previously issued rate) to ensure consistency from  year to year. As a result, while BLS survey data may be lower or higher  than the resulting wage determination, analysts manipulate wage rates to  ensure a consistent wage structure.
section_title: DOL Enforces SCA by Conducting Investigations, Ensuring Contractor Payments, and Providing Compliance Assistance, but WHD Could Make Better Use of Violation Data
paragraphs: WHD enforces SCA by conducting contractor investigations, ensuring  contractor payments to employees, and providing compliance assistance  to stakeholders. WHD investigates complaints from service contract  employees, contractors, federal agencies, unions, and others who allege  that contractors have failed to pay either the wages or fringe benefits, or  both, specified in service contracts. WHD collects violation data, but it  does not fully use these data to plan compliance assistance, target specific  service industries or geographic locations for SCA investigation, or set  strategic enforcement goals. When investigations find that contractors  have failed to pay in accordance with contract wages or benefits, WHD  acts to ensure that contractor payments are made to employees. WHD also  provides compliance assistance to contractors, federal agencies, unions,  and others to help them comply with SCA requirements and avoid SCA  violations.
subsections: section_title: WHD Conducts Complaint- Driven Investigations
paragraphs: SCA investigations originate when contract employees, federal agencies,  competitor contractors, or employee representatives complain to WHD  that a contractor has failed to comply with the wage or benefit  requirements in a contract. WHD investigators then consult and interview  contractor officials, inspect the contract and contractor payroll records,  and interview service contract employees. WHD records investigation  data, such as the name of the contractor, geographic location, industry,  and the type of violation, in its WHISARD database.
When responding to complaints, WHD investigators review WHISARD data  for prior contractor violations. WHD uses violation data on a case-by-case  basis to determine whether an individual complaint warrants expansion to  a more comprehensive “directed” investigation. For example, WHD may  decide to expand the scope of an initial complaint to encompass other  employees under the same contract, additional contractor locations, or  other service contracts involving the same contractor. WHD records all  alleged SCA violations in its WHISARD database and classifies  investigations as either complaint or directed. WHD generates violation  reports from WHISARD that summarize investigation findings.
SCA violation reports for fiscal years 2003 and 2004 show that about   87 percent of all investigations during this period were classified as  complaint and about 14 percent were classified as directed. Table 1 shows  the number and percentage of complaint investigations and directed  investigations for fiscal years 2003 and 2004.
WHD headquarters and regional enforcement officials told us that a  complaint-based enforcement strategy offers an efficient approach to  enforcing multiple labor laws. Consequently, WHD does not analyze or use  violations data from WHISARD to (a) examine the extent to which specific  service industries or geographic locations may warrant increased  compliance assistance or directed investigations under SCA or (b) develop  SCA-specific strategic goals. Concerning the latter, while ESA’s 1999–2004  strategic plan contains specific outcome or performance goals for some  labor acts, such as the Davis-Bacon Act and the Fair Labor Standards Act  (FLSA), there are none for SCA. WHD has overall strategic enforcement  goals that cut across all labor laws it enforces, such as improving  timeliness in response to complaints and reducing the number of violators  who have repeat or recurring violations. Moreover, ESA’s strategic plan  uses violation data in WHISARD to focus enforcement efforts on low-wage  industries reflective of employers that have previously violated labor laws,  such as FLSA, minimum wage and child labor laws, and others. While the  focus on low-wage industries may detect violations in some service  contract industries, it does not assure that all service contract industries  with serious or frequent SCA violations are identified.
section_title: WHD Enforcement Efforts Result in Payment of Back Wages and Fringe Benefits and Debarment of Some Violators from Future Contract Work
paragraphs: When a WHD investigation determines that a contractor has failed to pay  wages or fringe benefits to contract employees, WHD attempts to reach  agreement with the contractor regarding the amount of back wages and  fringe benefits owed employees. WHD also monitors contractor activity to  ensure that the amounts owed to employees are eventually paid to them.  In fiscal year 2004, WHD initially investigated 654 reportable cases—cases  with possible SCA violations—and ultimately found 493 cases with SCA  violations that began as an SCA investigation. In addition, 44 other cases,  registered by WHD under other labor acts it enforces, had SCA violations.  These 537 cases, more than 80 percent of the total number of SCA  investigations, uncovered $18.7 million in contractor back wages and  fringe benefits that were owed to employees. WHD obtained contractor  agreements to pay $16.4 million to employees. Once a contractor has  reached agreement with WHD on the amount of wages and benefits owed,  WHD monitors contractor payments and does not conclude the case until  the contractor has made full payment.
WHD treats each instance of failure to pay a contract employee the proper  wage to be a separate violation of the act. Likewise, WHD considers the  failure to pay that same employee the proper fringe benefit as a separate  violation. Thus, a contractor who fails to pay the proper wage and the  proper fringe benefit would be cited for two separate SCA violations.  Figure 3 shows the total number of cases found to have SCA violations in  fiscal years 2003 and 2004, differentiating those cases that were registered  under other WHD acts from those that were initiated as an SCA  investigation.
WHD’s SCA investigations have a generally high success rate when judged  by one key measure of enforcement success—the percentage of back  wages and benefits that contractors agreed to pay—compared to the  wages and benefits that contractors owed. WHD’s overall rate of back  wages recouped has also been high. Figure 4 shows the number of  employees with back wages owed them, and the number of employees  whom contractors agreed to pay for fiscal years 2003 and 2004. For these  two periods, contractors agreed to pay about 89 percent of unpaid wages  that they were found to owe for SCA violations.
WHD may debar contractors who refuse to pay back wages and fringe  benefits owed to service contract employees or otherwise meet SCA and  WHD conditions for debarment. WHD may also arrange with federal  agencies to permit debarred contractors to complete the contract under  which violations occurred, but debarred contractors may not bid on or be  awarded any other federal contracts during the standard 3-year debarment  period. WHD debarred 17 contractors in fiscal year 2004, in contrast with  approximately 450 contractors that it investigated. Table 2 shows the  number of debarments for fiscal years 2000 through 2004 by region.
section_title: Training and Outreach Efforts Aim to Improve SCA Compliance
paragraphs: WHD provides compliance assistance to federal contracting agencies and  contractors to help improve SCA compliance. One of WHD’s basic  missions is to provide employers and workers with clear and easy-to- access information on how to comply with federal employment laws— information and guidance that are often referred to as compliance  assistance. Compliance assistance includes brochures and pamphlets,  workplace posters, telephone consultations, on-site consultations, training  sessions or seminars for individuals or groups, and Web-based  information. WHD’s Web site, for example, contains an Employment Law  Guide with details about SCA coverage, requirements, employee rights,  penalties, and sanctions.
In fiscal year 2004, WHD provided SCA compliance assistance at national,  regional, and local levels to federal agencies, contractors, and service  contract employee groups. National-level training and outreach efforts  included presentations, speeches and seminars for the National Industries  for the Blind and the U.S. Patent and Trademark Office, and panel  discussions with the National Star Route Mail Contractors’ Association.  Regional offices provided similar outreach and training to officials from  such federal agencies as the Office of Federal Contract Compliance  Programs, Small Business Administration, Social Security Administration,  and the U.S. Army Corps of Engineers. Local-level training and outreach  included presentations to the Directorate of Contracting at Fort Riley,  Kansas, and to employers that have SCA low-wage industry contracts  under a Small Business Administration program. In fiscal year 2004, WHD  provided training to federal agency contracting officials in the Department  of Defense through an arrangement with the Contract Services Association  of America, an organization that promotes the use of private contractors  for all federal government services.
One of the most universal forms of day-to-day compliance assistance that  WHD provides is its workplace poster. SCA requires contractors to post  the poster at work sites unless the contractor has notified individual  employees of their wages and benefits. WHD regulations issued to  implement SCA state that the WHD poster (Publication WH 1313), when  applicable, shall be posted in a prominent and accessible place at the  worksite, and failure to comply with this requirement is a violation of the  act and of the contract.
WHD’s SCA workplace poster serves a dual purpose of both assistance  and enforcement. As an assistance tool, the poster informs service  contract employees of their wages, benefits, and other entitlements  (overtime and safety and health conditions) under the contract with the  federal government. As an enforcement tool, the poster provides evidence  that the contractor is subject to SCA and DOL regulations governing  service contracts as they relate to employee notification. WHD has  designed the poster to be used for both SCA and the Walsh-Healey Act.  WHD’s Web site makes this Service Contract Act/Walsh-Healey Poster  readily available to the public.
While WHD relies heavily on complaints from employees and others to  enforce SCA, WHD’s worksite poster does not provide a telephone number  for employees or others to call to register complaints. Instead, the poster  directs inquiries for information to the Wage and Hour Division offices  located in “principal cities.” The poster also directs potential complainants  to check their telephone directory under U.S. Government, Department of  Labor, Wage and Hour Division. WHD last revised the poster in 1996.
A workplace poster that does not provide service contract employees and  others with a clear and easy-to-access method of filing a complaint may  hamper their reporting of such complaints. In the absence of a telephone  point of contact at WHD, service contract employees may not have the  opportunity to report possible or suspected violations of the act and  therefore may not receive the full benefit of protection authorized under  the act.
We reported in 2004 that DOL’s Occupational Safety and Health  Administration (OSHA) relies heavily on complaints to enforce the  Occupational Safety and Health Act. OSHA, in general, responds to  complaints according to the seriousness of alleged hazards, a policy that  OSHA credits with conserving agency resources. Like WHD, OSHA uses  workplace posters as part of its overall compliance assistance  enforcement efforts. OSHA’s workplace posters display a universal  national telephone number, telephone numbers for each of OSHA’s 10  regional offices, a national number accessible to the hearing impaired, and  instructions on how to file a complaint online through OSHA’s Web site.
section_title: Conclusions
paragraphs: Determining locally prevailing wages for service employees working in  hundreds of occupations throughout the nation is a tremendous  undertaking and one that WHD is committed to performing with diligence.  It is the only organization producing such a vast number of locally  prevailing wage rates on a national scale. For their part, WHD analysts  have the support of their agency in applying their professional judgment  when setting the wage and benefit rates. However, WHD could benefit  from greater transparency of its wage determination process. WHD  provides limited information on the methodology used to determine SCA  wage rates, resulting in analysts receiving numerous inquiries about how  they determined wages. Responding to individual requests for explanation  diverts analysts from their primary duties of revising and issuing new wage  determinations. WHD expressed concerns that providing additional  information on its methodology may trigger additional inquiries. However,  we believe that additional information could inform some stakeholders,  especially those that represent contractors and employees, who could in  turn educate their members. As a result, some individuals who otherwise  would contact WHD for an explanation on how wages are determined  might not see the need to contact WHD. A general description of the  methods used in the wage determination process could give SCA  stakeholders greater confidence in the determined wage rates and possibly  improve the quality of service that WHD provides to those who do inquire.
WHD strives to update its list of consolidated wage determinations on an  annual basis and provides this information online for the convenience of  the contracting agencies. However, the job titles and descriptions included  in its SCA directory of occupations have not been regularly updated to  include emerging service occupations. WHD has been working closely  with various stakeholders over the past 3 years to make changes to the  directory, although its ad hoc process of updating the directory calls into  question the ongoing currency of the occupations listed in the directory  used for wage determinations.
WHD’s reliance on complaints as the primary means to identify potential  SCA violations is a reasonable strategy to pursue, given WHD’s multiple  enforcement responsibilities under numerous federal labor laws. However,  that strategy currently does not examine the extent to which other  information could be used to improve enforcement nationwide. Without  further analysis of prior SCA violation data, WHD cannot ensure that it is  using the most effective mix of compliance assistance, complaint-driven  investigations, and directed investigations. WHD has readily available data  on repeat SCA violators, the analysis of which we believe could be  performed with minimal investment of additional resources. Furthermore,  by taking extra steps to review prior SCA violation data, WHD may find  that its existing complaint-driven approach to SCA enforcement is sound.
Finally, because the SCA workplace poster does not provide an easy  method for employees to report complaints, WHD may be missing  opportunities to get the most use from its complaint process. Improving  the workplace poster would reinforce WHD’s complaint-based strategy  and would help further protect the wages and benefits of service contract  workers.
section_title: Recommendations for Executive Action
paragraphs: In an effort to provide stakeholders with a general understanding of how  WHD determines wage rates, we recommend that the Secretary of Labor:    direct WHD to make publicly available the basic methodology WHD uses  to issue wage determinations.
To better support WHD and federal contracting agencies in their  implementation of SCA, we recommend that the Secretary of Labor:    direct WHD to develop a procedure for updating the SCA directory of  occupations at regular intervals and include criteria for listing and  removing occupations as the need emerges.
To further WHD’s efforts to obtain better information concerning the  presence of and potential for violations involving SCA contracts, we  recommend that the Secretary of Labor:    direct WHD to analyze its historical SCA contractor violation data in  WHISARD, as well as debarment information not included in WHISARD,  and to the extent appropriate, use this information to help plan its  compliance assistance and investigative efforts, and to identify additional  industries, if any, that WHD should establish enforcement goals similar to  those it currently has for repeat violators and industries with chronic  violations.
To facilitate the reporting of SCA complaints, we recommend that the  Secretary of Labor:    direct WHD to update and revise the 1996 Service Contract Act/Walsh- Healey worksite poster, to include national and regional office telephone  numbers and a Web site address that complainants may use to report  alleged SCA violations.
section_title: Agency Comments
paragraphs: DOL’s ESA provided us with written comments on a draft of this report,  which are reproduced in appendix III. The agency agreed with all of the  report’s recommendations. ESA noted that WHD will provide a general  description of the methods used in the wage determination process on its  Web site and through other avenues. The agency also commented that  WHD will develop a plan for implementing our recommendation  concerning its SCA directory of occupations. However, the agency  cautioned that any plan to do so must take into account the potential for  creating confusion when multiple versions of the directory are applicable  to various contracts. ESA acknowledged that this problem already exists  but believes it would be exacerbated if the directory were updated more  frequently.
ESA further noted that WHD’s leadership will include an analysis of its  SCA enforcement data in establishing its annual priorities at the national  level and to specific local and regional initiatives. Finally, ESA noted that  WHD will develop and implement a plan to revise the SCA worksite poster  by adding WHD’s toll-free telephone number and the agency’s Web site  address.
ESA noted several technical corrections to the report, as did BLS, which  we incorporated as appropriate.
As arranged with your office, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days after the  date of this report. At that time, we will send copies of this report to the  Secretary of Labor and the Assistant Secretary of Labor for Employment  Standards. We will also make copies available to others upon request. In  addition, the report will be available at no charge on GAO’s Web site at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-7215 or robertsonr@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who have made major contributions to this report  are listed in appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: For this report, we described how the Department of Labor (DOL)   (1) establishes locally prevailing wages and fringe benefits and   (2) enforces the Service Contract Act (SCA). We also identified potential  areas of improvement found in the course of our work. To address these  objectives, we: reviewed literature on SCA and its corresponding regulations, and  analyzed DOL documents and data; interviewed officials in the Wage and Hour Division’s (WHD) headquarters  and field offices, the Bureau of Labor Statistics (BLS), and the two federal  contracting agencies with the largest proportion of service contract  activity—the Department of Defense (DOD) and the General Services  Administration. At DOD, we interviewed the agency labor advisors and  officials from each of the four branches of service that oversee the  military’s SCA activities. In addition, we interviewed representatives from  several service industry unions and key trade associations;   analyzed data obtained from DOL, including data on WHD investigations  from DOL’s Wage Hour Investigator Support and Reporting Database  (WHISARD) database; national, regional and district office training and  outreach efforts; file data on debarments; and data from the Federal  Procurement Data System (FPDS), including information on the number  and total dollar amount of SCA contract actions for fiscal years 2000  through 2003; and interviewed state officials and representatives from private-sector groups  who also produce wage and benefit rates in an effort to better understand  the relative merits of DOL’s wage determination process.
subsections: section_title: Reliability of WHD’s Data on Investigations and Debarments
paragraphs: We obtained current and background data from DOL’s WHISARD database  for fiscal years 2003 and 2004. Data included the number of SCA  investigations, the number of investigations that led to one or more SCA  violations, the number of act violations, amounts of back wages and fringe  benefits due from contractors, amounts of unpaid wages and benefits that  contractors agreed to pay service contract employees, and the number of  employees with unpaid wages and benefits. We also obtained file data  from WHD on debarred contractors, including the number of debarred  contractors, by year and region.
We assessed the reliability of the WHISARD data by (1) interviewing  agency and contractor officials knowledgeable about the data, and   (2) reviewing existing information about the data and the system that  produced them, such as the WHISARD User Guide and Procedure Manual;  WHISARD data dictionary of tables; and the DOL Inspector General’s  fiscal year 2004 Performance and Accountability Review of WHD, which  includes WHISARD. We assessed the reliability of the debarment data by  interviewing agency officials about the debarment process and the  methods used to produce the debarment summary report provided to us.  We determined that the required WHISARD data elements and debarment  summary data were sufficiently reliable for the purposes of this report.
section_title: Reliability of FPDS Data
paragraphs: FPDS has been the federal government’s central database of information  on federal procurement actions since 1978. It contains detailed  information on contract actions over $25,000 and summary data on  procurements of less than $25,000. We found in December 2003 that FPDS  data were inaccurate and incomplete, and that sufficient problems existed  with the system to warrant concern about the reliability of FPDS  information. However, in this report, we are using the FPDS data only to  provide aggregate information about SCA and to provide context for the  report. Although we have determined that the data may be incomplete and  certain data elements unreliable, for this report we found that it was  sufficiently reliable for estimating a minimum number of federal contracts  and federal SCA dollars expended. A newer system, the FPDS-NG (Next  Generation), became operational on October 1, 2003. In December 2003,  we stated that the reliability of FPDS data was expected to improve with  the implementation of the new system. We recently issued a  correspondence to the Office of Management and Budget regarding the  upgraded system.
section_title: Appendix II: Examples of Standard and Non- standard Wage Determinations
section_title: Appendix III: Comments from the Department of Labor
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Brett S. Fallavollita, Assistant  Director, Monika R. Gomez, and Dennis M. Gehley made significant  contributions to this report in all aspects of the work throughout the  review. In addition, Linda L. Siegel helped to develop our overall design  and methodology; Margaret L. Armen and Richard P. Burkard provided  legal support; Avrum I. Ashery and Jeremy D. Sebest designed our  graphics; Shana B. Wallace provided technical assistance; and   Jonathan S. McMurray assisted in report and message development.
section_title: Related GAO Products
paragraphs: Department of Labor, Wage and Hour Division, Employment Standards  Administration: Service Contract Act; Labor Standards for Federal  Service Contracts. OGC-97-14. Washington, D.C.: January 16, 1997.
Navy Contracting: Military Sealift Command’s Contract for Operating  Oceanographic Ships. NSIAD-90-151. Washington, D.C.: April 18, 1990.
Department of Labor: Assessment of the Accuracy of Wage Rates Under  the Service Contract Act. HRD-87-87BR. Washington, D.C.: May 28, 1987.
Decision of the Comptroller General of the United States, B-218427.2,   May 15, 1985, Crowley Towing & Transportation Company.
Congress Should Consider Repeal of the Service Contract Act.   HRD-83-4. Washington, D.C.: January 31, 1983.
Assessment of Federal Agency Compliance with the Service Contract  Act. HRD-82-59. Washington, D.C.: July 21, 1982.
Service Contract Act Should Not Apply to Service Employees of ADP and  High-Technology Companies—A Supplement. HRD-80-102  (A). Washington, D.C.: March 25, 1981.
Service Contract Act Should Not Apply to Service Employees of ADP and  High-Technology Companies. HRD-80-102. Washington, D.C.: September  16, 1980.