Service Contract Act: Wage Determination Process Could Benefit from Greater Transparency, and Better Use of Violation Data Could Improve Enforcement
Released: 2006-01-06T00:00:00

Letter

Background

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.

Western

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.

Wage Determination Process Relies on Multiple Data Sources and Professional Judgment but Lacks Transparency

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.

WHD Relies on Multiple Data Sources and Staff’s Professional Judgment When Making Wage Determinations

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.

Directory of Occupations

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.

Process for Determining Wages

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.

Process for Determining Fringe Benefit Rates

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.

Lack of Transparency Leaves Wage Determinations Prone to Criticism

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.

DOL Enforces SCA by Conducting Investigations, Ensuring Contractor Payments, and Providing Compliance Assistance, but WHD Could Make Better Use of Violation Data

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.

WHD Conducts Complaint- Driven Investigations

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.

WHD Enforcement Efforts Result in Payment of Back Wages and Fringe Benefits and Debarment of Some Violators from Future Contract Work

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.

Training and Outreach Efforts Aim to Improve SCA Compliance

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.

Conclusions

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.

Recommendations for Executive Action

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.

Agency Comments

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.

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Appendix I: Objectives, Scope, and Methodology

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.

Reliability of WHD’s Data on Investigations and Debarments

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.

Reliability of FPDS Data

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.

Appendix II: Examples of Standard and Non- standard Wage Determinations

Appendix III: Comments from the Department of Labor

Appendix IV: GAO Contact and Staff Acknowledgments

Staff Acknowledgments

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.

Related GAO Products

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.