Opinion ID: 211140
Heading Depth: 2
Heading Rank: 2

Heading: Service Contract Act

Text: The SCA requires most government service contracts to contain clauses that protect workers’ wages and fringe benefits. See 41 U.S.C. § 351(a). More specifically, the SCA directs the Secretary of Labor (“Secretary”) to issue special minimum wage orders, called “wage determinations,” for each class of service worker employed in a particular locality, and it forbids contractors (that is, employers) from paying less than the Secretary’s wage determinations. See 41 U.S.C. § 351(a)(1). A similar SCA provision applies to fringe benefits. See 41 U.S.C. § 351(a)(2). In this manner, the SCA prevents contractors from underbidding each other (and hence being awarded government contracts) by cutting wages or fringe benefits to its service workers: Since labor costs are the predominant factor in most service contracts, the odds on making a successful low bid for a contract are heavily stacked in favor of the contractor paying the lowest wages. Contractors who wish to maintain an enlightened wage policy may find it almost impossible to compete for Government service contracts with those who pay wages to their employees at or below the subsistence level. When a Government contract is awarded to a service contractor with low wage standards, the Government is in effect subsidizing subminimum wages. Fort Hood Barbers Ass’n v. Herman, 137 F.3d 302, 309 (5th Cir. 1998) (citing H.R. Rep. No. 89-948, at 2-3 (1965); S. Rep. No. 89-798, at 3-4 (1965), reprinted in 1965 U.S.C.C.A.N. 3737, 3739). Although the SCA, as originally enacted, worked well to prevent the depression of wages/benefits (by using wage determinations to set a wage/benefit “floor”), it did not 06-1080 5 provide a mechanism to prevent the erosion of wage/benefit gains made through collective bargaining, wherein labor groups had succeeded in negotiating wages/benefits that were higher than the Secretary’s general wage determination. As the Fifth Circuit aptly noted: [T]he nature of government contracting, calling for frequent rebidding, combined with the SCA's sole emphasis and reliance on the prevailing wage rate scheme, effectively diminished the bargaining power of unionized workforces. A contractor without a CBA covering its employees, or with a CBA setting comparatively low wage and benefit rates, was able to easily outbid an incumbent contractor bound by a CBA with higher wages and rates that would survive the commencement date of the new contract. Id. Consequently, the SCA was amended to insert the so-called “successor contractor rule,” which prohibits a successor contractor from paying its employees less than its predecessor had paid its employees pursuant to the predecessor’s CBA: No contractor or subcontractor under a contract, which succeeds a contract subject to this Act and under which substantially the same services are furnished, shall pay any service employee under such contract less than the wages and fringe benefits, including accrued wages and fringe benefits, and any prospective increases in wages and fringe benefits provided for in a collective-bargaining agreement as a result of arm’s-length negotiations, to which such service employees would have been entitled if they were employed under the predecessor contract . . . . 41 U.S.C. § 353(c); see also Gracey v. Int’l Bhd. of Elec. Workers, 868 F.2d 671, 675 (4th Cir. 1989) (“[T]he purpose of that section was to remedy the practice of underbidding for government contracts by slashing wages.”); see also 29 C.F.R. § 4.163(k) (“No provision of this section shall be construed as permitting a successor contractor to pay its employees less than the wages and fringe benefits to which such 06-1080 6 employees would have been entitled under the predecessor contractor’s collective bargaining agreement.”). The successor contractor rule is a direct statutory obligation that is selfexecuting. See Guardian Moving & Storage Co. v. Hayden, 421 F.3d 1268, 1270 (Fed. Cir. 2005) (“[The successor-contractor rule] is a direct statutory obligation and requirement placed on the successor contractor . . . and is not contingent or dependent upon the issuance or incorporation in the contract of a wage determination based on the predecessor contractor’s collective bargaining agreement.” (citing 29 C.F.R. § 4.163(b))). Here, LSI is subject to the successor contractor rule because it succeeded Lockheed on the contract and was thus a successor in its base year of the contract. In addition, LSI was also a “successor contractor” during its first option year (the second year it was providing services), because LSI succeeded itself. See 29 C.F.R. § 4.163(e) (stating that a contractor can also become a successor to itself, such as when it, like LSI, performs an additional term pursuant to an option exercised by the government).