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Breakout Session # 1305 Glenn Sweatt, General Counsel, ECC Tuesday, April 15, 2008 2:10-3:10 PowerPoint Presentation
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Service Contract Act and Davis Bacon Act: Compliance and Audit Survival Tips . Breakout Session # 1305 Glenn Sweatt, General Counsel, ECC Tuesday, April 15, 2008 2:10-3:10. Session Objectives. The Service Contract Act (SCA) and the Davis Bacon Act (DBA) defined (FAR Part 22)

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Service Contract Act and Davis Bacon Act: Compliance and Audit Survival Tips

Breakout Session # 1305

Glenn Sweatt, General Counsel, ECC

Tuesday, April 15, 2008

2:10-3:10

session objectives
Session Objectives
  • The Service Contract Act (SCA) and the Davis Bacon Act (DBA) defined (FAR Part 22)
  • Learn when, why, where and to whom the acts apply, to interpret wage determinations, and to avoid pitfalls
  • How to manage audits and investigations
sca applicability basics
SCA Applicability - Basics
  • The McNamara-O'Hara Service Contract Act (SCA) (1965)

Supersedes the Fair Labor Standards Act (FLSA) to provide a MINIMUM wages and benefits for service workers on covered Government projects

Applies to contracts in excess of $2500

sca applicability contracts
SCA Applicability - Contracts
  • Act applies to “Services” - a broad category including landscaping, security, laundry, mortuary, film processing, maintenance, furniture repair, bomb disposal, etc.
sca applicability location
SCA Applicability - Location
  • 50 United States, Puerto Rico, Guam, Virgin Islands, American Samoa, Johnston Island, Marianas Islands, Wake Island, and outer continental shelf
  • Not applicable to work in Europe, Asia, etc
  • Not applicable to any State or commercial projects - only Federal Government Projects
sca applicability covered employees
SCA Applicability – Covered employees
  • “Any person engaged in the performance” of a Service Contract (contrast to DBA)
  • Includes (unless exemptions apply)
    • Everyone working in support of the project
    • Direct bill, not overhead or G&A (allocability)
sca applicability exempt employees
SCA Applicability – Exempt Employees
  • Exemptions – known as Section 541 “EAP” exemptions – revised 3/31/2003

Executive – three requirements

      • Managing the enterprise
      • Directing work of two or more employees
      • Having authority to hire and fire, or having such recommendations given great weight
    • Administrative – employee must hold a position of responsibility
  • Previous definitions are from 1954 and a bit less clear
sca applicability exempt employees9
SCA Applicability – Exempt Employees
  • Professional - specialized intellectual or artistic professions - includes computer related occupations
      • Scientific disciplines
      • Can be obtained by formal education, or combination of job experience, military training, and technical school or community college
sca applicability wage benefits
SCA Applicability – Wage & Benefits
  • Wages are set by job classification on the wage determination – see next slide
  • Benefits
    • Holidays - usually 10 standard federal holidays
    • Vacation - 2 weeks vacation accrued after 1 year of continuous service
sca applicability wage benefits11
SCA Applicability – Wage & Benefits
  • Health and welfare - cash or health and welfare benefit equal or great to $3.16/per hour
    • Maximum of 40 hrs per week, even if the employee works overtime
    • i.e. maximum $3.16/hr; $126.40/week; $547.73/month
      • Some WDs have rates higher than $3.16 – do the math based on 40 hrs a week, 4.33 weeks/month
conformance process
Conformance Process
  • What if a particular labor category is not listed on the WD?
  • Reasonable equivalence analysis - look for similar job title, be expansive in categorization, not specialized
  • If there is no reasonable equivalent, then conformance process begins
conformance process14
Conformance Process
  • Look for equivalent positions
  • SCA Directory of occupations
  • http://www.dol.gov/esa/regs/compliance/whd/wage/main.htm
  • Also used to ensure proper administration of SCA to a particular category (especially useful for “Level I, Level II, Level III classifications).
sf 1444
SF 1444

The standard form used for conformances

sca pitfalls
SCA Pitfalls
  • Not extending coverage to all sites (e.g. home office)
  • Over/under payment based on misperception that DBA applies instead
  • Not applying benefits to “independent contractors”
  • Benefits compliance
    • Your benefits package exceeds SCA requirements
    • Your benefits are misaligned with SCA requirements
    • Specifically, H&W is not spelled out on payroll records
sca pitfalls case study
SCA Pitfalls – Case Study
  • On a Hurricane Katrina debris recovery project, SCA wage for laborers was $9.68, and required benefits were $2.56 per hour
  • Employer paid employees $15/hr “flat rate” – no mention of benefits on employee’s payroll stubs
  • DOL found employer out of compliance and ordered them to pay all employees additional $2.56/hr in benefits over the course of the entire project ($45,456)
  • A similar case with additional overtime calculations yielded a $76,284 backpay order against an SB subcontractor (included FLSA overtime calculations as well)
sca pitfalls case study18
SCA Pitfalls – Case Study
  • On debris recovery project, one employer appears to have paid employees in cash
  • Auditor calculated back pay based on estimated schedule of 72 hours per week, over a 5 month period
  • Ordered sub to pay each employee $27,636
  • Question: were these employees working for 5 months with no pay?
  • How can employer defend against DOL estimates?
sca pitfalls lesson learned
SCA Pitfalls – Lesson learned
  • Benefits MUST be explicitly referred to on employee’s pay stub, NO EXCEPTIONS
  • Don’t forget standard FLSA rules regarding overtime!
  • DOL will look very strictly at any claims that individuals are “independent contractors”
  • Backpay orders are given freely– and if the subcontractor does not pay, the prime is responsible for payment of back wages
audits and investigations
Audits and Investigations
  • DOL field auditors and compliance personnel will interview employees
  • Ask them for payroll history, names and addresses of other employees
  • Best defense is to be in compliance and to maintain good payroll records at all levels
  • Provide training to subcontractors at the start of the project
  • Prime contractor is liable for subcontractors refusal to pay
    • At all levels – (2nd tier, third tier, etc)
audits and investigations22
Audits and Investigations
  • Long statute of limitations
  • Investigations reflect a lack of flexibility on part of DOL field personnel
  • Strict adherence to their audit guidance
  • Some discussions allowed, but minimal negotiations and no appeals process
  • If employer refuses to pay, DOL will refer issue to legal for further evaluation and possible action
where to get more information
Where to get more information
  • Labor Requirements of the Service Contract Act - by Federal Publications
  • Internet resources
    • www.dol.gov/dol/esa/public/regs/compliance/whd/wage/main.htm
    • http://www.oalj.dol.gov/libdba.htm
    • http://servicecontract.fedworld.gov/ (for WD search engine)
where to get more information24
Where to get more information
  • Only the WD provided by the CO is valid unless the agency has signed the Memorandum of Understanding with the DOL: see http://servicecontract.fedworld.gov/searchsca.htm
  • www.wdol.gov contains WDs but you still have to confirm which one has been formally modified into your contract
dba overview
DBA Overview
  • Davis Bacon Act - history and applicability
    • 1931 Act for Construction contracts over $2000
    • Includes construction, demolition, earth moving, significant repair or retrofit
    • Some jobs contain service and construction elements
      • Look at predominance of project
      • What the CO says your project is, it is
dba applicability basics
DBA Applicability - Basics
  • Supercedes to Fair Labor Standards Act (FLSA) to provide a MINIMUM wage for laborers and mechanics on covered Government projects
  • Only provides a floor, or minimum required wage - not a specific wage that must be paid
dba applicability basics27
DBA Applicability - Basics
  • Includes “cash fringe” - generally no holidays, vacation, or insurance
    • Be careful - some WDs do require paid holidays (e.g. NJ) - be sure to estimate these as direct costs in your estimate and/or change order
    • WDs in South are generally straightforward
applicability geographic location
Applicability - Geographic Location
  • 50 States and District of Columbia only
    • Federal Government Contracts only, though 36 States have “mini-DBA” laws
  • Direct physical site of work only (vs SCA)
    • Does not include home offices, tool yards, manufacturing facilities, T&D facilities, etc.
    • Federal court applies a strict analysis - “project site or immediately adjacent” - 1 mile or less
      • Be aware of borrow pits or specially created sites
dba applicability employees
DBA Applicability - Employees
  • Laborers and mechanics only
    • No administrative personnel, even non-exempt
    • Traditional craft labor - laborers, operators, truck drivers, pipe fitters, carpenters, electricians, ironworkers, painters, plumbers, mechanics, etc
dba applicability employees30
DBA Applicability - Employees
  • Exemptions – known as Section 541 “EAP” exemptions – revised March 31, 2003
    • Same as under SCA – refer back to previous slides
cash fringe exception
Cash Fringe - Exception
  • Union Collective Bargaining Agreements
    • Fringe is usually paid to Union funds
      • vacation
      • pension
      • strike fund
      • health insurance, etc…..
    • Dollar amounts are the same to union or non-union employees
wage determinations
Wage Determinations
  • Wage Determination (WD)
  • What they are, how they are developed
  • Which one applies to your project?
  • Ensure you are using the correct WD!
  • Contractors should always cite WD # on your cost proposal list of assumptions
    • Risk of bidding job at “X” and then learning the prevailing wages are “Y”
wage determinations33
Wage Determinations
  • Ensure you are using the right TYPE OF CONSTRUCTION from the RIGHT WD.
    • Building, Heavy, Highway
      • Some even more detailed, e.g. residential, building over three stories, etc
  • Ensure you are using the right location (county)
  • Ensure you are using right labor category
    • Know what your employees are doing
certified payrolls see attachment
Certified Payrolls (see attachment)
  • Must be submitted to the Government every week, 7 calendar days after regular payment date of payroll week covered
  • Must be complete and accurate
  • Administrative requirements (two copies, evidence of benefits, correct payroll number, correct employee class, etc…)
certified payrolls see attachment36
Certified Payrolls (see attachment)
  • Subcontractors must also comply
  • See FAR 22.406-6, “Payrolls and Statements”
  • FAR 22.406-7 also gives CO right to check
ensuring compliance
Ensuring Compliance
  • Wage and fringe audits - internal (payroll, compliance) and external (DOL)
  • Client monitored compliance (CO letters)
  • Penalties for non-compliance
    • Fines, withholding, liquidated damages
    • DOL audits
    • CCAS evaluation - 3 items for labor compliance
    • suspension and debarment
summary of pitfalls
Summary of Pitfalls
  • Applying incorrect act
  • Applying incorrect WD for Cost Proposal
  • Applying WD incorrectly
    • Wrong area, wrong revision, wrong type of construction (heavy vs. building vs. hwy)
  • Agreeing prematurely to submit a Request for conformance
  • Requesting “updated” WD from client
pitfalls continued
PITFALLS (continued)
  • Underpayment of fringes
  • Underpayment of overtime
  • Approving subcontractor invoices w/o proper certified payrolls
  • Revised WD/ 2 WDs on same project –
pitfalls continued41
PITFALLS (continued)
  • Employee (mis)understandings Overpaying/underpaying employees when making offers that don’t comply with DBA/FLSA or your employment policies
  • Mis-classification of employee
    • E.g. Laborer Group 1 vs Laborer Group 3
    • Leaving out hazardous pay differentials or other differentials (e.g. night shift, etc).
audits and investigations42
Audits and Investigations
  • DOL field auditors and compliance personnel will interview employees
    • Not as necessary because of certified payrolls
  • Best defense is to be in compliance and to maintain good payroll records at all levels
  • Provide training to subcontractors at the start of the project
  • Prime contractor is liable for subcontractors refusal to pay
audits and investigations43
Audits and Investigations
  • Long statute of limitations
  • Investigations reflect a lack of flexibility
  • Strict adherence to their audit guidance
  • Some discussions allowed, but no negotiations or appeals
  • Unions more apt to get involved in DBA issues vs SCA; added pressure to resolve issues, pay quickly or face penalties
in summary you should
In Summary You Should.....
  • have an understanding as to which contracts the DBA applies to, and which the SCA applies to
  • be able to spot potential problem areas, and avoid common SCA and DBA traps
  • understand and meet SCA and DBA requirements.
  • know where to look for additional information
where to get more information45
Where to get more information
  • Internet resources
    • www.labor.org/workplace/davisbacon.html
    • www.dol.gov/dol/esa/public/regs/statutes/whd/dbra.htm
    • www.dol.gov
    • www.wdol.gov