How the Service Contract Act Affects Subcontractors: What to Know

Service Contract Act, Subcontractors, What You Need to Know

Understanding the Service Contract Act (SCA) is critical for subcontractors involved in federal service contracts. The SCA establishes wage, safety, and record-keeping standards for service workers on contracts exceeding $2,500. Subcontractors who fail to comply face significant risks, including penalties, debarment, and disrupted relationships with prime contractors. Below, we explore how the SCA applies to subcontractors, including flow-down requirements, subcontractor liability, and compliance audits.

A Summary of the Service Contract Act

Enacted in 1965, the SCA protects workers by ensuring they receive prevailing wages and fringe benefits, as determined by the Department of Labor. The Act applies to all federal service contracts performed within the United States.

Subcontractors under federal service contracts must:

• Pay workers prevailing wages and mandated fringe benefits, such as health insurance.
• Maintain occupational safety standards.
• Comply with rigorous record-keeping requirements to facilitate compliance audits.

Prime contractors must enforce these obligations through flow-down requirements, holding subcontractors accountable for compliance. Learn more about the SCA on Whitcomb Selinsky’s Service Contract Act page.

Key Provisions Affecting Subcontractors

Flow-Down Requirements

Prime contractors often include flow-down clauses in their agreements to ensure subcontractors comply with all relevant laws, including the SCA. This means subcontractors must mirror prime contractor obligations to meet federal standards.

Subcontractor Liability

Non-compliance with SCA standards can lead to liability for subcontractors, including penalties, withheld payments, and debarment. Subcontractors are also responsible for the actions of lower-tier subcontractors, necessitating robust compliance systems.

Compliance Audits

Government agencies and the Department of Labor conduct audits to ensure compliance with the SCA. Subcontractors must maintain thorough records, including payroll and benefits information, to demonstrate adherence to the Act.

Case Analysis: Miscellaneous Service Workers, etc. v. Philco-Ford Corp.

Case Background

In Miscellaneous Service Workers, etc. v. Philco-Ford Corp., former employees of Lockheed alleged that Philco-Ford, as the successor contractor, violated the SCA by failing to provide prevailing wages and benefits. They also claimed misrepresentation about the applicability of the SCA.

Court Ruling

The Ninth Circuit ruled that the SCA does not provide a private right of action for employees to sue employers directly. Instead, enforcement is limited to administrative remedies pursued through the Department of Labor. This case underscored the importance of adhering to administrative processes for resolving disputes under the SCA.

SCA: Subcontractor Obligations

Subcontractors must implement the following practices to comply with the SCA:

1. Paying Prevailing Wages and Benefits: Adhere to wage determinations issued by the Department of Labor.
2. Maintaining Accurate Records: Document payroll, hours worked, and benefits provided for compliance audits.
3. Ensuring Supply Chain Compliance: Hold lower-tier subcontractors accountable to the same standards.

Strong internal systems are essential for meeting these obligations and avoiding subcontractor liability.

Common Challenges for Subcontractors

Subcontractors often face obstacles, such as:

• Employee Classification: Misclassifying workers can result in compliance failures and fines.
• Wage Determination Issues: Prevailing wage rates vary by location and job type, complicating payroll processes.
• Fringe Benefits Administration: Providing mandated benefits adds administrative complexity and expense.

Regular audits and proactive compliance measures can mitigate these challenges.

Laws and Penalties for Non-Compliance

Failure to meet SCA requirements can result in:

• Withheld Payments: Federal agencies may delay payments until violations are resolved.
• Debarment: Non-compliant subcontractors can be barred from future federal contracts for three years.
• Administrative Penalties: Violations of wage and benefit standards can lead to significant fines.

Whitcomb Selinsky PC: Supporting SCA Compliance

Navigating SCA compliance can be complex. Whitcomb Selinsky PC offers:

• Consultative Legal Support: Advising subcontractors on SCA requirements and compliance strategies.
• Representation in Disputes: Assisting with administrative claims and audits related to the SCA.

With extensive experience in government contract law, Whitcomb Selinsky PC is a trusted partner for subcontractors. Visit our Service Contract Act page for more information.

Conclusion

The Service Contract Act imposes vital responsibilities on subcontractors in federal service contracts. From flow-down requirements to compliance audits, subcontractors must understand and adhere to these obligations. For expert guidance, contact us today.