The Service Contract Act (SCA) covers contracts entered into by Government of Guam and federal agencies where the principal purpose of the contract is to furnish services through the use of "service employees."

The definition of "service employee" includes any employee engaged in performing services on a covered contract other than a bona fide executive, administrative, or professional employee who meets the exemption rules under the Fair Labor Standards Act.

The SCA does not apply to certain types of contractual services. These statutory exemptions include:

-- Contracts for construction, alteration, and/or repair of public buildings or public works, including painting and decorating. (Note: the Davis-Bacon Act does not apply in Guam);

-- Work required to be done in accordance with the provisions of the Walsh-Healey Public Contracts Act;

-- Contracts for transporting freight or personnel where published tariff rates are in effect;

--  Contracts for furnishing services by radio, telephone, telegraph, or cable companies subject to the Communications Act of 1934;

-- Contracts for public utility services;

-- Employment contracts providing for direct services to a Federal agency by an individual(s);

-- Contracts for operating postal contract stations for the U.S. Postal Service;

-- Services performed outside the U.S. (except in territories administered by the U.S., as defined in the Act); and

-- Contracts administratively exempted in special circumstances because of the public interest or to avoid impairment of government business.

The Act requires contractors and subcontractors performing services on prime contracts in excess of $2500 to pay service employees in various classes no less than the wage rates and fringe benefits found prevailing in the locality or the rates (including prospective increases) contained in a predecessor contractor’s union contract.

Wage determination are issued by the Department of Labor on a contract-by-contract basis in response to specific requests from contracting agencies. These determinations are incorporated into the government service, supply or construction contract.

For contracts equal to or less than $2500, contractors are required to pay at least the Federal minimum wage. Contractors are also required, under the provisions of the Contract Work Hours and Safety Standards Act and the Fair Labor Standards Act, to pay employees at least one and on-half times their regular rate of pay for all hours worked over 40 in a workweek. (The CWHSSA used to require overtime pay for time worked after 8 hours in a day, but that requirement was repealed in 1984.)

No part of the contract work may be performed in buildings, surroundings, or under working conditions that are unsanitary, hazardous, or dangerous to the safety and health of employees.

Notification must be given to employees who work in connection with the contract of the compensation due them under the wage and fringe benefits provisions of the contract.

The Wage and Hour Division of the U.S. Department of Labor enforces the wage and hour requirements of this Act. The Occupations Safety and Health Administration (OSHA) administers and enforces the safety and health requirements.

More detailed information including copies of explanatory brochures and regulatory and interpretative materials, may be obtained by contacting the USDOL's Wage and Hour Division and OSHA.

Violations of the SCA can result in contract terminations and liability for any resulting costs to the government, withholding of contract payments in sufficient amounts to cover wage and fringe benefits underpayments, legal action to recover the underpayments, and debarment from future contracts for up to three years.

Contractors and subcontractors may appeal determinations of violations and debarment to an administrative law judge. Appeals of administrative law judge decisions may be filed with the Administrative Review Board.

Final determinations on violations may be appealed to and are enforceable through federal court. The SCA applies to contracts awarded by the federal and Guam governments.

This law was supposed to prevent competition for government contracts from depressing service employee wage levels.

A 1972 amendment to the Act, known as the "successor contractor" provision, requires that the wage rate established by a union contract in any existing service contract must be considered the minimum wage rate for succeeding contracts in that area.

USDOL comes under frequent criticism for the way it administers this law. Despite two amendments, the SCA continues to suffer from statutory ambiguity, administrative problems, arbitrary requirements, and capricious enforcement.

Only about 16 USDOL employees are engaged in setting prevailing wage and benefit rates for about 200 different service occupations around the country.

They use approximately 90 SCA "surveys" conducted by the Bureau of Labor Statistics (BLS) and updated every other year. The BLS surveys 25 occupations, and USDOL uses a formula to estimate the wages of the other 175 occupations. Data on prevailing benefits are updated only every four years.

The Service Contract Act inflates the cost of government service contracts by more than $600 million per year and -- like the Davis-Bacon Act -- creates an unfair barrier for unskilled entry-level employees, who tend to be poor and minorities.

The U.S. General Accountability Office (GAO) has recommended that the Service Contract Act be repealed, both because of USDOL's "inability to administer the act efficiently and effectively" and because "it is impractical, [in GAO’s opinion], to make `prevailing wage' determinations under the act in a consistently equitable manner."

Outdated by extensions of the Fair Labor Standards Act to service employees, the SCA has become an unnecessary and costly bureaucratic burden that should be repealed.  Until that happens, employers must live with it.

SCA Wage determinations are too lengthy and change too frequently to include in this webpage. They are available from contracting agencies. 

 November 14, 2007