Feb 21, 2014

Jolting News for Service Contractors

On a recent business trip to Dallas, the tug that was supposed to push the airplane out of the gate instead ran into it while we were waiting to depart BWI.  This not only caused quite a stir from all of the shaking (it felt like another plane had run into us), but resulted in a gaping hole in the cone of the airplane. I tweeted  a picture of the mishap and that eventually led to a sit-down interview with the Dallas NBC affiliate of all things.  I always thought government contracting would bring me fame (and fortune!), not an airplane incident while we were still at the gate.  As jolting as the whole affair was (it’s the same feeling after being in a fender bender or having a close call while driving), it is not as scary as some of the latest news for service contractors.  Let’s tackle a few of them:

First a new Executive Order, increasing the minimum wage for certain federal contract employees, hit the streets last week .  By reading the plain language of the EO, it may or may not require the following:

  • All employees who work for the contractor may be required to be paid $10.10 per hour no matter if they are direct labor or not.  Not sure if this was intentional, but the language in one section of the EO was very broad: “increasing to $10.10 the hourly minimum wage paid by those contractors” (Section 1).  On the other hand, “as a condition of payment, that the minimum wage to be paid to workers…in the performance of the contract or any subcontract thereunder, be at least (i) $10.10 per hour…” (Section 2).  It is likely to only concern direct labor because of the latter quote, but it is something worth keeping an eye on.
  • Earlier adoption than January 1, 2015.  Some folks may remember that although the new Nondisplacement regulations did not take effect until January 18, 2013, the regulation in EO form found its way into solicitations before then.  In fact, DOL had it in its guidebook for its ALJs.  Here, Section 8(c) of the EO encourages earlier adoption as long as it is “reasonable” and “legally permissible.”
  • It is unclear how this will change wage determinations (WDs) already out there.  Will DOL ensure that all wages in WDs meet the $10.10 threshold or will it be a separate requirement?  Either way, look for it to push wages up throughout the food change (i.e., the worker making $10.10 now will probably see his or her wages go up to keep the separation between them and the lower wage person).
  • These provisions do not just concern service contractors, but contractors who perform all types of work.
  • The effective date is for all new contracts (or “contract-like instruments”) entered into after January 1, 2015.  What is the definition of a new contract or contract-like instrument?  Contract extensions are considered new contracts under the SCA.  See 29 CFR 4.143(b).

Second, a recent case debarring a contractor providing guard services is spooking many contractors because it appears to be inconsistent with prior guidance regarding how to compensate security guards that are training to meet contract specifications prior to contract commencement.  In a case debarring Ares Group, the Administrative Review Board held that “prospective security guards that attended the training before the commencement of performance of the Contract as well as the security guards hired by ARES are ‘service employees’ under the Act and were rightfully entitled to compensation for training time as well as fringe benefits and the prevailing wages provided for under the Act.” 

In the past, DOL’s guidance pointed out that training prior to contract commencement was merely covered by the Fair Labor Standards Act.  One could argue that security guards who have not been qualified should not be billed to the Government at the full rate if they do not meet the contract specifications.  False Claims Act violation anyone?  Apparently one of the ARB judges agreed and held that: “as Ares argued, Section 6107 expressly refers only to “persons engaged in the performance of a [covered] contract,” not persons attempting to qualify to perform on a contract.”  A copy of the case is here.

We will continue to monitor this development closely (check out the discussion on LinkedIn, but as of now, service contractors should proceed with extreme caution.  Centre is currently writing a White Paper on this very topic.

Third, OFCCP has released its long awaited regulations regarding hiring goals for disabled persons and veterans.  These regulations do not require specific hiring, but do have robust goals and reporting requirements for contractors.  Failure to take specific actions and develop a complaint affirmative action plan can results in sanctions up to and including debarment.  While the goals of these regulations are certainly laudable, these new regulations place additional burdens on contractors.  If you want more information on this, please feel free to contact us (or take our Annual Review course hint, hint, hint…) USE THE PROMO CODE AR2014BLG TO SAVE $50 WHEN YOU REGISTER NOW!

Well, enough good news from now.  I survived the plane mishap (which in the end was no big deal) and contractors will survive these new requirements.  All that’s needed is an ounce of prevention, education, and awareness.  Safe travels and happy contracting!

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