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Bidding SCA Contracts – Is It Worth It?

As we ebb and flow through the proposal season, there are numerous types of RFPs that will drop which you might consider bidding on.  Some might even have the Service Contract Act (SCA) clause 52.222-41 buried in the document.  If you decide an RFP with the SCA clause is worth the bid, there are some things to take into consideration throughout the process.  Here are a few items to consider:

• SCA clause is in the RFP, but not the Wage Determination (WD).
It is always a good idea to ask during the Q&A process if SCA does apply.  If it does, then the government should provide the WDs.  If the government does not, it is up to you to find the applicable WD on the Department of Labor (DOL) website.  This is especially important when developing pricing as you will want to be sure that you have the most up to date data in order to develop your fringe pools and understand the hourly pay rates.

• The prior contract should have had the SCA clause incorporated into the contract.
If it has become apparent that the SCA provision did apply to the prior contract, the DOL may require retroactive application of the SCA. If you are the incumbent, you must make the employees as whole as possible when complying with the SCA.
You will need to ensure that the employees were:

• afforded the correct Health & Welfare (H&W) dollars,
• mapped to the appropriate labor category,
• considered with employee seniority on the contract when afforded vacation benefits, and,
• if the sick leave Executive Order is applicable, the employees will need to have sick time calculated based on hours worked.

If you are not the incumbent, you will still want to consider all of these options to develop your rates as they will be applicable going forward on the new contract.

•Benefits must comply with the Affordable Care Act (ACA).
In the past, organizations have attempted to reduce their pricing by trying to gut the benefits offered.  Benefits must still comply with ACA’s minimum essential coverage and cost requirements.  Just because the H&W is employer money to be used to purchase insurance on behalf of the employee, it still must meet the maximum cost threshold set by the government each year.  Generally, benefit costs to the employee should not be more than approximately 9.5% of the lowest waged household income.  Unfortunately, employers are not privy to an employee’s household income so it is a recommended best practice to take the lowest wage earner in the company and determine the maximum amount the medical benefit should cost that employee when determining cost allocations.

• SCA applies to all non-exempt employees on the contract.
Do not overlook part-time employees.  Part-time employees are entitled to all SCA benefits, with the exception of health insurance benefits.  You will want to be sure to incorporate costs for vacation and sick leave in your rates.

• Subcontractors’ compliance is a common issue/pitfall.
A good practice tip is to draft a form that calls out the requirements of the SCA with emphasis on its exemptions and provide this to your subcontractors.  Train your contracts shop to send out the form to each subcontractor supporting a prime contract that contains the SCA clause in the prime contract. It is best to have documentation that shows your subcontractors’ assertion that it is exempt. And yes, the FAR clause does flow down to your subcontractors, they need to be aware and compliant, the Prime is on the hook for subcontractor compliance with the prime contract requirements.

• When bidding on IDIQs, make sure to check the master IDIQ contract vehicle.
It is common that the SCA clause is at the master IDIQ level but may not be incorporated into the task order.  It is up to you, the contractor, to be sure that the SCA clause is adhered to even if it is not included in the task order.

• There is a Collective Bargaining Agreement (CBA) in place.
Just because there is a CBA in place, does not mean that the SCA provision does not apply. Yes, the CBA takes precedence over the SCA as it pertains to wages, H&W rates, and benefits; however, as an employer, you would still be required to adhere to the provisions of the SCA.  When bidding, ask for a copy of the CBA so that your rates incorporate their requirements for wages, H&W, and benefits.  Too often, employers will bid without understanding the CBA and find that they will need to adjust pay and benefits. Despite this required adjustment, the employer may not be able to go back to the government and request an equitable adjustment on your rates. You may have leverage in renegotiating the CBA if the SCA offers conflicting guidance.  Always work with your legal team to ensure all the risks on both items.

• If you do not comply with SCA, the repercussions are harsh.
It is imperative that you know what you are getting yourself into when bidding and working on an SCA contract.  The government will not accept that you did not know.  It is up to you to make sure that you comply.  If it is found that you did not comply, the government sanctions and fines can be harsh, and you could open yourself up for a DOL Wage & Hour audit.  Government sanctions and an audit could include fines, penalties, back pay, punitive damages paid to the government and to the affected employee, debarment, and contract termination.  It is in your best interest to be sure to comply with all applicable FAR clauses under the SCA.

Luckily for BOOST clients, we have the knowledge required to help keep you compliant. If you’re wondering if a bid is worth the SCA headache, let’s talk and set some strategic pricing plans in motion. Email [email protected] to learn more.

SCA and ACA…. WTH?

For our readers who have SCA (Service Contract Act) contracts, please keep reading…there’s a whole other level of compliance we’ve gotta get smart on.  For those of you who don’t have SCA contracts, thank your lucky stars, vow that you won’t go after this work without serious soul searching, and move on (Take this as our warning to you!).

Okay, everyone still with us?  As you know, SCA compliance is tedious and painful.  That’s our baseline.  Let’s now talk compliance with ACA (Affordable Care Act).  One thing to remember – ACA applies to all employers, not just those with 50+ employees.

First, SCA dictates that a certain dollar amount, now $4.54 effective July 5, is the new bona fide health and welfare (H&W) rate for all covered contracts executed or bid on after the effective date.

This means:

• If a contract has a new option year, the new H&W rate may be applicable.

• For any new work bid on, the updated H&W rate must be included.

• For those contracts covered by the sick leave EO 13706, the new rate is $4.22/hour.

• Companies will want to contact their Contracting Officer for each SCA contract requesting the timing of the updated H&W rates for the specific contracts

• Remember to ask whether a modification to the contract will be issued (yes!!) or if the H&W rate will be updated at contract renewal/option year (boo!).

Secondly, in regulation with ACA, employers are required to offer minimal essential coverage with their benefit offerings, just like employers with non-SCA staff or pay a fee to the IRS.

• H&W by design was implemented in order to require employers to provide benefits instead of cash in lieu (CIL).

• Technically, not offering benefits could be non-compliant with SCA.

• DOL has provided guidance saying that under ACA, employers will no longer be able to pay all cash (ARE YOU HEARING THIS CIL FOLKS?) in lieu of offering benefits.

 

Finally, with this information come certain risks under ACA and SCA.  Some key elements to consider:

• Offering CIL payments in lieu of benefits does not meet the ACA requirement.

• Employees can potentially waive benefits to receive the CIL and still not have benefit coverage under another qualifying plan.

•Not having a waiver on file could make the employer non-compliant with the ACA mandate.   So yes, insist on the documentation, regardless of what story the employee may tell you.  No documentation = considered not otherwise covered in the eyes of the employer, IRS, and DOL.

• Not offering an ACA compliant plan that meets minimal essential value or minimal essential coverage could put the company at risk.

 

Along with these stormy clouds. We bring you some sunshine in the form of how to combat these risks:

• Offer benefits that are ACA compliant and follow SCA definition of a bona fide fringe benefit.

• Ensure each plan meets minimal essential value and minimal essential coverage.

• Work with brokers and other SCA/ACA experts on the outside if there isn’t someone at the company who understands the SCA complexities.

• Be sure to obtain waivers (proof of insurance) from employees who waive benefits.  Unfortunately, you just can’t take their word for it.  If you’re audited and no documents on file means you’re paying fines.

 

If you’ve made it this far you deserve another cup of coffee (or something stronger depending on where you are in the process). BOOST can help with that too! BOOST LLC is sponsoring the September 25th govmates Institute that will focus on how you can CYA in SCA. (Breakfast and lunch with beer are included! We told you we had you covered.) Register for the govmates institute or contact BOOST for more information, [email protected]

How to Survive a DOL SCA Wage and Hour Audit

On a late Friday afternoon in May, just before I am about to leave for a three-day holiday weekend, my phone rings at the corporate office in Maryland and it is the voice of a woman who is the last person I wanted to speak to at the end of a long week – a Department of Labor auditor.  The woman seemed nice enough until she says, “a report has been made against your organization in North Carolina and I have been assigned to oversee the audit.  I will be emailing you momentarily all of the documents I will need.”  I receive the email and immediately called her back to ask, “Three days? I have three days to bring you payroll reports, rosters, and time cards for a workforce of 200 employees?” That is when she informs me if I do not comply the company will be in violation of her records request which could cause the organization to be assessed fines.  So, my team and I pulled together all SCA policies and procedures, 2 years of employee records, a month’s worth of payroll records, and time cards for 6 months for 200 employees. All over a holiday weekend.  It was a feat to be had, but the team pulled together and by Tuesday I was driving to North Carolina with 5 large bankers boxes to meet with the auditor on Wednesday morning.

Wednesday comes and the audit begins.  Two weeks later the audit is over, and I receive my findings. They were good, but not great.  The company was assessed almost $200,000 in back wages, but we were found to not be negligent in our practices, policies and procedures.  And from this experience, here is what I learned on how to survive (as best as you can):

  • Be nice and play nice with the auditor. She can make or break the findings.  By playing nice with the auditor and offering assistance, she shared the reason for the audit – someone was not happy about not receiving their vacation benefit after being away from the contract for more than six months.  I explained that the FAR clause pertaining to vacation benefits does not dictate length of separation when determining an anniversary date and vacation payout.  The company set a generous policy that was in writing as to what would constitute a separation from the contract.
  • Make sure you understand the FAR clauses. Especially those associated with SCA and wage & hour as it pertains to an SCA contract to include health & welfare benefits. By demonstrating knowledge of the FAR, we were able to justify the policies and procedures put into place and that the company put a considerable amount of thought in how to implement the corporate policies.
  • Be prepared for employees to talk to the auditor. The auditor will request that you provide a number of employees to speak with her.  Our auditor spoke with approximately 25 employees.  We were able to identify 10 employees with the remainder identified by the auditor.  The company was not aware that the auditor would speak to employees as we were told originally it was just a document request and management interview.
  • The auditor is not limited in scope. The auditor will ask questions that are within the scope of DOL wage and hour and SCA.  They are not limited to the complaint that was filed.  We found out from employees who came to us asking why the auditor asked specific questions about pay practices, how we handled policy infractions, and more.
  • The auditor will be reviewing ALL aspects of wage & hour and SCA compliance. The auditor asked questions of corporate, program management, and employees on topics such as how employees are paid, how they are compensated, are they compensated fairly under the wage determination based upon their labor category, do they work overtime, and do they receive all benefits in accordance with the SCA.  Our auditor found that even though there was no overtime required on the contract and that we had a strict no overtime policy, employees were still using their own time to do tasks such as making copies at home or buying supplies for their workspace.  It was deemed that this was in direct violation of overtime laws.
  • The auditor will assess fines, penalties, damages, and lost wages. The fines, penalties, and damages are at the discretion of the auditor (this is where the “be nice and play nice” rule applies).  Our auditor felt that since we were forthcoming with information, knew our FAR clauses and how to apply them, and there was no willful misconduct by the organization that she would not assess fines or penalties under wage and hour or SCA.  Yes, there could have been fines and penalties under both labor laws! However, the company was required to pay back wages of uncompensated overtime to 200 employees.
  • The auditor will determine the amount of lost wages and when those wages must be paid. Our auditor made a determination and created a calculation of how much potential overtime was reasonable to be paid to the employees (both current and past employees) who had worked in the prior 22 weeks. For most employees who were employed for that entire look-back period, they received just over $1,000 in back overtime wages which had to be paid out within two weeks of DOL’s notice.  If the company had been found to be negligent in violating SCA and/or wage and hour laws, punitive damages would have been assessed and paid to the employee.  To put this in perspective, punitive damages are two times the amount of lost wages.

 

This is how I survived and what I learned during a Department of Labor SCA Wage & Hour SCA audit.  If I or my team had taken the stance that DOL was the enemy, if the company was not clear or consistent in SCA policies and practices or was found negligent in our understanding and application of SCA wage and hour laws, the outcome would have been catastrophic.  The company did a review of a worst-case scenario and found that the end result would have been over $1,000,000.00 in punitive fines, damages, and back wages that would have been owed to either the DOL or to the employees.  That’s a huge chunk of change for an up and coming 8(a) business.  The company would have had to shutter their doors and more than 200 people would have lost their jobs.

 

Avoid being a “worst-case scenario” story by making yourself aware of the SCA Wage & Hour requirements on every contract. If you would like guidance on where to start and how to focus, email BOOST LLC. [email protected]