Why The Industry Is Afraid Of The Service Contract Act

The Service Contract Act (SCA) is a law that the United States Congress passed in 1965 and became law in 1966.  The Law Firm Vandeventer Black opines best below.  Please click the link in the Title to COMPLETELY understand that as a Contractor with W2 Employees, it benefits you to come forward as the Prime Vendors ARE LIABLE:

The Service Contract Act
by Arlene F. Klinedinst

Overview of SCA

  • Was effective January 20, 1966 and amended in 1972 (adding successor contractors) and in 1976 (adding “white collar” workers).
  • Requires payment of specified wages and fringe benefits to employees working on service contracts and subcontracts with the United States for the principal purpose of furnishing services.
  • Covers subcontractors at any tier
  • General contractors held liable for subcontractor’s actions

Penalties for Non-Compliance with SCA

• Backpay, Interest, Fines
• Withholding Government Contract Payments
• Termination of Contract
• De-barment

Now that we all know the ground rules; the rules NO PRIME VENDOR WANTS YOU TO KNOW, let’s talk about why they do not want you to know.  First, the financial damage which is on the horizon for the Prime Vendors because of  Sub Contractor’s actions or inactions (yes, that’s you the Contractor reading this) is astronomical!  Let me back up just a step, though, and list our Guest Appearances.  First, the Internal Revenue Service (IRS).  Now everyone knows the hard time IRS is having within the Beltway as I type this.  With the Federal Bureau of Investigation (FBI) involved, the IRS really, really needs a good story.  Hey, I have an idea:  How about the IRS pursuing obscene profit margins at the expense of underpaid W2 Employees?  Let’s not bullshit for a minute, this is going to make Prime Time, mark my words!

Let me introduce our next Guest Appearance.  Good ‘ol Joseph “Uncle Joe” Biden, the Vice President of the United States.  Many folks don’t know it, but Uncle Joe is doing a hell of a lot more than just telling folks how to defend their property with a shotgun.  Matter of fact Uncle Joe has made it a Personal Mission of his to have the US Department of Labor‘s (DoL) Wage and Hour Division (WHD) pursue the independent contractor vs. employee relationship like a pit bull with a hard on!  Take a look:

The Department’s Misclassification Initiative, launched under the auspices of Vice President Biden’s Middle Class Task Force, is making great strides in combating this pervasive issue and to restoring these rights to those denied them. In September 2011, Secretary of Labor Hilda L. Solis announced a major step forward with the signing of a Memorandum of Understanding (MOU) between the Department and the Internal Revenue Service (IRS). Under this agreement, the agencies will work together and share information to reduce the incidence of misclassification of employees, to help reduce the tax gap, and to improve compliance with federal labor laws.

Finally, let’s take a real hard look at the US Department of Housing and Urban Development‘s (HUD) piss poor record of being able to even keep up with whether or not the Prime Vendors are screwing them and YOU THE TAXPAYER out of MILLIONS OF DOLLARS!  The Marketing and Management (M&M) Contract is a complete disaster.  Scratch the surface of any Prime Vendor and you find a Straw Man.  Look at any bid and you see that even a blind man with an abacus could have realized ALL the Prime Vendors have under bidded and there was no way in HELL what they were paying could have ever complied with SCA Requirements!  Here is the deal:  ANY first year actuary would have known this.  In my opinion HUD knew it, the Prime Vendors knew it — EVERYONE knew it!

What HUD, the Prime Vendors or Financial Institutions could have never predicted is that Obamacare would come along as an unfunded mandate.  $17 TRILLION folks.  Who thinks that the Obama Administration, the IRS, DoL WHD and HUD is going to go in front of Congress and say it was their fault?  No, it’s going down something like this:

“Hey, we are in a world of shit.  The American People need a good story about rich assholes finally paying their fair share.  Look, these Prime Vendors over at HUD have screwed blue collar workers for YEARS.  We all remember HUD Secretary (HUDSEC) Alfonso Jackson and the HMBI days.  We cannot deal with that again.  Hell, here is a great PR gig that moves our Obamacare forward.  We hit these greedy people for the TENS OF BILLIONS OF DOLLARS that have never been paid to the W2 Employees of the Sub Contractors.  Hell, we hit PK Management for $64,000 a couple of years ago as a dry run on their OWN employees!  Look, this is win-win!  The Prime Vendors pay out, the folks servicing in the field don’t get touched and we score a BIG Victory!  So, get Jay Carney in the Spin Room.  While we are at it, get HUDSEC Donovan on the horn.  If HUD M&M isn’t going over this on the latest Contracts I want new people in there!

The above is not that far off from how it is going to come down.  Let’s look at the Manual on SCA Compliance Investigations:

The WHD conducts investigations for a number of reasons, all having to do with enforcement of the laws and ensuring an employer’s compliance. The WHD does not typically disclose the reason for an investigation. Many are initiated by complaints. All complaints are confidential; the name of the worker and the nature of the complaint are not disclosable; whether a complaint exists may not be disclosed. In addition to complaints, the WHD selects certain types of businesses or industries for investigation. Regardless of the particular reason that prompted the investigation, all investigations are
conducted in accordance with established policies and procedures.

SCA LABOR STANDARDS/CONTRACT STIPULATIONS

Section 2(a) of the SCA requires that stipulations (contract clauses) be included in all covered contracts in excess of $2,500. The stipulations are set forth at 29 C.F.R. § 4.6 and FAR 48 C.F.R. § 52.222-41. Among the contract clause requirements are:

◊ Minimum wages to be paid the various classes of service employees.
◊ Fringe benefits to be furnished to the service employees.
◊ Safety and health provisions.
◊ Furnishing employees notice of required compensation.
◊ Statement of rates the federal agency would pay to the various classes of service
employees if they were federal employees.
◊◊ DOL must give due consideration to such rates in making wage and fringe
benefit determinations.

In addition to the SCA contract stipulations established in 29 C.F.R. § 4.6, contracts to which CWHSSA overtime requirements apply must also include the contract clause language set forth at 29 C.F.R. § 5.5(b) and FAR 48 C.F.R. § 52.222-4.

OK.  Now that I have everyone’s attention; now that everyone out there including the Prime Vendors and US Government Officials fully understand this is not a bluff, we need to roll out the final act:  Qui Tam.

Qui tam actions may be brought by employees, former employees, competitors, subcontractors, state and local governments, current and former federal employees, public interest groups, corporations, and other private organizations.

Did I fail to mention that to the Victor goes the spoils?

If a whistleblower plaintiff wins a qui tam suit alleging false claims, the whistleblower, known as a “relator,” will be entitled to 15 to 30 percent of the government’s total recovery.

Being the hayseed that I am here in a County with One Stoplight, I am not too good with math.  I do believe that 15 – 30 percent of BILLIONS OF DOLLARS is a pretty good motivating factor for any former W2 employee or disgruntled current employees whom are already releasing thousands upon thousands of documents.  It doesn’t really matter whom thinks what.  With the recent revelations by A2Z Field Services (A2ZFS), by and through their recent demands to waive Contractor’s 4th, 5th, 6th and 14th Amendment Rights in order to work upon HUD M&M Contracts, I really do NOT think anyone is going to loose any sleep about bankrupting these types of people!  Did I forget to mention that all of the Prime Vendors we have reviewed, to date, seem to have one thing in common?  I think you guessed it.  😉

HUD would be wise to closely examine how it proceeds going forward with its future M&M Contracting.  To have not only the knowledge of the recent delegation of Police Powers accorded to A2ZFS apparently from HUD to kick in the doors of Contractors and their Sub Contractors, HUD really, really does not want to be on the hook for SCA Violations!  We actually took the liberty of forwarding a copy of this to HUDSEC Donovan.  Here is a summation of the history of corruption which has plagued HUD and its Secretaries for YEARS:

HUD’s history of scandal and corruption fits this pattern. While government officials and advocates for housing subsidies usually paint a romanticized portrait of HUD’s programs, the truth is that federal housing intervention has often done far more damage than good. The housing and financial meltdowns of recent years can be partly traced to the distortions injected into markets by federal housing regulations and subsidies through HUD and other agencies. We have learned that when the government intervenes in the housing industry, politically driven decisions lead to corruption and economic distortion, not efficient public policies. The federal government should begin withdrawing from housing markets, including dismantling the Department of Housing and Urban Development.

So, the ultimate question is twofold:  What underpaid employee is going to — OR ALREADY HAS — step to the plate and claim their chunk of the pie?  Hmnn, considering how well these Prime Vendors have treated anyone, maybe this will go nowhere; maybe the US Government will take a pass on the BILLIONS of dollars available for Obamacare.  The Second and final question is this:  Will the HUD M&M Department get out in front of this and if so how?  Well, stay tuned folks.  You know you read about it here first!  Hell, we may actually be writing the sequel to this right now!

Reader’s Questions Which Came In

Are the HUD contracts subject to SCA?
Yes! See the second file down on the right side under “Solicitation 1” and “May 25, 2012”, then scroll within the file to the top/intro of page 102 (as labeled, page 100 in reality) and the bottom of page 103 (again, as labeled).
Have I indeed paid my office staff less than what the government requires?
Put your hand up if you think so, and then hold it there. With the other hand visit the US Department of Labor (DoL).  Then, look up your county and state, hit “NO“, hit “NO,” and then scroll down, and perhaps use the “Print Friendly Version,” and then see what the minimum wage for “01011 – Accounting Clerk I” (or the next listing, Accounting Clerk II) and “01320 – Service Order Dispatcher,” two classes that describe much of your office staff members’ functions. Of course, the government lets you pick the most appropriate designation, but if they find that the person better fits a different classification then they will make the choice.
After this, scroll down to almost the end of the page and find the following:
ALL OCCUPATIONS LISTED ABOVE RECEIVE THE FOLLOWING BENEFITS:  HEALTH & WELFARE: $3.71 per hour or $148.40 per week or $643.07 per month
So, not only do you need to be paying a certain $ amount per hour, but you need to be contributing at least $643.07 per month, tax-free, to either a health care plan or to the employee’s pocket as cash (again, tax-free). Then, there’s the issue that your employee is entitled to paid time off for all 10 of the federal holidays, not to mention an accrual of other paid time off, etc.
Okay, now keep your hand up if you think you’ve exceeded all these expectations with your office folks. Just what I thought…no hands are up now. “But no one told me about this!” Yep, and even your HUD contracting client did fully inform you they would be on the hook for any shorfalls in your employees’ pay, not you. Why? They hold a contract with the taxpayers and you do not. 

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