One seemingly straightforward initial question contractors must consider is whether a contract to be awarded is SCA covered. While in a perfect world the solicitation documents should make the answer to this question obvious, we don't live in a perfect world.

Over the years, we've seen solicitations that include SCA wage determinations, but not the Federal Acquisition Regulation (FAR) SCA clause or vice versa as well as solicitations that omit all SCA clauses even though the work called for under the contract appears to be SCA covered.

Couple this with the fact that SCA coverage has expanded over the years to include complex contracts related to subject matter areas that did not exist when the SCA was enacted, and this coverage question is far from simple to solve. But what responsibility does the contactor have to independently determine SCA coverage since the DOL regulations place that burden squarely on the agency contracting officer?

Well, even though the agency contracting officer is tasked with determining SCA coverage, we always recommend that contractors make their own pre-award, independent assessment of SCA coverage. The first step is to check whether the solicitation (or an amendment thereto) provides indications that the contract will be subject to the SCA.

That is, does it (i) incorporate the applicable FAR clause, FAR 52.222-41, (ii) include an SCA prevailing wage determination and/or (iii) otherwise state that it is subject to the SCA? If one or more of these items are present, contractors should expect the contract will be covered by the SCA and strongly consider pricing their proposals accordingly to include SCA prevailing wages.

However, even if the solicitation does not address the SCA directly in one of the foregoing ways, the resulting contract could still be considered SCA covered by the DOL if all of the following factors are met: (a) the contract is an award by the U.S. Government or the District of Columbia; (b) the contract is principally one for services (as opposed to construction, manufacturing or product work) that will be performed by "service employees" (a broadly defined term we will discuss in more detail below); (c) the contract is expected to exceed $2,500; and (d) at least some portion of the services will be performed in the United States or its territories.

If the answer to these four questions is yes, you may still need to consider the applicability of the SCA and should seek legal counsel for advice — even if the FAR SCA clause and/or a wage determination are not included with the solicitation.

These days it is even more imperative that contractors carefully consider whether the SCA should apply. As noted above, it is still the agency contracting officer's responsibility to incorporate the SCA FAR clause, related SCA clauses and prevailing wage determination into a contract to establish SCA coverage. But a recent change to a companion federal labor standards statute, the Davis-Bacon Act, bears careful attention in the years ahead.

In August 2023, DOL published a final rule revising the Davis-Bacon Act regulations.² One of many notable changes was to make the Davis-Bacon Act applicable "by operation of law" to contracts deemed to be within the scope of coverage even where the agency contracting officer has not incorporated the required FAR Davis-Bacon Act clause. While this Christian³ doctrine-like change does not apply to SCA-covered contracts, it is not a stretch to surmise that a similar change could be on the horizon for SCA-covered contracts.

If a solicitation is silent on SCA applicability even though it appears the SCA should apply, contractors should consider whether to inquire about SCA coverage through the solicitation Q&A process or otherwise. This issue is best raised by direct communication with the contracting officer in writing. If the agency makes an affirmative determination, that the SCA does not apply, a contactor can point to this fact if the DOL later determines the SCA should have applied to a specific procurement.

This upfront communication also can save contactors money and a headache down the road if the SCA is later determined to apply, hopefully avoiding a situation where SCA rates and fringe benefits are not taken into account in pricing, but later determined to be due to your employees.⁴

Finally, even where a contract is SCA covered, it is important to remember that SCA coverage may not extend to all contractor personnel performing under, or in connection with, the contract. It is true that the definition of the term "service employees" under the SCA is broad.⁵

The definition includes a wide range of personnel performing under the contract including subcontractors and independent contractors. And there is no defensible method to "contract around" SCA coverage for these types of personnel at any tier of contract performance.

However, the SCA does not cover two important groups of personnel: (1) FLSA exempt personnel; and (2) certain personnel who are necessary for performance of the contract, but not performing tasks required by the contract.

Employees who are performing under the contract but meet the test for bona fide executive, administrative or professional workers under the FLSA, based on their salary and the nature of their job duties, are not covered by the SCA. DOL outlines pay and duty tests that must be met for each of these exemptions and anyone that qualifies is exempt from SCA coverage. A recent proposed rule from September 2023, however, threatens to dramatically increase the salary threshold that must be met for employees to qualify as FLSA exempt.⁶

Although this rule is not final yet, if the salary standards in the proposed rule remain in the final rule, possibly millions of personnel who previously qualified as FLSA-exempt will no longer be exempt. That would not only mean those employees are entitled to overtime pay for hours worked in excess of 40 hours a week, but also that they would now be covered by the SCA. This is another development that bears careful attention from SCA contractors.

Another category of employees who may not be covered by the SCA are those that perform services that are "necessary to the performance" of a contract but are distinct from services required under the contract.

For instance, there are many categories of employees who perform overhead-type tasks in support of contract performance (security, client billing, etc.) even though these specific tasks are not set forth in the Statement of Work (SOW) of the SCA-covered contract. In many cases these employees will not be subject to the SCA's wage and fringe benefit requirements although any such determinations must be done on a case-by-case basis through careful analysis of the employee's job duties.⁷

And also keep in mind that even if these employees do qualify as exempt from the SCA, contractors still must be sure to assess whether some other federal labor pay or fringe benefit requirement (such as federal minimum wage or federal sick leave) or similar state/local law requirements apply to these personnel.

Many federal contractors have employees who perform both SCA-covered and noncovered services in the same workday or workweek at times in the same facility. Sometimes keeping the SCA work and non-SCA work separated is straightforward: A laborer cannot be cutting the lawn at a federal courthouse and a commercial building at the same time.

But other times, a contractor cannot readily separate the hours an employee works under SCA contracts versus non-SCA contracts. Cross-training and cross-utilization of employees across different business units at different times has made this even more of a challenge.

Let's take, for example, a facility that processes orders using a commercial process but one that doesn't readily distinguish (perhaps for privacy or other reasons) between orders that relate to a federal contract versus those for a commercial customer. In this case, the contractor has no way to accurately record employee time spent "touching" a federal order subject to the SCA versus one not covered by the SCA.

One solution would be to pay the SCA-required wages and fringe benefits for all hours worked during the week where a contractor cannot segregate SCA work from non-SCA work. Indeed, this is the default solution set forth in the DOL SCA regulations where a company cannot separate SCA from non-SCA work.⁸

But this is far from an ideal solution and often results in a contractor paying employees more than required and paying employees at rates that diverge significantly from commercial pay rates based on the market. This pay practice also might diverge significantly from how the contractor priced its proposal for the SCA-covered contract.

The alternative is itself a challenge: How can a contractor develop a defensible way to segregate the SCA from non-SCA hours where an employee does not record hours that would distinguish between SCA and non-SCA work? Even though this issue is common for many contractors, unfortunately DOL provides little guidance in its regulations on acceptable ways to segregate work when the nature of the performance does not lend itself to straightforward hours-based timekeeping.

This uncertainty leaves contractors facing the risk of DOL directing them to pay their personnel the SCA wage rate for all hours worked even where an employee's federal work portion is minimal. Experience has dictated that the best way to mitigate this risk is to develop a fair, defensible model, methodology and process that shows how a contractor ensures SCA-covered personnel receive SCA wages for the portion of work they perform that is SCA covered. This is essential in to successfully navigate a DOL SCA audit.

And while this model will not eliminate the risk — only treating all hours as SCA covered can — just having documented the care and effort that the company put into developing a fair and equitable model can go a long way toward reaching a manageable resolution in any future SCA audit.

The SCA regulations include detailed requirements for when contracting agencies must update a covered contract's wage determination during performance or include additional wage determinations for new places of performance. The most familiar time to contractors is probably at option exercise, though there are other points during performance that require these updates as well.

This timing in DOL guidance also is well established, but remote work has thrown this process into flux. Not infrequently, we review SCA-covered contracts that are years into performance yet haven't had their wage determinations updated since award. Or, worse yet, there were no wage determinations incorporated by the agency contracting officer from the beginning of contract performance for reasons unknown. Or the contract simply does not contain wage determinations for locations where employees are actually performing the work.

These contracts are easy targets for DOL auditors and catching up to the current and geographically applicable wage determinations could require the contractor to incur significant back pay costs.

The COVID-19 pandemic really has brought this wage determination applicability issue to the forefront. Remote work expanded dramatically during the pandemic. For instance, it was not unusual for SCA-covered work to have shifted from all employees working in the same brick and mortar office in 2019 to having employees working remotely from a multitude of different states just one year later.

The question for contractors is how, if at all, does a change in the employee's geographic location of performance impact the wage and fringe benefit rates applicable to that employee's performance? Is a contractor obligated to request that an agency contracting officer incorporate wage determinations for every location where a remote or hybrid worker performs SCA-covered work? If so, how often? What should a contractor do if the contracting officer refuses to include new wage determinations for any new place of performance?

These are all good but far from simple questions and ones with even more elusive answers. So far, even after the end of the pandemic, DOL has still yet to publish SCA-specific guidance addressing these wage determination applicability questions even though contractors continue to struggle with this question for remote and hybrid workers.

Even more troubling, we have seen DOL auditors reach differing conclusions on the issue. Some auditors have asserted that remote or hybrid work at locations other than the stated place of performance in the contract require incorporating SCA wage determinations covering those remote/hybrid geographic locations. Other auditors take the opposite position.

Given inconsistent enforcement and the lack of guidance from the DOL, as well as contracting officer failures to incorporate updated or missing wage determinations into contracts, SCA contractors face audit risk.

To mitigate potential liability in these areas, we recommend that contractors proactively address these place of performance issues through dialogue and formal or informal inquiries to the contracting officer. If nothing else, contractors should seek to develop a written record of communications with the agency contracting officer that the contractor can share with DOL Wage & Hour investigators if there is ever an SCA audit of the contract.

As contractors' work performance locations and methods continue to evolve, the burden on federal service contractors to ensure compliance with the SCA will continue to grow. There is no better time than now for federal services contractors to take the time to ensure they have an SCA compliance plan in place and that the plan is up-to-date and consistent with the latest SCA-related developments.

1 41 U.S.C. 6701-6707.

2 Updating the Davis-Bacon and Related Acts Regulations, 88 FR 57526 (Aug. 23, 2023).

3 G.L. Christian & Associates v. United States, 312 F.2d 418 (Ct. Cl. 1963).

4 The SCA does have certain narrow statutory or administrative exceptions and exemptions that apply to a narrow category of services. Most of these exemptions, however, are narrowly crafted and interpreted. We would recommend seeking legal counsel as part of making (and documenting) any exception or exemption determination — especially because DOL and the FAR both require certain exemptions to be supported by contractor certifications.

5 29 C.F.R. 4.153(b).

6 Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees, 88 FR 62152 (Sept. 8, 2023).

7 29 C.F.R. 4.153.

8 29 C.F.R. 4.179.