A Contractor recently asked me a question regarding FAR 52.222-42 - Statement of Equivalent Rates for Federal Hires. Why does the FAR require this clause be included in all service contracts where the Service Contract Act is applicable? The clause states that the data is for "informational purposes only" but what are we telling the contractor by including this? The contractor has to pay employees in accordance with the appropriate Wage Determination anyway for those categories covered under the determination. As for the "professional" labor categories, the contractor can pay them whatever the market determines (regardless of what the Government pays). I guess I am not sure of the intent/purpose of this clause. Any suggestions?

By Vern Edwards on Tuesday, August 29, 2000 - 07:37 pm:

Karen:

FAR specifies inclusion of the clause because the Service Contract Act requires it. 41 U.S.C. § 351(a)(5) says:

"Every contract (and bid specification therefor) entered into by the United States or the District of Columbia in excess of $2,500, except as provided in section 356 of this title, whether negotiated or advertised, the principal purpose of which is to furnish services in the United States through the use of service employees, shall contain the following... (5) A statement of the rates that would be paid by the Federal agency to the various classes of service employees if section 5341 or section 5332 of title 5 were applicable to them. The Secretary [of Labor] shall give due consideration to such rates in making the wage and fringe benefit determinations specified in this section."

5 U.S.C. § 5341 prescribes the prevailing rate system for Federal employment and § 5335 states the law regarding the General Schedule (GS) system.

The Secretary of Labor has implemented the statute in 29 C.F.R. § 4.6(k)(2). It prescribes the clause that appears at FAR 52.222-42.

The clause has no contractual function. If anything, it should be a solicitation provision, not a clause. (41 U.S.C. § 351 (a)(5) is really addressed to the Secretary of Labor.) But out of carelessness, ignorance, or both, Congress has required a contract clause, undoubtedly for reasons lost to history.

The FAR Council has no control over this, because only the Secretary of Labor has the authority to administer the Act, and the Secretary has taken Congress literally and prescribed a clause. (Probably has to.)

My annotated version of FAR says that the clause was added by FAC 84-46, 54 FR 19831. If you care to look that up you may find more information about why the clause was added.

How are you guys? Is Tom finished? If you had come up this week we could have taken you to the Harney County Fair. Rodeo, buckaroos, animals, and lots of fun.

Vern

By Anonymous on Thursday, August 31, 2000 - 11:54 am:

Vern (Or anyone else out there): Thanks for the enlightening response. I appreciate it. I have a follow-on question, though. It is not clear to me what the implications of the clause are for a contractor. As I understand it, the wage determination in a solicitation/contract spells out the minimum wage that would be paid by a Federal agency for the various classes of service employees.

Is there a logical implied extension, then, that a contractor must therefore pay an employee the minimum wage stipulated in the wage determination document? It's not stated (or at least I have not found it)in the wage determination, but he implication seems to be there. If the implication is incorrect, what purpose does it serve, other than general information for comparison purposes? If a contractor must pay the minimum wage determination rate, where is that stated? Is there a refernce?

Assuming the contractor is required to pay the minimum wage stipulated in the wage determination, but an employee is willing to work for a lower rate, would the Government insist that we pay him the minimum wage rate? Why wouldn't the Government accept a lower rate in a proposal and therefore save on labor costs?

Brooks

By Vern Edwards on Thursday, August 31, 2000 - 12:08 pm:

Anonymous:

The requirement to pay the minimum wages specified in the wage determination is in the Service Contract Act clause, "Service Contract Act of 1965, as Amended," FAR 52.222-41, paragraph (c). The clause at FAR 52.222-42, "Statement of Equivalent Rates for Federal Hires," has no contractual implications for the contractor that I am aware of. It is included in service contracts for the reasons I stated earlier.

By Kennedy How on Thursday, August 31, 2000 - 12:17 pm:

I would make the comment that, up until recently (relatively speaking), we Government contracting agencies were contracting under the "lowest acceptable offer" philosophy. The stereotypical "low bidder" type. As such, a contractor winning such a bid would naturally try to reduce his costs, in order to maximize profits. In that case, he could really low-ball his workers, especially if he's hiring a crew to do whatever it is he's contracted to do. Minimum wage requirements would help protect these employees, inasmuch as the Government would probably want to pay as close to Zero as possible (saving taxpayer's money, you know), there are limits.

I've always taken the position that we're not out to put our contractors out of business just for the sake of getting the lowest possible price.

By Anonymous on Thursday, August 31, 2000 - 12:45 pm:

I didn't intend to imply a "low ball" situation. The scenario I was alluding to is as follows: Contractor hires a Programmer at an $18/hour wage rate. 6 months later, an RFP is received that includes the wage detarmination clause. The wage rate in the wage determination for the Programmer is $18.65. The question is, is the contractor required to bump up the Programmer's wage rate to the $18.65 minimum in the ensuing proposal? If he doesn't, will the Government require the increase in order to be responsive and compete for the work?

Brooks

By Kennedy How on Tuesday, September 05, 2000 - 10:46 am:

Anon,

My reading of FAR 22.100x says yes, the wage rate for that programmer has to be increased. If not prior to contract award, then right after, because the FAR requires that contractors performing on that service contract "shall pay their employees at least the wages and fringe benefits found by the Department of Labor to prevail in the locality or, in the absence of a wage determination, the minimum wage set forth in the Fair Labor Standards Act."

I'll ask this other question, to Vern or Auditor Bob: If I had a programmer working on Contract A, for the $18/hr IAW Wage Determination, but I also was awarded Contract B, with a new W/D of $18.95/hr, am I required to pay the additional $0.95 on Contract A as well? My guess is no, absent a contract mod adding to the SOW, or somesuch.

Kennedy

By Vern Edwards on Tuesday, September 05, 2000 - 12:38 pm:

Kennedy:

A wage determination is a contract term; it applies to the contract to which it is attached, and not to any other contract. Thus, if you have two contracts, A and B, and the wage determination for contract A sets a minimum wage of $18 and the wage determination for contract B sets a minimum wage of $18.95, you must pay the minimum wage appropriate to each contract.

The Dept. of Labor regulations can be tricky in this regard, however, and if there is a real issue I suggest that you check with DOL.

By Larry Edwards on Tuesday, September 05, 2000 - 05:22 pm:

To go back to the original question and some of the history surrounding the Service Contract Act, that Act was originally proposed, with support from federal unions, as a way to require contractors to pay the same wages as federal employees got. During the legislative process, that got compromised to the "due consideration" mentioned by Vern. The requirement to list wage rates paid federal employees makes more sense in this context, since contractors would need to know those rates if they had to pay them. The Executive Branch interpreted "due consideration" in the way most favorable (least costly) to them, to the chagrin of the unions. Every so often, you will hear unions complain this is a wrong interpretation since inclusion of federal wage rates in the contract makes sense only if the contractors have to pay that.