Interim Internal Purchasing Guidelines > 9 Labor Guidelines > 9.8 Service Contract Act

9.8 Service Contract Act

9.8.1 General

The Service Contract Act of 1965 (Public Law 89-286, 41 U.S.C. 351 et seq.) applies to any contract whose principal purpose is to provide services to be performed by service employees.

9.8.1.a Employees working under a service contract must be paid no less than the minimum wage specified by the Fair Labor Standards Act of 1938, as amended (29 U.S.C. 201 et seq.).

9.8.1.b Service contracts over $2,500 must contain the clauses required by 9.8.5 concerning minimum wages, including fringe benefits; safe and sanitary working conditions; and employee notification of the compensation required under the Act.

9.8.1.c Many types of services are covered by the Act, which attempts to cover contract workers who do not fall under the Davis-Bacon Act for construction and the Walsh-Healey Public Contracts Act for supplies. 29 CFR 4, Subpart C, and CFR 4.101 provide examples of coverage. The Act does not cover executive, administrative, or professional personnel. If services are only incidental to the performance of a contract, the Act does not apply.

9.8.1.d The Act also applies to subcontracts under covered contracts, and suppliers must include the Service Contract Act provisions in subcontracts for services. Except where indicated, the terms "contract" and "supplier" include "subcontracts" and "subcontractors" in this part.

9.8.1.e The Secretary of Labor administers and enforces the Service Contract Act.

9.8.2 Exemptions

9.8.2.a The following contracts are exempt from the Service Contract Act, subject to 9.8.2.b:

1. Any contract for construction, alteration, or repair, including painting and decorating.

2. Any work covered by the Walsh-Healey Public Contracts Act (see 9.5).

3. Any contract for transporting freight or personnel by ship, plane, bus, truck, express, railway line, or oil or gas pipeline when published tariff rates are in effect or rates are covered by section 10721 of the Interstate Commerce Act.

4. Any service contract with a radio, telephone, telegraph, or cable company subject to the Communications Act of 1934.

5. Any contract for public utility services, including electric light and power, water, steam, and gas.

6. Any employment contract with individuals for direct services.

7. Any contract that is principally for contract postal units.

8. Contracts with common carriers for mail transportation by rail, air (except air-taxi routes), bus, or ocean vessel on regularly scheduled runs over established routes, when mail accounts for a small portion of the revenue.

9. Contracts for mail service with an individual owner/operator, when it is not believed that the supplier will hire service employees under the contract except for short vacations or unexpected contingencies or emergencies.

10. Contracts principally for the maintenance, calibration, or repair of:

(a) Automated data processing equipment (including office information and word processing equipment);

(b) Scientific and medical equipment involving sophisticated technology; or

(c) Office or business machines not included under (1) above, when the services are performed by the manufacturer or supplier.

9.8.2.b The exemptions in 9.8.2.a apply only when the supplier certifies that:

1. The equipment is commercially available, used regularly outside the government, and normally sold or traded by the supplier to the public in substantial quantities;

2. Prices are established catalog or market prices; and

3. Wages and fringe benefits paid under the contract are the same as the supplier pays employees servicing the same equipment for commercial customers.

9.8.3 Clauses

9.8.3.a Contracts Over $2,500. Clause 9-10, Service Contract Act, must be included in every contract for services covered by the Act that is over $2,500 or is modified to exceed $2,500. This includes indefinite-delivery contracts and ordering agreements when orders are expected to aggregate more than $2,500. Clause 9-10 is incorporated by reference in Clause 4-2, when checked-off by the contracting officer.

9.8.3.b Contracts of $2,500 or Less. Every contract of $2,500 or less for services covered by the Act must include Clause 9-11, Service Contract Act - Short Form. Clause 9-11 is incorporated by reference in Clause 4-2, when checked-off by the contracting officer.

9.8.3.c Multiyear Service Contracts and Service Contracts With Renewal Options. Except for mail transportation contracts, multiyear service contracts and service contracts with options to renew that include Clause 9-10 or Clause 9-11 must also include Clause 9-12, Fair Labor Standards Act and Service Contract Act - Price Adjustment. Clause 9-12 is incorporated by reference in Clause 4-2, when checked-off by the contracting officer.

9.8.4 Notice of Intent to Make a Service Contract

9.8.4.a The contracting officer must file a notice of intent to make a service contract with the Wage and Hour Division, Employment Standards Administration, Department of Labor, for any contract over $2,500 covered by the Act. Standard Form 98, Notice of Intention to Make a Service Contract, must be used. The notice must be accompanied by Standard Form 98a or a statement indicating the numbers and classes of service employees expected to perform the contract, or a statement that the number will not exceed five.

9.8.4.b Whenever possible, notice of intent must be filed at least 60 days (30 days for unanticipated requirements) before a competitive solicitation is issued, noncompetitive negotiations begin, an option is exercised, a contract is extended, or the anniversary date of a multiyear contract. If it is not possible to file a notice before the 30-day limit, it must be filed as soon as possible, with an explanation of why it was not filed on time.

9.8.4.c If the contract will be for substantially the same services as are being furnished at the same location by an incumbent supplier whose contract the proposed contract will succeed, and the wages and fringe benefits of the service employees are determined by a collective bargaining agreement, the agreement must be filed with the Standard Form 98, along with any related documents specifying wages and fringe benefits that will apply to the contract. If the contracting officer believes that the collective bargaining agreement was not the result of "arm's-length" negotiations, a statement of the facts leading the contracting officer to that conclusion must accompany the agreement and the Office of Special Wage Standards must be advised if the wages and fringe benefits vary substantially from those for similar services.

9.8.5 Minimum Wage Determinations

9.8.5.a If more than five service employees will be involved in performing work covered by the Service Contract Act, the contract may not be awarded without a Department of Labor determination of applicable minimum wages and fringe benefits, unless the determination will be incorporated in the contract after award.

9.8.5.b The required determination will normally be issued by the Wage and Hour Division, Employment Standards Administration, in response to the notice of intent filed under 9.8.4, in sufficient time to be included as an attachment to the solicitation.

9.8.5.c If the place of performance is unknown when the solicitation is issued, a wage determination need not be included in the original solicitation. Instead, when proposals are received, a notice of intent must be filed in accordance with 9.8.4 showing each location where the contract might be performed, so that a wage determination may be made for each. The wage determination that applies to the successful offeror must be included in the contract. If the Department of Labor finds this impracticable, the Department may issue a composite wage determination.

9.8.5.d The contracting officer must contact the Wage and Hour Division to find out whether a wage determination is still current when a solicitation or negotiation has been delayed for more than 60 days from the anticipated date of award stated on the Standard Form 98 submitted. Any wage determination received in response must replace the earlier wage determination.

9.8.5.e When a notice of intent has been filed but the wage determination has not been received in time for attachment to the solicitation, the solicitation must state that the wage determination will be issued as an amendment to the solicitation or incorporated into the contract at the time of award.

9.8.5.f Any revision of a wage determination received less than 10 days before proposals are due is not effective unless there is enough time to notify offerors. If the contract action involves noncompetitive procedures, exercise of an option or extension of a contract, any revision of a wage determination received after award is not effective if performance begins within 30 days after award; otherwise, any revision received at least 10 days before performance begins is effective.

9.8.5.g If circumstances require that a contract be awarded before a wage determination is obtained, the contract must include Clause 9-10, Service Contract Act, and provide for equitable adjustment of the contract terms when the wage determination is incorporated, effective from the date of issuance unless another effective date is specified in the determination. The notice of intent, if not already filed, must be filed promptly and explain the need for immediate award.

9.8.5.h The Wage and Hour Division may require that a wage determination be applied to a contract retroactively, if the contract is subject to the Service Contract Act and more than five service employees are involved in performing the work. If the contracting officer questions the applicability of the Act to the contract, the contracting officer must forward the matter for resolution to assigned counsel. If it is determined that the Service Contract Act is not applicable to the contract, the contracting officer must advise the Department of Labor of the basis for this determination. No further action is needed unless the Secretary of Labor determines that the contract is subject to the Act.

9.8.5.i If a wage determination does not contain all the classifications and rates requested in the notice of intent, those classifications for which no determinations were received must be deleted from the attachment incorporating the wage determination. When omitted classifications or classifications not previously contemplated are found necessary after award, they must be incorporated following the procedures in Clause 9-10.

9.8.6 Notice of Award

Upon the award of the contract of $10,000 or more that includes Clause 9-10 (or upon issuing the first order under an indefinite delivery contract or ordering agreement containing that clause), the contracting officer must send an original and one copy of Standard Form 99, Notice of Award of Contract, to:

ATTENTION OFFICE OF SPECIAL WAGE STANDARDS
DEPARTMENT OF LABOR
WASHINGTON DC 20210-0001

9.8.7 Department of Labor Poster

At the time of award, the contracting officer must supply the supplier with
WH Publication 1313, a Department of Labor combination letter and poster explaining the Service Contract Act.

9.8.8 Inquiries Concerning the Act

Suppliers or their employees with questions about the applicability of the Service Contract Act must be referred to:

DEPUTY ASSISTANT SECRETARY
EMPLOYMENT STANDARDS ADMINISTRATION
DEPARTMENT OF LABOR
WASHINGTON DC 20210-0001

Questions concerning safety or health must be referred to:

DIRECTOR
BUREAU OF LABOR STANDARDS
EMPLOYMENT STANDARDS ADMINISTRATION
DEPARTMENT OF LABOR
WASHINGTON DC 20210-0001

Questions may also be directed to any regional office of the Employment Standards Administration.

9.8.9 Withholding Contract Payments and Contract Termination

9.8.9.a Withholding

1. A violation of the stipulations of Clauses 9-10 or 9-11 makes the responsible party liable for the sum of any deductions, rebates, refunds, or underpayments due employees. At the written request of a District Director (or above) of the Department of Labor, as much of the accrued payment due on the contract (or any other contract between the supplier and the Postal Service that has not been assigned) must be withheld as is necessary to pay the employees. Withheld sums must be kept in an escrow fund. Any compensation that the Postal Service or the Wage and Hour Division has found to be due must be paid directly from the withheld payments.

2. If the withheld payments are insufficient to reimburse the underpaid employees, this fact must be reported to the General Accounting Office (for possible setoff), the Wage and Hour Division of the Department of Labor, and the Department of Justice. The United States may bring an action to recover the remaining amount. Any sums recovered must be held in the escrow fund and paid, on order of the Secretary of Labor, directly to the underpaid employees.

9.8.9.b Termination. Any violation of Clauses 9-10 or 9-11 may be cause to terminate the supplier's right to continue the work. If the contract is terminated, the Postal Service may enter into other contracts or arrangements to complete the work, charging any additional costs to the supplier.

9.8.10 List of Violators

The Comptroller General sends a list of the names of people or firms in violation of the Service Contract Act to all government agencies. Unless the Secretary of Labor recommends otherwise, Postal Service contracts may not be awarded to any violator on the list (or to any firm, corporation, partnership, or association in which such violator has a substantial interest) for 3 years from the date the list was published.