Understanding The Service Contract Act of 1965

The Service Contract Act of 1965 (SCA) requires that government contractors pay most non-professional service employees designated minimum wage rates and fringe benefits. These regulations are complex and often poorly understood by federal contractors, government contracting officers and auditors, particularly with respect to the SCA’s fringe benefits requirements. This is especially challenging for smaller contractors who may not have the resources to address such complexities. As a result, federal service contractors often face government allegations of SCA non-compliance.

Potential penalties for SCA errors are severe, including default termination and debarment. Extensive fines are on record and the potential loss of contracting access are common. In addition, a contractor’s failure to correctly understand the Service Contract Act when preparing bid pricing may result in a reduction to anticipated profits on the resulting government contract.

The Contractors Plan has created administrative processes and compliance solutions to address these risks for over 30 years. In addition to our expertise, The Contractors Plan has been committed to helping employers identify and implement solutions that are Affordable Care Act compliant, eliminating additional compliance risks as result of federal health regulations.

We encourage you to review our solutions and utilize our Savings Calculator so you can thoroughly understand the options available to you. We are here to be an expert resource and partner with you in minimizing your administration efforts and compliance risks.

President Trump Revokes Executive Order 13495

Last week, President Trump revoked Executive Order (Order) 13495, the Nondisplacement of Qualified Workers, which applied to contracts under the Service Contract Act.

Previously Order 13495, had required that successor federal contractors, in certain circumstances, offer a right of first refusal of employment to employees working under the predecessor contract.

Agencies were instructed to implement the revocation immediately. It included instructions for all agencies and executive departments to rescind any orders, guidelines, rules, programs, or policies implementing or enforcing the previous Order. The Secretary of Labor, who was formerly responsible for ensuring compliance, was also instructed to terminate any investigations or compliance actions related to the last Order 13495.

https://www.whitehouse.gov/presidential-actions/executive-order-improving-federal-contractor-operations-revoking-executive-order-13495/

August 2019 Public Construction Spending Increased

The U.S. Census Bureau announced total construction spending for August 2019 was at a seasonally adjusted annual rate of $1,287.3 billion, a 1.2 percent increase over July. However, compared to the same period last year, there was a 1.8 percent decrease.

While private construction spending in August was $955 billion, it was nearly the same as the July estimate. But when compared to the previous year, private spending decreased 4 percent. However, public construction spending was $332.3 billion, which was relatively consistent compared to July, but 4.6 percent more than one year ago.

There were several contributors to the growth in public construction spending over the past year; these include highway and street construction, sewage and waste disposal, transportation, and public safety. More information may be found at:

https://www.census.gov/construction/c30/pdf/release.pdf

Assembly Bill 5 Goes Into Effect On January 1, 2020

Assembly Bill 5, which strengthens California’s rules regarding the classification of workers and independent contractors, was signed into law by Governor Newsom on September 18, 2019 and goes into effect on January 1, 2020. AB 5 codifies the California Supreme Court decision Dynamex Operations West, Inc. v. Superior Court of Los Angeles.

The misclassification of employees has been a nationwide problem for years. The U.S. Department of Labor, as well as many states, have taken steps to limit inappropriate misclassification of workers as independent contractors. Workers misclassified as independent contractors are denied worker protections such as minimum wage and overtime. They may also be denied the employer portion of payroll taxes and benefits.

To curtail misclassification, the California legislature adopted AB 5 which codifies Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) which presumes a worker is an employee unless an employer satisfies a three-factor test.

To be considered an independent contractor, the test requires the employer to demonstrate the person:

1. Is free from the control and direction of the employer involving the performance of their work
2. Performs work that is outside the usual business of the employer, and
3. Is customarily engaged in an independent trade, occupation, or business

AB 5 has been opposed by companies that typically treat workers as independent contractors instead of employees, claiming that it would hurt people who make a living doing gig work in the new economy. The impact of AB 5 is not limited to gig workers, so any employer in California that classifies workers as independent contractors should review their classification procedures before January 1, 2020.

FBO.gov is Moving to SAM.gov

Federal Business Opportunities (FBO.gov) will start transitioning to SAM.gov on November 8th. Before being decommissioned, FBO.gov functionalities will transition into beta.SAM.gov the first quarter of FY 2020. The new beta.Sam.gov is expected to have the same federal business opportunity capabilities that exist today as well as many additional improvements.

The process of building the beta.SAM.gov and developing the improvements was a collaborative effort between users and stakeholders. Enhancements to the new beta.SAM.gov include the ability to search for an opportunity that provides more precise results, ability to manage alerts and set up notices more efficiently, offering a more user-friendly design and offering options such as viewing previous versions with one click.

Many of the features and functions used in FBO.gov will have new names once they migrate to beta.SAM.gov.

These include:

• Watchlist will become Follow
• Search Agent will become Saved Search
• Archived will become Inactive

For more information about the move to beta.SAM.gov, please visit the fact sheet at

https://www.gsa.gov/cdnstatic/FBO_Is_Transitioning_to_Beta_Factsheet_%281%29.pdfh

The SCA Contractors Recession Cheat Sheet

It is always a good idea to begin an analysis of projects that may be impacted by a recession or a downturn in the market.  If you are lucky enough to have been awarded an SCA contract, you already possess one of the most stable revenue streams.  It is more important than ever you retain SCA contract(s) and bring in new ones.

For better or worse, contracts are generally awarded based on price as long as operational and experiential criteria are met. It is important you utilize all means available to squeeze every bit of fat out of your bid. One way to help do this is to fully discharge the Health and Welfare obligation inside “bona fide” fringe benefit plans.  

Below are a few tips to help win new contracts and retain current SCA contracts.

• Do not pay the Health and Welfare obligation as an additional cash wage to employees.
  • If you pay the Health and Welfare obligation in cash, it likely could mean the difference in winning and losing new contracts and retaining current ones.
• You must pay and account for payroll taxes on Health and Welfare funds paid to an employee as an additional wage in your bids.
• You must also understand and account for the additional cost of Worker’s Compensation Insurance and potentially other types of insurance. When calculating insurance premiums, payroll can be a factor and by adding to payroll insurance premium may increase.
• The Affordable Care Act (ACA) is still the law of the land. Depending upon your employee headcount, you may have to offer employee benefits in order to comply with the ACA. Based on the affordability provisions found in the ACA, you will need to offer a substantial contribution toward benefits for each of your employees. If you have paid Health and Welfare on the paycheck there is no recourse but to offer this contribution from General Assets.

The best way to eliminate these extra costs is to account for Health and Welfare in your bids and in practical application through the compliant discharge into “bona fide” fringe benefits. This saves payroll taxes, reduces insurance costs, and reduces spend from General Assets.  This will be a meaningful amount and could very well be the difference in being awarded a contract, or not.

Important Issues When Hiring a SCA Compliance and Benefit Administration Partner

When hiring a partner to manage your health and welfare spend, make certain it is a firm that is interested in the success of your business. When you hire your partner, you assume fiduciary responsibility therefore, it is important to ask very critical questions.

Since you are assuming a level of risk, you should document your selection process and monitor the services provided to determine if you need to make a change.

Some items to consider in selecting a provider: 

• Information about the provider’s affiliations, financial condition, experience with employee benefits and 401(k) plans, and assets under their control
• For 401(k) plans or other qualified retirement plans, a description of how the provider will invest plan assets or how it will handle participant investment directions, and its proposed fee structure
• Information about the company, experience and qualifications of the professionals who will be handling the plan’s account such as:  
  • Any recent litigation or enforcement action that has been taken against the  company
  • The provider’s experience or performance record 
  • Whether the partner plans to work with any of its affiliates in handling the plan’s account
  • Whether the partner has fiduciary liability insurance
  • What reporting is available, the level of detail and can they show you where every penny has gone on demand
  • An account review process and benefit plan reviews
  • Copies of the trust agreements being provided
      
• There are additional actions you should take when monitoring a service provider:
  • Review the service provider’s performance
  • Read any reports they provide 
  • Check actual fees charged
  • Ask about policies and practices such as trading, investment turnover, and proxy voting
  • Follow up on participant complaints

OFCCP Hires New Ombudsman and Launches Contractor Assistance Portal

The Office of Federal Contract Compliance Programs (OFCCP) announced the appointment of Marcus Stergio to fill the Ombudsman roll in the agency’s national office. The same day, OFCCP also announced the launch of the Contractor Assistance Portal, an online help desk. OFCCP Director Craig Lean noted these two steps focused on OFCCP’s broader initiative to improve transparency and their compliance assistance activities.

Stergio brings a breadth of experience, having served as the primary administrator of the dispute resolution process for several multi-national organizations and institutes. His first order of business is to work to resolve disputes raised by contractors, in conjunction with regional and district OFCCP offices. As such, he will work to assure that OFCCP is treating stakeholders fairly and in a consistent manner, while providing an independent perspective and facilitating communication between external stakeholders and OFCCP.

The launch of the Contractor Assistance Portal is a move to provide contractors and stakeholders more access to compliance assistance resources. The portal is an online help desk that helps federal contractors with laws and regulations enforced by OFCCP. The Portal was created in coordination with the U.S. Department of Labor’s Office of Compliance Initiatives to allow users to ask questions freely and access valuable reference materials. 

OFCCP expects that contractors and stakeholders will find both the Ombudsman and the contractor assistance portal useful in assessing and implementing affirmative action compliance obligations.

Maryland Bill Takes Effect; Payment of Employee Healthcare Expenses

Contractors and subcontractors bidding on Maryland state construction projects should be aware of the new “Responsible Payment of Employee Health Care Expenses” law which took effect July 1, 2019.  The bill requires that all bidders, contractors, or subcontractors on a State-funded construction project to pay certain employee health care expenses.

“Employee health care expenses” are any costs for health care services, as defined by the bill unless the employee has coverage under another plan. State contractors will need to certify that they pay aggregate employee health care expenses of at least 5% of the wages; or that the employer pays 50% or more of the required premium necessary to obtain coverage by a credible health insurance plan. The certification process is less stringent before July 1, 2020.

The change does not apply to small businesses with fewer than 30 employees as well as minority business enterprises.

Ability One and The 14(c) Requirements

Written By: Jeff Hartnett, RVP SCA Markets

I recently attended a Department of Labor sponsored Prevailing Wage seminar where many of the sessions were geared toward new contractors. The last session I listened to discussed the 14(c) requirements and the major changes that have occurred.

Ability One contractors, through a certification process, could have employees who are severely disabled receive wages that are less than the federal minimum wage. I have read news stories that reported this violation of the federal minimum wage law, among other violations. Most of these reporters are unaware of the legislation in place that allows this to occur and write salacious reports about the employers involved. There are valid concerns that the goals of the AbilityOne program are out of alignment with the goals of subsequent legislation for the advancement of the disabled community, particularly full integration goals within the community. But, for those that don’t know about the program in general, here is some background.

The Ability One program seeks to create employment opportunities to people who are blind or have severe disabilities. It history traces back to the 1938 Wagner-O’Day Act. Over the years, the US has advanced the rights of people with disabilities as the economy has progressed to a digitally driven economy. Congress has only reconsidered the program once through the 1971 Javitz-Wagner-O’Day Act.

In recent years, the Federal Government has purchased $3.3 billion annually worth of goods and services from the 527 non-profit agencies that participate in the Ability One program. Since 2008, the Ability One non-profit agencies have employed approximately 47,000 people each year who are blind or severely disabled. In order to participate in the Ability One program, companies need to ensure at least 75% of the direct labor hours are performed by individuals with severe disabilities.

In the past, The Department of Labor has issued 14(c) certificates to Ability One participants and Non-Profit Agencies, but changes have occurred this year that intend to eliminate those certificates moving forward. The 14(c) certificates allow employers to pay workers with disabilities less than the minimum wage under a federal law dating back to the 1930s. This has always been a point of contention between employers and disability advocates who feel that integration into competitive employment is the ultimate goal of these programs. There have been a variety of studies and commissions that have attempted to study this issue and have provided recommendations to Congress to update the JWOD Act. Critics believe that the 14(c) certificates are no longer in alignment with the goals of the American Disabilities Act among other legislation.

Congress has elected to phase out the 14(c) certification process, which would effectually make Ability One contracts more margin thin than they already are. I have reached out to my clients to gauge the immediate impact of this and they believe it will make supporting these contracts more difficult. They indicate, and I have personally seen that the work performed on these contracts in the workshops is supported by additional staff that monitor these individuals working to ensure a safe and supportive environment. I have also seen how hard working and dedicated these employees are with a lower number of average sick or absentee days of work. They take great pride in their work and it provides them a great sense of purpose to be employed.

At The Contractors Plan, we work with many Ability One contractors and support their benefits administration on Service Contract Act contracts and we will continue to do so. I am offering my own experiences and knowledge to shed light on what these contractors are facing in the ever-changing regulatory environment. I would like to hear from Ability One brokers and clients on the impact this is having on their business and business partners. You can contact me at 512-527-5312.