Service Contract Act]

Gao ID: 114344 February 12, 1981

The Department of Labor notified the General Services Administration (GSA) that the maintenance and repair service specifications of all contracts for the purchase or rental of supplies or equipment were subject to the Service Contract Act. Several major automatic data processing (ADP) manufacturers have publicly announced their refusal to bid on or enter into any Government contract subject to the Act's coverage. Congressional and Federal agency pressures were brought to bear on Labor to exercise its authority under the Act and grant administrative exemption for the ADP, telecommunications, and other high-technology commercial equipment industries. Labor has not made any studies of the impact of the Act on (1) contractors' recordkeeping systems, pay practices, employee assignment practices, and the costs of compliance, or (2) Government operations if agencies are unable to acquire needed services. Labor's position is not supported by the Act's language and legislative history, by Labor's own regulations, or by its administrative manual. The Act was not intended to cover maintenance services. Government sales represent a relatively small proportion of the ADP companies' total sales and do not have the same incentives for contractors to deliberately pay low wages to successfully bid on Government contracts. GAO believes that Labor's application of the Act to these ADP and high-technology contract services is inappropriate. Corporations which GAO contacted stated that the Act should not apply because substantial quantities of their products and services are sold commercially at established catalog prices, Government business represents only a small portion of their total business, and their service technicians receive adequate wages under merit pay systems. Labor's decision would eventually increase the administrative burdens and operating costs of each corporation and hinder employee productivity and morale by disrupting merit pay systems and staff assignment practices. Several corporations stressed the inflationary impact Labor's wage determinations could have on wage rates. GAO has recommended that Congress amend the Act to make it clear that the Act excludes coverage for ADP and other high-technology commercial product-support services. Pending such action, GAO has recommended that the Secretary of Labor temporarily exempt these contracts from the Act's coverage.

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