Service Contract Act
Wage Determination Process Could Benefit from Greater Transparency, and Better Use of Violation Data Could Improve Enforcement Gao ID: GAO-06-27 December 7, 2005Recipients of federal government contracts for services are subject to wage, hour, benefits, and safety and health standards under the McNamara-O'Hara Service Contract Act (SCA) of 1965, as amended, which specifies wage rates and other labor standards for employees of contractors. SCA requires the Department of Labor (DOL) to set locally prevailing wage rates and other labor standards for employees of contractors furnishing services to the federal government. DOL's Employment Standards Administration's Wage and Hour Division (WHD) administers the SCA and each year determines prevailing wage and fringe benefit rates for over 300 standard service occupations in 205 metropolitan areas. SCA also authorizes DOL to enforce contractor compliance with SCA provisions. This report describes how DOL (1) establishes locally prevailing wages and fringe benefits and (2) enforces SCA.
When making a wage determination, WHD analysts consult several sources of information, such as its SCA directory of occupations and data collected through two Bureau of Labor Statistics national wage surveys, for wage data on occupations. Relying on these tools and their own expertise, analysts calculate prevailing wages and fringe benefit amounts for specific geographic locations. The wage determination process produces a wealth of nationwide wage data for service occupations that WHD makes available online and strives to update annually. However, stakeholders (e.g., unions, contractors, employees, and others) contend that the wage determination process is not transparent and that the resulting wages do not necessarily reflect local wage conditions. For example, WHD does not include a description of the methodology used to derive the wage rates in its wage determinations, such as wage data sources used or the procedures analysts follow. As a result, analysts spend considerable time responding to inquiries about the methodology used to determine wages. WHD enforces SCA by conducting investigations, ensuring contractor payments, and providing compliance assistance to stakeholders. WHD investigates complaints from service contract employees, federal agencies, unions, and others who allege that contractors have failed to pay either the wages or fringe benefits, or both, specified in SCA contracts. WHD collects violation data, but it does not fully use these data to plan compliance assistance, target specific service industries or geographic locations for SCA investigation, or set strategic enforcement goals. As a result, WHD may be overlooking some SCA violators and industries that need further enforcement. A review of prior SCA violation data could provide WHD assurance that it is using the most effective mix of available compliance assistance and investigative efforts.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
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Report to the Subcommittee on Labor, Health and Human Services,
Education and Related Agencies, Committee on Appropriations, U.S.
Senate:
United States Government Accountability Office:
GAO:
December 2005:
Service Contract Act:
Wage Determination Process Could Benefit from Greater Transparency, and
Better Use of Violation Data Could Improve Enforcement:
Service Contract Act:
GAO-06-27:
GAO Highlights:
Highlights of GAO-06-27, a report to the Subcommittee on Labor, Health
and Human Services, Education and Related Agencies, Committee on
Appropriations, U.S. Senate
Why GAO Did This Study:
Recipients of federal government contracts for services are subject to
wage, hour, benefits, and safety and health standards under the
McNamara-O'Hara Service Contract Act (SCA) of 1965, as amended, which
specifies wage rates and other labor standards for employees of
contractors. SCA requires the Department of Labor (DOL) to set locally
prevailing wage rates and other labor standards for employees of
contractors furnishing services to the federal government. DOL‘s
Employment Standards Administration‘s Wage and Hour Division (WHD)
administers the SCA and each year determines prevailing wage and fringe
benefit rates for over 300 standard service occupations in 205
metropolitan areas. SCA also authorizes DOL to enforce contractor
compliance with SCA provisions. This report describes how DOL (1)
establishes locally prevailing wages and fringe benefits and (2)
enforces SCA.
What GAO Found:
When making a wage determination, WHD analysts consult several sources
of information, such as its SCA directory of occupations and data
collected through two Bureau of Labor Statistics national wage surveys,
for wage data on occupations. Relying on these tools and their own
expertise, analysts calculate prevailing wages and fringe benefit
amounts for specific geographic locations. The wage determination
process produces a wealth of nationwide wage data for service
occupations that WHD makes available online and strives to update
annually. However, stakeholders (e.g., unions, contractors, employees,
and others) contend that the wage determination process is not
transparent and that the resulting wages do not necessarily reflect
local wage conditions. For example, WHD does not include a description
of the methodology used to derive the wage rates in its wage
determinations, such as wage data sources used or the procedures
analysts‘ follow. As a result, analysts spend considerable time
responding to inquiries about the methodology used to determine wages.
Examples of Wages Paid to Selected Service Contract Occupations in
Selected Localities:
[See PDF for Image]
[End of Figure]
WHD enforces SCA by conducting investigations, ensuring contractor
payments, and providing compliance assistance to stakeholders. WHD
investigates complaints from service contract employees, federal
agencies, unions, and others who allege that contractors have failed to
pay either the wages or fringe benefits, or both, specified in SCA
contracts. WHD collects violation data, but it does not fully use these
data to plan compliance assistance, target specific service industries
or geographic locations for SCA investigation, or set strategic
enforcement goals. As a result, WHD may be overlooking some SCA
violators and industries that need further enforcement. A review of
prior SCA violation data could provide WHD assurance that it is using
the most effective mix of available compliance assistance and
investigative efforts.
What GAO Recommends:
To improve the transparency of its wage determination process and its
SCA strategic enforcement planning efforts, GAO recommends that WHD,
among other things, make publicly available the basic methodology it
uses to issue wage determinations and consider analyzing its historical
SCA contractor violation data to help plan its compliance assistance
and investigative efforts. In its written comments, DOL agreed with all
of the report‘s recommendations.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Robert Robertson at (202)
512-7215 or robertsonr@gao.gov.
[End of Figure]
Contents:
Letter:
Results in Brief:
Background:
Wage Determination Process Relies on Multiple Data Sources and
Professional Judgment but Lacks Transparency:
DOL Enforces SCA by Conducting Investigations, Ensuring Contractor
Payments, and Providing Compliance Assistance, but WHD Could Make
Better Use of Violation Data:
Conclusions:
Recommendations for Executive Action:
Agency Comments:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Examples of Standard and Non-standard Wage Determinations:
Appendix III: Comments from the Department of Labor:
Appendix IV: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Number and Percentage of SCA Investigations by Category,
Fiscal Years 2003 and 2004:
Table 2: Number of SCA Debarments, Fiscal Years 2000 through 2004:
Figures:
Figure 1: Location of ESA's Offices:
Figure 2: Factors Considered in SCA Wage Determination Process:
Figure 3: Cases with SCA Violations, Including Those Registered under
Other Acts:
Figure 4: Employees with Back Wages Due, and Employees Whom Contractors
Agreed to Pay, Fiscal Years 2003 and 2004:
Abbreviations:
BLS: Bureau of Labor Statistics:
DOD: Department of Defense:
DOL: Department of Labor:
ECEC: Employer Cost for Employee Compensation:
ESA: Employment Standards Administration:
FGE: federal grade equivalency:
FLSA: Fair Labor Standards Act:
FPDS: Federal Procurement Data System:
GS: general schedule:
H&W: health and welfare:
NAF: Non-Appropriated Fund:
NCS: National Compensation Survey:
OES: Occupational Employment Statistics:
OSHA: Occupational Safety and Health Administration:
SCA: Service Contract Act:
WG: wage grade:
WHD: Wage and Hour Division:
WHISARD: Wage and Hour Investigative Support and Reporting Database:
United States Government Accountability Office:
Washington, DC 20548:
December 7, 2005:
The Honorable Arlen Specter:
Chairman:
The Honorable Tom Harkin:
Ranking Member:
Subcommittee on Labor, Health and Human Services, Education and Related
Agencies Committee on Appropriations: United States Senate:
Recipients of federal government contracts for services are subject to
wage, hour, benefits, and safety and health standards under the
McNamara-O'Hara Service Contract Act (SCA) of 1965, as amended, which
specifies wage rate and other labor standards for employees of
contractors. In fiscal year 2003, federal agencies spent over $45
billion on contract services covered under SCA, an increase of about
$13 billion from fiscal year 2000.[Footnote 1] In 2002, the Department
of Labor (DOL) estimated there were about 60,000 federal service
contracts. SCA requires DOL to set locally prevailing wage rates and
other labor standards for employees of contractors furnishing services
to the federal government. DOL's Employment Standards Administration's
(ESA) Wage and Hour Division (WHD) administers the SCA and each year
determines prevailing wage and fringe benefit rates for approximately
300 standard service occupations, such as janitor and cafeteria worker,
in 205 metropolitan areas. SCA also authorizes DOL to conduct
investigations to enforce contractor compliance with SCA provisions.
SCA requires federal contracting agencies to include a wage
determination from WHD in their advertisement for a service contract
with the private sector.[Footnote 2] Over the years, contractors,
employees, and others have raised concerns to us that WHD-determined
wage and benefit rates are either too high or too low, and do not
reflect current employment conditions in their vicinity. In addition,
they contend that the way in which WHD arrives at its determinations is
unclear. In this context, you asked us to describe how DOL (1)
establishes locally prevailing wages and fringe benefits and (2)
enforces SCA. You also asked that we identify potential areas of
improvement found in the course of our work.
To respond to your request, we reviewed literature on SCA and its
corresponding regulations. We interviewed officials in DOL headquarters
and field offices, the Bureau of Labor Statistics (BLS), and the two
federal contracting agencies with the largest proportion of service
contract activity--the Department of Defense (DOD) and the General
Services Administration. In addition, we interviewed representatives
from several service industry unions and key trade associations. We
analyzed data obtained from DOL, including data on WHD investigations;
national, regional and district office training and outreach efforts;
and file data on debarments. We also reviewed BLS national wage survey
data in order to better understand the wage determination process. In
addition, we contacted state and private sector groups who also produce
wage and benefit rates to better understand DOL's method of arriving at
wage determinations. See appendix I for detailed information on the
scope and methodology of our work.
We performed our work in accordance with generally accepted government
auditing standards between November 2004 and September 2005.
Results in Brief:
WHD consults multiple wage data sources and relies on analysts'
professional judgment when issuing wage determinations, but the process
lacks transparency and leaves wage determinations prone to criticism.
When issuing a wage determination, WHD analysts look to match the
occupations listed in agency contracts with its SCA directory of
occupations. If the occupation is listed, the analysts will consult
several sources of information, such as data collected through two BLS
national wage surveys, for wage data on that occupation. The analysts
will calculate a prevailing wage and fringe benefit amount for a
specific geographic location in a way that ensures a generally
consistent wage rate from year to year within the occupation and across
similar occupations. If the BLS surveys do not have specific data for
the occupation or if analysts find that the occupation is not listed in
the directory, they will apply professional judgment to select a
comparable listed occupation upon which they base the new wage rate.
For example, an analyst may use the wage data for a computer operator
to derive a wage rate for a peripheral equipment operator, knowing that
the job duties for both occupations are rated the same by the federal
government under the system it uses to categorize federal employees.
The wage determination process produces a wealth of nationwide wage
data for service occupations that WHD makes available online and
strives to update annually. However, stakeholders (e.g., contract
employees, federal contracting agencies, unions, trade associations,
and others) contend that the process is not transparent and that the
wage determinations do not necessarily reflect local wage conditions.
For example, WHD does not include a description of the methodology used
to derive its wage rates in its wage determinations, such as wage data
sources used or the procedures analysts follow. As a result, WHD
analysts spend considerable time responding to inquiries about the
methodology used to determine wages. In addition, WHD has not issued a
comprehensive edition of its SCA directory of occupations since 1993
and has no systematic process in place for doing so. As a result, the
directory does not include a broad range of emerging occupations that
are covered under SCA.
WHD enforces SCA by conducting investigations, ensuring contractor
payments, and providing compliance assistance to federal contracting
agencies, contractors, and others. All SCA investigations stem from
stakeholder complaints that contractors are not providing service
employees with the requisite wages and benefits. WHD may, on its own
initiative, expand the scope of the investigation beyond the original
complaint to include additional employees, contracts or locations. In
fiscal year 2004, DOL conducted 654 SCA investigations, 13 percent of
which were expanded investigations. Over 80 percent of those 654
investigations found that employers operating under SCA failed to pay
the wages or the fringe benefits or both specified in the applicable
SCA wage determination issued for the contracts. As a result of its
investigations, WHD uncovered 20,347 individual SCA violations--each
instance of failure to pay a contract employee the proper wage counts
as a separate violation of the act. Additionally, in fiscal year 2004,
as a result of WHD's investigations, contractors agreed to pay $16.4
million in unpaid back wages and fringe benefits to over 14,000 service
contract employees. DOL also debarred from future federal government
contract work 17 SCA contractors who failed to provide the requisite
back wages and fringe benefits or otherwise met SCA and WHD conditions
for debarment. WHD does not use available investigations data, however,
to examine the extent to which specific service industries or
geographic locations may warrant more SCA investigations. As a result,
WHD has limited assurance it is using the most effective mix of
available compliance assistance and investigative efforts. The data on
repeat SCA violators could be analyzed with a minimal investment of
additional resources. To improve compliance with SCA, WHD conducts
outreach efforts. For example, WHD provides training to federal
contracting agencies and contractors on when contracts should be SCA-
designated and how to comply with the act's requirements.
This report contains recommendations for improving the transparency of
the wage determination process and for improving SCA strategic
enforcement planning. In its written comments on our report, ESA agreed
with the report's recommendations. ESA provided us with written
comments, suggesting several technical corrections, as did BLS, that we
incorporated throughout the report, as appropriate.
Background:
SCA was enacted to give labor standards protection to employees of
contractors and subcontractors providing services to federal agencies
in the United States. SCA requires that, for contracts exceeding
$2,500, contractors pay their employees, at a minimum, the wage rates
and fringe benefits that have been determined by DOL to be prevailing
in the locality where the contracted work is performed. The types of
service jobs covered by the act include, for example, security guard
services, food service, maintenance, janitorial services, clerical
workers, and certain health and technical occupations.
Until recently, DOL regulations required that federal contracting
agencies complete and submit a form to DOL indicating their intention
to offer a service contract and requesting current wage and benefit
determinations for the occupational class(es) and geographic area(s)
involved in the contract. Since the mid-1990s, however, some
contracting agencies have been able to obtain wage determinations
through a DOL online wage determination database, rather than
requesting one from DOL. Many of their covered service contracts were
renewals and the applicable SCA wage determinations for these contracts
were already well established and posted online for information
purposes. For these reasons, DOL entered into memoranda of
understanding with several agencies to allow them to use posted
standard wage determinations without first formally requesting a new
one. On August 26, 2005, DOL issued regulations that allow all federal
contracting agencies to use its www.wdol.gov Web site to meet their
obligation to obtain SCA wage determinations from DOL. This final rule
eliminates the required paper form when requesting a wage determination.
Under SCA, WHD establishes wage rates that apply to the United States,
including the District of Columbia, and certain territories. WHD issues
SCA wage determinations that are location-specific, listing nearly all
standard occupations on each wage determination. These wage
determinations are generally referred to as "consolidated" wage
determinations.[Footnote 3] WHD strives to update its list of
consolidated wage determinations annually, issuing 410 consolidated
wage determinations covering almost 300 standard occupations in 205
geographic locations.[Footnote 4] These consolidated wage
determinations altogether, contain approximately 61,500 individual wage
determinations. In addition, between August 1, 2004, and July 31, 2005,
WHD issued at least 15,786 other wage determinations upon request,
including those for non-standard occupations and conformance
requests.[Footnote 5] See appendix II for an example of a consolidated
and a nonstandard wage determination for a specific geographic locality.
Steps for Obtaining a Wage Determination:
The initial responsibility for determining SCA coverage and the need
for a wage determination rests with the federal contracting
agency.[Footnote 6] An agency initiates the wage determination process
when it determines that it has a need for a particular service and that
the anticipated contract falls under the auspices of SCA. Wage
provisions for construction or manufacturing and furnishing goods are
covered under other acts.[Footnote 7] In its request for a wage
determination from WHD, the contracting agency must provide a
description of the services to be performed under the contract and
specify the dates and location where the services are to be
performed.[Footnote 8] In addition, the agency must provide information
on incumbent contractors, the previous wage determination for the
needed occupations, and any collective bargaining agreements that may
apply.[Footnote 9] It also must identify the occupational titles (e.g.,
secretary) and classes (e.g., secretary I, II, and III) and the number
of service employees needed to perform the work on the contract, and
the hourly wage rates that would be paid if such workers were federally
employed. The contracting agency uses DOL's SCA directory of
occupations when listing the occupational titles of workers to be
employed under the contracts. Use of the directory allows the federal
contracting agency, WHD staff, and ultimately the contractor to match
standard job descriptions with these titles. The directory contains 360
job classifications.
DOL's SCA directory of occupations contains information on the federal
civil service grade levels most likely to correspond to the listed
occupations. For example, the directory lists the occupation of janitor
as a wage grade (WG) 2, indicating the rate at which a janitor would be
paid if performing the work as a federal employee. WHD staff have the
option to use such information to develop prevailing wages for
occupations with no available survey data. Contractors and federal
agency staff may utilize this federal grade equivalency (FGE)
data[Footnote 10] to guide wage rate proposals for occupations to be
"conformed" (i.e., the derivation of a wage rate for an additional
occupational class not originally included in the wage determination).
These comparable pay rates or grade levels are used to apply the
principles of "due consideration" required by the SCA.[Footnote 11]
The contracting agency may also attempt to obtain a wage determination
through DOL's online wage determination database. The Web site provides
guidance on, among other things: selecting the appropriate wage
determination for each contract action, access to the most current wage
determinations, as well as an alert service for notification of future
revisions to particular wage determinations. Contracting agencies can
use the Web site to identify a wage determination from the online
database or to submit an electronic request for a wage determination
when one is not listed or if the contracting official is unsure about
the applicability of the online selections.
Each year DOL issues wage determinations that are specific to a
selected geographical area--sometimes for an entire state--and provide
the minimum wages and benefits that contractors in that area must pay
to service employees. The wage determination becomes a part of the
solicitation and, later, part of the awarded contract.
WHD Conducts Enforcement Efforts:
WHD enforces and administers laws governing legally-mandated wages and
working conditions.[Footnote 12] Its responsibilities include enforcing
SCA and related WHD enforcement policies. When WHD finds through its
enforcement efforts that workers have been underpaid, SCA requires that
the contractor pay the unpaid wages and benefits. WHD may also sue to
recover wage and benefit payments or ask the federal agency to either
withhold contract payments or terminate a contract. Although WHD has no
legal authority to assess civil monetary penalties against contractors,
contractors violating SCA may be debarred for 3 years from obtaining
future government contracts.[Footnote 13] WHD tracks investigations,
violations, and findings in its investigations database-the Wage and
Hour Investigative Support and Reporting Database (WHISARD).
Contractors and subcontractors may challenge determinations of
violations and debarment before an administrative law judge.
Contractors and subcontractors may appeal decisions of administrative
law judges to the Administrative Review Board. Final Board
determinations on violations and debarment may be appealed to and are
enforceable through the federal courts.
WHD staff are located in 5 regional and 72 district, area, and field
offices throughout the country. Regional Administrators plan, schedule,
and target enforcement efforts in their respective regions. Regions are
comprised of district and area offices, each of which operates under a
district director (see fig. 1). The district directors oversee
investigators, who play a key role in carrying out WHD's enforcement
policies. There were approximately 800 investigators in district and
area offices in fiscal year 2004. Investigators are trained to
investigate a wide variety of workplace conditions and complaints and
enforce a variety of labor laws in addition to SCA.[Footnote 14] Each
region also has a regional wage specialist who can provide advice on
SCA matters.[Footnote 15]
Figure 1: Location of ESA's Offices:
[See PDF for image]
[End of figure]
FPDS statistics indicate that federal service contracts continue to
increase in number and total dollar volume each year. According to
ESA's fiscal year 2003 Annual Performance Plan, federal contractors and
subcontractors employed nearly 25 percent of the civilian workforce--
about 26 million workers--in the U.S. economy. Although the exact
number of workers in the subset covered by SCA is unknown, it has been
estimated that hundreds of thousands of federal service contract
workers are employed annually under such contracts.[Footnote 16]
Wage Determination Process Relies on Multiple Data Sources and
Professional Judgment but Lacks Transparency:
WHD consults multiple wage data sources and relies on analysts'
professional judgment when making wage determinations, but the process
lacks transparency and leaves wage determinations prone to criticism.
When making a wage determination, WHD analysts consult several sources
of information, such as its SCA directory of occupations and data
collected through two BLS national wage surveys, for wage data on
occupations. Relying on these tools and their own expertise, analysts
calculate prevailing wages and fringe benefit amounts for specific
geographic locations. Stakeholders contend that the wage determination
process is not transparent and that the resulting wages do not always
reflect local wage conditions. As a result, analysts spend considerable
time responding to inquiries about the methodology used to determine
wages. Stakeholders with these concerns, such as unions and
contractors, told us that they might have fewer questions about the
process if WHD made more information available. In addition, WHD last
issued a comprehensive edition of its SCA directory of occupations in
1993 and has no systematic process in place for updating it. As a
result, the directory does not include a broad range of emerging
occupations that are covered under SCA.
WHD Relies on Multiple Data Sources and Staff's Professional Judgment
When Making Wage Determinations:
WHD analysts consult the SCA directory of occupations as a first step
in the process of determining wages. They then consult a number of
different sources of data when calculating wage rates. Finally,
analysts must also include the fringe benefit rate for the specific
locality in each wage determination.
Directory of Occupations:
WHD analysts use the SCA directory of occupations, a reference tool
that describes standard service occupations typically utilized in the
performance of SCA-covered contracts, to develop wage
determinations.[Footnote 17] The directory is not just an information
document-it is a critical part of the wage determination process
throughout the federal contracting system. However, the process that
WHD uses to update its SCA directory of occupations is not written down
and is essentially ad hoc. There are neither written procedures that
describe how or when WHD updates the directory, nor a required or
standard time interval for how often the directory should be updated.
DOL has no systematic process for updating its SCA directory of
occupations, but instead, updates it periodically. The current edition
of the directory was issued in 1993. Since then, there have been three
supplements to the directory.[Footnote 18] According to WHD officials,
when there is a sufficient volume of smaller-scale changes proposed by
stakeholders, they will issue a supplement to the directory.
Stakeholders usually bring the need for supplements to WHD's attention.
Supplements can involve adding some classes of jobs as well as editing
or removing others. WHD can make these changes to job classes either
with or without getting stakeholder approval. A recent effort to update
and release a new edition of the directory, begun in 2002, was
initiated after federal contracting agencies, contractors, trade
associations, and unions raised concerns that the existing directory
did not meet their needs. In fact, stakeholders independently drafted
an update to the directory and presented it to WHD. While WHD is not
legally required to include outside parties in the update process, WHD
has encouraged stakeholders to participate, allowing them to review all
suggested changes. According to WHD officials, the update has been long
in the making, due in part to the number of suggested changes received
from and deliberated by the stakeholders.
Some stakeholders, however, have expressed frustration with the length
of time the update has taken. In response, one senior WHD official we
spoke to explained that, in some cases, directory changes could have
significant cost implications for both wages and fringe benefits at the
local level and that careful consideration is necessary to make proper
adjustments. Stakeholders, the official contended, may not realize the
implications of the changes or additions that have been proposed. For
example, an issue was raised of whether it was more appropriate to
classify the occupation "truck dispatcher" as an administrative,
clerical, technical, or professional position, when each category
brings with it a different level of wages and benefits.
Throughout the update process, several job categories and occupational
classes have been added to, or deleted from, the directory. WHD
analysts responded to stakeholder needs for job classifications that
were not available in the directory. For example, WHD added a job
classification in response to a DOD need for an "unexploded ordnance
technician." WHD worked with DOD to develop an accurate description for
placement in the directory. Similarly, the job category of "detention
officer" was added at the request of U.S. Citizenship and Immigration
Services because of the volume of hiring and the uniqueness of the
duties performed. In these cases, WHD did not involve additional
agencies in the process of changing the directory. Ultimately, WHD has
the authority to decide which jobs are included in the directory.
Despite recent efforts to update the directory, some common service
occupations are still missing. Specifically, the directory does not
contain the occupations "customer service representative" or
"telemarketer." Contracting agencies that need such services performed
cannot acquire the wage rate from DOL's online wage determination
system and must request a separate wage determination from a WHD
analyst. In addition, WHD officials told us that analysts sometimes
receive multiple wage determination requests for the same unlisted
occupations, thereby increasing their workload. The directory also does
not list an occupational title for "call center representative." A
contractor told us that as a result, wage determinations for call
center contracts with federal agencies generally listed these
occupations as "general clerk I, II, and III." According to this
contractor, the wage determination for a general clerk is usually lower
than the market rate for a call center representative. The contractor
pointed out that federal agencies will likely have an increased need
for call center representatives in the years ahead. Some contractors
told us that, while they often must pay additional amounts to meet the
market rate to be able to recruit qualified workers, they cannot submit
the higher rates in their bid without risking the loss of the contract
to a competitor. Contractors warned that, in cases like these where
they lose a contract to a lower bidder, federal agencies may be at risk
of contracting with employers who will provide a lower quality of
services. According to these contractors, the difference in wage rates
paid to workers on SCA-covered contracts and those not working on SCA-
covered contracts can lead to some workers feeling demoralized. WHD
officials told us that after the current update is issued, which is
expected to occur in October 2005, no plans are underway for the next
update.
Process for Determining Wages:
WHD analysts rely on professional judgment when calculating wage rates.
WHD provides analysts with methodology worksheets that assist them in
determining a wage. These worksheets provide an outline of how an
analyst should proceed when certain conditions exist (such as, when
survey data are not available for a specific occupation). The
worksheets are intended to guide analysts without dictating the exact
determination process.
More specifically, to determine a wage rate, analysts review the
available wage data sources as well as previously issued wage
determinations. Analysts base most wage determinations on nationwide
survey data collected by BLS under the National Compensation Survey
(NCS)[Footnote 19] and the Occupational Employment Statistics (OES)
survey,[Footnote 20] or other data showing the rates that prevail in a
specific locality.[Footnote 21] Analysts also take into account
previously issued wage determinations when setting a new or revised
wage rate. For example, to maintain general consistency from year to
year, WHD instructs its analysts to not issue a rate lower than or more
than 10 percent above the previously issued wage rate. In addition,
when wages have been set by a collective bargaining agreement, analysts
are required by SCA to carry over those negotiated wages to contractors
who take over ongoing contracts. Finally, analysts use the union
dominant rate, when applicable.[Footnote 22]
After selecting a data source, analysts review the wage information for
different classes of the same occupation (e.g., the different classes,
I, II, and III, of the occupation "secretary" require successively more
advanced skills) and the pay relationships that exist between these job
classes (i.e., the different classes of secretary are paid successively
more for their advanced skills), and make adjustments as needed to
address data abnormalities or inconsistencies. For example, an analyst
would make an adjustment if the data showed lower wages for a secretary
III than for a secretary I or II. Analysts also review occupations in
the same broad job category (e.g., administrative support and clerical
occupations) to ensure that different occupations performing
commensurate duties receive similar pay.
When data for an occupation are not included in existing wage surveys,
analysts can establish a prevailing wage rate through a procedure
called "slotting," which involves comparing equivalent or similar job
duties and skills between surveyed classifications and other
classifications for which no survey data are available. For example,
analysts may adopt the rate for a "computer operator" and use it for a
"peripheral equipment operator" (whose duties include taking corrective
actions to return equipment that directly supports computer operations,
such as printers, to proper working order) because the job duties and
skills required for both classifications are rated at the same level
under the grading system for federal employees.[Footnote 23] Further,
when the survey lists varying wage rates for several similar
occupations, such as the "general maintenance trades," analysts will
determine the average wage and use that rate as the prevailing wage for
the entire group of occupations. See figure 2 for a graphic
illustration of some of the factors an analyst may consider when
determining a wage rate.
Figure 2: Factors Considered in SCA Wage Determination Process:
[See PDF for image]
[End of figure]
An additional reason why analysts must rely on professional judgment
when determining wage rates is that BLS's wage surveys were not
designed for the purpose of determining wages and fringe benefit rates.
While the BLS surveys may provide the most comprehensive wage data
available, WHD analysts must perform some manipulation of BLS's data
when calculating wage rates. As a result, WHD's reliance upon these
data may not ensure that the wage rates it sets reflect labor market
conditions. For example, because the survey responses may include the
wage rates for some SCA service contract workers whose rates are set by
a wage determination, analysts may not be using data that fully reflect
the local labor market conditions. In other words, WHD, in trying to
determine the market rate for certain occupations, may be referencing
survey responses of its own derived rates. However, we did not attempt
to determine the extent to which BLS data includes such information. In
addition, one BLS survey used by WHD excludes smaller employers with
fewer than 50 employees from its sample population. As a result, the
survey results could inflate or deflate actual wages for the types of
occupations typically employed by smaller employers. Another reason
that BLS survey data may affect WHD's ability to set rates that reflect
market conditions is that the occupational classifications in DOL's SCA
directory of occupations do not always match OES occupational
classifications, making it difficult for WHD analysts to match the OES
wage data to the SCA occupation without significant analysis. Because
OES does not collect data for each classification for every locality
surveyed, WHD must sometimes use the "slotting" procedure to derive a
wage determination.[Footnote 24]
Process for Determining Fringe Benefit Rates:
In addition to a wage rate, each SCA wage determination also includes
the fringe benefit rate for the specific locality. Analysts generally
set a universal fringe benefit rate that employers must pay to all
workers in a specific geographic area regardless of their occupational
class. The fringe benefit amount typically includes health and life
insurance coverage, sick leave, retirement plans--items that are
typically referred to as health and welfare (H&W) benefits[Footnote
25]--as well as vacations and holidays. WHD analysts arrive at the H&W
rate used in wage determinations by consulting nationwide data from
BLS's Employer Cost for Employee Compensation (ECEC) survey. In
contracts awarded since new regulations became effective in June 1997,
the fringe benefit rate has most often been calculated on a "fixed cost
per employee" basis, where each employee receives the same benefit
amount.[Footnote 26] Employers may meet their fringe benefit
obligations by paying the employee the cash equivalent of the specified
fringe benefits. In June 2005, the "fixed cost per employee" SCA health
and welfare benefit rate was increased to $2.87 per hour, which equates
to about $497 per month.
Lack of Transparency Leaves Wage Determinations Prone to Criticism:
The wage determination process requires analysts to apply professional
judgment in selecting both the appropriate source and method for
calculating the prevailing wage rate. Contractors and other
stakeholders contend that the process that analysts follow when
determining a wage is not transparent and that determinations do not
necessarily reflect local wage conditions. In fact, WHD does not
include a description of the methodology used to derive the wage rates
in its wage determinations, such as the wage data source used or the
procedures analysts' follow. As a result, analysts spend considerable
time responding to inquiries from contractors, employees, union
representatives, and others regarding how they determine wages.
According to WHD officials, analysts received about 23,000 telephone
inquiries in a recent 12-month period, mostly from service contract
employees who want to know how their wage rate was calculated or why
their rate differed from a similar rate in a neighboring
locality.[Footnote 27] Congress, unions, and others also contact WHD
staff to inquire on behalf of their constituents or members. WHD
assigns these inquiries to analysts as they are received. WHD officials
told us that the specific methodology of calculating a wage rate for a
certain occupation in a certain geographic location can change from
year to year based on a series of elements, such as the availability of
survey data or an analysts professional judgment. While analysts do
provide details to those who inquire, WHD does not provide individual
methodology worksheets in writing, stating that doing so would result
in additional inquiries as to why rates are not calculated by the same
method as in the previous year and take analysts away from their
primary task of issuing new and revised wage determinations.
Stakeholders with concerns told us, however, that it would be helpful
to them if more information about the process was made available.
WHD receives criticism that its wage determination rates do not reflect
market conditions. Some contractors say that private-sector wage data
provide a more accurate measure of local labor market conditions than
BLS survey data that were not designed for the purpose of determining
wages and fringe benefit rates.[Footnote 28] However, WHD officials
told us that to the extent its wage rates are perceived as not
reflective of the market rate, one possible reason could be that WHD
sets internal parameters for wage determinations (e.g., not issuing a
wage rate lower than or more than 10 percent above the previously
issued rate) to ensure consistency from year to year. As a result,
while BLS survey data may be lower or higher than the resulting wage
determination, analysts manipulate wage rates to ensure a consistent
wage structure.
DOL Enforces SCA by Conducting Investigations, Ensuring Contractor
Payments, and Providing Compliance Assistance, but WHD Could Make
Better Use of Violation Data:
WHD enforces SCA by conducting contractor investigations, ensuring
contractor payments to employees, and providing compliance assistance
to stakeholders. WHD investigates complaints from service contract
employees, contractors, federal agencies, unions, and others who allege
that contractors have failed to pay either the wages or fringe
benefits, or both, specified in service contracts. WHD collects
violation data, but it does not fully use these data to plan compliance
assistance, target specific service industries or geographic locations
for SCA investigation, or set strategic enforcement goals. When
investigations find that contractors have failed to pay in accordance
with contract wages or benefits, WHD acts to ensure that contractor
payments are made to employees. WHD also provides compliance assistance
to contractors, federal agencies, unions, and others to help them
comply with SCA requirements and avoid SCA violations.
WHD Conducts Complaint-Driven Investigations:
SCA investigations originate when contract employees, federal agencies,
competitor contractors, or employee representatives complain to WHD
that a contractor has failed to comply with the wage or benefit
requirements in a contract.[Footnote 29] WHD investigators then consult
and interview contractor officials, inspect the contract and contractor
payroll records, and interview service contract employees. WHD records
investigation data, such as the name of the contractor, geographic
location, industry, and the type of violation, in its WHISARD database.
When responding to complaints, WHD investigators review WHISARD data
for prior contractor violations. WHD uses violation data on a case-by-
case basis to determine whether an individual complaint warrants
expansion to a more comprehensive "directed" investigation. For
example, WHD may decide to expand the scope of an initial complaint to
encompass other employees under the same contract, additional
contractor locations, or other service contracts involving the same
contractor. WHD records all alleged SCA violations in its WHISARD
database and classifies investigations as either complaint or directed.
WHD generates violation reports from WHISARD that summarize
investigation findings.
SCA violation reports for fiscal years 2003 and 2004 show that about 87
percent of all investigations during this period were classified as
complaint and about 14 percent were classified as directed. Table 1
shows the number and percentage of complaint investigations and
directed investigations for fiscal years 2003 and 2004.
Table 1: Number and Percentage of SCA Investigations by Category,
Fiscal Years 2003 and 2004:
Complaint;
Number of investigations: FY 2003: 597; Number of investigations: FY
2004: 570; Percentage of investigations: FY 2003: 86; Percentage of
investigations: FY 2004: 87; Average: 86.
WHD directed;
Number of investigations: FY 2003: 101; Number of investigations: FY
2004: 84; Percentage of investigations: FY 2003: 14; Percentage of
investigations: FY 2004: 13; Average: 14.
Total;
Number of investigations: FY 2003: 698; Number of investigations: FY
2004: 654; Percentage of investigations: FY 2003: 100; Percentage of
investigations: FY 2004: 100; Average: 100.
Source: GAO analysis of WHD data.
[End of table]
WHD headquarters and regional enforcement officials told us that a
complaint-based enforcement strategy offers an efficient approach to
enforcing multiple labor laws. Consequently, WHD does not analyze or
use violations data from WHISARD to (a) examine the extent to which
specific service industries or geographic locations may warrant
increased compliance assistance or directed investigations under SCA or
(b) develop SCA-specific strategic goals. Concerning the latter, while
ESA's 1999-2004 strategic plan contains specific outcome or performance
goals for some labor acts, such as the Davis-Bacon Act and the Fair
Labor Standards Act (FLSA), there are none for SCA. WHD has overall
strategic enforcement goals that cut across all labor laws it enforces,
such as improving timeliness in response to complaints and reducing the
number of violators who have repeat or recurring violations. Moreover,
ESA's strategic plan uses violation data in WHISARD to focus
enforcement efforts on low-wage industries reflective of employers that
have previously violated labor laws, such as FLSA, minimum wage and
child labor laws, and others.[Footnote 30] While the focus on low-wage
industries may detect violations in some service contract industries,
it does not assure that all service contract industries with serious or
frequent SCA violations are identified.
WHD Enforcement Efforts Result in Payment of Back Wages and Fringe
Benefits and Debarment of Some Violators from Future Contract Work:
When a WHD investigation determines that a contractor has failed to pay
wages or fringe benefits to contract employees, WHD attempts to reach
agreement with the contractor regarding the amount of back wages and
fringe benefits owed employees. WHD also monitors contractor activity
to ensure that the amounts owed to employees are eventually paid to
them.[Footnote 31] In fiscal year 2004, WHD initially investigated 654
reportable cases--cases with possible SCA violations--and ultimately
found 493 cases with SCA violations that began as an SCA investigation.
In addition, 44 other cases, registered by WHD under other labor acts
it enforces, had SCA violations.[Footnote 32] These 537 cases, more
than 80 percent of the total number of SCA investigations, uncovered
$18.7 million in contractor back wages and fringe benefits that were
owed to employees. WHD obtained contractor agreements to pay $16.4
million to employees.[Footnote 33] Once a contractor has reached
agreement with WHD on the amount of wages and benefits owed, WHD
monitors contractor payments and does not conclude the case until the
contractor has made full payment.
WHD treats each instance of failure to pay a contract employee the
proper wage to be a separate violation of the act. Likewise, WHD
considers the failure to pay that same employee the proper fringe
benefit as a separate violation. Thus, a contractor who fails to pay
the proper wage and the proper fringe benefit would be cited for two
separate SCA violations. Figure 3 shows the total number of cases found
to have SCA violations in fiscal years 2003 and 2004, differentiating
those cases that were registered under other WHD acts from those that
were initiated as an SCA investigation.
Figure 3: Cases with SCA Violations, Including Those Registered under
Other Acts:
[See PDF for image]
[End of figure]
WHD's SCA investigations have a generally high success rate when judged
by one key measure of enforcement success--the percentage of back wages
and benefits that contractors agreed to pay--compared to the wages and
benefits that contractors owed. WHD's overall rate of back wages
recouped has also been high. Figure 4 shows the number of employees
with back wages owed them, and the number of employees whom contractors
agreed to pay for fiscal years 2003 and 2004. For these two periods,
contractors agreed to pay about 89 percent of unpaid wages that they
were found to owe for SCA violations.
Figure 4: Employees with Back Wages Due, and Employees Whom Contractors
Agreed to Pay, Fiscal Years 2003 and 2004:
[See PDF for image]
[End of figure]
WHD may debar contractors who refuse to pay back wages and fringe
benefits owed to service contract employees or otherwise meet SCA and
WHD conditions for debarment.[Footnote 34] WHD may also arrange with
federal agencies to permit debarred contractors to complete the
contract under which violations occurred, but debarred contractors may
not bid on or be awarded any other federal contracts during the
standard 3-year debarment period. WHD debarred 17 contractors in fiscal
year 2004, in contrast with approximately 450 contractors that it
investigated. Table 2 shows the number of debarments for fiscal years
2000 through 2004 by region.
Table 2: Number of SCA Debarments, Fiscal Years 2000 through 2004:
Region: Northeast;
FY 2000: 3;
FY 2001: 4;
FY 2002: 4;
FY 2003: 5;
FY 2004: 4;
Total: 20.
Region: Southeast;
FY 2000: 2;
FY 2001: 4;
FY 2002: 0;
FY 2003: 1;
FY 2004: 2;
Total: 9.
Region: Midwest;
FY 2000: 2;
FY 2001: 0;
FY 2002: 5;
FY 2003: 3;
FY 2004: 5;
Total: 15.
Region: Southwest;
FY 2000: 4;
FY 2001: 2;
FY 2002: 5;
FY 2003: 6;
FY 2004: 4;
Total: 21.
Region: West;
FY 2000: 2;
FY 2001: 8;
FY 2002: 1;
FY 2003: 4;
FY 2004: 2;
Total: 17.
Region: Total;
FY 2000: 13;
FY 2001: 18;
FY 2002: 15;
FY 2003: 19;
FY 2004: 17;
Total: 82.
Source: WHD.
[End of table]
Training and Outreach Efforts Aim to Improve SCA Compliance:
WHD provides compliance assistance to federal contracting agencies and
contractors to help improve SCA compliance. One of WHD's basic missions
is to provide employers and workers with clear and easy-to-access
information on how to comply with federal employment laws--information
and guidance that are often referred to as compliance assistance.
Compliance assistance includes brochures and pamphlets, workplace
posters, telephone consultations, on-site consultations, training
sessions or seminars for individuals or groups, and Web-based
information. WHD's Web site, for example, contains an Employment Law
Guide with details about SCA coverage, requirements, employee rights,
penalties, and sanctions.
In fiscal year 2004, WHD provided SCA compliance assistance at
national, regional, and local levels to federal agencies, contractors,
and service contract employee groups. National-level training and
outreach efforts included presentations, speeches and seminars for the
National Industries for the Blind and the U.S. Patent and Trademark
Office, and panel discussions with the National Star Route Mail
Contractors' Association. Regional offices provided similar outreach
and training to officials from such federal agencies as the Office of
Federal Contract Compliance Programs, Small Business Administration,
Social Security Administration, and the U.S. Army Corps of Engineers.
Local-level training and outreach included presentations to the
Directorate of Contracting at Fort Riley, Kansas, and to employers that
have SCA low-wage industry contracts under a Small Business
Administration program. In fiscal year 2004, WHD provided training to
federal agency contracting officials in the Department of Defense
through an arrangement with the Contract Services Association of
America, an organization that promotes the use of private contractors
for all federal government services.
One of the most universal forms of day-to-day compliance assistance
that WHD provides is its workplace poster. SCA requires contractors to
post the poster at work sites unless the contractor has notified
individual employees of their wages and benefits.[Footnote 35] WHD
regulations issued to implement SCA state that the WHD poster
(Publication WH 1313), when applicable, shall be posted in a prominent
and accessible place at the worksite, and failure to comply with this
requirement is a violation of the act and of the contract.[Footnote 36]
WHD's SCA workplace poster serves a dual purpose of both assistance and
enforcement. As an assistance tool, the poster informs service contract
employees of their wages, benefits, and other entitlements (overtime
and safety and health conditions) under the contract with the federal
government. As an enforcement tool, the poster provides evidence that
the contractor is subject to SCA and DOL regulations governing service
contracts as they relate to employee notification. WHD has designed the
poster to be used for both SCA and the Walsh-Healey Act. WHD's Web site
makes this Service Contract Act/Walsh-Healey Poster readily available
to the public.
While WHD relies heavily on complaints from employees and others to
enforce SCA, WHD's worksite poster does not provide a telephone number
for employees or others to call to register complaints. Instead, the
poster directs inquiries for information to the Wage and Hour Division
offices located in "principal cities." The poster also directs
potential complainants to check their telephone directory under U.S.
Government, Department of Labor, Wage and Hour Division. WHD last
revised the poster in 1996.
A workplace poster that does not provide service contract employees and
others with a clear and easy-to-access method of filing a complaint may
hamper their reporting of such complaints. In the absence of a
telephone point of contact at WHD, service contract employees may not
have the opportunity to report possible or suspected violations of the
act and therefore may not receive the full benefit of protection
authorized under the act.
We reported in 2004 that DOL's Occupational Safety and Health
Administration (OSHA) relies heavily on complaints to enforce the
Occupational Safety and Health Act.[Footnote 37] OSHA, in general,
responds to complaints according to the seriousness of alleged hazards,
a policy that OSHA credits with conserving agency resources. Like WHD,
OSHA uses workplace posters as part of its overall compliance
assistance enforcement efforts.[Footnote 38] OSHA's workplace posters
display a universal national telephone number, telephone numbers for
each of OSHA's 10 regional offices, a national number accessible to the
hearing impaired, and instructions on how to file a complaint online
through OSHA's Web site.
Conclusions:
Determining locally prevailing wages for service employees working in
hundreds of occupations throughout the nation is a tremendous
undertaking and one that WHD is committed to performing with diligence.
It is the only organization producing such a vast number of locally
prevailing wage rates on a national scale. For their part, WHD analysts
have the support of their agency in applying their professional
judgment when setting the wage and benefit rates. However, WHD could
benefit from greater transparency of its wage determination process.
WHD provides limited information on the methodology used to determine
SCA wage rates, resulting in analysts receiving numerous inquiries
about how they determined wages. Responding to individual requests for
explanation diverts analysts from their primary duties of revising and
issuing new wage determinations. WHD expressed concerns that providing
additional information on its methodology may trigger additional
inquiries. However, we believe that additional information could inform
some stakeholders, especially those that represent contractors and
employees, who could in turn educate their members. As a result, some
individuals who otherwise would contact WHD for an explanation on how
wages are determined might not see the need to contact WHD. A general
description of the methods used in the wage determination process could
give SCA stakeholders greater confidence in the determined wage rates
and possibly improve the quality of service that WHD provides to those
who do inquire.
WHD strives to update its list of consolidated wage determinations on
an annual basis and provides this information online for the
convenience of the contracting agencies. However, the job titles and
descriptions included in its SCA directory of occupations have not been
regularly updated to include emerging service occupations. WHD has been
working closely with various stakeholders over the past 3 years to make
changes to the directory, although its ad hoc process of updating the
directory calls into question the ongoing currency of the occupations
listed in the directory used for wage determinations.
WHD's reliance on complaints as the primary means to identify potential
SCA violations is a reasonable strategy to pursue, given WHD's multiple
enforcement responsibilities under numerous federal labor laws.
However, that strategy currently does not examine the extent to which
other information could be used to improve enforcement nationwide.
Without further analysis of prior SCA violation data, WHD cannot ensure
that it is using the most effective mix of compliance assistance,
complaint-driven investigations, and directed investigations. WHD has
readily available data on repeat SCA violators, the analysis of which
we believe could be performed with minimal investment of additional
resources. Furthermore, by taking extra steps to review prior SCA
violation data, WHD may find that its existing complaint-driven
approach to SCA enforcement is sound.
Finally, because the SCA workplace poster does not provide an easy
method for employees to report complaints, WHD may be missing
opportunities to get the most use from its complaint process. Improving
the workplace poster would reinforce WHD's complaint-based strategy and
would help further protect the wages and benefits of service contract
workers.
Recommendations for Executive Action:
In an effort to provide stakeholders with a general understanding of
how WHD determines wage rates, we recommend that the Secretary of Labor:
* direct WHD to make publicly available the basic methodology WHD uses
to issue wage determinations.
To better support WHD and federal contracting agencies in their
implementation of SCA, we recommend that the Secretary of Labor:
* direct WHD to develop a procedure for updating the SCA directory of
occupations at regular intervals and include criteria for listing and
removing occupations as the need emerges.
To further WHD's efforts to obtain better information concerning the
presence of and potential for violations involving SCA contracts, we
recommend that the Secretary of Labor:
* direct WHD to analyze its historical SCA contractor violation data in
WHISARD, as well as debarment information not included in WHISARD, and
to the extent appropriate, use this information to help plan its
compliance assistance and investigative efforts, and to identify
additional industries, if any, that WHD should establish enforcement
goals similar to those it currently has for repeat violators and
industries with chronic violations.
To facilitate the reporting of SCA complaints, we recommend that the
Secretary of Labor:
* direct WHD to update and revise the 1996 Service Contract Act/Walsh-
Healey worksite poster, to include national and regional office
telephone numbers and a Web site address that complainants may use to
report alleged SCA violations.
Agency Comments:
DOL's ESA provided us with written comments on a draft of this report,
which are reproduced in appendix III. The agency agreed with all of the
report's recommendations. ESA noted that WHD will provide a general
description of the methods used in the wage determination process on
its Web site and through other avenues. The agency also commented that
WHD will develop a plan for implementing our recommendation concerning
its SCA directory of occupations. However, the agency cautioned that
any plan to do so must take into account the potential for creating
confusion when multiple versions of the directory are applicable to
various contracts. ESA acknowledged that this problem already exists
but believes it would be exacerbated if the directory were updated more
frequently.
ESA further noted that WHD's leadership will include an analysis of its
SCA enforcement data in establishing its annual priorities at the
national level and to specific local and regional initiatives. Finally,
ESA noted that WHD will develop and implement a plan to revise the SCA
worksite poster by adding WHD's toll-free telephone number and the
agency's Web site address.
ESA noted several technical corrections to the report, as did BLS,
which we incorporated as appropriate.
As arranged with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after the date of this report. At that time, we will send copies of
this report to the Secretary of Labor and the Assistant Secretary of
Labor for Employment Standards. We will also make copies available to
others upon request. In addition, the report will be available at no
charge on GAO's Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me at (202) 512-7215 or robertsonr@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who have made major
contributions to this report are listed in appendix IV.
Signed by:
Robert E. Robertson:
Director, Education, Workforce, and Income Security Issues:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
For this report, we described how the Department of Labor (DOL):
(1) establishes locally prevailing wages and fringe benefits and (2)
enforces the Service Contract Act (SCA). We also identified potential
areas of improvement found in the course of our work. To address these
objectives, we:
* reviewed literature on SCA and its corresponding regulations, and
analyzed DOL documents and data;
* interviewed officials in the Wage and Hour Division's (WHD)
headquarters and field offices, the Bureau of Labor Statistics (BLS),
and the two federal contracting agencies with the largest proportion of
service contract activity--the Department of Defense (DOD) and the
General Services Administration. At DOD, we interviewed the agency
labor advisors and officials from each of the four branches of service
that oversee the military's SCA activities. In addition, we interviewed
representatives from several service industry unions and key trade
associations;
* analyzed data obtained from DOL, including data on WHD investigations
from DOL's Wage Hour Investigator Support and Reporting Database
(WHISARD) database; national, regional and district office training and
outreach efforts; file data on debarments; and data from the Federal
Procurement Data System (FPDS), including information on the number and
total dollar amount of SCA contract actions for fiscal years 2000
through 2003; and:
* interviewed state officials and representatives from private-sector
groups who also produce wage and benefit rates in an effort to better
understand the relative merits of DOL's wage determination process.
Reliability of WHD's Data on Investigations and Debarments:
We obtained current and background data from DOL's WHISARD database for
fiscal years 2003 and 2004. Data included the number of SCA
investigations, the number of investigations that led to one or more
SCA violations, the number of act violations, amounts of back wages and
fringe benefits due from contractors, amounts of unpaid wages and
benefits that contractors agreed to pay service contract employees, and
the number of employees with unpaid wages and benefits. We also
obtained file data from WHD on debarred contractors, including the
number of debarred contractors, by year and region.
We assessed the reliability of the WHISARD data by (1) interviewing
agency and contractor officials knowledgeable about the data, and:
(2) reviewing existing information about the data and the system that
produced them, such as the WHISARD User Guide and Procedure Manual;
WHISARD data dictionary of tables; and the DOL Inspector General's
fiscal year 2004 Performance and Accountability Review of WHD, which
includes WHISARD. We assessed the reliability of the debarment data by
interviewing agency officials about the debarment process and the
methods used to produce the debarment summary report provided to us. We
determined that the required WHISARD data elements and debarment
summary data were sufficiently reliable for the purposes of this report.
Reliability of FPDS Data:
FPDS has been the federal government's central database of information
on federal procurement actions since 1978. It contains detailed
information on contract actions over $25,000 and summary data on
procurements of less than $25,000. We found in December 2003 that FPDS
data were inaccurate and incomplete, and that sufficient problems
existed with the system to warrant concern about the reliability of
FPDS information.[Footnote 39] However, in this report, we are using
the FPDS data only to provide aggregate information about SCA and to
provide context for the report. Although we have determined that the
data may be incomplete and certain data elements unreliable, for this
report we found that it was sufficiently reliable for estimating a
minimum number of federal contracts and federal SCA dollars expended. A
newer system, the FPDS-NG (Next Generation), became operational on
October 1, 2003. In December 2003, we stated that the reliability of
FPDS data was expected to improve with the implementation of the new
system. We recently issued a correspondence to the Office of Management
and Budget regarding the upgraded system.[Footnote 40]
[End of section]
Appendix II: Examples of Standard and Non-standard Wage Determinations:
[See PDF for Image]
[End of Figure]
[End of section]
Appendix III: Comments from the Department of Labor:
U.S. Department of Labor:
Assistant Secretary for Employment Standards: Washington, D.C. 20210:
Mr. Robert E, Robertson:
Director, Education, Workforce, and Income Security issues: United
States Government Accountability Office: Washington, D.C. 20548:
Dear Mr, Robertson:
Thank you for the opportunity to comment on the draft report entitled '
"Service Contract Act: Wage Determination Process Could Benefit From
Greater Transparency, and Better Use of Violation Data Could Improve
Enforcement " (GAO-06-27).
The report contains four recommendations to make the wage determination
process more transparent and to better plan compliance assistance and
enforcement initiatives, These recommendations, which are in bold
print, request the Secretary of Labor to direct the Wage and Hour
Division (WHD) lo:
1. "make publicly available the basic methodology WHD uses to issue
wage determinations"
WHD supports the recommendation for greater transparency by showing the
underlying basis for how wage determinations are issued, WHD will
provide "a general description of the methods used in the wage
determination process" on its Web site and through other compliance
assistance avenues.
2. "develop procedures for updating the SCA directory of occupations at
regular intervals and include criteria for listing and removing
occupations as the need emerges."
WHD also supports the recommendation for more regular updates to the
Service Contract Act "Directory of Occupations" (Directory) and it will
develop a plan for implementing the recommendation. Any plan for
updating the Directory, including the frequency of updates, must,
however, take into account the potential for creating confusion among
the Federal contracting community, contractors, and employees when
multiple versions of the Directory are applicable to various contracts.
For example, if the Directory is revised annually, a contractor might
be faced with several different contracts operating under multiple
versions of the Directory. Although this problem exists every time the
Directory is changed, the problem is exacerbated if the Directory is
frequently updated,
3. "analyze its historical SCA contractor violation data is WHISARD, as
well as debarment information not Included in WHISARD, and to the
extent appropriate, use this information to help plan Its compliance
assistance and investigative efforts, and to identify additional
industries, if any, that WHD should establish enforcement goals similar
to those it currently has for repeat violators and industries with
chronic violations."
WHD concurs with this recommendation. WHD has established enforcement
priorities in three key areas: greater compliance in low-wage
industries that employ vulnerable workers (including young and
immigrant workers); reducing the number of employers with repeat
violations; and the strategic use of complaint investigations as a way
of increasing labor standards outcomes for the greatest number of
workers. As the report notes, WHD has overall strategic enforcement
goals that "cut across all labor laws it enforces " Consistent with the
President's Management Agenda, these goals arc integrated within the
agency's budget, To achieve these objectives, WHD develops an annual
performance plan that establishes outcomes, targets and measures. In
turn, each year, the agency's regional and district offices develop
local initiatives and strategies to meet annual targets and to further
the broader strategic goals and mission of the agency. The annual
performance plan is developed by WHD's Executive Leadership Team
pursuant to a nine-step strategic planning model, one step of which is
to review and consider data related to its past performance in
developing future objectives, As suggested by GAO, WHD leadership will
include an analysis of its SCA enforcement data in establishing its
annual priorities at the national levels and specific to local and
regional initiatives.
4. "update and revise the 1996 Service Contract Act/Walsh Healey
worksite poster, to include national and regional office telephone
numbers and a Web site address that complainants may use to report
alleged SCA violations."
WHD concurs with this recommendation and will develop and implement n
plan to revise the worksite poster to add the WHD's toll-free number, 1-
866-4US-WAGE (1-866-487-9243), This number is widely disseminated
through a variety of compliance assistance materials, The toll-free
help line provides compliance information to employers and employers,
Calls to the number are handled by call center staff who can screen
information, provide general guidance to employees, and refer
complainants to the appropriate WHD office, The call center currently
has 15 Spanish-speaking customer service representatives (CSR) and an
interpreter service that supports 150 languages, WHD will also add the
agency's Web site address, which has an email notification system that
also provides the public with assistance.
This concludes our review and comments, We appreciate the opportunity
to provide comments in advance of the publication of the final report.
If you should have any questions, please do not hesitate to contact us.
Sincerely,
Signed by:
Victoria A, Lipnic:
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Robert E. Robertson (202) 512-7215 or robertsonr@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Brett S. Fallavollita,
Assistant Director, Monika R. Gomez, and Dennis M. Gehley made
significant contributions to this report in all aspects of the work
throughout the review. In addition, Linda L. Siegel helped to develop
our overall design and methodology; Margaret L. Armen and Richard P.
Burkard provided legal support; Avrum I. Ashery and Jeremy D. Sebest
designed our graphics; Shana B. Wallace provided technical assistance;
and Jonathan S. McMurray assisted in report and message development.
[End of section]
Related GAO Products:
Department of Labor, Wage and Hour Division, Employment Standards
Administration: Service Contract Act; Labor Standards for Federal
Service Contracts. OGC-97-14. Washington, D.C.: January 16, 1997.
Navy Contracting: Military Sealift Command's Contract for Operating
Oceanographic Ships. NSIAD-90-151. Washington, D.C.: April 18, 1990.
Department of Labor: Assessment of the Accuracy of Wage Rates Under the
Service Contract Act. HRD-87-87BR. Washington, D.C.: May 28, 1987.
Decision of the Comptroller General of the United States, B-218427.2,
May 15, 1985, Crowley Towing & Transportation Company.
Congress Should Consider Repeal of the Service Contract Act. HRD-83- 4.
Washington, D.C.: January 31, 1983.
Assessment of Federal Agency Compliance with the Service Contract Act.
HRD-82-59. Washington, D.C.: July 21, 1982.
Service Contract Act Should Not Apply to Service Employees of ADP and
High-Technology Companies--A Supplement. HRD-80-102 (A). Washington,
D.C.: March 25, 1981.
Service Contract Act Should Not Apply to Service Employees of ADP and
High-Technology Companies. HRD-80-102. Washington, D.C.: September 16,
1980.
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FOOTNOTES
[1] This information comes from agency data submitted to the Federal
Procurement Data System (FPDS), the federal repository for contracting
data.
[2] A wage determination sets forth the minimum monetary wage rates to
be paid and the minimum fringe benefits to be furnished for the various
classes of service employees to be employed in furnishing services
during the periods when they are engaged in the performance of such
contracts. Each wage determination is locality specific, i.e., the wage
and fringe benefit information therein would pertain to the specific
occupations listed only in the geographic location specified, and
should reflect local labor market conditions.
[3] Consolidated wage determinations are those that are most frequently
used for SCA-covered contracts, for which job descriptions are provided
by the SCA directory of occupations. There are wage rates for 298
occupations listed in each consolidated wage determination. Non-
standard wage determinations are issued for unique occupations.
Contracting agencies attach job descriptions for these occupations to
the specific request for a wage determination that is sent directly to
WHD. WHD equates these job descriptions with similar occupations
surveyed by BLS through use of the comparable federal grade level
associated with each. WHD analysts annually update only those non-
standard wage determinations that have widespread application, i.e.,
non-standard occupations very common to a specific area or common to
only a few areas across the country.
[4] WHD issues two wage determinations for each locality, reflecting
identical wages and rates for health and welfare fringe benefits.
However, the requirements for contractor compliance are different. One
determination reflects health and welfare benefits that are required to
be furnished on a fixed payment per hour on behalf of each service
employee; the other requires employer contributions to cost an average
of the amount specified on the basis of all hours worked by service
employees employed on the contract. The average cost method is used
only for those SCA covered contracts where this method of calculating
health and welfare fringe benefits has been used in the past. No new
SCA contract requiring a prevailing wage determination is allowed to
have the average cost health and welfare fringe benefit.
[5] In addition to contracting agencies requesting formal wage
determinations, contractors may obtain specific occupational wage
determinations, through the SCA conformance process. When wage
determinations do not include an occupation in which covered workers
will be employed, the conformance process allows contractors to propose
the use of workers in an occupation at a wage rate that is reasonable
when compared with other occupational wage rates in the applicable wage
determination (i.e., appropriate level of skill comparison) between
such unlisted classifications and the classifications listed in the
wage determination. To prevent the possibility of any workers
performing work and not receiving the proper wages, the contractor
initiates the conforming procedure before the unlisted class of
employee performs any work. The contractor submits the conformance
request to the contracting officer, who reviews and forwards it to WHD.
The final determination of the conformance action by WHD is transmitted
to the contracting officer who notifies the contractor of the action
taken. Each affected employee is provided with a written copy of the
determination or it is posted as part of the wage determination.
[6] If a federal agency is unsure as to whether or not SCA should apply
to a particular contract, WHD will make the final determination of
coverage.
[7] The Davis-Bacon Act requires payment of prevailing wages and
benefits to employees of contractors engaged in federal government
construction projects in excess of $2,000, and the Walsh-Healey Public
Contracts Act requires payment of minimum wages and other labor
standards by contractors providing materials and supplies to the
federal government under contracts valued in excess of $10,000.
[8] When the location of work under a contract is unknown at the time
of solicitation, the contracting agency is supposed to contact WHD for
guidance. The contracting agency will issue an initial solicitation
with no wage determination, from which it identifies potentially
interested bidders and the possible performance locations and then
transmits this information to WHD. WHD will issue separate wage
determinations for the various localities identified in the first step
that are incorporated in the solicitation prior to the submission of
final bids. The appropriate wage determination applicable to the
geographic location of the successful bidder must be incorporated in
the resultant contract and must be observed, regardless of whether the
contractor subsequently changes the place(s) of contract performances.
[9] For certain contracts, when a union collective bargaining agreement
covers service employees, SCA requires that these wage and fringe
benefit rates in the agreement supplant any that may otherwise prevail
in the locality for other employees. The SCA also requires that, except
in rare circumstances, successor contractors honor earlier contractors'
wage and fringe benefits arrived at through collective bargaining
agreements.
[10] FGE rates are divided into the following three classifications for
purposes of SCA administration: (1) GS (general schedule) refers to
grade rates utilized for non-supervisory appropriated fund "white-
collar" positions; (2) WG (wage grade) refers to grade rates utilized
for non-supervisory appropriated fund "blue-collar" positions; and (3)
NAF (Non-Appropriated Fund schedule) refers to rates utilized for non-
supervisory non-appropriated fund positions.
[11] "Due consideration" must be given to federal wage rates when
issuing SCA wage determinations, i.e., the rates applicable to service
employees if directly hired by the federal government.
[12] In addition to SCA, WHD also enforces the Davis-Bacon Act, the
Employee Polygraph Protection Act, the Family and Medical Leave Act of
1993, the Walsh-Healey Public Contracts Act, the Copeland Act, the
Contract Work Hours and Safety Standards Act, the Migrant and Seasonal
Agricultural Workers Protection Act, the Fair Labor Standards Act,
certain employment standards and worker protections under the
Immigration and Nationality Act, and the wage garnishment provisions of
the Consumer Credit Protection Act.
[13] For more information about federal debarment processes, see GAO,
Federal Procurement: Additional Data Reporting Could Improve the
Suspension and Debarment Process, GAO-05-479 (Washington, D.C.: July
29, 2005).
[14] Complaints are a key component of DOL enforcement activities. DOL
enforcement efforts under many federal labor laws and programs
generally rely on two types of information to identify potential
violations: (1) complaints from individuals who believe they may have
suffered a violation and (2) analysis of data to specifically target
problematic industries or worksites. Complaints and targeting occur,
for example, as part of DOL workforce and worksite protection
activities under the Occupational Safety and Health Act, child labor,
day laborer, and wage protection activities under the Fair Labor
Standards Act, and prevailing wage enforcement under the Davis-Bacon
Act.
[15] WHD enforces five federal laws that are generally referred to as
contract labor standards statutes: the Davis-Bacon Act (construction),
the Walsh-Healey Public Contracts Act (goods), the SCA (services), the
Copeland Act (Davis-Bacon payroll compliance), and the Contract Work
Hours and Safety Standards Act (overtime provisions for certain workers
employed on Davis-Bacon and SCA covered contracts).
[16] FPDS does not report the number of service contract workers and
WHD does not have or maintain such numbers. We found an estimate of
700,000 as the number of service contract employees working on covered
contracts in 1986. In 1995, WHD's Administrator testified before
Congress that SCA protected "roughly a million workers a year." In
addition, a February 2001 Congressional Budget Office document stated
that the SCA in 2000 covered approximately 27,000 contracts valued at
$33 billion, but did not comment on the number of service contract
employees.
[17] If an occupation is not listed in the directory, it is considered
a non-standard job and an analyst would proceed in a different manner
to calculate a wage determination for that occupation.
[18] These supplements were issued on December 15, 1993; August 1,
1995; and March 10, 1997.
[19] The National Compensation Survey (NCS) provides comprehensive
measures of occupational earnings, compensation cost trends, benefits
incidence, and detailed plan provisions. Detailed occupational earnings
are available for metropolitan and non-metropolitan areas, broad
geographic regions, and on a national basis. The July 2004 NCS sample
consisted of 152 metropolitan areas and nonmetropolitan areas that
represent the nation's 326 metropolitan statistical areas (as defined
by the Office of Management and Budget) and the remaining portions of
the 50 states. It included establishments representing nearly 81
million workers within the scope of the survey.
[20] The Occupational Employment Statistics (OES) survey produces
employment and wage estimates for about 800 occupations. These are
estimates of the number of people employed in certain occupations, and
estimates of the wages paid to them. Self-employed persons are not
included in the estimates. These estimates are available for the nation
as a whole, for individual states, and for metropolitan areas. BLS
produces occupational employment and wage estimates for about 350
industry classifications at the national level. The OES program surveys
approximately 200,000 establishments every 6 months, taking 3 years to
fully collect the sample of 1.2 million establishments.
[21] In addition, some occupational rates on the wage determination may
be taken directly from the Non-Appropriated Fund schedule, Federal Wage
System schedule, or the General Schedule "white collar" pay scales.
[22] A union dominant rate is considered to prevail when the rate is
paid to a majority (more than 50 percent) of the union workers engaged
in similar work in a particular locality.
[23] Analysts using NCS can also use "leveling" data to determine a
rate for an occupation for which no survey data are available. For
example, if no data were available for the occupational classification
of "secretary," analysts could use data from the next broader category
of "administrative support and clerical," or use data from the even
broader category of "white collar, excluding sales," to calculate a
wage rate.
[24] According to BLS officials, OES allows respondents to report
occupational information for every detailed non-military occupational
title in the Standard Occupation Classification. If survey respondents
do not provide any data on a particular occupation, then BLS is unable
to publish wage data for that occupation. In addition, BLS will not
publish some estimates for some occupations in some areas to protect
confidential responses.
[25] The term "health and welfare" fringe benefits refers to all
benefits provided to workers that are not otherwise required by law
except vacation and holiday benefits, which are determined separately
under SCA. The SCA H&W rate is based on employer costs per hour worked
for all benefits. However, holidays, vacations, and benefits otherwise
required by law, such as social security, unemployment insurance, and
workers' compensation payments are excluded from these determinations.
Holidays and vacations are determined separately and benefits otherwise
required by law are reported annually by the BLS Employment Cost Index
study of employer costs for employee compensation in the private sector
(i.e., all workers, all industries, all establishment sizes, and all
occupations).
[26] Previously, contracts could contain a fringe benefit rate based on
the contractor's average fringe benefit cost for all service employees
working on the contract. Under the "average cost method," providing
benefits must, at a minimum, cost the employer an average of $2.87 per
hour computed on the basis of all hours worked by service employees
employed on the contract. Under this method, workers receive varying
levels of benefits, i.e., a worker with no dependents may receive less
in benefits than one with dependents, but the average cost to the
employer must be at least the specified rate.
[27] In addition, between October 2004 and August 2005, WHD received
301 pieces of correspondence with this nature of inquiry.
[28] We did not attempt to verify current labor market conditions
through a survey of our own.
[29] DOL's fiscal year 2004 Performance and Accountability Report noted
that approximately 75 percent of WHD's resources are devoted to
complaint investigations and resolution for all program acts it
enforces. Some investigations are performed in response to allegations
that a federal agency should have, but did not classify the work being
performed under a federal contract as subject to SCA.
[30] Strategic planning includes developing strategic goals, outcome
goals, performance goals, and baseline measures for certain problem
industries. WHD develops outcome and performance goals for those
industries and develops baseline measures as criteria against which to
measure its performance in accomplishing those goals only after
selecting specific industries that warrant attention. ESA's strategic
plan and annual performance plan are incorporated into DOL's overall
plans. DOL's 2004 Performance and Accountability Report stated that WHD
had reached its performance goals for increasing compliance with FLSA,
in what WHD refers to as "industries with chronic violations," such as
the garment manufacturing, long-term health care, and agricultural
commodities industries, but had not reached its target to reduce the
number of employers who had prior violations of the act.
[31] WHD maintains a system--the Back Wage Collection and Disbursement
System--to monitor the collection process, amounts, payments to
employees, etc.
[32] In addition to complaints of alleged SCA violations, WHD may
initially register a complaint as a possible violation of other acts
such as the Contract Work Hours and Safety Standards Act, the Davis-
Bacon Act, or FLSA, and then later determine that the act violated was
the Service Contract Act. WHD's WHISARD database contains information
on cases with SCA violations and the registration act under which the
case was initiated. As shown in figure 3, most cases with SCA
violations are registered under SCA.
[33] WHD may allow some contractors to pay less than what WHD initially
determines is owed if the contractor negotiates with WHD and provides
adequate justification for a lesser amount.
[34] Conditions include a history of monetary and recordkeeping
violations; willfulness of past violations as determined by their
nature, extent, and seriousness; falsification or concealment of
records; intentional employee misclassification; or large amounts of
back wages due where there exists no reasonable excuse for the
violations. According to WHD officials, a firm's past compliance
history, which is maintained in WHISARD, is used to refute claims from
contractors facing debarment who say that they did not repeatedly or
seriously violate the act. The WHISARD database, however, does not
provide a comprehensive source of debarred contractors. WHD
headquarters officials told us that they maintain manual files with
information on debarred contractors and produce internal WHD reports on
debarments. There are lists of debarred contractors, however, that are
maintained by the General Services Administration, called the Lists of
Parties Excluded from Federal Procurement and Non-procurement Programs,
that identify those parties excluded throughout the federal government
from, among other things, receiving federal contracts. Contracting
agencies are required to check this list before awarding a contract.
[35] 41 U.S.C. 351(a)(4) requires that every service contract contain a
provision that the contractor either (1) deliver to the contract
employee a notice of wage and fringe benefit compensation under the
contract or (2) post a notice of the required compensation in a
prominent place at the worksite.
[36] 29 C.F.R. 4.6(e).
[37] GAO, OSHA's Complaint Response Policies: OSHA Credits Its
Complaint System with Conserving Agency Resources, but the System Still
Warrants Improvement, GAO-04-658 (Washington, D.C.: June 18, 2004).
[38] See OSHA Publication 3165, Job Safety & Health Protection Poster
(English) and OSHA Publication 3167, Job Safety & Health Protection
Poster (Spanish). OSHA's poster Web site notes that all covered
employers are required to display and keep displayed a poster prepared
by WHD informing employees of OSHA protections.
[39] GAO, Reliability of Federal Procurement Data, GAO-04-295R
(Washington, D.C.: Dec. 30, 2003).
[40] GAO, Improvements Needed to the Federal Procurement Data System-
Next Generation, GAO-05-960R (Washington, D.C.: Sept. 27, 2005).
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