Applicability of Service Contract Act to Service Employees of ADP and High-Technology Companies

The Service Contract Act was enacted to provide labor standards protection to employees of contractors furnishing services to federal agencies. Covered service employees must receive wages no less than the minimum wage, and for contracts exceeding $2,500, the minimum wages and fringe benefits must be based on rates that the Department of Labor determines as prevailing for service employees in the locality. Soon after the Labor notification that maintenance and repair specifications of all contracts for equipment were subject to the Service Contract Act, several major automatic data processing (ADP) manufacturers announced their refusal to bid on or enter into any government contract subject to coverage by the act. Recognizing that Labor's decision could seriously affect the maintenance and repair of the government's inventory of computers, a congressional committee asked GAO to review Labor's decision to apply the Service Contract Act to ADP and telecommunications products. GAO found that Labor's application of the act to contractor services sold primarily in the commercial sector, such as provided by ADP and other high-technology industry, was inappropriate. Corporations provided convincing evidence that the act should not apply because substantial quantities of their products and services are sold commercially at established catalog prices; government business represents a small portion of their total business; and their service technicians receive adequate wages under their merit pay systems and, thus, do not need wage protection. Labor's decision would eventually increase the administrative burdens and operating cost of each corporation and hinder employee productivity and morale by disrupting merit pay systems and staff assignment practices. Several corporations stressed the inflationary impact Labor's wage determinations could have on the industries' wage rates. GAO has recommended that Congress amend the Act to make it clear that the act excluded coverage for ADP and other high-technology commercial product-support services. Pending such action, GAO recommended that Labor temporarily exempt from the act's coverage contracts and contract specifications for such services.