Service Contract Act:

Wage Determination Process Could Benefit from Greater Transparency, and Better Use of Violation Data Could Improve Enforcement

GAO-06-27: Published: Dec 7, 2005. Publicly Released: Jan 6, 2006.

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George A. Scott
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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.

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.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Department of Labor's Wage and Hour Division (WHD) staff has drafted a revised manual of operations chapter that summarizes the data and analyses that are used for updating standard Service Contract Act (SCA) wage determinations. The initial chapter was revised to reflect the changes in the Fifth Edition of SCA Directory of Occupations and to accommodate changes in underlying survey data published by the Bureau of Labor Statistics (BLS). The occupational classification system used for BLS's National Compensation Survey, the primary data source for SCA wage determinations, was completely changed for the survey results published in FY 2007. As of July 2010, WHD completed the draft of SCA methodology and the SCA manual of operations: chapter 6 of the manual is the methodology chapter and all other chapters were updated to reflect current operating procedures. The manual was distributed to WHD personnel for their review. Where appropriate, changes were made to the manual based on their recommendations and comments. A final draft incorporating all changes was re-distributed to WHD personnel for their concurrence. The final draft was subsequently submitted to the Solicitor's office (SOL) for its review. As soon as SOL completes its review, WHD will finalize it and post it on-line.

    Recommendation: In an effort to provide stakeholders with a general understanding of how WHD determines wage rates, the Secretary of Labor should direct WHD to make publicly available the basic methodology WHD uses to issue wage determinations.

    Agency Affected: Department of Labor

  2. Status: Closed - Implemented

    Comments: The Fifth Edition of the SCA Directory of Occupations was announced and published on the WHD web site in May 2006. All standard SCA wage determination were updated in FY 2006 using the new Fifth Edition occupations.

    Recommendation: To better support WHD and federal contracting agencies in their implementation of SCA, the Secretary of Labor should 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.

    Agency Affected: Department of Labor

  3. Status: Closed - Implemented

    Comments: WHD has developed reports on SCA violations, which are posted with all other performance reports. In the Executive Leadership Team meeting that set the stage for the FY 2007 annual planning process, the GAO recommendations were discussed. As a result, the FY 2007 low-wage outcome in the performance plan includes strategies for maintaining and strengthening SCA and DBA enforcement in the Gulf Coast region, and a new recidivism measure that captures the number of debarments. In addition, several WHD district offices have developed and implemented local initiatives to increase compliance with SCA. This is now incorporated into the annual planning process and new goals and measures will be evaluated each year.

    Recommendation: To further WHD's efforts to obtain better information concerning the presence of and potential for violations involving SCA contracts, the Secretary of Labor should direct WHD to analyze its historical SCA contractor violation data in the Wage and Hour Investigative Support and Reporting Database (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.

    Agency Affected: Department of Labor

  4. Status: Closed - Implemented

    Comments: WHD has revised the SCA worksite poster and posted it to its web site. WHD added its toll-free number (1-866-4US-WAGE). The toll-free help line provides compliance information to employers and employees. 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. WHD also added the agency's Web site address, which has an email notification system that also provides the public with assistance.

    Recommendation: To facilitate the reporting of SCA complaints, the Secretary of Labor should 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 Affected: Department of Labor


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