Service Contract Act Should Not Apply to Service Employees of ADP and High-Technology Companies

HRD-80-102: Published: Sep 16, 1980. Publicly Released: Sep 25, 1980.

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Franklin A. Curtis
(202) 275-5451


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The Service Contract Act of 1965 protects workers' wages on federal contracts when the contracts' principal purpose is to provide services in the United States using service employees. Minimum wages and fringe benefits must be based on rates that the Secretary of Labor determines as prevailing for service employees in the locality. The Department of Labor notified the General Services Administration (GSA) that the maintenance and repair services specifications of all federal contracts for the purchase or rental of supplies or equipment were subject to the act. Soon thereafter, several major automatic data processing (ADP) and other equipment manufacturers announced their refusal to accept any government contract subject to the act. Labor later issued an interim, nationwide wage determination covering ADP maintenance and repair services which accepted currently paid wages and fringe benefits as prevailing for such services. Nevertheless, major ADP and other equipment manufacturers continued to reject government contracts subject to the act. Labor then developed a proposed average entrance-level wage rate that could be paid to the industry's service technicians subject to the act. Labor's attorneys raised serious legal and policy questions concerning use of a nationwide entrance-level wage rate, thus Labor shelved the rate and issued wage determinations that extend and expand the interim determination, while Labor officials continue to study the matter.

Labor's decision could seriously affect maintenance and repair of the government's computers, many of which are critical to national defense and security. GAO believes Labor's position is not supported by the act's language and legislative history, Labor's regulations, or its administrative manual. The act was not intended to cover maintenance services related to commercial products acquired by the government. ADP, high-technology, and other commercial product-support service contracts, where government sales represent a relatively small portion of a company's total sales, do not have the same characteristics or incentives for contractors to deliberately pay low wages to successfully bid on government contracts. The industries' argument, that the act's application to such services is not needed, has merit. Industry compliance would be counterproductive and costly. The administrative burdens and operating costs of each corporation would be increased. Merit pay systems and staff assignment practices would be disrupted. The application of the act could also have an inflationary impact on the industries' wage rates.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Neither the 97th or 98th Congress introduced legislation to permanently exclude the Service Contract Act's coverage for ADP and other high-technology commercial product-support services. GAO believes that legislation may be introduced and considered in the 99th Congress. However, after nearly 5 years, follow-up does not appear appropriate.

    Matter: Congress should amend the Service Contract Act to make it clear that the act excludes coverage for ADP and other high-technology commercial product-support services, that is services the government procures based on established market prices of commercial services sold in substantial quantities to the public.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: Pending such action by Congress, the Secretary of Labor should temporarily exempt from the act's coverage certain contracts and contract specifications for ADP and other high-technology commercial product-support services.

    Agency Affected: Department of Labor


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