Can Debarment and Suspension Be Used for Punishment? A Guide for Federal Contractors.

For Government Contractors, federal wage and hour laws like the Service Contract Act (SCA) and the Contract Work Hours and Safety Standards ACT (CWHSSA), are designed not only to ensure that workers on contracts funded with federal money receive the required wage rates and fringe benefits, but also to create an “even playing field” for companies to compete.  So naturally, when contractors violate these laws, the U.S. Department of Labor’s Wage and Hour Division springs into action. 

In April 2017, the U.S. Environmental Protection Agency awarded Perkins Management Services Co. a contract to staff a cafeteria located on the agency’s Research Triangle Park campus in Durham, North Carolina. 

When a Department of Labor investigation uncovered violations of the Service Contract Act, the Wage and Hour Investigator recommended that the company be debarred from pursuing any more federal contracts. An Administrative Law Judge agreed with the investigators recommendation and issued an order to debar Perkins Management Services Co., for failing to meet its obligations under the Service Contracts Act. As a result of this order, the company is barred from bidding on any new federal contracts for 3 years. All of this due to SCA and CWHSSA violations. 

But how does the Department of Labor, who usually requests restitution of Wage and Hour violations through back-wage settlements and civil money penalties, reach the decision to debar a federal contractor?   

First, Section 5(a) of the SCA requires that any person or firm found to have violated the act, pursuant to a hearing before an ALJ [Administrative Law Judge], will be debarred unless the Secretary of Labor (Secretary) otherwise recommends “because of unusual circumstances.”  

The criteria used by investigators to issue their debarment recommendation includes the following:  

  • Refusal-to-comply with the law (I consider this one the fast-track to debarment) 
  • Refusal-to-pay back wages 
  • A significant amount of SCA back wages with no reasonable excuse for the violations 
  • The contractor’s history of labor standards violations, including “recordkeeping-only” violations 

For Perkins Management Services, Investigators determined that two cooks were being paid hourly rates which were lower than the prevailing wage required for their occupations. During the first months of the contract, the employer also failed to pay the cooks required fringe benefits. 

Investigators also found Perkins Management failed to provide paid vacation to all eligible workers on the contract, and paid overtime at rates lower than time and a half. 

Clearly, Perkins Management failed to comply with the law. But how did the ALJ justify debarment? The answer most likely lies within the DOLs definition of “willfulness.” 

In determining willfulness, DOL evaluates the nature, extent, and seriousness of past violations. Willfulness can be established, for example, if the investigation discloses falsification or concealment of records or other evidence, obviously deliberate violations, (i.e., ignoring the wage determination rate and fringe benefits), clear or intentional employee misclassification, failure to keep adequate and accurate records of hours worked, rates of pay, or a determination by the Investigator that the employer cannot be relied upon to fully comply  in the future. 

 

Perkins Management meets at least two of those criteria, as a previous Wage and Hour Investigator and Assistant District Director, I can firsthand tell you that there is not many other positions in the Wage Determination that a cook could be mistaken for. Let alone the fact that not only CWHSSA, but also the FLSA (both of which would apply to the contractor in this instance) are very clear on their requirement that employees receive “time and a half” for all hours worked over 40 in a work week. Finally, there is no “reasonable excuse” for failing to pay neither fringe benefits nor vacation, as both requirements are clearly listed on any applicable Wage Determination.  

 

Perkins Management Services also paid a total of $27,687 in back wages to 14 affected workers to remedy the violations. However,  the mere payment of back wages and promise of future compliance are insufficient for debarment relief.  

Government contractors should be aware of their SCA compliance policies, as non-compliance could bring forth some significant consequences that may disrupt or jeopardize the future of their businesses. As seen through this case, when it comes to enforcement of Labor Laws dealing with government contracts, the Department of Labor has a handy tool bag that goes beyond the standard back wage payment requests, liquidated damages and civil money penalties to effect and promote compliance. 

But what should contractors do to avoid a similar fate? 

Know your compliance responsibilities as a Federal Contractor! Knowledge and Education are an integral part of any compliance program. You must first understand what is required to operate within the parameters of the law.  

Not sure where to start?  

Onsi offers Educational Training Courses to help Government Contractors understand the ins-and-outs of SCA compliance, as well Fringe Benefit Tracking Services, Compliance Auditing, and Consulting Services to help Government Contractors remain compliant while focusing on profitability. 

If SCA compliance is giving your team a perpetual headache, email trust@onsigroup.com for further guidance. 

 

Aaron Ramos 

Compliance Services Manager 

The Onsi Group, Inc.