The Service Contract Act (SCA) is an important regulation that governs federal contractors. For SCA contractors of all levels of experience, the SCA proposal preparation process can present an array of challenges. Whether searching for a more competitive approach or prepping for an audit, we’re hitting the highlights on how to form the ultimate contractor’s plan for submitting a contract bid.
Preparing for Audits and Enforcement
With the Wage and Hour Division under new leadership and Biden’s infrastructure plan on the horizon, each contractor’s plan should include a strategy for weathering the heightened scrutiny and enforcement activity within the Wage and Hour Division. Carefully weighing the SCA’s requirements at the pre-award stage can help contractors prepare for any issues during the performance of the contract and assess their own audit risk and prevention. In particular, the wage and benefit requirements under the SCA can have a major impact on how contractors and subcontractors put together their bids. Compliance is crucial!
Understanding Contracts Covered by the SCA
Determining whether an awarded contract is covered by the SCA is not always as straightforward as one would think, especially for subcontractors. While the solicitations for the work should provide clear indications, like a prevailing wage determination, there are other factors an SCA contractor can look for. In the event that a solicitation does not address the Service Contract Act explicitly, the contract will still be covered by the SCA if the following factors are met:
- The contract is awarded by the United States Government or the District of Columbia,
- The contract pertains principally to services, as opposed to construction or manufacturing; or if the contract will be performed by “service employees,”
- The contract is expected to exceed $2500,
- And some portion of the services will be performed within the United States or its territories.
Contractors are always encouraged to inquire and get clarity on whether the SCA applies, throughout the bidding process.
SCA Wage and Benefit Determinations
The SCA has specific requirements that govern the wages and benefits that must be payed to SCA covered employees under the contract and all subcontracts. For contracts subject to the SCA, contractors must be versed on the SCA wage determination that dictates the minimum wages and fringe benefits allocations. Area wage determinations are one of the ways of governing wages and fringe benefits under the SCA. These determinations are decided by the place of performance and are made available through the beta.sam.gov website.
The second type of document that determine SCA wages and benefits is called a collective bargaining agreement (CBA). If there is a CBA in place, it is vital for the contractor to get access to a copy of the CBA as early in the procurement process as possible. Under the SCA, a successor contractor will likely be obligated to compensate employees at the rates specific to the predecessor’s CBA during the performance of the contract.
How Contractor’s Plan To Price Their SCA Contract Bid
At the end of the day, contracts are awarded and lost on a factor of dollars and cents. Offering a competitive bid is a cornerstone to success. Developing pricing for an SCA-covered contract is one of the most important components of a contractor’s plan for submitting an SCA proposal. As discussed previously, the prevailing wage and fringe benefit rates for locations and labor categories in the performance of the contract is fundamental in determining a contract price. SCA contractors should also consider the prospect of future increases in prevailing wages and fringe benefits.
For labor priced on a fixed-price, time-and-materials, or labor-hour basis, FAR 52.222-43, the Price Adjustment Clause, entitles contractors to price adjustments to cover the cost of future increases in prevailing wages or fringe benefits. As a tradeoff, the same clause prohibits contractors from including “any contingency” in pricing “to cover increased costs” that can be compensated under the clause.
Contractors have options, when it comes to how they use the fringe benefit amounts. Under the SCA, planned health and welfare benefits must qualify as “bona fide” fringe benefits. Contractors may also provide the cash equivalent of the fringe rate, in lieu of benefits. The contractor that is paying the fringe rate into a bona fide fringe benefit maintains a competitive financial tax advantage over a contractor that is paying fringe dollars into cash. When contractors utilize those fringe dollars to provide employee benefits, the advantages go way beyond cost-effectiveness. Employee fringe benefit plans often translate to a healthier workforce and reduced absenteeism. Additionally, this creates increased employee satisfaction and productivity. Fringe benefits are a handy tool in any contractor’s plan for proposing a competitive bid!
Spelling Success With 3 Cs
At Boon, we’re providing better SCA contractor solutions. Our fringe benefit solutions are designed to face the unique challenges that contractors face in their space. We understand that compliance is crucial, flexibility is necessary, and lower costs translate into a better competitive edge. That’s what our 3 Cs approach is built on: Compliance. Cost Savings. Competitiveness.
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