The Service Contract Act, or SCA, impacts a wide majority of government contractors working today and forms the basis of contract compliance. For contractors that have just closed their first contract win or employers that are new to the world of government contracting there’s a lot to learn about the Service Contract Act. Let’s go through the basics: The Service Contract Act 101.

The Service Contract Act 101

What is the Service Contract Act?

The McNamara-O’Hara Service Contract Act of 1965, also known as the SCA, is a US labor law that ensures that the government use its power to ensure fair wages to workers that are performing on service contracts. The Service Contract Act sets the standards that SCA contractors and subcontractors must adhere to when it comes to wages and employee benefits. The SCA requires contractors performing service contracts valued in excess of $2500 to pay their employees no less than the prevailing wage and fringe benefits amount determined for that location by the Department of Labor.

The Service Contract Act applies to all service contract work performed in the United States, but that does not mean applies to all government contract work. Contracts for public utility services, construction and repair of public buildings, furnishing of communication services, and the operation of postal contract stations all fall under their own regulations – such as the Walsh-Healey Public Contracts Act or the Davis-Bacon Act.

What does the Service Contract Act do?

The Service Contract Act requires that service employees performing on a SCA eligible government contract must be paid monetary wages, in addition to a fringe benefit of a specified amount. These fringe benefits must be funded separately from and in addition to wages and can be provided in cash or as a bona fide employee benefit. The SCA requires that contractors track and maintain proof of their fringe benefit compliance.

How do I comply with the Service Contract Act?

Service Contract Act compliance relies on careful administration and proper reporting of all fringe contributions and requirements, whether the fringe amount is paid in cash or through benefits. Compliance for the SCA is “top to bottom” and the prime contractor is also responsible for the compliance of any subcontractor that is included on the project. Fringe administration, audits from the Department of Labor, and failure to properly account for hours and wages are just some of the compliance concerns that accompany the Service Contract Act.

If a contractor fails to apply with the Service Contract Act, they run the risk of incurring significant penalties ranging from termination of the contract, debarment from future government contracts, and contractor liability for any costs to the government. That’s the major takeaway of “The Service Contract Act 101”: Compliance is crucial.