Service Contract Act

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Title 29, Code of Federal Regulations, Part 4
Labor Standards for Federal Service Contracts

29 CFR 4.163 - Section 4(c) of the Act.

(a) Section 4(c) of the Act provides that no ``contractor or
subcontractor under a contract, which succeeds a contract subject to
this Act and under which substantially the same services are furnished,
shall pay any service employee under such contract less than the wages and fringe benefits, including accrued wages and fringe benefits, and any prospective increases in wages and fringe benefits provided for in a collective-bargaining agreement as a result of arm's-length negotiations, to which such service employees would have been entitled if they were employed under the predecessor contract:

Provided, That in any of the foregoing circumstances such obligations shall not apply if the Secretary finds after a hearing in accordance with regulations adopted by the Secretary that such wages and fringe benefits are substantially at variance with those which prevail for services of a character similar in the locality.'' Under this provision, the successor contractor's sole obligation is to insure that all service employees are paid no less than the wages and fringe benefits to which such employees would have been entitled if employed under the predecessor's collective bargaining agreement (i.e., irrespective of whether the successor's employees were or were not employed by the predecessor contractor).

The obligation of the successor contractor is limited to the wage and fringe benefit requirements of the predecessor's collective bargaining
agreement and does not extend to other items such as seniority,
grievance procedures, work rules, overtime, etc.

(b) Section 4(c) is self-executing. Under section 4(c), a successor contractor in the same locality as the predecessor contractor is statutorily obligated to pay no less than the wage rates and fringe benefits which were contained in the predecessor contractor's collective bargaining agreement. This is a direct statutory obligation and requirement placed on the successor contractor by section 4(c) and is not contingent or dependent upon the issuance or incorporation in the contract of a wage determination based on the predecessor contractor's collective bargaining agreement. Pursuant to section 4(b) of the Act, a variation has been granted which limits the self-executing application of section 4(c) in the circumstances and under the conditions described in Sec. 4.1b(b) of this part. It must be emphasized, however, that the variation in Sec. 4.1b(b) is applicable only if the contracting officer has given both the incumbent (predecessor) contractor and the employees' collective bargaining representative notification at least 30 days in advance of any estimated procurement date.

(c) Variance hearings. The regulations and procedures for hearings
pursuant to section 4(c) of the Act are contained in Sec. 4.10 of
subpart A and parts 6 and 8 of this title. If, as the result of such hearing,
some or all of the wage rate and/or fringe benefit provisions of a
predecessor contractor's collective bargaining agreement are found to
be substantially at variance with the wage rates and/or fringe benefits
prevailing in the locality, the Administrator will cause a new wage
determination to be issued in accordance with the decision of the
Administrative Law Judge or the Administrative Review Board, as
appropriate. Since ``it was the clear intent of Congress that any revised
wage determinations resulting from a section 4(c) proceeding were to
have validity with respect to the procurement involved'' (53 Comp. Gen.
401, 402, 1973), the solicitation, or the contract if already awarded, must be amended to incorporate the newly issued wage determination. Such new wage determination shall be made applicable to the contract as of the date of the Administrative Law Judge's decision or, where the decision is reviewed by the Administrative Review Board, the date of that decision. The legislative history of the 1972 Amendments makes clear that the collectively bargained ``wages and fringe benefits shall continue to be honored * * * unless and until the Secretary finds, after a hearing, that such wages and fringe benefits are substantially at variance with those prevailing in the locality for like services'' (S. Rept. 92-1131, 92nd Cong., 2d Sess. 5). Thus, variance decisions do not have application retroactive to the commencement of the contract.

(d) Sections 2(a) and 4(c) must be read in conjunction. The Senate
report accompanying the bill which amended the Act in 1972 states that ``Sections 2(a)(1), 2(a)(2), and 4(c) must be read in harmony to reflect the statutory scheme.'' (S. Rept. 92-1131, 92nd Cong., 2nd Sess. 4.) Therefore, since section 4(c) refers only to the predecessor
contractor's collective bargaining agreement, the reference to
collective bargaining agreements in sections 2(a)(1) and 2(a)(2) can
only be read to mean a predecessor contractor's collective bargaining
agreement. The fact that a successor contractor may have its own
collective bargaining agreement does not negate the clear mandate of the statute that the wages and fringe benefits called for by the predecessor contractor's collective bargaining agreement shall be the minimum payable under a new (successor) contract nor does it negate the application of a prevailing wage determination issued pursuant to
section 2(a) where there was no applicable predecessor collective
bargaining agreement. 48 Comp. Gen. 22, 23-24 (1968). In addition,
because section 2(a) only applies to covered contracts in excess of
$2,500, the requirements of section 4(c) likewise apply only to
successor contracts which may be in excess of $2,500. However, if the
successor contract is in excess of $2,500, section 4(c) applies
regardless of the amount of the predecessor contract. (See Secs. 4.141-4.142 for determining contract amount.)

(e) The operative words of section 4(c) refer to ``contract'' not ``contractor''. Section 4(c) begins with the language, ``[n]o contractor or subcontractor under a contract, which succeeds a contract subject to this Act'' (emphasis supplied). Thus, the statute is applicable by its terms to a successor contract without regard to whether the successor contractor was also the predecessor contractor. A contractor may become its own successor because it was the successful bidder on a recompetition of an existing contract, or because the contracting agency exercises an option or otherwise extends the term of the existing contract, etc. (See Secs. 4.143-4.145.)

Further, since sections 2(a) and 4(c) must be read in harmony to reflect the statutory scheme, it is clear that the provisions of section 4(c) apply whenever the Act or the regulations require that a new wage determination be incorporated into the contract (53 Comp. Gen. 401, 404-6 (1973)).

(f) Collective bargaining agreement must be applicable to work performed on the predecessor contract. Section 4(c) will be operative only if the employees who worked on the predecessor contract were actually paid in accordance with the wage and fringe benefit provisions of a predecessor contractor's collective bargaining agreement. Thus, for example, section 4(c) would not apply if the predecessor contractor entered into a collective bargaining agreement for the first time, which did not become effective until after the expiration of the predecessor contract. Likewise, the requirements of section 4(c) would not apply if the predecessor contractor's collective bargaining agreement applied only to other employees of the firm and not to the employees working on the contract.

(g) Contract reconfigurations. As a result of changing priorities,
mission requirements, or other considerations, contracting agencies may decide to restructure their support contracts. Thus, specific contract requirements from one contract may be broken out and placed in a new contract or combined with requirements from other contracts into a consolidated contract. The protections afforded service employees under section 4(c) are not lost or negated because of such contract reconfigurations, and the predecessor contractor's collectively
bargained rates follow identifiable contract work requirements into new
or consolidated contracts, provided that the new or consolidated
contract is for services which were furnished in the same locality under
a predecessor contract. See Sec. 4.163(i). However, where there is more than one predecessor contract to the new or consolidated contract, and where the predecessor contracts involve the same or similar function(s) of work, using substantially the same job classifications, the predecessor contract which covers the greater portion of the work in such function(s) shall be deemed to be the predecessor contract for purposes of section 4(c), and the collectively bargained wages and fringe benefits under that contract, if any, shall be applicable to such function(s). This limitation on the application of section 4(c) is necessary and proper in the public interest and is in accord with the remedial purpose of the Act to protect prevailing labor standards.

(h) Interruption of contract services. Other than the requirement that substantially the same services be furnished, the requirement for
arm's-length negotiations and the provision for variance hearings, the
Act does not impose any other restrictions on the application of section
4(c). Thus, the application of section 4(c) is not negated because the
contracting authority may change and the successor contract is awarded by a different contracting agency. Also, there is no requirement that the successor contract commence immediately after the completion or termination of the predecessor contract, and an interruption of contract services does not negate the application of section 4(c). Contract services may be interrupted because the Government facility is temporarily closed for renovation, or because a predecessor defaulted on the contract or because a bid protest has halted a contract award requiring the Government to perform the services with its own employees. In all such cases, the requirements of section 4(c) would apply to any successor contract which may be awarded after the temporary interruption or hiatus. The basic principle in all of the preceding examples is that successorship provisions of section 4(c) apply to the full term successor contract. Therefore, temporary interim contracts, which allow a contracting agency sufficient time to solicit bids for a full term contract, also do not negate the application of section 4(c) to a full term successor contract.

(i) Place of performance. The successorship requirements of section
4(c) apply to all contracts for substantially the same services as were
furnished under a predecessor contract in the same locality. As stated
in Sec. 4.4(a)(2), a wage determination incorporated in the contract
shall be applicable thereto regardless of whether the successful
contractor subsequently changes the place(s) of contract performance.
Similarly, the application of section 4(c) (and any wage determination
issued pursuant to section 4(c) and included in the contract) is not
negated by the fact that a successor prime contractor subsequently
changes the place(s) of contract performance or subcontracts any part of the contract work to a firm which performs the work in a different
locality.

(j) Interpretation of wage and fringe benefit provisions of wage
determinations issued pursuant to sections 2(a) and 4(c). Wage
determinations which are issued for successor contracts subject to
section 4(c) are intended to accurately reflect the rates and fringe
benefits set forth in the predecessor's collectivebargaining agreement. However, failure to include in the wage determination any job classification, wage rate, or fringe benefit encompassed in the collective bargaining agreement does not relieve the successor contractor of the statutory requirement to comply at a minimum
with the terms of the collective bargaining agreement insofar as wages
and fringe benefits are concerned. Since the successor's obligations are governed by the terms of the collective bargaining agreement, any
interpretation of the wage and fringe benefit provisions of the
collective bargaining agreement where its provisions are unclear must be based on the intent of the parties to the collective bargaining
agreement, provided that such interpretation is not violative of law.
Therefore, some of the principles discussed in Secs. 4.170 through 4.177 regarding specific interpretations of the fringe benefit provisions of prevailing wage determinations may not be applicable to wage
determinations issued pursuant to section 4(c). As provided in section
2(a)(2), a contractor may satisfy its fringe benefit obligations under
any wage determination ``by furnishing any equivalent combinations of
fringe benefits or by making equivalent or differential payments in
cash'' in accordance with the rules and regulations set forth in
Sec. 4.177 of this subpart.

(k) No provision of this section shall be construed as permitting a
successor contractor to pay its employees less than the wages and fringe benefits to which such employees would have been entitled under the predecessor contractor's collective bargaining agreement. Thus, some of the principles discussed in Sec. 4.167 may not be applicable in section 4(c) successorship situations. For example, unless the predecessor contractor's collective bargaining agreement allowed the deduction from employees' wages of the reasonable cost or fair value for providing board, lodging, or other facilities, the successor may not include such costs as part of the applicable minimum wage specified in the wage determination. Likewise, unless the predecessor contractor's agreement allowed a tip credit (Sec. 4.6(q)), the successor contractor may not take a tip credit toward satisfying the minimum wage requirements under sections 2(a)(1) and 4(c).