Service Contract Act: Wage Determination Process Could Benefit	 
from Greater Transparency, and Better Use of Violation Data Could
Improve Enforcement (07-DEC-05, GAO-06-27).			 
                                                                 
Recipients of federal government contracts for services are	 
subject to wage, hour, benefits, and safety and health standards 
under the McNamara-O'Hara Service Contract Act (SCA) of 1965, as 
amended, which specifies wage rates and other labor standards for
employees of contractors. SCA requires the Department of Labor	 
(DOL) to set locally prevailing wage rates and other labor	 
standards for employees of contractors furnishing services to the
federal government. DOL's Employment Standards Administration's  
Wage and Hour Division (WHD) administers the SCA and each year	 
determines prevailing wage and fringe benefit rates for over 300 
standard service occupations in 205 metropolitan areas. SCA also 
authorizes DOL to enforce contractor compliance with SCA	 
provisions. This report describes how DOL (1) establishes locally
prevailing wages and fringe benefits and (2) enforces SCA.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-27						        
    ACCNO:   A42738						        
  TITLE:     Service Contract Act: Wage Determination Process Could   
Benefit from Greater Transparency, and Better Use of Violation	 
Data Could Improve Enforcement					 
     DATE:   12/07/2005 
  SUBJECT:   Contractors					 
	     Employees						 
	     Fringe benefits					 
	     Labor law						 
	     Pay rates						 
	     Standards						 
	     Standards evaluation				 
	     Wage surveys					 
	     Strategic planning 				 
	     Labor standards					 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-06-27

Report to the Subcommittee on Labor, Health and Human Services, Education
and Related Agencies, Committee on Appropriations, U.S. Senate

United States Government Accountability Office

GAO

December 2005

SERVICE CONTRACT ACT

Wage Determination Process Could Benefit from Greater Transparency, and
Better Use of Violation Data Could Improve Enforcement

Service Contract Act Service Contract Act Service Contract Act Service
Contract Act Service Contract Act Service Contract Act Service Contract
Act Service Contract Act Service Contract Act Service Contract Act Service
Contract Act Service Contract Act Service Contract Act Service Contract
Act Service Contract Act Service Contract Act Service Contract Act Service
Contract Act Service Contract Act Service Contract Act Service Contract
Act Service Contract Act Service Contract Act Service Contract Act Service
Contract Act Service Contract Act Service Contract Act Service Contract
Act Service Contract Act Service Contract Act Service Contract Act Service
Contract Act Service Contract Act Service Contract Act Service Contract
Act Service Contract Act Service Contract Act Service Contract Act Service
Contract Act Service Contract Act Service Contract Act Service Contract
Act Service Contract Act Service Contract Act Service Contract Act Service
Contract Act Service Contract Act Service Contract Act Service Contract
Act Service Contract Act Service Contract Act Service Contract Act Service
Contract Act Service Contract Act

GAO-06-27

Contents

Letter 1

Results in Brief 2
Background 4
Wage Determination Process Relies on Multiple Data Sources and
Professional Judgment but Lacks Transparency 11
DOL Enforces SCA by Conducting Investigations, Ensuring Contractor
Payments, and Providing Compliance Assistance, but WHD Could Make Better
Use of Violation Data 19
Conclusions 27
Recommendations for Executive Action 28
Agency Comments 29
Appendix I Objectives, Scope, and Methodology 31
Appendix II Examples of Standard and Non-standard Wage Determinations 33
Appendix III Comments from the Department of Labor 48
Appendix IV GAO Contact and Staff Acknowledgments 51
Related GAO Products 52

Tables

Table 1: Number and Percentage of SCA Investigations by Category, Fiscal
Years 2003 and 2004 20
Table 2: Number of SCA Debarments, Fiscal Years 2000 through 200425

Figures

Figure 1: Location of ESA's Offices 10
Figure 2: Factors Considered in SCA Wage Determination Process 16
Figure 3: Cases with SCA Violations, Including Those Registered under
Other Acts 23
Figure 4: Employees with Back Wages Due, and Employees Whom Contractors
Agreed to Pay, Fiscal Years 2003 and 2004 24

Abbreviations

BLS Bureau of Labor Statistics

DOD Department of Defense

DOL Department of Labor

ECEC Employer Cost for Employee Compensation

ESA Employment Standards Administration

FGE federal grade equivalency

FLSA Fair Labor Standards Act

FPDS Federal Procurement Data System

GS general schedule

H&W health and welfare

NAF Non-Appropriated Fund

NCS National Compensation Survey

OES Occupational Employment Statistics

OSHA Occupational Safety and Health Administration

SCA Service Contract Act

WG wage grade

WHD Wage and Hour Division

WHISARD Wage and Hour Investigative Support and Reporting Database

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.

United States Government Accountability Office

Washington, DC 20548

December 7, 2005

The Honorable Arlen Specter Chairman

The Honorable Tom Harkin Ranking Member Subcommittee on Labor, Health and
Human Services, Education and Related Agencies Committee on Appropriations
United States Senate

Recipients of federal government contracts for services are subject to
wage, hour, benefits, and safety and health standards under the
McNamara-O'Hara Service Contract Act (SCA) of 1965, as amended, which
specifies wage rate and other labor standards for employees of
contractors. In fiscal year 2003, federal agencies spent over $45 billion
on contract services covered under SCA, an increase of about $13 billion
from fiscal year 2000.1 In 2002, the Department of Labor (DOL) estimated
there were about 60,000 federal service contracts. SCA requires DOL to set
locally prevailing wage rates and other labor standards for employees of
contractors furnishing services to the federal government. DOL's
Employment Standards Administration's (ESA) Wage and Hour Division (WHD)
administers the SCA and each year determines prevailing wage and fringe
benefit rates for approximately 300 standard service occupations, such as
janitor and cafeteria worker, in 205 metropolitan areas. SCA also
authorizes DOL to conduct investigations to enforce contractor compliance
with SCA provisions.

SCA requires federal contracting agencies to include a wage determination
from WHD in their advertisement for a service contract with the private
sector.2 Over the years, contractors, employees, and others have raised
concerns to us that WHD-determined wage and benefit rates are either too
high or too low, and do not reflect current employment conditions in their
vicinity. In addition, they contend that the way in which WHD arrives at
its determinations is unclear. In this context, you asked us to describe
how DOL (1) establishes locally prevailing wages and fringe benefits and

1This information comes from agency data submitted to the Federal
Procurement Data System (FPDS), the federal repository for contracting
data.

2A wage determination sets forth the minimum monetary wage rates to be
paid and the minimum fringe benefits to be furnished for the various
classes of service employees to be employed in furnishing services during
the periods when they are engaged in the performance of such contracts.
Each wage determination is locality specific, i.e., the wage and fringe
benefit information therein would pertain to the specific occupations
listed only in the geographic location specified, and should reflect local
labor market conditions.

(2) enforces SCA. You also asked that we identify potential areas of
improvement found in the course of our work.

To respond to your request, we reviewed literature on SCA and its
corresponding regulations. We interviewed officials in DOL headquarters
and field offices, the Bureau of Labor Statistics (BLS), and the two
federal contracting agencies with the largest proportion of service
contract activity-the Department of Defense (DOD) and the General Services
Administration. In addition, we interviewed representatives from several
service industry unions and key trade associations. We analyzed data
obtained from DOL, including data on WHD investigations; national,
regional and district office training and outreach efforts; and file data
on debarments. We also reviewed BLS national wage survey data in order to
better understand the wage determination process. In addition, we
contacted state and private sector groups who also produce wage and
benefit rates to better understand DOL's method of arriving at wage
determinations. See appendix I for detailed information on the scope and
methodology of our work.

We performed our work in accordance with generally accepted government
auditing standards between November 2004 and September 2005.

                                Results in Brief

WHD consults multiple wage data sources and relies on analysts'
professional judgment when issuing wage determinations, but the process
lacks transparency and leaves wage determinations prone to criticism. When
issuing a wage determination, WHD analysts look to match the occupations
listed in agency contracts with its SCA directory of occupations. If the
occupation is listed, the analysts will consult several sources of
information, such as data collected through two BLS national wage surveys,
for wage data on that occupation. The analysts will calculate a prevailing
wage and fringe benefit amount for a specific geographic location in a way
that ensures a generally consistent wage rate from year to year within the
occupation and across similar occupations. If the BLS surveys do not have
specific data for the occupation or if analysts find that the occupation
is not listed in the directory, they will apply professional judgment to
select a comparable listed occupation upon which they base the new wage
rate. For example, an analyst may use the wage data for a computer
operator to derive a wage rate for a peripheral equipment operator,
knowing that the job duties for both occupations are rated the same by the
federal government under the system it uses to categorize federal
employees. The wage determination process produces a wealth of nationwide
wage data for service occupations that WHD makes available online and
strives to update annually. However, stakeholders (e.g., contract
employees, federal contracting agencies, unions, trade associations, and
others) contend that the process is not transparent and that the wage
determinations do not necessarily reflect local wage conditions. For
example, WHD does not include a description of the methodology used to
derive its wage rates in its wage determinations, such as wage data
sources used or the procedures analysts follow. As a result, WHD analysts
spend considerable time responding to inquiries about the methodology used
to determine wages. In addition, WHD has not issued a comprehensive
edition of its SCA directory of occupations since 1993 and has no
systematic process in place for doing so. As a result, the directory does
not include a broad range of emerging occupations that are covered under
SCA.

WHD enforces SCA by conducting investigations, ensuring contractor
payments, and providing compliance assistance to federal contracting
agencies, contractors, and others. All SCA investigations stem from
stakeholder complaints that contractors are not providing service
employees with the requisite wages and benefits. WHD may, on its own
initiative, expand the scope of the investigation beyond the original
complaint to include additional employees, contracts or locations. In
fiscal year 2004, DOL conducted 654 SCA investigations, 13 percent of
which were expanded investigations. Over 80 percent of those 654
investigations found that employers operating under SCA failed to pay the
wages or the fringe benefits or both specified in the applicable SCA wage
determination issued for the contracts. As a result of its investigations,
WHD uncovered 20,347 individual SCA violations-each instance of failure to
pay a contract employee the proper wage counts as a separate violation of
the act. Additionally, in fiscal year 2004, as a result of WHD's
investigations, contractors agreed to pay $16.4 million in unpaid back
wages and fringe benefits to over 14,000 service contract employees. DOL
also debarred from future federal government contract work 17 SCA
contractors who failed to provide the requisite back wages and fringe
benefits or otherwise met SCA and WHD conditions for debarment. WHD does
not use available investigations data, however, to examine the extent to
which specific service industries or geographic locations may warrant more
SCA investigations. As a result, WHD has limited assurance it is using the
most effective mix of available compliance assistance and investigative
efforts. The data on repeat SCA violators could be analyzed with a minimal
investment of additional resources. To improve compliance with SCA, WHD
conducts outreach efforts. For example, WHD provides training to federal
contracting agencies and contractors on when contracts should be
SCA-designated and how to comply with the act's requirements.

This report contains recommendations for improving the transparency of the
wage determination process and for improving SCA strategic enforcement
planning. In its written comments on our report, ESA agreed with the
report's recommendations. ESA provided us with written comments,
suggesting several technical corrections, as did BLS, that we incorporated
throughout the report, as appropriate.

                                   Background

SCA was enacted to give labor standards protection to employees of
contractors and subcontractors providing services to federal agencies in
the United States. SCA requires that, for contracts exceeding $2,500,
contractors pay their employees, at a minimum, the wage rates and fringe
benefits that have been determined by DOL to be prevailing in the locality
where the contracted work is performed. The types of service jobs covered
by the act include, for example, security guard services, food service,
maintenance, janitorial services, clerical workers, and certain health and
technical occupations.

Until recently, DOL regulations required that federal contracting agencies
complete and submit a form to DOL indicating their intention to offer a
service contract and requesting current wage and benefit determinations
for the occupational class(es) and geographic area(s) involved in the
contract. Since the mid-1990s, however, some contracting agencies have
been able to obtain wage determinations through a DOL online wage
determination database, rather than requesting one from DOL. Many of their
covered service contracts were renewals and the applicable SCA wage
determinations for these contracts were already well established and
posted online for information purposes. For these reasons, DOL entered
into memoranda of understanding with several agencies to allow them to use
posted standard wage determinations without first formally requesting a
new one. On August 26, 2005, DOL issued regulations that allow all federal
contracting agencies to use its www.wdol.gov Web site to meet their
obligation to obtain SCA wage determinations from DOL. This final rule
eliminates the required paper form when requesting a wage determination.

Under SCA, WHD establishes wage rates that apply to the United States,
including the District of Columbia, and certain territories. WHD issues
SCA wage determinations that are location-specific, listing nearly all
standard occupations on each wage determination. These wage determinations
are generally referred to as "consolidated" wage determinations.3 WHD
strives to update its list of consolidated wage determinations annually,
issuing 410 consolidated wage determinations covering almost 300 standard
occupations in 205 geographic locations.4 These consolidated wage
determinations altogether, contain approximately 61,500 individual wage
determinations. In addition, between August 1, 2004, and July 31, 2005,
WHD issued at least 15,786 other wage determinations upon request,
including those for non-standard occupations and conformance requests.5
See appendix II for an example of a consolidated and a nonstandard wage
determination for a specific geographic locality.

3Consolidated wage determinations are those that are most frequently used
for SCA-covered contracts, for which job descriptions are provided by the
SCA directory of occupations. There are wage rates for 298 occupations
listed in each consolidated wage determination. Non-standard wage
determinations are issued for unique occupations. Contracting agencies
attach job descriptions for these occupations to the specific request for
a wage determination that is sent directly to WHD. WHD equates these job
descriptions with similar occupations surveyed by BLS through use of the
comparable federal grade level associated with each. WHD analysts annually
update only those non-standard wage determinations that have widespread
application, i.e., non-standard occupations very common to a specific area
or common to only a few areas across the country.

4WHD issues two wage determinations for each locality, reflecting
identical wages and rates for health and welfare fringe benefits. However,
the requirements for contractor compliance are different. One
determination reflects health and welfare benefits that are required to be
furnished on a fixed payment per hour on behalf of each service employee;
the other requires employer contributions to cost an average of the amount
specified on the basis of all hours worked by service employees employed
on the contract. The average cost method is used only for those SCA
covered contracts where this method of calculating health and welfare
fringe benefits has been used in the past. No new SCA contract requiring a
prevailing wage determination is allowed to have the average cost health
and welfare fringe benefit.

5In addition to contracting agencies requesting formal wage
determinations, contractors may obtain specific occupational wage
determinations, through the SCA conformance process. When wage
determinations do not include an occupation in which covered workers will
be employed, the conformance process allows contractors to propose the use
of workers in an occupation at a wage rate that is reasonable when
compared with other occupational wage rates in the applicable wage
determination (i.e., appropriate level of skill comparison) between such
unlisted classifications and the classifications listed in the wage
determination. To prevent the possibility of any workers performing work
and not receiving the proper wages, the contractor initiates the
conforming procedure before the unlisted class of employee performs any
work. The contractor submits the conformance request to the contracting
officer, who reviews and forwards it to WHD. The final determination of
the conformance action by WHD is transmitted to the contracting officer
who notifies the contractor of the action taken. Each affected employee is
provided with a written copy of the determination or it is posted as part
of the wage determination.

  Steps for Obtaining a Wage Determination

The initial responsibility for determining SCA coverage and the need for a
wage determination rests with the federal contracting agency.6 An agency
initiates the wage determination process when it determines that it has a
need for a particular service and that the anticipated contract falls
under the auspices of SCA. Wage provisions for construction or
manufacturing and furnishing goods are covered under other acts.7 In its
request for a wage determination from WHD, the contracting agency must
provide a description of the services to be performed under the contract
and specify the dates and location where the services are to be
performed.8 In addition, the agency must provide information on incumbent
contractors, the previous wage determination for the needed occupations,
and any collective bargaining agreements that may apply.9 It also must
identify the occupational titles (e.g., secretary) and classes (e.g.,
secretary I, II, and III) and the number of service employees needed to
perform the work on the contract, and the hourly wage rates that would be
paid if such workers were federally employed. The contracting agency uses
DOL's SCA directory of occupations when listing the occupational titles of
workers to be employed under the contracts. Use of the directory allows
the federal contracting agency, WHD staff, and ultimately the contractor
to match standard job descriptions with these titles. The directory
contains 360 job classifications.

6If a federal agency is unsure as to whether or not SCA should apply to a
particular contract, WHD will make the final determination of coverage.

7The Davis-Bacon Act requires payment of prevailing wages and benefits to
employees of contractors engaged in federal government construction
projects in excess of $2,000, and the Walsh-Healey Public Contracts Act
requires payment of minimum wages and other labor standards by contractors
providing materials and supplies to the federal government under contracts
valued in excess of $10,000.

8When the location of work under a contract is unknown at the time of
solicitation, the contracting agency is supposed to contact WHD for
guidance. The contracting agency will issue an initial solicitation with
no wage determination, from which it identifies potentially interested
bidders and the possible performance locations and then transmits this
information to WHD. WHD will issue separate wage determinations for the
various localities identified in the first step that are incorporated in
the solicitation prior to the submission of final bids. The appropriate
wage determination applicable to the geographic location of the successful
bidder must be incorporated in the resultant contract and must be
observed, regardless of whether the contractor subsequently changes the
place(s) of contract performances.

9For certain contracts, when a union collective bargaining agreement
covers service employees, SCA requires that these wage and fringe benefit
rates in the agreement supplant any that may otherwise prevail in the
locality for other employees. The SCA also requires that, except in rare
circumstances, successor contractors honor earlier contractors' wage and
fringe benefits arrived at through collective bargaining agreements.

DOL's SCA directory of occupations contains information on the federal
civil service grade levels most likely to correspond to the listed
occupations. For example, the directory lists the occupation of janitor as
a wage grade (WG) 2, indicating the rate at which a janitor would be paid
if performing the work as a federal employee. WHD staff have the option to
use such information to develop prevailing wages for occupations with no
available survey data. Contractors and federal agency staff may utilize
this federal grade equivalency (FGE) data10 to guide wage rate proposals
for occupations to be "conformed" (i.e., the derivation of a wage rate for
an additional occupational class not originally included in the wage
determination). These comparable pay rates or grade levels are used to
apply the principles of "due consideration" required by the SCA.11

The contracting agency may also attempt to obtain a wage determination
through DOL's online wage determination database. The Web site provides
guidance on, among other things: selecting the appropriate wage
determination for each contract action, access to the most current wage
determinations, as well as an alert service for notification of future
revisions to particular wage determinations. Contracting agencies can use
the Web site to identify a wage determination from the online database or
to submit an electronic request for a wage determination when one is not
listed or if the contracting official is unsure about the applicability of
the online selections.

Each year DOL issues wage determinations that are specific to a selected
geographical area-sometimes for an entire state-and provide the minimum
wages and benefits that contractors in that area must pay to service
employees. The wage determination becomes a part of the solicitation and,
later, part of the awarded contract.

10FGE rates are divided into the following three classifications for
purposes of SCA administration: (1) GS (general schedule) refers to grade
rates utilized for non-supervisory appropriated fund "white-collar"
positions; (2) WG (wage grade) refers to grade rates utilized for
non-supervisory appropriated fund "blue-collar" positions; and (3) NAF
(Non-Appropriated Fund schedule) refers to rates utilized for
non-supervisory non-appropriated fund positions.

11"Due consideration" must be given to federal wage rates when issuing SCA
wage determinations, i.e., the rates applicable to service employees if
directly hired by the federal government.

  WHD Conducts Enforcement Efforts

WHD enforces and administers laws governing legally-mandated wages and
working conditions.12 Its responsibilities include enforcing SCA and
related WHD enforcement policies. When WHD finds through its enforcement
efforts that workers have been underpaid, SCA requires that the contractor
pay the unpaid wages and benefits. WHD may also sue to recover wage and
benefit payments or ask the federal agency to either withhold contract
payments or terminate a contract. Although WHD has no legal authority to
assess civil monetary penalties against contractors, contractors violating
SCA may be debarred for 3 years from obtaining future government
contracts.13 WHD tracks investigations, violations, and findings in its
investigations database-the Wage and Hour Investigative Support and
Reporting Database (WHISARD). Contractors and subcontractors may challenge
determinations of violations and debarment before an administrative law
judge. Contractors and subcontractors may appeal decisions of
administrative law judges to the Administrative Review Board. Final Board
determinations on violations and debarment may be appealed to and are
enforceable through the federal courts.

WHD staff are located in 5 regional and 72 district, area, and field
offices throughout the country. Regional Administrators plan, schedule,
and target enforcement efforts in their respective regions. Regions are
comprised of district and area offices, each of which operates under a
district director (see fig. 1). The district directors oversee
investigators, who play a key role in carrying out WHD's enforcement
policies. There were approximately 800 investigators in district and area
offices in fiscal year 2004. Investigators are trained to investigate a
wide variety of workplace conditions and complaints and enforce a variety
of labor laws in addition to SCA.14 Each region also has a regional wage
specialist who can provide advice on SCA matters.15

12In addition to SCA, WHD also enforces the Davis-Bacon Act, the Employee
Polygraph Protection Act, the Family and Medical Leave Act of 1993, the
Walsh-Healey Public Contracts Act, the Copeland Act, the Contract Work
Hours and Safety Standards Act, the Migrant and Seasonal Agricultural
Workers Protection Act, the Fair Labor Standards Act, certain employment
standards and worker protections under the Immigration and Nationality
Act, and the wage garnishment provisions of the Consumer Credit Protection
Act.

13For more information about federal debarment processes, see GAO, Federal
Procurement: Additional Data Reporting Could Improve the Suspension and
Debarment Process, GAO-05-479 (Washington, D.C.: July 29, 2005).

14Complaints are a key component of DOL enforcement activities. DOL
enforcement efforts under many federal labor laws and programs generally
rely on two types of information to identify potential violations: (1)
complaints from individuals who believe they may have suffered a violation
and (2) analysis of data to specifically target problematic industries or
worksites. Complaints and targeting occur, for example, as part of DOL
workforce and worksite protection activities under the Occupational Safety
and Health Act, child labor, day laborer, and wage protection activities
under the Fair Labor Standards Act, and prevailing wage enforcement under
the Davis-Bacon Act.

15WHD enforces five federal laws that are generally referred to as
contract labor standards statutes: the Davis-Bacon Act (construction), the
Walsh-Healey Public Contracts Act (goods), the SCA (services), the
Copeland Act (Davis-Bacon payroll compliance), and the Contract Work Hours
and Safety Standards Act (overtime provisions for certain workers employed
on Davis-Bacon and SCA covered contracts).

Figure 1: Location of ESA's Offices

FPDS statistics indicate that federal service contracts continue to
increase in number and total dollar volume each year. According to ESA's
fiscal year 2003 Annual Performance Plan, federal contractors and
subcontractors employed nearly 25 percent of the civilian workforce-about
26 million workers-in the U.S. economy. Although the exact number of
workers in the subset covered by SCA is unknown, it has been estimated
that hundreds of thousands of federal service contract workers are
employed annually under such contracts.16

  Wage Determination Process Relies on Multiple Data Sources and Professional
                        Judgment but Lacks Transparency

WHD consults multiple wage data sources and relies on analysts'
professional judgment when making wage determinations, but the process
lacks transparency and leaves wage determinations prone to criticism. When
making a wage determination, WHD analysts consult several sources of
information, such as its SCA directory of occupations and data collected
through two BLS national wage surveys, for wage data on occupations.
Relying on these tools and their own expertise, analysts calculate
prevailing wages and fringe benefit amounts for specific geographic
locations. Stakeholders contend that the wage determination process is not
transparent and that the resulting wages do not always reflect local wage
conditions. As a result, analysts spend considerable time responding to
inquiries about the methodology used to determine wages. Stakeholders with
these concerns, such as unions and contractors, told us that they might
have fewer questions about the process if WHD made more information
available. In addition, WHD last issued a comprehensive edition of its SCA
directory of occupations in 1993 and has no systematic process in place
for updating it. As a result, the directory does not include a broad range
of emerging occupations that are covered under SCA.

WHD Relies on Multiple Data Sources and Staff's Professional Judgment When
Making Wage Determinations

WHD analysts consult the SCA directory of occupations as a first step in
the process of determining wages. They then consult a number of different
sources of data when calculating wage rates. Finally, analysts must also
include the fringe benefit rate for the specific locality in each wage
determination.

  Directory of Occupations

WHD analysts use the SCA directory of occupations, a reference tool that
describes standard service occupations typically utilized in the
performance of SCA-covered contracts, to develop wage determinations.17
The directory is not just an information document-it is a critical part of
the wage determination process throughout the federal contracting system.
However, the process that WHD uses to update its SCA directory of
occupations is not written down and is essentially ad hoc. There are
neither written procedures that describe how or when WHD updates the
directory, nor a required or standard time interval for how often the
directory should be updated.

16FPDS does not report the number of service contract workers and WHD does
not have or maintain such numbers. We found an estimate of 700,000 as the
number of service contract employees working on covered contracts in 1986.
In 1995, WHD's Administrator testified before Congress that SCA protected
"roughly a million workers a year." In addition, a February 2001
Congressional Budget Office document stated that the SCA in 2000 covered
approximately 27,000 contracts valued at $33 billion, but did not comment
on the number of service contract employees.

DOL has no systematic process for updating its SCA directory of
occupations, but instead, updates it periodically. The current edition of
the directory was issued in 1993. Since then, there have been three
supplements to the directory.18 According to WHD officials, when there is
a sufficient volume of smaller-scale changes proposed by stakeholders,
they will issue a supplement to the directory. Stakeholders usually bring
the need for supplements to WHD's attention. Supplements can involve
adding some classes of jobs as well as editing or removing others. WHD can
make these changes to job classes either with or without getting
stakeholder approval. A recent effort to update and release a new edition
of the directory, begun in 2002, was initiated after federal contracting
agencies, contractors, trade associations, and unions raised concerns that
the existing directory did not meet their needs. In fact, stakeholders
independently drafted an update to the directory and presented it to WHD.
While WHD is not legally required to include outside parties in the update
process, WHD has encouraged stakeholders to participate, allowing them to
review all suggested changes. According to WHD officials, the update has
been long in the making, due in part to the number of suggested changes
received from and deliberated by the stakeholders.

Some stakeholders, however, have expressed frustration with the length of
time the update has taken. In response, one senior WHD official we spoke
to explained that, in some cases, directory changes could have significant
cost implications for both wages and fringe benefits at the local level
and that careful consideration is necessary to make proper adjustments.
Stakeholders, the official contended, may not realize the implications of
the changes or additions that have been proposed. For example, an issue
was raised of whether it was more appropriate to classify the occupation
"truck dispatcher" as an administrative, clerical, technical, or
professional position, when each category brings with it a different level
of wages and benefits.

17If an occupation is not listed in the directory, it is considered a
non-standard job and an analyst would proceed in a different manner to
calculate a wage determination for that occupation.

18These supplements were issued on December 15, 1993; August 1, 1995; and
March 10, 1997.

Throughout the update process, several job categories and occupational
classes have been added to, or deleted from, the directory. WHD analysts
responded to stakeholder needs for job classifications that were not
available in the directory. For example, WHD added a job classification in
response to a DOD need for an "unexploded ordnance technician." WHD worked
with DOD to develop an accurate description for placement in the
directory. Similarly, the job category of "detention officer" was added at
the request of U.S. Citizenship and Immigration Services because of the
volume of hiring and the uniqueness of the duties performed. In these
cases, WHD did not involve additional agencies in the process of changing
the directory. Ultimately, WHD has the authority to decide which jobs are
included in the directory.

Despite recent efforts to update the directory, some common service
occupations are still missing. Specifically, the directory does not
contain the occupations "customer service representative" or
"telemarketer." Contracting agencies that need such services performed
cannot acquire the wage rate from DOL's online wage determination system
and must request a separate wage determination from a WHD analyst. In
addition, WHD officials told us that analysts sometimes receive multiple
wage determination requests for the same unlisted occupations, thereby
increasing their workload. The directory also does not list an
occupational title for "call center representative." A contractor told us
that as a result, wage determinations for call center contracts with
federal agencies generally listed these occupations as "general clerk I,
II, and III." According to this contractor, the wage determination for a
general clerk is usually lower than the market rate for a call center
representative. The contractor pointed out that federal agencies will
likely have an increased need for call center representatives in the years
ahead. Some contractors told us that, while they often must pay additional
amounts to meet the market rate to be able to recruit qualified workers,
they cannot submit the higher rates in their bid without risking the loss
of the contract to a competitor. Contractors warned that, in cases like
these where they lose a contract to a lower bidder, federal agencies may
be at risk of contracting with employers who will provide a lower quality
of services. According to these contractors, the difference in wage rates
paid to workers on SCA-covered contracts and those not working on
SCA-covered contracts can lead to some workers feeling demoralized. WHD
officials told us that after the current update is issued, which is
expected to occur in October 2005, no plans are underway for the next
update.

  Process for Determining Wages

WHD analysts rely on professional judgment when calculating wage rates.
WHD provides analysts with methodology worksheets that assist them in
determining a wage. These worksheets provide an outline of how an analyst
should proceed when certain conditions exist (such as, when survey data
are not available for a specific occupation). The worksheets are intended
to guide analysts without dictating the exact determination process.

More specifically, to determine a wage rate, analysts review the available
wage data sources as well as previously issued wage determinations.
Analysts base most wage determinations on nationwide survey data collected
by BLS under the National Compensation Survey (NCS)19 and the Occupational
Employment Statistics (OES) survey,20 or other data showing the rates that
prevail in a specific locality.21 Analysts also take into account
previously issued wage determinations when setting a new or revised wage
rate. For example, to maintain general consistency from year to year, WHD
instructs its analysts to not issue a rate lower than or more than 10
percent above the previously issued wage rate. In addition, when wages
have been set by a collective bargaining agreement, analysts are required
by SCA to carry over those negotiated wages to contractors who take over
ongoing contracts. Finally, analysts use the union dominant rate, when
applicable.22

19The National Compensation Survey (NCS) provides comprehensive measures
of occupational earnings, compensation cost trends, benefits incidence,
and detailed plan provisions. Detailed occupational earnings are available
for metropolitan and non-metropolitan areas, broad geographic regions, and
on a national basis. The July 2004 NCS sample consisted of 152
metropolitan areas and nonmetropolitan areas that represent the nation's
326 metropolitan statistical areas (as defined by the Office of Management
and Budget) and the remaining portions of the 50 states. It included
establishments representing nearly 81 million workers within the scope of
the survey.

20The Occupational Employment Statistics (OES) survey produces employment
and wage estimates for about 800 occupations. These are estimates of the
number of people employed in certain occupations, and estimates of the
wages paid to them. Self-employed persons are not included in the
estimates. These estimates are available for the nation as a whole, for
individual states, and for metropolitan areas. BLS produces occupational
employment and wage estimates for about 350 industry classifications at
the national level. The OES program surveys approximately 200,000
establishments every 6 months, taking 3 years to fully collect the sample
of 1.2 million establishments.

21In addition, some occupational rates on the wage determination may be
taken directly from the Non-Appropriated Fund schedule, Federal Wage
System schedule, or the General Schedule "white collar" pay scales.

After selecting a data source, analysts review the wage information for
different classes of the same occupation (e.g., the different classes, I,
II, and III, of the occupation "secretary" require successively more
advanced skills) and the pay relationships that exist between these job
classes (i.e., the different classes of secretary are paid successively
more for their advanced skills), and make adjustments as needed to address
data abnormalities or inconsistencies. For example, an analyst would make
an adjustment if the data showed lower wages for a secretary III than for
a secretary I or II. Analysts also review occupations in the same broad
job category (e.g., administrative support and clerical occupations) to
ensure that different occupations performing commensurate duties receive
similar pay.

When data for an occupation are not included in existing wage surveys,
analysts can establish a prevailing wage rate through a procedure called
"slotting," which involves comparing equivalent or similar job duties and
skills between surveyed classifications and other classifications for
which no survey data are available. For example, analysts may adopt the
rate for a "computer operator" and use it for a "peripheral equipment
operator" (whose duties include taking corrective actions to return
equipment that directly supports computer operations, such as printers, to
proper working order) because the job duties and skills required for both
classifications are rated at the same level under the grading system for
federal employees.23 Further, when the survey lists varying wage rates for
several similar occupations, such as the "general maintenance trades,"
analysts will determine the average wage and use that rate as the
prevailing wage for the entire group of occupations. See figure 2 for a
graphic illustration of some of the factors an analyst may consider when
determining a wage rate.

22A union dominant rate is considered to prevail when the rate is paid to
a majority (more than 50 percent) of the union workers engaged in similar
work in a particular locality.

23Analysts using NCS can also use "leveling" data to determine a rate for
an occupation for which no survey data are available. For example, if no
data were available for the occupational classification of "secretary,"
analysts could use data from the next broader category of "administrative
support and clerical," or use data from the even broader category of
"white collar, excluding sales," to calculate a wage rate.

Figure 2: Factors Considered in SCA Wage Determination Process

An additional reason why analysts must rely on professional judgment when
determining wage rates is that BLS's wage surveys were not designed for
the purpose of determining wages and fringe benefit rates. While the BLS
surveys may provide the most comprehensive wage data available, WHD
analysts must perform some manipulation of BLS's data when calculating
wage rates. As a result, WHD's reliance upon these data may not ensure
that the wage rates it sets reflect labor market conditions. For example,
because the survey responses may include the wage rates for some SCA
service contract workers whose rates are set by a wage determination,
analysts may not be using data that fully reflect the local labor market
conditions. In other words, WHD, in trying to determine the market rate
for certain occupations, may be referencing survey responses of its own
derived rates. However, we did not attempt to determine the extent to
which BLS data includes such information. In addition, one BLS survey used
by WHD excludes smaller employers with fewer than 50 employees from its
sample population. As a result, the survey results could inflate or
deflate actual wages for the types of occupations typically employed by
smaller employers. Another reason that BLS survey data may affect WHD's
ability to set rates that reflect market conditions is that the
occupational classifications in DOL's SCA directory of occupations do not
always match OES occupational classifications, making it difficult for WHD
analysts to match the OES wage data to the SCA occupation without
significant analysis. Because OES does not collect data for each
classification for every locality surveyed, WHD must sometimes use the
"slotting" procedure to derive a wage determination.24

  Process for Determining Fringe Benefit Rates

In addition to a wage rate, each SCA wage determination also includes the
fringe benefit rate for the specific locality. Analysts generally set a
universal fringe benefit rate that employers must pay to all workers in a
specific geographic area regardless of their occupational class. The
fringe benefit amount typically includes health and life insurance
coverage, sick leave, retirement plans-items that are typically referred
to as health and welfare (H&W) benefits25-as well as vacations and
holidays. WHD analysts arrive at the H&W rate used in wage determinations
by consulting nationwide data from BLS's Employer Cost for Employee
Compensation (ECEC) survey. In contracts awarded since new regulations
became effective in June 1997, the fringe benefit rate has most often been
calculated on a "fixed cost per employee" basis, where each employee
receives the same benefit amount.26 Employers may meet their fringe
benefit obligations by paying the employee the cash equivalent of the
specified fringe benefits. In June 2005, the "fixed cost per employee" SCA
health and welfare benefit rate was increased to $2.87 per hour, which
equates to about $497 per month.

24According to BLS officials, OES allows respondents to report
occupational information for every detailed non-military occupational
title in the Standard Occupation Classification. If survey respondents do
not provide any data on a particular occupation, then BLS is unable to
publish wage data for that occupation. In addition, BLS will not publish
some estimates for some occupations in some areas to protect confidential
responses.

25The term "health and welfare" fringe benefits refers to all benefits
provided to workers that are not otherwise required by law except vacation
and holiday benefits, which are determined separately under SCA. The SCA
H&W rate is based on employer costs per hour worked for all benefits.
However, holidays, vacations, and benefits otherwise required by law, such
as social security, unemployment insurance, and workers' compensation
payments are excluded from these determinations. Holidays and vacations
are determined separately and benefits otherwise required by law are
reported annually by the BLS Employment Cost Index study of employer costs
for employee compensation in the private sector (i.e., all workers, all
industries, all establishment sizes, and all occupations).

Lack of Transparency Leaves Wage Determinations Prone to Criticism

The wage determination process requires analysts to apply professional
judgment in selecting both the appropriate source and method for
calculating the prevailing wage rate. Contractors and other stakeholders
contend that the process that analysts follow when determining a wage is
not transparent and that determinations do not necessarily reflect local
wage conditions. In fact, WHD does not include a description of the
methodology used to derive the wage rates in its wage determinations, such
as the wage data source used or the procedures analysts' follow. As a
result, analysts spend considerable time responding to inquiries from
contractors, employees, union representatives, and others regarding how
they determine wages. According to WHD officials, analysts received about
23,000 telephone inquiries in a recent 12-month period, mostly from
service contract employees who want to know how their wage rate was
calculated or why their rate differed from a similar rate in a neighboring
locality.27 Congress, unions, and others also contact WHD staff to inquire
on behalf of their constituents or members. WHD assigns these inquiries to
analysts as they are received. WHD officials told us that the specific
methodology of calculating a wage rate for a certain occupation in a
certain geographic location can change from year to year based on a series
of elements, such as the availability of survey data or an analysts
professional judgment. While analysts do provide details to those who
inquire, WHD does not provide individual methodology worksheets in
writing, stating that doing so would result in additional inquiries as to
why rates are not calculated by the same method as in the previous year
and take analysts away from their primary task of issuing new and revised
wage determinations. Stakeholders with concerns told us, however, that it
would be helpful to them if more information about the process was made
available.

26Previously, contracts could contain a fringe benefit rate based on the
contractor's average fringe benefit cost for all service employees working
on the contract. Under the "average cost method," providing benefits must,
at a minimum, cost the employer an average of $2.87 per hour computed on
the basis of all hours worked by service employees employed on the
contract. Under this method, workers receive varying levels of benefits,
i.e., a worker with no dependents may receive less in benefits than one
with dependents, but the average cost to the employer must be at least the
specified rate.

27In addition, between October 2004 and August 2005, WHD received 301
pieces of correspondence with this nature of inquiry.

WHD receives criticism that its wage determination rates do not reflect
market conditions. Some contractors say that private-sector wage data
provide a more accurate measure of local labor market conditions than BLS
survey data that were not designed for the purpose of determining wages
and fringe benefit rates.28 However, WHD officials told us that to the
extent its wage rates are perceived as not reflective of the market rate,
one possible reason could be that WHD sets internal parameters for wage
determinations (e.g., not issuing a wage rate lower than or more than 10
percent above the previously issued rate) to ensure consistency from year
to year. As a result, while BLS survey data may be lower or higher than
the resulting wage determination, analysts manipulate wage rates to ensure
a consistent wage structure.

DOL Enforces SCA by Conducting Investigations, Ensuring Contractor Payments, and
Providing Compliance Assistance, but WHD Could Make Better Use of Violation Data

WHD enforces SCA by conducting contractor investigations, ensuring
contractor payments to employees, and providing compliance assistance to
stakeholders. WHD investigates complaints from service contract employees,
contractors, federal agencies, unions, and others who allege that
contractors have failed to pay either the wages or fringe benefits, or
both, specified in service contracts. WHD collects violation data, but it
does not fully use these data to plan compliance assistance, target
specific service industries or geographic locations for SCA investigation,
or set strategic enforcement goals. When investigations find that
contractors have failed to pay in accordance with contract wages or
benefits, WHD acts to ensure that contractor payments are made to
employees. WHD also provides compliance assistance to contractors, federal
agencies, unions, and others to help them comply with SCA requirements and
avoid SCA violations.

WHD Conducts Complaint-Driven Investigations

SCA investigations originate when contract employees, federal agencies,
competitor contractors, or employee representatives complain to WHD that a
contractor has failed to comply with the wage or benefit requirements in a
contract.29 WHD investigators then consult and interview contractor
officials, inspect the contract and contractor payroll records, and
interview service contract employees. WHD records investigation data, such
as the name of the contractor, geographic location, industry, and the type
of violation, in its WHISARD database.

28We did not attempt to verify current labor market conditions through a
survey of our own.

When responding to complaints, WHD investigators review WHISARD data for
prior contractor violations. WHD uses violation data on a case-by-case
basis to determine whether an individual complaint warrants expansion to a
more comprehensive "directed" investigation. For example, WHD may decide
to expand the scope of an initial complaint to encompass other employees
under the same contract, additional contractor locations, or other service
contracts involving the same contractor. WHD records all alleged SCA
violations in its WHISARD database and classifies investigations as either
complaint or directed. WHD generates violation reports from WHISARD that
summarize investigation findings.

SCA violation reports for fiscal years 2003 and 2004 show that about 87
percent of all investigations during this period were classified as
complaint and about 14 percent were classified as directed. Table 1 shows
the number and percentage of complaint investigations and directed
investigations for fiscal years 2003 and 2004.

Table 1: Number and Percentage of SCA Investigations by Category, Fiscal
Years 2003 and 2004

                      Number of              Percentage of      
                    investigations          investigations      
                    FY 2003    FY 2004       FY 2003    FY 2004 Average 
Complaint            597        570            86         87      86 
WHD directed         101         84            14         13      14 
Total                698        654           100        100     100 

Source: GAO analysis of WHD data.

29DOL's fiscal year 2004 Performance and Accountability Report noted that
approximately 75 percent of WHD's resources are devoted to complaint
investigations and resolution for all program acts it enforces. Some
investigations are performed in response to allegations that a federal
agency should have, but did not classify the work being performed under a
federal contract as subject to SCA.

WHD headquarters and regional enforcement officials told us that a
complaint-based enforcement strategy offers an efficient approach to
enforcing multiple labor laws. Consequently, WHD does not analyze or use
violations data from WHISARD to (a) examine the extent to which specific
service industries or geographic locations may warrant increased
compliance assistance or directed investigations under SCA or (b) develop
SCA-specific strategic goals. Concerning the latter, while ESA's 1999-2004
strategic plan contains specific outcome or performance goals for some
labor acts, such as the Davis-Bacon Act and the Fair Labor Standards Act
(FLSA), there are none for SCA. WHD has overall strategic enforcement
goals that cut across all labor laws it enforces, such as improving
timeliness in response to complaints and reducing the number of violators
who have repeat or recurring violations. Moreover, ESA's strategic plan
uses violation data in WHISARD to focus enforcement efforts on low-wage
industries reflective of employers that have previously violated labor
laws, such as FLSA, minimum wage and child labor laws, and others.30 While
the focus on low-wage industries may detect violations in some service
contract industries, it does not assure that all service contract
industries with serious or frequent SCA violations are identified.

WHD Enforcement Efforts Result in Payment of Back Wages and Fringe Benefits and
Debarment of Some Violators from Future Contract Work

When a WHD investigation determines that a contractor has failed to pay
wages or fringe benefits to contract employees, WHD attempts to reach
agreement with the contractor regarding the amount of back wages and
fringe benefits owed employees. WHD also monitors contractor activity to
ensure that the amounts owed to employees are eventually paid to them.31
In fiscal year 2004, WHD initially investigated 654 reportable cases-cases
with possible SCA violations-and ultimately found 493 cases with SCA
violations that began as an SCA investigation. In addition, 44 other
cases, registered by WHD under other labor acts it enforces, had SCA
violations.32 These 537 cases, more than 80 percent of the total number of
SCA investigations, uncovered $18.7 million in contractor back wages and
fringe benefits that were owed to employees. WHD obtained contractor
agreements to pay $16.4 million to employees.33 Once a contractor has
reached agreement with WHD on the amount of wages and benefits owed, WHD
monitors contractor payments and does not conclude the case until the
contractor has made full payment.

30Strategic planning includes developing strategic goals, outcome goals,
performance goals, and baseline measures for certain problem industries.
WHD develops outcome and performance goals for those industries and
develops baseline measures as criteria against which to measure its
performance in accomplishing those goals only after selecting specific
industries that warrant attention. ESA's strategic plan and annual
performance plan are incorporated into DOL's overall plans. DOL's 2004
Performance and Accountability Report stated that WHD had reached its
performance goals for increasing compliance with FLSA, in what WHD refers
to as "industries with chronic violations," such as the garment
manufacturing, long-term health care, and agricultural commodities
industries, but had not reached its target to reduce the number of
employers who had prior violations of the act.

31WHD maintains a system-the Back Wage Collection and Disbursement
System-to monitor the collection process, amounts, payments to employees,
etc.

WHD treats each instance of failure to pay a contract employee the proper
wage to be a separate violation of the act. Likewise, WHD considers the
failure to pay that same employee the proper fringe benefit as a separate
violation. Thus, a contractor who fails to pay the proper wage and the
proper fringe benefit would be cited for two separate SCA violations.
Figure 3 shows the total number of cases found to have SCA violations in
fiscal years 2003 and 2004, differentiating those cases that were
registered under other WHD acts from those that were initiated as an SCA
investigation.

32In addition to complaints of alleged SCA violations, WHD may initially
register a complaint as a possible violation of other acts such as the
Contract Work Hours and Safety Standards Act, the Davis-Bacon Act, or
FLSA, and then later determine that the act violated was the Service
Contract Act. WHD's WHISARD database contains information on cases with
SCA violations and the registration act under which the case was
initiated. As shown in figure 3, most cases with SCA violations are
registered under SCA.

33WHD may allow some contractors to pay less than what WHD initially
determines is owed if the contractor negotiates with WHD and provides
adequate justification for a lesser amount.

Figure 3: Cases with SCA Violations, Including Those Registered under
Other Acts

WHD's SCA investigations have a generally high success rate when judged by
one key measure of enforcement success-the percentage of back wages and
benefits that contractors agreed to pay-compared to the wages and benefits
that contractors owed. WHD's overall rate of back wages recouped has also
been high. Figure 4 shows the number of employees with back wages owed
them, and the number of employees whom contractors agreed to pay for
fiscal years 2003 and 2004. For these two periods, contractors agreed to
pay about 89 percent of unpaid wages that they were found to owe for SCA
violations.

Figure 4: Employees with Back Wages Due, and Employees Whom Contractors
Agreed to Pay, Fiscal Years 2003 and 2004

WHD may debar contractors who refuse to pay back wages and fringe benefits
owed to service contract employees or otherwise meet SCA and WHD
conditions for debarment.34 WHD may also arrange with federal agencies to
permit debarred contractors to complete the contract under which
violations occurred, but debarred contractors may not bid on or be awarded
any other federal contracts during the standard 3-year debarment period.
WHD debarred 17 contractors in fiscal year 2004, in contrast with
approximately 450 contractors that it investigated. Table 2 shows the
number of debarments for fiscal years 2000 through 2004 by region.

34Conditions include a history of monetary and recordkeeping violations;
willfulness of past violations as determined by their nature, extent, and
seriousness; falsification or concealment of records; intentional employee
misclassification; or large amounts of back wages due where there exists
no reasonable excuse for the violations. According to WHD officials, a
firm's past compliance history, which is maintained in WHISARD, is used to
refute claims from contractors facing debarment who say that they did not
repeatedly or seriously violate the act. The WHISARD database, however,
does not provide a comprehensive source of debarred contractors. WHD
headquarters officials told us that they maintain manual files with
information on debarred contractors and produce internal WHD reports on
debarments. There are lists of debarred contractors, however, that are
maintained by the General Services Administration, called the Lists of
Parties Excluded from Federal Procurement and Non-procurement Programs,
that identify those parties excluded throughout the federal government
from, among other things, receiving federal contracts. Contracting
agencies are required to check this list before awarding a contract.

Table 2: Number of SCA Debarments, Fiscal Years 2000 through 2004

Region        FY 2000   FY 2001   FY 2002   FY 2003  FY 2004  Total 
Northeast           3         4         4         5        4     20 
Southeast           2         4         0         1        2      9 
Midwest             2         0         5         3        5     15 
Southwest           4         2         5         6        4     21 
West                2         8         1         4        2     17 
Total              13        18        15        19       17     82 

Source: WHD.

Training and Outreach Efforts Aim to Improve SCA Compliance

WHD provides compliance assistance to federal contracting agencies and
contractors to help improve SCA compliance. One of WHD's basic missions is
to provide employers and workers with clear and easy-to-access information
on how to comply with federal employment laws-information and guidance
that are often referred to as compliance assistance. Compliance assistance
includes brochures and pamphlets, workplace posters, telephone
consultations, on-site consultations, training sessions or seminars for
individuals or groups, and Web-based information. WHD's Web site, for
example, contains an Employment Law Guide with details about SCA coverage,
requirements, employee rights, penalties, and sanctions.

In fiscal year 2004, WHD provided SCA compliance assistance at national,
regional, and local levels to federal agencies, contractors, and service
contract employee groups. National-level training and outreach efforts
included presentations, speeches and seminars for the National Industries
for the Blind and the U.S. Patent and Trademark Office, and panel
discussions with the National Star Route Mail Contractors' Association.
Regional offices provided similar outreach and training to officials from
such federal agencies as the Office of Federal Contract Compliance
Programs, Small Business Administration, Social Security Administration,
and the U.S. Army Corps of Engineers. Local-level training and outreach
included presentations to the Directorate of Contracting at Fort Riley,
Kansas, and to employers that have SCA low-wage industry contracts under a
Small Business Administration program. In fiscal year 2004, WHD provided
training to federal agency contracting officials in the Department of
Defense through an arrangement with the Contract Services Association of
America, an organization that promotes the use of private contractors for
all federal government services.

One of the most universal forms of day-to-day compliance assistance that
WHD provides is its workplace poster. SCA requires contractors to post the
poster at work sites unless the contractor has notified individual
employees of their wages and benefits.35 WHD regulations issued to
implement SCA state that the WHD poster (Publication WH 1313), when
applicable, shall be posted in a prominent and accessible place at the
worksite, and failure to comply with this requirement is a violation of
the act and of the contract.36

WHD's SCA workplace poster serves a dual purpose of both assistance and
enforcement. As an assistance tool, the poster informs service contract
employees of their wages, benefits, and other entitlements (overtime and
safety and health conditions) under the contract with the federal
government. As an enforcement tool, the poster provides evidence that the
contractor is subject to SCA and DOL regulations governing service
contracts as they relate to employee notification. WHD has designed the
poster to be used for both SCA and the Walsh-Healey Act. WHD's Web site
makes this Service Contract Act/Walsh-Healey Poster readily available to
the public.

While WHD relies heavily on complaints from employees and others to
enforce SCA, WHD's worksite poster does not provide a telephone number for
employees or others to call to register complaints. Instead, the poster
directs inquiries for information to the Wage and Hour Division offices
located in "principal cities." The poster also directs potential
complainants to check their telephone directory under U.S. Government,
Department of Labor, Wage and Hour Division. WHD last revised the poster
in 1996.

A workplace poster that does not provide service contract employees and
others with a clear and easy-to-access method of filing a complaint may
hamper their reporting of such complaints. In the absence of a telephone
point of contact at WHD, service contract employees may not have the
opportunity to report possible or suspected violations of the act and
therefore may not receive the full benefit of protection authorized under
the act.

3541 U.S.C. 351(a)(4) requires that every service contract contain a
provision that the contractor either (1) deliver to the contract employee
a notice of wage and fringe benefit compensation under the contract or (2)
post a notice of the required compensation in a prominent place at the
worksite.

3629 C.F.R. 4.6(e).

We reported in 2004 that DOL's Occupational Safety and Health
Administration (OSHA) relies heavily on complaints to enforce the
Occupational Safety and Health Act.37 OSHA, in general, responds to
complaints according to the seriousness of alleged hazards, a policy that
OSHA credits with conserving agency resources. Like WHD, OSHA uses
workplace posters as part of its overall compliance assistance enforcement
efforts.38 OSHA's workplace posters display a universal national telephone
number, telephone numbers for each of OSHA's 10 regional offices, a
national number accessible to the hearing impaired, and instructions on
how to file a complaint online through OSHA's Web site.

                                  Conclusions

Determining locally prevailing wages for service employees working in
hundreds of occupations throughout the nation is a tremendous undertaking
and one that WHD is committed to performing with diligence. It is the only
organization producing such a vast number of locally prevailing wage rates
on a national scale. For their part, WHD analysts have the support of
their agency in applying their professional judgment when setting the wage
and benefit rates. However, WHD could benefit from greater transparency of
its wage determination process. WHD provides limited information on the
methodology used to determine SCA wage rates, resulting in analysts
receiving numerous inquiries about how they determined wages. Responding
to individual requests for explanation diverts analysts from their primary
duties of revising and issuing new wage determinations. WHD expressed
concerns that providing additional information on its methodology may
trigger additional inquiries. However, we believe that additional
information could inform some stakeholders, especially those that
represent contractors and employees, who could in turn educate their
members. As a result, some individuals who otherwise would contact WHD for
an explanation on how wages are determined might not see the need to
contact WHD. A general description of the methods used in the wage
determination process could give SCA stakeholders greater confidence in
the determined wage rates and possibly improve the quality of service that
WHD provides to those who do inquire.

37GAO, OSHA's Complaint Response Policies: OSHA Credits Its Complaint
System with Conserving Agency Resources, but the System Still Warrants
Improvement, GAO-04-658 (Washington, D.C.: June 18, 2004).

38See OSHA Publication 3165, Job Safety & Health Protection Poster
(English) and OSHA Publication 3167, Job Safety & Health Protection Poster
(Spanish). OSHA's poster Web site notes that all covered employers are
required to display and keep displayed a poster prepared by WHD informing
employees of OSHA protections.

WHD strives to update its list of consolidated wage determinations on an
annual basis and provides this information online for the convenience of
the contracting agencies. However, the job titles and descriptions
included in its SCA directory of occupations have not been regularly
updated to include emerging service occupations. WHD has been working
closely with various stakeholders over the past 3 years to make changes to
the directory, although its ad hoc process of updating the directory calls
into question the ongoing currency of the occupations listed in the
directory used for wage determinations.

WHD's reliance on complaints as the primary means to identify potential
SCA violations is a reasonable strategy to pursue, given WHD's multiple
enforcement responsibilities under numerous federal labor laws. However,
that strategy currently does not examine the extent to which other
information could be used to improve enforcement nationwide. Without
further analysis of prior SCA violation data, WHD cannot ensure that it is
using the most effective mix of compliance assistance, complaint-driven
investigations, and directed investigations. WHD has readily available
data on repeat SCA violators, the analysis of which we believe could be
performed with minimal investment of additional resources. Furthermore, by
taking extra steps to review prior SCA violation data, WHD may find that
its existing complaint-driven approach to SCA enforcement is sound.

Finally, because the SCA workplace poster does not provide an easy method
for employees to report complaints, WHD may be missing opportunities to
get the most use from its complaint process. Improving the workplace
poster would reinforce WHD's complaint-based strategy and would help
further protect the wages and benefits of service contract workers.

                      Recommendations for Executive Action

In an effort to provide stakeholders with a general understanding of how
WHD determines wage rates, we recommend that the Secretary of Labor:

           o  direct WHD to make publicly available the basic methodology WHD
           uses to issue wage determinations.

           To better support WHD and federal contracting agencies in their
           implementation of SCA, we recommend that the Secretary of Labor:

           o  direct WHD to develop a procedure for updating the SCA
           directory of occupations at regular intervals and include criteria
           for listing and removing occupations as the need emerges.

           To further WHD's efforts to obtain better information concerning
           the presence of and potential for violations involving SCA
           contracts, we recommend that the Secretary of Labor:

           o  direct WHD to analyze its historical SCA contractor violation
           data in WHISARD, as well as debarment information not included in
           WHISARD, and to the extent appropriate, use this information to
           help plan its compliance assistance and investigative efforts, and
           to identify additional industries, if any, that WHD should
           establish enforcement goals similar to those it currently has for
           repeat violators and industries with chronic violations.

           To facilitate the reporting of SCA complaints, we recommend that
           the Secretary of Labor:

           o  direct WHD to update and revise the 1996 Service Contract
           Act/Walsh-Healey worksite poster, to include national and regional
           office telephone numbers and a Web site address that complainants
           may use to report alleged SCA violations.

           DOL's ESA provided us with written comments on a draft of this
           report, which are reproduced in appendix III. The agency agreed
           with all of the report's recommendations. ESA noted that WHD will
           provide a general description of the methods used in the wage
           determination process on its Web site and through other avenues.
           The agency also commented that WHD will develop a plan for
           implementing our recommendation concerning its SCA directory of
           occupations. However, the agency cautioned that any plan to do so
           must take into account the potential for creating confusion when
           multiple versions of the directory are applicable to various
           contracts. ESA acknowledged that this problem already exists but
           believes it would be exacerbated if the directory were updated
           more frequently.

           ESA further noted that WHD's leadership will include an analysis
           of its SCA enforcement data in establishing its annual priorities
           at the national level and to specific local and regional
           initiatives. Finally, ESA noted that WHD will develop and
           implement a plan to revise the SCA worksite poster by adding WHD's
           toll-free telephone number and the agency's Web site address.

           ESA noted several technical corrections to the report, as did BLS,
           which we incorporated as appropriate.

           As arranged with your office, unless you publicly announce its
           contents earlier, we plan no further distribution of this report
           until 30 days after the date of this report. At that time, we will
           send copies of this report to the Secretary of Labor and the
           Assistant Secretary of Labor for Employment Standards. We will
           also make copies available to others upon request. In addition,
           the report will be available at no charge on GAO's Web site at
           http://www.gao.gov.

           If you or your staff have any questions about this report, please
           contact me at (202) 512-7215 or [email protected]. Contact points
           for our Offices of Congressional Relations and Public Affairs may
           be found on the last page of this report. GAO staff who have made
           major contributions to this report are listed in appendix IV.

           Robert E. Robertson Director, Education, Workforce, and Income
           Security Issues

           For this report, we described how the Department of Labor (DOL)

           (1) establishes locally prevailing wages and fringe benefits and
           (2) enforces the Service Contract Act (SCA). We also identified
           potential areas of improvement found in the course of our work. To
           address these objectives, we:

           o  reviewed literature on SCA and its corresponding regulations,
           and analyzed DOL documents and data;

           o  interviewed officials in the Wage and Hour Division's (WHD)
           headquarters and field offices, the Bureau of Labor Statistics
           (BLS), and the two federal contracting agencies with the largest
           proportion of service contract activity-the Department of Defense
           (DOD) and the General Services Administration. At DOD, we
           interviewed the agency labor advisors and officials from each of
           the four branches of service that oversee the military's SCA
           activities. In addition, we interviewed representatives from
           several service industry unions and key trade associations;

           o  analyzed data obtained from DOL, including data on WHD
           investigations from DOL's Wage Hour Investigator Support and
           Reporting Database (WHISARD) database; national, regional and
           district office training and outreach efforts; file data on
           debarments; and data from the Federal Procurement Data System
           (FPDS), including information on the number and total dollar
           amount of SCA contract actions for fiscal years 2000 through 2003;
           and

           o  interviewed state officials and representatives from
           private-sector groups who also produce wage and benefit rates in
           an effort to better understand the relative merits of DOL's wage
           determination process.

           We obtained current and background data from DOL's WHISARD
           database for fiscal years 2003 and 2004. Data included the number
           of SCA investigations, the number of investigations that led to
           one or more SCA violations, the number of act violations, amounts
           of back wages and fringe benefits due from contractors, amounts of
           unpaid wages and benefits that contractors agreed to pay service
           contract employees, and the number of employees with unpaid wages
           and benefits. We also obtained file data from WHD on debarred
           contractors, including the number of debarred contractors, by year
           and region.

           We assessed the reliability of the WHISARD data by (1)
           interviewing agency and contractor officials knowledgeable about
           the data, and

           (2) reviewing existing information about the data and the system
           that produced them, such as the WHISARD User Guide and Procedure
           Manual; WHISARD data dictionary of tables; and the DOL Inspector
           General's fiscal year 2004 Performance and Accountability Review
           of WHD, which includes WHISARD. We assessed the reliability of the
           debarment data by interviewing agency officials about the
           debarment process and the methods used to produce the debarment
           summary report provided to us. We determined that the required
           WHISARD data elements and debarment summary data were sufficiently
           reliable for the purposes of this report.

           FPDS has been the federal government's central database of
           information on federal procurement actions since 1978. It contains
           detailed information on contract actions over $25,000 and summary
           data on procurements of less than $25,000. We found in December
           2003 that FPDS data were inaccurate and incomplete, and that
           sufficient problems existed with the system to warrant concern
           about the reliability of FPDS information.1 However, in this
           report, we are using the FPDS data only to provide aggregate
           information about SCA and to provide context for the report.
           Although we have determined that the data may be incomplete and
           certain data elements unreliable, for this report we found that it
           was sufficiently reliable for estimating a minimum number of
           federal contracts and federal SCA dollars expended. A newer
           system, the FPDS-NG (Next Generation), became operational on
           October 1, 2003. In December 2003, we stated that the reliability
           of FPDS data was expected to improve with the implementation of
           the new system. We recently issued a correspondence to the Office
           of Management and Budget regarding the upgraded system.2

           Robert E. Robertson (202) 512-7215 or [email protected]

           In addition to the contact named above, Brett S. Fallavollita,
           Assistant Director, Monika R. Gomez, and Dennis M. Gehley made
           significant contributions to this report in all aspects of the
           work throughout the review. In addition, Linda L. Siegel helped to
           develop our overall design and methodology; Margaret L. Armen and
           Richard P. Burkard provided legal support; Avrum I. Ashery and
           Jeremy D. Sebest designed our graphics; Shana B. Wallace provided
           technical assistance; and Jonathan S. McMurray assisted in report
           and message development.

           Department of Labor, Wage and Hour Division, Employment Standards
           Administration: Service Contract Act; Labor Standards for Federal
           Service Contracts. OGC-97-14. Washington, D.C.: January 16, 1997.

           Navy Contracting: Military Sealift Command's Contract for
           Operating Oceanographic Ships. NSIAD-90-151. Washington, D.C.:
           April 18, 1990.

           Department of Labor: Assessment of the Accuracy of Wage Rates
           Under the Service Contract Act. HRD-87-87BR. Washington, D.C.: May
           28, 1987.

           Decision of the Comptroller General of the United States,
           B-218427.2, May 15, 1985, Crowley Towing & Transportation Company.

           Congress Should Consider Repeal of the Service Contract Act.
           HRD-83-4. Washington, D.C.: January 31, 1983.

           Assessment of Federal Agency Compliance with the Service Contract
           Act. HRD-82-59. Washington, D.C.: July 21, 1982.

           Service Contract Act Should Not Apply to Service Employees of ADP
           and High-Technology Companies-A Supplement. HRD-80-102 (A).
           Washington, D.C.: March 25, 1981.

           Service Contract Act Should Not Apply to Service Employees of ADP
           and High-Technology Companies. HRD-80-102. Washington, D.C.:
           September 16, 1980.

           The Government Accountability Office, the audit, evaluation and
           investigative arm of Congress, exists to support Congress in
           meeting its constitutional responsibilities and to help improve
           the performance and accountability of the federal government for
           the American people. GAO examines the use of public funds;
           evaluates federal programs and policies; and provides analyses,
           recommendations, and other assistance to help Congress make
           informed oversight, policy, and funding decisions. GAO's
           commitment to good government is reflected in its core values of
           accountability, integrity, and reliability.

           The fastest and easiest way to obtain copies of GAO documents at
           no cost is through GAO's Web site (www.gao.gov). Each weekday, GAO
           posts newly released reports, testimony, and correspondence on its
           Web site. To have GAO e-mail you a list of newly posted products
           every afternoon, go to www.gao.gov and select "Subscribe to
           Updates."

           The first copy of each printed report is free. Additional copies
           are $2 each. A check or money order should be made out to the
           Superintendent of Documents. GAO also accepts VISA and Mastercard.
           Orders for 100 or more copies mailed to a single address are
           discounted 25 percent. Orders should be sent to:

           U.S. Government Accountability Office 441 G Street NW, Room LM
           Washington, D.C. 20548

           To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax:
           (202) 512-6061

           Contact:

           Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail:
           [email protected] Automated answering system: (800) 424-5454 or
           (202) 512-7470

           Gloria Jarmon, Managing Director, [email protected] (202) 512-4400
           U.S. Government Accountability Office, 441 G Street NW, Room 7125
           Washington, D.C. 20548

           Paul Anderson, Managing Director, [email protected] (202)
           512-4800 U.S. Government Accountability Office, 441 G Street NW,
           Room 7149 Washington, D.C. 20548

                                Agency Comments

Appendix I: Methodology  Appendix I: Objectives, Scope, and Methodology

Reliability of WHD's Data on Investigations and Debarments

Reliability of FPDS Data

1GAO, Reliability of Federal Procurement Data, GAO-04-295R (Washington,
D.C.: Dec. 30, 2003).

2GAO, Improvements Needed to the Federal Procurement Data System-Next
Generation,  GAO-05-960R (Washington, D.C.:  Sept. 27, 2005).

Appendix II: Examples of Standard and Non-standard Wage Determinations 
Appendix II: Examples of Standard and Non-standard Wage Determinations

Appendix III: Comments from the Department of Labor  Appendix III:
Comments from the Department of Labor

Appendix IV: A  Appendix IV: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

Related GAO Products  Related GAO Products

(130396)

GAO's Mission

Obtaining Copies of GAO Reports and Testimony

Order by Mail or Phone

To Report Fraud, Waste, and Abuse in Federal Programs

Congressional Relations

Public Affairs

www.gao.gov/cgi-bin/getrpt?GAO-06-27.

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact Robert Robertson at (202) 512-7215 or
[email protected].

Highlights of GAO-06-27, a report to the Subcommittee on Labor, Health and
Human Services, Education and Related Agencies, Committee on
Appropriations, U.S. Senate

December 2005

SERVICE CONTRACT ACT

Wage Determination Process Could Benefit from Greater Transparency, and
Better Use of Violation Data Could Improve Enforcement

Recipients of federal government contracts for services are subject to
wage, hour, benefits, and safety and health standards under the
McNamara-O'Hara Service Contract Act (SCA) of 1965, as amended, which
specifies wage rates and other labor standards for employees of
contractors. SCA requires the Department of Labor (DOL) to set locally
prevailing wage rates and other labor standards for employees of
contractors furnishing services to the federal government. DOL's
Employment Standards Administration's Wage and Hour Division (WHD)
administers the SCA and each year determines prevailing wage and fringe
benefit rates for over 300 standard service occupations in 205
metropolitan areas. SCA also authorizes DOL to enforce contractor
compliance with SCA provisions. This report describes how DOL (1)
establishes locally prevailing wages and fringe benefits and (2) enforces
SCA.

What GAO Recommends

To improve the transparency of its wage determination process and its SCA
strategic enforcement planning efforts, GAO recommends that WHD, among
other things, make publicly available the basic methodology it uses to
issue wage determinations and consider analyzing its historical SCA
contractor violation data to help plan its compliance assistance and
investigative efforts. In its written comments, DOL agreed with all of the
report's recommendations.

When making a wage determination, WHD analysts consult several sources of
information, such as its SCA directory of occupations and data collected
through two Bureau of Labor Statistics national wage surveys, for wage
data on occupations. Relying on these tools and their own expertise,
analysts calculate prevailing wages and fringe benefit amounts for
specific geographic locations. The wage determination process produces a
wealth of nationwide wage data for service occupations that WHD makes
available online and strives to update annually. However, stakeholders
(e.g., unions, contractors, employees, and others) contend that the wage
determination process is not transparent and that the resulting wages do
not necessarily reflect local wage conditions. For example, WHD does not
include a description of the methodology used to derive the wage rates in
its wage determinations, such as wage data sources used or the procedures
analysts' follow. As a result, analysts spend considerable time responding
to inquiries about the methodology used to determine wages.

Examples of Wages Paid to Selected Service Contract Occupations in
Selected Localities

WHD enforces SCA by conducting investigations, ensuring contractor
payments, and providing compliance assistance to stakeholders. WHD
investigates complaints from service contract employees, federal agencies,
unions, and others who allege that contractors have failed to pay either
the wages or fringe benefits, or both, specified in SCA contracts. WHD
collects violation data, but it does not fully use these data to plan
compliance assistance, target specific service industries or geographic
locations for SCA investigation, or set strategic enforcement goals. As a
result, WHD may be overlooking some SCA violators and industries that need
further enforcement. A review of prior SCA violation data  could provide
WHD assurance that it is using the most effective mix of available
compliance assistance and investigative efforts.
*** End of document. ***