The Service Contract Act of 1965 requires Government contractors to pay their non-exempt employees working on service contracts no less than the wage and fringe benefit rates set forth in a "wage determination" included in the contract. Wage determinations are of two types. When the workforce is unionized, the wage determination generally will be based on the collective bargaining agreement. In all other cases, the wage determination is based on the prevailing compensation in the locality where the work is performed. Failure to compensate employees at the required rates is punishable by severe penalties including making up any shortfall in compensation and also debarment from future contracting for up to three years.

The Wage and Hour Division of the Department of Labor issues wage determinations. Since 1996, Labor has been hampered in issuing new wage determinations for other than unionized contracts. At that time, the Bureau of Labor Statistics discontinued collecting the data that the Wage and Hour Division had used to calculate prevailing wages and fringes for a locality.

Recently, the Wage and Hour Division has found a substitute source of compensation data and it is now issuing a complete series of wage determinations for all localities in the United States. This process should be complete by the end of July. To phase in the new wage, increases in the new series of wage determinations will be limited to 15%. Labor's concern here is to mitigate the impact of the increases on agency budgets.

Contractors should expect that their covered service contracts will be amended to include the new wage determination, probably at the time the Government exercises the next option. If these new wage determination causes the contractor increased costs, there may be grounds for an equitable adjustment in price. Contracts subject to the Act should include the clause at FAR 52.222-43, Fair Labor Standards Act and Service Contract Act - Price Adjustment (Multiple Year and Option Contracts, which governs the computation of these adjustments. Contact our office for guidance if you have any questions about whether you are entitled to an adjustment, or how to calculate the amount.