Back-to-Basics: A Short Primer on the Walsh-Healey Public Contracts Act (“PCA”)

"One of These Things (Is Not Like the Others)"

--Title song for segment of Sesame Street

Over the years I have blogged extensively about wage and hour standards for construction and service contracts. However, I have only provided limited guidance about the application of the wage and hour laws to supply and manufacturing contracts, the third leg of Government contracting. Mostly, I restricted myself to noting the annual inflation in the penalties portion of the law.

The reason for this is that, as I have taught over the years, for minimum wage purposes, the Walsh-Healey Public Contracts Act (“PCA”), which regulates US Government supply and manufacturing contracts, is largely a dead letter, because the Government stopped issuing specialized wage determinations for such work back in the 1960’s. The precipitating cause was that there was a lawsuit in the pre-Freedom of Information Act (“FOIA”) era and a court order to the US Department of Labor (“DOL”) to release previously confidential wage survey data that was collected from private sector employers. As a result, employers stopped providing the wage data and consequently DOL stopped issuing new supply contract PCA wage determinations. In short order the prevailing wages for supply contractors became only the Fair Labor Standards Act minimum wage, currently  $7.25 an hour. That left the PCA  as a largely “me too” dependent of the FLSA, and thus the orphaned third leg of the Government contracts wage and hour regulatory scheme.

The PCA, as amended, originally established minimum wage, maximum hours, minimum age requirements (age 16) for workers, and safety and health standards for work on contracts in excess of $15,000 for the manufacturing or furnishing of materials, supplies, articles, or equipment to the U.S. Government or the District of Columbia. All provisions of the PCA are administered by DOL’s Wage and Hour Division  (“WHD”) except the safety and health requirements, which are administered by the Occupational Safety and Health Administration (“OSHA”). Note that the overtime, child labor, and  health and safety provisions of the PCA remain in place even today.

As set forth by DOL, the PCA does not apply to certain contracts, including the following:

·        Certain “open market” purchases [like purchases made by the military exchanges];

·        Purchases of perishables;

·        Certain agricultural purchases;

·        Contracts for public utility services and certain transportation and communication services;

·        Supplies manufactured or furnished outside the U.S. (including Puerto Rico) or the Virgin Islands;

·        Contracts administratively exempted by the Secretary of Labor in special circumstances.

https://www.dol.gov/agencies/whd/government-contracts/pca. 

As for the last bullet point above, DOL has issued regulations to specify when overhaul and manufacturing contracts are deemed to be PCA covered, rather than covered as maintenance activities subject to the McNamara-O’Hara Service Contract Act (“SCA”). See 29 C.F.R. 4.117. See also AFL-CIO v. Donovan, 27 Wage & Cases (BNA)145 (D.C. Cir. 1985).

 As also noted above, PCA covered workers must be paid not less that the FLSA federal minimum wage and overtime pay of at least one and one-half times the worker’s regular rate of pay for all hours worked in excess of 40 in a workweek. The PCA used to require daily overtime be paid for hours worked in excess of  8 hours a day. However, The PCA was amended by Pub. L. No. 99-145, effective 01/01/1986 to eliminate the daily overtime provisions. Now the PCA just parallels the FLSA, providing for the same minimum wage and the same overtime requirements. See Field Operations Handbook (“FOH “)13c01, https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/FOH_Ch13.pdf .

Beyond the overtime, child labor, and health and safety provisions, the PCA still provides some extra enforcement tools for DOL to use to assure payment of the minimum wage. Contractors and subcontractors who breach the violate the PCA may be subject to a variety of penalties. Wage and overtime underpayments may result in the cancellation of the contract and/or withholding of contract payments in amounts sufficient to cover the underpayment. Liquidated damages and/or penalties may be assessed on a daily basis for each underage minor or incarcerated individual who is employed, for which contract payments may also be withheld. The Department of Labor may also bring legal action to collect wage underpayment and fines for underpaying workers and/or illegally employing underage minors or incarcerated individuals. Willful violations may subject the employer to cancellation of the current contract and debarment from future federal contracts for a three-year period. https://webapps.dol.gov/elaws/elg/walshh.htm.

If you get into a dispute over PCA compliance, that dispute will be handled by an administrative law process at the US DOL .Upon issuance and service of a formal complaint against the contractor by a DOL investigator from the WHD, a hearing shall be scheduled before an Administrative Law Judge (“ALJ”). The decision of the ALJ may be appealed to an entity at DOL known as the Administrative Review Board (“ARB”). ARB determinations on violations and debarment may be appealed to and are enforceable through the federal courts under the Administrative Procedures Act (“APA”) .

One of the best sources of information about the PCA is Chapter 13 of the Field Operations Handbook. There you can find some pretty good guidance about flow down of the PCA requirements to “secondary” subcontractors. See FOH 13a01, https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/FOH_Ch13.pdf. There are a number of circumstances where flow down isn’t required.

The FOH also has guidance about what happens if the PCA clauses are left out of the contract. Here is what it says:

While it has not been authoritatively settled that there is no coverage under the PCA if the PCA stipulations are not included in the contract, either directly or by reference, coverage is not asserted for a contractor who has no notice by stipulation or otherwise of the application of the Act, and administrative enforcement action is not taken. If the invitation to bid on a contract within the scope of the Act includes the stipulations either directly or by reference, coverage would result since the invitation to bid becomes a part of the contract.

FOH Chapter 13, 13a00(b), https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/FOH_Ch13.pdf.

Finally, contractors must post and display copies of the Service Contract Act/Walsh-Healey Public Contracts Act Poster during the period that covered work is being performed on the contract. See https://www.dol.gov/agencies/whd/government-contracts/pca/posters. And they must keep records -- including but not limited to wages paid, hours of work, and overtime compensation furnished, as well as employee date of birth if under age 19, so DOL can confirm compliance with the PCA. https://webapps.dol.gov/elaws/elg/walshh.htm

In the many years I have been working in the field, most the PCA issues that arise concern its overlap with the Service Contract Act and the Davis-Bacon Act. Both those laws exempt discrete contract line items for supply and manufacturing from their coverage and provide that such work shall be subject to the PCA. The SCA exempts supply contract items and the DBA exempts materialmen. Of course, exactly where the line is drawn can be unclear.

In 2022, I litigated to a conclusion a case at the ARB involving a flight training system procured by the US Air Force for pilot training. It involved considerable amounts of hardware for flight simulators and other equipment for a 15 year contract. Of course, that hardware was PCA-covered. But the SCA applies to contracts principally for services. The WHD originally found the specified work was principally for supply of equipment, but subsequently reversed that decision, and the ARB affirmed. Thus, the contract services were also covered by the  SCA at least prospectively. That meant the contractor would get a price adjustment. See United States Department of the Air Force v. FlightSafety Defense Corp. (f/k/a FlightSafety Services Corporation), ARB No. 2022-0001 (Feb. 28, 2022)., reprinted at https://www.dol.gov/sites/dolgov/files/OALJ/PUBLIC/ARB/DECISIONS/ARB_DECISIONS/SCA/21-071-SCAP.PDF

Another recent PCA case I had involved the US Army Lake City Army Ammunition Plant (“LCAAP”) and a hybrid munition supply contract. The contractor was managing an ammunition plant owned by the Army and producing various ammo. However, they also had fire suppression responsibilities as well as performed some significant facility maintenance work. The WHD had initially ruled that the fire suppression work was covered by the SCA and demanded additional back wages be paid the workers. I challenged that application claiming the work was exempt from the SCA under the Government Owned, Contractor Operated (“GOCO”) exception and any way asserted that the contract was principally for supply. It didn’t hurt that I found an earlier WHD ruling on the same facility which agreed with my views. In due course, DOL reversed and found that the contract was exclusively covered by the PCA. See Letter of Michele R. King, Director, Division of Government Contracts Enforcement, dated April 1, 2020.

It is in this area of overlapping coverage where most of the PCA action occurs. Because the PCA only requires the FLSA $7.25 an hour minimum wage, rather than a survey data-based prevailing wage, contracting agencies looking to save budgetary monies may turn to  the PCA as the preferred wage standard for their procurements. Whether this is cutting corners or not depends on the facts.