In re: Appeal of Rejection of Department
of State Request for Substantial Variance
Hearing and Request for Arm's-Length
Negotiation Determination Wage Determination
Notice No. 98-0135 (3/12/98) Contract No.
S-OPRAQ-96-D-0569
BEFORE: THE ADMINISTRATIVE REVIEW BOARD
Appearances:
For the Complainant:
Dennis J. Gallagher, Esq.,
U.S. Department of State, Rosslyn, Virginia
For the Respondent: Joan Brenner, Esq., Douglas J.
Davidson, Esq.,
Steven J. Mandel, Esq., Henry J. Solano, Esq.,
U.S. Department of Labor, Washington, D.C.
For Intervenor Inter-Con Security Systems, Inc.: Neil H. O'Donnell, Esq., Patricia A.
Meagher, Esq., Rogers, Joseph, O'Donnell & Quinn, San Francisco, California
For Intervenor United Plant Guard Workers of America: Lisa S. Lane, Esq., Gregory, Moore, Jeakle, Heinen, Ellison, Brooks & Lane, P.C., Detroit,
Michigan
FINAL DECISION AND ORDER
On January 23, 1998, Petitioner United States Department of State (State
Department) requested the Acting Administrator, Wage and Hour Division (Administrator), to
convene hearings to determine whether a December 1997 collective bargaining agreement (labor
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agreement or CBA) between Inter-Con Security Systems, Inc. (a State Department service
contractor) and the United Plant Guard Workers Union of America (UPGWA) was negotiated
at arm's-length and whether the negotiated wage rates contained in the labor agreement were
"substantially at variance" with the locally prevailing wage rates for similar work,
within the meaning of the McNamara-O'Hara Service Contract of 1965, as amended (SCA or
Act), 41 U.S.C. §351 et seq.; see 41 U.S.C. §353(c). The hearing
requests were submitted to the Administrator after the service contractor began to
perform work on an option year of its service procurement contract (i.e., after January
6, 1998); thus, the State Department's request for these hearings was untimely under the
regulations implementing the SCA. 29 C.F.R. §§4.10(b)(3)(ii),
4.11(b)(2)(ii)(1998). However, these same regulations provide that even if hearing requests are
not filed within the specified time limitation, the Administrator may convene so-called
"arm's-length" or "substantial variance" hearings if the Administrator
"determines that extraordinary circumstances exist." Id.
In a final ruling issued March 24, 1998, the Administrator denied the
request for hearings, concluding that the State Department had failed to demonstrate that there
were extraordinary circumstances that would justify waiving the requirement to file requests for
arm's-length and substantial variance hearings prior to the commencement of contract
performance in cases where, as here, a follow-up option period to a contract was concerned.
Id. The State Department petitioned for review by the Administrative Review Board.
On appeal to this Board, the Administrator argues that the phrase
"extraordinary circumstances" in the regulations refers specifically to situations in
which a party (such as the State Department) becomes aware of the terms of a new collective
bargaining agreement so late that there literally is insufficient time to file a timely request for
hearings. In the Administrator's view, the facts in this matter demonstrate that the State
Department had sufficient time to perfect its hearing requests in a timely manner, but failed to
do so.
In this case, the Board must determine whether the Administrator's
interpretation of the term "extraordinary circumstances" in the SCA regulations
governing substantial variance and arm's-length hearings is correct in light of the facts presented
on the record and applicable legal precedent. The Board has jurisdiction to decide the issues
presented pursuant to the Act and the implementing regulations at 29 C.F.R. Parts 4 and
8.
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For the reasons discussed below, we conclude that the Administrator's
March 24, 1998, final ruling is in accordance with the Act and the regulations. We therefore
deny the Petition for Review and affirm the Administrator's final ruling.
BACKGROUND
I. Overview of the SCA's wage determination procedures and substantial
variance and arm's-length bargaining hearing procedures
The SCA generally requires that every contract in excess of $2,500
entered into by the United States, the principal purpose of which is to provide services
through the use of service employees in the United States, must contain a provision which
specifies the minimum hourly wage and fringe benefit rates which are payable to the various
classifications of service employees working on such a contract. See 41 U.S.C.
§§351(a)(1), (a)(2). These wage and fringe benefit rates are predetermined by
the Wage and Hour Division acting under the authority of the Administrator, who has been
designated by the Secretary of Labor to administer the Act.
Under the Act, there are two types of SCA wage schedules also
known as wage determinations which are prepared for inclusion in service contracts. The
first type is a general wage determination, and the wages and fringe benefits contained in
such a schedule are based on the rates which the Wage and Hour Division determines prevail
in the particular locality for the various classifications of service employees to be employed
on the contract. 41 U.S.C. §351(a)(1) and (2). These wage determinations sometimes
are referred to as "prevailing in the locality"-type wage determinations.
A second type of wage determination is issued at locations where there
is a collective bargaining agreement between the service employees and an employer
working on a Federal service procurement. Under these circumstances, the Wage and Hour
Division is mandated under the SCA to specify the wage and fringe benefit rates from the
collective bargaining agreement (including prospective increases) as the required minimum
rates payable to the service employee classifications to be employed on the procurement
contract. Id. In addition, Section 4(c) of the Act requires generally that the
negotiated wage rates (and prospective increases) must be incorporated into a successor
contract's wage determination in those instances where a labor agreement has been
negotiated between the service employees and a contractor's predecessor. 41 U.S.C.
§353(c).
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Section 4(c), however, contains provisions that restrict the
applicability of CBA-based wage and fringe benefit rates in wage determinations:
No contractor or subcontractor under a contract, which succeeds
a contract subject to this chapter and under which substantially
the same services are furnished, shall pay any service employee
under such contract less than the wages and fringe benefits,
including accrued wages and fringe benefits, and any
prospective increases in wages and fringe benefits provided for
in a collective-bargaining agreement as a result of arm's
length negotiations, to which such service employees
would have been entitled if they were employed under the
predecessor contract: Provided, That in any of the
foregoing circumstances such obligations shall not apply if the
Secretary finds after a hearing in accordance with regulations
adopted by the Secretary that such wages and fringe benefits are
substantially at variance with those which prevail for
services of a character similar in the locality.
41 U.S.C. §353(c) (emphases added). As interpreted by the Secretary under the
SCA regulations, the successorship provisions of Section 4(c) quoted above are subject to
two limitations, both of which involve hearings before Department of Labor Administrative
Law Judges.
First, collectively-bargained wage rates may only be incorporated into
a covered service contract if such rates were reached "as a result of arm's-length
negotiations ...." Id. A challenge to the bona fides of a collective
bargaining agreement can be brought by requesting a so-called "arm's length
hearing." See 29 C.F.R. §4.11. The purpose of an arm's-length
proceeding is to determine whether a CBA containing negotiated wage and fringe benefit
rates was reached by willing signatories, avoiding "collusive arrangements intended
to take advantage of the SCA scheme." 48 Fed. Reg. 49740 (Oct. 27, 1983).
Second, the Section 4(c) proviso of the SCA states that wages and
fringe benefits contained in a CBA shall not apply to a service contract "if the
Secretary finds after a hearing in accordance with regulations adopted by the Secretary that
such wages and fringe benefits are substantially at variance with those which prevail for
services of a character similar in the locality." 41 U.S.C. §353(c). Therefore,
the collectively-bargained wage or fringe benefit rates negotiated between a Federal service
contractor and the union representing its employees may not be applied to a successor
procurement period if, following a challenge and hearing, it is determined that the negotiated
wages are substantially different from locally-prevailing rates for similar work. See
29 C.F.R. §4.10.
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The regulations governing requests for arm's-length and substantial
variance hearings include explicit procedural time limitations for filing hearing requests.
For example, the substantial variance hearing provision states:
(b)
* * *
(3) . . . [R]equests for a hearing shall not be considered unless
received as specified below, except in those situations
where the Administrator determines that extraordinary
circumstances exist:
(i) For advertised contracts, prior to ten days before the award
of the contract;
(ii) For negotiated contracts and for contracts
with provisions extending the initial term by
option, prior to the commencement date of the
contract or the follow-up option period, as the
case may be.
29 C.F.R. §4.10(b)(3) (emphases added). The time limitation provisions for
requesting arm's length hearings are the same. See 29 C.F.R. §4.11(b)(2).
Therefore, in order for a contracting agency's substantial variance or arm's-length hearing
request to be considered timely in connection with a multi-year contract about to enter a new
option year, the request ordinarily must be made prior to the commencement date of the
follow-up option period.
II. Factual and procedural background
The State Department awarded a contract to provide security services
to Inter-Con Security Systems, Inc. (Inter-Con) in the latter part of 1996 (Contract No. S-
OPRAQ-96-D-0569)(the Contract). The Contract called for Inter-Con to provide security
guard and protective services at several federal facilities at various locations, including (a)
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the main Department of State office building and Department annexes in the National
Capital Region (D.C. - Md. - No. Va.); (b) the U.S. Mission to the United Nations,
Ambassador's Residence at the Waldorf-Astoria Hotel and the Passport Office, New York
City; (c) the National Passport and Visa Centers in Portsmouth, New Hampshire; (d) the
U.S. Passport Offices in Los Angeles and San Francisco, California; (e) and State
Department offices in Charleston, South Carolina. Administrative Record (AR)1 Tab G, p. 48. Inter-Con was the lowest
bidder among three finalists in the procurement process. AR Tab H, p. 264.
1 In this decision, citation
to additional documents contained in the record before the Board are abbreviated as follows:
Pet. Petition for Review
Pet'r Rep. Brf. Petitioner's Reply Brief
Adm'r Stmt. Statement of the Acting
Administrator in Response to
Petition for Review
Inter-Con Brf. Statement of Intervenor Inter-Con
2 It appears that the
parties to the CBA were "Inter-Con UPSP Services Corporation," the UPGWA and Local
285. See AR Tab G, pp. 57, 75; AR Tab H, pp. 244, 262. However, early versions of the CBA
identified the signatory union as Local 158. AR Tab G, p. 59; AR Tab H, p. 246. In addition, there
appear to be slight differences between the unsigned CBA supplied to the State Department in early
December and the version that finally was executed. Compare AR Tab E, pp. 40-41 and AR
Tab H, p. 258.
3 The State
Department alleges that Inter-Con "did not provide a signed copy of the final agreement until
December 19[, 1997]." Pet'r Rep. Brf., p. 4. However, it appears that an unsigned version of the
CBA was forwarded to the State Department on December 5, 1997. Inter-Con Brf., p. 2; AR Tab E, pp.
25-43.
4 The term
"interested party" is defined in the regulation at 29 C.F.R. §8.2(b)(1) to include any
"employee or any labor organization which represents an employee who is likely to employed or
to seek employment under a contract containing a particular wage determination, or any contractor or
an association representing a contractor who is likely to seek a contract or to work under a contract
containing a particular wage determination." As, respectively, the service contractor and the labor
organization for the State Department's security services contract, Inter-Con and UPGWA are interested
parties.
5 Other provisions
of Rule 60(b) establish additional grounds for relief from a final judgment or order: "(1) mistake,
inadvertence, surprise or excusable neglect; (2) newly discovered evidence which by due diligence could
not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore
denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (4) the
judgment is void; (5) the judgment has been satisfied, released, or discharged . . . ." Fed. R. Civ.
Proc. 60(b)(1)-(5). The State Department has not alleged and the record does not support a conclusion
that any of these bases for relief from judgment would be applicable in this matter before the Board.
6 Prior to
establishment of the Administrative Review Board in 1996, the WAB issued final agency decisions on
behalf of the Secretary of Labor under the Davis-Bacon Act, as amended, 40 U.S.C. §276a et
seq. and various statutes incorporating Davis-Bacon Act requirements. The Davis-Bacon and its
related Acts are "sister" statutes to the SCA, requiring payment of prevailing wages as
determined by the Secretary of Labor to laborers and mechanics employed on federal and federally-
assisted construction projects.
7 As an aside, we
note our disappointment in the Administrator's (and counsels') failure to discover and inform the Board
of the history underlying this section of the SCA regulations.
8 Although little
remembered today, one of the problems that precipitated Section 4(c) and its substantial variance proviso
was competition between employers and unions at Federal installations prior to 1972 that drove
negotiated wage rates downward. In some instances, non-incumbent unions negotiated labor
agreements with prospective (i.e., non-incumbent) contractors at these installations with wage
rates that were below the negotiated rates already being paid at the site under the union contract
between the incumbent employer and the incumbent union. See, e.g., Dept. of the Air Force's
Patrick AFB, FL, SCA-CBV-3, Aug. 6, 1973. During the first years immediately following
enactment of Section 4(c), several of the substantial variance hearings tried before Labor Department
Administrative Law Judges were initiated by labor unions (or independent employee groups) asserting
that the negotiated wage rates were below locally prevailing rates. U.S. Air Force, Hawaii
Tracking System, Kaena Point, Oahu, HA, SCA-CBV-15, Oct. 18, 1977; U.S. Air Force,
Production Flight Test Installation, Palmdale, CA, SCA-CBV-14, Aug. 19, 1975; Dept. of the
Navy, Point Mogu, CA, SCA-CBV-4, Apr. 23, 1974.
9 The activities
during the period from 1979 to 1983 concerned a comprehensive revision of all the regulations
applicable to the SCA (29 C.F.R. Part 4), and not just the substantial variance or arm's-length hearing
regulations.
10 Commenters were
concerned that the Labor Department might adopt "arm's-length" standards similar to the
standards of "good faith bargaining" under the National Labor Relations Act. In the face
of opposition, the Labor Department dropped this proposed interpretation.
11 Prior to the
establishment of the Administrative Review Board, SCA final decisions were issued by the Board of
Service Contract Appeals (BSCA)(1992 1996). Before the BSCA was created, final decisions under
the Act were rendered by the Deputy Secretary of Labor.
12 The NLRB
ultimately denied SEACOR's unfair labor practices charge. See SEACOR, supra, slip
op. at p. 4.
13 The settlement was
made in response to a charge of unfair labor practices stemming from the allegation that at the time the
CBA was entered, a majority of employee signature cards authorizing UPGWA to be Inter-Con's
employees' collective bargaining representative had not been obtained. Pet'r Rep. Brf., Attachment 3.
14 Although we
express no opinion in this case in which there has been a premature recognition of a union and the
lawfulness of the negotiated CBA is in question, such facts could present significant considerations at
trial where a timely challenge to a CBA is presented.