Date: July 31, 1995
Case No. 92-SCA-23
In the Matter of
U.S. DEPARTMENT OF LABOR
Plaintiff
v.
LEWIS & MICHAEL, INC.
and THE SECURITY STORAGE COMPANY
Respondents
APPEARANCES:
ELIZABETH R. ASHLEY, Esquire
BENJAMIN T. CHINNI, Esquire
For the Plaintiff
DENA ELLIOTT BENSON, Esquire
For the Respondents
BEFORE: J. MICHAEL O'NEILL
Administrative Law Judge
DECISION AND ORDER
This proceeding arises under the provisions of the McNamara-
O'Hara Service Contract Act of 1965 as amended, 41 U.S.C.
§351 et seq) (hereinafter "the Act"), and the
Secretary of Labor's Regulations at 29 C.F.R. Parts 4, 6 and 18.
I. STATEMENT OF THE CASE
On December 6, 1991, a Regional Solicitor of the United
[PAGE 2]
States Department of Labor filed a Complaint against Lewis &
Michael, Inc. and The Security Storage Co. (hereinafter "Respon-
dents"), alleging violations of the Service Contract Act, 41
U.S.C. §351 etseq. The Complaint alleges
violations of the minimum monetary wage requirements and a
failure to pay fringe benefits, 41 U.S.C. §§351(a)(1),
(a)(2), and requests that the Respondents be excluded from
participation in federal contracts for a period of three years.
The charges are a result of an investigation conducted by the
Wage and Hour Division of the United States Department of Labor.
The Respondents answered the Complaint on January 2, 1992.
Pursuant to notice, a formal hearing was held on March 30
and 31, 1993, in Lima, Ohio, at which time the parties were
afforded a full opportunity to be heard, to adduce evidence, and
to examine and cross-examine witnesses. Documentary evidence,
identified as Plaintiff's Exhibits 1-4, Respondents' Exhibits 1-5
and Joint Exhibit 1, was received into evidence without objec-
tion.
At the conclusion of the hearing, both parties agreed to
file simultaneous post-hearing briefs (Tr. 330-32).[1] While
not specifically addressed, it was clear that responsive briefs
were not to be filed. Id. Both post-hearing briefs were
received on or about December 14, 1993. On February 15, 1994,
Respondents' attorney filed a twenty-one page "Motion to Strike
28 Errors from Plaintiff's Brief and to Correct Two Errors in
Respondents' Brief." On February 18, 1994, the Plaintiff filed a
"Motion to Strike" Respondents' February 15, 1994 Motion,
claiming that the Respondents' Motion was "nothing more than a
very thinly disguised reply brief." On February 28, 1994,
Respondents' attorney filed a "Response to the Plaintiff's Motion
to Strike," claiming that her February 15, 1994 Motion was not a
reply brief. I have reviewed the Respondents' February 15, 1994
Motion and find that it argues substantive points of law and
therefore qualifies as a responsive brief, contrary to the
understanding reached at the hearing. Consequently, the
Plaintiff's February 18, 1994 Motion is granted; this precludes
consideration of the Respondents' February 15, 1994 Motion.
The findings and conclusions which follow are based upon my
observation of the appearance and demeanor of the witnesses who
testified at the hearing, and upon a careful analysis of the
entire record in light of the arguments of the parties, applica-
ble statutory provisions, regulations, and pertinent case law.
[PAGE 3]
II. ISSUES
1. Whether the Respondents were exempt from the Service
Contract Act for the work performed because the contract was for
carriage of freight under tariff rates published by the Common-
wealth of Kentucky.
2. Whether the Respondents violated the Service Contract
Act.
3. Whether "unusual circumstances" exist so as to relieve
the Respondents from the ineligibility list requirements imposed
by §5(a) of the Act.
III. BACKGROUND
Lewis & Michael, Inc. and Security Storage, Inc. are Ohio
corporations. Lewis & Michael, Inc. maintains its principal
place of business in Dayton, Ohio and is the parent of Security
Storage, Inc. which maintains its office in Cincinnati, Ohio.
Both corporations are engaged in the business of moving, storage,
transportation, and warehousing of industrial, commercial, and
household goods and materials. The General Services Administra-
tion (GSA) contracted with Security Storage, Inc., Contract No.
GS06F-13457 (hereinafter "GSA Contract"), effective from March 1,
1990 through September 30, 1990, with the government having an
option to unilaterally extend for an additional one-year period.
Respondents were awarded the contract after submitting a bid in
contemplation of the local ("prevailing wage") labor rates. By
being awarded the GSA contract, the Respondents became eligible
to perform jobs for various government agencies upon request.
The government had a unilateral option to extend the GSA contract
for one year provided that it gave the contractor preliminary
written notice of its intent to extend the contract at least
sixty days prior to the contract's expiration date. Work per-
formed under GSA contracts must be in compliance with provisions
of the Service Contract Act.
On July 26, 1990, Vernice Green, a Contracting Officer
for the Federal Supply Service, GSA, notified the Respondents,
in writing, of the government's intent to extend the GSA con-
tract for a period of no longer than a year (October 1, 1990 to
September 30, 1991). The notice did not commit the government to
an extension (PX 4, RX 1). The record contains a document dated
September 21, 1990, signed by Vernice Green, unilaterally extend
[PAGE 4]
ing the Respondents' original GSA contract from October 1, 1990,
to September 30, 1991 (PX 1 p. 130).
Vernice Green testified that GSA contract extensions are
sent to the contractor by certified mail, but that she did not
personally mail the September 21, 1990, extension (Tr. 78). No
certified mail receipt signed by a representative of Lewis &
Michael was produced by the Plaintiff and the Plaintiff stipu-
lated that the government could not produce one (Tr. 75-76).
The record contains a document signed by Robert Styers
of Lewis & Michael on September 30, 1991, and Leatha B. Jones,
Administrative Contracting Officer of the GSA, on October 1,
1991, extending Respondents' 1990 GSA contract from October 1,
1991 to November 30, 1991 (PX 1 p. 131). Robert Styers acknowl-
edged receiving and signing this extension (Tr. 274). Ms. Green
testified that when GSA contracts are extended for an option
year, the GSA is required to verify that the contractor's
workers' compensation certificate is in good standing (Tr. 96).
She stated that this was not done in the present case (Tr. 97).
In February of 1991, Joan Ives of the Internal Revenue
Service (IRS) contacted the Respondents and invited them to
submit a bid for an IRS relocation move in northern
Kentucky. Charles Sharpton, Vice President in charge of the
commercial division of Lewis & Michael, and Robert Styers, then
the general manager of the Cincinnati office, visited the sites
and were shown around by IRS employees who explained what work
was to be done. Mr. Styers testified that during the visit he
was encouraged to "keep his pencil sharp" and "come in with a low
price." (Tr. 235, 238). He stated that he had the distinct
impression that other companies were bidding because the IRS
"made constant remarks about keeping the price low if we wanted
to get this work." (Tr. 241). The IRS solicitation contained a
provision inviting offerors to participate in a site
visit. On February 25, 1991, Mr. Styers submitted a bid for the
move. (PX 1, pp. 126-128) The proposal was accepted by the IRS
and the move was to be accomplished in May of 1991. Charles
Sharpton testified that the IRS told him that the move had to be
completed by June 1, 1991, or the IRS would owe an additional
$90,000 in rental fees on two buildings no longer used. Lewis &
Michael began the move on May 10. (Tr. 195).
The first phase involved moving office furniture and
personal effects from Covington, Kentucky, to a new facility in
Florence, Kentucky, a distance of about 15 miles. Mr. Sharpton
testified that this was "a typical office move" (Tr. 213). The
IRS personnel packed their personal items in boxes provided by
[PAGE 5]
the Respondents (Tr. 235, 265). Then Lewis & Michael employees
loaded the furniture and boxes on a truck, transported them to
the new site, unloaded them, and placed the furniture in the new
offices.
The second, and major, phase of the move was a relocation of
"special use space"[2] from one warehouse in Florence, Kentucky,
to another about one-half mile away. The Florence building was
used to store forms, large rolls of paper and non-office
materials on the floor, storage racks and shelving (Tr. 195-200,
235). IRS employees removed boxes of forms from shelves, stacked
them on skids, transported the skids to the loading dock by fork-
lift and then into Lewis & Michael trucks. The principal tasks
required of Lewis & Michael employees were the tearing-down and
reassembly of storage racks and shelving. The racks and shelving
were dismantled, loaded onto a truck, moved one-half mile to the
new warehouse, unloaded and reassembled (Tr. 192, 208-11). Mr.
Sharpton testified that the majority of Respondents' employees'
time on the move was spent in the handling of the shelving and
the racking system (Tr. 213). Respondents' employees also had
to move and reassemble a bailer, scales and a shed (Tr. 199-200).
At least ten employees were involved in the handling of the
shelving and the moving of the property from one location to
another (PX 2, Tr. 213). Ms. Green testified that the govern-
ment did not issue a bill of lading for the move (Tr. 26).
Mr. Styers testified that when the IRS awarded the job to
the Respondents, he requested a purchase order but did not
receive one until "they were well into the move" (mid May, 1991).
(Tr. 245) Mr. Styers further stated that when he received the
purchase order he looked at it "very briefly . . . [and] looked
at the price and read the work to be performed." He then gave it
to a clerk for future billing. (Tr. 245) The purchase order was
dated March 13, 1991 (PX 1 p. 2). Mr. Styers testified that he
does not normally commence work without a purchase order, with
the exception of repeat companies (Tr. 258-59). Block two of the
IRS purchase order referenced GSA contract number - GS06F-13457.
Block seventeen read: "[t]erms are according to contract as
indicated in block two of purchase order." (PX 1 p.2). The
purchase order classified the moving services as "special use
space." Id. The purchase order listed the total area
involved with the move as 128,000 square feet. Id. Mr.
Styers testified that the actual square footage involved with the
move was 131,000 square feet (Tr. 273).[3]
On May 16, 1991, Ms. Ives of the IRS contacted Mr. Styers
about the wage rate for the moving job. Mr. Styers testified
that Ms. Ives told him the wage rate applicable to the job was
[PAGE 6]
$7.60 per hour (Tr. 246-47).[4] He stated that she never sent
him a copy of the wage determination (Tr. 247). Mr. Styers
testified that after consulting with David Lewis they agreed to
pay the employees $8.00 per hour to cover the wage rate (Tr. 247,
283-84). The Respondents completed the work on or about May 31,
1991, and billed the IRS on June 3, 1991. The invoice listed the
charges as follows: 84,300 square feet warehouse space -
$26,976.00; 47,350 square feet office space $20,834.00; 2575
boxes @ .65 each - ,673.75, for a total of $49,483.75. The
invoice referenced the GSA contract number GS06F-13457 (PX 1 p.
129).
Robert Kunz, Wage and Hour investigator, testified that the
investigation began when an IRS employee reported having over-
heard one of the Respondents' employees complaining about being
paid only minimum wages for the kind of work performed (Tr. 173).
This information was reported to the Wage and Hour Division by an
IRS supervisor. Mr. Kunz testified that he contacted Mr. David
Lewis and informed him of the wage discrepancies, telling him
that the prevailing rate was $9.39 per hour and the Respondents
had only paid $8.00 per hour (Tr. 107, 112). Mr. Kunz stated
that David Lewis cooperated with the investigation, calculated
the back wages after a discussion with him, and promptly paid the
employees all monies due (Tr. 125-28). David Lewis testified
that he had had dealings with Mr. Kunz in the past and "took it
for [his] judgment that [Kunz] was correct." (Tr. 292). Mr. Kunz
said that David Lewis agreed to comply with the terms of the SCA
in the future (Tr. 140).
IV. STIPULATIONS
The parties stipulated to the following facts, which are
supported by the record and are accepted (JX 1):
1. Lewis & Michael, Inc. is separately incorporated from
Security Storage, Inc. and is the latter's parent company. Lewis
& Michael's principal place of business is located in Dayton,
Ohio. Security Storage's principal place of business is located
in Cincinnati, Ohio.
2. Persons owning more than 5% of the stock of each of the
respondent companies are Donita A. Lewis, 17.48%, Bernice Irene
Lewis, 9.09%, and Charles M. Lewis, 9.09%. The remaining stock
of each company, 63.34%, is held by the B. Morgan Lewis Trust.
3. The officers of the respondent companies are Donita A.
Lewis, Charles M. Lewis, William E. Lewis, David M. Lewis, Robert
Styers, Alan J. Thompson, and Charles Sharpton.
[PAGE 7]
4. The general manager of Lewis & Michael is David M.
Lewis. The general manager of Security Storage is Charles M.
Lewis; however, in May 1991, the general manger was Robert A.
Styers.
5. Policy decisions of respondent companies are made by
their respective boards and general managers.
6. Respondent companies are engaged in the same type
of business: moving, storage, transportation, warehousing of
industrial, office, commercial and household goods and general
commodities.
7. Neither of the respondent companies has ever been
adjudicated in any administrative or court proceeding to be in
violation of the Service Contract Act.
8. Respondent, Lewis & Michael, Inc. and/or Security
Storage were investigated on two occasions prior to the investi-
gation that gives rise to the instant action. These investiga-
tions were conducted by the Wage and Hour Division of the United
States Department of Labor in 1986 and 1990. Each investigation
was conducted under the terms of the Service Contact Act, 41
U.S.C. §351 etseq. At the conclusion of each
of these investigations, a closing conference was held between
the investigator of the Wage and Hour Division and responsible
official(s) of Respondents. These conferences dealt with, among
other things, the obligations of Respondents under the terms of
the Act, and methods to effectuate compliance with the
requirements of the Act. During each of the aforesaid closing
conferences, Respondents agreed to comply with the terms of the
Act in the future. Back wages and fringe benefits alleged to be
due as a result of these investigations were resolved as follows.
The 1986 investigation resulted in an administrative pro-
ceeding involving a protest that the wrong wage determination
had been included in the contract to which Lewis & Michael was
a subcontractor. That proceeding, which went to the Federal
District Court for the Southern District of Ohio, resulted in a
settlement agreement providing payment of $9,395.66 to 62
employees, with an agreement to no admission of liability and
that there would be no debarment proceeding.
The 1990 investigation resulted in prompt payment of
$6,907.23 to 30 employees without an admission of liability.
[PAGE 8]
9. Respondent Lewis & Michael, Inc. has been engaged in
government contracting under the Service Contract Act since 1965.
Security Storage Inc. has been engaged in government contracting
under the Service Contract Act since some time in the 1970's.
Since 1985 more than 5.7 million dollars of Respondents' revenue
was derived from contracts performed under the Service Contact
Act.
10. General Services Administration contracted with
Security Storage, Inc., Contract No. GS-067F-13457 (herein-
after GSA contract) effective March 1, 1990, through
September 30, 1990, with an option to extend for an addi-
tional one year period.
11. The GSA contract was a contract for normal office
moving.
12. In February, 1991, the IRS invited Respondent Security
Storage, Inc. to give a bid for work for the Internal Revenue
Service in Kentucky and Security Storage performed that work in
May 1991.
13. David Lewis promptly reviewed the payroll records of
all employees who performed work for the IRS in May, 1991, was
shown the wage determination in Kunz' possession in June, met
with Kunz and reviewed with him how to calculate alleged sums
due. The sums alleged to be owed, $1305.70 calculated on
June 25, 1991, were paid on June 26, 1991. David Lewis fully
cooperated with Kunz in this and the 1990 investigation and
promised future compliance.
14. Respondents did not admit to any liability whatsoever
in the payment of alleged back wages and fringe benefits.
15. All sums claimed by Plaintiff as wages and fringe
benefits for the May, 1991, work performed for the IRA by
Security Storage were paid in full on June 26, 1991.
V. FINDINGS OF FACT
Having reviewed the record in this matter, I make the
following findings of fact, in addition to those facts to which
the parties have stipulated:
1. The GSA contract provides an Option to Extend the Term
of the Contract and procedure for extending it at §52.217-9:
[PAGE 9]
(a) The Government may extend the term of
this contract by written notice to the Con-
tractor within the time specified in the
Contract; provided, that the Government shall
give the Contractor a preliminary written
notice of its intent to extend at least 60
days before the contract expires. The pre-
liminary notice does not commit the Govern-
ment to an extension.
(PX 1, pg. 76).
2. On July 31, 1990, GSA's preliminary written notice of
its intent to extend the contract was received by Security
Storage through Robert Styers as evidenced by his signed return
receipt (PX 4).
3. The notice of intent to extend the contract expressly
states in pertinent part," . . . please consider this letter as a
notice of intent to extend the term of the contract for a period
of no more than 1 year. . . . This notice shall not be deemed to
commit the Government to an extension" (PX 4).
4. The subsequent notice that the Government was unilater-
ally extending the contract for exactly one year, Standard Form
30 (Tr. 34), a modification or amendment to the contract, was
executed by the GSA contracting officer, Vernice Green, on
September 21, 1990 (PX 1). Vernice Green testified that the
notice of the government's intent to extend does not put the
contractor on notice that the contract is actually extended-
actual extension is effectuated only upon receipt of Form 30
(Tr. 74).
5. The one-year extension notice, Form 30, was not re-
ceived by Respondents.
Plaintiff's witness, Vernice Green, the contracting officer
for the GSA since 1978 (Tr. 19), testified that the way GSA
operates is to send such documents, contracts and modifications
by certified mail. She admitted that she did not mail the
extension document herself (Tr. 78). No documentary evidence,
neither the white certified mail slip, verifying that this
extension had been sent, nor the green return receipt card
verifying receipt, was in the file.
Respondents' witnesses, Robert Styers, David Lewis, and
Charles Lewis, searched their files in advance of the hearing
[PAGE 10]
and found no extension Form 30 (PX 1 pg. 130), had no recollec-
tion of ever receiving it or of signing a receipt for it, and saw
the form itself for the first time just days before the hearing
in this case when it was provided by Plaintiff's attorney to
Respondents' attorney. (Robert Styers - Tr. 228, 232; David
Lewis - Tr. 296; Charles Lewis - Tr. 301-302).
6. Verification of items such as operating authority,
workers' compensation certification, and insurance for the
duration of the contract is to be done when a GSA contract is
extended. Such verification was not done after the initial GSA
contract was entered (Tr. 95-98).
7. A subsequent extension of GSA Contract No. GS-067F-
13457, for a period of 60 days from October 1, 1991, until
November 30, 1991, was executed by the parties on September 30
and October 1, 1991. (PX 1, pg. 131)
8. Respondents did not perform any work under the GSA
contract or other authority for any agency between September 30,
1990, and May 10, 1991, when the IRS move began (Tr. 253).
9. The bidding procedure used by IRS prior to issuing a
purchase order for the move, the sale of boxes by Respondent
to the IRS, the packing of boxes and moving of skids by IRS
personnel, and the designation of commercial warehouse space
as "special use space" in the IRS purchase order,[5] are
different from standard provisions of the GSA contract but were
not fully addressed in a written modification to the GSA contract
authorized by an official of the GSA. The IRS purchase order
addresses some of these differences but it was not approved by a
GSA contracting officer (PX 1, pp. 73B, 124-128).
10. On May 16, 1991, Joan Ives of the IRS spoke with Robert
Styers of Security Storage by phone and told him there was a wage
determination applicable to the IRS move of approximately $7.60
per hour (Tr. 246, 247, 283, 284). Styers asked Joan Ives for
the wage determination in writing, but she did not get it to
him (Tr. 247, 284). Respondents promptly paid their employees,
retroactive to the beginning of the move, at least $8.00 per hour
(Tr. 247).
11. The specifications for the IRS move do not contain a
wage determination or any reference to a wage determination (PX 1
pp. 126-128). The GSA Contract contained a wage determination
(PX 1 pp. 13, 14). The purchase order for the IRS move referred
to the GSA contract in Block 2 of the form.
12. On or about June 4, 1991, Robert Kunz, a wage and hour
[PAGE 11]
investigator for the Department of Labor, called David Lewis
about a possible problem on the IRS move (Tr. 285). David Lewis,
operations manager for Respondents' Dayton office, had no in-
volvement with the IRS move other than in reference to the
investigation of Respondents (Tr. 285).
13. "David Lewis promptly reviewed the payroll records of
all employees who performed work for the IRS in May 1991, was
shown the wage determination in Kunz' possession in June, met
with Kunz and reviewed with him how to calculate alleged sums
due. The sums alleged to be owed, $1305.70 calculated on
June 25, 1991, were paid on June 26, 1991. David Lewis fully
cooperated with Kunz in this. . . and promised future compliance"
(JX 1, Stipulation 13).
14. Because of the material differences between the GSA
contract and the specifications for the IRS move, particularly
the invitation to bid on the IRS move and the nature of the move,
i.e. apparently mostly a commercial warehouse
relocation rather than a typical office move, Respondents were
not on notice that the GSA contract, which they were unaware had
been extended, could apply to the move, at least until the
purchase order referencing the contract number was received in
mid-May, about a
week into the move. The bid submitted by Respondents to the IRS
on February 25, 1991, did not contain the GSA contract number
(RX 3). No written documentation and no oral representations
about the GSA contract, its number, or any wage determination
were made to Respondents from the initial contact between them in
February 1991, through the first week after the move commenced on
May 10. The only documentation addressing the agreement between
the IRS and Respondents were the specifications (PX 1, pp. 126-
128) and the purchase order (PX 1, pp. 124-125). The specifica-
tions, which Respondents never received, contained no language
incorporating a wage determination or referencing it by use of a
contract number.
The award was communicated by phone, so Robert Styers never
saw the document authorizing the services before the move began.
He bid the job and started the move without the purchase order or
specifications in hand and was well into the move when the pur-
chase order arrived (Tr. 245). When the purchase order arrived,
Styers looked at the price, read the work to be performed, and
gave it to a clerk to keep for billing after the move.
Thus, only as of May 16, 1991, when Respondents received a
purchase order from IRS referencing the GSA contract, were they
aware, or reasonably should have been aware, that the GSA con-
tract had been unilaterally extended by the government and that
[PAGE 12]
the IRS move was governed by the GSA contract. However, as a
company which had depended on government contracts for substan-
tial revenue over a period of many years, they should have rec-
ognized the significance of the contract number appearing on the
purchase order and made inquiries on receipt of the purchase
order.
15. Without any paperwork, Styers had proceeded with the
move which the IRS had stressed had to be done by the end of May.
The IRS was focused from the beginning on getting out of their
leased property in Florence by the end of May so they wouldn't
have to pay another $90,000 for overstaying their lease. They
emphasized this to Styers and Sharpton when they met in Florence
in February. The focus on getting the move completed on time to
avoid penalties was repeated in Ruschman's retort to Styers in
mid-May when Styers complained that the paperwork had not been
received (Tr. 243, 278, 279, 195, 263). Styers proceeded without
the paperwork because he trusted the IRS, he had worked previous-
ly with Ruschman at the IRS, and he saw what he was expected to
move (Tr. 244).
16. Respondents were not aware that the GSA contract
applied at the time they commenced performance of the job. From
their point of view, there was no wage determination applicable.
As they were informed differently concerning wage rates, first by
the IRS and then by Kunz, they paid promptly and without argu-
ment.
17. Although Respondents made timely requests before and
during the move for the paperwork applicable to the move, the IRS
did not notify respondents that a wage determination applied to
the move until May 16, 1991, six days after work commenced, and
never provided respondents with a written wage determination for
the May 1991 move.
18. Respondents promptly paid, retroactive to the date the
move began, more than the amount the IRS told respondents they
should pay under the allegedly applicable wage determination.
Respondents were not informed of the wage and fringe benefits
rates which the Department of Labor considered to be applicable
to the move until after the job had been completed. Respondents
paid that amount immediately.
19. The GSA contract prohibits a contractor from selling
packing material to be used in the packaging of materials con-
tained in "desks and credenzas [of the agency's] personnel." (PX
1 p. 66B, para. 2); instead, the government is to provide the
[PAGE 13]
boxes for personal item packing (PX 1 p. 76B).
20. Any modifications to GSA contracts must be made in
writing by the Contracting Officer or an authorized representa-
tive (PX 1 p. 80B).
21. The GSA contract requires a participating agency to
place an order directly with the contractor (PX 1 p. 73).
22. Prices under a GSA contract are set during the initial
bidding process (Tr. 42).
23. The GSA contract covers three types of space for
relocation - general office space, specialized office space and
special use space. General office space is defined as "that
space which provides an acceptable environment suitable in its
present state for an office operation and may consist of a large
open area or may be partitioned into rooms." Included within
general office space are "conference rooms, training rooms,
libraries, supply rooms, closets, and many other areas used for
storage purposes . . .." (PX 1 p. 99). Specialized office space
is defined as "that space which provides an acceptable environ-
ment suitable in its present state for an office operation and
may consist of a large, open area or may be partitioned into
rooms." Id. Special use space is defined as that space
which provides an acceptable environment suitable in its present
state for specialized operations and may consist of a large open
area or may be partitioned into rooms. Special use space
includes "laboratory or clinic areas . . . computer rooms, and
light industrial areas such [as] print plants, motor pool service
areas, and shops." (PX 1 p. 100). Notably absent from these
examples of special use space is storage or warehouse space.
24. No government bill of lading was issued covering the
services performed during the move for IRS. The move for the IRS
was primarily a relocation move and not a transportation contract
within the meaning of the exemption in section 7(3) of the
Service Contract Act.
25. Although the Complaint in this case was filed by the
Regional Solicitor on November 27, 1991, counsel did not have,
and had never seen, a copy of the contract extension (modifica-
tion document) until March 11, 1993, less than three weeks prior
to the hearing (PX 1, pg. 130; RX 1). Neither counsel for either
party was aware that notice of intent to extend the GSA contract
had been issued to Lewis & Michael, Security Storage, by the GSA
contracting officer on July 26, 1990, and received by Robert
[PAGE 14]
Styers, until the hearing (PX 4; Tr. 28-38).
VI. CONCLUSIONS OF LAW
1. The "Contracts for carriage subject to published
tariff rates," 29 C.F.R. §4.118, exemption does not
apply.
The work performed by Respondents for the IRS in May 1991
principally involved moving services and not carriage of freight.
No Government bill of lading citing the published tariff rate, a
necessary legal document accounting for goods carried as freight,
was ever issued in this matter, 29 C.F.R. §4.118. Contrary
to Respondents' argument, transportation was incidental to the
tasks of dismantling and reassembling racks and shelving, moving
heavy equipment to its new location, and replacing forms, files,
etc. on the racks and shelves. The tariff prescribed by the
Division of Motor Carriers, Commonwealth of Kentucky, did not
apply to the work performed by Respondents for the IRS so as to
exempt the contract from the requirements of the Service Contract
Act.
2. The Service Contract Act prescribes the minimum
monetary wages and fringe benefits for the service employees
engaged in performance of work for the IRS under its contract
with Respondents in May 1991.
The Respondents are experienced Government contractors who
rely on work for federal agencies for a substantial part of their
annual revenue. Respondents' managers understand the federal
contracting process and the wage and fringe benefit requirements
of the Service Contract Act. It is clearly in Respondents' best
interest to avoid any problems with the Department of Labor which
could have a serious detrimental effect on their business and in
fact, David Lewis testified that he recognized that this legal
action is "an extremely serious matter" for the Respondents
(Tr. 292).
While the unilateral extension of the GSA contract was never
received by the Respondents, other evidence suggests that the
Respondents knew or should have known on or about May 16, 1991,
that the GSA contract applied to the IRS move. The Respondents
were notified on July 26, 1990, of the government's intention to
extend the GSA contract for a period of no longer than a year
(October 1, 1990 to September 30, 1991) (PX 4, RX 1). While this
notice did not commit the government to extend the GSA contract,
it put the Respondents on notice that the contract would likely
be extended. As well, the IRS purchase order sent to the Respon-
dents contained two references to the GSA contract number (GS06F-
13457). Had Mr. Styers read the purchase order carefully and not
[PAGE 15]
looked at it "very briefly," he would have noticed the reference
to the GSA contract and been aware that the GSA contract governed
the IRS move (PX 1 p. 2, Tr. 245). Furthermore, the Respondents'
invoice referenced the GSA contract number GS06F-13457 (PX 1 p.
129).
As experienced Government contractors, supplying moving
services to federal agencies for many years, Respondents should
have known that a contract with a Service Contract Act
wage determination would govern their compensation of their
employees on the IRS move. See 29 C.F.R.
§§4.110-4.113, 4.130(a)(39), (35), (50), (55).
However, they could not have known until May 16 that Contract No.
GS06F-13457 had been renewed and was, in fact, the contract that
applied.
Respondents' contest of their alleged violation of the Act
is based on their claim that the Act did not apply to the IRS
move. Respondents make no arguments addressing the minimum
monetary wage and fringe benefits requirements of the Act, which
they were accused of violating. Since I have found that the Act
applies to the IRS move and the Respondents' payment of their
employees did not satisfy the minimum monetary wage and fringe
benefits requirements, I find that the Respondents did inadver-
tently violate the Act. 41 U.S.C. §352(a)(1), (a)(2); 29
C.F.R. §§4.6, 4.7, 4.165, 4.170. The total
underpayment alleged due, $1305.70, has been paid.
3. The facts present in this case establish the
existence of unusual circumstances to warrant relief from the
debarment sanction.
The remaining issue in this case is whether "unusual circum-
stances" exist to excuse the Respondents' violation of the Act by
failing to pay the prevailing wage and fringe benefits to em-
ployees subject to the provisions of the Service Contract Act so
as to avoid the statutorily mandated debarment of three years.
E.g. Nationwide Building Maintenance, Inc. v.
Reich, 14 F.3d 1102, 1103 (6th Cir. 1994). Section 5(a) of
the statute specifically requires the Comptroller General to
compile a list of violating contractors and distribute that list
to all government agencies. In addition, the statute provides
that:
Unless the Secretary otherwise recommends, because of
unusual circumstances, no contract of the United States
shall be awarded to the persons or firms appearing on this
list or to any firm, corporation, partnership or association
in which such persons or firms have a substantial interest
[PAGE 16]
until three years have elapsed from the date of publication of
the list containing the name of such persons or firms.
41 U.S.C. §354.
An affirmative finding of "unusual circumstances" is required
under this provision, guided by a test outlined in the Regula-
tions and adopted by both the Secretary and the Courts. 29 C.F.R.
§4.188(b)(3); see alsoHabitech, Inc., 82 SCA
106, Dep. Sec'y Decision (September 18, 1987), Vol. 1, No. 5, OAA
344; A to Z Maintenance Corp. v. Dole, 710 F. Supp.
853 (D.D.C. 1989). The test is designed to limit the discretion
to relieve violators to situations only "where the violation was
a minor one, or an inadvertent one, or one in which debarment
would have been wholly disproportionate to the offense." 29
C.F.R. §4.188(b)(2), quoting To Amend the Service
Contract Act of 1965: Hearings on H.R. 6244 and H.R. 6245 Before
the House Committee on Education and Labor, Special Subcommittee
on Labor, 92d Cong., 1st Sess. 3 (1971) (statement of
Congressman O'Hara). The debarment of contractors is the norm,
not the exception, and only the most compelling of justifications
should relieve a violating contractor from the sanction.
Vigilantes, Inc. v. Administrator of Wage and Hour
Div., 968 F.2d 1412, 1418 (1st Cir. 1992).
The Government's administration of the contract at issue
here was seriously deficient and misleading in so many respects
that the Respondents' experience as a Government contractor can-
not fairly be used against them to cure all the omissions of
the federal agencies in this matter. Both Respondents and the
federal agencies have responsibilities in correctly administering
contracts. Too many assumptions, and too many "They should have
known because they are experienced Government contractors" judg-
ments, absolving Government officials from their numerous mis-
takes and assessing the consequences of those mistakes entirely
on Respondents, have to be made to find Respondents culpable in
underpaying employees in this matter.
The criteria for finding "unusual circumstances" outlined
by 29 C.F.R. §4.188(b)(3) include a threshold finding that
no "aggravating circumstances" exist, including a "willful or
deliberate" violation, a violation resulting from "culpable
neglect" to ascertain whether the practices are in violation,
or "culpable disregard" of whether or not they were in violation.
If such instances are found, "relief from the debarment sanction
cannot be in order." 29 C.F.R. §4.188(b)(3)(i). If, and
only, if, no aggravating circumstances are found, then the
inquiry proceeds to compliance with express "prerequisites" for
relief
[PAGE 17]
from the debarment sanction including "a good compliance history,
cooperation in investigation, repayment of money due, and
sufficient assurances of future compliance." 29 C.F.R.
§4.188(b)(3)(ii). Finally, if the Respondents bridge both
the threshold and prerequisite analysis, then "a variety of
factors must still be considered" which include any prior
investigations of the contractor for violations, any record-
keeping violations that may have impeded the investigation, the
existence of a "bona fide legal issue," the nature of any past or
present violations, and prompt payment of any sums due. 29 C.F.R.
§4.188(b)(3)(ii). The Regulations conclude with the
imposition of an affirmative duty on the contractor to ensure
compliance, the elimination of any burden shifting to subordinate
employees, or claims of simple negligence as defenses. 29 C.F.R.
§4.188(b)(4),(5),(6).
While I have found that the GSA contract with its SCA
provisions applies in this matter, its application was not at
all clear and its violation was neither willful nor deliberate.
Willfulness of a violation, warranting suspension under the
Administrative Procedure Act, has been found to require a finding
of either an intentional misdeed or such gross neglect of a known
duty as to be the equivalent. Capitol Packaging Co. v.
United States, 350 F.2d 67 (10th Cir. 1965). There are
numerous factors which preclude my finding the Respondents'
violation willful or deliberate.
A GSA contract, once awarded, does not require government
agencies to bid on jobs. Instead, agencies are given a list of
contractors who have been approved to do work for the government.
The Respondents have been involved with government contracting
for over thirty years and are well-versed in the procedure (Tr.
307-08). In the present case, the IRS solicited the Respon-
dents to submit a bid for the moving services, suggesting to the
Respondents that the job did not involve a GSA contract, or at
least not an existing GSA contract. (Tr. 235, 238, 241).
I also find that the Respondents' failure to pay the pre-
vailing wage rate was not deliberate. When the Respondents were
awarded the IRS job, they were not provided with a wage determi-
nation sheet. The purchase order, which arrived sometime after
the move commenced, also did not include a wage determination
sheet (PX 1 pp. 2, 126-28)[6] . During the move, Ms. Ives of the
IRS contacted the Respondents and told them that the prevailing
wage rate on the job was $7.60 per hour (Tr. 246-47).[7] The
Respondents requested a copy of the wage determination sheet but
one was never sent (Tr. 247). Understandably, the Respondents
relied on Ms. Ives' statement and paid their employees $8.00 per
hour. To find that the Respondents' detrimental reliance on the
[PAGE 18]
incorrect wage rate constituted a deliberate underpayment would
be unfair. See generally Vigilantes, Inc. v.
Administrator of Wage & Hour Div., 968 F.2d 1412, 1419-21
(1st Cir. 1992) (Torruella, concurring in part, dissenting in
part). While 29 C.F.R. §4.187(e)(5) provides that reliance
on advice from contracting officials is not a defense against a
contractor's liability for back wages, this Section is not
available when the issue is the sanction of debarment.
Additionally, the clause in the IRS purchase order requiring
the Respondents to provide boxes to IRS personnel is prohibited
in the GSA contract and makes the application of the GSA contract
less obvious. The GSA contract prohibits a using agency from
purchasing cartons from a contractor to be used to pack personal
items. (PX 1 p. 66B). Any modifications to GSA provisions must
be accompanied by a writing; in the present case, no modification
existed. Robert Styers testified that one of the reasons why he
did not consider the IRS move to be governed by the GSA contract
was that the IRS contract provided for the selling of boxes (Tr.
249). As well, Charles Lewis' experience with both GSA and non-
GSA contracts makes him adept at identifying provisions partial
to each, bolstering the Respondents' claim that they were mislead
by the "supply of boxes" provision.
Finally, the government's failure to produce a new wage
determination or verify the Respondents' workers' compensation
certification upon the renewal of the GSA contract further demon-
strates that the Respondents did not willfully violate the Act.
The Regulations state that an extension of the GSA contract is
treated as a new contract and must contain a new wage rate. 29
C.F.R. §§4.143(b), 4.145. There is nothing in the
record indicating that a new wage rate was sent with the contract
extension (Tr. 97). Had a new wage determination been sent to
the Respondents, it would have been much clearer that the GSA
contract (with the SCA provisions) was still in effect.
Likewise, the Respondents would have had better notice of the
extension of the GSA contract if the government had questioned
them regarding their workers' compensation coverage.
Based on the IRS' request for a bid, the erroneous wage rate
information from an IRS official, the GSA prohibited provision in
the IRS purchase order, and the government's failure to send a
wage determination or verify the Respondents' workers' compensa-
tion coverage upon the extension of the GSA contract, I find that
the Respondents' violation of the Act was not willful or deliber-
ate. Since the Respondents have met the first prong of the "un-
usual circumstances" test, I will proceed to the second prong.
[PAGE 19]
In order to meet the second prong of the "unusual circum-
stances" test, the Respondents must demonstrate a good compliance
history, cooperation in the investigation, repayment of money
due, and sufficient assurances of future compliance. The
Respondents have a good compliance history, having never been
adjudicated in any administrative or court proceeding to be in
violation of the Act. The Plaintiff contends that the two
previous investigations of the Respondents, which both resulted
in settlement payments with no admission of liability, preclude
the Respondents from establishing a good compliance history (PPHB
at 35). This contention, however, is without merit. Payments
made in connection with investigations, absent specific findings
of guilt, do not establish prior violations. As stated in A
to Z Maintenance v. Dole:
In order for disputes with the DOL [Department of Labor]
to be used against a contractor under the unusual circum-
stances' analysis, a predicate finding must be made that
an actual violation has been committed. Mere previous
payments in response to DOL complaints, standing alone, are
not . . . sufficient bases for a finding of aggravated
circumstances under 29 C.F.R. §4.188(b)(3)(i). 710 F.
Supp. 853, 857 n.11 (D.D.C. 1989) (emphasis added).
Therefore, I find that the Respondents demonstrated a good com-
pliance history.
The remaining requirements of the second prong of the "un-
usual circumstances" test are also met. Robert Kunz, the Wage
and Hour investigator assigned to this case, testified that the
Respondents fully cooperated with the investigation (Tr. 108).
David Lewis, in cooperation with Mr. Kunz, calculated the back
wages due, which were promptly paid (JX 1). The Respondents gave
sufficient assurances of future compliance with the Act (Tr.
140). Since the Respondents demonstrated a good compliance his-
tory, fully cooperated in the investigation, promptly repaid back
wages due, and gave sufficient assurances of future compliance, I
find that they satisfied the second prong of the "unusual circum-
stances" test and will proceed to review the third and final
prong of that test.
The third prong consists of a variety of other factors,
including: the nature of any past or present violations, any
prior investigations of the contractor for violations, the
existence of a bona fide legal issue, any record keeping viola-
tions that may have impeded the investigation, and prompt payment
[PAGE 20]
of any sums due. I do not find the nature of the Respondents'
violation to be significant. Although the amount in controversy
of $1305.70 is not de minimis within the meaning of
Federal Food Serv., Inc. v. Donovan, 658 F.2d 830
(D.C. Cir. 1981),[8] the legislative history of the Act, as
quoted in the Regulations, states that the sanction of debarment
was not intended to be employed where the violation was a minor
one, or an inadvertent one, or one in which [debarment] . . .
would have been wholly disproportionate to the offense." 29
C.F.R. §4.188(b)(2), quotingTo Amend the Service
Contract Act of 1965: Hearings on H.R. 6244 and H.R. 6245 Before
the House Committee on Education and Labor, Special Subcommittee
on Labor, 92d Cong., 1st Sess. 3 (1971) (statement of
Congressman O'Hara). Given that the violation amounted to a
small percentage (2.64%) of the contract value and the violation
was not "willful or deliberate", I find that an imposition of
debarment would be "wholly disproportionate to the offense."
Furthermore, the insignificance of the Respondents' violation is
compounded when viewed in light of the previously discussed
mitigating factors (see discussion supra). The nature of
the Respondents' past violations need not be addressed because I
found that the Respondents did not commit any prior violations.
The remaining requirements of the third prong of the "un-
usual circumstances" test are also met. While the Respondents
have been subject to two previous investigations, neither result-
ed in findings of violations and they were the only ones in the
Respondents' thirty-year history of government contracting under
the Act (JX 1). The question of whether the IRS contract was
subject to SCA provisions qualifies as a bona fide legal issue.
There were no record keeping violations impeding the investiga-
tion. As noted supra, all back wages were promptly paid.
Thus, the combined effect of the insignificant nature of the
present violation, the non-damaging prior investigations, the
existence of a bona fide legal issue, the absence of record
keeping violations, and the prompt payment of back wages serves
to satisfy the third prong of the "unusual circumstances" test.
The Respondents have satisfied all three prongs of the
"unusual circumstances" test and are not subject to debarment
under the Act.
VII. CONCLUSION
While I have found that enough evidence exists to make a
finding of the applicability and violation of the Act, numerous
other factors defeat a finding of debarment.
[PAGE 21]
VIII. ORDER
WHEREFORE, upon consideration of the entire record and for
the reasons stated in this decision, it is hereby,
ORDERED that the Respondents' earlier payment of back wages
stand, and it is further
ORDERED that the Secretary of Labor take affirmative action
to relieve Respondents of the ineligible list of Section 5 of the
Act, 41 U.S.C. §354(a), and that Respondents not be placed
on the list of debarred bidders in accordance with the provisions
of 29 C.F.R. §5.12.
________________________________
J. MICHAEL O'NEILL
Administrative Law Judge
NOTICE OF APPEAL RIGHTS: Within 40 days after the date of
this decision, any aggrieved party may file a petition for review
of the decision with supporting reasons. Such petition shall be
submitted in writing to the Board of Service Contract Appeals
pursuant to 29 C.F.R Part 8, with a copy thereof to the Chief
Administrative Law Judge. The address of the Board of Service
Contract Appeals is U.S. Department of Labor, 200 Constitution
Avenue, N.W., Room N6507, Washington, D.C., 20210, Attn: Gerald
F. Krizan, Executive Secretary, - Telephone: 202/523-9030 -
Facsimile: 202/523-6838. Petition shall refer to the specific
findings of fact, conclusions of law, or order at issue. A
petition concerning the decision on the ineligibility list shall
also state the "unusual circumstances" which warrant relief from
the ineligibility list.
[ENDNOTES]
[1] In this decision, "PX" refers to the Plaintiff's Exhibits,
"RX" refers to the Respondents' Exhibits, "JX" refers to the
Joint Exhibit of the parties, "Tr." refers to the Transcript of
the hearing, "RPHB" refers to the Respondents' post-hearing brief
and "PPHB" refers to the Plaintiff's post-hearing brief.
[2] The IRS purchase order characterized this space as "special
use space." The respondents' officials in charge of the move
characterized it as "commercial warehouse" space.
[3] The back of the purchase order contains a statement noting
that the SCA provisions are incorporated by reference into the
IRS contract (PX 1 p. 2B). However, block number eight of the
IRS contract, which is checked, notes that the terms and condi-
tions on the back of the contract do not apply (in this case, the
term incorporating the SCA provisions). Rather, the terms and
conditions of the contract referenced in block two (GS06F-13457)
apply.
[4] The record contains a letter dated March 23, 1992 addressed
to Plaintiff's attorney, Mr. Chinni, from Ms. Ives noting that
she discussed the wages specified in the GSA contract with the
Respondents on May 16, 1991 (PX 1 p.1). Mr. Styers stated that
Ms. Ives never actually mentioned the GSA contract during their
conversation (Tr. 246).
[5] "Special use space" is defined in the GSA contract. (PX 1,
pg. 100) or (pg. 163 of the contract document)
[6] The Plaintiff argues that since the purchase order was dated
March 13, 1991, the Respondent likely received it prior to the
commencement of the move. However, the Plaintiff did not produce
any witnesses to support this claim. Mr. Styers testified on
behalf of the Respondents that he did not receive the purchase
order until "well into the move" and I find his testimony
credible (Tr. 245).
[7] The Plaintiff relies too much on the March 23, 1992 letter,
which purports to show that Ms. Ives discussed the GSA rates with
the Respondents. The letter was written almost a year after the
original conversation and I find it unreliable. I place more
weight on Mr. Styers' testimony, who said that the GSA rates were
not discussed (Tr. 246). Ms. Ives was not called to testify and
therefore could not relay her side of the conversation.
[8] In Federal Food Service, the Court found a violation
in the amount of less than one-fifth of one percent of the
contract value to be de minimis. 658 F.2d 833-34.
