This Administrative Law Judge, having reviewed the parties' positions herein, the documentary evidence in this closed record and pertinent case precedence, finds and concludes that Respondent did violate the SCA as alleged, that the withheld amount was proper and that the two service employees were entitled to the withheld amount.

    Initially, I note that, as mentioned above, Contract No. 88275 prohibits assigning or transferring the contract without the written permission of the U.S. Postal Service.

    Contracts entered into with the United States must specify that minimum wages will be paid as determined by the Secretary "in accordance with prevailing rates for such employees in the locality." 41 U.S.C. § 351(a)(1). The Administrator specifies the monetary wages and fringe benefits determined to be prevailing for various classes of service employees in the locality. 29 C.F.R. § 4.50(a). All service employees of the classes who actually perform the specific services called for by the contract are covered by the provisions specifying such minimum monetary wages and fringe benefits for such classes of service employees and must be paid not less than the applicable rate established for the classification(s) of work performed. 29 C.F.R. § 4.152(a).

    29 C.F.R. § 4.170 requires contractors to pay fringe benefits separately and in addition to the specified minimum monetary wages. A contractor may substitute the required fringe benefits with equivalent cash payments "under the rules and regulations established by the Secretary." The governing rules and regulations for furnishing such equivalents are set forth in 29 C.F.R. § 4.177. A contractor cannot offset an amount of monetary wages paid in excess of the wages required under the wage determination in order to satisfy his fringe benefit obligations under the Act, and must keep appropriate records separately showing amounts paid for wages and amounts paid for fringe benefits. 29 C.F.R. § 4.170(a); Emphasis added. A contractor has an affirmative duty to ensure his pay practices are in compliance with the SCA. Failure to do so constitutes culpable neglect and does not permit a finding of unusual circumstances. See Habitech. Inc., Case No. 82-SCA-106 at 6 (Dec. of the Dep. Sec... Sept. 18. 1987).

    The Act requires contractors to maintain records on their service employees and the Act authorizes the Secretary of Labor to investigate and gather data regarding wages, hours, and other conditions and practices of employment with regard to a contract subject to the Act. 41 U.S.C. § 351. The Act also directs employers subject to the Act to make and preserve such records for three years. Id.

    Government service contractors are required, under its contract, to keep complete wage data on hand and available to government representatives for three years following completion of the contract. Kentron Hawaii Limited v. Warner, 480 F.2d 1166 (D.C. Cir. 1973). The records which a contractor or subcontractor is required to keep concerning employment of employees subject to the Act are specified in § 4.6(g) of

subpart A of volume 29 of the Code of Federal Regulations. 29 C.F.R. § 4.185. Under the regulations issued, and without intending to be an exhaustive list of all records required pursuant to section 4.6, the following records are required to be kept and preserved for at least the three year statutory minimum: employee's name, address and social security number, employee's correct classification, rate of monetary wages paid and fringe benefits provided, and employee's number of daily and weekly hours worked among others. 29 C.F.R. § 4.6(g)(1)(I)-(vi). If the required records are not separately kept for the exhaustive list of all records required pursuant to section 4.6, the following records are required to be kept and preserved for at least the three year statutory minimum: employee's name, address and social security number, employee's correct classification, rate of monetary wages paid and fringe benefits provided, and employee's number of daily and weekly hours worked among others. 29 C.F.R. § 4.6(g)(1)(l)-(vi). If the required records are not separately kept for the service employees performing on the contract, it will be presumed, in the absence of affirmative proof to the contrary, that all service employees in the department or establishment where the contract was performed were engaged in covered work during the period of § 4.185.

    The totality of this closed record leads inescapably to the conclusion that the Respondent has violated the Act (1) by failing to pay the required minimum wage and fringe benefits and (2) by failing to keep the required records to document and corroborate his business practices. There is no dispute that Mr. Carr had a service contract with the U.S. Postal Service requiring compliance with the Act. The Complainant has shown that Sheri Drannon and Gloria Martinez, both of whom performed services on the contract, were not paid in accordance with the applicable wage determination.

    In fact, they were paid a flat rate of $25.00 for those days on which they delivered the mail. However, the Wage determinations required, as of March 9, 1990, a minimum hourly wage of $9.29, and .59 cents as fringe benefits, for rural route mail delivery. (CX 2 at 2; TR 49) As of March 14, 1994, those rates were increased to $9.93 and .89 cents per hour, respectively (CX 7 at 7-8) and, as of July of 1996, those rates were increased to $10.21 and .90 cents, respectively, for services provided by a "driver/caser," i.e., an employee who sorts and separates the mail into different routing sections prior to delivering it. Ms. Drannon and Ms. Martinez were considered "driver/casers." (TR 138) Respondent agreed to these terms. (CX 5 at 1-2; TR 64, 130-131, 136-140, 142, 145-149, 194). However, Respondent failed to pay Ms. Drannon and Ms. Martinez the pertinent minimum wage and also failed to pay fringe benefits, including health and welfare benefits, paid vacation time, and ten paid holidays in accordance with the

contract's applicable wage determination. Respondent has not disputed Mr. Weichmann's calculations of minimum wage amounts or fringe benefits due, although he does dispute the mileage allowance utilized. His calculations are both conservative and reasonable. (CX 9) Furthermore, as the contractor of record with the contracting agency, the U.S. Postal Service, respondent had a statutory duty to preserve for three years the records regarding Ms. Drannon's and Ms. Martinez's work hours as service employees on the contract at issue, a duty which he failed to meet.

   The only defense proffered by respondent to these violations is that Ms. Drannon was a subcontractor on the contract at issue, thereby releasing him from his contractual obligations outlined in the contract and its applicable wage determination. The overwhelming weight of the evidence clearly supports that no subcontract occurred in fact. No written evidence of a subcontract was presented, and Ms. Drannon, a prior government contractor, testified that she did not believe that she was the contractor on Contract No. 88275. Accordingly, I find and conclude that no subcontract existed.

    Assuming, arguendo, that Respondent actually entered into a verbal agreement with Ms. Drannon to "take over the contract," he, nonetheless, is in violation of the SCA. The face of the contract specifically states that the law prohibits the contractor from assigning or transferring the contract without the permission of the U.S. Postal Service, and provides for the cancellation of the contract if assigned or transferred without first receiving permission. Additionally, the contract adds that the contractor will be liable for any damages resulting from such assignment or transfer without permission. (CX 1) Clearly, if Respondent did in fact verbally agree to subcontract the contract to Ms. Drannon and permission was not given by the U.S. Postal Service, the assignment is invalid and Ms. Drannon is still a service employee and not a subcontractor. To that end, Respondent would then be obligated to pay Ms. Drannon and Ms. Martinez the minimum wage and fringe benefits mandated by the contract's wage determination, and failure to do so would subject Respondent to liability for his underpayment to his service employees.

    While Respondent's essential thesis to the Department's charges is that he had a verbal agreement with Ms. Drannon, he conceded that during the pertinent two year period checks made out to William T. Carr were in fact endorsed by him and cashed by Ms. Drannon (CX 24)

    Apparently, for several years that practice continued and there was the understanding that Ms. Drannon would accept the entire proceeds of the check, would pay all expenses for running

the route, expenses such as the monthly note on the 1992 Mitsubishi (even though registered in the name of and owned by the Respondent), monthly automobile insurance premium, new brakes and tires, as well as ordinary maintenance such as oil changes, transmission fluid changes and other such charges. Thereafter, any money remaining was kept by Ms. Drannon as her salary for running that mail route. (TR 145-149) Respondent also candidly conceded that the contract he had accepted and to which he agreed (CX 1) did have a wage and hour clause (TR 131) but Respondent submits that the Department is bound by the course of conduct of the U.S. Postal Service in dealing only with Ms. Drannon during the period of the alleged subcontract between Respondent and Ms. Drannon, a subcontract agreed to, accepted and implemented by her based upon her actions and her actual interfacing with the U.S. Postal Service.

    However, as Respondent did not follow the proper procedures to assign or subcontract the contract to another party, any such assignment or subcontract is null and void. Moreover, any verbal agreement, understanding, arrangement or contract, to use Respondent's words in his post-hearing brief at page two, or any course of conduct between Respondent, Ms. Drannon and the U.S. Postal Service is likewise null and void because there is no documentary evidence corroborating such business practice. Furthermore, whether or not Ms. Drannon may have initially identified herself to the Compliance Specialist as a subcontractor is actually irrelevant because the proper procedures for such assignment or subcontracting were not followed and because there is nothing from the U.S. Postal Service accepting Ms. Drannon in that capacity, especially as all checks (CX 24) were made out to and endorsed by William T. Carr.

    While there may have been a verbal understanding between Ms. Drannon and the Respondent, that understanding or course of conduct between them is not binding on the Department as a written contract (CX 1 herein) can be amended or modified only by a written document, and no such document has been offered by the Respondent in his defense.

    Gloria Martinez was recruited by Ms. Drannon as a substitute driver for the pertinent mail routes on those days, usually on the weekend, Ms. Drannon was unable to deliver the mail. Ms. Drannon paid Ms. Martinez the flat rate of $25.00 as a relief driver on those days she drove the route. However, the contract required a minimum hourly wage of $10.21 per hour and .90 cents per hour in health and welfare benefit payments. (CX 7 at 1-2; TR 56-58)

    While that arrangement was between Ms. Drannon and Ms. Martinez, the Respondent is still responsible to see that all service employees, including Ms. Martinez, are paid the wages and benefits mandated by the pertinent Wage Determinations.

    With reference to the debarment issue, the Respondent submits that the factual scenario herein presents mitigating circumstances which warrant that the sanction of debarment not be imposed because Ms. Drannon considered herself a subcontractor and the U.S. Postal Service, specifically in the person of Bill Hunt, Postmaster, Hobbs, New Mexico accepted her as a contractor or subcontractor. In view of its relevancy herein, I shall quote Mr. Hunt's August 24, 1999 letter at this point (the letter was filed by Respondent as an attachment to his brief):

I wish to set the record straight on the statements given by Ms. Sheri Drannon, during her testimony in the State (sic) Vs. Williams T. Carr case. I am the Postmaster of Hobbs, New Mexico in 1993, I first had contact with Mrs. Drannon. I was under the impression she was the contractor for route 88275. I did not become aware that she was a sub-contractor for route 88275 until some time in 1994. I became award of her claims when the contractor (Mr. Carr) and Mrs. Drannon parted company. Mr. Carr never explained to me that she no longer would sub-contract that route. I have never discussed or recommended to her anything related to the Department of Labor or any legal actions.

(I note that the Respondent has also attached his brief a two page article from the West Legal Director entitled "Overview of Independent Contractor Guidelines.")

    Section 5 of the Act provides that any person or firm found to have violated the Act shall be declared ineligible to receive further Federal contracts for three years unless the Secretary recommends otherwise because of unusual circumstances. The implementing regulations make it clear that debarment is the norm, and that discretion to recommend relief or exemption is limited. In other words, one who violates the Act must be debarred unless he establishes the existence of unusual circumstances to warrant relief from the sanction. In re U.S. Department of Labor v. Sanitary Disposal Systems, Inc., No. 85-SCA 63, (Decision of the Secretary, December 22, 1986).

    The burden of proving the existence of unusual circumstances is clearly on the violator. A to Z Maintenance Corp. v. Dole, 710 F. Supp. 853, 855 (D.D.C. 1989); See 29 C.F.R.§§ 4.188(b)(1). The standard used to determine whether "unusual circumstances" exist in order to avoid debarment under the SCA is set forth in the regulations in a three part test. This test clarifies and codifies the criteria set out in

Washington Moving& Storage Co., No. SCA-168 (Decision of the Secretary, March12, 1974) and has been approved by the Deputy Secretary, e.g. Habitech, Inc., 92-SCA-106 (Decision of the Secretary, September 18, 1987).

    Under Part I of the test, the contractor must first show that no "aggravated circumstances" exist and: (a) The violations must not be willful, deliberate, or of an aggravated nature; (b) The violations must not be the result of culpable conduct such as culpable neglect to ascertain whether practices were in violation or not, or culpable failure to comply with record keeping requirements; (c) The contractor may not have a past similar violation, or have repeatedly violated the Act; and (d) The contractor may not have seriously violated the Act in the past. See 29 C.F.R. §§ 4.188(b)(3)(i). Only if these criteria are satisfied, does debarment analysis properly proceed to Part II of the test, which calls for certain pre-requisites to be met. Under Part II of the test, the contractor must: (a) demonstrate a good compliance history; (b) demonstrate a compliance with the investigation; (c) repay monies due; and (d) give sufficient assurances of future compliance. See 29 C.F.R. S 4.188(b)(3)(ii). Finally, if the conditions of Part I and II are met, Part III provides for the consideration of additional factors to determine whether "unusual circumstances" can be found. These factors include: (a) whether the contractor was previously investigated for SCA violations; (b) whether record keeping violations impede the investigation; (c) whether liability depended upon resolution of a bonafide legal issue of doubtful certainty; (d) the contractors efforts to ensure compliance; (e) the nature, extent, and seriousness of any past or present violations, including the impact of violations on unpaid employees, and (f) whether sums due were paid promptly. See 29 C.F.R. §§ 4.188(b)(3)(ii).

    Applying the three-part test to this matter, it is clear that respondent does not meet his burden of "establishing the existence of unusual circumstances to warrant relief from the debarment sanction." 29 C.F.R. 4.18 8(b)(1)

    The evidence is uncontradicted that Respondent failed to pay Sheri Drannon and Gloria Martinez, his service employees, the minimum monetary hourly wage and applicable fringe benefit payments in accordance with the contract, and failed to keep and preserve adequate records for the statutory three year period. Respondent was aware of his wage determination obligations under the SCA as evidenced by his trial testimony.

    While Complainant does not dispute the fact that Respondent had no history of similar or repeated violations of the SCA on the

contract, Respondent has committed culpable record keeping violations in this case. Additionally, a contractor has an affirmative duty to ensure his pay practices are in compliance with the SCA. Failure to do so constitutes culpable neglect and does not permit a finding of unusual circumstances. See Habitech, Inc., Case No. 82-SCA-106 at 6 (Dec. of the Dep. Sec... Sept. 18, 1987). Accordingly, Respondent cannot pass muster under Part I of the three-part test. Therefore, it is not proper to proceed to a determination of whether mitigating circumstances exist under Parts II and III of the test.

    Assuming, arguendo, that Respondent did pass the first part of the test, his actions still fail to pass muster under Parts II and III. Under Part II, a contractor must demonstrate a "good compliance history, cooperation in the investigation, repayment of moneys due, and sufficient assurances of future compliance" in order to be entitled to relief from the debarment sanction. Respondent certainly fails the test when it comes to cooperation in the investigation and repayment of monies due. Not only did Respondent fail to pay minimum wages and the proper health and welfare fringe benefits payment, but he also failed to produce adequate and accurate pay records of his employees. Furthermore, it was only after intervention by the DOL, and only through the action of withholding monies from Respondent's contract, did Respondent acknowledge that he was truly the contractor of record. To date, respondent has made no effort to repay the amounts due. To add insult to injury, Respondent continues to assert that the Administrator has withheld money due him for services rendered, despite the fact that he himself never actually rendered those services. (TR 222-223) As a result of respondent's culpable violations, debarment is appropriate.

    Part III of the test is triggered only where none of the aggravating factors of Part I are present and all prerequisites of relief under Part II have been demonstrated. For the sake of argument, I will apply Part III of the test even though Respondent has failed the first two sections. Respondent's record keeping violations, which clearly impeded the Complainant's investigation and back wages due Ms. Drannon and Ms. Martinez, which, to date, have not been promptly paid indicate that Respondent cannot pass Part III of the test. Mr. Weichmann testified that his investigation was made more difficult with the absence of Respondent's pay records regarding his employees' work hours. Furthermore, the Department had to take the extraordinary action of withholding Respondent's monies from Respondent's contract as an effort to ensure payment to the victimized employees. Finally, while Respondent alleges he entered into a subcontract agreement

with Ms. Drannon, it must be noted that respondent cannot be relieved from debarment by attempting to shift his responsibilities under the Act to subordinate employees. See 29 C.F.R. 4.188(5); see also Ventilation & Cleaning Engineers, Inc., SCA- 176 (Oct. 2, 1974).

    Moreover, to this day, Respondent has consistently taken the position (1) that he has not violated the SCA and (2) that the withheld amount belongs to him and should be paid to him with appropriate interest. (TR 30-35)

    Furthermore, the decision in Dantran v. U.S. Department of Labor, 171 F.3d 58 (1st Cir. 1999), a matter over which I presided, is not applicable herein as first of all it is a decision of the U.S. Court of Appeals for the First Circuit and because the principle of equitable estoppel is not available to the Respondent herein.

    In summary, Complainant submits that Respondent's actions, taken separately and as a comprehensive program of pay practices, "exemplify the type of misconduct which Congress sought to address by debarment." See Janik Paving & Const., Inc. v. Brock, 828 F.2d 84, 90-91 (2d Cir. 1987) (debarment can be a serious blow to firms specializing in government business but it may be the only realistic way to deter contractors from willfully violating the law, based on a cold weighing of costs and benefits).

    In view of the foregoing, I find and conclude that Respondent has not shown the existence of "unusual circumstances," that he should be debarred for the full three year period permitted by the pertinent statutory provision and implementing Regulation and that an appropriate ORDER will be issued by this Court.

    In so concluding, I have rejected the letter from the postmaster in Hobbs, New Mexico as this again is an attempt by the Respondent to have the Department bound by the course of conduct by and between Respondent and the U.S. Postal Service. First of all, all Mr. Hunt had to do was to check the contracts between Respondent and his agency (CX 1, CX 4, CX 5, CX 6) and he would have learned that Respondent was, in fact, the prime contractor and Ms. Drannon was the "driver/caser," and not a contractor or even a sub-contractor. Furthermore, had Mr. Hunt looked into the matter, he also would have learned that the checks were being issued to William T. Carr, and not to Ms. Drannon. I am also curious as to who authorized issuance of those checks to Mr. Carr. Actually, Mr. Hunt's letter leads to the logical inference that the mission of the U.S. Postal Service is to deliver the mail timely,

that Mr. Hunt did his best to effectuate that mission, that it was not his mission to investigate compliance with the SCA and that it is the mission of the Department to enforce the provisions of the SCA.

    Accordingly, in view of the foregoing, I find and conclude that Respondent violated the Service Contract Act by failing to pay proper minimum wages, fringe benefits, and keep adequate and accurate records of hours worked; further, that Respondent is liable for the underpayment of compensation to employees engaged in the performance of such contract in the amount of $12,956.72; that Respondent has not demonstrated unusual circumstances warranting relief from the debarment provision of the SCA, and that Respondent and any firm, corporation, partnership, or association in which he has a substantial interest should be denied the award of any contract with the United States until three (3) years have elapsed from the date of publication of a list by the Comptroller General naming him, as having been found to have violated the Service Contract Act.

    1. The Administrator Wage and Hour Division shall use the withheld money and pay these to the two employees, Sheri Drannon and Gloria Martinez, identified in the Summary of Back Wages (Form WH-55), a document in evidence as CX 9. Any accrued interest on such amounts shall also be paid to Ms. Drannon and Ms. Martinez as they have been unfairly deprived of use of this money for several years.

    2. William T. Carr, including any firm, partnership or corporation in which Mr. Carr has or shall have a substantial interest, shall be debarred in accordance with the provisions of 29 C.F.R. § 5.12(a)(1) for a period of three years and shall be ineligible to receive any contract or subcontract subject to any of the statues listed in 29 C.F.R. § 5.1.

       David W. Di Nardi
       Administrative Law Judge

Dated: January 4, 2000
Boston, MA
DWD:jd