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CCASE:
ISLAND MOVERS, INC.
DDATE:
19921030
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[1] BOARD OF SERVICE CONTRACT APPEALS
UNITED STATES DEPARTMENT OF LABOR
WASHINGTON, D. C.
In the Matter of:
ISLAND MOVERS, INC. BSCA Case No. 92-29
BEFORE: Charles E. Shearer, Jr., Chairman
Ruth E. Peters, Member
DATED: October 30, 1992
DECISION OF THE BOARD OF SERVICE CONTRACT APPEALS
This case is before the Board of Service Contract Appeals on
the petition of Island Movers, Inc. and Lyle I. Okuda ("Island
Movers" or "Petitioners") for review of the October 16, 1990
Decision and Order ("ALJD") of Chief Administrative Law Judge
("ALJ") Nahum Litt ordering that Island Movers, Inc. and Lyle I.
Okuda be placed on the list of ineligible bidders pursuant to
Section 5(a) of the McNamara-O'Hara Service Contract Act of 1965,
as amended (41 U.S.C. [sec] 351 et seq.; "SCA"). For the reasons
stated below, the petition for review is denied and the ALJ's
decision and order (copy attached) is affirmed.
I. BACKGROUND
Petitioners provide moving and storage services in the
State of Hawaii, employing approximately 150 workers. Mr. Lyle I.
Okuda is the Vice President and General Manager of the Moving
Services Division of Island Movers, and his job duties include
bidding on federal contracts.
The Contract Department of the Naval Supply Center awarded
Island Movers, effective March 1, 1984 Contract No. N0060484-D-0034
for $682,883 [1]
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[2] and effective January 1, 1985 Contract No.
N0060485-D-0041 for $772,195. Both contracts, for moving household
goods for military personnel and their dependents, were subject to
the SCA and contained wage determination schedules which set forth
a base hourly rate of $8.78 plus fringe benefits for packers.
The Wage and Hour Division first reviewed Island Movers'
status of compliance with the SCA in July 1985 when Mr. Hayakawa,
a Wage and Hour Division supervisor of investigators, visited Mr.
Okuda's office and, after reviewing Island Movers' pay practices,
found violations and informed Mr. Okuda. Transcript ("Tr.") at pp.
73, 98). After researching the requirements of the SCA, Mr. Okuda
did not contest Hayakawa's findings. Tr. at pp. 73-74. Mr. Okuda
was instructed to compile information and compute back wages but
claims he was hindered when a computer diskette with accumulated
wage data on it was damaged. Id. at 80.
When Michael D. Young, a compliance officer ("C.O.") under
the supervision of Mr. Hayakawa, began an investigation of Island
Movers in December of 1985, he found that Island Movers' payroll
records consisted of computer print-outs that did not segregate the
hours worked on government contracts. Through employee interviews
and employee listings provided by Island Movers showing names and
hours worked on government contracts, Young found employees who
were compensated at rates as low as $4.50 per hour with no fringe
benefits and computed underpayments totaling $48,709.92 in wages,
overtime /FN1/ and fringe benefits to 30 employees.
In response to a complaint that an employee was fired for
requesting his back wages, Young conducted a second investigation
on April 30, 1986. The complainant's allegation of retaliation was
not substantiated, but the new investigation disclosed that 17
additional employees were not paid the proper wages, fringe
benefits and overtime totalling $8,985.15. Added to the violations
found in the first investigation, total underpayments amounted to
$57,695.07 due 47 employees. ALJD at 2. Island Movers' payroll
records still did not segregate the hours worked on government
contracts thus making it difficult to compute the back wages due.
Island Movers has paid the full amount of underpayments.
On January 19, 1989, a hearing was held before the ALJ with
the sole issue being whether Island Movers should be debarred from
future government contracts. The ALJ found that Island Movers
continued to violate the SCA after being advised of its violative
practices and ordered debarment. In his decision, the ALJ stated
"[t]his knowledge of their obligations under the Act, coupled with
the fact that the respondents had the financial capability to
comply with the Act's [2]
/FN1/ The overtime underpayments resulted from violations of the
Contract Work Hours and Safety Standards Act (40 U.S.C. [sec] 327
et seq.; "CWHSSA"). [2]
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[3] requirements yet consistently failed to do so, presents serious
and aggravated conduct which constitutes culpable neglect and
debarment is appropriate." Id. at 8. Island Movers' petition
followed, seeking reversal of the debarment order.
II. DISCUSSION
Section 5(a) of the SCA provides that "[u]nless the
Secretary otherwise recommends because of unusual circumstances" a
violating contractor shall be debarred from being awarded federal
contracts for a period of three years. The term "unusual
circumstances" is not defined in the SCA, but the regulations at 29
C.F.R. 4.188(b) set forth a three-part test for determining when
relief from debarment is appropriate. This test clarifies and
codifies the criteria established in the leading case of Washington
Moving & Storage Co., Case No. SCA-168 (Dec. of the Secretary, Mar.
12, 1974) and other significant cases defining what constitutes
"unusual circumstances." At 29 C.F.R. 4.188(b)(3)(i), Part I of
the test states:
[W]here the respondents' conduct in causing or permitting
violations of the Service Contract Act provisions of the
contract is willful, deliberate or of an aggravated
nature or where the violations are a result of culpable
conduct such as culpable neglect to ascertain whether
practices are in violation or not , or culpable failure
to comply with recordkeeping requirements (such as
falsification of records) relief from debarment cannot be
in order. Furthermore, relief from debarment cannot be
in order where a contractor has a history of similar
violations , where a contractor has repeatedly violated
the provisions of the Act, or where previous violations
were serious in nature.
The second part of the test lists prerequisites to relief
such as a good compliance history, cooperation in the
investigation, repayment of moneys due and sufficient assurances of
future compliance. Part III lists additional factors which must be
considered if the conditions of Parts I and II are met, such as
whether the contractor has previously been investigated for
violations of the Act, whether the contractor has committed
recordkeeping violations which impeded the investigation; whether
liability was dependent upon resolution of a bona fide legal issue
of doubtful certainty; the nature, extent, and seriousness of any
past or present violations, including the impact of violations on
unpaid employees; and whether the sums due were promptly paid.
Island Movers argues in its petition that it cannot be
debarred because it did not violate the SCA or the CWHSSA and that
even if violations were committed, unusual circumstances should
preclude debarment. According to [3]
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[4] Island Movers, 41 U.S.C. [sec] 351(a)(1) -- Section 2(a)(1) of the SCA
-- permits an employer to pay either the prevailing wage in a particular
locality as determined by the Department of Labor ("DOL") or the wages
prescribed by a valid collective bargaining agreement ("CBA").
Because wages were paid in accordance with a collective bargaining
agreement, Island Movers claims that it was in compliance with the
SCA.
It is noted that Island Movers did not raise this argument
before the ALJ. In our view, as an appellate body it is not
appropriate to decide matters not raised in the proceedings below.
Nevertheless, the Board finds that this argument is without merit.
A contractor does not have a "choice" of paying either the
prevailing wage as determined by DOL or the wages contained in a
CBA. As the Acting Administrator points out in his response to the
petition, the regulations state that the reference to CBA's in
section 2(a)(1) can only be read to mean a predecessor contractor's
CBA. 29 C.F.R. 4.163(d). There is nothing in the record to
indicate that Island Movers' predecessor on the 1984 contract was
subject to a CBA. Therefore, Island Movers' labor agreement had no
bearing on the rates required under the SCA.
If Island Movers considered itself to be its own successor
with respect to the 1985 CBA, it was required to notify the
contracting agency of the terms of the CBA before they could be
incorporated into a wage determination. 29 C.F.R. 4.1b(b). Island
Movers failed to do this. Thus, the wage determinations as
contained in the contracts are controlling.
Island Movers' arguments that unusual circumstances exist
with respect to the violations is also without merit. The
preponderance of the record evidence supports the ALJ's finding
that continuing violations of an aggravated nature constituted
culpable neglect and prevents relief from debarment.
The wage determination for both the 1984 and 1985 contracts
required a wage rate of $8.78 per hour plus fringe benefits for
packers. The wage determination for the 1984 contract contained a
classification for "packer helper" at an hourly rate of $6.00 plus
fringe benefits but was not applicable on the 1985 contract. C.O.
Young found employees paid as low as $4.50 per hour and were not
paid the fringe benefits required in the wage determination. While
Island Movers claims there was only one continuous investigation,
we credit the C.O.'s testimony who stated that he conducted a
second investigation based on a new complaint and that the
complainant was owed back wages. Tr. at p. 45.
Mr. Okuda testified that he was aware that he was obligated
to pay the $8.78 wage rates contained in the wage determinations,
Tr. at p. 90, but did not do this because the "average" wage rate
paid to all employees exceeded the wage rates contained in the wage
determination. In response to questions by DOL counsel and the
ALJ, Mr. Okuda responded as follows: [4]
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[5] Q. Was it your understanding that whoever
received the contract would have to pay at
least those wage rates?
A. Basically, yes.
Q. By "basically," what do you mean?
A. Like I said earlier, my feeling was that those
were minimum wages to be paid out, and when we
averaged out our wages, we exceeded that.
ALJ: How do you confuse minimum wage with
averaging of wages? I mean, if you
paid an executive $100.00 and you
paid a laborer $5.00, on average you
have, what, a $52.50 wage rate?
A. Say that again, please?
ALJ: I don't understand the average as
against the minimum wage. Minimum
wage rates are the minimum that can
be paid to an individual. One
doesn't use an average to determine
whether or not an individual is
receiving a minimum. I mean, you're
saying that in this case you used an
average wage rate, and since it was
above the minimum wage rate, it
didn't matter that you were paying
some people less than the minimum.
Do I understand that correctly?
A. Yes, sir.
Tr. at p. 104. It is clear from Mr. Okuda's testimony that he --
an experienced government contractor -- deliberately paid employees
less than required wage and fringe benefit rates. At the very
least, it shows a culpable neglect to ascertain whether practices
are in violation or not. Mr. Okuda did this at his peril and
prevents a finding of unusual circumstances because Part I of the
regulatory test for relief is not met. Having found that
aggravated factors are present, there can be no relief from
debarment. A to Z Maintenance Corp. v. Dole, No. 88-2875 (D.D.C.,
filed Apr. 14, 1989).
Further analysis is not required. Nevertheless, it is
additionally found that the requirements under Parts II and III are
not met. Part II, as noted, supra, requires that certain
prerequisites to relief must be met; these include a good [5]
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compliance history and sufficient assurances of future compliance.
Ongoing violations from DOL's first contact in July 1985 and
continuing through the second investigation cannot be considered a
good compliance history. After being informed of its non-
compliance, Island Movers should have begun paying its employees
the appropriate wage rates and segregating the hours worked on
government contracts from other work. As noted by the ALJ,
notwithstanding this knowledge, the company made no attempt to
comply with the Act. ALJD at 8. Similarly, any assurances of
compliance ring hollow based on its record of delaying adequate
segregation of records and proper payment.
A factor in Part III of the test includes recordkeeping
violations which impeded the investigation. The record is clear
that Island Movers' failure to separate the work subject to the SCA
from other work even after the first investigation, greatly delayed
the conclusion of the investigation, thus failing this part of the
test. We agree with the ALJ that relief from debarment is not in
order, given these violations and culpable conduct.
Accordingly, it is ordered Petitioners' names shall be
placed on the list of ineligible bidders for a period of three
years.
BY ORDER OF THE BOARD:
Charles E. Shearer, Jr., Chairman
Ruth E. Peters, Member
Gerald F. Krizan, Esq.
Executive Secretary [6]
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