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CCASE:
ELAINE'S CLEANING SERVICE
DDATE:
19920813
TTEXT:
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BOARD OF SERVICE CONTRACT APPEALS
UNITED STATES DEPARTMENT OF LABOR
WASHINGTON, D.C.
In the Matter of:
ELAINE'S CLEANING SERVICE BSCA Case No. 92-07
BEFORE: Charles E. Shearer, Jr., Chairman
Ruth E. Peters, Member
Anna Maria Farias, Member
DATED: August 13, 1992
DECISION OF THE BOARD OF SERVICE CONTRACT APPEALS
This case is before the Board Of Service Contract Appeals on
the petition of Elaine's Cleaning Service, Elaine V. Deaton and
James W. Deaton ("Elaine's" or "Petitioners") for review of the
March 29, 1991 Decision and Order of Administrative Law Judge
("ALJ") Richard E. Huddleston, debarring Petitioners for violations
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
("ALJD"; copy attached) is affirmed.
I. BACKGROUND
The parties are in substantial agreement as to the facts
giving rise to this proceeding. In or about March 1986, Elaine's
was awarded a contract to perform cleaning services at a portion of
Wright-Patterson Air Force Base in Ohio. This Air Force contract
was subject to the labor standards provisions of the SCA and there
is no dispute that the contract contained the required stipulations
and applicable wage determination (ALJD 2).
Immediately upon commencement of the contract, wage
violations in the nature of failure to pay required fringe benefits
-- at that time, $.32 hourly -- began. Petitioners attribute
this violation to their "misreading of the wage determination
attached to the contract." (Petitioners' Brief at 5). The record
demonstrates that Elaine's employees (who were aware of their
required wages from service with the predecessor employer) almost
immediately put Petitioners on notice that underpayments were
occurring (ALJD 3). Nevertheless, it was not until June 1986 that
the employees received the required fringe benefits for the months
of March and April of that year (Id.). These violations continued
in some degree for approximately one more year.
Elaine's did establish a health care plan but few of the
affected employees accepted the coverage. Another plan -- a
retirement fund -- was established for the employees' benefit.
However, all employees were not enrolled in this plan until January
1987 (Petitioners' Brief at 6) and only two contributions were made
(in March and April 1987) to this benefit plan in the year between
June 1986 and June 1987.
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These violations were reported during the course of an
investigation conducted by the Wage and Hour Division in May 1987
at the instigation of employee complaints. The investigation
disclosed that the foregoing fringe benefit violations had been
committed with respect to 53 of Elaine's employees and that the
employees were due $15,262.04 in back wages. The investigation
also revealed holiday pay violations ($614.18 due 16 employees) and
that one employee was not paid for all hours of work performed
under the contract. Restitution of all back wages found in the
first investigation was made by July 1987.
On October 1, 1987, increases of $.16 hourly and $.27 hourly
went into effect for required prevailing wages and fringe benefits,
respectively. The record shows that Elaine's immediately began
paying the hourly wage increase but did not pay any portion of the
mandated fringe benefit increase. Elaine's attributes this
violation to the contracting agency's failure to timely increase
its payments to the firm. A second investigation of Elaine's
operations disclosed this new fringe benefit violation in January
1988. Back wages of $6,472.11 were paid to 50 employees at the
conclusion of this investigation.
Following this history, a complaint was filed by the
Department of Labor, alleging the fringe benefit and holiday pay
violations and further seeking debarment of Petitioners for the
violations. A hearing was held on March 15, 1989 before ALJ
Huddleston and the parties had the opportunity to present witnesses
and documentary evidence. The former compliance officer testified
for the Wage and Hour Division and Elaine V. Deaton testified on
behalf of Elaine's.
On March 29, 1991, the ALJ issued his Decision and Order,
finding that violations of the SCA had been committed and that
there were no "unusual circumstances" within the meaning of Section
5(a) of the SCA. Accordingly, the ALJ ordered that Petitioners be
debarred from government contracting for a period of three years.
ALJD 5.
II. DISCUSSION
A. Standards governing SCA debarment
The SCA's debarment sanction against violators is found at 41
U.S.C. [sec] 354(a), where it is provided that:
The Comptroller General is directed to distribute a list
to all agencies of the Government giving the names of
persons or firms that the Federal agencies or the
Secretary [of Labor] have found to have violated this
Act. 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 until three years have elapsed from
the date of publication of the list containing the name
of such persons or firms. [Emphasis supplied]
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The standard for determination of whether debarment is
appropriate is not difficult to ascertain: debarment is "in the
picture" each and every time a federal service contractor commits
any violation. The more difficult question in such cases is
whether the Secretary's recommendation for relief is in order; such
a recommendation must be based on the presence or absence of
"unusual circumstances," otherwise undefined by the statute itself.
Although there is no statutory definition, the Department's
enforcement of the debarment provision has been largely guided by
the 1972 amendments adding the "unusual circumstances" language and
the legislative history for the amended Section 5(a). This
amendment was a Congressional restriction on the Secretary of
Labor's discretionary enforcement powers, in order to prevent the
Department from relieving a violating contractor from debarment
merely because restitution is made and assurances of future
compliance are given. 29 C.F.R. 4.188(b)(1); 29 C.F.R.
4.188(b)(2).
The definition of "unusual circumstances" has arisen through
the Department's years of experience in administering and enforcing
the debarment provisions of the SCA. As early as 1974, the
Department established the framework of meaning for "unusual
circumstances" in the seminal case of Washington Moving & Storage
Co., Case No. SCA-168 (Decision of the Secretary, Mar. 12, 1974),
where it was stated:
Some of the principal factors which must be considered in
making this determination are whether there is a history of repeated
violations of the Act; the nature, extent, and seriousness of
past or present violations; whether the violations were willful, or
the circumstances show there was culpable neglect to ascertain
whether certain practices were in compliance, or culpable disregard
of whether they were or not, or other culpable conduct (such as
deliberate falsification of records); whether the respondent's
liability turned on bona fide legal issues of doubtful certainty;
whether the respondent has demonstrated good faith, cooperation
in the resolution of the issues, and a desire and intention
to comply with the requirements of the Act; and the promptness with
which employees were paid the sums due them. It is clear that the
mere payment of sums found due employees after an administrative
proceeding, coupled with an assurance of future compliance,
is not in itself sufficient to constitute "unusual circumstances"
warranting relief from the ineligible list sanction.
As noted by the ALJ in his decision in this case, these standards
have been held by courts to be a permissible interpretation of the
statutory requirements concerning debarment. See, e.g., Federal
Food Service, Inc. v. Donovan, 658 F.2d 830, 833 (D.C. Cir. 1981).
Prior to 1983, debarment decisions were made by balancing and
weighing the various factors to decide whether unusual
circumstances were present. In 1983, the Department codified the
decisional history of the debarment provision. 48 Fed. Reg. 49,762
(Oct. 27, 1983). The regulations which govern the unusual
circumstances test are found at 29 C.F.R. 4.188, and establish a
strict hierarchy of the importance which attaches to each of the
Washington Moving & Storage factors.
The first set of factors (at 29 C.F.R. 4.188(b)(3)(i))
specify certain conditions where a finding of unusual circumstances
-- and relief from debarment -- can never be found:
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[W]here the respondent's 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, culpable
disregard of whether they were in violation or not, or culpable failure
to comply with the recordkeeping requirements (such as falsification of
records), relief from the debarment sanction 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. [Emphasis supplied] Only
if none of these factors is present may the unusual circumstances
analysis proceed to the next two stages, both of which are found at 29
C.F.R. 4.188(b)(3)(ii). The second stage is that:
[a] good compliance history, cooperation in the investigation,
repayment of moneys due, and sufficient assurances of future
compliance are generally prerequisites to relief.
If these standards are met, then the analysis for unusual
circumstances can proceed to the third and final stage:
Where these prerequisites are present and none of the aggravated
circumstances in the preceding paragraph exist, a variety of factors
must still be considered, including 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 contractor's efforts to ensure compliance, 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.
Thus, one United States district court judge has stated that
the SCA's debarment section "is a particularly unforgiving
provision of a demanding statute." A to Z Maintenance Corp. v.
Dole, 710 F.Supp. 853, 855 (D.D.C. 1989). The undeniable
Congressional purpose behind the 1972 amendments to the debarment
section was to limit the Secretary of Labor's discretion to relieve
violators from federal contracting ineligibility. H.R. Rep. No.
92-1251, 92d Cong., 2d Sess. 5; S. Rep. No. 92-1131, 92d Cong., 2d
Sess. 3-4. The clear language of the SCA, administrative law
precedent, and the regulations mandate that relief from debarment
after a finding of violations is to be the exception, rather than
the rule. Moreover, the burden of proving the existence of unusual
circumstances is on the alleged violator. 29 C.F.R. 4.188(b)(1).
B. Application of the regulations to Petitioners' conduct
In his Decision and Order, the ALJ found that relief from
debarment was not proper, given his finding that the holiday pay
and the two separate fringe benefit violations occurred as a result
of Petitioners' culpable neglect (ALJD 4). We agree, even given
the ALJ's otherwise exculpatory findings, i.e., that Elaine's:
cooperated fully with the Wage and Hour investigations; agreed to
comply with the SCA in the future; had no prior violations; and
made all back wage payments promptly (ALJD 3, 4).
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The holiday pay violation affected 16 employees, but was only
in the total amount of some $600. This was, perhaps, the least
egregious of the SCA violations disclosed in the two investigations
of Elaine's. However, the violative practices were based on
Elaine's acceptance of its bookkeeper's advice that the holiday pay
was not due. Clearly, a question had arisen concerning the proper
requirements governing holiday pay on the SCA contract. The
contractor chose to accept the advice of its bookkeeper. To have
done so is negligent of obligations to ensure proper payment under
the SCA and in our view it is culpable negligence. In this regard,
the Department's regulations specify that "a contractor has an
affirmative obligation to ensure that its pay practices are in
compliance with the Act, and cannot itself resolve questions which
arise, but rather must seek advice from the Department of Labor."
29 C.F.R. 4.188(b)(4). With particular application to the facts at
hand, the regulations further advise that "a contractor cannot be
relieved from debarment by attempting to shift his/her
responsibility to subordinate employees." 29 C.F.R. 4.188(b)(5).
Our analysis of Elaine's other, more serious violations is
even more persuasive of the correctness of the ALJ's order of
debarment in this matter. More than 50 employees were owed in
excess of $16,000 in back wages due to Elaine's failure to pay
fringe benefits as found by the first Wage-Hour investigation.
Petitioners explain this as having been due to its inexperience in
SCA contracting leading to a failure to understand that the fringe
benefit amount was not included in the required hourly wage amount.
Just as ALJ Huddleston could not accept this explanation, neither
can we. The regulations at 29 C.F.R. 4.188(b)(1) specifically
exclude from possible unusual circumstances:
those circumstances which commonly exist in cases where
violations are found, such as negligent or willful disregard
of the
contract requirements and of the Act and regulations,
including a
contractor's plea of ignorance of the Act's requirements
where the
obligation to comply with the Act is plain from the contract.
. . .
The applicable wage determination (No. 78-425 (Rev. 7)) was
issued for several classifications of employees under the
Wright-Patterson contract for cleaning and grounds maintenance
services. It clearly and unambiguously specifies that $7.02 was
the "Minimum hourly wage" due for each hour worked by the single
classification encompassing janitors, porters and cleaners (ALJD
2). On the same page and immediately below the minimum hourly wage
listings for the three classifications are a series of footnotes
-- "1," "2," and "3" -- applicable to "classes of service
employees engaged in contract performance" for Health and Welfare,
Vacation, and Holiday benefits, respectively. (Id.). If the $.32
hourly Health and Welfare fringe benefit was included in the hourly
wage rate, then why would not the similarly footnoted Holiday and
Vacation benefits (as hourly amounts) also be subsumed in the
hourly wage rate? More importantly, we agree with ALJ Huddleston
that Elaine's explanation was "in conflict with the concept of
fringe benefits and the clear language of the Contract." ALJD 4.
We do not accept the contention that any responsible federal
service contractor (even one performing a first contract) would
overlook the most material cost provisions of an SCA contract --
the expense of wages and benefits for employees.
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We believe that SCA wage violations attributed to purported
failure to understand the clear meaning of the figures in a wage
determination is of the highest order of culpable negligence. Even
if this had been Elaine's first government or commercial contract
-- and it was not -- Petitioners and all other federal service
contractors should at a minimum know and understand the actual wage
and fringe benefit levels which are required to be paid.
With further respect to this violation, the record
establishes that as early as Elaine's first payroll in March 1986,
Petitioners were put on notice of the underpayment by their
employees. The fact that Elaine's then spent the next 15 months
trying to set up and fund a health insurance plan and a retirement
plan does nothing to put these violations in good light. Indeed,
the record's demonstration that some employees were covered by the
health plan and others were not (ALJD 3) as well as the evidence
that sufficient payments were not made to the retirement plan (Id.)
merely underscores the point that Petitioners knew what was
required, but chose to continue the violations.
The fringe benefit violations in the second investigation are
even more serious. We agree, as found by ALJ Huddleston, that
these violations were at least due to Elaine's culpable neglect;
these second fringe benefit violations can also be seen as
deliberate, intentional and willful. By the time these violations
occurred, Elaine's was on clear and unequivocal notice from the
first investigation that fringe benefits must be paid in order to
avoid violating the SCA. We do not find availing Elaine's
explanation of impending financial difficulties due to the
contracting agency's slowness in processing the contract's wage
modification documents. This simply is not an unusual circumstance
such as would serve to mitigate or excuse the violation.
In sum, the ALJ's Decision and Order is affirmed.
BY ORDER OF THE BOARD:
Charles E. Shearer, Jr.,
Chairman
Ruth E. Peters, Member
Anna Maria Farias, Member
Gerald F. Krizan, Esq.
Executive Secretary
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