Secretary v. International Resources Corp., 94-SCA-35 (ALJ June 26, 1996)

DATE ISSUED:  June 26, 1996
Case No.: 94-SCA-35

IN THE MATTER OF:

THE SECRETARY OF LABOR,
U.S. Department of Labor,
       Complainant

v.

INTERNATIONAL RESOURCES CORP.,
a corporation and BERTRAM
FOUNTAIN, President of the
Corporate Respondent,
     Respondents.


Appearances:

James V. Blair, Esquire
     For the Secretary of Labor,
     U.S. Department of Labor

Nick R. Hoogstraten, Esquire
John S. Farrington, Esquire
     For International Resources Corp.
     and Bertram Fountain

Before:   GEORGE A. FATH, Administrative Law Judge


      DECISION AND ORDER -- ASSESSING DAMAGES AND DEBARMENT

     This matter is brought by the United States Department of
Labor ("DOL") against Bertram Fountain, and the International
Resources Corporation ("IRC"), Respondents, seeking damages and
penalties against Respondents for violating the McNamara-O'Hara
Service Contract Act of 1965, as amended, 41 U.S.C. §351 et
seq. ("the Act"), and the implementing regulations at 29 C.F.R.
Part 4.  Respondents are charged with failure to pay wages and
fringe benefits in accordance with collectively bargained
agreements. DOL seeks damages as stipulated and a three year
debarment.
     A trial on the merits of this claim was held on September
12, 1995.  Bertram Fountain, as president and representative of
IRC, appeared in person and was represented by counsel.  The 
[PAGE 2]
Secretary of Labor, U.S. Department of Labor was represented by
the office of the Solicitor.  The trial was public, recorded and
transcribed.  This decision and order is based on the entire
record consisting of documentary and testimonial evidence.  The
undersigned is a rehired annuitant rehired for the purpose of
entering this Decision and Order -- Assessing Damages and
Debarment.
     The parties have submitted Stipulations dated September 12,
1995 and November 3, 1995, agreeing to the amounts and manner of
disbursement with respect to each allegation should Respondent be
found liable.  The stipulations are hereby incorporated into this
decision and order and are attached.
     In brief, the stipulation provide that if a violation is
found respondents owe $39,655-98.  Against this alleged
indebtedness the parties proposed to pay $34,855.80 out of funds
withheld on respondents contracts, and respondents are to pay of
$4,800.18 in cash.
                        STATEMENT OF FACTS
     International Resources Corporation is a "small business
minority janitorial and related services firm" consisting of
Bertram Fountain as managing director and president, and one
secretary. (Trial Transcript ("TT") at 199).  Mr. Fountain, a
university graduate, formed IRC in 1969 to provide part-time
janitorial services. (TT at 201).  Fountain testified that IRC
received its first government services contract about 1971. (TT
at 201-02).  Until 1988, these contracts "involved some training,
technical assistance, and work order contracts that was less than
$25,000.00.11 (TT at 202).  In 1988, IRC began securing food
service contracts with a janitorial component that were in excess
of $100,000.00. (TT at 203).  Testimony taken at the trial
disclosed the fact that IRC has received at least 13 government
contracts since 1988 that come within the scope of the McNamara-
O'Hara Service Contract Act. (TT at 97-112, 272-273).  Eleven of
these contracts, including the four at issue here, have been
investigated for Service Contract Act violations. (TT at 97-
112).
     This case involves alleged violations on four contracts,
three with the United States Army at Ft. Belvoir, Virginia, and
one with the United States Navy at Whiting Field Naval Air
Station in Milton, Florida.  All four contracts meet the
requirements for coverage under the Service Contract Act.

Ft. Belvoir
     On June 1, 1990, IRC began work on two contracts, numbers
DACA 31-90-C-0063 and DACA 31-90-C-0064, for the performance of
custodial services with the U.S. Army at Ft.  Belvoir, Virginia.
The contracts were for one year, with a one year option.
     Unified Services, Inc., another custodial service, preceded
IRC on the contracts.  It had entered a collective-bargaining
agreement ("CBA") regarding employee benefits under these 
[PAGE 3]
contracts with Local 571 of the Laborers' International Union of
North America on January 1, 1990.  This CBA was in place at the
time IRC began performance on the contracts.
     The CBA called for the imposition of a probationary period
before certain leave related benefits could be paid (sick leave,
maternity leave, funeral leave and jury duty).  The CBA, however,
failed to explicitly define the length of the probationary
period.  In addition, it did not mention the imposition of a
probationary period for fringe benefits concerning financial
payments.  Testimony from Unified's Comptroller, Carol Martin,
however, established that for lack of a definitive probationary
period, Unified implemented a 30 day probationary period, the
time period specified for new employees to become union
members.[1]  (Government's Exhibit ("GX") 1, at 18).  She further
testified that benefits of financial remuneration (health,
wealth, and vacation) were paid retroactively, dating back to the
first hour of employment, after an employee became permanent. (GX
1, at 17).
     IRC admittedly imposed a 90 day probationary period. it
imposed this 90 day probationary period for all employees not
only for the leave related benefits, namely sick leave, but also
for the financial remuneration benefits, namely health and
welfare and vacation pay.  In addition, IRC admittedly failed to
pay some employees health and welfare benefits after the
expiration of 90 days.  It is the discrepancy between the
probationary periods, and the resulting alleged underpayments,
from which the allegations of SCA violation arise.
     In August 1993, IRC lost the Ft.  Belvoir contract to Grace
Industries.  Promptly, on August 1, 1993, Grace Industries
entered into a CBA with Local 571 regarding employee benefits.
However, in February 1994, IRC received contract number DAHC 35-
94-D-0005, and took over the custodial duties that Grace
Industries had been performing at Ft. Belvoir.  The CBA
negotiated with Grace was in place when IRC began performance on
the contract.
     The CBA called for the imposition of a probationary period
before certain leave related benefits could be paid.  Again, the
CBA failed to explicitly define the length of the probationary
period.  In addition, it failed to mention the imposition of a
probationary period for health and welfare and vacation benefits.
     Arnold Moreland, the International Representative for the
Laborers' International Union of North America, negotiated the
CBA with Grace in 1993. (TT at 158).  His testimony at the trial
established that, for lack of a definitive probationary period,
Grace implemented a 30 day probationary period, the time period
specified for new employees to become union members.[2]   (TT at
160.)
     Again, IRC admittedly imposed a 90 day probationary period. 
[PAGE 4]
It imposed this 90 day probationary period for all employees not
only for the leave related benefits, but also for financial
remuneration benefits.  In addition, IRC again failed to pay some
employees health and welfare benefits after the expiration of the
90 day period.  As with the 1990 contracts, it is the discrepancy
between the probationary periods, and the resulting alleged
underpayments, from which the allegations of SCA violation arise.

Whiting Field
     The U.S. Navy awarded IRC contract number N00612-89-C-0452
to provide mess attendant, janitorial, and related services at
Whiting Field Naval Air Station in Milton, Florida commencing
September 1, 1988.
     On March 13 1990, IRC and the Industrial, Technical and
Professional Employees, Group of Unlicensed Division, District
No. 1, MEBA/MNU, AFL-CIO ("Union") negotiated a Memorandum of
Agreement with wage and benefit increases to become effective
October 1, 1990.  The agreement provided that the increase would
not be paid until DOL approved the wage determination and IRC
received reimbursement from the Navy for the increases.
(Respondent's Exhibit ("RX") 18).  Mr. Fountain testified that he
included this clause because sometimes it "t[oo]k forever" to
receive compensation from the government for wage or benefits
increases. (TT at 242, line 10).
     On April 16, 1991, IRC had not yet paid the wage and benefit
increases, and the Union sued IRC in the United States District
Court for the District of Columbia. (RX 19).  The parties settled
the matter with prejudice for the sum of $6,149.91 on March 20,
1992. (RX 22).
     On June 25, 1991, the Navy noted that DOL had not yet
approved the wage determination. (RX 20).
     DOL subsequently approved the wage determination and on May
15, 1992, the Navy forwarded the modifications to IRC for
signature. (RX 23).  On June 15, 1992, Navy contacted IRC urging
it to promptly execute and return the signed modifications so
reimbursement could be processed. (RX 23).
     DOL filed the complaint in this proceeding on June 9, 1994.
IRC returned the modification paperwork to the Navy on September
28, 1994. (RX 28).
                           DISCUSSION
     IRC argues that it was allowed to implement a 90
probationary period because that is the customary probationary
period it usually negotiated with the union in previous
collective-bargaining agreements.  It admits it erred in not
paying the required benefits after the expiration of the 90 days.
IRC also acknowledges that it erroneously withheld certain fringe
benefits and a wage increase from some employees in the 1994 Ft. 
[PAGE 5]
Belvoir contract.  It claims, however, that the error should not
be held against it as it resulted from errors in IRC's
accountant's payroll computer program.
     Regarding the Whiting Field contract, IRC argues that it was
not at fault in the resulting underpayment due to an intervening
private law suit over the same payments.  When IRC received the
paperwork necessary to effectuate the modification, it had
already settled the law suit, but felt that the settlement was
not recognized by DOL or the Navy.  IRC, in not wanting to have
to pay the money twice, held onto the paperwork until DOL
initiated this suit.
     Upon a thorough review of the evidence, I find that
Respondents failed to make the required wage and fringe benefit
payments on all four contracts as alleged and, therefore,
violated the Service Contract Act.

Ft. Belvoir
     IRC claims that it did not violate the statute because it
implemented the standard probationary period IRC uses when it
negotiates its own collective-bargaining agreements.  However,
IRC's standard practices are irrelevant.  The practices in issue
are those of the contractor from which IRC assumes the contract.
     The Service Contract Act states:

          No contractor or subcontractor under a contract, which 

      succeeds a contract subject to this chapter and under which

      substantially the same services are furnished, shall pay   

      any service employee under such contract less that the     

      wages and fringe benefits, including accrued wages and     

      fringe benefits, and any prospective increases in wages and

      fringe benefits provided for in a collective-bargaining    

      agreement as a result of arm's-length negotiations, to     

      which such service employees would have been entitled if   

      they were employed under the predecessor contract....

41 U.S. C. §353(c).

     A plain reading of this statute indicates that the
applicable collective-bargaining agreement is the one in place
between the preceding contractor and the union.  See Halifax
Technical Services, Inc. v. U.S., 848 F. Supp. 240, 244 (D.C.
Cir. 1994)(preventing "a successor from relying on its own
separate collective-bargaining agreement to pay union members
less...than its predecessor's collective-bargaining agreement
called for").
     Furthermore, legislative history supports this
interpretation.  When the statute was amended to include this 
[PAGE 6]
section, the AFL-CIO challenged, on other grounds, its
implementation.  In that matter, the U.S. Court of Appeals for
the District of Columbia rendered an in-depth discussion of the
section-by-section analysis of the amendments adopting the
regulation.  Pertinent discourse follows:

      Representative Ashbrook is quoted as saying that the bill  

      'merely requires that a successful bidder cannot pay less  

      to employees than they were receiving from their former    

      employer pursuant to a contract with respect to wages and  

      fringe benefits.' 118 Cong.Rec. H27137 (daily ed.  Aug. 7, 

      1972). .... Senator Gurney remarks: 'The bill is a simple  

      one.  It merely requires that a successful bidder on a     

      service contract cannot pay employees less than they were  

      receiving from their former employer unless his wages are  

      out of line.'[3]  [4]  

American Federation of Labor and Congress of Industrial
Organizations v. Donovan, 757 F.2d 330, 352 (D.C. Cir. 1985).
     Testimony has established that both Unified and Grace
utilized a 30 day probationary period in absence of an explicitly
defined period.  This is the practice to which IRC should have
adhered.  In addition, testimony establishes that neither Unified
nor Grace applied a probation period for fringe benefits of
financial remuneration.
     Furthermore, I do not find meritorious IRC's contention that
erroneously withheld fringe benefit and wage increases should not
be held against it because of faulty computerized accounting
programs.  Accountants are paid to keep accurate financial
records for their clients in order to avoid legal difficulties.
When questioned about balance sheets and how payroll errors are
discovered, IRC's accountant, Herman Bell, replied, "[w]e go
through and do an edit and look at it, but we generally assume
that it's correct..." (TT at 280).  Mistakes due to lazy
accounting practices do not mitigate fault.
     I find that IRC violated the Service Contract Act on
contracts numbered DACA 31-90-C-0063, DACA 31-90-C-0064, and DAHC
35-94-D-0005 with the U.S. Army at Ft. Belvoir, Virginia by not
complying with the practices of the collective-bargaining
agreements as negotiated by its respective predecessors.

Whiting Field
     The parties have done little more to defend or prosecute
this issue than bicker over who dragged its feet more: DOL, IRC
or the Navy.  DOL argues that its approval of the wage
determination was implicit under the regulations as it was
determined after arm's-length negotiations resulting in a 
[PAGE 7]
collective-bargaining agreement.  DOL further argues that IRC
procrastinated in returning paperwork necessary to modify the
existing contract and effectuate reimbursement by the Navy.
     IRC seeks protection in the Memorandum of Agreement which
states IRC did not have to pay the wage increases until after
receiving DOL approval and reimbursement from the Navy.  It
further argues that by the time Navy was ready to process the
reimbursement, IRC had already settled a private law suit over
the same monies and would have paid them twice had it signed the
modification paperwork.
     I find both of these defenses lacking.  Mr. Fountain
testified at the trial that he included the aforementioned clause
in the Memorandum of Agreement to protect the company, because
sometimes it "t[oo]k forever" to receive compensation from the 
government for wage or benefits increases. (TT at 242, line 10). 
The purpose of the SCA is, however, "to protect the rightful
wages of service employees."  In re Kleen-Rite, Corp.,
BSCA 92-09 (Oct. 13, 1992); see also Vigilantes, Inc. v.
Administrator of Wage and Hour Division, 968 F.2d 1412, 1417
(lst Cir. 1992), quoting Senate Report (Labor & Public
Welfare) 92-1131, reprinted in 1972 U.S.C.A.A.N. 3534, 3534 (92nd
Cong. 2nd Sess.)(stating the SCA is "intended to provide wage and
safety protection for employees working under government
service").  Moreover, neither the statute nor the regulations
permit an employer to temporarily suspend its obligation to its
employees while waiting for reimbursement from another party. 
In re Kleen-Rite.
     Addressing its second argument, had IRC paid the increased
wages and benefits from the effective date of the Memorandum of
Agreement, as was its duty, the union would not have sued it for
breach of contract.
     Finally, DOL is correct in stating that approval of this
wage determination was implicit under the regulations as it was
agreed upon after arm's-length negotiations.  The statute
provides for the determination of prevailing fringe benefits
either "as determined by the Secretary..,or, where a
collective-bargaining agreement covers any such service
employees...including prospective fringe benefit increases
provided for in such agreement as a result of arm's-length
negotiations." 41 U.S.C. §351(a)(2)(emphasis added). 
Consequently, there was no reason to seek DOL approval in the
matter.  The increases were automatically approved and,
therefore, due on October 1, 1990.
     Accordingly, I find that IRC violated the Act on contract
number N00612-89-C-0452 with the U.S. Navy at Whiting Field Naval
Air Station in Milton, Florida.
                            DEBARMENT
     The Service Contract Act directs the Comptroller General to 
[PAGE 8]
distribute to all Federal agencies the names of those who violate
the Act.  For three years from the date the names are published,
violators are ineligible for any Federal contract.  The Secretary
of Labor, however, can recommend against debarment upon a showing
of unusual circumstances.  See 41 U.S.C. §354(a).
     The regulations at 29 C.F.R. §4.188(b)(3) state that
there can be no relief from debarment where the "conduct in
causing or permitting the violations...is willful, deliberate, or
of an aggravated nature or where the violations are a result of
culpable conduct..."  Furthermore, an employer cannot escape
debarment where it "has a history of similar violations...has
repeatedly violated the provisions of the Act, or where previous
violations were serious in nature." 29 C.F.R.
§4.188(b)(3)(i).
     If an employer can pass the first hurdle, then as a
prerequisite to "unusual circumstances," employer must prove that
it has a good compliance history, cooperated in the
investigation, repaid money due, and provides sufficient
assurance of future compliance.  29 C.F.R. §4.188(b)(3)(ii).

However, this alone does not justify relief from debarment. if
employer can establish there are no aggravating circumstances and
meet the outlined prerequisites, then other mitigating factors
must be considered: previous investigations; record keeping
violations which impeded the investigation; bona fide legal
issues of doubtful certainty; efforts to ensure compliance;
nature, extent, and seriousness of past or present violations;
and, prompt repayment. 29 C.F.R. §4.188(b)(3)(ii).
     There is no doubt that debarment is a harsh penalty. 
However, Congress intended that the penalty for SCA violations be
relentless. See A to Z Maintenance Corp, v. Dole, 710 F.
Supp. 853, 855-56 (D.C. Cir. 1989)(discussing the "unforgiving"
nature of the statute and quoting a House Committee Report which
preceded the 1972 amendments).
     Therefore, I find that there can be no relief from debarment
for Respondents.  Respondents cannot clear the first hurdle
elucidated in 29 C.F.R. §4.188(b)(3)(i).  Respondents
willfully and deliberately violated the Service Contract Act by:
implementing a probationary period different and greater than
that utilized under predecessor CBAs; withholding monies from
some employees even at the expiration of the implemented
probationary period; and, failing to comply with a negotiated
wage and benefits increase.
     Moreover, I find all of this conduct culpable.  The
government demonstrated that Respondents were well acquainted
with the Service Contract Act, having been awarded at least seven
other government services contracts, all of which had been
investigated for alleged violations.  Regardless of the outcome
of the seven previous investigations, by now Respondents should 
[PAGE 9]
be well aware of the meaning, intent and purpose of the Act. They
should be aware that violating the Act carries a severe penalty
and, therefore, be careful to conduct business in a manner which
conforms with the Act.
     Finally, this is not a solitary violation; Respondents
violated four contracts in three separate situations.  The
violations affected every worker employed under these contracts.
These are not insignificant violations. obviously, Respondents
have serious difficulty complying with the SCA.  A three year
debarment should give Respondents ample time to develop a
strategy for future compliance.
                            CONCLUSION
     Respondents, IRC and its president Bertram Fountain,
violated the Service Contract Act on four specific government
service contracts.  These violations were willful and deliberate,
and Respondents' conduct was culpable.  Accordingly, Respondents
are debarred and no relief for debarment exists.
                        RECOMMENDED ORDER
     On finding that Respondents violated the McNamara-O'Hara
Service Contract Act on contracts numbered DACA 31-90-C-0063,
DACA 31-90-C-0064, DAHC 35-94-D-0005, and N00612-89-C-0452, I
recommended that the Secretary of Labor require Respondents to
pay the amounts set forth in the Joint Stipulations and Further
Joint Stipulations in the manner set forth in the Joint
Stipulations and Further Joint Stipulations, and that Respondents
be debarred from any government contracting for three years.


GEORGE A. FATH
Administrative Law Judge



                               [ENDNOTES]

[1] Ms. Martin explained that Unified's usual probationary period
was 60 days.  Under this particular CBA, however, Unified
implemented the 30 day recognition period as the probationary
period. (GX 1, at 17-18).


[2] At trial, counsel for IRC attempted to illicit from Mr.
Moreland testimony supporting the notion that Grace had a 30 day
recognition period, but that this was not necessarily the same
period of time as the probationary period. (TT at 175-183).  In
the course of this dialogue, Mr. Moreland clearly demonstrated
that he was aware of the difference between a recognition period
and a probationary period.  Based on this, I find that Mr.
Moreland knew exactly what he was talking about when counsel for
the government asked him whether the recognition period was used
as the probationary period in the Grace contract.  Mr. Moreland
succinctly replied, "yes." (TT at 160, line 21).


[3] 118 Cong.Rec. S31281 (daily ed. Sept. 19, 1972). See also
Subcomm. on Labor of the Senate Comm. on Labor and Public
Welfare, 92nd Cong., 2d Sess., Legislative History of the Service
Contract Act Amendments of 1972, at 72-73 (Comm. Print 1972).


[4] In this case, neither side has alleged that the predecessor
paid wages or fringe benefits "out of line."