The Service Contract Act, in plain English

What it is

The McNamara-O’Hara Service Contract Act of 1965 — you will also see it called the Service Contract Labor Standards statute — sets the minimum wages and fringe benefits you must pay workers on federal service contracts. It exists so that companies cannot win government work by underpaying the people who do it.

In practice it means this: for a covered contract, the Department of Labor publishes a wage determination listing, occupation by occupation and county by county, the least you may lawfully pay. Those rates are a floor. You can pay more. You cannot pay less, and “we agreed a lower rate with the employee” is not a defence.

Who it covers

Broadly, a contract is covered when all of the following hold:

• It is with the U.S. federal government or the District of Columbia
• Its principal purpose is furnishing services, not goods or construction
• The work is performed in the United States, including territories
• It is worth more than $2,500, or is for an indefinite amount
• The work is done by service employees

Subcontractors are covered too. The obligations flow down, so being one step removed from the government does not put you outside the Act.

Two big exclusions catch people out. Construction, alteration or repair of public buildings falls under the Davis-Bacon Act instead, not the SCA — and painting and decorating count as construction. Contracts principally for manufacturing or supplying goods fall under Walsh-Healey. Run through the five questions if you are unsure which bucket you are in.

What counts as a service employee

Almost everyone doing the actual work. The only carve-out is for people who genuinely qualify as bona fide executive, administrative or professional employees under 29 CFR part 541.

That exemption is much narrower than most contractors assume, and it is tested against actual duties and salary rather than job titles. Calling someone a supervisor does not make them exempt. Misclassifying here is one of the more expensive mistakes available to you, because it multiplies across every hour that person worked.

What you actually owe

Three separate obligations, and they stack:

1. The base hourly rate for each occupation, from the wage determination covering your place of performance.
2. Fringe benefits — health & welfare, paid vacation, and paid holidays. These are on top of the wage, not part of it, and they are where most pricing errors originate. How SCA fringe benefits work.
3. Any applicable Executive Order minimum. Where an EO floor is higher than the determination’s rate, the EO wins.

When your job title is not on the determination

Frequently it will not be. Wage determinations list standard occupations, and your labor categories will not always map cleanly onto them. Where no listed class fits the work, the contract requires a conformance — an SF-1444 submitted through the contracting officer proposing a rate that bears a reasonable relationship to the classes that are listed.

Conformances take time to process, so finding out you need one a day before proposals are due is a bad position. Map your labor categories early.

Why the numbers move

Wage determinations are revised through the year. A rate you priced against in March may not be the rate in force when you sign, and on a multi-year contract the determination current at each option anniversary is the one that applies — see FAR 52.222-43.

Nobody emails you when this happens. That is the single most common way a compliant bid quietly becomes a non-compliant one, and it is the reason this site exists.

What happens if you get it wrong

Underpayment means back wages, and the government can withhold contract payments to cover them. Persistent or wilful violations can lead to debarment — losing the ability to hold federal contracts at all, typically for three years. For a company whose revenue is federal services work, that is not a fine, it is an ending.

How to price a bid properly

1. Confirm the contract is covered.
2. Find the determination for the county where the work happens.
3. Map each labor category to a listed occupation, and flag anything needing conformance.
4. Take the higher of the determination rate and the applicable EO minimum.
5. Add health & welfare, vacation and holidays.
6. Add payroll taxes, workers’ comp, overhead, G&A and fee.
7. Re-check the determination before you submit.

That is exactly what the pricer on this site does, free and without an account, from determinations crawled weekly from SAM.gov.