Bargaining at a union shop

Companies that bid to provide services to government agencies generally

know they will be required to pay their employees the "prevailing wages"

for the area in which the work is performed. But the issue becomes more

involved when the contractor's work force is unionized.

Congress enacted the Service Contract Act (SCA) in 1965 to address the

concern that, by awarding contracts to the bidder with the lowest proposed

hourly wage rate, the federal government would contribute to an overall

reduction in the wages of service employees. Under the act, service contractors

must pay their employees no less than the applicable prevailing minimum

wages and fringe benefits established by the Labor Department.

The law was amend-ed in 1972 to require that where a collective bargaining

agreement (CBA) is in place, determining the wage for a particular contract

must agree with the rates laid out in that CBA. Moreover, those rates must

include any prospective wage increases contained in the agreement.

The Labor Department, however, may reject the CBA rates if it determines

that the terms were reached as the result of other than "at arm's length"

negotiations between the union and the incumbent contractor.

Since 1972, unions have tried to stretch the limits of what a successor

contractor will be required to observe from its predecessor's CBA. Nevertheless,

the department has held the line that the second contractor's only obligation

is ensuring that all employees are paid no less in wages and benefits than

under its predecessor's CBA.

The successor contractor's obligation does not extend to such things

as seniority, grievance procedures, overtime or other matters. Moreover,

excluding overtime from the contractor's obligations covers entitlement

to an overtime work schedule and overtime premium pay.

Because each exercise of an option year by the government is considered

a new contract for purposes of the SCA, a successor contractor's obligation

to match the predecessor's CBA wages applies only to the first contract

period — specifically, the base contract term, excluding options.

If the new contract work differs significantly from the prior contract,

Labor may determine that it should not be considered a successor contract

under the SCA. Moreover, when a prospective contractor does not believe

the predecessor's CBA was the result of arm's length negotiations, it may

request a review. However, any decision by a successor to disregard a predecessor's

CBA in the absence of an appropriate order from Labor will subject the contractor

to penalties that may include debarment.

To minimize risk in this area, a prospective bidder should consider

seeking guidance from the Labor Department. Although advice from the agency

contracting officer or others such as union representatives may be helpful,

the department maintains exclusive authority for resolving most of these

issues.

Peckinpaugh is corporate counsel for DynCorp, Reston, Va.