Government Contracts Monitor

New FAR Interim Rule Increases Minimum Wage to $10.10

January 27, 2015

The FAR Council recently issued a new Interim Rule (correction here), implementing President Obama’s Executive Order 13658 establishing a $10.10 per hour minimum wage for employees of covered federal contractors and subcontractors starting January 1, 2015. The new Rule also implements, for FAR-covered contracts, the Final Rule issued by the Department of Labor (DOL) on October 10, 2014, previously discussed here. The DOL Final Rule covered both FAR and non-FAR covered contracts, while the new FAR Rule is limited to FAR-covered contracts.

The new FAR Rule generally follows and implements the DOL Final Rule, and establishes a new FAR Subpart 22.19, entitled “Establishing a Minimum Wage for Contractors,” and a new FAR Clause, FAR 52.222-35, “Minimum Wages Under Executive Order 13658 (DEC 2014)” (the “Clause”). We recommend that all contractors carefully review this new Clause to ensure they understand and are prepared to implement the new requirements and prepare new bids accordingly. The FAR Rule identifies and explains the reasons for various differences between the DOL Final Rule and prescribed clause and the FAR implementation, most of which relate to differences in the FAR’s scope and pre-existing FAR coverage of the same topics.

The new Rule applies to solicitations for covered contracts issued on or after December 15, 2014, requiring performance in whole or in part within the United States. Importantly, the new $10.10 requirements do apply to commercial contracts and to simplified acquisitions and the Rule includes changes to the respective clauses at FAR 52.212-5 and 52.213-4 to include the new “Minimum Wages” Clause. If you receive a new solicitation issued after December 15, 2014 that does not include these new FAR clauses, be sure to ask the contracting officer to ensure a common competitive bidding basis. If the Clause is mistakenly omitted, the agency is required to incorporate it into the contract, retroactively to the start of performance.

The new Rule does not apply to existing contracts, including existing priced options or extensions that individually and cumulatively do not exceed six months. Contracting officers are “strongly encouraged” to include the Clause in existing IDIQ contracts if the remaining ordering period extends at least six months and the amount of remaining work or number of orders expected is “substantial.” From the contractor’s viewpoint, the key is whether the Clause actually is in a contract; the Clause will not be read in.

These differing applicability rules place a heavy burden on contractors to ascertain applicability and properly apply possibly differing wage rates across multiple contracts. Contractors also need to be prepared to respond to employee inquiries, as employees may not understand the differing applicability rules. If you determine that a contract is not covered, but an employee wishes to pursue the matter, consider referring the employee to the DOL Wage and Hour Division, which is training personnel to respond to such inquiries.

Importantly, contractors are required to flow-down the new Clause into all subcontracts, regardless of dollar value, that are subject to the Service Contract Act (SCA) or Davis Bacon Act (DBA) and to be performed in whole or in part in the U.S. Moreover, contractors are responsible for their subcontractors’ compliance, and may be held liable for unpaid subcontractor worker wages. Additionally, contractors are required to notify all workers under covered contracts as to the required minimum wage, and are prohibited from retaliating in any way against any worker filing or causing filing of a complaint or testifying in any proceeding.

Enforcement authority with respect to potential violations is vested in the Administrator of DOL’s Wage and Hour Division, who may, among other things, initiate debarment proceedings whenever a contractor is found to have disregarded its obligations. Contracting agencies do not have authority to conduct compliance investigations, and must refer any complaints to, and cooperate with, DOL. However, this does not limit the contracting officer’s authority to otherwise enforce contract terms and conditions, and the contracting officer may withhold payment if the contractor fails to comply with the recordkeeping and production requirements in paragraph (e)(2) of the Clause. Contracting officers also are required to consider notifying the agency suspending and debarring official in instances of “significant” violations.

While the Interim Rule became effective upon publication, the FAR Council is inviting comments by February 13, 2015, which will be considered in formulating a final rule.

Hopewell Darneille is responsible for the contents of this article.