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U.S: Department of LaborEmployment Standards AdministrationWage and Hour DivisionMEMORANDUM NO. 166MEMORANDUM FOR ALL CONTRACTING AGENCIES OF THE FEDERALGOVERNMENT AND TH DISTRICT OF COLUMBIAFROM: KAREN R. KEESLINGActing Administrator

SUBJECT: Requirements for Substantial Variance ProceedingsUnder Section 4(c) of the Service Contract ActThis is to clarify the criteria utilized by the Wage and HourDivision in determining whether a case has been made that asubstantial variance may exist between collectively bargainedrates incorporated in Service Contract Act.(SCA) wage determin-ations and the comparable rates prevailing in the locality. Inaccordance with 29 CFR 4.10, written requests for variancehearings shall include:1. The number of any wage determination, if issued, thename of the contracting agency whose contract is involved,and a brief description of the services to be performedunder the contract.

2. Copies of the relevant wage determination, if issued,collective bargaining agreement, and Standard Form 98 and98a requesting the wage determination in question.3. A statement regarding the status of the procurement andany estimated procurement dates, such as bid opening,contract award, commencement date of the contract or itsoption period(s).4. Names and addresses (to the extent known) of interestedparties, such as unions and employers.5. A statement of the applicant's case, setting forth indetail the reasons why the applicant believes that a

- 2 -


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substantial variance exists with respect to some or all ofthe wages and/or fringe benefits, attaching available dataconcerning wages and/or fringe benefits prevailing in thelocality.With respect to the statement of the case, the Deputy Secretaryof Labor's Decision and Order of Remand dated February 4, 1991,(copy attached), provides a detailed discussion of some of thefactors to be considered in deciding wh4ther a substantial

variance exists. As the Deputy Secretary points out, SCA doesnot define the term "substantial variance"; however, "the plainmeaning" of the term requires "that a considerable disparity inrates must exist before the successorship obligation may beavoided." Furthermore, the Deputy Secretary found that "[n]odiscrete comparison rate is conclusive. Rather, if uponcomprehensive examination the negotiated rates are shown to beout of line with the rest of the rates, then a substantialvariance may well exist."The Deputy Secretary emphatically rejected the argument that areawage determinations should serve as the only benchmark forsection 4(c) findings and he noted that "collectively-bargainedrates often can be expected to exceed service industry

'prevailing' rates in these circumstances. Here, where somevariance should be the norm, a finding of 'substantial' variancewould require a collectively-bargained rate clearly to fall outof line when compared to a comprehensive mix of rates."Section 4.10.{b)(2) provides that the Administrator will not granta request for a hearing unless the information available orsubmitted demonstrates that there may be a substantial variance.Therefore, in light of the Deputy Secretary's conclusion that avariety of factors must be addressed as part of the substantialvariance process, the Administrator will not grant any hearingrequest that does not adequately address the variety of thefactors discussed in the Deputy secretary's decision. A requestfor a hearing must contain information and analysis concerning

the differences between the collectively bargained rates issuedand the rates contained in:(a) Corresponding Federal wage board rates and surveys.While it is not necessary that the challenged rate behigher than the corresponding Federal rate, this is animportant factor.(b) Relevant BLS survey data and the comparable SCA areawage determination.

- 3 -(c) Other relevant wage data. For example, rates paid in


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local hospitals would be appropriate for comparison oncontracts for hospital aseptic services, while therates paid in local schools could be of value incomparison for janitorial or food service workers.(d) Other collectively-bargained wages and benefits.It is expected that a request for a healing will address allrelevant issues. However, it is recognized that a petitioner maynot be able to submit complete data at the time the hearing

request is made. Where efforts to obtain supporting evidence arein progress, information must be provided concerning the approxi-mate time necessary to complete the gathering of additional data.Merely providing a statement that data are not available is notsufficient. The request must adequately demonstrate the effortmade to obtain or develop such information.Unless extraordinary circumstances exist, requests for a hearingwill not be considered unless received prior to 10 days beforethe award of the contract (for which bids have been invited bysealed bidding); and prior to the commencement date of thecontract or the option period (for negotiated contracts andcontracts with provisions extending the term by option).Requests for variance hearings received by the Wage and Hour

Division but not meeting the above criteria will be returned tothe submitting interested parties. Such transmittals willindicate the additional information required. This informationmust be resubmitted to the DOL within the time frame listedabove.Questions regarding these requirements may be directed toDr. Alan L. Moss, Director, Division of Wage Determinations (202-219-7531) or Ms. Michelle M. Bechtoldt, Chief, Branch of ServiceContract Wage Determinations (202-219-7568).Attachment

U.S.DEPARTMENT OF LABORDEPUTY SECRETARY OF LABORWASHINGTON D.C.


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DATE: February 4, 1991 20210CASE NOS. 89-CBV-189-CBV-589-CBV-789-C8V-1089-CBV-1189-CBV-1289-CBV-16

89-CBV-17IN THE MATTER OFAPPLICABILITY OF WAGE RATES COLLECTIVELYBARGAINED BY UNITED HEALTHSERV, INC., ANDLABORERS' INTERNATIONAL UNION OF NORTH AMERICA,AFL-CIO, TO EMPLOYMENT OF SERVICE EMPLOYEES UNDER ACONTRACT FOR HOSPITAL ASEPTIC MANAGEMENT SERVICES AT:WRIGHT-PATTERSON AIR FORCE BASE INMONTGOMERY COUNTY, OHIO,MAXWELL AIR FORCE BASE INMONTGOMERY COUNTY, ALABAMA,TYNDALL AIR FORCE BASE IN BAYCOUNTY, FLORIDA,

EGLIN AIR FORCE BASE IN OKALOOSACOUNTY, FLORIDA,SHAW AIR FORCE BASE IN SUMTERCOUNTY, SOUTH CAROLINA,ALTUS AIR FORCE BASE, OKLAHOMA,CARSWELL AIR FORCE BASE, TEXAS,LACKLAND (WHILFORD KALL AND MEDIAN ANNEX),RANDOLPH, BROOKS, AND KELLY AIR FORCE BASES,BEXAR COUNTY, TEXAS.BEFORE: THE DEPUTY SECRETARY OF LABORDECISION AND ORDER OF REMANDThis proceeding is before me pursuant to the McNamara-O'HaraService Contract Act of 1965, as amended (MOSCA or the Act),

1/ The Deputy secretary has been designated by the Secretary toperform the functions of the Board of Service Contract Appealspending the appointment of a duly constituted Board. 29 C.F.R.

8.0 (1989).

241 U.S.C. 351-358 (1988), and its implementing regulations,29 C.F.R. Parts 4, 6 and 8 (1989). The primary issue on reviewof Administrative Law Judges (ALJs) Daniel J. Roketenetz's and


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Alfred Lindeman's Joint Decision and Order (J.D. and 0.) ofJuly 21, 1989, is whether the ALJs employed an appropriatestandard under MOSCA Section 4(c) in upholding the successorshipobligation in these cases.In granting the Laborers' International Union of NorthAmerica, AFL-CIO's (LIUNA's) motion for summary decision, theALJs held that, absent allegations of certain "unusualcircumstances" described in the legislative history of Section

4(c), and where the majority of collectively-bargained rates fallbetween greater Federal wage board rates and lesser area wagerates, there can be no substantial variance. 2/ J.D. and 0. at27. In its Petition for Review, the contracting agency, theDepartment of the Air Force, argues that the Wage and HourAdministrator's area wage determination 3/ establishesUnited Healthserv, Inc., provided hospital aseptic management(housekeeping) services at the captioned facilities. Initially,it performed what became predecessor contracts. Thereafter, itbecame a successor contractor during exercise of contractoptions. The wage determination for the predecessor contractsincorporated collectively-bargained rates. See J.D. and 0. at 3-5.

3/ In the absence of an applicable collective bargainingagreement, the Administrator, in setting minimum monetary wagesand fringe benefits for service contract wage determinations,relies significantly on area surveys conducted by the Bureau ofLabor Statistics, U.S. Department of Labor (BLS). 29 C.F.R.5 4.51. By comparison, in Section 4(c) proceedings considerationis not confined to the Administrator's wage determination, BLSsurveys, or other factors. See, e.g., In the Matter of(continued...)

3conclusively the prevailing rate in the locality for purposes ofdetermining the existence of a substantial variance.The ALJs have applied the following standard: (1) a findingof substantial variance requires proof-of non-arm's-length


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negotiation or rates having become disproportionate over a longperiod of time; and (2) negotiated rates which do not exceedanalogous Federal wage board rates occupy a protected zone andcannot be held substantially at variance with prevailing ratesabsent proof of non-arm's-length negotiation. 4/ While Idisagree with this precise formulation, I do not reject the ALJs'analysis in its entirety. Rather, the ALJs are substantiallycorrect in their identification of congressional intent and, in

particular, of the roles accorded collectively-bargained andFederal wage board rates under the MOSCA. 5/3/(...continued)Applicability of Wage Rates Collectively Bargained by Big BoyFacilities, Inc., end the National Maritime Union to Employmentof Service Employees under a Contract for Mess Attendant Servicesat Fort Richardson, Alaska (Big Boy facilities), Case No. 88-CBV-7, Final Decision and Order of the Dep. Sec. issued January 3,1989, slip op. at 9-14, 29, Wage & Hour cas. (BNA) 356, 360-363(1989).This component derives from the ALJ's premise that wages equalto or less than the Federal wage board rate assertedly are"justifiable," and that a finding of nunjustifiability" thus

arguably is requisite to a finding of substantial variance.While it is not necessary to restate and address each discreteargument advanced by each party, I have considered all aspects ofthe parties' respective positions thoroughly in rendering mydecision.

4I. BACKGROUNDA. The Facts of the CaseThe Department of the Air Force contracted with UnitedHealthserv to perform housekeeping services at the captioned AirForce bases. These (successor) contracts contained wage


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determinations which incorporated rates from predecessorcontracts for the immediately preceding contract period. Thepredecessor rates, which had been collectively bargained by theLIUNA on behalf of United Healthserv's employees, generallyexceeded the Administrator's area wage rates. The followingconstituted the collectively-bargained rates, Federal wage boardrates, and area wage rates in effect:

Federal Area

Negotiated Wage Board WageWage Rate Rate Rate

Wright-Patterson AFBDayton, OhioHousekeeping Aide I $8.27 $9.56 $7.33Group Leader 8.77Maxwell AFBMontgomery, AlabamaHousekeeping Aide I 5.50 5.73 4.52Housekeeping Aide II 5.50 4.88Group Leader 6.02Tyndall AFBPanama City, Florida

Housekeeping Aide I 6.03 6.89 5.22Housekeeping Aide II 6.03 5.66Group Leader 6.57Eglin AFBPensacola, FloridaHousekeeping Aide I 7.42 7.62 5.22Group Leader 7.97 9,28

5Shaw AFSSumter, South CarolinaHousekeeping Aide I 6.39 6.74 4.17Group Leader 6.99 7.70Altus AFBAltus, Oklahoma


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Housekeeping Aide I 6.60 6.00 5.69Group Leader 7.12Carswell AFBPt. Worth, TexasHousekeeping Aide I 7.47 7.13 5.08Group Leader 7.99 7.75Lackland AFBSan Antonio, Texas

Housekeeping Aide I 6.89 7.47 4.48Housekeeping Aide II 6.89 4.92Housekeeping Aide III 6.99Group Leader 7.21 8.40B. Statutory FrameworkMOSCA Section 2 requires every Federal government servicecontract to contain a provision specifying minimum monetary wagesto be paid and fringe benefits to be furnished to the variousclasses of service employees engaged in performing the contract.The Wages are "determined by the secretary . . . in accordancewith prevailing rates for such employees in the locality . . . ."The benefits specified are those determined by the Secretary "tobe prevailing . . . ." 41 U.S.C. 351(a)(1) and (2). In

addition, the contract must state, inter alia, the Federal wageboard rates which would be paid to the classes of employees underthe Prevailing Rate Systems Act, 5 U.S.C. 5341-5349 (1988),and the Secretary must "give due consideration to [these] ratesin making the wage and fringe benefit determinations specified inthis section." 41 U.S.C. 351(a)(5). However, in the event

6that the service employees performing the contract are covered byan arm's-length collective bargaining agreement, this "prevailingrate" procedure does not apply. Instead, the wage determinationwould specify the negotiated wages and fringe benefits, includingany prospective increases, provided by the collective bargainingagreement. 41 U.S.C. 351(a)(1) and (2).MOSCA Section 4(c), 41 U.S.C. 353(c), imposes on successor


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contracts an obligatory floor for wages and fringe benefits inthe event that the predecessor contract has specifiedcollectively-bargained rates. Wages paid and benefits furnishedunder a successor contract must be greater than or equal to thoseprovided under the predecessor contract. The employer obligationreads:No contractor or subcontractor under a contract, whichsucceeds a contract subject to this chapter and under

which substantially the same services are furnished,shall pay any service employee under such contract lessthan the wages and fringe benefits, including accruedwages and fringe benefits, and any prospectiveincreases in wages and fringe benefits provided for ina collective-bargaining agreement as a result of arm's-length negotiations, to which such service employeeswould have been entitled if they were employed underthe predecessor contract . . . .Section 4(c) also contemplates circumstances in which theobligation may be suspended. Its proviso specifies that thesuccessorship obligations do not apply "if the Secretary findsafter a hearing . . . that such wages and fringe benefits are

substantially at variance with those which prevail for servicesof a character similar in the locality." (Emphasis added.)

7The collective-bargaining rate alternatives wereincorporated into Section 2(a)(1) and (2) through the MOSCA's1972 amendment, and Section 4(c) also was enacted at that time.The Senate Report explains:Section 2(a)(1) and 2(a)(2) of the act have beenamended, and a new subsection (c) has been added tosection 4 to explicate the degree of recognition to beaccorded collective bargaining agreements covering


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service employees, in the predetermination ofprevailing wages and fringe benefits for future suchcontracts for services at the same location. . . .The committee appreciates the importance ofdecasualizing the service contract industry--a laborintensive and otherwise casual and transient industry.S. Rep. No. 1131, 92nd Cong., 2d Sess., reprinted in 1972 U.S.Code Cong. & Admin. News (USCAN) at 3537 (emphasis omitted).

Thus wages and benefits in effect as the result of arm's-lengthnegotiation initially govern section 2(a) wage predeterminations.The Senate Report states: "sections 2(a)(1), 2(a)(2), and4(c) must be read in harmony to reflect the statutory scheme. ItIs the intention of the committee that sections 2(a)(1) and2(a)(2) and 4(c) be so construed that the proviso in section 4(c)applies equally to the above provisions." Accordingly, in theevent that successor rates, based on predecessor collectively-bargained rates, are found to be substantially at variance withthose prevailing in the locality, the wage determinationcontained in the successor contract would be altered inaccordance with prevailing rates. If the wage determination"minimum" rate is reduced below the collectively-bargained rate,

the contractor certainly could continue to honor his laboragreement by paying the negotiated rate. However, uponresolicitation of the service contract, other contractors couldsubmit bids based on the new minimum rates specified in the wagedetermination because the obligation to pay at least thepredecessor rate would no longer apply.

8The Senate Report also makes clear that Congress intendedthat the successorship obligation would attach in the usualcircumstance.Ordinarily, where service employees are covered by acollective bargaining agreement, a successor contractorfurnishing substantially the same services at the samelocation will be obligated to pay to such serviceemployees no less than wages and fringe benefitsrequired by such agreement. This requirement would


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likewise apply to prospective wages and fringebenefits.The term "accrued . . . fringe benefits" is interpretedto mean those benefits, such as accrued vacation pay orsick leave, to which an employee has become entitled byvirtue of employment on predecessor contracts . . . .There are certain unusual circumstances wherepredetermination of wages and fringe benefits contained

in such a collective agreement might not be in the bestinterest of the worker or the public.Thus, service employees should be protected againstinstances where the parties may not negotiate at armslength.Id. (emphasis added). The report thereafter cites circumstancesresulting from collusion or unequal bargaining power and observesthat predetermined rates possibly might tend to deviatesubstantially from actual prevailing rates "over a long period oftime . . . ." It concludes by stating that the dual objectivesof protecting service contract workers and safeguarding otherlegitimate government interests is best achieved by requiring theSecretary to predetermine collectively-bargained wages and fringe

benefits, except where she finds, after notice to interestedparties and a hearing, a "clear showing" of substantial

9variance. 7/ Big Boy Facilities, slip op. at 3-10, 29 Wage & HourCas. (BNA) at 358-360.Imposition of a successorship obligation pertaining both towages and fringe benefits was exceptional, in light of thejudicially circumscribed treatment accorded this principle underthe National Labor Relations Act. Burns Detective Agency v.NLRB, 406 U.S. 272 (1972) (successor employer obliged to bargain7/ After conducting five days of oversight hearings in 1974, theHouse subcommittee reported continued problems in the operationof Section 4(c). The subcommittee's discussion reinforces the


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case for construing the successorship obligations as the ordinarycircumstance.In order to maintain continuity of service to theFederal government and to ensure that employees wouldnot lose their bargained-for benefits, the Congressenacted section 4(c) . . . . The clear intent of theCongress was to prevent wage undercutting byestablishing a wage and fringe benefit floor--the

predecessor collective bargaining agreement--forsuccessor contractors.Mr. O'HARA. It is that sort of problem [wageundercutting] which prompted us to include in the billthat in no event shall the new contractor be permittedto pay less than what the existing rate was under theold contract. . . .Despite the passage of 4(c), problems still remain.The GAO has advanced an interpretation . . . that[ 4(c)] is to be applied only where the same employeesand the same locality continue under a succeedingcontract . . . . The Subcommittee rejects thisinterpretation . . . . The subcommittee also rejects

any interpretation of 4(c) which places a time limiton the duration of the successorship requirements.Congressional Oversight Hearings: The Plight of the ServiceWorker Revisited; Report of the Subcommittee on Labor-ManagementRelations of 4he U.S. Congress, House Committee on Education andLabor (Plight Revisited), 94th Cong., 1st Sess. 7-8 (Comm. Print1975).

10

with predecessor union only if hiring substantial number ofpredecessor workforce; even so, successor not obliged to honorpredecessor collective bargaining agreement).Section 4(c) overruled Burns to the extent that theSupreme Court refused to impose any of the terms of aprior contract on a successor employer. While Burns isbased upon a policy of not imposing terms of anagreement upon parties who have not themselvesbargained for those terms, the Congress recognized thatthis policy must give way in the field of servicecontracts to achieve any degree of labor stability and


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economic security for employees who most often face anew employer annually.Plight Revisited at 8.C. Prior ProceedingsThe captioned cases arose when the Air Force requested thatthe Administrator initiate Section 4(c) proceedings. The AirForce alleged the existence of substantial variances between wagerates prevailing in the locality for similar housekeeping

services and those collectively bargained between the LIGNA andUnited Healthserv, incorporated in the instant wagedeterminations. The Administrator issued an Order of Referencein each case upon determining that there may have been asubstantial variance between prevailing rates and some or all ofthe collectively-bargained rates, 29 C.F.R. 4.10(b)(2), and thecases were referred to the Chief Administrative Law Judge forhearing.The cases were consolidated, with five being assigned to ALJRoketenetz and three being assigned to ALJ Lindeman. The ALJsscheduled a consolidated prehearing conference for April 25,

111989. On March 7, the LIUNA filed a motion to dismiss and a

motion for continuance of hearing pending consideration of thedismissal motion. ALJ Roketenetz denied the motion forcontinuance on March 8. The LIUNA then filed a motion forsummary decision on March 10 and a supplemental memorandum insupport of its dispositive motions on March 16. On March 29, theAir Force filed a motion for summary decision, and the LIGNAfiled a motion for continuance of the evidentiary hearingspending consideration of the dispositive motions. TheAdministrator responded to the LIUNA's motions to dismiss and forsummary decision on April 6. On May 6, the LIUNA's motion forcontinuance was granted by joint ALJ order.


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On July 21, 1989, the ALJs issued a Joint Decision and Orderon Motion to Dismiss and Crops Motions for Summary Decision (J.D.and 0.). That decision denied the motion to dismiss and grantedthe LIUNA's motion for summary decision. The ALJs held that, asa matter of law, substantial variances did not exist in the casesbecause (1) arm's-length negotiations had taken place betweenUnited Healthserv and the LIUNA, and there were no "unusualcircumstances" affecting the bargaining process; and (2) six of

the eight sets of collectively-bargained wage rates involved wereless than the Federal wage board rates for the locality in whichthe contracts were performed. The ALJs constructed this standardwith reference to portions of the MOSCA's legislative history,after they determined that the statutory language of the Section4(c) proviso was "ambiguous at best and contain[ed] such inherent

12difficulty . . . as to be almost meaningless." J.D. and 0. at14. The Air Force thereafter petitioned for review of the ALJs'

J.D. and 0.II. ANALYSISThe ALJs' standard for showing the existence of asubstantial variance contemplates first the presence of the"unusual circumstances" mentioned in the 1972 Senate Report'sSection 4(c) discussion. Two of these circumstances were citedin that report as "example(s] of non-arm's-length negotiation,in particular that:a union and an employer may enter into a contract,calling for wages and fringe benefits substantiallylower than the rates presently prevailing for similar


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services in the locality [and that] a union andemployer may reach an agreement providing for futureincreases substantially in excess of any justifiableincreases in the industry.1972 USCAN at 3537. 8/ The third unusual circumstance cited inthe report embodies the observation that "it is possible thatover a long period of time, predetermined contractual rates mightbecome substantially at variance with those actually prevailing

The MOSCA does not define the term substantial variance,specifying only that the Secretary must find, after a hearing inaccordance with her regulations, "that such [negotiated] wages8/ The ALJs also state: "An example of an 'unusual circumstance'that would trigger invocation of the substantial variance proviso. . . would be an assertion and proof that the collectively-bargained wage rate was agreed to by a 'lame duck' contractor,near the end of its contract, in order to avoid a strike orworkforce slowdown." J.D. and 0. at 28.

13and fringe benefits are substantially at variance with thosewhich prevail for services of a character similar in thelocality." The plain meaning of these terms is that a

considerable disparity in rates must exist before thesuccessorship obligation may be avoided.Accordingly, I disagree with the ALJs that Section 4(c) isincomprehensible. Its language contemplates a comparison of thenegotiated rates with those which prevail in the locality.Substantial variance determinations are highly factual, turningon an evaluation of all evidence presented. See Big Boyfacilities slip op. at 10-14, 29 Wage & Hour Cas. (BNA) at 360-361. No discrete comparison rate is conclusive. Rather, if uponcomprehensive examination the negotiated rates are shown to beout of line with the rest of the rates, then a substantial


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variance may well exist. See infra at 16-19.The focus then, in gauging the propriety of the ALJs'initial criterion, is on the degree to which the examples ofunusual circumstances may establish a variation betweennegotiated and prevailing rates. At most, the correlation isinferential in the sense that collusion, unequal bargainingpower, or the passage of time might tend to explain disparity.On the other hand, an explanation is not strictly necessary. A

large difference is itself evidence that rates are "out of line."118 Cong. Rec. 31,282 (daily ed. September 19, 1972) (statementof Senator Gurney). To elevate these illustrations to requisite

14elements of proof would be arbitrary, and I decline to do so. Ireject this aspect of the ALJs' standard.Of course, proof of non-arm's-length negotiation couldstrengthen a case that wage rates are "substantially"

asubstandard, that increases "substantially" exceed those commonin the industry, or that predetermined increases have deviated"substantially" over time. See 1972 USCAN at 3537. However,whether arm's-length negotiation has occurred is a separateissue. Compare 29 C.F.R. 4.10 with 29 C.F.R. 4.11. As the Administrator correctly notes, Admin. Statement at 22-23, thatconsideration bears on imposition of the successorship obligationin the first instance, rather than arising under Section 4(c)'sproviso which creates an exception to the obligation. SeeTrinity Services. Inc. v. Marshall, 593 F.2d 1250, 1259 (D.C.


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Cir. 1978). Additionally, under the Department's regulations theabsence of arm's-length negotiation is not a consideration insubstantial variance proceedings unless so designated by theAdministrator. 29 C.F.R. 4.10(c), 4.11(c)(1). Since asubstantial variance may be found in the absence of irregularbargaining, the ALJs' standard would contravene the regulations.The ALJs' remaining criterion incorporates the Federal wageboard rates. In particular, under the ALJs' standard a

presumption of legitimacy would extend to negotiated rates equalto the Federal rates or to wage rates falling between the Federalrates and the rates otherwise predetermined by the Secretary

15under Section 2(a) in accordance with prevailing rates in thelocality. The ALJs state:we hold that it would be antithetical to the intent ofCongress in enacting Section (4(C)] to find that a wageequal to or less than the Federal Wage Board rate is

"unjustifiable," and [we hold] that such a finding [ofunjustifiability] is required for a "substantialvariance" to exist. . . .To allow wages at or below the Federal Wage Board levelto be challenged, and possibly rolled back even lower,would call into question the validity of wage rates setby Congress for work of the same description.Moreover, since the intent of Congress was explicitlyto narrow or eliminate the wage gap between federalemployees and service contract employees performing thesame work, we hold that wages falling within the


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parameters of those rates are in a protected zone andcannot be substantially at variance with prevailingwages . . . absent an allegation of less than arm'slength negotiation.J.D. and 0. at 27-28. Under this criterion only collectively-bargained rates which exceed Federal wage board rates are"unjustifiable" and thus subject to a substantial variancefinding.

Again, the ALJs' formulation does not comport with the plainmeaning of the statute. The impetus under the section 4(c)proviso is disparity between negotiated rates and ratesprevailing in the locality for similar services. Like theexamples of "unusual circumstances," "unjustifiability" vis-a-visFederal wage board rates is not strictly requisite to a showingof substantial variance, and I do not approve this aspect oftheir standard. However, I am persuaded that Federal wage ratesconstitute evidence of prevailing rates and that they warrantconsideration in the Section 4(c) context. Moreover, I reject

16emphatically the Air Force position that Section 2(a) area wagedeterminations should serve as the only benchmark for Section4(c) findings.Since the inception of the MOSCA, congressional attentionhas focused on the wages paid service workers employed directlyby the Federal government.

Mr. O'Hara, the author of the act in the House,described during a colloquy with a witness thesituation at the time the subcommittee first consideredthis legislation, and the way in which the Government'spurchasing power was being used to depress wage levels.Mr. O'Hara. [The practice] of service contracting didnot begin really until the 1950's; until then theGovernment did very little contracting-out of services onFederal installations. [The] practice . . . came to myattention in the late 1950's. What disturbed me . . .was that it appeared to me that almost invariably when a


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function that had been performed by Federal blue-collarwage board employees was shifted over to a servicecontractor, the people that ended up doing the work wouldbe getting less than the blue-collar wage board employeesthey replaced. The savings to the Government were duealmost entirely to the fact that they were paying thepeople who worked there less than they used to pay thewage board . . . employees.

The Plight of Service Workers under Government Contracts; Reportof the Special Subcommittee on Labor of the U.S. Congress, House9/ The Administrator's area wage determination sets a minimumrate in accordance with that which prevails among a largelyunorganized workforce. Prevailing rates can result from unequalbargaining postures, i.e., individual employees "negotiating"terms with their employers or prospective employers. As the ALJspoint out, J.D. and 0. at 10-11, collectively-bargained ratesoften can be expected to exceed service industry "prevailing"rates in these circumstances. Here, where some variance shouldbe the norm, a finding of "substantial" variance would require acollectively-bargained rate clearly to fall out of line whencompared to a comprehensive mix of rates, including those

achieved after full and free interaction of market forces. SeeJ.D. and 0. at 9-10.

17Committee on Education and Labor (Plight), 92nd Cong., 1st Sess.2-3 (Comm. Print 1971). See also Plight Revisited at 1. Priorto passage of the 1972 amendments, the subcommittee commented ona perceived increase in the gap between Federal wage board andservice contract rates, reiterating its original intent.The rates of pay for blue-collar Federal employees aredetermined under the coordinated Federal wage system, a

mechanism for determining the prevailing rates forsimilar work in private industry. When we passed theService Contract Act, we intended to bring about arough equivalence between the pay rates of these WageBoard employees and the pay rates of service contractworkers.Plight at 18. After nine days of oversight hearings, thesubcommittee issued, as one of its major findings: "Wage Boardemployees and service contract employees doing similar work werereceiving markedly different wages and fringe benefits. TheDepartment's failure to issue determinations had served to


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depress the wages of service contract employees, while those ofWage Board employees had kept pace with the rest of the economy."Plight Revisited at 3. The congressional intent in providing the"due consideration" mechanism set forth in section 2(a)(5) was toeliminate the differential. Id. at 6-7, 15.Under the Prevailing Rate Systems Act, 5 U.S.C. 5341-5349(1988), pay rates periodically are fixed and adjusted inaccordance with prevailing rates, an object being "equal pay for

substantially equal work for all prevailing rate employees whoare working under similar conditions in all agencies within thesame local wage area . . . ." 5 U.S.C. 5341(1). Rate levels

18are to be "maintained in line with prevailing levels forcomparable work within a local wage area . . . ." 5 U.S.C.

5341(3). Surveys are taken of private industry in the locallabor market area within a certain radius of Government activity.S. Rep. No. 791, 92nd Cong., 2d Sess., 1972 USCAN at 2981-2982.Full-scale wage surveys must be scheduled every two years withinterim surveys scheduled more frequently. 5 U.S.C. 5343(b).Differences in BLS and Federal wage board surveys engendered

discussion during the 1974 MOSCA oversight hearings:Prevailing wage determinations under the [MOSCA] beginwith wage and fringe benefit data collected annually bythe Bureau of Labor Statistics in 85 metropolitan areas. . . . BLS surveys jobs in a number of fields:office clerical, professional and technical,maintenance and powerplant, and custodial and materialmovement. The Bureau [collects] data about workers . . .in six types of industry: manufacturing andtransportation; communications and public utilities;wholesale trader retail trader finance,-insurance and


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real estate; and services.Oversight Hearing on Service contract Act of 1965 as amended;Hearings before the Special Subcommittee on Labor of the U.S.Congress, House Committee on Education and Labor on H,R, 14371,93rd Cong., 2d Seas. 219 (1974) (statement of Richard F.Schubert, Under Secretary of Labor). Federal wage board ratesreportedly are based on annual surveys conducted within 137defined localities.

Certain nonmanufacturing industries, including serviceindustries, are excluded from the scope of wage boardsurveys. This results in a greater representation ofdata from the high wage manufacturing sector. . . .Wage schedules developed from the . . . localities maybe extended beyond the specific surveyed locality. Thearea of application of a particular schedule usuallyincludes some counties contiguous to the survey area

19and, where the surveyed areas are widely separated, mayinclude many counties or an entire State. . . . Theactual survey data [are] refined in order to arrive atuniform pay differentials that can be applied tosuccessive wage board pay levels.Id. at 219-220.Differences notwithstanding, the Federal wage board ratesand surveys represent an important measure in gauging whether agiven variance is "substantial," as do the BLS surveys and other

relevant wage data, including evidence of other collectively-bargained wages and fringe benefits. For purposes of Section4(c) determinations, it would appear necessary to examine atleast this combination of information. If a comparison of thepredecessor negotiated rates with such information clearly showsthe former to be "out of line," then a finding of substantialvariance could be appropriate. 10/ In reaching this conclusion, Ihave considered of particular import the special significanceattached by Congress to successorship in attempting to"decasualize" the service contract industry so that workers maypreserve gains previously achieved. See 118 Cong. Rec. 24,813


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(daily ed. July 21, 1972) (statement of Senator Gurney on behalfof himself and Senator Williams, cosponsor of legislation and(then) chairman of Senate Committee on Labor and Public Welfare).I do not address here any "due consideration" issuepertaining to the Administrator's use of Federal wage board rates10/ This result assumes lack of a successful showing that thesurveys are outdated or imprecise, that a different localityshould be considered, that other data should be accorded greater

weight, or that classifications are incomparable.

20in making wage and fringe benefit determinations under Section2(a) of the Act. Moreover, whatever consideration theAdministrator deems due these rates in making thesedeterminations would not reasonably Delimit their use and that oftheir underlying surveys in Section 4(c) proceedings. Thisconclusion derives from the different language and objects of thewage determination and successorship provisions, respectively.The statutory language supports use of the Federal wageboard information under Section 4(c). If service employees aresubject to a wage agreement, the Administrator is required to

predetermine the collectively-bargained terms. Otherwise, theAdministrator makes a determination in accordance with prevailingrates for "such" employees, giving Federal wage board rates "dueconsideration." 29 C.F.R. 4.51(d). The pertinent languageunder Section 2(a)(1), for example, is that the service contractmust contain "[a] provision specifying the minimum monetary wagesto be paid the various classes of service employees in theperformance of the contract or any subcontract thereunder, asdetermined by the Secretary . . . in accordance with prevailingrates for such employees in the locality . . . ."In contrast, the Section 4(c) inquiry requires measurement


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of negotiated levels against wages and fringe benefits whichprevail for similar services. Specifically, in order for thesuccessor obligation to lapse, the Secretary must find that thepredecessor "wages and fringe benefits are substantially atvariance with those which prevail for services of a character

21similar in the locality." No reference appears here to rateswhich prevail exclusively as among service contract employees orin the service industry. Rather, Section 4(c) focuses on thecharacter or nature of the services, Including to type of workperformed. In other words, a janitor at a private manufacturingplant likely performs services similar in character to thoseperformed by a janitor working under a service contract at asimilar defense manufacturing facility. This constructioncomports with the general definition of "service" in terms of"employment" and "work done or dut[ies] performed for another . .. ." Webster's New World Dictionary (3d College ed. 1988) at

1226. Accordingly, the Section 4(c) language does not militateagainst comparative use of data derived from nonserviceindustries.The primary purpose of Section 2(a)(1) and (2) is to ensurethat employees under a given service contract are compensated inaccordance with prevailing industry standards, whereas Section4(c) is directed at achieving a degree of "labor stability andeconomic security" for employees frequently confrontingreplacement contracts and contractors. Separate considerationsunderstandably bear on (1) providing a threshold standard, and(2) maintaining bargained-for levels in the provision of ongoing


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services in the peculiar circumstance of successive contracts andemployers. See J.D. and 0. at 11-12. A fundamental Section 4(c)consideration is whether the bargained terms are so atypical that

22their continuation under a successor contract would beunreasonable.Reference to Federal wage board information appearsappropriate in gauging deviation. The Federal wage board ratesand surveys provide a measure of rates which prevail among theprivate industry employees surveyed and among the Federalemployees who are not displaced by service contracts and who arecompensated according to these rate schedules. These rates andsurveys are significant in establishing a frame of referenceagainst which to assess whether a variance exists and, if so,whether it is substantial. Moreover, this function ofidentifying variation differs from the wage determination

function of reaching a discrete number, and the use of thevarious rates and surveys in each of these processes similarlymay differ.Accordingly, the ALJs' Joint Decision and Order on Motion toDismiss and Cross Motions for Summary Decision IS REVERSED, and


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23

these consolidated cases are remanded for any appropriate furtherproceedings, in accordance with this Decision and Order.SO ORDERED.Deputy Secretary of LaborWashington, D.C.11/ The Administrator represents that "a remand is not appropriatein light of the expiration of the contracts at issue." Admin.Statement at 4 n.2. Examination of the record, however, revealsa lack of definitive evidence that all contracts in fact haveexpired, and, I thus am unable to adopt the Administrator'ssuggestion.


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CERTIFICATE OF SERVICECase Name: Applicability of Wage Rates Collectively Bargained

by United Healthserv, Inc. and Laborers'International Union of North America, AFL-CIO, toEmployment of Service Employees Under a Contractfor Hospital Aseptic Management Services at:Wright-Patterson Air Force Base In MontgomeryCounty, OhioMaxwell Air Force Base In Montgomery County,AlabamaTyndall Air Force Base In Bay County, FloridaEglin Air Force Base In Okaloosa County, FloridaShaw Air Force Base In Sumter County, SouthCarolinaAltus Air Force Base, Oklahoma

Carswell Air Force Base, TexasLackland (whilford Hall and Median Annex)Randolph, Brooks, and Kelly Air Force Bases,Bexar County, TexasCase Nos.: 89-CBV-1, 89-CBV-5, 89-CBV-7, 89-CBV-10, 89-CBV-11, 89-CBV-12, 89-CBV-16, 89-CBV-17Document: Decision and Order of RemandA copy of the above-referenced document was sent to the followingpersons on 88 .CERTIFIED MAILPhillip G. Tidmore, Major


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HQ USAF Central Labor Law Office1900 Half St., S.W.Room 6316Washington, DC 20324-1000Jed Marcus, Esq.Grotta, Glassman & Hoffman, P.A.75 Livingston Ave.Roseland, NJ 07068

Paul Greenberg, Esq.Phillis Payne, Esq.Connerton, Ray & Simon1920 L Street, 4th FloorWashington, DC 20210

2REGULAR MAILJohn R. Fraser

Acting AdministratorU.S. Department of LaborRoom S-3502200 Constitution Ave., N.W.Washington, DC 20210Doyle Williams, DirectorAF Contractor Industrial RelationsHQ AFCMD/PCDKirtland AFB, RM 87117Matthew FerranteLabor Relations AdvisorP.O. Box 4728Patrick AFB, FL 32925

Marriott Facilities Management2 Penns way, Suite 405New Castle, DE 19720Marriott Facilities Management343 AshleyCoppell, TX 75019Harry LendermanVice President of Human ResourcesUnited Health Services, Inc.P.O. Box 6065Newark, DE 19714-6065


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James TuminelloDirector of Industrial DivisionLaborers International Union ofNorth America, AFL-CIO905'16th Street, N.W.Washington, DC 20006John ZaluskyEconomist AFL-CIO

815 16th Street, N.W.Washington, DC 20006Hon. Nahum LittChief Administrative Law JudgeOffice of Administrative Law JudgesSuite 7001111 20th Street, N.W.Washington, DC 20036

3Hon. John M. VittoneDeputy Chief Administrative Law JudgeOffice of Administrative Law Judges

Suite 7001111 20th Street, N.W.Washington, DC 20036Hon. Alfred LindemanOffice of Administrative Law Judges211 Main Street, Suite 600San Francisco, CA 94105Hon. Daniel J. RoketenetzOffice of Administrative Law Judges525 Vine StreetSuite 900Cincinnati, OH 45202SY RAND

Monica GallagherAssociate SolicitorAttn: Jonathan M. KronheimU.S. Department of LaborRoom N-2716200 Constitution Ave*, N.W.Washington, DC 20210

department of labor: aam166

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