I. Introduction
The Service Contract Act (SCA) was passed by Congress in 1965 as a continuation of prior legislative efforts to prevent the downward pressure on service employees’ wages inherent in the federal government’s policy of awarding contracts to those contractors submitting the lowest priced bid. Historically, it was commonly accepted that the SCA applied to traditional “contracts” for the acquisition of services by the federal government. Recently, however, the United States Department of Labor (DOL) has taken a more expansive view of the application of the SCA, seeking to extend its reach to “cooperative agreements,” as illustrated in the recent federal case of BCFS Health and Human Services v. United States Department of Labor (BCFS Litigation). While the BCFS Litigation appears to be the only reported case so far in which DOL has taken this more expansive view of the SCA’s application, this new DOL position reflects a coordinated effort on its part to expand the SCA’s reach beyond its traditional procurement context.
To fully examine DOL’s position in the BCFS Litigation, one must engage in a detailed examination of the historical, statutory, and regulatory frameworks in which the SCA is situated. These include the Federal Grant and Cooperative Agreement Act (FGCAA), which governs the use of federal grant and cooperative agreements. Through exposition of this background, this article will analyze DOL’s position taken in the BCFS Litigation and explain why DOL’s view is not supported by the express language of the SCA or the FGCAA, nor by the policy objectives or legislative histories of these statutes.
Part II of this paper provides an overview of the FGCAA and will include a discussion of the lacking profit incentives inherent in grant and cooperative agreements. Part III provides an overview and the historical background of the SCA and the prevailing wage and fringe benefit requirements associated with it, as well as discusses the SCA’s coverage, implementation, enforcement, and, finally, its historical application (or lack thereof) to grant and cooperative agreements. Part IV examines the BCFS Litigation in detail and DOL’s efforts to retroactively and prospectively apply the SCA to certain cooperative agreements awarded pursuant to the FGCAA. Part V provides additional analysis of flaws associated with DOL’s position in light of relevant legislative history. Part VI concludes by considering the implications of the BCFS Litigation and potential avenues for resolution of the unanswered questions that remain regarding this case and the scope of the SCA.
II. The Federal Grant and Cooperative Agreement Act
This section examines the significance of grant and cooperative agreements from both an economic perspective, as well as from the standpoint of achieving certain policy-based objectives. Important for purposes of examining the application of the SCA to grants and cooperative agreements, this section will also provide an overview of the origin and framework of the FGCAA, as well as the cost reimbursement manner by which grants and cooperative agreements function.
A. The Significance of Grant and Cooperative Agreements
In Fiscal Year 2021, the federal government purchased approximately $637 billion in goods and services from federal contractors. Federal grants and cooperative agreements constitute an even larger portion of federal dollars spent each fiscal year. In Fiscal Year 2019, estimates place the value of federal grants and cooperative agreements awarded to non-profits, states, and local governments at $750 billion. Such grant and cooperative agreement awards relate to a wide variety of public purposes, including health and medical care, infrastructure and transportation, income security, job and apprenticeship programs, social services, disadvantaged community development, community policing initiatives, and protection of environmental resources. These awards come in the form of mandatory grant awards (i.e., “entitlement” or “formula” grants), which must be used for a specific purpose, as well as discretionary grant awards, for which agencies have discretion as to the way awardees are selected, and which is generally accomplished through a competitive process.
B. Historical Background of the FGCAA
In 1972, the Commission on Government Procurement (Commission) issued a report to Congress that found a substantial lack of uniformity in agency utilization of “assistance agreements” versus procurement relationships. In response to the Commission’s findings, Congress passed the FGCAA in 1978. The FGCAA was designed to achieve uniformity in agency selection of appropriate vehicles utilizing federal funds. Thus, a significant component of the FGCAA consists of an explanation of the circumstances in which federal agencies should determine whether to utilize a traditional procurement contract, a grant agreement, or a cooperative agreement when spending federal dollars.
C. Legislative Text of the FGCAA
Regarding use of each of the foregoing three vehicles, the FGCAA sets forth the circumstances in which a “procurement contract,” a “grant agreement,” or a “cooperative agreement” should be utilized by federal agencies. Specifically, the FGCAA provides that a procurement contract is appropriate when “the principal purpose of the instrument is to acquire (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government . . . .” Per the FCGAA, a grant agreement is the proper vehicle when
- the principal purpose of the relationship is to transfer a thing of value to the State or local government or other recipient to carry out a public purpose of support or stimulation authorized by a law of the United States instead of acquiring (by purchase, lease or barter) property or services for the direct benefit or use of the United States Government; and
- substantial involvement is not expected between the executive agency and the State, local government, or other recipient when carrying out the activity contemplated in the agreement.
Finally, the FGCAA explains that a cooperative agreement is appropriate when
- the principal purpose of the relationship is to transfer a thing of value to the State, local government, or other recipient to carry out a public purpose of support or stimulation authorized by a law of the United States instead of acquiring (by purchase, lease or barter) property or services for the direct benefit or use of the United States Government; and
- substantial involvement is expected between the executive agency and the State, local government, or other recipient when carrying out the activity contemplated in the agreement.
Thus, under the FGCAA, the relevant analysis for an agency to determine which of the foregoing three methods is the most appropriate for a given set of circumstances involves an assessment of the purpose of the activity at issue, as well as the extent of the agency’s involvement in connection with implementation of the underlying activity. In circumstances in which the objective of the transaction is for goods or services needed by the federal government in order to effectuate its governmental responsibilities, a traditional procurement acquisition is appropriate. In contrast, where a broad public purpose is involved whereby state, local, or non-profit entities operate with a significant degree of autonomy and independence, a grant agreement is the appropriate vehicle. Cooperative agreements, on the other hand, involve the pursuit of broad societal objectives via significant interaction and cooperation between the Federal government and a state, local, or non-profit entity.
D. The Tri-Part Framework Governing Grants and Cooperative Agreements
Grants and cooperative agreements are similar insofar as an agency must act pursuant to an underlying implementing statute to maintain authority to enter into such an agreement. Examples of authorizing statutes associated with the award of federal grant or cooperative agreements include, among a host of others, the Workforce Innovation and Opportunity Act; the Public Health Service Act; and Medicaid. These statutes, among other pieces of legislation, authorize agencies to create various programs to accomplish certain congressionally approved, public policy-based objectives. Often, such legislation imposes certain restrictions upon the use of underlying funds and/or requires such funds to be used to benefit a particular class or classes of recipients (i.e., “entitlement” or “formula” grants) or, alternatively, affords agencies discretion in allocating such funds.
By enacting the FGCAA, Congress authorized the Office of Management and Budget (OMB) to publish guidance to assist agency interpretation of the law in order to “promote consistent and efficient use of procurement contracts, grant agreements, and cooperative agreements,” as well as the authority to exempt certain transactions or programs from the FGCAA. In 1978, OMB initially published the “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,” also commonly referred to more simply as “the Uniform Guidance,” which was most recently updated in 2014. The Uniform Guidance serves as a government-wide framework for grants management and has significant importance, particularly in instances in which agency-level regulations or guidance documents are sparse or non-existent. In this regard, agencies sometimes promulgate agency-level rules relating to those grants which they administer, which are published in the United States Code of Federal Regulations via the notice and comment rulemaking process. Additionally, agencies often issue agency-level administrative requirements, program manuals, handbooks, and other non-regulatory materials, which provide grantees information about agency expectations when performing pursuant to a grant or cooperative agreement, but which do not supersede the Uniform Guidance in the event of a conflict. It is this tri-part framework—the implementing statute, the Uniform Guidance, and agency-specific guidance—which governs the award and oversight of grants and cooperative agreement awards.
Significantly, the Uniform Guidance does not contain any reference to the prevailing wage requirements of the SCA. Agency-level regulations and guidance are similarly devoid of SCA language.
E. Grant and Cooperative Agreements as Cost Reimbursement Vehicles
A unique feature of grants compared to cooperative agreements is the lack of profit associated with awardee performance obligations. Unlike traditional procurement contracts, grant and cooperative agreements generally function as cost reimbursement vehicles whereby awardees are paid for costs incurred in performing under the grant, without an associated profit incentive. Essentially, grant and cooperative agreements function as pure cost reimbursement vehicles. In this regard, the same competitive pricing pressures associated with traditional procurements are generally not present in the context of grant and cooperative agreements. Further, grant and cooperative agreements are not administered by “contracting officers” but, instead, are overseen by “grant officers,” who, among other duties, are responsible for administering the cost principles set forth in the Uniform Guidance—which again, is devoid of SCA language.
III. The Service Contract Act
A comprehensive analysis of DOL’s position in the BCFS Litigation that the SCA applies in the context of cooperative agreements necessitates an examination of the SCA’s historical economic underpinnings.
A. Historical Background of the SCA
In late 1929, the United States fell into the Great Depression, resulting in severe poverty, low economic output, foreclosures, a downturn in residential and commercial construction, and depressed wages. In response, at the urging of President Herbert Hoover, Congress passed the Davis-Bacon Act (DBA) in March 1931, which created a prevailing wage minimum in connection with federal construction projects on a location-by-location or “locality” basis. The prevailing wage requirements of the DBA were aimed at preventing federal contractors from further depressing wages in the construction industry by transporting and utilizing labor from localities outside of the situs of actual construction. The federal government further sought to reduce its contribution to the country’s difficult economic situation by setting a minimum wage and benefits for construction contractors who received federal taxpayer dollars. The DBA had support from organized labor, which gained significant national influence as a result of various New Deal legislation.
Unlike the SCA, discussed infra, the DBA has been expanded by Congress via various legislation to apply beyond contracts entered directly between the United States and construction contractors. Such statutes are commonly referred to as “Davis-Bacon-Related Acts” and encompass situations in which federal assistance is merely involved—as opposed to where the federal government enters a contract. Examples include grants, loans, loan guarantees, insurance, and certain lease agreements. Statutes incorporating the Davis-Bacon Act’s prevailing wage requirements include the Federal-Aid Highway Act; the Federal Water Pollution Control Act; the Headstart, Economic Opportunity, and Community Partnership Act of 1974; and the Inflation Reduction Act. In total, there are seventy-one active Davis-Bacon-Related Acts.
Not long after the passage of the DBA, in June of 1936, Congress passed the Walsh-Healey Public Contracts Act (Walsh-Healy Act). The Walsh-Healey Act created a wage minimum and safety standards for contractors engaged in manufacturing or the furnishing of materials, supplies, articles, and equipment on behalf of the federal government. In 1936, the United States was still in the midst of the Great Depression; the Walsh-Healey Act was one small component of President Franklin D. Roosevelt’s New Deal program and the National Industrial Recovery Act aimed at promoting the nation’s economic recovery. Once again, organized labor played a significant role in promoting the passage of the Walsh-Healey Act by Congress.
In 1965, Congress passed the McNamara-O’Hara Service Contract Act, establishing prevailing wage and fringe benefit minimums on a locality-by-locality basis for employees performing work pursuant to a covered service contract. Subject to certain exceptions mentioned below, the SCA applies to:
any contract or bid specification for a contract, whether negotiated or advertised, that—
(1) is made by the Federal government or the District of Columbia;
(2) involves an amount exceeding $2,500; and
(3) has as its principal purpose the furnishing of services in the United States through the use of service employees.
The impetus for Congress passing the SCA was similar for the enactment of the DBA and the Walsh-Healy Act:
In the early 1960s, service contracting was a relatively new and minor phenomenon in Federal Government contracting. Traditional Government contracts for supplies and construction far outnumbered service contracts. Yet Congress, union leaders, and others feared that because federal contracts were typically awarded to the low bidder, federal service contractors would be tempted to pay their service employees low wages to remain competitive. Such practices would inevitably make it difficult for contractors to attract talented workers, lead to lower standards of performance in service contracts, and undermine the ability of all workers to improve their standard of living. Congress had addressed similar concerns during the Great Depression when it enacted minimum wage protections for workers on federal construction and manufacturing contracts through passage of the Davis-Bacon Act and the Walsh-Healey Public Contracts Act. Those Acts, however, did not reach service contracts. Accordingly, Congress acted to fill that gap when it passed the McNamara-O’Hara Service Contract Act of 1965 (SCA) to provide minimum wage protections for service employees on federal contracts.
As noted above, the SCA contains certain exceptions in which Congress deemed it inappropriate for the law to apply. All of these exceptions consist of transactions that fall within “traditional” procurement contracts, which the SCA would otherwise by its terms govern the amount paid to service employees performing work under a covered contract. While grant and cooperative agreements are not listed within the enumerated exceptions to the SCA, the language within the SCA as applying to a “contract or bid specification for a contract” also does not support its application to cooperative agreements or grants. Indeed, the FAR’s definition of the term “contract” states in part that “[c]ontracts do not include grants and cooperative agreements covered by 41 U.S.C. 6301.” Further, in defining the term “contracting,” the FAR’s definition asserts that such term “does not include making grants or cooperative agreements.”
Unlike the Davis-Bacon Act, there are no “Service Contract-Related Acts.” In other words, the SCA applies only to those contracts identified within the text of the law itself. Unlike the DBA and the associated seventy-one “Davis-Bacon-Related Acts,” Congress did not see fit to expand the reach of the SCA beyond the context of the acquisition of services entered into via contracts directly with the federal government.
B. Legislative Text and Basic Requirements of the SCA
As legislation goes, the SCA is relatively brief and provides in part that agencies entering into covered contracts include language “specifying the minimum wage to be paid” and “the fringe benefits to be provided to each class of service employee engaged in the performance of the contract or any subcontract . . . .” At least facially, the SCA does not apply to all instances in which federal funds are at issue. As evident from the text of the statute itself, the SCA’s requirements apply to “any contract or bid specification for a contract . . . that is made by the Federal Government . . . .” As to the scope and definition of what constitutes a “contract,” DOL’s implementing regulations provide little assistance, defining a “contract” under the SCA merely to include “any contract subject wholly or in part to the provisions of the Service Contract Act of 1965 as amended, and any subcontract of any tier thereunder.”
In instances in which the SCA applies to a particular contract, its requirements extend to both prime contractors, as well as to lower-tiered subcontractors. Such prevailing wage and fringe benefit requirements are determined by DOL on a locality-by-locality and position-by-position basis via use of various wage survey and related data, which result in the development of written “wage determinations” made publicly available via the Internet. Such wage determinations set forth the contractor’s obligation to satisfy specific prevailing wage minimum amounts according to position, as well as a fringe benefit obligation stated in dollar terms for all hours paid for up to 2,080 per year, and, finally, vacation requirements.
As mentioned, the policy objective of such prevailing wage and benefit requirements was to avoid abusive tactics by contractors to drive costs down in order to increase the chances of success when bidding on a federal government contract. In the context of grant and cooperative agreements, such policy objectives are not relevant given their associated cost reimbursement structure. As discussed in further detail below, in enacting the SCA, Congress delegated significant discretion and authority to DOL to implement and enforce its terms.
C. Implementation and Enforcement of the SCA
The following provides an overview of the implementation and enforcement mechanisms associated with the SCA, including related administrative procedures. An explanation of these aspects of the SCA is necessary prior to examining the BCFS Litigation in additional detail.
Upon an agency’s determination that a contract involves the principal purpose of furnishing services, the relevant SCA, FAR clause, FAR provision, and prevailing wage information are included within the solicitation and resultant contract award. More specifically, DOL’s SCA regulations provide that relevant SCA clause language “shall be included in full by the contracting agency” within covered contracts.
The SCA’s implementing regulations provide for the retroactive application of the SCA where it is subsequently determined by DOL that the law is applicable, but was omitted from a solicitation or award. Such regulations also make clear that, if an agency fails to include the SCA clause and corresponding appropriate wage determination(s) in relevant solicitation and award documents, an entity will not be held liable for failing to comply with the prevailing wage and fringe benefit requirements of the Act. 29 C.F.R. § 4.5(c) provides:
Where the Department of Labor discovers and determines, whether before or subsequent to a contract award, that a contracting agency made an erroneous determination that the Service Contract Act did not apply to a particular procurement and/or failed to include an appropriate wage determination in a covered contract, the contracting agency, within 30 days of notification by the Department of Labor, shall include in the contract the stipulations contained in § 4.6 and any applicable wage determination issued by the Administrator or his authorized representative through the exercise of any and all authority that may be needed (including, where necessary, its authority to negotiate or amend, its authority to pay any necessary additional costs, and its authority under any contract provision authorizing changes, cancellation, and termination).
In situations in which a particular contract contains relevant SCA language, but the contractor (or its subcontractor(s)) fails to pay workers accordingly, funds ordinarily due to the contractor are subject to withholding by the agency. As set forth in the FAR,
Any violations of the clause at 52.222-41, Service Contract Labor Standards, as amended, renders the responsible contractor liable for the amount of any deductions, rebates, refunds, or underpayments (which includes nonpayment) of compensation due employees performing the contract. The contracting officer may withhold—or, upon written request of the Department of Labor from a level no lower than that of Deputy Regional Administrator, Wage and Hour Division, Department of Labor, shall withhold—the amount needed to pay such underpaid employees from accrued payments due the contractor on the contract, or on any other prime contract (whether subject to the Service Contract Labor Standards statute or not) with the contractor.
Notably, the foregoing language refers to “contracting agencies,” “contract awards,” and “contracting officers,” terms that are foreign within the grant and cooperative agreement arena.
The SCA does not confer a private right of action upon private litigants and, instead, Congress delegated to DOL the authority to enforce the requirements of the SCA through its investigative and enforcement tools. For example, the Secretary of Labor has authority to give DOL’s Wage and Hour Division primary responsibility for undertaking such efforts. The SCA contemplates a mandatory three-year debarment upon contractors that fail to comply with the law’s prevailing wage and fringe benefit requirements absent “unusual circumstances.”
Pursuant to the language of the SCA, judicial review of DOL determinations surrounding SCA implementation and enforcement is subject to the requirements of the Administrative Procedures Act (APA). Under the APA, in the absence of statutory authority providing for judicial review of an agency’s action, “the APA authorizes judicial review only of ‘final agency action.’” “Absent ‘final agency action,’ as required by the controlling statute, a court lacks subject matter jurisdiction.” Accordingly, to pursue a judicial challenge to a DOL decision regarding the application or scope of the SCA, an entity must first exhaust its administrative remedies with DOL before proceeding to court in order to establish final agency action for purposes of the APA. In the absence of such final agency action, a challenge brought in court will almost certainly be deemed premature and dismissed without a determination on the merits.
Under the SCA’s implementing regulations, an entity seeking to challenge the application of the SCA prior to a DOL enforcement proceeding may submit inquiries regarding coverage determinations to DOL’s Wage and Hour Division or to any DOL Wage and Hour Division Regional Office. In the event such entity is dissatisfied with the response regarding coverage, it may file a petition request for review with DOL’s Administrative Review Board. Following the Administrative Review Board’s decision, an entity may appeal to federal court for judicial review.
Alternatively, an entity may pursue relief in the context of a DOL enforcement action. Following receipt of a determination of SCA violations by DOL’s Wage and Hour Division and an entity’s corresponding challenge to the same, DOL may then bring an administrative complaint before an administrative law judge within DOL’s Office of Administrative Law Judges. Following the administrative law judge’s decision, the entity may then file an appeal with DOL’s Administrative Review Board. The Administrative Review Board’s decision is then subject to judicial review.
D. Historical Application of the SCA to Grants and Cooperative Agreements
This section will briefly examine the historical application of the SCA to grants and cooperative agreements in order to more fully assess the position taken by DOL in the BCFS Litigation. Until the BCFS Litigation, federal case law examining the application of the SCA to grants and cooperative agreements appears non-existent. This is because SCA provisions and clauses were not included within Funding Opportunity Announcements or Notices of Award associated with such awards. Similarly, as noted above in Section II.D., the Uniform Guidance, as well as agency-level grant regulations and guidance, is devoid of reference to the SCA.
For example, DOL’s Employment and Training Administration (DOL-ETA) is responsible for awarding and administrating millions of grant dollars each fiscal year. An examination of the “Standard Terms and Conditions” applicable to such ETA grants demonstrates that there is also no reference to the Service Contract Act and its prevailing wage requirements. Correspondingly, wage determinations are absent from ETA grant awards.
IV. BCFS Litigation
With the foregoing historical, statutory, and regulatory background in mind, this section will now turn to an examination of DOL’s recent position taken in the BCFS Litigation. The information set forth within this section below is derived from filings in the case, including BCFS’s Complaint for Preliminary and Permanent Injunctive Relief and Declaratory Judgment, as well as DOL’s Motion to Dismiss Or, in the Alternative, Cross Motion for Summary Judgment and Response to Plaintiff’s Motion for Summary Judgment.
A. Background
As alleged in its Complaint, in 2012, BCFS Health and Human Services (BCFS), a non-profit entity based in San Antonio, Texas, entered into a number of cooperative agreements with the Office of Refugee Resettlement (ORR) of the United States Department of Health and Human Services (HHS) (HHS-ORR) to provide temporary residential and related services to unaccompanied minor children crossing into the United States from Mexico. The underlying statutory authority for such cooperative agreement awards was the Trafficking Victims Protection Reauthorization Act of 2008, as amended (TVPRA), the Homeland Security Act of 2002 (HSA), and the FGCAA.
B. BCFS’s Lawsuit
According to BCFS, in late 2014, DOL contacted HHS and advised it of DOL’s position that, notwithstanding the lack of SCA language within relevant award documents, the SCA was indeed applicable to the cooperative agreements entered into with BCFS. HHS initially resisted DOL’s position until December 2020, when it amended certain BCFS award documents, asserting SCA coverage on a retroactive basis. Additionally, HHS added the clause to funding associated with an ongoing cooperative agreement under which BCFS was performing services. Subsequently, DOL initiated an audit and investigation of BCFS with respect to SCA compliance as to its prior cooperative agreement awards.
BCFS objected to the application of the SCA, asserting that it did not apply to the cooperative agreements at issue because such agreements were not “contracts” within the meaning of the SCA. In essence, the dispute between the parties was whether Congress intended the term “contracts” under the SCA to apply only to traditional “procurement contracts,” or alternatively, whether “grant agreements” and “cooperative agreements” might fall under the broadly and ill-defined term “contracts” as used within the SCA and its implementing regulations. BCFS also objected to DOL’s audit and investigation, asserting that, as a matter of law, the SCA did not apply to its relationship with HHS and requested that DOL provide statutory, regulatory, or case law authority for its position. According to BCFS, DOL did not provide such authority.
Dissatisfied with DOL’s lack of justification underlying its determination that the SCA applied to its cooperative agreements, on August 18, 2021, BCFS pursued the matter in the United States District Court for the Western District of Texas by filing a Complaint for Preliminary and Permanent Injunctive Relief and Declaratory Judgment (Complaint) against DOL, seeking a judicial ruling that, as a matter of law, the SCA did not apply to its cooperative agreements with HHS-ORR. BCFS filed the Complaint pursuant to the APA, asserting that DOL’s actions were “‘arbitrary, capricious, and an abuse of discretion, or otherwise not in accordance with law’ and/or ‘in excess of statutory jurisdiction, authority, or limitations, or short of statutory right’” and, thus, should be set aside. In this regard, BCFS alleged that DOL’s inclusion of the SCA language within its awards constituted “final agency action” for purposes of the SCA. In making its arguments, BCFS asserted that it was “caught between DOL and HHS . . . [as] a victim of the intragovernmental conflict involving the Biden Administration’s desire to expand the jurisdiction of existing prevailing wage statutes in a manner not only contrary to law, but also with financial consequences . . . .”
As discussed above in Section II, grant and cooperative agreements generally function on a cost reimbursement type basis. As a result, at first blush, the application of the SCA to BCFS’s cooperative agreements would appear of no financial consequence to BCFS. However, according to BCFS, particularly problematic with the position taken by DOL was the lack of obligated funding associated with certain work already performed by BCFS pursuant to one of its cooperative agreements. BCFS asserted that DOL’s effort to retroactively apply the SCA to certain completed work “would likely violate the Anti-Deficiency Act.”
In BCFS’s Complaint, it also noted the debarment consequences that could result from SCA non-compliance pursuant to the mandatory debarment requirements—absent “unusual circumstances”—as set forth in the SCA. BCFS noted the fact that it receives funding from state governments, many of which rely upon federal government debarment determinations in order to determine the eligibility of contractors for the receipt of state funds. Thus, in addition to the potential debarment at the federal level, BCFS asserted that its “alleged noncompliance with the SCA will have wide ranging and catastrophic impacts on BCFS HHS which receives funds for almost all of its operations from a variety of federal, state, and local governments.”
C. DOL’s Position
In response to BCFS’s Complaint, DOL filed a Motion to Dismiss, or in the Alternative, Cross-Motion for Summary Judgement (Motion). As noted above, BCFS’s Complaint was filed under the APA, which, again, requires a plaintiff to establish final agency action before a matter is ripe for judicial review. Given the posture of BCFS’s dispute with DOL and HHS, it was entirely possible for DOL to defend against BCFS’s lawsuit by asserting only the lack of final agency action as a basis for dismissal of the Complaint based on the argument that BCFS had not exhausted DOL’s internal administrative processes before initiating its lawsuit. While such argument was indeed made by DOL, it did not stop at this procedural argument and, instead, set forth an aggressive position that the SCA unambiguously applied to BCFS’s cooperative agreements.
As explained in Section III.A., the SCA
applies to any contract or bid specification for a contract, whether negotiated or advertised, that—
(1) is made by the Federal government or the District of Columbia;
(2) involves an amount exceeding $2,500; and
(3) has as its principal purpose the furnishing of services in the United States through the use of service employees.
Relying in part on the version of Black’s Law Dictionary and the Restatement (First) of Contracts in effect at the time of the passage of the SCA, DOL contended that BCFS’s cooperative agreements “easily fall within this definition and thus the scope of the SCA.” DOL further argued that the language of the FGCAA was irrelevant with respect to the meaning assigned to the word “contract” under the SCA because each are independent statutes which should be interpreted according to their respective purposes—in the case of the SCA, protecting labor standards; and in the case of FGCAA, providing guidance as to the appropriate vehicle by which to achieve the federal government’s objectives.
D. The Court’s Opinion
In granting DOL’s Motion to Dismiss, the court held that BCFS had not fully exhausted its administrative remedies with DOL prior to filing its action seeking a declaratory judgment and injunctive relief as to the application of the SCA; thus, the Court lacked subject matter jurisdiction. In reaching this conclusion, however, the Court also appeared to give some level of deference to DOL’s position. In this regard, the Court observed that, “[a]ccepting that a cooperative agreement cannot be a procurement contract under the FGCAA does not mean that a cooperative agreement cannot be a contract within the meaning of the SCA.” The Court further stated that it did “not view cooperative agreements as necessarily mutually exclusive from contracts within the meaning of the SCA.”
Following the district court’s dismissal of BCFS’s claim, BCFS filed a Notice of Appeal with the United States Court of Appeals for the Fifth Circuit. Subsequently, the case was dismissed following BCFS’s filing of an Unopposed Motion for Voluntary Dismissal of Appeal “[i]n accordance with a mutually agreeable negotiated settlement agreement…”
To be sure, the ultimate resolution of the BCFS Litigation was anti-climactic. Nevertheless, the aggressive position taken by DOL during the litigation has the potential to significantly impact non-profits, as well as state and local governments, particularly with respect to compliance burdens and costs and warrants additional consideration and analysis in light of such concerns.
V. Additional Analysis of DOL’s Position
In the author’s view, DOL’s position in the BCFS Litigation that the application of the SCA to BCFS’s cooperative agreements is unambiguous, is overly ambitious. To begin, DOL’s view does not align with the historical purpose of the SCA, nor its historical application. Congress passed the SCA in an effort to avoid the downward pressure on wages inherent to the federal government’s then-prevalent practice of making awards to the lowest responsible bidder in the traditional procurement context. The same downward pressures are generally not present in the grant and cooperative agreement space given that they usually have a cost reimbursement structure. DOL’s position is also belied by the lack of action by Congress to affirmatively apply the SCA to other contexts beyond “contracts”—whatever meaning one ascribes to such term—as it has done on numerous occasions relative to applying the prevailing wage requirements of the Davis-Bacon Act in situations outside of traditional procurements via “DBA-Related acts.”
Admittedly, federal case law, as well as GAO decisions, has recognized certain contractual aspects of grant and cooperative agreements when assessing awardees’ obligations under such arrangements. As the United States Supreme Court recognized in Jackson v. Birmingham Board of Education:
When Congress enacts legislation under its spending power, that legislation is “in the nature of a contract: in return for federal funds, the States agree to comply with federally imposed conditions” . . . As we have recognized, “[t]here can . . . be no knowing acceptance [of the terms of the contract] if a State is unaware of the conditions [imposed] by the legislation on its receipt of funds.”
With that said, the “GAO generally does not review protests or awards, or solicitations for awards, of agreements other than procurement contracts . . . .” Indeed, an examination of the relevant history related to the FGCAA further demonstrates that lawmakers had no intention of extending the reach of the SCA to grants and cooperative agreements.
On September 13, 1976, the House of Representatives Subcommittee on the Committee on Government Relations held a hearing to examine an earlier House version of a bill that later resulted in the FGCAA. During this hearing, the implications of the SCA upon the bill was a topic of substantive discussion; the attendees expressed concern about the increased or decreased application of the SCA as a result of the passage of the bill. As discussed below, implicit in such discussion was the notion that an agency’s utilization of a grant or cooperative agreement—as opposed to a procurement contract—would necessarily result in the nonapplication of the SCA and its prevailing wage requirements.
As stated by Congressman John N. Erlenborn (R-IL) during a dialogue with witness Senator Lawton Chiles (D-FL) when noting the need to examine the issue of the application of the SCA in light of the bill, “It is something the committee might want to look into because the application of the . . . Service Contracts Act might be extended considerably if we change any large number of grant forms to contract forms as a result of the passage of this.”
Subsequently, the following exchange occurred between Congressman Erlehnborn and witness Gregory Ahart, Director Human Resources Division, GAO:
Mr. Erlenborn. Mr. Ahart, you heard the question I asked of Senator Chiles about the extension of the application of . . . the Service Contract Act. Have you examined this at GAO and would you be able to respond?
Mr. Ahart. No, we have not examined it, Mr. Erlenborn. I did give some thought to it after you posed the question to the senator. On the basis of my knowledge of those acts, I would not see that there would be any very large change. To the extent that there is a change, it would seem to me that by using contracts where that is appropriate and bringing those acts to bear where the rules call for it would be nothing more than bringing the will of the Congress in the enactment of the Service Contract Act . . . to bear in those situations where you have a contract and should have a contract relationship. Personally, on the basis of short thought, I would not be very concerned about it.
Mr. Ahart was asked to look more closely into the issue of the interaction between the bill and the SCA and, pursuant to such request, provided the following written testimony included within the hearing record:
The SCA, as noted, applies only to Government contracts. Thus service employees under grant arrangements are denied such protection as may available under the SCA. It would appear from the Procurement Commission’s findings that in the past many agencies have used grants where procurement of services for a Governmental purpose is the end result. This would have resulted in employees losing benefits they might have obtained if the arrangement had been designated a contract, and in effect frustrating the intent of the SCA. Under the above conditions, it is possible that H.R. 15499, if passed, would increase the coverage of the SCA, since it would theoretically result in greater use of contracts where grants are now the preferred devices. On the other hand, some agencies may resort to grants where they now use contracts, since section 7 of the bill provides authority for all agencies to use grants, cooperative agreements and contracts wherever appropriate under the standard set out in section 4, 5, and 6.
The foregoing legislative history demonstrates lawmakers’ concerns that legislation clarifying the circumstances in which agencies should use traditional procurement contracts, grant agreements, or cooperative agreements might impact the application of the SCA. In other words, the foregoing suggests that it was assumption of lawmakers that the SCA was not designed to extend to grant and cooperative agreement arrangements.
VI. Conclusion
The economic underpinnings of the SCA, its historical application, and related legislative history do not comport with DOL’s position taken in the BCFS Litigation. Furthermore, the basis for DOL’s position does not appear to recognize any limiting principle with respect to the breadth of the SCA’s application in the grant and cooperative agreement space. Ultimately, the Court’s decision in the BCFS Litigation was based on its lack of jurisdiction. Thus, while the Court did provide dicta in favor of DOL’s position, ambiguity surrounding the application of the SCA to cooperative agreements remains. Such ambiguity could easily be resolved via simple legislation expressly exempting grant and cooperative agreements from the ambit of the SCA. Alternatively, the addition of language to the Uniform Guidance could clarify the non-application of the SCA. With that said, in the absence of political incentive to result in such statutory or regulatory changes, grant and cooperative agreement awardees may consider requesting written confirmation from their grant officers that the SCA does not apply to such opportunities in order to ensure a complete understanding of their obligations associated with the same.
