“Wage Busting,” i.e., unwarranted reductions in salaries and fringe benefits that occur as a result of competitions for support services contracts, is a continuing problem, particularly so in competitions for successor support services contracts, where most often the incumbent workforce is delivered to a successor contractor. Wage busting happens when the competitors for a successor support services contract underestimate existing salaries and fringe benefits, and then receive an award based on low price/cost, or under a best value selection decision. The result, in these instances, is labor unrest and low morale over the term of the successor contract. The problem is a frequent one: the term of a support services contract is limited by statute and regulation to five program years. 41 U.S.C. § 254c(d), 41 U.S.C. § 353(d), Federal Acquisition Regulation (FAR) 17.204(e).
The Office of Federal Procurement Policy attempted to address this problem with Policy Letter Number 78-2, issued on March 19, 1978. This Policy Letter is implemented in FAR Subpart 22.11, which requires, inter alia, submission, with the competitive proposals, of a compensation plan setting forth proposed salaries and fringe benefits, this to be evaluated as to “the capability of the proposed compensation structure to obtain and keep suitably qualified personnel to meet mission objectives.” FAR 52.222-46(b). These procedures are mandatory for any acquisition where the proposed contract is valued in excess of $500,000, and the services to be delivered will require “meaningful” numbers of professional employees. FAR 22.1103.
The problem, however, is that many agencies have little idea of the salaries and fringe benefits being paid incumbent support services employees, and the result is that the required evaluation is often perfunctory and incomplete. Wage busting usually occurs with requirements for white-collar service workers, but a very recent GAO decision shows that the problem can also occur with requirements for blue-collar service workers, workers to whom designated minimum salaries and benefits are to be paid as specified by the Service Contract Act of 1965, 41 U.S.C. § 351(a)(1). Better yet, this very recent GAO decision endorses a mechanism that will ensure that wage busting does not happen, a mechanism much more effective than the procedures established under Policy Letter Number 78-2.
The decision is General Security Services Corporation, B-280959, Dec. 11, 1998. At issue was a solicitation for security services at eight federal circuit courts. The solicitation required, for evaluation purposes, that offerors propose wages and benefits at designated levels above the applicable Service Contract Act minimum wage determination rates. One of the offerors protested this cost normalization approach, but the agency was able to support its evaluation methodology due to wage busting that had occurred under previous acquisitions:
The agency has established that the pricing methodology employed here is reasonably necessary to meet its needs. The record supports the agency’s conclusion that a stable workforce, without the disruption a wage reduction for certain personnel may cause, is a necessary requirement. The contract concerns human safety and, as stated above, where a successful offeror in the past proposed wages lower than those paid by the incumbent contractor, low morale and labor unrest among court security personnel followed, with threats of strikes and numerous complaints. Thus, the agency could reasonably seek to ensure that these disruptions do not occur again. Specifying minimum wages for evaluation purposes seems a reasonable means to achieve this end under the circumstances; this approach clearly will eliminate the direct cause of prior labor difficulties, i.e., reduced wages. Most significantly, it will preclude the most experienced officers from having their wage rates lowered.
Id., at 2.
The General Security Services protester went on to complain that the cost normalization approach violated the statutory requirement that price/cost be evaluated in every source selection. 41 U.S.C. §§ 253a(b)(1)(A), 253b(d)(3). This went nowhere:
Finally, concerning the protester’s argument that establishing fixed wages precludes the agency from considering cost, the record shows that each offeror’s overhead, general and administrative costs, and profit will be evaluated. As these pricing elements are specific to each offeror, they provide a basis for discriminating among offerors based on cost to the government
Id.
The General Security Services agency (the United States Marshals Service) and GAO are to be congratulated-the agency for use of an innovative method to prevent wage busting, and GAO for supporting this approach. The procedures established under Policy Letter Number 78-2 have been largely ineffective. Here is an approach, and for blue-collar service workers, no less, that is easily accomplished, and, more importantly, one that puts the price/cost evaluation focus where it should be, on the markups, and not on the proposed wages/salaries, which, more often than not, are the product of guesswork, and not the result of any sophisticated analysis.
— Cy Phillips
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