The Service Contract Act and its Importance to Federal Contracting Brokers

June 7, 2023
6 min read

The Service Contract Act (SCA) is a federal labor law that applies to certain service contracts entered into by the federal government. It requires contractors and subcontractors to provide certain minimum wage and fringe benefits to covered employees working on these contracts. The SCA covers a wide range of service contracts, including janitorial, maintenance, security, food service, and other similar contracts.

For federal contract brokers, who act as intermediaries between government agencies and contractors, understanding and ensuring SCA compliance is crucial for several reasons:

  • Legal Requirement: Brokers must ensure that the contractors they work with are compliant with all applicable laws, including the SCA. Failure to do so can result in legal liabilities and potential penalties for both the broker and the contractor.
  • Contract Eligibility: Many government contracts include SCA compliance as a mandatory requirement for bidding and winning the contract. Brokers need to ensure that the contractors they represent are compliant with the SCA to maintain eligibility for these contracts.
  • Reputation and Trust: Brokers play a vital role in connecting government agencies with qualified contractors. By ensuring SCA compliance, brokers can build a reputation for working with reputable and responsible contractors who adhere to labor laws. This enhances the broker’s credibility and trustworthiness in the eyes of government agencies.
  • Risk Mitigation: Non-compliance with the SCA can lead to audits, investigations, and potential legal consequences for contractors. Brokers who work with non-compliant contractors may also face risks such as contract termination, financial losses, and damage to their own reputation. Ensuring SCA compliance helps mitigate these risks.
  • Compliance Assistance: Brokers can provide valuable guidance and support to contractors in understanding and meeting SCA compliance requirements. This includes helping contractors determine the appropriate wage rates and fringe benefits, ensuring accurate record-keeping, and facilitating compliance with reporting and notification obligations.

By understanding and promoting SCA compliance, brokers can effectively navigate the complex landscape of federal government contracting and contribute to the success of both the contractors they represent and the government agencies they serve.

What impact, if any, does SCA and the Health and Welfare (H&W) rate have on the profitability of a government contract?

Understanding SCA and the H&W rate can have a significant impact on the profitability of a government contract. Here’s how:

  • Cost Estimation and Pricing: The SCA requires contractors to provide certain fringe benefits, including H&W benefits, to covered employees. The health and welfare rate represents the cost of these benefits. When estimating costs and pricing a government contract, contractors need to accurately account for the H&W rate to ensure they cover the cost of providing these benefits. Failure to accurately include this rate can result in underestimating costs, leading to reduced profitability or even losses.
  • Labor Costs: The SCA establishes minimum wage standards for covered employees. Contractors must pay employees at least the prevailing wage rates specified in the contract. The H&W rate is often included as part of the prevailing wage rate. Failure to properly account for these rates can result in non-compliance, potential penalties, and increased labor costs that impact profitability.
  • Competitive Bidding: Government contracts are often awarded through competitive bidding processes. Understanding the SCA and the H&W rate allows contractors to accurately factor in these costs when preparing bids. Properly accounting for these rates ensures that contractors can offer competitive pricing while still maintaining profitability.
  • Cost Control and Management: SCA compliance involves tracking and documenting fringe benefit expenses, including H&W costs. Having a clear understanding of these requirements enables contractors to effectively manage and control their costs related to providing benefits. Efficient cost management can help improve profitability by minimizing expenses and optimizing resource allocation.
  • Compliance Risks and Penalties: Non-compliance with the SCA, including inaccurate calculation or payment of the H&W rate, can lead to investigations, penalties, and potential contract termination. These consequences can result in financial losses and damage to a contractor’s reputation. Understanding the SCA and adhering to its requirements mitigates compliance risks, ensuring that profitability is not affected by costly penalties or reputational damage.
  • Contract Renewals and Extensions: Government contracts are often subject to renewals or extensions. Maintaining SCA compliance, including accurate calculation and payment of the H&W rate, is essential for contract performance evaluations. Compliance can contribute to a positive track record and increase the likelihood of contract renewals or extensions, securing continued profitability for the contractor.

As you can see, understanding the SCA and the H&W rate is crucial for accurately estimating costs, pricing contracts competitively, managing labor expenses, ensuring compliance, and minimizing risks. By properly incorporating these factors into contract planning and execution, contractors can enhance profitability and maximize their chances of success in the government contracting space.

If you have questions regarding the Service Contract Act, contact our subject matter specialists today at, or Schedule a Meeting here!

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