Business Management – Penalties for Non-Compliance & Cost of Unnecessary Compliance

Case Scenario 1

  • A commercial contractor accepted a $XXXK subcontract for standard commercial construction work under a U.S. Government prime contract for a new information technology facility
  • Inadequate Government RFP & subcontract review failed to recognize the Government’s application/prime contractor flow-down of a site specific Davis-Bacon Act (DBA) Wage Determination
  • Post subcontract award, a contractor non-exempt employee (previously employed by an experienced Government contractor) filed a complaint with DoL, Wage & Hours Division
  • Complaint resulted in 6 mos. investigation by DoL consuming significant non-recoverable contractor resources ($’s) for response
  • Contractor required to retroactively pay DBA wages/fringe benefits to all covered employees ($XXK loss to company due to failure of initial pricing to consider impact of DBA Wage Determinination)
  • In addition, the contractor was penalized $XXK for failure to comply w/DBA

PACFED’s Solution

  • Proper RFP review & proposal development would have identified DBA requirement & facilitated adequate pricing to cover costs
  • Competent post-award subcontract review also would have identified DBA requirement & would have avoided non-compliance penalty

Case Scenario 2

  • A commercial equipment manufacturer accepted a prime contract for its hardware that necessitated construction work to meet installation requirements
  • After award, the contractor received faulty contract review & was advised that a Davis-Bacon Act (DBA) Wage Determination applied to the installation work
  • Faulty review also resulted in use of a DoL/DBA Wage Determination for a high-wage urban area that was not incorporated into the prime contract nor applicable to the contractor’s rural work site
  • Contractor needlessly paid employees & subcontractors $XXXK in excessive wages & fringe benefits resulting from erroneous contract review
  • Although the Government recognized that the contractor’s diligent but erroneous application of the contract clauses resulted in significant & avoidable losses, the customer rightfully declined to recognize contractor’s claim for the increased costs

PACFED’s Solution

  • Proper proposal & contract review would have recognized the incidental nature of construction work as part of the installation process & that no DBA Wage Determination applied to the contract
  • Advance planning & proper price construction would have allowed the contractor to make use of rules permitting it to “bundle” installation cost within the price of its products and thus avoid paying excessive wages & fringe benefits
  • No cost would have been incurred for attempting to gain recovery of the unnecessary, excess cost from the Government, all of which was a direct hit to the company’s earned profit on the contract