Remedies And Sanctions

Withholding of Contract Funds to Cover Wages and Fringe Benefits Due

  1. To protect the rights of covered workers under the SCA and CWHSSA, DOL regulations provide for remedies when compliance is in question. An important element is the withholding of contract funds sufficient to satisfy alleged wage underpayments pending resolution of a wage dispute. Withholding action may be necessary to protect the employees' interests. It assures the availability of monies for the payment of the back wages if a contractor refuses to make restitution when back wages are found due to covered workers. The contracting agency may withhold funds on its own initiative or at the direction of DOL.
    1. The SCA contract clause set forth at 29 C.F.R.§ 4.6(i) and FAR 48 C.F.R. § 52.222-41(k) directs the contracting officer to withhold or cause to be withheld, from the prime contractor, sums an appropriate DOL official requests or sums the contracting officer decides may be necessary to pay underpaid employees of the contractor or subcontractor(s). Such funds may be withheld from any federal contract with the prime contractor. (See also 29 C.F.R. § 4.187.) The same contract clause also stipulates that in the event of failure to pay the employees wages or fringe benefits due under the SCA, the agency may suspend further payments until the SCA violations have ceased; also, the agency may terminate the contractor's right to proceed with work under the contract and charge the contractor in default for any additional cost needed to complete the contract work under other arrangements.
    2. The comparable CWHSSA contract clause regarding the withholding of contract payments is at 29 C.F.R. § 5.5(b)(3) and FAR 48 C.F.R. § 52.222-4(c); see also FAR 48 C.F.R. § 52.22.406-9(a).
  2. There is no right of individual action (suit) to recover back wages under the SCA.
  3. The contracting agency is responsible for withholding actions.
    1. In the case of requirements-type contracts, it is the contracting agency and not the using agency that is responsible for withholding. 29 C.F.R. § 4.187.
    2. Contracting officers shall withhold funds upon written request from DOL. Contracting officers should respond immediately confirming that the funds have been withheld.
    3. Additionally, if the request has been made by DOL, it is important for the agency to preserve the withheld funds until notified in writing by DOL regarding final disposition of the withheld funds.

Due Process for Withholding Action

  1. To ensure that contractors and subcontractors receive "due process" prior to the withholding of funds at the direction of the WHD, the following steps are included in the WHD enforcement procedures.
    1. Where a contractor refuses to pay back wages under the SCA and funds are available for withholding, WHD will generally send a "due process" letter. This letter will include:
      1. A statement that the final conference was conducted at which time the contractor was provided an opportunity to discuss alleged violations; or if a final conference was not held, provide the reason(s) why;
      2. A brief description of the alleged violations;
      3. An affirmation that the contractor received a Summary of Unpaid Wages;
      4. A statement that the matter is being forwarded for a decision to a designated WHD deciding official, who will decide whether withholding action will be taken based on the back wage findings;
      5. A statement that the contractor has fifteen (15) days to provide the WHD deciding official with written views on whether the violations occurred; and
      6. A statement that any determination regarding the withholding of contract funds will not result in the distribution of the funds to the underpaid workers until such time as the administrative remedies available to the contractor have been completed. See discussion of "The Hearing Process And Appeal Rights," below.
    2. If the deciding official determines that withholding action is warranted, a copy of the WHD withholding request to the contracting agency and a letter indicating the deciding official's decision on withholding will be sent to the prime contractor.
  2. In certain cases, such as missed payrolls, likely bankruptcy filings, or imminent contract close-out, it may be necessary to request withholding before the measures described above can be provided. In those cases, the procedures outlined above should be followed after the withholding action; and based on the contractor's submission, the WHD deciding official may decide to revoke an earlier withholding request.

Priority of withheld funds

  1. DOL's position is that accrued funds withheld for payment of wages may not be used or set aside for other purposes until such time as the prevailing wage issues are resolved. To give contracting agency reprocurement claims priority, for example, would essentially make the employees unfairly pay for the breach of contract between their employer and the Government.
  2. It is DOL's position that wages due underpaid employees have priority over any competing claims against a contractor, regardless of when the claims were raised. (See C.F.R. § 4.187(b).) DOL believes that to hold otherwise would be inequitable and contrary to public policy since the affected employees have already performed work from which the Government has received the benefit.
  3. Wage claims for underpayment have priority over:
    1. An Internal Revenue Service levy for unpaid taxes;
    2. Reprocurement costs of the contracting agency after a contractor's default or termination for cause;
    3. Any assignee of the contractor . . . including assignments made under the Assignment of Claims Act;
    4. Any claim by a trustee in bankruptcy.

Disposition of withheld funds

  1. The back wage disbursement process is typically handled by DOL.
  2. Electronic transfer of funds and paper check deposits to WHD should be performed in same manner as DBA funds are transferred - see AAM Number 215 dated March 10, 2014 for guidance.

Contract cancellation

  1. Pursuant to the contract clause at 29 C.F.R. § 4.6(i) and FAR 48 C.F.R. § 52.222-41(k), the agency may cancel the contractor's right to proceed with work under the contract and charge the contractor in default for any additional cost needed to complete the contract work under other arrangements.
  2. A contract may be cancelled by the contracting agency if any violation(s) are found of any of the SCA contract stipulations, and additional costs of completing the contract work under another arrangement may be charged to the original contractor. 29 C.F.R. § 4.190.


  1. After a hearing or other final agency action, any contractor or person responsible for SCA violations may be debarred from receiving government contracts or performing as a subcontractor for a period of three years, unless the responsible DOL official (Administrative Law Judge or, if appealed, the ARB) recommends relief from debarment because of "unusual circumstances." SCA § 5; 29 C.F.R. § 4.188(b)(3).
  2. The term "unusual circumstances," which was added to the SCA by the 1972 amendments to the SCA, significantly restricted prior discretionary authority regarding the sanction of debarment.
  3. Although Congress did not define the term "unusual circumstances" in the SCA, Congress did indicate that the mere payment of back wages and the promise of future compliance are insufficient to preclude debarment. Criteria for determining "unusual circumstances" are stated at 29 CFR § 4.188(b)(2).
    1. Relief from the debarment sanction cannot be provided where a respondent's conduct in causing or permitting SCA violations is willful, deliberate or of an aggravated nature or where the violations are a result of culpable conduct, as described in 29 C.F.R. § 4.188(b)(3)(i).
    2. Furthermore, relief from debarment cannot be provided where a contractor has a history of similar violations, where a contractor has repeatedly violated the provisions of the Act, or where previous violations were serious in nature. Thus, a history of recurring violations of an identical nature prevents the finding of "unusual circumstances."

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