Service Contract Act Wage Fraud: When the Payroll and the Government Bill Disagree

Service Contract Act wage fraud can support a False Claims Act case when a contractor knowingly lies about paying required wages and that lie matters to government payment. You may see the service work, the payroll or the benefits records while someone else prepares the bill. The government contract labor fraud question is concrete: what compensation did the contract require, what did the workers receive, and what did the company tell the government to get paid?

What the Service Contract Act Puts in the Contract

The Service Contract Act puts wage and fringe-benefit obligations into covered federal service contracts. The required compensation follows the applicable local wage determination or covered collective bargaining agreement.

The law’s coverage provision generally covers federal contracts over $2,500 that are mainly for services performed by service workers in the United States.

For a payroll employee, the applicable determination belongs beside the employee’s classification, hours and deductions. For someone administering benefits, the fringe obligation belongs beside the records of benefits provided. When a contractor underpays, the worker loses compensation required by the government contract. An honest competitor has to cover that labor cost in its price. The underpaying business keeps the saving.

The federal Service Contract Labor Standards clause requires records of classifications, rates, benefits, hours and compensation, retained for three years after completion. Those records show what reached the employee, beyond the wage rate written into the contract.

What Proof Do You Need as a Whistleblower?

Useful proof connects the contract’s wage determination, the employee’s actual work and compensation, and what the company said to obtain payment. An insider’s knowledge can explain who chose a classification or approved a benefit entry that misrepresented the compensation.

A supervisor may know what work an employee performed but never see the government invoice. Payroll may know which classification was used without knowing the employee’s daily assignments. A billing employee may know which certification accompanied the request for money.

The billing evidence shows where the company used that account of wages to seek payment. We work with you to connect the records and the people behind them, including what the company knew when it asked the government to pay.

How Are Service Contract Act Records Different From Weekly Construction Certified Payroll?

Service Contract Act records document service classifications, wages, benefits, hours and compensation. Weekly construction certified payroll belongs to the Davis-Bacon construction requirements, with a signed Statement of Compliance. The service-contract clause does not impose that construction submission duty on every service invoice.

For covered construction, the Department of Labor’s payroll instructions explain the mandatory information and certification, which contractors can supply using the optional WH-347 form.

For service work, the contract’s own wage terms and the representation used to obtain payment matter. A payroll record tells us how the employee was paid. The invoice or certification tells us what the company told the government. Each has a different job in the case.

What Is a False Certification?

A Service Contract Act false certification can falsely state that the contractor paid required wages. Under the False Claims Act, a knowing lie about compliance can support a case when it matters to the government’s decision to pay a claim.

The people who chose classifications, approved compensation and supplied the payment information may know why the government’s account differs from the work and pay records. Their instructions can connect an internal pay decision to the statement made to get paid.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

Double Day’s Moving Contracts and the Claim for Payment

Double Day Office Services held contracts for moving federal employees. A former employee alleged that the company falsely certified that it had paid prevailing wages on that work. The government declined to join the whistleblower’s case.

In its 1997 decision, the Ninth Circuit allowed the False Claims Act case to proceed. The whistleblower sought recovery for the government over false payment claims, rather than just the employee’s missing wages.

The alleged false promise about pay connected the moving crews’ compensation to the government’s money. That is why the bill belongs beside the payroll: the employee sees what arrived in the paycheck, while the government sees what the contractor says it paid.

Wage-Price Adjustments Follow the Covered Cost

A service-contract wage-price adjustment follows the actual required change in wages and fringe benefits, with specified associated taxes and workers’ compensation. The federal price-adjustment clause excludes overhead, general and administrative expense, and profit from that adjustment.

For someone in contract accounting, a request for a wage increase that never reached the workers raises a concrete question about the bill. The compensation records can show whether the increase claimed matches what the company actually paid. Benefits matter here as well as wages: the adjustment follows the required compensation change.

The clause also requires the contractor to promise that its original price contains no contingency for those same adjustable costs. Money already built into the price cannot become an excuse to charge for the same wage increase again.

We see no reason for a required wage increase to become an excuse for charging excluded profit. A raise for the workers is not a raise for the shareholders.

When a Supervisor’s Report Contradicts Payroll

Construction cases show how a contractor’s own work records can contradict its account of wages. Nagan Construction admitted misclassifying and underpaying workers on renovations at the Merchant Marine Academy and the Department of Labor’s South Bronx Job Corps Center. It agreed to a $435,000 settlement in August 2019, including $242,375 designated for underpaid workers.

The government’s case connected monthly payment applications to certified payrolls that described skilled carpentry and bricklaying as lower-paid laborer work. Supervisors’ daily reports recorded the actual tasks. The work was skilled on the daily report and cheaper on the payroll. The payment application carried that payroll to the government. A whistleblower brought the case, and the government joined it.

The Farfield Company supplies a related construction example. An electrical workers’ union brought the whistleblower case, and the government declined to join. A court found the company liable for recklessly making false payroll certifications on a transit track-and-signal project partly funded by the Federal Transit Administration. Workers classified as groundmen or laborers performed higher-paid lineman work.

A service-contract insider may recognize the same mismatch between actual work, payroll classification and the company’s payment claim. The service contract’s own wage determination and compensation records supply the evidence for that work.

When You Know What the Workers Were Paid

If you know how a service contractor’s wage or benefit records differ from what it told the government, speak to one of our Whistleblower Experts about unpaid service-contract wages. We work beside you to build your strongest service-contract whistleblower case around the work, the compensation and the payment claim. We bring in government contract fraud whistleblower lawyers who understand wage cases, and we stay beside you from the first conversation through the case.