Last week, President Obama released an Executive Order that may have a significant impact on federal government contractors. The Executive Order seeks to raise the minimum wage for workers on federal government contracts beginning January 1, 2015.  The Executive Order surmises that the increased minimum wage will increase the morale of the workers on federal contracts, as well as overall productivity and quality of work, ultimately improving efficiency and leading to cost savings for the government.

The Secretary of Labor is to issue regulations implementing the requirements of the Executive Order by October, 1, 2014, with FAR clauses to follow shortly thereafter. These regulations are to require a clause with the increased minimum wage to be inserted into all covered contracts where the solicitation for the contract was issued after January 1, 2015.

The new minimum wage will only apply to covered contracts covered by the Fair Labor Standards Act, the Service Contract Act, or the Davis-Bacon Act—at the thresholds established by those statutes. For the purposes of this new minimum wage, a “covered contract” is:

• A procurement contract for services or construction;
• A contract or contract-like instrument for services covered by the SCA;
• It is a contract or contract-like instrument for concessions; or
• It is a contract or contract-like instrument with the Federal Government in connection with Federal lands and related to services for Federal employees, their dependents, or the general public.

For these covered contracts, the increased minimum wage is $10.10 per hour for general contract workers, and $4.90 per hour for “tipped employees.” The Executive Order also provides for annual increases in the minimum wage to be set by the Department of Labor.

A few more notes of interest from the Executive Order:

• Prime Contractors with a contract including a clause requiring the new minimum wage must include a similar clause into any subcontracts.
• The new minimum wage does not apply to supply contracts.
• Where this new minimum wage conflicts with a wage established by another applicable Federal, State, or municipal wage law, the higher wage shall apply.

While the new regulations are not set to be effective until January 1, 2015, the Executive Order encourages agencies issuing solicitations and entering into contracts between now and then to take reasonable steps to ensure contractors are meeting the new minimum wage. So this is an issue that contractors should be cognizant of when reviewing any new solicitations and contracts, as it could have a significant impact on their proposal and pricing.

General Counsel, P.C. – Experienced Representation of Government Contractors:  Led by ROCKY GALLOWAY, General Counsel’s Government Contracts Group has over thirty-five years of government contract law experience.  Our attorneys has experience relevant to the entire lifecycle of a government contractor, including formation, contract negotiation and award, contract administration, bid and contract disputes, and Mergers and Acquisitions transactions. For more information, visit www.gcpc.com or call:  (703) 556-0411.