A subject that has always confused me under the Service Contract Act (“SCA”) is when are hazardous pay differentials due to be paid to workers. The SCA wage determinations (“WDs”) often have provisions requiring “An 8 percent differential is applicable to employees employed in a position that represents a high degree of hazard when working with or in close proximity to ordnance, explosives, and incendiary materials.” And when the risk is a “low degree” they get a 4% differential. But nowhere in the Act, regulations or WDs is there more guidance as to exactly what is high or low risk, and where the line is drawn. And furthermore the standard WD language states that “[t]hese differentials are only applicable to work that has been specifically designated by the agency for ordnance, explosives, and incendiary material differential pay.”
Requirement to provide hazardous pay differential
It is my view that the contracting agency is required to notify a contractor that a hazard differential is applicable; the above language of the WD uses the phrase “specially designated” but it doesn’t say who does the designation. My view is that it is the contracting agency’s responsibility. However, there is no specific guidance on this outside of some limited DOD FAR Supplement (DFARS) provisions that might be said to provide some kind of constructive notice to the contractor that any particular solicitation is, indeed, a designated contract.
We have researched this subject in the past and found no decisions of the Administrative Review Board or the Board of Service Contract Appeals in currently searchable archives that addressed whether the Government owed a duty to inform a contractor that hazard differentials are required because the “work . . . has been specifically designated by the agency for ordnance, explosive, and incendiary materials.” Likewise, we found nothing that would suggest that a contractor is required to figure this out on its own. We also found no such guidance in the DOL Field Operations Handbook (“FOH”) or DOL regulations applicable to the SCA.
However, we have noted in the past that DoD has issued specific regulations in the DFARS regarding ammunitions and explosives-related contracts. DFARS § 223.370-5 requires the inclusion of DFARS clause 252.223-7002 Safety Precautions for Ammunition and Explosives (MAY 1994) in all acquisitions “involving the use of ammunition and explosives.” See attached clause. “Use” is a very broad concept that includes development, testing, research, manufacturing, handling or loading, storage, transportation, disposal, inspection, among other activities. The notion of “ammunition and explosives” is similarly broad and “[m]eans liquid and solid propellants and explosives, pyrotechnics, incendiaries, and smokes in [a number of] forms.” DFARS 252.223-7002(a)(1). Thus, if you’re dealing with a DoD contract that might involve ammunition and explosives, you should determine whether this clause is in the contract. If it is, it’s possible that this would qualify as a specific designation of the work. Given that, we think the government might argue that the contractor was on notice to inquire about the applicability of the differential. We are not saying this is absolutely the case, but we think it might be one way for the Government to argue (perhaps unfairly) that the hazard pay differential has been designated in the contract, albeit a somewhat obtuse designation at best. In a similar vein, other attachments and DOD Directives or Instructions about explosive ordnance in your solicitation and contract might also arguably constructively constitute such a designation.
In the absence of this DoD situation, or some other designated provision or agency attachment in your contract we are left with interpreting the standard WD text which states that the differential applies where the “work that has been specifically designated by the agency for ordnance, explosive, and incendiary materials.” It seems to us that common sense dictates that the hazardous pay differential will not be required unless the agency has, in fact, specifically designated the work. That said, if the contractor is at the proposal preparation stage, it may want to consider submitting an inquiry during the Q&A process, if there is a concern that the differential might be applicable. This would be consistent with the line of cases holding that the contractor has a duty to seek clarification of patent ambiguities in the government solicitation or otherwise may be held to assume the risk of a different outcome than the as bid assumptions.
What is high vs. low risk?
Finally, we know of no guidance whatsoever about the distinction between a “high degree of hazard” versus a “low degree of hazard.” This poses all sorts of conundrums. For example, if this were a demilitarization contract that calls for the removal and disposal of unexploded ordnance, would the operator of a loader be in a “high degree” position? Would the guard monitoring the yard where all the ordinance is stored be in a “low degree of hazard” position? We suspect the “degree” might be in the eye of the beholder.
Is hazard pay a fringe benefit or does it impact overtime premium pay?
If a hazardous duty premium is due the worker, it is likely part of the employee’s wages and not a fringe benefit. This is because the differential would increase employee pay by four or eight percent depending on the degree of hazard applicable to the work. A wage and hour regulation, 29 CFR § 778.207, requires the inclusion of “premiums paid for hazardous, arduous or dirty work” in the regular rate of pay. Thus, the hazard differential called for in the WD would affect the regular rate of pay. This means that it would act to boost up any overtime premium pay due the workers under the Fair Labor Standards act ("FLSA") or the Contract Work Hours and Safety Standards Act ("CWHSSA") for hours worked in excess of 40 hours a week. Thus, by definition, the hazardous pay differential likely is a component of wages and would not be a form of fringe benefit.