President Obama announced during his State of the Union address that he will issue an executive order raising the minimum wage for the employees of federal construction and service contractors from US$7.25 to US$10.10 an hour.1 This change mirrors the proposed increase of the federal minimum wage for all employers in the Harkin-Miller bill that is still under debate in Congress. Unless Congress acts and passes the Harkin-Miller bill, federal contractors soon will be subject to a significantly higher federal minimum wage than other employers.

In light of this impending change, federal contractors should be aware of the following anticipated details of the President’s plan (subject to revision until the executive order is signed):

  • „ The executive order will not affect current contracts. Contractors may continue to pay their workers according to the terms of their current agreements with the government and subject to the standard federal minimum wage.
  • „„ Once the order takes effect, contractors will have to adjust their cost-calculations and proposals to account for the US$10.10 minimum wage. It appears that Executive-branch agencies will enforce the executive order by disqualifying bids that do not meet the new, higher wage rate. Contractors preparing to submit bids or assessing potential federal contracting opportunities should begin determining how the change will affect future proposals. The new minimum wage may apply to contract renewals, in addition to entirely new contracts, although the White House has not yet clarified the scope of the order. Some news outlets have reported that, according to White House officials, the higher wage rate will only apply to renewals if other contract terms are also changed in the renewal process.
  • „„ The White House has suggested that the executive order will give contractors a manageable amount of time to prepare and price their bids to account for the new rule 

The President stated he will sign the executive order “in the coming weeks.” We will continue to monitor this proposal and provide guidance once the full details of the order are made available.