Why Federal Contracts are Important for Promoting Quality Work and Wages

The Trump Administration recently made headlines for targeting federal contracts. What are federal contracts, how do they work and why are they important for promoting quality work and wages?

Context

Federal agencies contract with private companies and organizations to provide products and services with money allotted by the U.S. Congress. This process functions much like contracting between private parties; however, Congress has power over federal spending. This allows it to inform legislation requiring contracted parties to obtain American-sourced materials for goods or services produced or manufactured. 

The 1933 Buy American Act (BAA) was the first law of this kind, mandating federal agencies to purchase “domestic end products” and use “domestic construction materials.” The goal here is to reinvest the public funds distributed through the federal contracts back into the economic development and growth of the United States. 

The regulations also ensure that the jobs created (or promoted) are quality jobs, with quality wages and benefits that adhere to the U.S. Department of Labor’s (USDOL) enforcement measures. The USDOL is responsible for establishing labor standards and enforcing the provisions of federal laws applicable to federal government contractors. In that sense, the government contract is a unique tool used to secure specific job quality measures that are in the interest of the worker. 

In other words, employers cannot exploit their workforce using federal—public—dollars. When employees produce something paid for through a federal contract, their employer must ensure that all workers, including independent contractors, are paid the prevailing wage rate and receive fringe benefits for work necessary to fulfill the covered contract. 

Examples of Regulations

Take the Davis-Bacon Act (DBA), for example. The DBA ensured that contractors and subcontractors pay workers the prevailing local wage rates and fringe benefits on a weekly basis when performing manual or physical labor on a covered project.

Another example is the Inflation Reduction Act of 2022, which brought certain work up to the labor standards outlined in the Davis-Bacon Act. Specifically, it required contractors to pay laborers and mechanics the prevailing wage and fringe benefits for performing work on qualifying clean energy projects.

There is also Executive Order 13706 which established paid sick leave for federal contractors, and Section 503 of the Rehabilitation Act which required federal contractors to take affirmative action to recruit and hire individuals with disabilities. The Vietnam Era Veterans’ Readjustment Assistance Act of 1974 required covered employers to take affirmative steps to recruit, hire and promote protected veterans. For more information on these regulations, see the ‘Additional Information’ section.

Preventing Exploitation of Federal Contractors, Promoting Good Jobs Beyond

Not only are federal contracts with specific employment regulations important protections against exploitation, but they serve another crucial function. Regulations put pressure on employers producing similar products for the private sector to raise their employment standards in order to compete for quality workers. 

What starts out as a transfer of funds from the public to the private company to produce something for the U.S. government turns out to be a vital mechanism to secure quality employment across the United States. These federal contracts are job creators—and quality job creators at that.

Take the sudden stop-work orders at USAID as an example. USAID had a long-standing contract with Edesia to produce nutrition packets. These are essentially packets of fortified peanut butter distributed globally for malnourished and starving children.

Following the stop-work order on USAID, NPR visited a factory in Rhode Island that produces the nutrition packets and talked to Edesia’s founder and CEO, Navyn Salem. Salem noted that their USAID contract stipulated that all ingredients needed to make the nutrition packets had to be sourced from the United States. This meant that the dairy was sourced from Massachusetts farms, the peanuts from Georgia, the soy flour from Iowa, and the vitamin and mineral premix from New York. Moreover, the packaging film and shipping boxes were produced in Rhode Island, and of course, there is the Rhode Island factory that employs 160 people to manufacture this one product.

Current Risks to Federal Contract Job Protections

A single stop-work order can undermine vital supply chains and the accompanying quality work and wages. When USAID contracts for USAID nutritional paste are suspended, for example, it hurts the recipient of, say, the nutrition packet. But it also hurts the producer of the vitamin and mineral premix from New York, the farmers in Massachusetts (milk), Georgia (peanuts) and Iowa (soy flour), who employ workers to develop or harvest their goods that are sold to Edesia factory to produce the nutrition packets. Moreover, the contractors and subcontractors are employing workers with jobs that have specific labor and social protections. By definition, these are good jobs with quality wages—Quality wages that workers reinvest into their families and local economies. 

The protections that have been written into law that federal contracts stipulate are also under threat. For example, on March 14, 2025, President Trump issued Executive Order 14236, “Additional Rescissions of Harmful Executive Orders and Actions,” which revoked, among other items, Executive Order 14026 of April 27, 2021, “Increasing the Minimum Wage for Federal Contractors”. Following Executive Order 14236, the U.S. Department of Labor is no longer enforcing a minimum wage for federal contractors. 

While the contract for manufacturing nutrition packets may have stopped, many other federal contracts have not. The March 2025 executive order weakens the very protections that have guaranteed quality jobs developed with public dollars through federal contracts. This will undermine the workers who are the backbone of the U.S. economy and their ability to provide for their families and contribute to their communities. And it is here that the benefits from federal contracts will be felt across the United States, in households and communities big and small. 

Additional Information—Federal Regulations:

There is a framework of laws in place that ensures protections. Some examples include:

• The 1933 Buy American Act (BAA) was the first law requiring federal agencies to purchase "domestic end products" and use "domestic construction materials." This was done on “covered” contracts (‘covered’ meaning services necessary to perform under the contract) executed in the United States above certain monetary thresholds (typically $10,000). As a result, federal government contracts often include provisions requiring procured ingredients or supplies to be produced or manufactured in the United States. There are some exceptions. For example, the provisions of the act may be waived if the head of the procuring agency determines the act to be inconsistent with the public interest or the cost of acquiring the domestic product is unreasonable. Overall, the BBA-related regulations aim to promote domestic industry and jobs. For the BBA to apply, (1) the procurement must be intended for public use within the United States; and (2) the items to be procured or the materials from which they are manufactured must be present in the United States in sufficient and reasonably available commercial quantities of a satisfactory quality.
• The McNamara-O’Hara Service Contract Act (SCA) covers contracts in excess of $2,500 between employers and the United States or the District of Columbia to provide services through service employees. Workers must be given notice of the applicable wage and benefit determinations before performing work under a covered contract.
• The Davis-Bacon Act (DBA) covers construction contracts with the United States for the construction, alteration, or repair of public buildings or public works that exceed $2,000.   Covered work does not include manufacturing, furnishing of materials, or servicing or maintenance work on such properties, which may be otherwise covered under the SCA. Contractors and subcontractors must pay laborers or mechanics the prevailing local wage rates and fringe benefits on a weekly basis when performing manual or physical labor on a covered project. Similar to the SCA, workers are classified by their positions based on the work performed under the contract that dictates the applicable wage rate.
• The Contract Work Hours and Safety Standards Act (CWHSSA) applies to laborers and mechanics performing work under federal SCA or DBA service and construction contracts that exceed $150,000 (or $100,00 if the contract is not subject to the Federal Acquisition Regulations). The CWHSSA requires contractors to compensate laborers and mechanics performing work under covered contracts at a rate of at least one and a half times their regular rate of pay for any hours worked over 40 in a single workweek.
• The Copeland “Anti-Kickback” Act provision applies to contractors and subcontractors performing work on federally funded construction projects. Contractors are prohibited from persuading or otherwise inducing any employee to relinquish compensation to which they are entitled, including wages and fringe benefits owed. When submitting weekly certified payrolls under the DBA, contractors must submit a “Statement of Compliance” attesting that no unlawful deductions or payment arrangements have been made with covered workers.
• The Inflation Reduction Act of 2022 brought certain work up to the labor standards outlined in the Davis-Bacon Act. Specifically, it required contractors to pay laborers and mechanics the prevailing wage and fringe benefits for performing work on qualifying clean energy projects.
• Executive Order 13706 established paid sick leave for federal contractors. Employees working on DBA or SCA contracts would now accrue one hour of paid sick leave for every 30 hours worked on the covered contract. Contractors may cap the accrual of paid sick leave at 56 hours each year, but employees must be permitted to carry over any unused sick leave from one year to the next.
• Section 503 of the Rehabilitation Act requires federal contractors to take affirmative action to recruit and hire individuals with disabilities. Contractors should attain or demonstrate progress towards attaining a workforce comprised of at least 7% of individuals with disabilities. To meet this standard, federal contractors must permit applicants to self-identify as an individual with a disability and maintain data regarding applicants and employees with disabilities. Another such law, the Vietnam Era Veterans’ Readjustment Assistance Act of 1974, requires covered employers to take affirmative steps to recruit, hire, and promote protected veterans for federal contracts exceeding $100,000.

Photo credit: Markus Winkler