Service Contract Act Option Year Pricing

[Regor]

Medical commodity council contracts. We are placing TO's for various SCA contract positions in hospital. Of course, 52.222-43 requires contractors to no price in any contingency for wage or fringe increases that would be covered by 52.222-43. Specifically, para b of 52.222-43 says, " The Contractor warrants that the prices in this contract do not include any allowance for any contingency to cover increased costs for which adjustment is provided under this clause."

The contractors all propose a base rate and fully burdeoned rate. The fully burdoned rate is multiplied by NTE hours for each CLIN. This gives you an evaluated price for each year. Well, because the have to propose a base rate (which is used in conjunction with your market research to assess lieklihood of filling position at proposed rate?) in addition to the fully burednod hourly rate, we can see that they included an increase which violates 52.222-43. There is no provision for the ordering CO to request or allow the vendor to modify their proposal. Normally you would think that if they escallated and no one else did, it would sort itself out because the evaluated price would potentially be higher based on inclusion of escallation where others don't. However, this is not the case. So the question is, if a contractor includes escallation for a SCA covered position, how is the proposal handled? Is it responsive if they clearly violate 52.222-43( which is included in the basic contract? Or would you evaluate it as submitted but deny any EA as a result of increases in option years if the WD increases on the basis of they already included contingencies for it in their proposal? Remember, we cannot ask the contractor to revise their proposal.

I've searched and cannot find anything.

[C Culham]

Regor - In reading your post it would seem the question is best asked of the CO for the parent IDIQ contract against which the TO is being written. I do have one question about a comment you made in the post that caught my interest. What prevents you from requesting a modification to the proposal, a contract clause, agency regulation or policy, or ????????

[TAP]

" The Contractor warrants that the prices in this contract do not include any allowance for any contingency to cover increased costs for which adjustment is provided under this clause." This does not mean they can't pay their employees more than SCA. If SCA says $20.00 per hour + $3.50 H&W let's say, and they propose $21.00 + $4.00 H&W for a given year. If that's what they want to pay their employees, nothing provents them from doing so. If the SCA then happened to increase to $21.00 + $4.00 H&W for that year, the contractor would not be due an adjustment under the clause for this increase.

[C Culham]

TAP – The real question is what leads Regor to believe that a contingency not allowed by 52.222-43 has been included?

Splitting hairs I know as you are right with regard to those exact SCA costs you have noted (required hourly rate and fringe ) and covered by clause 52.222-43 when administering SCA wage adjustments of the future on a service contract where the wage determination changes, and must be recognized (option year). But, the clause has allowance for taxes and insurance too so in effect even if the contractor cannot get an adjustment of the wage and benefit part of the costs there might be one due for the taxes and insurance. Just offering up for others that might be reading but suspect you are aware of this.

Regor has raised the question regarding establishing a “fully burdened” rate for a new task order (TO). Not knowing what the full burden may include, such as G&A and/or overhead and then there is profit, there could be additional dollars added to the “base rate” that are other than a higher hourly rate and/or fringe demanded by the current SCA wage determination and it seems those might be what is at issue with regard to Regor’s question. It is unknown without specifics. But if the other categories are what are at issue, and Regor’s hands are tied with regard to requesting a modification to the pricing proposal, his/her dilemma is understood.

For example if the proposed pricing is $20 for hourly wage + $4 for fringe as required by SCA + $1 for allowed taxes/insurance and $5 for G&A, overhead and profit and the full price of $30 is agreed to, Regor could be in a pickle because in the follow-on option period, if the SCA changed to $21 wage and $5 fringe, at least a $2 dollar increase would have to be allowed per clause 52.222-43 not considering changes to the increased taxes and insurance. So the fully burdened rate would go to something like $32 or slightly more.

Further there may be other clauses in the contract that allow the burden (G&A, overhead) to change as well. This unknown from the facts presented but by example some Commodity Council contracts contain clause “52.216-4 -- Economic Price Adjustment -- Labor and Material (deviation)” which by my read may or may not affect burden for establishing pricing on an anticipated TO as well on an existing TO. It could be this very fact that is creating Regor’s contractor to propose the fully burdened rate that they have.

So bottom line is the strategy proposed by Regor of simply denying a EA in the future could be a proper strategy or could not, again without the facts and the reason to seek guidance from the CO of the parent contract.

[TAP]

Yes, that is the real question.

FYI, per the SCA price adjustment desk guide regarding adjustment for taxes and insurance:

"Employer payroll taxes that are calculated as a percentage of

wages paid are included in the wage differential calculation to the

extent that these taxes apply to the actual wage adjustment, and to the

extent that the particular tax is allowable under this clause. Allowable

taxes are the Social Security taxes (Federal Insurance Contributions

Act, or FICA), Federal unemployment taxes (Federal Unemployment

Tax Act, or FUTA) and state unemployment taxes (state unemployment

tax acts, or SUTA), and workers' compensation insurance (WCn). Only

the employer's share of taxes is allowable. No adjustment is allowed

under these clauses solely for tax rate increases. However, the tax rate

applicable to the contractor for the period being adjusted should be

used in computing the payroll tax portion of the adjustment."

As I read this, if no wage/H&W increase is due under the clause, then neither is an adjustment for taxes and insurance.

[Regor]

TAP – The real question is what leads Regor to believe that a contingency not allowed by 52.222-43 has been included?

The contractors propose both a base rate and fully burdened rate so we can see the base rate escalate for the option years. They propose both so that we can evaluate the liklihood they have to fill the position. For instance, if the SCA states $17+ fringes and ktr proposes $17+ fringes but your market research shows going rate of $25+ fringes in your local area, the lower rate is not likely to get the position filled. The ktr also has a fill rate % based on their historical fill rate under the contract. Since these are brand new contracts, there is no historical fill or past performance. Since all multiple award contract holders are even under the new contract, the only discerning factor right now is price.

Regarding asking for revised proposals, I just got clarification from buyer and it's not that we can't ask for revised, it's time based. As usual, the hospital didn't forecast for the retirement of their flight surgeon and we can't operate without one so any slip here will negatively impact base mission.

[TAP]

I seems like you're expecting the contractor to propose and pay more than SCA requires to be competitive within the local market. That being the case they would not be due a price increase due to SCA wage increase since they are already paying more than SCA. (Example; SCA $17 + fringes, contractor pays $25 + fringes. If SCA wage rate increases from $17 to $20, the contractor is not due a price increase due to SCA wage increase.) Therefore no violation of unallowable contingency for increased costs for which adjustment is provided under 52.222-43, because adjustment is not provided for under the clause if they are already paying more than SCA.

[Heretalearn]

I seems like you're expecting the contractor to propose and pay more than SCA requires to be competitive within the local market. That being the case they would not be due a price increase due to SCA wage increase since they are already paying more than SCA. (Example; SCA $17 + fringes, contractor pays $25 + fringes. If SCA wage rate increases from $17 to $20, the contractor is not due a price increase due to SCA wage increase.) Therefore no violation of unallowable contingency for increased costs for which adjustment is provided under 52.222-43, because adjustment is not provided for under the clause if they are already paying more than SCA.

[Emphasis added]

I'm not sure this doesn't parse the language unreasonably. In the scenario above, the contractor is not due an adjustment because of its wage practice, but that doesn't impact the fact that adustment is provided for under the clause. The contractor has warranted with its offer that its prices "do not include any allowance for any contingency to cover increased costs for which adjustment is provided under this clause". (Presumably one reason for the provision is to avoid the type of ambiguity Regor faces.) I don't know whether the PCO is required to deem the offer unresponsive but it is, in fact, unresponsive. As a competitor, were I privy to the information, I would at least analyze whether an award under these circumstances would be vulnerable to protest.

[Retreadfed]

[Emphasis added]

I'm not sure this doesn't parse the language unreasonably. In the scenario above, the contractor is not due an adjustment because of its wage practice, but that doesn't impact the fact that adustment is provided for under the clause. The contractor has warranted with its offer that its prices "do not include any allowance for any contingency to cover increased costs for which adjustment is provided under this clause". (Presumably one reason for the provision is to avoid the type of ambiguity Regor faces.) I don't know whether the PCO is required to deem the offer unresponsive but it is, in fact, unresponsive. As a competitor, were I privy to the information, I would at least analyze whether an award under these circumstances would be vulnerable to protest.

Why do you state the offer is unresponsive?

[Heretalearn]

Why do you state the offer is unresponsive?

I state that the offer is unresponsive because the solicitation requires an offer that does not include any allowance for any contingency to cover increased costs for which adjustment is provided under FAR 52.222-43 The offeror has provided an offer that does include such allowances. The offer doesn't respond to the requirement. It's unresponsive. But as I also stated, I don't know whether a PCO would be required to deem the offer unresponsive for purposes of a procurement. My observation was colloquial.

[Retreadfed]

I state that the offer is unresponsive because the solicitation requires an offer that does not include any allowance for any contingency to cover increased costs for which adjustment is provided under FAR 52.222-43 The offeror has provided an offer that does include such allowances. The offer doesn't respond to the requirement. It's unresponsive. But as I also stated, I don't know whether a PCO would be required to deem the offer unresponsive for purposes of a procurement. My observation was colloquial.

I don't see any prohibited contingency. What do you consider to be the contingency?

[C Culham]

Regor - Thanks for the response on the question I raised. Glad it helped you sort out the matter. I made the mistake of responding in detail to one of the other posts in this thread as I still believe your questions are best asked of the CO in charge of parent contract. By example a suggestion of non-responsive related to a proposal received in response to Task Order pricing seems mis-placed to me unless the parent contract provides such language. Simply all rules, so to speak, related to your situation are governed by the parent contract and not the FAR/DFAR in general. Hope you take up my suggestion and discuss with your CO.

Good Luck.

[Guest Vern Edwards]

As usual, the hospital didn't forecast for the retirement of their flight surgeon and we can't operate without one so any slip here will negatively impact base mission.

Is the task order for a flight surgeon? If so, are flight surgeons covered by the Service Contract Act?

P.S. Unless the acquisition is being conducted through sealed bidding, the concept of responsiveness does not apply. Task order competitions are usually negotiated acquisitions. In such a case the task order proposal would be unacceptable, not "unresponsive" or "non-responsive".

[Heretalearn]

I don't see any prohibited contingency. What do you consider to be the contingency?

Any outyear escalation of wages/fringes/statutories for SCA positions, adjustment of which is provided for under 52.222-43. Though, again, my observation was colloquial, I think the information contained in Mr. Edwards' last post makes consideration of such a concept moot.

[Regor]

Is the task order for a flight surgeon? If so, are flight surgeons covered by the Service Contract Act? P.S. Unless the acquisition is being conducted through sealed bidding, the concept of responsiveness does not apply. Task order competitions are usually negotiated acquisitions. In such a case the task order proposal would be unacceptable, not "unresponsive" or "non-responsive".

[Regor]

Good catch Vern. I'm not the CO nor the buyer, just a Policy guy. I was combining a few issues. The flight surgeon was something else (ethics related). These positions are indeed SCA positions vs. medical professional.

@TAP, no we are not encouragning them to submit proposals that are in excess of SCA WD. The base rate is used to evaluate their capability to fill the position. Current market analysis shows that they should be able to fill at the SCA rate. The reason it is there is that in the past, they have had issues where current market rate was much greater than prevailing WD rate. If the contractor doesn't do their own research and just proposes w/o even checking local rates, they could be severely under-proposing and not have a realistic chance at filling the position at proposed rates.

Roger