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josmim2002

Amendment to Retroactively Incorporate Wage Determination Schedules

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Good afternoon, Mr. Edwards:

First, let me thank you in advance, for your assistance. This site is wonderful for getting another perspective on all things Federal Government contracting.

Here is my question:

Recently, the Department of Labor has been conducting an audit of the Service Contract Act to ensure we have been following appropriate procedures (i.e. paying correct wage and health and welfare). Last week, we received an amendment to modify a Blanket Purchase Agreement (BPA) through an amendment that retroactively incorporates the Wage Determination schedules for 2011 and 2012. What they are attempting to do is force our customer to have us sign the amendment so that we would be responsible for the wage differences and health and welfare from the inception of the contract. I have done a quick calculation and for the number of hours that we have put into the BPA calls, it would add up to a very large number. We would have never priced the contract as we did if this was an SCA contract and we stand to lose a significant amount of dollars if we were to accept this retroactively. Can you please tell me what recourse we may have. Thank you very much!

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Guest Vern Edwards

You may not have a choice about accepting the new wage determination, whether you sign the amendment or not. But this may not be as bad as you think. Let's figure this out.

I assume from your post that you do not dispute that the Service Contract Act applies to your BPA. If that is true, please tell me, does your BPA include the FAR clauses 52.222-41, Service Contract Act of 1965 (NOV 2007), and 52.222-43, Fair Labor Standards Act and Service Contract Act--Price Adjustment (Multiple Year and Option Contracts) (SEP 2009) or 52.222-434, Fair Labor Standards Act and Service Contract Act--Price Adjustment (SEP 2009).

Also, there are two things that I'm not clear on --

1. You said you received an amendment to a BPA "through" another amendment that retroactively incorporates wage determinations for prior years. Please explain "through."

2. You also said "they" are attempting to force your customer to have you sign the amendment. Who are "they," and who is your customer? Are you a subcontractor to a government prime? Is the government prime your customer? Was your BPA awarded to you by the prime? Has the government modified the prime's BPA and wants the prime to modify yours?

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We do dispute the SCA applies to our BPA. The BPA does not include the FAR clauses 52.222-41, Service Contract Act of 1965 (NOV 2007), and 52.222-43, Fair Labor Standards Act and Service Contract Act--Price Adjustment (Multiple Year and Option Contracts) (SEP 2009) or 52.222-434, Fair Labor Standards Act and Service Contract Act--Price Adjustment (SEP 2009).

With regard to your request for me to explain "through." What I was trying to say is they = Department of Labor (who is conducting the audit) had our customer (Administrative Offices of the US Courts) send us an amendment to the BPA, which

1. incorporates Clause 3-160, Service Contract Act of 1965

2. retroactively incorporates Wage Determination No 2005-2103 dated 2011 and 2012.

While conducting the audit, they found this BPA was not an SCA contract. In order to now make it an SCA specific BPA so they can penalize us, they requested our customer modify the BPA as stated above.

Please remember, when originally competing for this BPA, we knew the competition was robust and due to the fact that there was no SCA regulations, we priced it very competitevely. This means that if we are now forced to pay a specific wage and $3.71 for Health and Welfare, we will go into the red on this project.

We are the prime on this contract.

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You might be interested in FAR 22.1015--

22.1015 Discovery of errors by the Department of Labor.

If the Department of Labor discovers and determines, whether before or after a contract award, that a contracting officer made an erroneous determination that the Service Contract Act did not apply to a particular acquisition or failed to include an appropriate wage determination in a covered contract, the contracting officer, within 30 days of notification by the Department of Labor, shall include in the contract the clause at
and any applicable wage determination issued by the Administrator. If the contract is subject to section 10 of the Act (
), the Administrator may require retroactive application of that wage determination. The contracting officer shall equitably adjust the contract price to reflect any changed cost of performance resulting from incorporating a wage determination or revision.

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When you try to look up 41 U.S.C. 358, remember that the Title 41 section numbers have changed -- I think 358 is now 6707.

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Guest Vern Edwards

We do dispute the SCA applies to our BPA. The BPA does not include the FAR clauses 52.222-41, Service Contract Act of 1965 (NOV 2007), and 52.222-43, Fair Labor Standards Act and Service Contract Act--Price Adjustment (Multiple Year and Option Contracts) (SEP 2009) or 52.222-434, Fair Labor Standards Act and Service Contract Act--Price Adjustment (SEP 2009).

It sounds like your customer screwed up by not putting the clause in the BPA. However, the Department of Labor has the final say about whether or not the SCA applies, and whether it applies retroactively, unless and until it is overruled by a Federal court. See 29 CFR 4.101( B). If the SCA is applicable to orders issued under the BPA, then it applies whether the clause was in the BPA or not. So if the Department determines that the SCA does apply, then it does not matter that the clause was not included in the BPA, and you will have no choice to reject the modification that would add the clause. If the SCA does apply, a court would read the clause into the contract without your consent. The previous poster cited FAR 22.1015. That section simply puts the CO on notice about 29 CFR 4.5( c). It is the latter regulation that applies to you. It says:

( c) Where the Department of Labor discovers and determines, whether before or subsequent to a contract award, that a contracting agency made an erroneous determination that the Service Contract Act did not apply to a particular procurement and/or failed to include an appropriate wage determination in a covered contract, the contracting agency, within 30 days of notification by the Department of Labor, shall include in the contract the stipulations contained in § 4.6 and any applicable wage determination issued by the Administrator or his authorized representative through the exercise of any and all authority that may be needed (including, where necessary, its authority to negotiate or amend, its authority to pay any necessary additional costs, and its authority under any contract provision authorizing changes, cancellation, and termination). With respect to any contract subject to section 10 of the Act, the Administrator may require retroactive application of such wage determination. (See 53 Comp. Gen. 412, (1973); Curtiss–Wright Corp. v. McLucas, 381 F. Supp. 657 (D NJ 1974); Marine Engineers Beneficial Assn., District 2 v. Military Sealift Command, 86 CCH Labor Cases ¶33,782 (D DC 1979); Brinks, Inc. v. Board of Governors of the Federal Reserve System, 466 F. Supp. 112 (D DC 1979), 466 F. Supp. 116 (D DC 1979).) (See also 32 CFR 1–403.)

But as you can see, FAR 22.1015 directs the CO to make an equitable adjustment to cover your increased costs plus an amount for additional profit. So this is not all that bad. There is no reason for you to lose money.

My thinking is that you should ask the agency for documentation of the Department's finding that the SCA applies to orders issued against the BPA. I would accept the clause and immediately file a claim requesting equitable adjustment of the contract price to cover additional costs and profit. If after reading this you are still concerned. my advice is that you retain an attorney to advise you.

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I am afraid certain facts have been misstated or misunderstood by the original poster. The BPA referenced is a BPA against a Federal Supply Schedule Contract. The BPA and all BPA calls issued against it are subject to the clauses contained in the applicable GSA Federal Supply Schedule Contract. The GSA Federal Supply Schedule Contract contains both clause 52.222-41 and Clause 52.222-43. There was no audit indicating that the SCA did not apply. I think this is an important reminder that the "contract" include not only the provisions printed as part of the BPA or BPA call, but also the clauses incorporated by reference such as the GSA contract clauses in this case.

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Guest Vern Edwards

Well, this is an interesting development. I won't ask how you know all that, Pennybeth.

So, josmin2002 did not realize that the BPA call incorporated the clauses in the GSA schedule contract. Was there a wage determination attached to the BPA call?

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The posted stated that the "customer" who issued the BPA Call modification was The Administrative Office of the US Courts, so I could identify the actual contract being aware of this issue. There is a dispute about whether the contracting officer who issued the call attached the wage determination to the call. The current administering contracting officer received a letter from DOL requesting a copy of the applicable wage determination. Upon discovering that the contract file did not clearly indicate that the wage determination had been attached to the call, the contracting officer issued a modification incorporating the wage determination.

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We have no issue with our customer. Our customer is simply only doing what is required of them. We are not in dispute with that. As a matter of fact, after a meeting this afternoon, we have come to a resolution on how to handle this. Vern, thanks for your time and Pennypeth thank you as well. The misunderstanding came with the flow-down from the GSA schedule. Once that was mentioned by the CO, it made sense.

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But as you can see, FAR 22.1015 directs the CO to make an equitable adjustment to cover your increased costs plus an amount for additional profit. So this is not all that bad. There is no reason for you to lose money.

My thinking is that you should ask the agency for documentation of the Department's finding that the SCA applies to orders issued against the BPA. I would accept the clause and immediately file a claim requesting equitable adjustment of the contract price to cover additional costs and profit. If after reading this you are still concerned. my advice is that you retain an attorney to advise you.

Vern, I found no mention of profit in FAR 22.1015. In my experience, price adjustments for new wage determinations under the Service Contract Act do not include any amounts for profit. In fact, FAR 52.222-43, Fair Labor Standards Act and Service Contract Act—Price Adjustment (Multiple Year and Option Contracts), says "Any adjustment will be limited to increases or decreases in wages and fringe benefits as described in paragraph (d) of this clause, and the accompanying increases or decreases in social security and unemployment taxes and workers’ compensation insurance, but shall not otherwise include any amount for general and administrative costs, overhead, or profit." Is there some case law that applies in this case that says otherwise?

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Guest Vern Edwards

You're right, FAR 22.1015 does not mention profit. Neither do the Changes clauses. But there is no question that an "equitable adjustment" includes profit when the contractor's costs are increased.

"Equitable adjustment" long ago became a term of art in government contracting. See Atherton Construction, Inc., ASBCA No. 56040, 08-2 BCA para. 34011:

The phrase “equitable adjustment” is a “term of art” in federal contracts with a commonly understood meaning. General Builders Supply Co. v. United States, 409 F.2d 246, 250 (Ct. Cl. 1969). It is used in a number of contract clauses, including both the standard Government Property and Changes clauses. Id. at 249. Those engaged in federal contracting are deemed to have an understanding of its meaning and the body of special contract provisions that developed around it. Id. at 250-51.

The boards and courts interpret "equitable adjustment" to include profit. See Rex Systems, Inc., ASBCA No. 49300, 98-2 CPD para. 29926:

Under established principles of law, profit is allowable on equitable adjustment claims, including claims for unabsorbed overhead, unless expressly prohibited by some pertinent contract provision. BEI Defense Systems Co., ASBCA No. 46399, 95-1 BCA ¶ 27,328; BellSouth Communications Systems, Inc., ASBCA No. 45955, 94-3 BCA ¶ 27,231; Professional Services Unified, Inc., ASBCA No. 45799, 94-1 BCA ¶ 26,580; Bennett Construction Company v. United States, 178 Ct. Cl. 61, 371 F.2d 859 (1967); Nash & Cibinic, Admin. of Government Contracts, 3d Ed., The George Washington University, at 753 and 761.

See also Nash & Feldman, Government Contract Changes, 3d, Section 16:18, "Generally":

There is little question that a contractor is entitled to proven overhead and justified profit as part of an equitable adjustment that increases the cost of performance, unless expressly prohibited by some contract term.

See also Manos, Government Contract Costs & Pricing, 2d, Section 87:25, "Equitable Adjustments -- Profit":

[T]he term equitable adjustment is commonly understood to include profit.

FAR 22.1015, like the Changes clauses, says "equitable adjustment," and does not refer to 52.222-43. FAR 52.222-43 does not call for an "equitable adjustment" and expressly excludes profit However, FAR 52.222-43 would not be the basis for the equitable adjustment mentioned in 22.1015.

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In the FAR to CFR comparison it is interesting to note the leap from "additional costs" as used in the CFR to "equitable adjustment" as used in the FAR. Makes one wonder if it is based on case law or simply the Council subscribing to a fairness standard where the CO failed to include the determination.

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Guest Vern Edwards

Or maybe the councils are not familiar with the status of equitable adjustment as a term of art based on long-established case law. That would not surprise me. Most practitioners are not familiar with the case law.

By the way, compare the suspension of work clause, FAR 52.242-14 (APR 1984), paragraph (B), with the stop-work order clause, FAR 52.242-15 (Aug 1989), paragraph (B). The first calls for an "adjustment" and expressly excludes profit. The second calls for an "equitable adjustment" and makes no mention of profit.

Now see Rex Systems, Inc., ASBCA No. 54444, 04-2 BCA para. 32741:

The government contends that appellant is not entitled to any profit as part of its equitable adjustment because the contract was not profitable. We do not agree. We have held that the lack of profitability of the original contract work should have no bearing on a contractor's right to a reasonable profit on its increased costs as part of an equitable adjustment. Stewart & Stevenson Services, Inc., ASBCA No. 43631, 97-2 BCA ¶ 29,252, reconsid. denied, 98-1 BCA ¶ 29,653.

It is true we have held that a contractor is not entitled to profit in an equitable adjustment when a compensable delay arises out of a contract clause - such as the Suspension of Work clause - which expressly excludes profit. C.E.R., Inc., ASBCA Nos. 41767, 44788, 96-1 BCA ¶ 28,029 at 139,934. In this case the government suspended work under the Stop-Work Order clause, which provides for the payment of an equitable adjustment and does not exclude profit. Generally, profit is part of an equitable adjustment unless the contract provides otherwise. We conclude that appellant is entitled to a reasonable profit as part of its equitable adjustment here.

The suspension of work clause is used in fixed-price construction or architect-engineer contracts. The stop-work order clause is used in R&D, supply, and services contracts regardless of contract type.

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The equitable adjustment called for by the FAR applies when the CO did not believe the contract was subject to the SCA or included the wrong WD in the solicitation. In this case, offerors did not have the opportunity to submit proposals that would take into account the affect the SCA would have on the proposal. The equitable adjustment is intended to correct this government mistake and permit the contractor to be made whole.

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You're right, FAR 22.1015 does not mention profit. Neither do the Changes clauses. But there is no question that an "equitable adjustment" includes profit when the contractor's costs are increased.

"Equitable adjustment" long ago became a term of art in government contracting. See Atherton Construction, Inc., ASBCA No. 56040, 08-2 BCA para. 34011:

The boards and courts interpret "equitable adjustment" to include profit. See Rex Systems, Inc., ASBCA No. 49300, 98-2 CPD para. 29926:

See also Nash & Feldman, Government Contract Changes, 3d, Section 16:18, "Generally":

See also Manos, Government Contract Costs & Pricing, 2d, Section 87:25, "Equitable Adjustments -- Profit":

FAR 22.1015, like the Changes clauses, says "equitable adjustment," and does not refer to 52.222-43. FAR 52.222-43 does not call for an "equitable adjustment" and expressly excludes profit However, FAR 52.222-43 would not be the basis for the equitable adjustment mentioned in 22.1015.

Vern,

Thanks for the reminder about “equitable adjustments.” I didn’t pick up on its mention in FAR 22.1015, because I didn’t think that a section of the FAR that wasn’t part of the contract would provide legal entitlement to anything. Instead, I focused on identifying a contractual term to provide entitlement to an adjustment. Thus my reference to 52.222-43. I guess an existing contractual term isn’t needed for this adjustment. Or does the “Changes” clause apply in this circumstance?

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Guest Vern Edwards

I think that FAR 22.1015 is nothing more than an instruction to COs. I don't know of any standard clause that addresses that circumstance or provides for an equitable adjustment in that event. A contractor could point to 29 CFR 4.5( c), but that section does not use the term "equitable adjustment."

In my opinion, if a CO wanted to add the SCA clause and a WD under the circumstances described in FAR 22.1015 it should demand an equitable adjustment, including profit, with reference to the instruction in 22.1015 on grounds that addition of the clause and/or WD are construction changes compensable under the applicable Changes clause. I don't know if it would work, but I think it would have a good chance.

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We have successfully used the Changes clause to receive equitable adjustment, including G&A and fee, under similar circumstances. It did take a claim and appeal, but the appeal was dismissed upon review of the COFD and Notice of Appeal by the agency's legal team, and subsequent settlement for the full amount of the claim.

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