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SCA Price Adjustments for H&W Benefits


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Working on Multi-Year FFP LOE Service Contracts. DOL issues revised WD increasing H&W Benefit by $0.15 cents per hour. Contractor has Fringe Rate of 39% based of its FPRP Rates when they initially proposed. I content that Fringe Rate included a contingency for escalation based on it being a FPR. Also content that current finge rate is adequate to absorb the increase, especially since contractor is paying cash-in-lieu-of bona fide H&W Benefits.

FAR 52.222-43( B ) states "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.” I believe escalation is included in Fringe Rate and contract cannot warrant that it doesn't.

If wage rate was $30.00 or $62,400

Fringe Load was 39% or $24,336

Deduct FICA @ 7.65% ($4,774)

Deduct Time Off 160 Hrs ($4,800)

Minimum H&W Benefit @ $3.71 per hour ($7,717)

Surplus Fringe is $7,717 which is more than enough to cover W/Comp and FUTA/SUTA with plenty left over

If I add $0.15 plus per hours I think I am unjustly rewarding contractor ?

In the original cost proposal narrative the Contractor stated their Fringe Pool included:

Statutory fringe elements such as Federal Insurance Contributions Act, (FICA) at 7.65%

Personal leave time (vacation – average of 80 hours and holidays – 80 hours)

Health & Walfare fringe elements:

Medical, Dental and Vision Insurance

Short Term Disability

Long Term Disability

Basic AD&D and Basic Life insurance

Retirement savings plan (401K)

Emergency Leave and sick leave

(Although they pay cash in lieu of)

Other fringe elements:

Worker’s Compensation Insurance

Federal / State Unemployment Tax Act (FUTA/SUTA).

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I believe the cintingency is the escalation the contractor builds into its forward pricing fringe rate for projected insurance increases (Health, Dental, Vision). Each year the fringe rate going forward is developed based on the contractors management assuptions about these increased health care costs.

The contractor is going to be required to pay its employees more based on the revised Health & Welfare Rate in the WD. But the Fringe Rate is double what they are actually paying the emploee if they pay "cash in lieu of".

These are competitively awarded FFPP LOE with fixed billable rates. The higher Fringe Rate is in accordance with companies disclosed practices but it is more than need as shown in example above.

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The question is: "If I add $0.15 plus per hours I think I am unjustly rewarding contractor ?"

Just because DOL issues a revised WD increasing H&W Benefit by $0.15 cents per hour does not mean that you "must add $0.15 plus per hour". As I said above, the Contractor must show that there is an increased cost to obtain a price adjustment., As FAR 1006 (c ) (1) states: " contract prices or contract unit price labor rates are adjusted only to the extent that a contractor’s increases or decreases in applicable wages and fringe benefits are made to comply with the requirements set forth in the clauses at 52.222-43 (subparagraphs (d)(1), (2) and (3)), or 52.222-44 (subparagraphs ( C ) (1) and (2)). (For example, the prior year wage determination required a minimum wage rate of $4.00 per hour. The contractor actually paid $4.10. The new wage determination increases the minimum rate to $4.50. The contractor increases the rate actually paid to $4.75 per hour. The allowable price adjustment is $.40 per hour.)"

I understand that service contracts may be quite different from construction contracts. However it is very common for construction contractors to pay more than the Davis-Bacon Act Wage Rates in order to compete for skilled labor. Often, new wage decisions have little or no effect on construction contractors' actual costs.

Here, you suspect that the Contractor is already paying more than the SCA minimums. That isn't necessarily an unauthorized contingency. The firm may simply be paying more than the minimum. Make the Contractor justify any increase, which may range from nothing to a maximum of $0.15 per hour.

Where did you get the $0.15 "plus" from? Any adjustment would exclude markups for G&A expenses, overhead or profit per the clause.

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Yes Joel, I believe you are correct. They should not have any add ons.

Thanks for your input. I concur that Contractor should have to show injury. I failed to mention that in the above example the contractor's fringe load of 39% also gets applied to overtime hours (about 10% of total s/t hours) so the fringe pool has plenty of funding for the Non Exempt Employees being paid only "Cash-in-lieu-of" benefits.

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DOECPA:

I'm confused by your comments on the fringe rate. Why look at the fringe rate instead of focusing on the health and welfare benefit?

Did the original proposal show what the cost of the health and welfare benefit was? Or did it just list health and welfare as an item under the fringe rate?

Hone in on the cost of the health and welfare benefit in your evaluation of a request for a price adjustement.

Find out what the actual cost for health and welfare was. Find out if the cost of health and welfare must increase due to the wage determination. If the cost of health and welfare is greater due to the wage determinatino- a price adjustment is appropriate. If the cost does not go up, an adjustment is not appropriate.

I'm not sure why you mentioned that the contractor could pay the health and welfare benefit in cash to the employee - the contractor can do that, but the government cannot limit the contractor to paying the benefit in cash.

DOL provides a tool for price adjustments that might help: http://www.wdol.gov/pact/intro.aspx

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Our contractors propose Fully Loaded Labor Rates but provide the labor rate buildup. H&W is not shown separately as these elements are part of the Fringe Expense Pool which also includes Paid Non-Productive Time. The PACT Tool guidance is great however we have not used it for price adjustments.

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The price adjustment must consider the difference in the H&W cost the contractor incurs in meeting the new wage determination requirements.

Ask the contractor to provide you with what their H&W costs were at the contract award (since that was not provided originally), and what their H&W costs are after meeting the new wage determination requirements.

Then the fully loaded labor rates should be adjusted by that difference in accordance with 52.222-43 (e).

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August

I guess I am not understanding what your saying

The labor buildup (Hypothetical) to the fully loaded rate would look something like this

Direct Labor 15.00

Fringe Load @ 39% = 5.85

Overhead @ 22% = 4.59

G&A @ 5% 1.27

Profit 2.67

Fully Loaded 29.38

The H&W and Paid Time Off are included in the Fringe Load

Many contractors however don't have a separate Fringe Load and may have everything in Overhead

Direct Labor 15.00

Overhead @ 69.58% = 10.44

G&A @ 5% 1.27

Profit 2.67

Fully Loaded 29.38

In either scenario how would we know how much is dedicated to SCA H&W minimum requirement.

As I stated above "In the original cost proposal narrative the Contractor stated their Fringe Pool included:

Statutory fringe elements such as Federal Insurance Contributions Act, (FICA) at 7.65%

Personal leave time (vacation – average of 80 hours and holidays – 80 hours)

Health & Walfare fringe elements:

Medical, Dental and Vision Insurance

Short Term Disability

Long Term Disability

Basic AD&D and Basic Life insurance

Retirement savings plan (401K)

Emergency Leave and sick leave

(Although they pay cash in lieu of)

Other fringe elements:

Worker’s Compensation Insurance

Federal / State Unemployment Tax Act (FUTA/SUTA).

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DOECPA, would these provisions from 52.222-43 help you in your inquiry?

"The notice shall contain a statement of the amount claimed and the change in fixed hourly rates (if this is a time-and-materials or labor-hour contract), and any relevant supporting data, including payroll records, that the Contracting Officer may reasonably require."

"The Contracting Officer or an authorized representative shall have access to and the right to examine any directly pertinent books, documents, papers and records of the Contractor until the expiration of 3 years after final payment under the contract."

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DOECPA - you must find out what the H&W costs were and what they are now.

As Retreadfed has pointed out, the price adjustment clause gives you the means to find that out.

The fringe rate has no relevance to the price adjustment requirement. The cost of the fringe benefit is relevant.

The government is obligated to provide a price adjustment when the cost of the new wage determination increases.

The contractor certified with the contract that they did not build a contingency into their prices for anticipated increased wages and fringe benefits. If you suspect their certification was fraudulent, why was the award made? The Fair Labor Standards Price Adjustment clause is not the appropriate means to address such a concern.

Your distraction with the fringe benefit rate is holding you back.

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It is up to the contractor to prove his right to an adjustment. He should be able to show pay statements with the H&W benefit (cash paid) before and after the SCA change. If he can't then I think you should be able to just deny the request.

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Let me start over:\

A contractor wants to propose on a Service Contract and uses the Wage Determination cited in the contract to establish its minimum labor rates for non-exempt employees. The wage determination also has Health and Welfare Minimum requirement including Paid Time Off for Holidays and Vacation, at least at the minimum level. When the contractor developes its pricing they don’t just put $3.71 cents per hour on every non exempt employee’s straight time hours. All contractor’s I’m aware of, propose using their established Fringe Rates or Overhead Rates to develop the Fully Loaded Labor Rates. If they have 39% or $8.00 per hour for Health and Welfare than why would I adjust upward if the DOL WD Rate goes from $3.71 to $4.19 let’s say. In fact, on another note, I believe excess wages over the minimum for non-exempt employees can also be used to cover some of the H&W Benefit, but not vice versa - meaning that if I'm actually paying an employee $16 per hour when all that required is $15.00 than that $1.00 can be counted toward H&W Benefit.

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