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Legal Govt Eagle

Wage Determination/Price Adjustment

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22 minutes ago, Navy_Contracting_4 said:

You fail to understand that that's precisely what this method does.  It dopes merely "remove the Government mandated wage minimums (to the extent that they actually impact the contract) from the risk equation."  It definitely does NOT "remove all effort (hour) risk from the contractor."  It does NOT price in year to year adjustments to hours.  In my example, pricing in a year to year adjustment to hours would result in adjusting the price to $23,100, but the method I describe results in an adjustment to only $21,100.

I see that - I was incorrect in stating "all effort (hour) risk;" however, I'm still of the position that no effort (hour) impacts should be taken into consideration even if it is just a portion of those impacts multiplied by the actual wage differences.  Seems we'll just have to agree to disagree.

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57 minutes ago, Matthew Fleharty said:

I see that - I was incorrect in stating "all effort (hour) risk;" however, I'm still of the position that no effort (hour) impacts should be taken into consideration even if it is just a portion of those impacts multiplied by the actual wage differences.  Seems we'll just have to agree to disagree.

What you're saying is that even though the application of the new WD causes the contractor to pay out $1,100 more than he otherwise would have to, you want to adjust the price by only $1,000 -- is that right?  If so, then we definitely disagree.

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Sigh.

Matthew, you are wasting your time. What follows is for you, not Navy_Contracting_4, because I’d be wasting my typing on him.

Matthew, when in doubt, read the contract. Navy's approach is not wrong because it would eliminate risk. It is wrong because it is inconsistent with the language of the price adjustment clause. Here are the key paragraphs from FAR 52.222-43, the price adjustment clause. Note the bold/italicized words.

Quote

(d) The contract price, contract unit price labor rates, or fixed hourly labor rates will be adjusted to reflect the Contractor’s actual increase or decrease in applicable wages and fringe benefits to the extent that the increase is made to comply with or the decrease is voluntarily made by the Contractor as a result of:

(1) The Department of Labor wage determination applicable on the anniversary date of the multiple year contract, or at the beginning of the renewal option period. For example, the prior year wage determination required a minimum wage rate of $4.00 per hour. The Contractor chose to pay $4.10. The new wage determination increases the minimum rate to $4.50 per hour. Even if the Contractor voluntarily increases the rate to $4.75 per hour, the allowable price adjustment is $.40 per hour;

(2) An increased or decreased wage determination otherwise applied to the contract by operation of law; or

(3) An amendment to the Fair Labor Standards Act of 1938 that is enacted after award of this contract, affects the minimum wage, and becomes applicable to this contract under law.

(e) 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.

So--the amount to be adjusted is “[t]he contract price.” The contract price is the price stipulated in the contract for the option period at hand. Right? That is what is to be adjusted. Right?

The amount to be adjusted must, therefore, reflect the number of hours on which that option year price is based, not a new estimate of the number of hours to be incurred by the contractor in the option year. Nothing in the clause says or hints at anything about any such new estimate.

The adjustment is expressly limited to the impact of the actual increase in wages and fringes on “[t]he contract price.” Right? But Navy’s proposal would base the adjustment on the impact of the actual increase in wages and fringes and on a new estimate of the number hours of performance during the option year. But "[t]he contract price" for the option was not based on any such new estimate, so Navy's approach would not be consistent with paragraph (d) of the clause. Moreover, basing the adjustment on the impact of the actual increase in wages and fringes and on a new estimate of hours is expressly precluded by the language in paragraph (e): “Any adjustment will be limited to increases or decreases in the wages and fringe benefits”. So Navy’s approach would not be consistent with paragraph (e) of the clause.

I don’t know why Navy cannot or will not see all of that or understand it. The clause is not ambiguous or otherwise obscure. I suppose he genuinely believes that what he is proposing is correct. But perhaps, in the past, Navy has done what he now says should be done and doesn’t want to admit that it was wrong. Or maybe he has advised others to do what was wrong and doesn’t want to own up. I don’t know. But, whatever the reason, he has not made a sound argument grounded in the language of the clause for adjusting the price to account for an estimated change in the number of hours to be incurred by the contractor in the option year. It appears that he is not amenable to reason in this matter.

So I am convinced that Navy is never going to allow his mind to be changed by reasoned argument based on the plain language of the contract clause.

You’re not trying to save a life or a soul, Matthew. Give up. You could be writing something useful to someone.

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46 minutes ago, Vern Edwards said:

Matthew, when in doubt, read the contract. Navy's approach is not wrong because it would eliminate risk. It is wrong because it is inconsistent with the language of the price adjustment clause. Here are the key paragraphs from FAR 52.222-43, the price adjustment clause. Note the bold/italicized words.

Apologies for drawing you back into this conversation - you and I agree on what the clause states and the process/formula for calculating adjustments.  I suppose my "elimination of risk" argument was related to why the price adjustment requirement was established/exists (i.e. price adjustments are based solely on actual wage increases stipulated by the DoL so that contractors don't have to price in estimates of potential increases or decreases that may or may not occur at magnitudes that may or may not be accurate).  Is that a fair assessment of the policy?

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I don't know the basis for the policy, Matthew, but your speculation makes sense to me: The authors of the policy simply wanted to limit the adjustment to the effect of a new wage determination on the original bargain.

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