FAR Clause 52.229-6, Taxes - Foreign Fixed Price Contracts (Jun 2003)

[Boof 0]

All,

I am not very good at trying to research historical information on why actions are the way they are.  The subject tax law allows us to renegotiate price  for unexpected business taxes charged the contractor  but does not allow us to increase the price for social security and other employement taxes levied on the workers. Why not?  Could someone with good research skills see if the Federal Register or FAR council explained why this is. 

If they are working in one of our conflict zones and the host country suddenly pulls 15% of thier pay, they want to be made whole again or they threaten to head for the next plane out.  They are there to make money, not for the scenery.  So why can we make a contractor whole but not his employees? 

[ji20874 0]

Boof,

Our contract is with the contractor, not with the contractor's workers.  If the contractor's workers have to pay taxes on their income, that is between them and the taxing governments -- the tax is paid by the workers, not by the contractor.  We only reimburse contractor costs (allowable, allocable, reasonable), not individual worker costs.

Fixed-price contract:  if the contractor's costs go up (for example, if it has to pay its employees 15% more than it anticipated, such as for a reason as you described), the contract price is unchanged.  

Cost-reimbursement contract:   if contractor costs go up (for example, if it has to pay its employees 15% more than it anticipated, such as for a reason as you described), the increased cost might be reimbursable if it is otherwise allowable, allocable, and reasonable.  

Your contractors should be able to take care of themselves -- they shouldn't be cry-babies.  If the place of performance for a contract is in a conflict zone, they should know that and they should negotiate the contract accordingly.  You also know it when you do your acquisition planning.

Shortest answer:  An increase in worker payroll taxes has zero effect on the contractor's costs.

[C Culham 0]

3 hours ago, Boof said:

So why can we make a contractor whole but not his employees? 

So from a different angle with no history research done on the clause.

While Federal government contracts are with a contractor and not its employees United States Federal contracting labor laws clearly are intended to protect the rights of contractor employees.   By example FAR 52.222-43 allows for the adjustment you are concerned with if the contract is performed in the United States.  The ingrained protection for the worker is that if they are not paid the proper SCA stipulated wage and benefit  after the contractor is subject to the wage/benefit adjustment and verifies that they need a contract adjustment allowed by the clause the worker can file a claim with the DOL.

Bottom line from my quick review of the questioned clause and application of what would happen in the United States,  Federal contracting regulations are not quite as concerned about worker protections for contracts performed outside the United States.

[Boof 0]

These are all overseas contracts so SCA does not apply. 

[here_2_help 0]

On ‎5‎/‎8‎/‎2017 at 6:40 AM, ji20874 said:

Your contractors should be able to take care of themselves -- they shouldn't be cry-babies.  If the place of performance for a contract is in a conflict zone, they should know that and they should negotiate the contract accordingly.  You also know it when you do your acquisition planning.

Yet, given the instructions found at 31.205-7 for estimating contingencies, I have yet to find a single CO who will actually include a contingency for currently unknown risks in a contract price. Further, I have yet to find a single DCAA auditor who will not question such a contingency's cost in the contractor's proposal.

Until the Federal government is willing to let contractors actually price risk contingencies into contracts, as permitted by the cost principle, contractors are going to tend to be "cry-babies" over surprise costs that the government would not price into the initial award.

Granted in this scenario we have workers' costs changing, not contractor's costs; however, I think my point is still valid.

[ji20874 0]

When the Government and contractors all know that the contract performance will occur in a conflict zone, they should be able to negotiate "appropriate contractual coverage" (FAR 31.205-7).  If they don't, then I have little sympathy.  A contractor should not accept a fixed-price contract unless it is certain it can perform for that fixed price.  Choosing not to recognize realities, and not to take prudent steps, but instead pretending like there are no contingencies just to get the contract and then crying about the realities to get the price increased seems unprofessional to me. 

Absent a DPAS situation, a contractor is not forced to accept a contract not to its liking.  A contractor can insist on the flexibilities allowed by the cost principles, or the contractor can walk away from an unreasonable situation.  

Before contract award (perhaps as part of its offer), the contractor might ask for inclusion of a home-made re-opener clause--

RE-OPENER FOR HOST COUNTRY PAYROLL TAXES
The agreement of the parties in forming this contract is based on an assumption that host country payroll taxes levied on contractor employees will not increase or decrease more than 20% during the period of the contract.  If at any time during the period of this contract, the host nation changes the payroll taxes levied on contractor employees to a level more than 20% higher or lower than the rate effective on the date of contract award, the Contractor shall provide a prompt written notice to the contracting officer.  The parties agree to adjust the contract price accordingly; however, the contract price shall not be increased unless the Contractor demonstrates that the host country payroll taxes levied on contractor employees significantly impairs its ability to retain employees in the conflict area.  Failure to agree to an adjustment shall be a dispute under the Disputes clause.  However, nothing in this clause shall excuse the Contractor from its performance obligations under the contract. 

Of course, I suppose a contractor also has common law recourse under an impossibility theory.   (Wikipedia:  In contract law, impossibility is an excuse for the nonperformance of duties under a contract, based on a change in circumstances (or the discovery of preexisting circumstances), the nonoccurrence of which was an underlying assumption of the contract, that makes performance of the contract literally impossible.)  But the original poster generally wants performance, not excuses for non-performance.

Edited May 9, 2017 by ji20874
minor changes