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A contractor provides space in a facility to our agency at a per person/per day rate.  These "services" require the work of service employees under a variety of SCLS positions. The SCLS WD is superseded by a CBA requiring higher rates.  I received a formal REA citing 52.222-43, indicating that the contractor and labor union recently agreed upon a new CBA.  The REA was sent within 30-days after the date of that document.  The key impact of the new CBA was ensuring higher wages for service employees based on seniority.  The CBA aligned pay increases with established tiers, e.g., 0-3, 4-6, 7-10 years, etc.  It is important to note that we do not state wage rates on any of the contract CLINs.  Instead we contract at a per person per day rate based on the mix of labor categories and hours deemed appropriate by the contractor.  Clause 52.222-43, states, "The contract price, contract unit price labor rates, or fixed hourly labor rates will be adjusted to reflect the Contractor’s actual [emphasis added] increase or decrease in applicable wages and fringe benefits...."  The contractor arrived at the per person, per day rate based on (in part) the need for over 30 service employees (those of prime and subcontractor) at varying degrees of seniority.  Because of alternating shifts in their workforce to compensate for annual, family, sick and holiday leave, it is impossible to forecast the exact burden to the contractor for an upcoming year.  So then, the contractor has submitted to me that the average employee's pay has increased by approximately $1.30 per hour. Therefore, they request an increase to the per person per day rate.  This is a FFP contract.  The way I am reading the Fair Labor Standard Act and Service Contract Labor Standards clause, I do not think I have the needed justification to authorize this REA.

Part Two of their request - In the same REA letter, the contractor states that the contract requires the manning of a particular outlying post from sundown to sunrise.  Pointing to the fact that the winter has more darkness, they indicate that they have been keeping their two or so employees (regularly assigned to that post) over their normal shifts and paying them overtime, rather than bringing in a substitute.  It's fair to mention that we are several years into this contract.  I do not believe the solar system has changed much in that time, though I imagine that is debatable. Again this is an FFP contract.  I am not sure why they are worrying me about the specific scheduling of their service employees when our PWS is just that, performance-based.  As with the scenario above, the contractor has tied this storyline to their request for an increase to the per person per day rate.  Again, my inclination is to deny this.  I may be missing some angle here.  Do any of the COs have cogent thoughts on these requests?

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Part One.  I agree that the contractor has not made its case.  The fact that the CBA caused the average employee's pay to increase by $1.30/hour is irrelevant.  The contractor needs to demonstrate the before and after effect of the WD (or CBA).  You also should have some concern that the contractor may not have negotiated the CBA in good faith, because it assumed that it would pass all increased costs to the Government -- but a contractor is still supposed to vigorously negotiate the CBA, and a comparison with other prevailing wages might be helpful.  Hopefully, your agency labor adviser will ne able to help you.

Part Two.  You should deny the REA.  The contractor has a choice:  new employee or overtime for existing employees.  The contractor is asking for a gift, not a REA -- and Uncle Sam doesn't give gifts to contractors (although Christmas is almost here).  What contract clause is the contractor invoking to assert its right to a gift REA?

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23 minutes ago, ji20874 said:

What contract clause is the contractor invoking to assert its right to a gift REA?

The only citation their REA letter references is 52.222-43 Fair Labor Standards Act and Service Contract Labor Standards - Price Adjustment (Multiple Year and Option Contracts).  Thanks for replying.

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Not a CO today but -

You have a REA so you have the opportunity to address (negotiate) your concerns -

Part One - I do understand that you are talking a service contract but you may want to look at FAR 52.222-32.  I have used this guidance even when considering a change with regard to a service contract.  Might be helpful to show the contractor the clause to get the info you want.

Part Two - As to denial, acceptance or some negotiated alternative, if have not already, have you looked at the CBA in total?  It could be there is something buried in it that is prompting the contractor to seek the REA under the 52.222-43 clause.

 

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Guardian, in regard to 1, was the "REA" submitted in regard to the exercise of an option?

As for 2, unless there is something unusual in the contract, I don't see a basis for the REA based on the facts provided. 

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6 minutes ago, Retreadfed said:

Guardian, in regard to 1, was the "REA" submitted in regard to the exercise of an option?

Yes, in anticipation of the Government exercising an OP.  My understanding is that if the CO were to approve a rate increase, it would be effective at the start/exercise of the next option.  If we accept the premise that the CBA (which I read in full) mandates certain wage increases tied to seniority, then the question becomes, should the CO increase the per diem rate based on the fact that it is made up of respective smaller units, which the CBA has forced upward?  It would be akin to the baker increasing the cost of her/his cake, citing the increased costs of Himalayan salt and Zambia Gold honey.  The fact remains, as the contracting officer, I never provided a recipe to follow, nor do I fully know their "secret formula." 

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Guardian,

You might have a rock solid reason to deny the REA if you haven't exercised the option yet -- isn't the contractor's request for adjustment (not equitable adjustment, just adjustment) supposed to happen AFTER the option exercise?

IF you follow this course, the same issue will present itself again, so you will still have to find answers to your questions.  Is your agency labor adviser of any help?  See https://www.wdol.gov/ala.aspx and FAR 22.104(b)(2) and (3).

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50 minutes ago, Guardian said:

If we accept the premise that the CBA (which I read in full) mandates certain wage increases tied to seniority, then the question becomes, should the CO increase the per diem rate based on the fact that it is made up of respective smaller units, which the CBA has forced upward?

Yes.  That is what FAR 52.222-43 requires.  A CBA is a form of WD.  If an amended CBA is in effect when an option is exercised and the wages and fringe benefits in that CBA have increased, thereby increasing the contractor's cost of performance, the contractor is entitled to a price adjustment as ji noted.  Further, its overall profit margin will likely go down as a result of this adjustment.  The fact that you did not provide the contractor with a recipe is irrelevant.

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9 minutes ago, Retreadfed said:

Yes.  That is what FAR 52.222-43 requires...The fact that you did not provide the contractor with a recipe is irrelevant.

Fair enough.  So then, when you have a sizable mix of contractor employees with differing levels of seniority, how might the CO determine the proper upward adjustment of price?  The contractor has proposed using an average wage rate calculated from the point at which the new CBA went into effect. This is where I get a bit squeamish as a CO.  FAR 52.222-43, the clause they cite as authority, speaks of adjusting "to reflect the Contractor's actual increase or decrease in applicable wages and fringe benefits."  The labor pool on such an effort becomes somewhat fluid.  A senior level employee taking up to 30-days per year of paid leave may be temporarily replaced by someone with less than three-years' experience earning 20% less per hour.

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11 minutes ago, Guardian said:

The contractor has proposed using an average wage rate calculated from the point at which the new CBA went into effect.

The adjustment is only calculated beginning with the exercise of an option and only applies to service employees working on a covered government contract.  Not all employees covered by a CBA may be service employees as contemplated by the SCA.  Thus, identifying who are service employees covered by the CBA may be a good starting point.  Next, the adjustment is made on a prospective basis not retroactive.  Thus, if the new CBA rates went into effect in the middle of an option period, the contractor is not entitled to an adjustment based on the effective date of the new CBA rates.  Instead, the new rates would only be used in computing the adjustment for the next option period. 

You can tell the difference in the hourly rates (wages and fringe) by comparing the old rates and the new rates.  The rub comes in determining the hours by which to multiply the difference.  Neither, the DoL regs, the SCA, nor the FAR say how this is to be computed.  Moreover, I am not aware of any appeals board or court decision that answers this question.  The guide that Carl provided contains the Navy's view on this which is similar to other DoD agencies.  However, the guide is just that, a guide that has no regulatory effect unless it is incorporated into a contract.

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2 hours ago, ji20874 said:

Guardian,

You might have a rock solid reason to deny the REA if you haven't exercised the option yet -- isn't the contractor's request for adjustment (not equitable adjustment, just adjustment) supposed to happen AFTER the option exercise?

IF you follow this course, the same issue will present itself again, so you will still have to find answers to your questions.  Is your agency labor adviser of any help?  See https://www.wdol.gov/ala.aspx and FAR 22.104(b)(2) and (3).

Ji, I did not want to get bogged down on what to call it, as I reached out on this forum firstly for some practical answers.  That said, the gears of my mind are turning, and I am wondering if the title I gave this thread, "REA - Services," is appropriate from a wonkish standpoint.  Of course, part two of the FAR does not proffer a definition of "equitable adjustment."  However, your parenthetical correction prompted me to dig a bit into the shadowy recesses of the World Wide Web.  Is what I described in this thread an equitable adjustment or rather a price adjustment, as the clause terms it?  Perhaps it is both, as the latter might constitute a subset of the former.

“…all requests for price adjustment called for by contract clauses constitute non-routine requests [emphasis added]—including a request for equitable adjustment for a constructive change…; a request for equitable adjustment for ordered changes…; a request for an equitable adjustment for a recognized differing site condition…; a claim for lost revenue…; a request for a contract rate adjustment to reflect wage and fringe benefit changes made by a contractor in accordance with a wage determination… In such cases, the contractor has the choice of submitting a request for equitable adjustment (“REA”) to the contracting officer –calling for a negotiated settlement—or of submitting a [Contract Disputes Act] claim requesting a contracting officer decision…” (The Administration of Government Contracts (Administration of Government Contracts, Fourth Edition, by John Cibinic Jr., Ralph C. Nash, Jr., & James F. Nagle ©2006, CCH, pp. 1231-1255)).

&

[T]he U.S. Court of Appeals cites a REA as “anything but a ‘routine request for payment’ (Reflectone, Inc. v. Dalton, 60 F.3d 1572 (Fed. Cir. 1995). 

https://www.dau.mil/acquipedia/Pages/ArticleDetails.aspx?aid=e704abe8-424e-4b3e-8d69-a343fae8a338

What a great way to end the day.

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Whatever you call it (really, it is a price adjustment, not an equitable adjustment (there is a difference)), deny it.  They can re-submit it after you exercise the option.  You buy yourself some time to get your agency labor adviser involved.

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An equitable adjustment includes an allowance for profit. A cost adjustment does not include an allowance for profit.

The pertinent clause at 52.222-43 (g) specifically states that “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.”

Since it is the Contractor’s responsibility to justify its proposed cost increase, I suggest asking the contractor to provide time sheets or actual numbers of hours for each employee or position included in the calculation.  And then have it show you how it developed it’s calculated increase. See paragraph (g) of the clause at 52.222-43:

“(g) 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.”

You should be able to validate the proposal or develop your own prenegotiation  objective as an alternative. If you don’t understand how they developed the numbers, make them  provide all the data necessary to determine it and don’t settle for a generalized narrative. 

 

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1 hour ago, ji20874 said:

Whatever you call it (really, it is a price adjustment, not an equitable adjustment (there is a difference)), deny it.  They can re-submit it after you exercise the option.  You buy yourself some time to get your agency labor adviser involved.

The clause states at paragraph (f) that “The Contractor shall notify the Contracting Officer of any increase claimed under this clause within 30 days after receiving a new wage determination unless this notification period is extended in writing by the Contracting Officer. The Contractor shall promptly notify the Contracting Officer of any decrease under this clause, but nothing in the clause shall preclude the Government from asserting a claim within the period permitted by law.”

You have no justification to deny it simply because it is a future cost impact.

In addition to what I said in my earlier post concerning justification for the proposed adjustment, paragrapgh (f) also requires the contractor to include “any relevant supporting data, including payroll records, that the Contracting Officer may reasonably require.”

 

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21 hours ago, joel hoffman said:

An equitable adjustment includes an allowance for profit. A cost adjustment does not include an allowance for profit.

Joel, I found a good case citation for your above statement--

"An equitable adjustment compensates for changes by paying a contractor its increased costs resulting from the change plus an allowance for profit" (United States v. Callahan Walker Constr. Co., 317 U.S. 56, 61, 63 S. Ct. 113, 87 L.Ed. 49 (1942)).

I discussed this matter with our attorney this morning.  He agreed that both the first request, which is based on seniority rates tied to the CBA, and second request based on the overtime hours at the outlying post should be seen exclusively as requests for price adjustments.  I was a bit undecided on how to categorize the second part of the contractor's claim.  However, my attorney sent me a PowerPoint document from the Air Force, which is an overview of CBAs and the SCA.  It mentions the thorny nature of shift/lead differentials, which is partially what I am confronted with here.  He advised that I modify per the authority of 52.222-41(m) Collective Bargaining Agreements Applicable to Service Employees.  Paragraph n of that same clause requires the submission of seniority data for each contract employee to which the CBA applies, not-less-than ten-days prior to the end of the current contract term.  I need to give further consideration to this paragraph as their request concerns rates that are based on varying tiers of seniority.

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52.222-41(m) is merely a notice requirement placed on the contractor.  It does not authorize a price adjustment.  Price adjustments are permitted under 52.222-43, not -41.

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