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Recently, I have run into a wage issue where I hope the forum can lend some guidance: The issue is around those locals where the State Min wage exceeds the Fed minimum wage.  As we all know, DOL requires contractors to pay the State min wage if/when it exceeds the Federal min wage.  My problem is I'm being told that in a nutshell, the Federal Government is not required to adjust wages to pay the higher State min wage should it exceed the federal min wage.   This just doesn't seem fair to me.  How can we require a contractor to pay the higher State min wage when it increases but not entertain the contractor's REA for a price adjustment?  Note:  The contract iin question includes clause 52.222–43, Fair Labor Standards Act and Service Contract Act—Price Adjustment.

 I’ve tried to research the DOL website and the FAR for guidance that  supports my position which is that the contracting officer may execute  a Price Adjustment to meet  the higher of the two minimum wages, either State or Federal,  but I have had no success. Has anyone run into this problem before? How did you resolve it? 

 

 

 

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On ‎3‎/‎4‎/‎2020 at 4:52 PM, NKilgo said:

DOL requires contractors to pay the State min wage if/when it exceeds the Federal min wage. 

While I understand that United States Department of Labor (USDOL) advises in many of their documents and websites that the employee is to be paid the higher of a state specified minimum wage verses that required by Fair Labor Standards Act (FSLA) as extended to the Service Contract Labor Standards Act (SCLSA) I do not read anywhere that USDOL will require its payment.   My read of available information is that enforcement (aka requirement) of state labor laws will be left to the particular state.   My mind can be changed if you can provide a reference that states USDOL will "require" or otherwise enforce a state minimum wage.

The above said 52.222-43 is clear that only three events can cause the payment of wages and/or fringe benefits to be adjusted and they are quoted from the clause below.  I see nothing in the clause  that changes in state law with regard to wages and/or fringes benefits are to trigger the adjustment.  As the clause only allows adjustments due to FLSA or SCLSA your only possible course of action is to request an REA on the basis of the state requirement.  Will it be a success?  Who knows as the particulars of specific contract will apply but I have my strong doubts that absent a contract clause that applies  adjustment to state changes to wages/benefits a CO would not accept the REA based on the fact, bluntly,  that it is "not fair" to not accept it.

Outside of the specific clause you have referenced again factors such as the specific contract terms and conditions may come in to play, from this view my comments are based on the general view that we are talking a  fixed priced, time and material, or labor hour contract with 52.222-43 in it.  

I would add here that contractors are to understand and be responsible for applying the proper wage/fringe benefit requirements as applicable to a contract.   Again bluntly a contractor should have read the entire proposed contract to understand that state increases (and decreases)  would not be subject to adjustment pursuant to 52.222-43 and fashioned pricing appropriately. 

Here is the aforementioned quote from 52.222-43 -

"(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 l938 that is enacted after award of this contract, affects the minimum wage, and becomes applicable to this contract under law."

 

 

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On 3/4/2020 at 7:52 PM, NKilgo said:

This just doesn't seem fair to me. 

Fairness is administering the contract that both parties bargained for. 

Of course, you will reject the contractor's request for equitable adjustment.  That is fair.  What clause in your contract requires or even allows the contracting officer to indemnify contractors against losses incurred during performance?  No clause, no equitable adjustment.  That's fair.

On 3/4/2020 at 7:52 PM, NKilgo said:

I’ve tried to research the DOL website and the FAR for guidance that  supports my position which is that the contracting officer may execute  a Price Adjustment to meet  the higher of the two minimum wages, either State or Federal,  but I have had no success. 

That's because the text you seek does not exist.

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On ‎3‎/‎4‎/‎2020 at 6:52 PM, NKilgo said:

How can we require a contractor to pay the higher State min wage when it increases but not entertain the contractor's REA for a price adjustment?

If I'm reading your fact pattern correctly, the contract is SCA-covered, state minimum wages are going up, but for whatever reason, this isn't resulting in an adjustment for purposes of SCA clause.

As there is no clause that permits an equitable adjustment, the contractor's contingency related to increased labor costs is one that it is allowed to (and is expected to) price in its initial proposal.  This is the corollary to FAR 15.402(c) ("Contracting officers shall...[n]ot include in a contract price any amount for a specified contingency to the extent that the contract provides for a price adjustment based upon the occurrence of that contingency.")

Looking forward to future acquisitions, if the Government contracting officer is concerned about volatile labor costs and believes contractors will overprice for that contingency, contract types other than FFP are available, like FP w/ EPA. 

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It seems to me that, for future extensions of time, which provide for updated SCA wage determinations and adjustment, the next SCA determination should reflect the increase in minimum wages due to the new state minimum wage requirements.

That would leave an impact on current year costs to be a risk assigned to the contractor under the contract terms. 

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2 hours ago, joel hoffman said:

It seems to me that, for future extensions of time, which provide for updated SCA wage determinations and adjustment, the next SCA determination should reflect the increase in minimum wages due to the new state minimum wage requirements.

That would leave an impact on current year costs to be a risk assigned to the contractor under the contract terms. 

Actually a tangled web on whether the state mandated minimum will drive the SCLA increases or not.  Quick read of available info on internet state minimums range for just over $5 per hour to $13.50 per hour or thereabouts.   State minimum exceeding Federal SCLA minimums would seem rare to me but just a guess based on the fact that  SCLA's demand at least a minimum of $10.80 pursuant EO 13658.  

It would be interesting if the OP would say where by what state and what labor category the state minimum is in excess of the SCLA.   Not that it matters to the basic response to the question but of interest none the less. 

 .

 

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On 3/4/2020 at 7:52 PM, NKilgo said:

How can we require a contractor to pay the higher State min wage when it increases but not entertain the contractor's REA for a price adjustment?   

Personal Opinion: The above statement is based upon the decision of a county, city or state. It should only be a concern within those municipalities and their tax payers. People outside should not have to be held accountable for such decisions (federal taxpayers).

In addition, the DBA/FLSA/SCA are all based upon data collected and mined by DOL to come up with actual fair labor rates by county. 

This is what happens when laws, regulations and "opinions" of entities below the federal level are bundled together for decision making. Doesn't work in federal contracting. 

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The DOL will (should) take into account local labor conditions, including any state minimum wage rates, when updating wage decisions. 

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On ‎3‎/‎4‎/‎2020 at 6:52 PM, NKilgo said:

As we all know, DOL requires contractors to pay the State min wage if/when it exceeds the Federal min wage. 

So I notice folks have already taken issue with this statement.  I for one absolutely do not KNOW the Federal Department of Labor enforces state minimum wage laws.

While your fact pattern doesn't discuss the location of performance, I'd also like to point out that, for contract performance on a Federal enclave (i.e., a location under exclusive Federal jurisdiction), it remains something of an open question whether the contractor is required to pay its employees performing exclusively on the enclave the state minimum wage:

Quote

One issue that has not been as well addressed...is whether Congress has authorized the application of state wage-and-hour law claims in federal enclaves.  Courts that have considered this question are split on the issue.

Joshua Waxman, Richard Black & Steven Kaplan, "The Federal Enclave Doctrine: A Potentially Powerful Defense to State Employment Laws," 27-2 Government Contract (May 28, 2013), 12, 14.  The article then contrasts Lebron Diaz v. General Security Services Corp., 93 F. Supp.2d 129 (D.P.R. 2000) (finding SCA indicates a clear Congressional authorization for the application of state wage and hour laws) (on the one hand) with Manning v. Gold Belt Falcon LLC, 681 F. Supp.2d 574 (D.N.J. 2010) (finding SCA doesn't) and Bouthner v. Cleveland Constr. Inc., 2011 WL 2976868 (D. Md. July 21, 2011) (finding D-B doesn't).

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  • 1 month later...

Jacques, thank you!  Your insights have been most helpful.  The article and the associated case law you cited is right on point.  I don't argue the limitations as expressed in the SCA and -43 clause, nor do I argue the fact that DOL cannot enforce State Minimum wage requirements. However, there is still the matter of the spirit and intent of the federal min wage requirements in the first place.  And from a purely business perspective why would the federal  government want to put a contractor who it chose to enter into  a contract with for a service that it needs to be unsuccessful in staffing it?  This is what can happen by creating an environment to where the contractor cannot obtain the labor needed to execute the contract because the federal gov elects not to pay the market rate (i.e. the state min wage) for labor. This is quite frankly  nonsensical and not in keeping with the spirit and intent of the federal min wage laws in the forst palce.  As contracting officers we are invested with an obligation to seek fair and reasonable outcomes.  We shouldn't hide behind a regulation or FAR clause to keep from doing what is right. After all, the Federal Minimum Wage is just that.... the minimum.  It is certainly appropriate to pay the higher state minimum  wage (as many of you have pointed out) when the facts on the ground (i.e. staffing the project) support doing so.   Thank you all for the discussion! 

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5 hours ago, NKilgo said:

This is what can happen by creating an environment to where the contractor cannot obtain the labor needed to execute the contract because the federal gov elects not to pay the market rate (i.e. the state min wage) for labor. This is quite frankly  nonsensical and not in keeping with the spirit and intent of the federal min wage laws in the forst palce.  As contracting officers we are invested with an obligation to seek fair and reasonable outcomes.  We shouldn't hide behind a regulation or FAR clause to keep from doing what is right. 

I think you might be missing a key point here.  The SCA says contractors must pay at least the DOL wage determination minimum.  Contractors are free to pay whatever they wish.  
 

DOL also makes their wage determination based on gathering data on prevailing minimum amounts.  A big part is assessing what businesses pay.  Considering labor bargaining agreements is another.  So it’s based upon many sources and fleets the going minimum amount.  I don’t understand or see why how DOL didn’t include state minimums though.  Could the state have set that in the past year or so after DOL did their work?

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13 hours ago, NKilgo said:

Jacques, thank you!  Your insights have been most helpful.  The article and the associated case law you cited is right on point.  I don't argue the limitations as expressed in the SCA and -43 clause, nor do I argue the fact that DOL cannot enforce State Minimum wage requirements. However, there is still the matter of the spirit and intent of the federal min wage requirements in the first place.  And from a purely business perspective why would the federal  government want to put a contractor who it chose to enter into  a contract with for a service that it needs to be unsuccessful in staffing it?  This is what can happen by creating an environment to where the contractor cannot obtain the labor needed to execute the contract because the federal gov elects not to pay the market rate (i.e. the state min wage) for labor. This is quite frankly  nonsensical and not in keeping with the spirit and intent of the federal min wage laws in the forst palce.  As contracting officers we are invested with an obligation to seek fair and reasonable outcomes.  We shouldn't hide behind a regulation or FAR clause to keep from doing what is right. After all, the Federal Minimum Wage is just that.... the minimum.  It is certainly appropriate to pay the higher state minimum  wage (as many of you have pointed out) when the facts on the ground (i.e. staffing the project) support doing so.   Thank you all for the discussion! 

NKilgo, please provide some additional information.

First - Are you referring to a situation where a state or local minimum wage exceeded the SCA or D-B wage determination at the time of contract award?  Or are you referring to a situation where a state/local minimum wage increase occurred after contract award for the affected period?

Second- Do you know whether or not the contractor was already paying more than the contract minimum required wage rates?

Third-  what state or local jurisdiction are you referring to?

Fourth - Are you referring to a construction contract or to a service contract?

It is not uncommon these days (and for many years) for federal contractors to have to pay more than the contractually mandated minimum wage rate to attract or retain labor. This is particularly true for construction contracting. The construction market is constantly fluctuating - new projects in the labor area may cause competition for labor availability at any point during the contract period. Labor availability is a risk that construction contractors traditionally have had to face. 

You posted this as a “Beginner”, so I am wondering what the specific scenario is here.

Thanks.

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I did a search under “Do state minimum wage rate increases have applicability to current contracts “

Here is one article that discusses state or local minimum wage increases. 
https://en.m.wikipedia.org/wiki/Minimum_wage_in_the_United_States

Also consider this. Many times state or local wage mandated increases have been under consideration or otherwise anticipated for some time prior to a federal contract award. Since the federal contract clauses don’t address adjustments during a current contract performance period, contractors have to be aware of labor cost markets and cost trends and take those risks into account when pricing a federal contract.

For service contracts, the Federal contract clauses  do provide for some adjustments for additional periods of performance. Updated wage decisions should reflect prevailing local labor area rates but might not be exactly the same.

Of course, when additional work is added or the government causes delays that extend the timeframe for performance, various clauses in construction contracts might provide for cost impacts on the unchanged work as well as new work, compared to what the job would have cost but for the government action.

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Also please note that “fair” treatment  depends upon how the contract and caselaw have allocated risk between the contract parties... A KO doesn’t necessarily have the discretion to alter/change contractually allocated risk, which is generally established by public policy. 

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1 hour ago, joel hoffman said:

Fourth - Are you referring to a construction contract or to a service contract?

@joel hoffman The OP has addressed this in the initial post as the discussion is about 52.222-43 regardless of whether the contract is construction or service.  Likewise as REA is part of the question would not it be after contract award.

On 3/4/2020 at 4:52 PM, NKilgo said:

This just doesn't seem fair to me. 

@NKilgo  You have picked on one cost element of a contract.  I understand the element would be cause for a lions share of the cost in service contract.  While a CO has discretion to entertain a REA for an increase in State Minimum Wage that has occurred after contract award @joel hoffman has raised issues that would be considered.  In re-reading the entire thread this thought occurred to me that I will simply pose a few rhetorical questions for you to consider.  How do you feel about fairness when it comes to such things that might increase on the contractor as well such as fringe benefits (health especially), other costs that might affect a service contract such as fuel increases, travel cost increases - are you willing to accept an REA for them?  Or even flip the coin and what if these costs all decrease, in the spirit of fairness, do you expect the contractor to accept your REA to decrease the contract price?  In the spirit of a contract is there not risks accepted by both sides?

 

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21 minutes ago, C Culham said:
2 hours ago, joel hoffman said:

Fourth - Are you referring to a construction contract or to a service contract?

@joel hoffman The OP has addressed this in the initial post as the discussion is about 52.222-43 regardless of whether the contract is construction or service.  Likewise as REA is part of the question would not it be after contract award.

Carl, thanks for the clarification. And It is probably an increase occurring after award. That is implied in the title of the thread and probably in the OP’s reference to the -43 clause.

However, since the post is in the Beginners forum and the text in actual original post was more general - not specifically citing a post award increase to state or local wage rates, I want to make sure. 

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  • 1 month later...

My initial take is to find a way to make the REA happen...but upon further reflection, do we know that contract pricing was based upon the SCA labor rates? Or particularly care? I think any contractor pricing labor at the bare minimum is taking and accepting the risk that their actual labor rates will exceed that. If they wanted to reduce their risk, they could have priced labor higher, to account for the fact that minimum wages increase (depending on your location), and that the labor market is uncertain.

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