Price Adjustment on Firm Fixed Price contract

[CFO]

We have a Firm Fixed Price contract that is not domestic in one country.  A foreign country where the labor comes from raised their minimum labor rate for employees working at this location in the middle of the contract term effective immediate.  We requested an equitable adjustment because this was a labor law change that we have no influence over and it was denied.  Additionally, these employees per the contract had a right of first refusal on contract renewal and the contractor was required and additionally encouraged to keep these employees because they were a workforce significantly paid less than a US citizen.    1) are price adjustments allowed on government contracts?  That was their first reason to deny...we signed a fixed price contract. 2) they said the clause that contractors had to comply with host nation laws was completely the responsibility of the contractor.  The contract is written poorly and references very little FARs; even if they are absent, arent they applicable laws to contract governance?  Arent there certain circumstances, such as laws changing mid-stream that provide an ability to seek a equitable adjustment?

[Vern Edwards]

The only answer I can think to give you is to read your contract and look for any clause that provides for the price adjustment that you want. Off hand, I do not know of any U.S. statute, regulation, or contract clause that would entitle you to a price adjustment based on a change to a foreign labor law. But I do not know what is in your contract.

Others here are likely to ask you for more information about your contract. If you want to answer, have the contract handy.

[C Culham]

 A couple of thoughts....

You do note that the contract has very little FAR's.  Does it have a Disputes clause?  If so and if it is a traditional FAR clause it would provide for a claim that could be elevated above  the contracting officer/agency for a decision.  

Another possibility.   Some FAR based contracts carry an economic adjustment clause related changes in labor costs that are dictated in the United States by labor laws.  As already noted when reviewing your contract and looking for helpful clauses think "economic adjustment" as you review to see if there is any clause that provides for economic adjustment.  If there is none, and not that it would work, but an interesting question, and possibly basis to approach the contracting officer/agency, is a "what if".   What if the contract work was applicable to US labor laws would the agency have put an economic adjustment clause in the contract?  The contracting officer/agency might skirt the question but if they were to say "Yes" you might be able to play on their sense of fairness in your situation and suggest that there should have been one in the contract.

Offered as thoughts as on one hand depending on the the details of the contract I might strongly agree with the position of the contracting officer/agency yet on the other hand your description of the answers seem vague where the contracting officer/agency is not referring to specific clauses (or lack there of) of the contract as to why a price adjustment is not allowed.  The reference to fixed price contract is true but on the other hand and generally a fixed priced contract can be changed by mutual agreement of the parties. 

[Vern Edwards]

48 minutes ago, C Culham said:

The reference to fixed price contract is true but on the other hand and generally a fixed priced contract can be changed by mutual agreement of the parties. 

A contracting officer can agree to a price increase only (1) on the basis of a clause that provides for such an increase or (2) in exchange for some consideration, except as provided in FAR Subpart 50.1.

[C Culham]

1 hour ago, Vern Edwards said:

A contracting officer can agree to a price increase only (1) on the basis of a clause that provides for such an increase or (2) in exchange for some consideration, except as provided in FAR Subpart 50.1.

So don't pound your head or laugh but I wonder.   

"We have a Firm Fixed Price contract that is not domestic in one country."   "The contract is written poorly and references very little FARs..."  

Maybe the FAR is not applicable to the contract in question.   What would make it so, having to have the FAR definitions clause in it?   What if it not?

[ji20874]

Generally, an act of the U.S. Government as a sovereign will not provide a basis for adjustments for FFP contracts -- so it seems to me that the act of a foreign sovereign will not provide a basis for contract adjustments.

The principle is fair, and it works both ways.  On a FFP contract, the contractor would not give a rebate to the Government if it encountered lower costs.  So, costs go up or costs go down -- the price stays the same -- the contractor pays its costs and keeps anything remaining as its profit -- that's the nature of a firm-fixed-price contract.

[Retreadfed]

CFO, are you talking about a Master Labor Agreement in Japan?

[Vern Edwards]

20 hours ago, ji20874 said:

Generally, an act of the U.S. Government as a sovereign will not provide a basis for adjustments for FFP contracts -- so it seems to me that the act of a foreign sovereign will not provide a basis for contract adjustments.

See Kellogg Brown & Root Services, Inc., ASBCA 59385, 20-1 BCA P 37656 (2020):

Quote

Unless the U.S. government assumed the risk of a Djiboutian government supported labor strike against KBR in unmistakable terms, it is not liable for those third party acts. Id. at 1385; see also Zafer Taahhut Insaat ve Ticaret A.S. v. United States, 833 F.3d 1356, 1364 (Fed. Cir. 2016) (addressing Pakistan's closure of its border with Afghanistan, delaying the appellant's delivery of materials, and holding “the U.S. government is not responsible for the sovereign acts of a foreign nation”). 

 

[Vern Edwards]

See also, Yates-Desbuild Joint Venture v. Department of State, CBCA 3350, 17-1 BCA P 36870:

Quote

Although the Government is typically not liable for the sovereign acts of a foreign government, an agency can bind itself through contractual provisions that create warranties to pay damages to the contractor if the foreign government engages in conduct contrary to the agency's warranty. See Swinerton & Belvoir, ASBCA 24022, 81-1 BCA ¶ 15,156, at 74,987-88 (discussing how agency, through warranty, can assume liability for another agency's sovereign acts). Nevertheless, “not all statements in a contract are warranted.” Swinerton & Belvoir, 81-1 BCA at 74,988. Unless YDJV can establish that DOS made warranties about the GoI's permit process that turned out not to be true (to YDJV's financial detriment), “the Government is not liable for damages resulting from the actions of third parties.” Oman-Fischbach, 276 F.3d at 1385 (quoting Dale Construction, 168 Ct. Cl. at 698).