Federal contractors complying with the McNamara-O’Hara Service Contract Act of 1965 (SCA) have a lot to track, including new wage determinations, unique vacation and fringe benefit requirements, the impact of a unionized workforce on the wage and fringe obligations, and notice and recordkeeping requirements. Compliance with the SCA is no small task. Often, contractors get caught up and confused when it comes time to seeking a price adjustment under an SCA-covered contract that incorporates a new or revised wage determination. Below, PilieroMazza breaks down what a price adjustment under the SCA looks like, what pitfalls contractors should watch for to avoid leaving money on the table, and how you can avoid these traps in the future.
The SCA generally applies to government contractors furnishing services on contracts in excess of $2,500 through the use of service employees. Once the applicable Federal Acquisition Regulation (FAR) clauses and wage determinations have been incorporated into a prime contract or subcontract, the SCA requires contractors to pay their employees in compliance with the applicable wage determination, which will either be the prevailing wages and fringe benefits in the relevant locality, or, if the workforce is organized, the wage an fringe benefits under the controlling CBA. Failure to abide by the SCA’s requirements can result in significant backwage penalties, in addition to default, suspension, or debarment.
While avoiding these consequences is important, the SCA and its implementing regulations also provide contractors with a mechanism to seek price adjustments to their contracts. Specifically, a contractor can seek an increase or decrease to the contract price, contract unit price labor rates, or fixed hourly labor rates to reflect the Contractor’s actual increase or decrease in complying with a newly incorporated wage determination.
Contractors can seek these additional costs through either a price adjustment request under FAR clauses 52.222-43 or 52.222-44 or a certified claim, as discussed in greater detail here. A price adjustment is more informal, and attorneys’ fees incurred in helping prepare the adjustment are recoverable under the FAR. Alternatively, contractors can file certified claims under the Contract Disputes Act to seek price adjustments for the new wage and fringe benefit rates. A claim is a more formal path towards recovery that requires specific components like a sum certain and a certification, to name a few. While REAs generally do not have submission deadlines, claims must generally be submitted within six years of the claim’s accrual. If denied, the contractor can then file an appeal to the applicable Board of Contract Appeals or the U.S. Court of Federal Claims per their respective timeliness rules.
The potential pitfalls for contractors seeking a price adjustment under the SCA are numerous. Whether your contract is subject to a CBA wage determination, as opposed to a standard wage determination, whether you have built in escalation to your labor rates (which can disqualify you from an adjustment), and whether you have timely submitted a CBA to the government may all impact your entitlement to and calculation of a price adjustment. The timing and contents of your contract modification incorporating a new wage determination will also determine when you need to submit notice of a claim and whether you have waived your ability to seek an adjustment. Similarly, paying employees in excess of wage determination requirements, or increasing employee rates sooner than required can undermine a request. Ultimately, determining whether a contractor has actually incurred increased costs to comply with new wages and fringe benefits may be more difficult than it seems.
If you have any questions regarding SCA price adjustments, REAs, claims, appeals, or any other government contract dispute, please contact Lauren Brier, Daniel Figuenick, or another member of PilieroMazza’s REAs, Claims, and Appeals, Government Contracts, or Labor & Employment groups. A special thank you to Sarah Nash for her assistance with this blog. Please visit here to see a full list of webinars and blogs in this series
Interested in learning more about the Service Contract Act? Visit here to register for PilieroMazza’s training, “ABCs of the SCA: Critical Path Service Contract Act Training for Government Contractors.”
____________________
If you’re seeking practical insights to gain a competitive edge by understanding the government’s compliance requirements, tune into PilieroMazza’s podcasts: GovCon Live!, Clocking in with PilieroMazza, and Ex Rel. Radio.
