Claims for CBA Negotiation Costs Are Not In Time and Not Subject to Any Price Adjustment In Fixed Priced Contracts
“How did it get so late so soon?”
― Dr. Seuss
In the case of Just In Time Staffing v. United States, No. 16-1268 2019 WL 2427072, (Fed. Cl. June 11, 2019), the court considered five claims related to an assertion that the Government was responsible for the cost a contractor incurs when negotiating a CBA. The plaintiff, Just In Time Staffing (“JITS”), was providing medical clerks and other administrative services to a medical center in Fort Hood, TX. The contracting officer (“CO”) allegedly instructed JITS to negotiate a CBA with its employees and represented that any reasonable increase in the cost of the contract would result in a modification. JITS claims that the cost of negotiating the CBA should be included in the contract modification along with any increase in employee wages or benefits; the Government disagreed.
The court starts out analyzing its own jurisdictional ability to review the claims. They dispensed with several claims including a cardinal change claim, a breach of good faith and fair dealing claim, and a duty to disclose superior knowledge claim purely because the Request for Equitable Adjustment did not contain enough information to give adequate notice of the claim. (Apparently, Just In Time was not in time with those claims.) All three of the rejected claims had not been presented to the CO in the claim and so the court did not have jurisdiction to decide them.
The Court of Federal Claims thus was only willing to weigh in substantively on two of the five claims made by JITS. The first argument made was that JITS, in negotiating a CBA with its employees, performed an inherently governmental function, and should be reimbursed the cost of the negotiation process including any legal fees incurred. The Federal Acquisition Regulation (“FAR”) clause 7.503(a) states that the United States cannot contract ordinarily with private contractors to perform inherently government functions. These functions are defined as functions that are “so intimately related to the public interest as to mandate performance by Government employees” FAR 2.101. It seems that JITS latched on to other descriptive language suggesting that negotiating with its own employees was the “exercise of discretion in applying government authority, or the making of value judgments in making decisions for the Government…” Id. JITS was essentially arguing that its own employees were Government employees, and that by negotiating with them JITS was negotiating on behalf of the government. Part of this argument was that the Government would have had to bear the cost of the negotiation under FAR 52.222-43, therefore they would be exercising cost discretion on behalf of the Government.
The Government argued that the National Labor Relations Act imposed an independent duty on employers to negotiate with their employees, and since it was the plaintiff’s employees and not Government employees who attempted to unionize, JITS was responsible to negotiate. The court agreed with this assessment because the employees were not under the same control or supervision usually found in employment relationships with the Government. Furthermore, the court said that the Government already exercised its discretion by including the SCA/FLSA Price Adjustment clause in the contract, and that clause contractually limited the type of costs recoverable by the contractor.
JITS made the second claim that the requirement to negotiate was a constructive change to the contract. A constructive change argument must include facts that show the contractor performed work beyond the contract requirements and that the additional work was ordered by the Government. The court dispensed with this claim because JITS could not satisfy either of these prongs. JITS argued that the legal expenses were a result of the Government’s failure to provide support, and that negotiating therefore was a governmental function and beyond the original contract requirements. The court once again determined that JITS had not performed a governmental function and that it had a duty to negotiate with its own employees. Since JITS could not allege performance of extra contractual work, or that the work was ordered by the Government, the court dismissed this claim.
The decision in this case maintains the status quo regarding FAR price adjustments for the increased costs of labor. While the law is constantly being pushed in new directions and its scope is tested, the plain meaning of the regulations invoked here made the court’s decision on this novel claim for reimbursement a comparatively easy call. FAR 52.222-43 does not expressly include reimbursement for the cost of negotiating a CBA and neither did JITS argue that it meant to. Furthermore, 29 U.S.C. §158(d) (the provision of the National Labor Relations Act imposing a duty on the contractor to negotiate with labor organizations) expressly requires employers to negotiate with their employees, which effectively negates any argument that negotiating with your own employees is something the Government should do. JITS also did not support its second claim that the Government ordered JITS to negotiate the CBA. This argument was likely always doomed to fail since their was an independent legal duty to negotiate with the workers. Combined with the omission of the arguments in the initial Contract Disputes Act claim, probably the most important lesson here is that if a claim was not included in the initial filing with the contracting officer, then the court or a board may have no jurisdiction to decided it, with a few exceptions not pertinent here.
The decision maintains the long-established practice of limiting the FAR price adjustment clause to its plain language – covering the increased costs of wages and fringe benefits of the contractor’s employees and certain enumerated payroll taxes.