No Service Contract Act Price Adjustment for Amounts Paid In Excess of the Prevailing Wage

“You miss 100% of the shots you don’t take” – Wayne Gretzky

Just over two years ago, Abrahams Wolf-Rodda published a blog on the Civilian Board of Contracts Appeal proceedings in Stobil Enterprise v. Department of Veteran’s Affairs, CBCA 5698, Sept. 10, 2019. In that blog, we discussed the effect of a waiver clause included in a contract modification, as well as the low evidentiary standard to prove that a contractor deserves an adjustment. You can view that blog here: https://www.awrcounsel.com/blog/2019/9/26/late-notice-does-not-preclude-a-sca-price-adjustment-but-feeble-proof-will-bar-the-claim?rq=stobil. 

There, the contractor, Stobil Enterprises (“Stobil”), was providing dietary and housekeeping services at a Veteran Affairs (“VA”) facility in San Antonio. Stobil submitted a request for equitable adjustment for cost increases as a result of defunct equipment they received, as well as for increase in wage rates due to increases in the prevailing wage rates and fringe benefits. This was all amidst an investigation that determined Stobil owed significant back wages to its employees.  That case was resolved with a finding against Stobil. However, Stobil filed a pro se appeal to the Federal Circuit under 28 U.S.C. § 1295(a)(10) and a decision was recently reached in Stone v. Secretary of the Air Force, Case No. 2020-1233, slip op. (Fed. Cir. 2021).

In front of the appellate court, Stobil made many of the same arguments. After the VA determined that Stobil was owed $21,865.37, Stobil believed that it was owed almost two million dollars which was made up of “(a) the $95,001.03 difference between his requests for an adjustment and the adjustment of $21, 865.37 that the VA paid him, (b) accompanying increases in social security and unemployment taxes and workers' compensation insurance, (c) administrative costs, (d) harm and damages, and (e) interest.” Most of these costs were rejected save the original $21,865.37 that the VA originally determined that they owed Stobil. The primary purpose of this blog is to explain why Stobil’s request for $95,001.03 for the difference between his request for adjustment and the $21,865.37 was rejected.

To understand this, we look to Federal Acquisition Regulation (“FAR”) 52.222-43. This is the FAR Service Contract Act (“SCA”) Price Adjustment clause. It states that contractors are allowed an adjustment "to reflect the Contractor's actual increase . . . in applicable wages and fringe benefits to the extent that the increase is made to comply with…” the applicable SCA Wage Determination. It is under this provision that Stobil requested an adjustment for wage rate increases. But notice that 52.222-43 allows for an adjustment to reflect the Contractor’s actual increase in wage rates. This caused an issue in the previous proceeding that we covered. In the proceeding in front of the Civilian Board of Contract Appeals, Stobil attempted to prove the increase in costs to its operation by submitting projected wage rate data using a similar matrix that the Department of Labor uses to calculate back wages. This was rejected because it showed projected costs rather than actual costs. Interestingly enough, the subject of this appeal to Federal Circuit Court of Appeals discusses the same provision of FAR 52.222-43.

Here, the issue is that Stobil claimed the difference between the wage rates from the previous wage determination and the new wage rates. Except, Stobil wasn’t paying its employees the wage rates from the previous wage determination. Instead, Stobil was paying its employees more money than they were owed under the previous wage determination. Therefore, Stobil’s actual difference in wages was the difference between the wages Stobil paid and the wages mandated by the new wage determination, not the difference between the old wage determination and the new one. The court pointed to this example in the FAR to show how the calculation should be done:

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[.]

FAR 52.222-43(d). 

This is an important lesson for contractors working on SCA covered contracts. Contractors are only allowed to claim their actual increase in wage rates if the SCA price adjustment clause is included in their contracts. Contractors who pay more illustrate the maxim that no good deed goes unpunished. Stobil made this mistake twice in two different ways. Both errors are instructive. When submitting a request for equitable adjustment, contractors need to submit their pricing data reflective of their increased costs rather than submitting pricing data that projects their increased costs. Additionally, it’s important to realize that not all wage increases under SCA covered contracts are subject to price adjustments. Many employers pay higher than average in order to gain a completive advantage recruiting talented employees but will not receive a price adjustment for those costs. So, unless the contractor is willing to eat those costs, they need to price that into their proposal during the bidding stage. As the quote says at the beginning of this blog “[y]ou miss 100% of the shots you don’t take” and Stobil took as many shots at this claim as they could. However, sometimes it’s not about the quantity of shots, but the quality. 

For more information or to read the opinion for yourself, please see it here: https://www.govinfo.gov/content/pkg/USCOURTS-ca13-20-01233/pdf/USCOURTS-ca13-20-01233-0.pdf.