“Look to my coming on the first light of the fifth day, at dawn look to the east.” – Gandalf the White, The Two Towers.

A cardinal rule of the Service Contract Act (“SCA”) price adjustment body of law is thou shalt not receive an adjustment during the base year of a fixed price contract. The SCA price adjustment clause only provides for price adjustments after the incorporation of an updated wage determination or CBA in the option years. This rule is set out in FAR § 52.222-43(d) which allows for an adjustment for the increase in actual costs as a result of Department of Labor (“DOL”) wage determination applicable on the anniversary date of a multiple year contract or at the beginning of the renewal option period. Id at 52.222-43(d)(1). This can cause problems for contractors who negotiated a CBA in the middle of an option year and are obligated to pay those wages before they are actually entitled to the price adjustment. The fixed priced contract is supposed to include any labor costs the contractor expects to incur during the base period of performance. 

However, in certain situations, there is a remedy. Often overlooked, a contractor can be entitled to a full equitable adjustment if the contracting agency changes the contract after deciding either that the SCA does apply to the contract, or if they add a wage determination in the base year of the contract after performance has begun. Instead of the SCA price adjustment clause being the operative provision, the contractor need only look within the Changes clause of their own contract. Here is what Federal Acquisition Regulation (“FAR”) § 22.1015 says about it:

If the Department of Labor discovers and determines, whether before or after a contract award, that a contracting officer made an erroneous determination that the Service Contract Labor Standards statute did not apply to a particular acquisition or failed to include an appropriate wage determination in a covered contract, the contracting officer, within 30 days of notification by the Department of Labor, shall include in the contract the clause at 52.222-41 and any applicable wage determination issued by the Administrator. If the contract is subject to 41 U.S.C. 6707(f), the Administrator may require retroactive application of that wage determination. The contracting officer shall equitably adjust the contract price to reflect any changed cost of performance resulting from incorporating a wage determination or revision.

As you can see, this clause includes mandatory language by stating that the contracting officer “shall equitably adjust the contract price”. Id.

This type of adjustment materially differs from the SCA price adjustment clause in two ways. The first is as stated above; a contractor can receive this adjustment in the middle of the base year of the contract. The second is that this type of adjustment is a full equitable adjustment. The SCA price adjustment clause allows for what is often called an inequitable adjustment because it effectively precludes contractors from recovering G&A, overhead and profit on adjustments that are processed during the option years. The term “equitable adjustment” (such as used in the Changes clause) has been interpreted to include profit.  See Ralph C. Nash, Government Contract Changes, at 17-10; see also Bruce Constr. Co. v. United States, 324 F.2d 516 (Ct. Cl. 1963).  There must be a reason why the authors of the FAR used the term "equitable adjustment" in some clauses and only "adjustment" in others.  The SCA Price Adjustment clause gives only an “adjustment.”  The Changes clause gives a full “equitable adjustment.”

There is ample case law to back this up. In Professional Services Unified, Inc. ASBCA No. 45799, 94‑1 BCA ¶ 26,580, 1993 WL 531529 (1993), the original contract included a wage determination, but an incorrect one.  The contracting agency cured that problem by substituting the correct WD at some point during the base year of the contract.  The Armed Services Board of Contract Appeals held in that case: 

Since no clause in the contract limits the amount of any price adjustment reflecting changes in wages and fringe benefits applicable to the basic contract period, we hold that appellant is entitled to be compensated for indirect costs and profit as part of the equitable adjustment provided for increased minimum wages and fringe benefits for the base year.

There are other cases clearly allowing a complete equitable adjustment under the Changes clause since Professional Services. See, e.g., Schleicher Community Corrections Center, Inc., DOTCAB No. 3067, 02-BCA ¶ 31,902 (contractor entitled to an equitable adjustment including profit for the post-award incorporation of a WD), W.G. Yates and Sons Constr. Co. v. General Services Administration, 2011-1 B.C.A. (CCH) P234,638 (Dec. 21, 2010) (with regard to the addition of a Davis-Bacon Act wage determination).  This is a firmly established rule of law.  

Accordingly, these are different methods of obtaining adjustments that apply in different circumstances. It is possible that a request for an adjustment or a certified claim should argue for compensation under both the SCA price adjustment clause, for costs incurred in the option years, and under the Changes clause pursuant to FAR § 22.1015. For base period changes, look to the Changes clause as the contractor can obtain a full equitable adjustment for at least the base year period, which includes overhead, G&A and profit.