"No Fair” – Construction Contractor Predictably Loses Price Adjustment Claim

“Who says life is fair, where is that written? “

-- William Goldman

Life is not fair. That is a lesson we all learn at a young age. And it is a lesson that a small construction contractor, Pacific Dredge & Construction LLC just re-learned  in performing a Davis-Bacon Act (“DBA”) covered  construction contract.

In a small claims expedited procedures case involving $44,606.39, the Armed Services Board of Contract Appeals (“ASBCA” or “Board”) in a decision which “shall have no precedential value” decided that the contractor was not entitled to a price adjustment for the inclusion of a new wage determination in the option year. The decision cannot be found at the ASBCA website, but it is available at 2022 ASBCA LEXIS 105.

Pacific Dredge was a re-run of sorts of another recent case known as Gulf Pac. Cont., LLC, ASBCA 61434, 2021-1 BCA 37,928. We covered that case in an earlier blog: https://www.awrcounsel.com/blog/2021/10/20/no-second-bite-at-the-apple-asbca-holds-that-contractor-cant-recover-under-far-52222-30-for-increase-in-davis-bacon-act-wages?rq=Gulf%20.  In Gulf Pacific, the Board panel found by 2-1 decision there could be no adjustment  if the contract contain the standard DBA clause set forth in FAR 52.222-30. According to the ASBCA,  the contractual provision for the “NONE” method  precludes the adjustment of the contract price under the changes or any other REA general clause. In Pacific Dredge, the ASBCA panel said that holding is controlling even if it is “harsh .… unwise and somewhat unfair” as aptly suggested in 35 Nash & Cibinic Rep. NL P 70.  

Basically, there is a menu of three different DBA price adjustment FAR clauses to choose from in assembling a firm fixed-price construction contract. If the contracting agency chooses the “NONE” method, then the contractor is supposed to factor that into its price proposal and escalate costs in the option years to cover the expected inflationary impact of the increased wages and benefits set forth in an updated wage determination. Woe be it to contractors who either don’t understand this obligation or who mess up the risk assessment and underprice any escalation. In an inflationary world of 8 to 9 percent CPI inflation, they apparently are just out of luck and have to eat the increased costs of performing that construction contract. So, it is particularly important to read and understand which DBA price adjustment clause is in your option year contract and what other pricing terms it may have, like an economic price adjustment clause, for example.

Of course, this trap for the unwary is particularly a DBA fixed-priced construction contractor problem. Other types of government contractors are not so limited, at least ordinarily. For supply contractors there are no new Walsh-Healey Act wage determinations so there is no specified requirement that results in escalated costs beyond the Fair Labor Standards Act or applicable state minimum wages. And for service contractors, the Service Contract Act (“SCA”) FAR provisions have no similar clause to the “NONE” method. Under  the SCA , a contractor in Pacific Dredge’s shoes would be entitled to a price adjustment for the increased cost arising in the option year as a result of the insertion of a new wage determination. That SCA price adjustment thus would include the extra wage and fringe benefit costs, but no overhead, General and Administrative (“G&A”) cost, or profit. Accordingly, this is a largely unique problem for fixed-priced construction contractors -- and given the variety of DBA price adjustment clauses possible, not even every construction contractor.