Heed the Lesson – Service Contractor Misses an Opportunity to Fix a Problem During Collective Bargaining.

“Therefore, send not to know

For whom the bell tolls

It tolls for thee.” 

--John Donne

One of my first blogs upon starting Abrahams Wolf-Rodda, LLC back in February 2018 was about a pension tail liability case known as Call Henry. https://www.awrcounsel.com/blog/2018/2/19/the-government-contractor-pension-withdrawal-liability-the-sca-trap?rq=Call%20Henry. Well, Henry got called yet again in a recent case at the Armed Service Board of Contract Appeals, BAE Systems Technology Solutions & Services Inc. (“BAE”), ASBCA nos. 63218, 63219 (ASBCA July 29, 2024), https://www.asbca.mil/LinkClick.aspx?fileticket=dUmFF1WPdRU%3D&portalid=143 . But first a little more background.

In Call Henry the Court of Appeals for the Federal Circuit found that pension withdrawal liability payments made by a contractor to a collectively bargained union managed fringe benefit plan were required by federal pension laws. They were not a change in the fringe benefit requires of the CBA- based wage determination. Accordingly, they were not required by the contract terms. Specifically, FAR 52.222-43 and -44, special Service Contract Act (“SCA”) price adjustment clauses, only require a price adjustment for increased wages and fringe benefits “made to comply with a wage determination,” but do not cover increased costs required by other laws (besides the Fair Labor Standards Act minimum wage). Thus, in Call Henry, the pension payment reimbursement was disallowed.  

The solution to this conundrum which I proposed in my 2018 blog at the time was include special provisions in your CBA which parallel the federal laws and made them into the contractual terms of the CBA. Back in 2018, I wrote as follows:

Thus, the answer to the Call Henry case is for contractors and unions to formally incorporate provisions for pension withdrawal liability in their CBAs and to expressly define the withdrawal payment as a fringe benefit. Such a payment thus would be similar to the severance benefits specified in many CBAs and found in the past by the boards of contract appeals to be bona fide SCA fringe benefit payments. However, whether that would satisfy the Government, boards or courts in any future dispute remains uncertain given the absence of discussion of the issue in Call Henry and the ambiguities in the Federal Circuit’s reasoning.

Id.

Just this year, in 2024, I finally had a chance to litigate (and partially win on entitlement)  a case which proved this point, when the ASBCA found in that a state government mandated sick leave benefit was subject to a SCA price adjustment because the state law requirement was expressly set forth in the terms of the CBA, which had become the wage determination under section 4(c) of the SCA. See Amentum Services, Inc. ASBCA nos. 63250 et seq. (ASBCA Feb. 5, 2024).

Enter this summer of 2024, and the ASBCA was faced again with the Call Henry pension tail liability issue. The unionized contractor, BAE, made a good faith run at some new theories about why it should recover the pension monies, but the ASBCA fell back on the Federal Circuit precedent. The Board found:

Here, the FAR price adjustment clause allows the government to adjust the contract price when the contractor must comply with “[a]n increased or decreased wage determination otherwise applied to the contract by operation of law,” i.e., the CBA. FAR 52.222-43(d)(2). The wage determinations applied to the SSPARS contract did not require BAE use the union’s pension plan or pay MPPAA withdrawal liability and therefore the Air Force did not breach the contract when it failed to pay these costs. See Call Henry II, 855 F.3d at 1356.

BAE, slip op. at 17 (emphasis added).

There you have it. The devil as always is in the details of how you draft your CBAs. Under section 4(c) of the SCA, the CBA becomes the wage determination. This gives the contractor a remarkable tool to extract price adjustments from the Government on fixed price contracts. But the tool is a dull instrument unless the CBA is carefully and creatively crafted. BAE (like most all government contractors ) failed to heed the warning signals. They didn’t require payment of the pension tail liability in the CBA. That likely would have been a term that the union would have assented to. However, it is likely no one thought of it.

Most government contractors give their collective bargaining duties over to management personnel and traditional labor lawyers who spend little time thinking about price adjustments. They simply are not pondering how to craft agreements that add to the company’s bottom line for price adjustments. Their job often is to control costs, deal with the employee demands, and make their customers happy. As with many contractor business dealings, it is probably time for the traditional labor folks to either get better acquainted with the SCA, or to add personnel with SCA-related expertise to their teams. As the BAE case illustrates, just a little advanced planning may have changed the results. Of course, I am talking my own “book” here.