Who Gets Paid What? Davis-Bacon Price Adjustment Depend On the Terms of the Prime and Subcontracts

"The large print giveth and the small print taketh away."

—  Tom Waites, “Step Right Up"

Under the Davis-Bacon Act (“DBA”), the right of both the prime and the subcontractor to a price adjustment, if any, occurs upon the start of option year, extension or new phase of a construction project and is governed by the terms of their contract and subcontract. If a contract is extended in some manner, and a new wage determination (“WD”) is inserted, presumably in an inflationary world, there will be extra unanticipated costs. To deal with this, there are three different contract price adjustment clause “options” identified in the FAR – see FAR sections 52.222-30, -31  and -32. One provision gives a Service Contract Act like inequitable adjustment — i.e., out of pocket cost but no G&A, overhead or profit. Another gives a fixed formula or percentage adjustment. And the third tells the offeror to load the escalation into their bid price, and denies any adjustment for future changes in the WDs. The right to a DBA price adjustment on a construction contract (unlike a Service Contract Act (“SCA”) covered contract), thus, is dependent on the contract bargain and the precise contract clause used therein.  Accordingly, there is no substitute for the adage that you need to read the contract to determine the parties’ rights.

The most that can be generally said is that the pricing methods vary for possible adjustments arising from DBA wage determinations. It can be agreed contractually that there are no price adjustments and thus no overhead, G&A, or profit thereon is recoverable. See FAR 52.222-30.  Or the parties can adopt a special formula or provide that a fixed escalation shall be used. In which case all you get is the fixed formula or percentage set forth in the clause and no overhead, G&A or profit unless otherwise provided. See FAR 52.222-30 or -31. Or the contract can provide that the actual cost method is specified. See FAR 52.222.32. In that event, the clause specifically rejects any recovery for overhead, G&A or profit on the adjustment. See FAR 52.222-32(d). 

What does this mean for with respect to a subcontractor? It means that you should read the prime contract and subcontract and figure out whether any adjustment is provided for, what formula, if any, was designated for a price adjustment, and whether it permits any recovery of overhead, G&A and/or profit. Just because the prime contract provides for an adjustment, however, doesn’t mean the subcontract terms are the same, absent some kind of flow down of the prime contract terms.

Of course, there are always exceptions. The four examples I can think of where overhead, G&A and profit may be recoverable are: (1) if a wrong DBA wage determination is added to the contract and that needs to be corrected during the base term or later; or (2) similar to item 1 above, where a wrong or no WD is incorporated into the contract, and the Department of Labor (“DOL”) pursuant to its October 2023 DBA regulations orders the agency to take corrective action and add the proper WD; or (3) if no DBA price adjustment clause is set forth in the contract or subcontract, but the facts are such that the contractor or subcontractor has some other legal avenue to address the extra costs — cost reimbursement provisions, special language, or standard contract clauses for events like delay of work or changes. In those cases, the adjustment might proceed, for example, under the Changes clause, and that clause allows for a full equitable adjustment inclusive of overhead, G&A and profit. I suppose I should add a cautionary fourth example – where the prime contract was done right, but the subcontract was bollixed up.

In short, it is hard to generalize about DBA-related price adjustments. Unlike the SCA, there isn’t one standard methodology. Whether there is a right to an adjustment depends on the contract terms chosen by the Contracting Officer and the facts which precipitate any claim.