Should Government Contractors Get Price Adjustments for State and Local Laws Mandating Higher Minimum Wages – Yes, No, Maybe?

“Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where—” said Alice.
“Then it doesn’t matter which way you go,” said the Cat.
“—so long as I get somewhere,” Alice added as an explanation.
“Oh, you’re sure to do that,” said the Cat, “if you only walk long enough.” —

—Louis Carroll, Alice in Wonderland, Chapter 6

I have been a resident of Montgomery County, MD since I was 12 years old with some interim stops in college dorms in New York and a law school apartment in Virginia.  And our Abrahams Wolf-Rodda, LLC has an office in Potomac Village, MD in the Bank of America Building. So, my local roots go deep.

Accordingly, I am well aware that the People’s Republic of Montgomery County is a suburban Blue State, affluent, and highly educated jurisdiction. As such, it has very worker friendly minimum wage and living wage laws. It is also an expensive place to live, and the County has its own authority from the State of Maryland to push up its minimum wage beyond the federal or state labor standards. For example, effective July 1, 2024, the County minimum wage rose to $17.15 for large employers (i.e., those with 51 or more employees). Montgomery County, MD,--  like the District of Columbia, places in the States of California and Washington, and other  progressive jurisdictions -- now requires minimum wages which may exceed the federal prevailing wage required to be paid by Federal Government contractors performing low skilled work within its geographic boundaries.  

As we blogged back on January 18, 2023 (and even before then), as the federal minimum wage remains in the cellar, the state and local government minimum wages sometimes escalate and even exceed the Service Contract Act (“SCA” ) prevailing wage rates. See, e.g., https://www.awrcounsel.com/blog/2023/1/11/beware-state-minimum-wage-increases-sometimes-exceed-the-sca-rates-and-the-contractor-minimum-wage?rq=state%20minimum%20; and https://www.awrcounsel.com/blog/2021/8/23/catch-22-no-contractor-price-adjustments-for-state-minimum-wage-increases?rq=state%20minimum%20. They thus form a big trap door for contractors performing low skilled work like janitorial, maintenance and food service contracts.

Well, along comes a recent decision from the Civilian Board of Contract Appeals (CBCA”) on April 23, 2024, to remind us of the price adjustment rules or lack thereof for state and local minimum wage increases. The case involves a contractor called Didlake, Inc., who had a multi-year janitorial contract with the General Services Administration (“GSA”) to work at the Food & Drug Administration’s White Oak campus in Montgomery County, MD. Eventually, the County’s minimum wage was raised in March of 2023 to $15.65 an hour. The SCA wage determination in the contract had a $15.40 rate for janitors, so it lagged behind the County minimum wage. The contractor had bid the SCA minimum wage and the higher local wage requirement was not anticipated.

Citing two of my own past cases, the CBCA notes that “[u]nder the SCA, and later the SCLS, contractors are ‘obligated to pay their service workers the prevailing wage rates as set forth either in a wage determination issued by the [DOL] or in an applicable collective bargaining agreement.’” Being a case of first impression for the CBCA of whether a county wage rate should prevail over a Department of Labor (“DOL”) wage determination, the Board proceeded to analyze the SCA price adjustment clause provisions.

The Board concluded that:

Didlake’s obligation to abide by the county minimum wage—or any number of other Federal, State, or local requirements—exists by virtue of its choice to conduct business in a particular field of business and in geographic areas subject to a local minimum wage. However, the terms of the GSA contract itself limits Didlake to a different wage standard altogether, the applicable DOL prevailing wage determination incorporated into the contract.

Id. at https://www.cbca.gov/files/decisions/2024/SHERIDAN_04-23-24_7769__DIDLAKE_INC%20(DECISION).pdf. The Board then proceeded to deny the contractor’s claim for money.

While the Civilian Board of Contract appeals mentions the ”operation of law” provisions of the SCA Price Adjustment clause, it limits it application sub silentio to SCA wage determination increases, and it doesn’t analyze or explain why the Montgomery County minimum wage wasn’t also a determination of the wages required by local law and thus mandated by operation of law, albeit state law.. Notably, the FAR price adjustment regulation just says, “wage determination” and not “the Department of Labor wage determination” as referenced earlier in the regulation. And neither has the Armed Services Board of Contract Appeals addressed this operation of law issue when they denied state law based claims. Both boards have denied state law based claims while avoiding addressing the operation of law language right in the regulation which arguably provides for a price adjustment. Moreover, if operation of law provision doesn’t covered these facts, then what exactly was it meant to cover,  since the previous paragraph of the regulation already covers the new SCA wage determination? See FAR 52.222-43(d) (1) and (2). I have always thought the CBCA’s reading makes the operation of law provision mostly meaningless.

Moreover, it is still perhaps possible for U.S. Government contractors to seek price adjustments for increases in state or local minimum wages, if such increases are also  expressly required by the terms of their collective bargaining agreements (“CBA’s”). GSA here argued that the Montgomery County minimum wage was an independent requirement and not “coterminous” with the SCA price adjustment clause requirements. However, if the obligation to raise for state and local minimum wages is set forth in the CBA, and the CBA has become the SCA wage determination under section 4(c) of the Act, then the increase is thereby called for by the SCA wage determination. As such, it is “coterminous” with the price adjustment clause. Accordingly, this is yet another reason why the SCA, a piece of pro-union legislation, nonetheless has some advantages for employers/contractors. They may yet get to pass on their increased wages and fringe benefits if those requirements are set forth in the CBA.

If you want to know how this would work, take a look at the 2024 ruling in Amentum Services, Inc., ASBCA 63250 et seq., reprinted at https://www.asbca.mil/LinkClick.aspx?fileticket=DI6HA4SElAQ%3D&portalid=143  (Amentum had a CBA which stated in part: “Personal medical leave will be granted in accordance with …all state of California and federal laws.”). Thus, a state law COVID-19 sick leave mandate became a CBA requirement, an SCA wage determination, and was incorporated into the U.S. Government contract. Yes, contractors can recover some COVID-19 costs in certain circumstances. The Amentum case is still being litigated, so we will be saying more about that case when it is concluded.