Wage Determination Clauses Can Bite You
What is the spookiest and scariest story for a government contractor? How about a story where the government imposes an expense on a contractor, but doesn’t allow for consideration of this expense in the contract value? So, in layman’s terms, losing money (profit) on government contracts. In a recent ASBCA decision, this is exactly what happened.
A recent ASBCA split decision (Gulf Pacific Contracting, LLC 21-1 BCA ¶37,928), found that even though FAR 52.222-6, Construction Wage Rate Requirements, required the contractor to pay its workers “rates not less than those contained in the wage determination of the Secretary of Labor” the contract also contained FAR 52.222-30 – Construction Wage Rate Requirements-Price Adjustment (None or Separately Specified Pricing Method), so no adjustment to the contract could be made.
When signing a contract with the Federal Government it is imperative that the contractor understand all the contract clauses and how some clauses work with or against other clauses. Both Construction and Service contracts come with wage determination clauses requiring the contractor to pay its employees minimum amounts for wages and benefits. The teeth that can bite the contractor (ok – let’s say vampire teeth as it is Halloween) is that depending on how the contractor bid option periods can limit the contractor’s ability to get an adjustment for the increased cost when those wage determination rates are increased by DOL.
If the contractor proposes escalation on the labor for option periods, it gives up its ability to get an adjustment to the contract price for future wage determination impacts.
Deciding whether to propose escalation or not is not a simple decision. There are risks and rewards to work through. If the contractor does not propose escalation the contract price adjustment is limited to only the impact of the wages and benefits – no overhead, G&A, or profit is allowed. If the contractor does propose escalation, overhead, G&A, and profit is allowed in the proposed price.
While we are not saying every contracting officer is a monster out to get you, Federal Government contracts are complex (yes, the contracts are the monsters with big teeth).
What this tells us is that all contracts must be reviewed from beginning to end. Contracting officers often simply reference a long list of FAR contract clauses. Go read the text of those clauses as a team (HR and Contracts) – don’t get bitten.
Redstone GCI is Here to Help
Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations and supporting contractors through contract award. We work extensively with contractors subject to wage determinations and can assist with compliance associated with HR, Contracts and Accounting, specific to these types of contracts. We would be happy to be part of your team.
John is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to the DFARS business systems, CAS Disclosure Statements, and DCAA/DCMA compliance preparation, advisory, and defense. Prior to joining Redstone Government Consulting, John served in a number of capacities with DCAA/DCMA for more than 30 years. Upon his retirement, he was based in Texas as an SES-level Corporate Audit Director for DCAA, managing a staff of 300 auditors at one of the largest DOD programs. Professional Experience John began his career in the late 80s working in the Clearwater, FL audit office and over the next three decades he progressed through a number of positions within both DCAA and DCMA with career highlights as DCAA Program Manager at Ft. Belvoir, Chief of Technical Programs Division, Deputy Assistant Director-Policy, Director of the DCMA Cost and Pricing Center, the SES-level Lockheed Martin Corporate Audit Director, and Director of Integrity and Quality Assurance. John’s three decades of experience in performing and leading DCAA auditors and DCMA reviewers provides a wealth of expertise to our clients. John’s role, not only in the performance of audits, but also in the development of audit policy affords him unique insights into the defense of audit findings and the linkage of audit program steps to the underlying regulatory framework. He is an expert in FAR, DFARS, and other agency acquisition regulation, as well as a subject matter expert in the Cost Accounting Standards having reviewed and provided audit feedback on many of the largest and most complex cost accounting practices during his tenure with the DCAA. John’s tenure with DCAA and DCMA came at a critical time during each agency’s history where a number of changes were occurring such as the response to the ICS backlog, development of audit approaches to the DFARS Business Systems and implementation of new audit initiatives as a result of Congressional oversight through the NDAA process. John’s leadership at the DCMA Cost & Pricing center saw oversight of all major DOD pricing actions, leadership of should cost review teams, the Commercial Pricing group and many other areas of strategic value to our clients. His involvement in these and other Agency initiatives is of great value to our clients due to his in depth understanding of DCAA and DCMA’s internal policy directives. Education John holds a Master of Business Administration and a B.A. in Accounting from the University of South Florida. Certifications Certified Information Systems Auditor State of Alabama Certified Public Accountant