Ordinarily, a party that signs a CBA after bidding on a government service contract, cannot pay less than the minimum wages and benefits set forth in that CBA come the next option year. And the price adjustment they are entitled to is based not on any lower bid price, but instead on the actual increased or decreased cost between the base year pay and the new option year pay. For that reason, the ASBCA got to the right result in a recent case. Albeit, the ASBCA also oversimplified the actual workings of section 4(c) of the SCA and how new CBA becomes binding on successor contractors. If there is no new CBA negotiated, it is possible that the SCA prevailing wage rates may displace the CBA rates in the option year, a situation the ASBCA appears to have ruled out. The occurrence of this event, however, doesn’t mean the contractor will get an upward adjustment in price. Indeed, if the contractor lowers the wages, then the Government gets a downward adjustment. And if the contractor increases the wages, they don’t get an “as bid” adjustment. They just get the differential between the old and new rates actually paid.

A recent decision issued by the Armed Services Board of Contract Appeals highlights how contractors might be forced to take a loss if they underbid their offers to perform service contracts.

Employers furnishing Service Contract Act (“SCA”) compliant plans are advised to fully pay for the benefits, rather than require employees to contribute part of the expense. That applies to medical plans and 401K plans. This is more likely to assure that the workers can be compelled to take the benefit plans and cannot demand cash out of the bona fide benefits. You can’t compel SCA covered workers to contribute their own money to the benefit plan, and if you do try to do so, you provide an opportunity for workers to opt out and demand cash fringe benefits, which will cost the employer possible additional FICA, Medicare, FUTA, SUTA, and worker’s comp. payroll taxes.