Passing the Buck: Price Adjustment for New CBAs for SCA Covered Work

"The Buck Stops Here"

--Made famous by Harry S. Truman 

You get a notice from workers that they want to unionize for the first time under a Service Contract Act (“SCA”) covered contract. Naturally, you wonder what impact that  unionization effort will have on your performance of the work and your profitability on the fixed price contract.  

The answer is it will have much less impact than you may think. The SCA is a piece of pro-unionization legislation, and it endeavors to minimize the cost impact on the contract and to make the government subject to paying a price adjustment for the wages and fringe benefit increases set forth in any agreement, provided they are negotiated at arms-length and not at substantial variance to the wages and benefits prevailing in the locality. (I will save the latter to topics for another day and blog.)  

Here are the general rules. The SCA regulations require that the Department of Labor (“DOL”) issue a new wage determination (“WD”) prior to the exercise of a contract option, on the annual anniversary date of a multi-year contract subject to annual appropriated funds, and every two years in the case of a multi-year contract not subject to annual appropriated funds. See 29 C.F.R. §§ 4.4, 4.145. When the new WD is incorporated into a contract, the fixed priced contractor is entitled to a price adjustment for increased wages and fringe benefits caused by the new WD. FAR §§ 52.222-43 and 52.222-44.   

Under section 4(c) of the SCA, the new collective bargaining agreement (“CBA”) negotiated by a prime or subcontractor can become a new SCA WD and displace the prevailing WD. Thus, it is possible for the contractor to get a price adjustment as long as they are mindful of the traps. They can pass the “buck” to the U.S. Government! 

The short answer is that they get a price adjustment provided that they time the increase correctly and give timely notice of their new CBA terms to the government By timing it correctly, I mean they should time the CBA wage and benefit increases to correspond to either the option year renewals or the contract’s two year anniversary date. And by notice, I mean they should get the new CBA physically in the hands of the contracting officer not less than 30 days before these key dates (albeit there are some exceptions).  And there are other many other potential traps, like don’t negotiate double time premium overtime because that is not picked up by the SCA price adjustment clause.  

The bottom line is that the contractor can recognize the union, enter into a new CBA, but they should time CBA increases in wages and benefits to correspond with the next prime contract option year, or multi-year funded contract anniversary date.