Service Contract Act Price Adjustments: When Is It Too Late To Submit?
Time has come today
Young hearts can go their way
Can't put it off another day
I don't care what others say
They say we don't listen anyway
Time has come today
--The Chambers Brothers, Time Has Come Today
Under the Service Contract Act (“SCA”), for each option year or extended period of performance, the contracting agency is supposed to add new wage determinations (“WDs”) to the contract and ask the contractor to submit a price adjustment for any increased cost of paying higher wages and fringe benefits. This is a limited exception to the usual rules of fixed priced government contracting. As such, some contracting officers have tried to interpret the rules strictly and use them to forfeit contractor rights if no timely notice of the costs are submitted, or if there are delays in claiming the price adjustment. This blog explores the limits of those rules.
a. The FAR only requires that notice be given 30 days after receipt of the new wage determination.
The Price Adjustment clause incorporated into a fixed price or labor hour service contract, FAR 52.222-43 provides that “The Contractor shall notify the Contracting Officer of any increase claimed under this clause within 30 days after receiving a new wage determination, unless this notification period is extended in writing by the Contracting Officer.” FAR 52.222-43(f). FAR 52.222-44 has a similar 30-day notice provision, albeit keyed to the start of the option year period. Thus, the controlling regulation and contract clause gives the contractor 30 days to notify the Government of any increase.
b. The day which the CO issued the modification does not count toward the 30 day period.
While the FAR52.222-43 requires notice 30 days from the receipt of the new wage determination, that period of time likely does not include or count the day of receipt. But there is no general rule expressed in the FAR setting forth the calculation of timing for deadlines. This means we must look to other sources of authority to interpret the FAR. One obvious analogous place is the Board of Contract Appeals rules. For example, the Civilian Board Contract Appeals (“CBCA”) Rule 3(c) provides that “the day from which the designated period of time begins to run shall not be counted. The Armed Services Board of Contract Appeals (“ASBCA”) has a similar provision, as do the Government Accountability Office (“GAO”) regulations. See ASBCA Rule 33(b) (“In computing any period of time, the day of the even from which the designated period of time begins to run shall not be included…”); 4 C.F.R. 21.0(d) (“the day from which the period begins to run is not counted”). And the federal court rules confirm the same practice. See, e.g., Fed. R. Civ. P. 6(a)(1)(A) (“exclude the day of the event that triggers the period”).
c. The FAR does not necessarily require a complete breakdown of all costs in 30 days.
FAR 52.222-43(f) states only that “The contractor shall notify the Contracting Officer of any increase claimed under the clause….” The requirement of the FAR clause is to notify the Government and is not a requirement that the contractor must compile and submit the full certified claim in 30 days. Having said that, FAR 52.222-43 does require the contractor notice to contain a statement of the amount of the claim, the hourly differential sought, and any relevant supporting materials, so the Government may want a more robust notice than the contractor is in position to give.
A more relaxed approach to submission of costs is consistent with how the Changes clause treats claim costs. The Armed Services Board of Contract Appeals (“ASBCA”) has previously held that a notice for a changes claim is sufficient where it places the recipient “on notice that extra costs are involved” and does not require that these costs be broken down into specifics. Here is what the Board said:
AURA concedes that three of the four change quotations filed by appellant in connection with the shutter assemblies were timely. According to AURA the fourth quotation was untimely because it did not seek an extension of time or delay costs. A claim notice is sufficient if it places the recipient on notice that extra costs are involved. There is no requirement that these costs be specified as to direct or delay costs. Appellant did inform AURA that additional costs were involved. This notice was sufficient to protect appellant's right to raise the question of entitlement to delay costs in this appeal.
M.M. Sundt Constr. Co., ASBCA No. 17475, 74-1 BCA ¶ 10,627 (emphasis added).
d. A Contracting Officer’s request for Sunday notice by law becomes an extension until Monday.
The CBCA, ASBCA, and GAO regulations, as well as the Federal Rules of Procedure for judicial matters all provide that if the last day of a submission deadline falls on a Saturday, Sunday, or federal holiday, the submission period shall be extended till the next regular business day. CBCA Rule 3(c) (“the last day of the period shall be counted unless that day is a Saturday, a Sunday, or a federal holiday”); ASBCA Rule 33(b) (“the last day of the period shall be counted unless it is a Saturday, Sunday, or Federal legal public holiday”); 4 C.F.R. 21.0(d) (“when the last day of the period is a Saturday, Sunday, or Federal holiday, the period extends to the next day that is not a Saturday, Sunday, or Federal holiday”); Fed. R. Civ. P. 6(a)(1)(C) (“include the last day of the period, but if the last day is a Saturday, Sunday, or legal holiday, the period continues to run until the end of the next day that is not a Saturday, Sunday, or legal holiday.”) Accordingly, if the final day of the 30 day period expires on a week-end or federal holiday, the notice still would be timely if received the next working day.
e. Even untimely notice should not bar a price adjustment.
Boards of Contract Appeal do not apply notice provisions “mechanically” and notice provisions will not be strictly enforced unless the government demonstrates that it was prejudiced by the late notice or the contract itself “clearly states that the contractor will lose rights” because of an untimely submission. See Riggs Nat’l Bank of Washington, DC v. Gen. Servs. Admin., GSBCA 14061, 97-1 BCA ¶ 28,920; Air Masters Corp. v. Gen. Servs. Admin., GSBCA No. 16237, 04-2 BCA § 32,688.
In fact, the General Services General Services board of Contract appeals (“GSBCA”) has applied this standard specifically to the 30-day notice provision of this exact provision of FAR 52.222-43(f). In Air Masters, GSBCA found that the contractor’s failure to provide notice within 30 days under FAR 52.222-43 was not sufficient to establish “prejudice” to the Government and declined to grant summary judgment based on the notice provision of that clause. Air Masters Corp. v. Gen. Servs. Admin., GSBCA No. 16237, 04-2 BCA § 32,688. In so doing, the GSBCA emphasized that the contract did not provide the sort of express warning that would be required for strict application of the notice provision. Compare id. with Universal Development Corp. v. General Services Administration, GSBCA 12138, et al., 93-3 BCA ¶ 129,739 (Clause stating “Failure to submit the request on a timely basis will constitute a waiver by the lessor of his rights to a tax adjustment...” was sufficient to justify strict enforcement of notice provision.); see also Bataco Industries, Inc. v. United States, 29 Fed. Cl. 318 (1993) (contract expressly stated that failure to submit written request for price increases within 180 days after final shipment of supplies would waive contractor's entitlement to price increases).
In absence of express language warning that the contractor will lose rights for late submission, the Government would only be able to strictly enforce the notice provision if it can demonstrate that it was prejudiced by the delay. See Riggs Nat’l Bank of Washington, DC v. Gen. Servs. Admin., GSBCA 14061, 97-1 BCA ¶ 28,920; Air Masters Corp. v. Gen. Servs. Admin., GSBCA No. 16237, 04-2 BCA § 32,688. The Government must demonstrate any prejudice related the contractor’s late submission. In Air Masters, the GSBCA found that the Government had not demonstrated prejudice for an untimely submission that was nearly one year late. See Air Masters Corp. v. Gen. Servs. Admin., GSBCA No. 16237, 04-2 BCA § 32,688. Where the contract modification has not yet been implemented and any alleged delay just served as an interest free loan to the Government, it is unlikely that Government could demonstrate any prejudice.
Moreover, the approach taken in Air Masters with regard to the notice provisions of FAR 52.222-43(f) is consistent with the approach the Court of Claims and other Boards of Contract Appeal have taken to notice provisions generally. See Hoel-Steffen Construction Company v. United States, 197 Ct. Cl. 561 (1972) (holding that strict compliance with 20-day notice provision was not required where Government officials were aware or should have been aware of the facts giving rise to the claim); M.M. Sundt Constr. Co., ASBCA No. 17475, 74-1 BCA ¶ 10,627 (holding that the 30-day notice requirement under the Changes clause does not bar an untimely claim absent a showing of prejudice); see also Gibbs Shipyard, Inc., ASBCA No. 9809, 67–2 BCA ¶6499 (“This Board has held many times that a delay claim will not be rejected for lack of timely notice unless the Government was prejudiced by the lack of notice.”); Milcom Prods., Inc., ASBCA No. 9948, 66–1 BCA ¶5371 (“refusal to consider a late claim is justified in general only, where the Government is prejudiced by late submission.”).
These same rules were applied most recently by the CBCA in Stobil Enterprise v. Department of Veterans Affairs, CBCA 5698, 19-1 BCA ¶ 37,428. There, the Board held that failure to notify the contracting officer of any increase in wages and fringe benefits within 30 days of receiving a new wage determination does not defeat a contractor’s claim under the FLSA/SCA Price Adjustment clause (FAR 52.222-43), unless a contract clearly states an untimely submission will cause a contractor to lose rights, or unless an agency can demonstrate it was prejudiced by a late notice. However, by law, any adjustment to the contract price due to increased wage rate and fringe benefit costs is based on the contractor’s actual increases in applicable wages and benefits. Thus, under the applicable regulation, the contractor in Stobil could not receive the amount that it sought because it placed no evidence in the record of the actual hours worked by its employees. The contractor asserted that it did not need to prove actual hours because DOL used projected hours to calculate back wages due to employees. However, the contractor produced no evidentiary support for that assertion either.
f. There can be no untimely notice if the Government fails to give the notice to both the Union and the Contractor required by FAR 22.1010.
The FAR imposes on the Government a notification duty that is owed to “interested parties under collective bargaining agreements.” FAR § 22.1010. Interested parties are the incumbent contractor (or subcontractor) and the collective bargaining agent of the covered service employees. Notice of the contracting action must be provided in writing “at least 30 days in advance of the earliest applicable acquisition date or the applicable annual or biennial anniversary date” of the contract. If this notice is not provided, the Contractors’ notice deadlines evaporate. This is because FAR § 22.1012-2(c) provides that the contractor’s duty to provide notice of a new CBA will “apply only if timely notification required in 22.1010 has been given.”
It is this point that Alutiiq Commercial Enterprises, LLC, ASBCA no. 61503 (Jan. 9, 2020) so clearly embraces after one sifts through the convoluted facts. https://www.asbca.mil/Decisions/2020/61503%20Alutiiq%20Commercial%20Enterprises,%20LLC%2001.09.2020.pdf. When performance began, the contractor and the union representing the service employees working on the contract had not cemented the terms of a new CBA. Indeed, the workers went on strike when the option period commenced. A new deal wasn’t reached until five months later, at which time the contractor sent the CBA. The contractor later sought a price adjustment to cover the increased costs of performance under the new CBA.
The Government rejected the contractor’s request because notice of the CBA was, in its view, at least five months overdue under FAR § 22.1012-2. The Board, however, ruled that, even though the contractor plainly was aware of the impending option period and had, indeed, executed a bilateral modification, the Government never provided the notice of the impending option exercise to the union as required by section 22.1010. The failure to fulfill this procedural technicality proved fatal to the Government’s position. The Board’s decision boiled down to this:
Having failed to provide the 30-day notice required by FAR 22.1010(b) to [the contractor] and the collective bargaining agent . . . , the time-of-receipt limitations set forth in FAR 22.1012-2 do not apply. Accordingly, we conclude that [the contractor] is entitled to a price adjustment under FAR 52.222-43 for the increased labor costs associated with the new CBA executed after the option was exercised.
Alutiiq, slip op. at 19.
Indeed, the Alutiiq case is consistent with the prior case law. See Tecom, 01-1 BCA ¶ 31,156 at 153,902; Raytheon, 86-3 BCA, ¶19,094 at 96,527. It also represents the unequivocal views of the Air Force Labor Advisor (“Advisor”). For example, the Advisor stated in a training presentation that notice under FAR 22.1010 “’starts [the] clock on timeliness deadlines set forth in FAR 22.1012-2.” See An Overview of Collective Bargaining Agreements and the Service Contract Act at slide 12 of 17; see also id. at slide 17 (setting forth references including “FAR 22 – Especially 22.1010!” (italics added)). The Advisor has also instructed that FAR 22.1010 requires that notice be given “to both the contractor and the union stating (1) the date a contract is expected to be awarded or option/extension exercised and (2) the date performance will start on the new contract period.” See Air Force Labor Advisors Office, Labor Notes – A Newsletter for Air Force Contracting Personnel on Contract Labor Standards and Contractor Labor Relations, at 2 (emphasis in original) (newsletter dated April 2016 ). Further, the “[n]otice must be given at least 30 days prior to the earliest of these dates.” Id. (emphasis in original). If the notice is not given, the Advisor warns that the “[f]ailure to send the notice can make the Air Force liable for the contractor’s labor cost escalation.” Id.
In short, if the Government fails to give the proper FAR 22.1010 notice to the contractor and/or union, there is no restriction against incorporation of a new or changed CBA received after contract award or the start of the option year period. By law, if the Government doesn’t perform its duties, then changes in the CBA cannot be deemed to be late.
Conclusion
The case law has made it abundantly clear that the FAR price adjustment clause 30-day notice requirement is not interpreted strictly and that the Government can only use untimely notice under this FAR provision as an absolute defense if it can show some prejudice, or because the Government has set forth some contract timeliness provision explicitly to the contrary. And any such special contract provision, to the extent it varies the standard FAR clause, arguably requires an approved FAR deviation to be operative. The FAR clause itself only requires notice in 30 days. As a general rule, thus, the FAR notice requirement under the SCA for a price adjustment isn’t interpreted strictly to work a forfeiture on the contractor.