As-Bid Versus Actual Cost Measures for Service Contract Act ("SCA") Price Adjustments

You can't always get what you want
You can't always get what you want
You can't always get what you want
But if you try sometimes, well, you might find
You get what you need

--Rolling Stones

There are two Board of Contract Appeals cases in the last year dealing with the Service Contract Act (“SCA”) price adjustment clause, FAR 52.222-43. Both decisions concerned the difference between the recovery of as-bid costs versus actual costs.

The first case is the Appeal of HD Inc., ASBCA no. 63794 (March 24, 2025), https://www.asbca.mil/Portals/143/Decisions/2025/63794%20HD%20Inc.%20(Witwer)%203.24.25%20Decision.pdf?ver=bQiXHeXf2rSlbWJmYFneow%3d%3d

There, the contractor claimed to have bid CBA rates for the base period of contract performance, in compliance with the SCA, but then bid lower SCA prevailing wage determination rates for the option years. The dispute centered on the second option year, after they had negotiated their own CBA. The contractor wanted to price the adjustment for the second option year using the differential of those new CBA rates to the prevailing rates it put in its bid.

The Armed Services Board of Contract Appeals (“ASBCA”) rejected that claim saying the as bid rates were not controlling. What controlled for option year 2 was the actual wages paid in option year 1. The proper measure of a price adjustment under the SCA clause is “the difference between the wages [the contractor] paid under the [current option year] CBA and the wages paid under the [prior option year] CBA” -- not the difference between the wages the contractor paid under the current option year CBA and the wages the contractor bid for the current option year. That was the only wage and benefit differential that would be subject to a price adjustment.

The lesson is don’t just try to pencil in lower rates in your cost proposal. Such a bidding strategy will just lead to a trail of tears. The result reached by the Board is entirely consistent with decades of advice. But the grounds relied upon by the Board, while correct given the case facts, are nonetheless misleading. The Board suggested that under section 4(c) of the SCA, the contractor is bound to the predecessor’s CBA rates for all the option years of the contract. But that is not DOL’s view. Ordinarily, the contractor is just bound to those rates for the base period of performance. If the successor contractor doesn’t negotiate its own CBA in that period, then section 4(c) has no impact on the option years because there is no valid CBA in place to succeed to in those option years. In that event, the wage determination reverts to the prevailing wage rates. However, if the contractor decides to lower wages and benefits in the option year, the specific terms of the FAR SCA Price Adjustment clauses provide for a downward price adjustment for any wage savings. Accordingly, this is ordinarily a fruitless bidding strategy.

In addition, the contractor claimed to have made a mistake in bid. It was likely unilateral, since the bid did not disclose the wage busting scheme for the option years, so the Government wasn’t even on notice that they intended to pay the prevailing rates thereafter. And the reliance on the SCA Price Adjustment clause to make them whole for the mistake was misbegotten. The language of the clause is limited to actual increase costs required by a new wage determination compared to the actual cost paid in the prior contract period. It never afforded a remedy for this mistake. So, the Board rejected the mistake in bid claim too.

The second recent SCA price adjustment case was Melwood Horticultural Training Center, Inc. v. GSA, CBCA 7989 (December 3, 2024). Melwood, well-known for its “Perfect for the job” TV and radio advertising campaign, had a contract for janitorial services for the GSA HQ building. They wanted to price their costs for the last option year of their contract based on their as-bid proposal, and not their actual costs. In 2023 GSA apparently issued some internal policy guidance memorandum instructing contracting officers to use the actual cost method. Melwood wanted to use the hours it had projected in its bid/proposal to recover its costs rather than the actual hour worked in the prior year. The Civilian Board of Contract Appeals (“CBCA”) held: “Any price adjustment proposed must be grounded in the contractor’s actual incurred costs, not the costs the contractor proposed that it would incur when it agreed to the contract.” Therefore, the parties should use the hours actually worked during the prior contract period to calculate the SCA price adjustment.

None of this is revolutionary. I am not saying there isn’t some older and confusing case law. An, change the facts and you could alter the results. .For example, if the agency in its solicitation sets the hours or pay rates for the work, then those instructions may override the actual cost rules. However, otherwise, the FAR 52.222-43 clause says “actual.”. And thus “actual” costs and hours are what you get. Boards have ruled similarly in the past, but this rule of law bears repeating.