What Happens When There Is No SCA Wage Determination In a Contract?

“Absence of evidence is not evidence of absence.”

--Carl Sagan

When a  Service Contract Act (“SCA”) wage determination (“WD”) is omitted from a covered Government service contract and then added into the contract after award, that triggers a right to a price adjustment under the Changes clause, which adjustment includes overhead, G&A and profit. The Department of labor (“DOL”) regulations and the Federal Acquisition Regulation (“FAR”) make it crystal clear that the agency must fix the error of an omitted WD.  

The DOL regulation requires the contracting agency to include the omitted wage determination in the contract and equitably adjust the price. See 29 C.F.R. 4.5(c)(1) and (2) (“the contracting officer shall, pay any necessary additional costs, …[and] include in the contract any wage determination…”). The FAR is equally explicit. See FAR 22.1015 (“the contracting officer shall equitably adjust the contract price to reflect any changed cost of performance resulting from incorporating a wage determination…”).  

The leading case law for this proposition includes Lockheed Support Systems v. U.S., 36 Fed. Cl. 424 (1996), which cites Professional Services Unified, Inc., ASBCA No. 45799, 94 1 BCA ¶ 26,580, 1993 WL 531529 (1993). In both cases, where the agency modified the contract after award in the base term of the contract and added either SCA clauses and/or WDs, the courts and the Boards have found that to be a contract change. 

As such, any price adjustment is not calculated from FAR 52.222-43 or-44 clauses, which only apply in the option years or in multiyear contracts after two years of performance. The key difference between the SCA price adjustment clauses and the Changes clause is that the former do not permit G&A, overhead or profit. The SCA price adjustment clauses provide for a limited price adjustment exception to fixed price contracting which allows certain costs only – increased wages fringe benefits, social security and Medicare taxes, and other payroll taxes. Not all costs are recoverable under the SCA price adjustment clauses.  

The Changes clause, in contrast, provides for a full equitable adjustment in price, a process that is supposed to make the contractor whole for the costs of the change order. That includes all the costs covered by the SCA price adjustment clauses, plus any additional out of pocket costs arising because of the change order. It can include, for example,  the cost of legal counsel to advise on SCA compliance and to help process the modification, the cost of an outside expert to calculate the equitable adjustment, internal extra payroll expenses, and the cost of any related foreseeable activity arising from the change, including costs related to  working with US Department of Labor to implement the SCA related back wages or benefits which may be due.  

If there is no SCA WD in either the prime contract or the subcontract, then under the SCA all the contractor has to pay is not less than the Fair Labor Standards Act (“FLSA”) minimum wage, currently $7.25 an hour. See 29 C.F.R. 4.6(d)(1). This means that the contractor or subcontractor should be paid for any increased wages or benefits above those already being paid, provided that the contractor or subcontractor is paying in accordance with its bid or proposal.  So the full extra incremental cost of the increase in SCA wages is supposed to be borne by the Government, and the costs of adding the new WD are supposed to result in equitable price adjustments to both prime and subcontractors.