Contractors Must Prove Increased Costs Caused by a New Wage Determination

Under some federal government contracts, the contractor is required to pay its workers a wage dictated by a wage determination issued by DOL. But what if, during contract performance, DOL raises the applicable wages? Under the FAR, contractors can recover their increased costs. Naturally, however, contractors have to prove them.

Before discussing a recent CBCA decision, let’s look at the relevant FAR provision: FAR 52.222-43. Under that provision, the Government will adjust the contract price to reflect a contractor’s actual increase (or decrease, but here we’ll talk only about increases) in applicable wages and fringe benefits to the extent the increase is made to comply with, among other things, a new wage determination applicable for the next renewal option period.

But any adjustment is limited to the increase in wages and fringe benefits and the accompanying increases in social security and unemployment taxes and workers’ compensation insurance; the adjustment won’t include any amount for general and administrative costs, overhead, or profit. If a contractor wants to invoke this clause, it must notify the CO within 30 days after receiving the new wage determination.

Issues relating to this FAR provision arose in a recent CBCA decision: Stobil Enterprise v. Department of Veterans Affairs, CBCA 5698 (Sept. 10, 2019). There, Stobil invoked that clause for increased wage costs. VA determined that it owned Stobil only $21,865.37. Apparently unhappy with this amount, Stobil appealed, contending that VA owed it an additional $95,001.03.

VA mounted three defenses, two of which we’ll discuss.

First, VA argued that the contractor did not provide notice of the new wage determination within 30 days, as required by FAR 52.222-43(f). But CBCA swatted this defense away. A late notice doesn’t defeat a claim for increased costs unless 1) a contract clearly states that an untimely notice will cause the contractor to lose its recovery rights, or 2) the agency can demonstrate that it was prejudiced by a late notice. Neither scenario applied so a late notice didn’t legally impact Stobil’s recovery.

Second, VA argued that Stobil–as the party bearing the burden of proof–didn’t proffer any evidence to support its claim for amounts above the $21,865.87 that the VA had already paid. That argument worked. Indeed, CBCA noted that Stobil’s only evidence for the amount it was allegedly owed consisted of a chart showing the wage rates and hours for Stobil’s employees for the contract period (which Stobil used to calculate its increased costs as $116,866.40). But the chart did not reflect the actual hours worked by Stobil employees.

Stobil’s evidence, in reality, proved nothing. CBCA explained that “by law, any adjustment to the contract price due to increased wage rate and benefit costs is based on the contractor’s actual increases in applicable wages and benefits.” Because Stobil did not present any evidence of its actual cost increases based on new wage and fringe benefits costs, it could not recover the amounts it sought.

Although not discussed directly in the decision, another related issue bears mentioning here. Because FAR 52.222-43 only allows for an adjustment to reflect the “Contractor’s actual increase . . . in applicable wages and fringe benefits,” contractors voluntarily paying more than the amount dictated by a new wage determination can’t obtain an increase. For example, let’s suppose that an operative wage determination requires a contractor to pay her workers $12.00/hour, but because the market demands it, the contractor pays her employees $12.50/hour. Let’s further suppose that a new wage determination is issued that raises the $12.00 wage to $12.50. How much can the contractor recover under FAR 52.222-43? Nothing. Her actual costs didn’t increase because she was already paying that wage to her workers. Of course, if the new wage determination had raised wages from $12.00/hour to $13.00/hour, the contractor would be able to recover the $.50 difference between her costs and the new costs imposed by the revised wage determination.

Overall, this case provides a good reminder to contractors working on contracts subject to wage determinations. If a new wage determination increases your actual costs, then you can recover. But your recovery will be contingent on showing the CO (or CBCA if your claim gets that far) that your costs actually increased. Otherwise, you’re out of luck.

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