Government Contracts Contractor Granted Price Adjustment for Higher Labor Costs
Tuesday, March 10, 2020

Contractor Granted Price Adjustment for Higher Labor Costs

By Government Contracts Editorial Staff

A contractor was entitled to a price adjustment under FAR 52.222-43 for increased labor costs associated with a collective bargaining agreement executed after the government exercised an option, the Armed Services Board of Contract Appeals has ruled, because the contracting officer failed to provide the 30-day notice of the option exercise required by FAR 22.1010(b). The contractor was awarded a base civil engineering services and operations management contract with a two-month transition period and five one-year option periods. During the transition period, the predecessor contractor continued to be responsible for contract performance, and the service employees covered by the prior contract’s CBA agreed to become the contractor’s employees at the start of the first option period. The government provided the contractor notice of its intent to exercise the first option but did not provide the 30-day written notice to the union collective bargaining agent as required by FAR 22.1010(b), and the government and the contractor executed a bilateral modification exercising the first option. The contractor and union agreed to a new CBA after the start of the first option period, and the contractor sought an equitable adjustment for the increased costs payable under the new CBA.

Notice Required. The government argued the new CBA was “consummated” too late to be incorporated in the first option period and the notice requirement did not apply, because the contractor did not employ service employees during the transition period. However, for the purpose of the FAR 22.1010 notice requirement, the contractor was the “incumbent contractor” even though it had no service employees when the government exercised the option. Further, Tecom, Inc. (01-1 BCA ¶31,156) and Raytheon Service Co. (86-3 BCA ¶19,094) provided precedent that, without the mandatory 30-day notice, the contractors were entitled to price adjustments even though the new CBAs were consummated during the option period. Although Tecom and Raytheon involved unilateral, not bilateral, option exercises, the manner of exercising the option was an immaterial distinction. Without the CO’s timely notice of the exercise of the option to both the incumbent contractor and the collective bargaining agent, the deadlines in FAR 22.1012-2(b) for providing the government notice of the new CBA did not apply, and there was “no restriction against incorporation of a new or changed CBA received after contract award” (Tecom).

Dissent. Judge Clarke dissented based on the belief that the FAR 22.1010 notice requirement did not apply to a bilateral option exercise. Based on the FAR 2.101 definition of an option as the government’s unilateral right to extend a contract, the dissent concluded that the term “option” as used in FAR 22.1010 and the other provisions cited by the majority means an option exercised unilaterally. (Alutiiq Commercial Enterprises, LLC, ASBCA, ¶95,939)

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