Air Force Contractor’s Reimbursement For Increased Labor Costs Denied

It is crucial to stick to the terms of a solicitation when you submit a proposal on federal projects, writes Matthew C. Gurr of Davis Wright Tremaine. This is doubly true concerning applicable wage rates on service contracts.

The dispute Gurr analyzes, HD Inc., ASBCA 63794, stemmed from a U.S. Air Force contract awarded to HDI for groundskeeping services at Moody Air Force Base.

The solicitation issued by the government contained a wage determination that reflected the prevailing wages and benefits for the contract, as well as a collective bargaining agreement between the contractor, HDI, and its service employees.

The collective bargaining agreement did not include wage rates for every employee position, but for those it covered, the wages were higher than the government’s wage determination.

The solicitation didn’t require bidders to specify the labor rates used in proposal calculations. HDI based its base-year proposal on the collective bargaining agreement, which included wage increases subject to reimbursement via Requests for Equitable Adjustment (REAs), but utilized Department of Labor wage rates for future option years.

After the government exercised the contract’s first two option years, HDI negotiated new collective bargaining agreements with increased wages and submitted REAs.

The government granted only partial reimbursement, prompting HDI to file a certified claim.

The Armed Services Board of Contract Appeals ruled that HDI’s reimbursement should be based on the increase between the first and second collective bargaining agreements, not the difference between HDI’s proposal (based on DOL rates) and the later collective bargaining agreement.

This case highlights the binding nature of collective bargaining agreements under the Service Contract Act and the necessity of aligning proposal pricing with all applicable wage standards.

Contractors that inherit collective bargaining agreements must factor those terms into their proposals to avoid reduced cost recovery during contract performance.