The case of the price adjustment clause | Whitcomb Selinsky, PC

In this case, the Armed Services Board of Contract Appeals (ASBCA) decided the case of the Calls from Sonoran Technology and Professional Services, LLC, ASBCA No. 61040. The ASBCA deals with contract disputes that arise between government contractors and the Department of Defense, among other federal agencies. Here, both parties have agreed to ASBCA Rule 11, which allows for a decision without a hearing. As the case involved a small business with less than $150,000 in question, the appellant requested an expedited hearing under ASBCA Rule 12.

Background

On April 24, 2014, Sonoran Technology and Professional Services, LLC (Sonoran) won a contract with the United States Air Force (Air Force). The contract provided for “training and related services for F-16 aircrews” at two different air bases (AFBs), Luke AFB in Arizona and Holloman AFB in New Mexico.

The contract specified requirements for wage determination and a collective bargaining agreement (CBA). In order to bid for the contract, Sonoran had to confirm that its labor costs were aligned with “minimum wage and benefit rates. . . required for covered contractor personnel.

The contract included certain provisions of the Federal Acquisition Regulations (FAR). Among these provisions were:

FAR 52.222-41, Service Contract Labor Standards;

FAR 52.222-43, Fair Labor Standards Act and Service Contract Act – Price Adjustment (Multi-Year Contracts and Option Contracts);

FAR 52.229-3, Federal, State, and Local Taxes; and

FAR 52.243-1, Changes – Fixed Price.

Sonoran has commenced execution of the contract, in accordance with CBA wage determination and controls. Sonoran’s revenues increased and, initially, New Mexico tax liability increased comparably. But after New Mexico implemented two tax rate increases, Sonoran’s tax liability rose significantly. Sonoran alleged that the increased tax liability “could not be calculated at the time of the bid or the award of the contract”.

On June 3, 2015, Sonoran submitted a Request for Equitable Adjustment (REA), taking into account the increased cost of performing the contract under the collective agreement and determining wages.

On September 25, 2015, the government amended the contract, increasing the price to reflect Sonoran’s increased costs. But the government did not provide compensation for the increased tax liability in New Mexico. The contracting officer did not believe that the contract allowed Sonoran such compensation.

On October 28, 2016, Sonoran proposed a new REA, requesting a price adjustment to account for increased tax liability in New Mexico. The government rejected Sonoran’s revised REA, leading Sonoran to appeal to the ASBCA.

ANALYSIS

Sonoran argued that FAR 52.222-43 (price adjustment clause) or FAR 52.243-1 (modification clause) requires the government to reimburse the increased tax payable in New Mexico.

The ASBCA first considered Sonoran’s argument under the price adjustment clause. The wording of the clause provides that any adjustment “shall be limited to increases or decreases in wages and benefits. . . social security and unemployment contributions and work accident insurance. But the clause also specifically excludes increases for “general and administrative expenses, overhead or profit.”

Referring to its decision in a similar case – All Star/SAB Pacific, JVASBCA #50856 – ASBCA said the price adjustment clause does not allow increases based on state tax liability.

The ASBCA then highlighted the differences between price adjustment and modification clauses. Unlike the price adjustment clause, the Changes clause does not provide a formula for calculating price adjustments. Otherwise, the two clauses would needlessly overlap and create a confusing path for remedies. Accordingly, any price adjustment would be governed in accordance with the Price Adjustment Clause.

Accordingly, the ASBCA dismissed Sonoran’s appeals.

DO YOU NEED LEGAL ADVICE FROM AN EXPERIENCED GOVERNMENT LAWYER?

Navigating the ins and outs of government contracts can be a challenge. There are various regulations and legal considerations involved, which can make it difficult to understand what to do. But a knowledgeable government attorney can make all the difference in helping you avoid pitfalls and resolve any issues that may arise.

Eleanor C. William