Price Adjustment:
Under the Service Contract Act, Changing Prices in Government Contracts
In recent years, the majority of Government contracts have been issued for services. A large number of those contracts contain the prescription that the contract is subject to the Service Contract Act (“SCA”).1
Under this Act, the contractor is required, to pay service employees a minimum wage and specified fringe benefits. The hourly rate is set forth in a document called a Wage Determination that is issued by the Department of Labor. The contractor may pay a wage higher than the minimum rate in the Wage Determination, but not less than the
prevailing rate.
Generally, contracts with the Government for which the principal purpose is to furnish services with a value in excess of $2,500 and that require the use of five (5) or more service employees will contain a contract clause imposing the SCA on the prime contractor.2 In addition, the service contract will contain the clause that authorizes a price adjustment to the contract by reason of an actual increase or decrease in applicable wages and fringe benefits.3 The wage adjustment is activated when the contractor receives a new Wage Determination from the Department of Labor to replace the original Wage Determination.
The contractor is required to notify the Contracting Office within thirty (30) days after receiving the new Wage Determination of any increased cost or decrease in cost, and to submit a claim for the change.
The SCA contract clause is applicable to the prime contractors and all subcontractors performing a service contract whether they have a Collective Bargaining Agreement (“CBA”) or not.
The SCA is designed to protect workers' wages and fringe benefits, and to prevent contractors from underbidding each other by...
