unscrupulously cutting workers' wages and fringe benefits. The SCA works well as a “floor” to prevent the erosion of wages and benefits.
The Federal Acquisition Regulations (“FAR”) require the Government to include the SCA Price Adjustment4 clause in service contracts that contain the SCA clause. The purpose of the Price Adjustment clause is to provide a method for contractors to recover cost increases in hourly labor rates and fringe benefits imposed upon them by the Department of Labor, Wage and Hour Division, in future Wage Determinations.
This Price Adjustment Clause was the subject of discussion by the United States Court of Appeals for the Federal Circuit (the “Court”) in Lear Siegler Services, Inc. vs. Donald H. Rumsfeld, Secretary of Defense, No 06-1080 decided on July 28, 2006. Lear Siegler Service, Inc. (“LSI”) was awarded a Firm Fixed Price (“FFP”) contract to perform aircraft maintenance at Sheppard Air Force Base, Texas. The contract contained the SCA clause with a wage/benefit determination and the Price Adjustment Clause,“which required the Government to pay LSI for increases in applicable fringe benefits made to comply with the Wage Determination.”
LSI had a collective bargaining agreement requiring the company to provide its employees with a defined-benefit health plan. LSI had sought a price adjustment for increased...
costs to fund the plan during an option year. The Air Force denied the request. LSI appealed to the Armed Service Board of Contract Appeals (“ASBCA”), who decided in favor of the Air Force, and LSI appealed again. The Court reversed the ASBCA.
LSI had succeeded Lockheed Martin as the prime contractor and, under the “successor-contractor” rule, inherited the CBA from the predecessor contractor. Of course, it succeeded itself-the “regulations make clear that the term 'wage determination' includes a CBA-defined benefit level.”5
The Court rejected the Government's argument that the Price Adjustment Clause is activated by an increase in benefits rather than by increased costs of providing those benefits.
The Court stated that “the clause6 does not address increases in the nature of the contract's requirements, but rather the effect on the contractor, which logically can only refer to changes in cost.” Next, the Court indicated that there was an “equivalency of fringe benefits to be measured not in terms of value to the employee, but cost to the employer.” The regulations refer to the equivalency of the fringe benefits and cash benefits, which means they are equal in terms of cost to the contractor.7
