              ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of--                                  )
                                             )
Government Contracting Resources, Inc.       )      ASBCA No. 59162
                                             )
Under Contract No. NNK080B12C                )

APPEARANCE FOR THE APPELLANT:                       Jennifer M. Miller, Esq.
                                                     Wyrick Robbins Yates & Ponton LLP
                                                     Raleigh, NC

APPEARANCES FOR THE GOVERNMENT:                     Scott Barber, Esq.
                                                    NASA Chief Trial Attorney
                                                    Charles Alexander Vinson, Esq.
                                                     Assistant Chief Counsel
                                                    Miata L. Coleman, Esq.
                                                     Trial Attorney
                                                     Kennedy Space Center, FL

               OPINION BY ADMINISTRATIVE JUDGE MELNICK

        In this appeal, appellant, Government Contracting Resources, Inc. (GCR), seeks
additional compensation for severance costs it incurred, along with its subcontractor,
after its contract with NASA expired. It claims entitlement under the FAR 52.222-43,
FAIR LABOR STANDARDS ACT AND SERVICE CONTRACT ACT-PRICE ADJUSTMENT
(MULTIPLE YEAR AND OPTION CONTRACTS) clause. The parties have chosen to
proceed solely upon the record submitted, pursuant to Board Rule 11. Only
entitlement is before the Board for decision. The appeal is sustained.

                                FINDINGS OF FACT

        1. On 11 July 2008, NASA awarded the firm-fixed-price contract referenced
above to GCR for the distribution of mail at the Kennedy Space Center (R4, tab 2
at 64). The contract had a base year and four option years (R4, tab 2 at 68, 88). The
contract incorporated by reference the FAR 52.222-41, SERVICE CONTRACT ACT OF
1965, AS AMENDED (JUL 2005) clause, and the FAR 52.222-43, FAIR LABOR
STANDARDS ACT AND SERVICE CONTRACT ACT-PRICE ADJUSTMENT (MULTIPLE
YEAR AND OPTION CONTRACTS) (Nov 2006) clause (R4, tab 2 at 103).

     2. GCR subcontracted work with Creative Management Technology, Inc.
(CMT), and began performance on 1 October 2008 (app. br. at 2; gov't resp. at 6;
compl. and answer~ 2). NASA exercised all contract option periods, and GCR
completed all contract work (compl. and answer~~ 4, 12).

       3. Contract Modification No. 008, dated 15 September 2009, incorporated by
reference into the contract a collective bargaining agreement (CBA) between GCR,
CMT, and the International Association of Machinists and Aerospace Workers
(IAMA W), effective 1 April 2009 and expiring 31 March 2012 (R4, tab 2 at 10-11;
supp. R4, tab 12). 1 The CBA granted severance pay to those employees with 6 months
or more of service with either company, or predecessor contractors, at the employees'
current rates of pay when laid off for a period exceeding 30 days because oflack of
work. The CBA dictated the length of time an employee received severance based upon
length of service. However, the CBA relieved GCR from paying severance to any
employee hired by a successor contractor to a position requiring similar skills, or to
perform greater responsibilities, within 30 days of the end of their employment. (Supp.
R4, tab 12 at 36-37)2 On 23 October 2012, Modification No. 41 incorporated into the
contract an updated CBA between GCR, CMT, and IAMAW, dated 1April2012 and
expiring 31 March 2015. The severance terms of the updated CBA are virtually
identical to the previous version. (R4, tab 2 at 56-57; compl. ex. 1 at 1, 36-37)

        4. In August 2013, GCR learned that, upon expiration of the contract, NASA
did not intend to award the contract again on the same terms. Instead, NASA would
award the mail work to a program that employed blind and disabled workers.
(Albritton decl. ~ 13 3) Subsequently, the Anthony Wayne Rehabilitation Center,
NASA's awardee for the successor contract, sent a letter to GCR notifying it that five
of GCR/CMT's union employees would be hired (R4, tab 3 at 97; Albritton decl.
~ 15). Accordingly, on 28 August 2013, GCR notified NASA that 13 union employees
would be entitled to severance pay under the CBA, and GCR would be submitting a
Request for Equitable Adjustment to NASA for the associated cost (R4, tab 3 at 5). In
a Request for Equitable Adjustment dated 30 September 2013, GCR elaborated that 6
of the 13 unemployed workers had worked for it, while 7 had been employed by CMT.
GCR stated that its total liability was $105,443.82 and CMT's was $108,755.18,
totaling $214,199.00 that GCR sought from NASA (R4, tab 5 at 2-3). On 6 November
2013, NASA denied the equitable adjustment (R4, tab 4 ).


1
    The government relies upon a document included with the solicitation to contend
       that the relevant CBA terms applied to this contract from the time of its award.
       However, that document is merely an unsigned draft of a CBA between the
        IAMA W and another company (R4, tab 8 at 110).
2
    Page numbers referred to are at the bottom center of each page.
3
    On 11 July 2014, GCR proffered the declarations of Michael Albritton and
       John M. Aldridge, Jr. The declarations were admitted into evidence on
       2 September 2014 and are maintained in the Board's correspondence file.

                                            2
       5. After GCR's contract expired, GCR and CMT laid off 18 bargaining unit
employees. Five were hired by the successor contractor, leaving 13 eligible for
severance payments. (Albritton decl. ~~ 17-18) GCR and CMT made severance
payments to the 13 CBA severance eligible employees in October and November 2013
(app. supp. R4, tab 1O; Albritton decl. ~~ 18-20).

        6. At the time GCR submitted its proposal for the contract, it did not know if
the contract would be re-awarded following expiration. Nor did GCR know who
would be selected as a successor contractor, how many of GCR's employees would be
hired by a successor, or how long those individuals would have previously been
employed. GCR "did not include any actual, potential, contingent or speculative costs
for the payment of severance compensation in its price proposal for the Contract."
(Albritton decl. ~ 12)

       7. On 12 November 2013, GCR, through counsel, on behalf of itself and CMT,
submitted a certified claim for $214, 199 to the NASA contracting officer for the
severance payments they made to laid off employees pursuant to the CBA (R4, tab 3).
The contracting officer denied the claim in a decision dated 13 January 2014 (R4, tab 1).
By letter dated 12 February 2014, GCR filed a timely notice of appeal from the final
decision. The parties then elected to submit the entitlement portion of the appeal upon
the record without a hearing, pursuant to Board Rule 11 (Bd. corr. ltr. dtd. 19 May 2014).

                                      DECISION

       Under the Service Contract Act, most government service contracts, such as
this one, contain clauses protecting workers' wages and fringe benefits. They do this
by incorporating Department of Labor (DOL) minimum wage orders, or wage
determinations, for each class of service worker employed in a locality, and require
contractors to pay those determinations to their workers. 41 U.S.C. § 6703;
FAR 52.222-4l(c). Additionally, contractors are subject to a rule that requires
successor contractors not to pay less than a predecessor paid under its CBA.
FAR 52.222-41(f); Lear Siegler Services, Inc. v. Rumsfeld, 457 F.3d 1262, 1266-67
(Fed. Cir. 2006); see also 29 C.F .R. § 4.1 b.

        This service contract is also subject to FAR 52.222-43, FAIR LABOR
STANDARDS ACT AND SERVICE CONTRACT ACT-PRICE ADJUSTMENT (MULTIPLE
YEAR AND OPTION CONTRACTS) (Nov 2006) (Price Adjustment Clause) (finding 1). It
states the following in pertinent part:

              (a) This clause applies to both contracts subject to area
             prevailing wage determinations and contracts subject to
             collective bargaining agreements.



                                           3
                (b) The Contractor warrants that the prices in this
              contract do not include any allowance for any contingency
              to cover increased costs for which adjustment is provided
              under this clause.

               (c) The wage determination, issued under the Service
              Contract Act of 1965, as amended ... Wage and Hour
              Division, Employment Standards Administration, U.S.
              Department of Labor, current on the anniversary date of a
              multiple year contract or the beginning of each renewal
              option period, shall apply to this contract.. ..

                (d) The contract price or contract unit price labor rates
              will be adjusted to reflect the Contractor's actual increase ...
              in applicable wages and fringe benefits to the extent that
              the increase is made to comply with ...

               (1) The Department of Labor wage determination
              applicable on the anniversary date of the multiple year
              contract, or at the beginning of the renewal option period.

As the Price Adjustment Clause states, the applicable DOL wage determination applies
to the contract at the beginning of each renewal period, and the contract's price will be
adjusted when the contractor has to increase what it pays to comply with that
determination. Contending that the wages and fringe benefits required by a CBA are a
DOL wage determination, GCR seeks increased compensation for the severance
payments that both it and CMT were required to make after contract expiration. GCR
relies upon the Board's decision in ARCTEC Services, ASBCA No. 56444 et al., 11-1
BCA ~ 34,743, to support its claim.

        NASA does not contest that the terms of the CBA are the applicable wage
determination for this contract. Nor does it challenge GCR's suggestion that it may
pass through to the government higher wage costs incurred by its subcontractor, CMT.
NASA simply opposes by arguing that this is a fixed-price contract that has been
subject to the same CBA severance terms from initial award. Therefore, from the
outset, GCR bore the risk of severance payment costs that might arise. Nothing has
changed to alter that risk.

       A wage determination includes a CBA-defined benefit that a contractor is
required to maintain. 41 U.S.C. § 6703; 29 C.F.R. § 4.50; Lear Siegler Services, 457
F.3d at 1268. Increases in the cost of providing that benefit, even ifthe benefit itself
remains nominally unchanged, entitles a contractor to a price adjustment. "[T]he Price
Adjustment Clause is triggered by changes in an employer's cost of compliance with


                                             4
the terms of a [CBA dictated] wage determination." Lear Siegler Services, 457 F.3d
at 1269; see also United States v. Service Ventures, Inc., 899 F.2d 1 (Fed. Cir. 1990).
This is especially the case when the "costs of compliance changed in a manner not
known in advance with certainty." Lear Siegler Services, 457 F.3d at 1269. Thus,
NASA is incorrect to focus upon the fact that the contract is fixed price. The question
is not how the contractor is compensated by the government for its services, but
whether the contractor has experienced an increase in its costs providing the benefits
required by the applicable wage determination.

        Against this backdrop, the Board's precedent in ARCTEC governs here. In
ARCTEC, the contract also contained the Price Adjustment Clause and the majority of
the line items were fixed price. 4 At the time of contract expiration, ARCTEC provided
services at three facilities with employees working pursuant to CBAs and wage
determinations that promised severance pay to those who were not hired by a
successor contractor. Those CBAs and wage determinations had been incorporated
into the contract midway through performance, but no price adjustment proposals were
made at that time to account for severance payments because ARCTEC lacked
information to determine how much severance would be due. After making severance
payments, ARCTEC sought recovery under the Price Adjustment Clause. ARTEC,
11-1BCAii34,743 at 171,030-34.

        In its decision sustaining the appeal from the contracting officer's decision, the
Board rejected the very argument advanced by NASA here, that the contractor bore the
risk of the severance liability because of the fixed-price nature of the contract. Like
NASA now, the government had relied heavily upon ITT Federal Services Corp. v.
Widnall, 132 F.3d 1448 (Fed. Cir. 1997). However, that case had simply involved a
contractor's attempt to recover for severance payments made pursuant to its own
policies. It had nothing to do with CBA (and therefore applicable wage determination)
mandated severance payments potentially subject to the Price Adjustment Clause.
Accordingly, the Board distinguished ARCTEC with the following conclusion:

                      Here, in contrast to the ITT case, the contractor is
              entitled to a price adjustment for the severance costs as a
              consequence of the wage determinations incorporating
              appellant's collective bargaining agreements with
              unionized employees at the three relevant sites into the
              contract. The DOL wage determinations and CBAs
              require the payment of severance costs upon expiration of
              the contract in certain circumstances. Pursuant to the

4
    Specifically, the fixed-price line items were Fixed Price Incentive Firm (Target)
       with Award Fee, which established a ceiling price but provided for the sharing
       of cost savings. ARCTEC, 11-1 BCA ii 34,743 at 171,031.

                                            5
              Service Contract Price Adjustment clause, contractors are
              entitled to price adjustments to recover increased wages
              and fringe benefits resulting from required compliance
              with DOL wage determinations incorporated into the
              contract. Appellant paid covered employees in each of the
              three locations and the government does not dispute that
              those payments were required by, and made in accordance
              with, the CBAs. Accordingly, the contractor is entitled to
              a price adjustment under the clause.

ARCTEC, 11-1 BCA ~ 34,743 at 171,036. 5

        NASA attempts to distinguish ARCTEC from this appeal by suggesting that the
applicable CBAs there had not been incorporated into the contract upon its initial
award, while the CBA here was incorporated from the start. NASA has not proven
that fact since the draft CBA included with the original solicitation was not signed and
purported to be between the union and another company. The first signed CBA
incorporated into this contract was through Modification No. 008, over a year after
award (finding 3). However, even if NASA was correct, the observation is irrelevant.
What matters is not whether the particular CBA applied at or after contract award, but
whether there have been changes in the cost of complying with its terms. Lear Siegler
Services, 457 F.3d at 1268-69. In ARCTEC, the Board concluded that paying
severance costs constituted just such an addition in the cost of complying with
ARCTEC's CBAs. ARCTEC also indicated that at the time those CBAs were
incorporated into the contract it could not be known whether severance costs would be
owed because the contractor did not know if the contract would be reprocured,
awarded to another contractor, or performed by other employees. ARCTEC, 11-1 BCA
~ 34, 743 at 171,03 3, 171,03 7. The same was true here, where OCR could not predict
severance costs at the time of its initial price proposal (finding 6). This fact bolsters
the conclusion that an adjustment is due under the Price Adjustment Clause because
the "costs of compliance changed in a manner not known in advance with certainty."
Lear Siegler Services, 457 F.3d at 1269.

       In sum, there is no material distinction between this appeal and ARCTEC. Like
ARCTEC, the contract is a fixed-price services contract containing the Price
Adjustment Clause. The applicable wage determination is an incorporated CBA
containing a severance pay clause. The contractor did not account for severance

5
    Similarly, Express Transportation Organization of Thailand, ASBCA No. 21946,
       78-1 BCA ~ 12,881, also relied upon by NASA, did not involve the application
       of the Price Adjustment Clause to additional wage determination compliance
       costs.



                                            6
payments in its price proposal because it could not predict them at that time. The
contract expired and the contractor then made the necessary severance payments as
required by the CBA. In ARCTEC, the Board held that the contractor was entitled to a
price adjustment under the Price Adjustment Clause for those severance pay costs.
That holding controls here.

                                    CONCLUSION

       The appeal with respect to entitlement is sustained. The appeal is remanded to
the parties to negotiate quantum consistent with this decision.

       Dated: 12 March 2015

                                               2-e~L
                                                 MARK A. MELNICK
                                                 Administrative Judge
                                                 Armed Services Board
                                                 of Contract Appeals

I concur                                         I concur




~$
Administrative Judge
                                                 RICHARD SHACKLEFORD
                                                 Administrative Judge
Acting Chairman                                  Vice Chairman
Armed Services Board                             Armed Services Board
of Contract Appeals                              of Contract Appeals


       I certify that the foregoing is a true copy of the Opinion and Decision of the Armed
Services Board of Contract Appeals in ASBCA No. 59162, Appeal of Government
Contracting Resources, Inc., rendered in conformance with the Board's Charter.

      Dated:



                                                JEFFREY
                                                    I
                                                          D. GARDIN
                                                Recorder, Armed Services
                                                Board of Contract Appeals



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