In this instance, the Armed Services Board of Contract Appeals (ASBCA) decided the case of the Appeals of 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 agreed to ASBCA Rule 11, which allows for a decision without a hearing. As the case involved a small business concern 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 from the United States Air Force (Air Force). The contract requested “training and related services to F-16 air crews” in two different Air Force 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 submit a bid for the contract, Sonoran had to confirm that their labor costs were aligned with the “minimum wage and benefit rates . . . required for covered contractor personnel.”
The contract included certain Federal Acquisition Regulation (FAR) provisions. Among those provisions were:
FAR 52.222-41, Service Contract Labor Standards;
FAR 52.222-43, Fair Labor Standards Act and Service Contract Act – Price Adjustment (Multiple Year And Option Contracts);
FAR 52.229-3, Federal, State, And Local Taxes; and
FAR 52.243-1, Changes – Fixed-Price.
Sonoran began contract performance, in accordance with the wage determination and CBA controls. Sonoran’s revenue increased and, initially, tax liability to New Mexico increased comparably. But after New Mexico rolled out two increases to its tax rate, Sonoran’s tax liability increased dramatically. Sonoran alleged that the increase in tax liability “could not be calculated at the time of contract offer or award.”
On June 3, 2015, Sonoran submitted a request for equitable adjustment (REA), accounting for the increased cost of performing the contract under the CBA and wage determination.
On September 25, 2015, the government modified the contract, increasing the price to account for Sonoran’s increased costs. But the government did not provide compensation for the increase in New Mexico tax liability. The contracting officer did not believe that the contract permitted Sonoran such compensation.
On October 28, 2016, Sonoran tendered a new REA, requesting price adjustment to account for the increase in New Mexico tax liability. The government rejected Sonoran’s revised REA, leading Sonoran to appeal to the ASBCA.
Sonoran argued that either FAR 52.222-43 (Price Adjustment clause) or FAR 52.243-1 (Changes clause) requires the government to reimburse the increase in New Mexico tax liability.
The ASBCA first considered Sonoran’s argument under the Price Adjustment clause. The text of the clause provides that any adjustment “will be limited to increases or decreases in wages and fringe benefits . . . social security and unemployment taxes and workers’ compensation insurance.” But the clause also specifically excludes increases for “general and administrative costs, overhead, or profit.”
Referencing its decision in a similar case – All Star/SAB Pacific, J. V., ASBCA No. 50856 – the ASBCA stated that the Price Adjustment clause does not allow for increases based on state tax liability.
The ASBCA then highlighted the differences between the Price Adjustment and Changes clauses. Unlike the Price Adjustment clause, the Changes clause does not provide a formula for calculating price adjustments. Otherwise, both clauses would overlap in unnecessary ways and provide a confusing path for remedial action. As a result, any price adjustment would be governed according to the Price Adjustment clause.
Consequently, the ASBCA denied Sonoran’s appeals.
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