Seller beware

Suppose you're putting together a proposal with the following facts:

  1. You're the incumbent on a contract where some of the labor categories on the contract are covered under the Service Contract Act (the "SCA") and, therefore, you must pay people within those labor categories a "prevailing wage".[1]
  2. In the proposal you're putting together, the government is asking you to provide similar services in a new location on the other side of the state.
  3. On the other side of the state, the prevailing wage for a particular labor category is about 20% higher than it is on your existing contract.
  4. You ask the government whether the labor categories you plan to bid are covered by the SCA and the government says "eh, we don't think so".
  5. But you really really think that the government is wrong and the labor category you want to bid is covered by the SCA.

What should you do? I want to emphasize that you're really pretty sure the government is wrong. In fact, let's sweeten the fact pattern: you've independently heard from DOL that the contracting officer is probably wrong.

You can do one of two things, I guess:

  1. Bid the prevailing wage for the labor category at the 20% premium; or
  2. Hope (pretend?) that the labor category doesn't require a prevailing wage and underbid the labor category without the 20% premium.

It's a pretty classic prisoners' dilemma. If your competitors all bid the 20% premium, no big deal. But if any of the competitors defect, you run the risk of losing the bid![2]

But what if there was a third option? What if you could hedge by bidding the lower rate, telling the government you're doing that, and explicitly forecasting in your proposal that you'll submit an equitable adjustment for the higher prevailing wage if and when the government realizes that the labor category is covered.

That would be a neat trick, right?

Well, that was the fact pattern presented to the Armed Services Board of Contract Appeals in a decision published a few weeks ago. And, spoiler alert, it didn't work.

Here's how the Board explained it:

The contractor submitted its bid based upon what it believed to be an incorrect DOL determination and stating its intention to submit a request for equitable adjustment once DOL granted a conformance of that labor category, which the contractor planned to submit and was certain would be granted. The burden of determining application of the SCA fell solely on the contractor. Despite its prior knowledge, and by ignoring its own beliefs as to the exemption status of the specific labor category, the contractor submitted a lower, and therefore, more advantageous, cost proposal.

In other words: tough luck, contractor, you bear the risk here. If you know a labor category is covered by the SCA, you can't hedge on the government's mistake.[3]

In the morality play that is government contracting, sometimes you have to make tough choices. I suppose you can try and be clever and hedge. But if you're wrong, you might find yourself on the wrong side of almost $1 million in costs that now you're expected to bear throughout the period of performance.

Them's the breaks. Oh well. Happy Valentine's Day! Hope you all feel the warm embrace of that #GovLove!

[1] If this is already all greek to you, here is an FAQ from the Department of Labor about the Service Contract Act. Short version of the story for our purposes is to think of the prevailing wage as a sort of minimum compensation for a given job in a given location.

[2] Not to get all game theory up in here, but I think the economically "correct" answer (and boy howdy this is not legal advice!) is for the contractors to cooperate and charge the government the higher price. Sorry government?

[3] The Board also rejects the contractor's argument that the result isn't "remotely fair" by citing a Federal Circuit that basically says: "Fair? Who said anything about fair? If you don't like it, blame Congress!" I dunno, I find that funny!

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