22.404-12 Labor standards for contracts containing construction requirements and option provisions that extend the term of the contract
Source: FAR 22.404-12 on acquisition.gov
When extending construction contracts with options, contracting officers must update wage determinations and use specified methods to adjust contract prices for labor cost changes.
Overview
FAR 22.404-12 establishes requirements for incorporating current wage determinations into construction contracts with option provisions that extend the contract term. It ensures that labor standards remain up-to-date when options are exercised, protecting workers’ wages and benefits in line with the Construction Wage Rate Requirements statute. The regulation also provides specific methods for adjusting contract prices to account for wage determination changes, particularly in fixed-price contracts.
Key Rules
- Incorporation of Current Wage Determinations
- Each time an option to extend a construction contract is exercised, the contracting officer must update the contract with the most current wage determination.
- Application to Task Orders
- For indefinite-delivery or indefinite-quantity contracts, the wage determination in effect at option exercise applies to all task orders during that option period.
- Contract Price Adjustment Methods
- Fixed-price contracts must include a clause specifying one of several approved methods for adjusting prices due to wage determination changes, such as separate pricing for option periods, unit pricing books, economic indicators, or actual wage/benefit changes.
Responsibilities
- Contracting Officers: Must ensure current wage determinations are incorporated at each option exercise, select and specify an appropriate price adjustment method, and include required clauses in contracts.
- Contractors: Must comply with updated wage determinations and understand the contract’s price adjustment method.
- Agencies: Oversee compliance with labor standards and proper contract modifications.
Practical Implications
- This section ensures fair labor standards are maintained throughout the contract’s life, even as options are exercised. Contractors must be prepared for wage determination updates and understand how contract prices may be adjusted. Common pitfalls include failing to update wage determinations or misunderstanding the price adjustment method, which can lead to compliance issues or disputes.
(a) Each time the contracting officer exercises an option to extend the term of a contract for construction, or a contract that includes substantial and segregable construction work, the contracting officer must modify the contract to incorporate the most current wage determination.
(b) If a contract with an option to extend the term of the contract has indefinite-delivery or indefinite-quantity construction requirements, the contracting officer must incorporate the wage determination incorporated into the contract at the exercise of the option into task orders issued during that option period. The wage determination will be effective for the complete period of performance of those task orders without further revision.
(c) The contracting officer must include in fixed-price contracts a clause that specifies one of the following methods, suitable to the interest of the Government, to provide an allowance for any increases or decreases in labor costs that result from the inclusion of the current wage determination at the exercise of an option to extend the term of the contract:
(1) The contracting officer may provide the offerors the opportunity to bid or propose separate prices for each option period. The contracting officer must not further adjust the contract price as a result of the incorporation of a new or revised wage determination at the exercise of each option to extend the term of the contract. Generally, this method is used in construction-only contracts (with options to extend the term) that are not expected to exceed a total of 3 years.
(2) The contracting officer may include in the contract a separately specified pricing method that permits an adjustment to the contract price or contract labor unit price at the exercise of each option to extend the term of the contract. At the time of option exercise, the contracting officer must incorporate a new wage determination into the contract, and must apply the specific pricing method to calculate the contract price adjustment. An example of a contract pricing method that the contracting officer might separately specify is incorporation in the solicitation and resulting contract of the pricing data from an annually published unit pricing book (e.g., the U.S. Army Computer-Aided Cost Estimating System or similar commercial product), which is multiplied in the contract by a factor proposed by the contractor (e.g., .95 or 1.1). At option exercise, the contracting officer incorporates the pricing data from the latest annual edition of the unit pricing book, multiplied by the factor agreed to in the basic contract. The contracting officer must not further adjust the contract price as a result of the incorporation of the new or revised wage determination.
(3) The contracting officer may provide for a contract price adjustment based solely on a percentage rate determined by the contracting officer using a published economic indicator incorporated into the solicitation and resulting contract. At the exercise of each option to extend the term of the contract, the contracting officer will apply the percentage rate, based on the economic indicator, to the portion of the contract price or contract unit price designated in the contract clause as labor costs subject to the provisions of the Construction Wage Rate Requirements statute. The contracting officer must insert 50 percent as the estimated portion of the contract price that is labor unless the contracting officer determines, prior to issuance of the solicitation, that a different percentage is more appropriate for a particular contract or requirement. This percentage adjustment to the designated labor costs must be the only adjustment made to cover increases in wages and/or benefits resulting from the incorporation of a new or revised wage determination at the exercise of the option.
(4) The contracting officer may provide a computation method to adjust the contract price to reflect the contractor’s actual increase or decrease in wages and fringe benefits (combined) to the extent that the increase is made to comply with, or the decrease is voluntarily made by the contractor as a result of incorporation of, a new or revised wage determination at the exercise of the option to extend the term of the contract. Generally, this method is appropriate for use only if contract requirements are predominately services subject to the Service Contract Labor Standards statute and the construction requirements are substantial and segregable. The methods used to adjust the contract price for the service requirements and the construction requirements would be similar.