The Service Contract Act of 1965 (SCA) requires contractors to accept a predecessor contractor’s Collective Bargaining Agreement and related fringe benefits.

      An offeror should know the incumbent’s wages and fringe benefits when preparing a proposal so the offerer will know what those costs will be. The contracting officer has an affirmative duty to inform offerors of the facts of the bargaining agreement and fringe benefits in the solicitation.

      Failure of the contracting officer to provide this critical information would render offerers at a significant cost disadvantage.

      Even if the contracting officer fails to provide this cost information, the offerer still has an obligation to submit questions and obtain clear answers regarding an incumbent’s collective bargaining agreement from the contracting officer during the preparation of a proposal. If the offerer does not make those inquiries there may be negative repercussions, as in the case of CAE USA Inc.

The case of CAE USA Inc.

      CAE USA Inc. became involved in this process at great cost.

      CAE prepared a Firm Fixed Price proposal in April 2010 in response to a solicitation for an Aircrew Training System recompeted contract at 13 Air Force bases worldwide. The contract had one base year and nine option years.

      The incumbent had a collective bargaining agreement and a separate fringe benefit program, including a 401(K) program and paid time off for employees.

      The Air Force contracting officer furnished the collective bargaining agreement to CAE, but did not include information on the other fringe benefits.

      CAE did not inform the Air Force contracting officer that the fringe benefit information was missing, and did not request clarifying data.

      Since CAE did not know the actual fringe benefit costs, they estimated these costs at $4.25 per hour based on their benefits experience. The contract was awarded to CAE on Aug. 31, 2010.

      Eventually, CAE discovered that the fringe benefit costs were substantially higher than they had estimated, so in July 2011, CAE submitted a Request for Equitable Adjustment for $668,094. The request was denied in January 2012.

      CAE submitted a certified claim a month later in accordance with the Contract Disputes Act of 1978. The contracting officer denied the claim, so CAE filed an appeal with the Armed Services Board of Contract Appeals (ASBCA No. 58006). The decision was released on Jan. 14, 2014.

      The board decided that the SCA and the Federal Acquisition Regulation require the contracting officer to furnish a complete collective bargaining agreement, including fringe benefits and related costs.

      At the same time, the board said CAE had an affirmative duty to inquire for the complete information; CAE failed to make the required inquiry; CAE made assumptions that were erroneous; and as a result, CAE significantly underestimated costs.

      The board stated that CAE cannot now complain that their assumptions were incorrect. The board judged that CAE bore the risk of making accurate assumptions when they failed to submit an inquiry for the fringe benefit information.

Small biz not exempt

      Small business concerns must remember that they are not exempt from the SCA. The SCA is applicable to every contract with the United States in excess of $2,500, in which five or more employees will be providing services.

      The SCA applies to both contracts and subcontracts. The SCA implements the same exemptions, and the same overtime standards, as in the Fair Labor Standards Act.

      Minimum wages and fringe benefits for a locality are included in a Wage Determination made by the Labor Department that must be included in all SCA contracts and subcontracts, and in solicitations. A small business concern must propose wages and fringe benefits consistent with the wage determination.

      Failure to comply with the SCA may result in a small business declared ineligible to receive further federal contracts for three years. Furthermore, a violation of the SCA also may result in a contract being cancelled and the firm may be suspended or debarred. If a small business is the subject of a Labor Department investigation, it will be an expensive and time- consuming process.

Submit your inquiries

      Regardless of your bid strategy, or fears of disclosing your bid strategy, always submit an inquiry to the contracting officer when you recognize an ambiguity or know of missing information in the solicitation. In the CAE case, the company forfeited its claim for additional reimbursement because it did not submit such an inquiry.

      To prepare and submit an effective proposal, complete information enables a contractor to obtain reasonable profits during performance. We continue to emphasize the criticality of asking questions and demanding clear answers from the contracting officer during the proposal period. The courts and boards have no sympathy for contractors who fail to make such inquiries.

Tom Petruska is president of Contracts Unlimited, a contracts administration consulting firm. You may contact him at tpetruska@contractsunlimitedinc.com.