Board of Contract Appeals General Services Administration Washington, D.C. 20405 GRANTED: January 12, 1999 GSBCA 14639 TWIGG CORPORATION, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Fred A. Mendicino of Watt, Tieder, Hoffar & Fitzgerald, L.L.P., McLean, VA, counsel for Appellant. Kathleen M. McCartney, Office of Regional Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges DANIELS (Chairman), NEILL, and GOODMAN. DANIELS, Board Judge. By failing to comply with a requirement included in a construction contract by the Federal Acquisition Regulation (FAR), the General Services Administration (GSA) has not fully compensated its contractor, Twigg Corporation (Twigg), for costs of labor on the contract. We grant Twigg's appeal of the GSA contracting officer's decision denying the contractor's claim for additional payment. Findings of Fact 1. On June 22, 1995, GSA issued an invitation for bids to renovate a Federal Government office building in Washington, D.C. Joint Stipulations 1. This solicitation required the successful bidder to comply with obligations imposed by the Davis-Bacon Act, 40 U.S.C. 276a to 276a-5 (1994), regarding the payment of prevailing wage rates to all laborers on the project. The solicitation included Department of Labor (DOL) general wage determination DC950001 (the '01 determination), which applied to building construction, heavy construction, and highway construction projects in the District of Columbia. Id. 2; Appeal File, Exhibit 109 at 1, 8-23. 2. In mid-1995, Walker/Seal Joint Venture (Walker/Seal)[foot #] 1 prepared an estimate of costs which would be incurred in performing the electrical work required under the solicitation in anticipation of doing the work as a subcontractor. Affidavit of Michael Walker (Walker Affidavit) (Dec. 3, 1998) 5. Walker/Seal is a union electrical contractor. Joint Stipulations 7. At the time Walker/Seal prepared its estimate, wage and benefit rates for union electricians were as specified in the '01 determination. Walker Affidavit 11. In making the estimate, Walker/Seal used those rates for pricing the labor component of the work. Id. 6. Twigg used Walker/Seal's estimate in conjunction with the submission of its bid to GSA on the project. Id. 7. 3. GSA opened bids submitted in response to the solicitation on September 8, 1995. Joint Stipulations 3. Not until December 22, 1995, however -- more than ninety days after bid opening -- did GSA award a contract. On that date, it made the award to Twigg. Id. 7. 4. Between these two dates -- on October 6, 1995 -- DOL published in the Federal Register general wage determination number DC950003 (the '03 determination). This determination revised the wage rates for various labor classifications on building construction projects in the District of Columbia to which the Davis-Bacon Act applied. Among these revisions were an increase in the wage rate for electricians of fifty cents per hour (from $22.70 to $23.20), and an increase in the fringe benefit rate for electricians of two cents per hour. Joint Stipulations 4, 13; Appeal File, Exhibit 115. These revisions were made in anticipation of an upcoming adjustment in November 1995 to the union labor wage and benefit rates for electricians in the District of Columbia pursuant to a collective bargaining agreement. Joint Stipulations 4. 5. Twigg entered into a subcontract with Walker/Seal to perform electrical work on the project. Joint Stipulations 7. The price of the subcontract was based on Walker/Seal's previously-submitted estimate. Walker Affidavit 9. 6. On November 6, 1995, pursuant to the collective bargaining agreement referenced in Finding 4, the union wage and benefit rates for electricians in the District of Columbia increased from the rates specified in the '01 determination to the rates specified in the '03 determination. Walker Affidavit 11. Walker/Seal began work on the project on approximately ----------- FOOTNOTE BEGINS --------- [foot #] 1 Walker/Seal is a joint venture of Walker Electric Co., Inc., and Seal and Co., Inc. Appeal File, Exhibit 125 at 4. ----------- FOOTNOTE ENDS ----------- January 7, 1996. Walker/Seal paid its electricians on this job at the '03 rates. Joint Stipulations 10. 7. FAR 22.404-6, a portion of which is set out in the Discussion portion of this decision, authorizes agency heads and their designees, in certain circumstances, to request DOL to extend a period of time relating to the applicability of changed wage determinations. The GSA contracting officer never asked DOL for an extension of the '01 determination with respect to its applicability to this project. Nor did she ever request from DOL a waiver of or exemption from the '03 determination. Joint Stipulations 8. 8. On January 19, 1996, the contracting officer unilaterally issued contract modification PA01 as a no-cost change to the contract. This modification deleted the '01 determination from the contract and substituted the '03 determination for it. Joint Stipulations 11. Twigg promptly advised GSA that the issuance of this modification "cannot be accepted as a no cost change" because it would have "a profound effect on the costs for labor under this contract." Id. 12. On March 20, 1996, the contracting officer unilaterally issued contract modification PA03, rescinding modification PA01. Id. 16; Appeal File, Exhibit 121 at 3. 9. Twigg forwarded to GSA a complaint by Walker/Seal that rescission of modification PA01 was improper and that the agency was responsible for costs stemming from substitution of the '03 determination for the '01 determination. Walker Affidavit 20- 21. The issues raised in this complaint were discussed often between Walker/Seal and GSA representatives, but without resolution. Id. 22. 10. On July 8, 1997, Twigg forwarded to the contracting officer a proposal to increase the contract price by $87,088. Thus sum represented Walker/Seal's costs associated with the revisions in electrician wage and fringe benefit rates set forth in the '03 determination, with markups for overhead and bond costs (a total of $69,817.76 in subcontractor costs), plus Twigg's general contractor markups. Joint Stipulations 19; Appeal File, Exhibit 126. Negotiations regarding this proposal were unsuccessful, and on April 28, 1998, Twigg sent to the contracting officer a claim as to the same matter in the amount of $74,777 (of which $59,900 were subcontractor costs and markups). Joint Stipulations 20; Appeal File, Exhibit 134. The contracting officer denied this claim. Joint Stipulations 21. 11. Twigg has now set the amount of its claim at $76,754.72. The main element of this sum, $35,286.16, consists of 67,858 hours of Walker/Seal electricians' labor multiplied by the difference between the wage and fringe benefit rates of the two DOL wage determinations, fifty-two cents per hour. A principal of Walker/Seal explains, in an affidavit, that the number of hours is the joint venture's originally-estimated hours for base contract work.[foot #] 2 He states that because of major changes to the project directed by GSA, the as- built cost for electrical work was nearly twice what was initially estimated, and that "these changes so extensively affected the original base contract electrical work that a detailed itemization of base contract electrical labor hours from available Project records is not possible." He believes that "the most accurate accounting of base contract labor hours applicable to this claim is the original estimated labor hours calculated by Walker/Seal in conjunction with its bid for the Project." Walker Affidavit 27. With subcontractor markups, the portion of the claim attributable to Walker/Seal is $57,196.83. The remainder of the claim consists of general contractor markups. Walker/Seal's principal states that the markups used in the current version of the claim "represent agreed upon mark-ups for change orders which have been established during the Project." Id. GSA has not disputed the Walker/Seal principal's contention that any recovery should apply to 67,858 hours of electricians' labor or his statement that the markups used in calculating the claim are appropriate. Discussion The Davis-Bacon Act requires that the wages paid to laborers and mechanics on Government construction projects be, at a minimum, those determined by the Secretary of Labor to be prevailing in the jurisdiction where the work is to be performed. 40 U.S.C. 276(a); United States v. Binghamton Construction Co., 347 U.S. 171, 172 (1954). Disputes regarding wage determinations themselves are to be resolved by the Department of Labor. Emerald Maintenance, Inc. v. United States, 925 F.2d 1425, 1429 (Fed. Cir. 1991). Disputes centering on rights and obligations under a Government contract may be resolved by an agency board of contract appeals, however, "even though matters reserved to and decided exclusively by the [DOL] are part of the factual predicate." Burnside-Ott Aviation Training Center, Inc. v. United States, 985 F.2d 1574, 1580 (Fed. Cir. 1993); see also Twigg Corp. v. General Services Administration, GSBCA 14388, 98-2 BCA 29,835, at 147,707; P. M. Hagel & Associates, Inc. v. General Services Administration, GSBCA 10742, 94-1 BCA 26,568, at 132,204-05 (1993). This case falls into the latter category. As GSA now recognizes, FAR section 22.404-6, "Modifications of wage determinations," applies to the situation presented in the case. This regulation says that when an agency is contracting by sealed bidding -- ----------- FOOTNOTE BEGINS --------- [foot #] 2 The number of hours is the same as that used in the initial proposal (see Finding 10). The total amount of the ___ claim is smaller than that in the proposal because the subcontractor markups are lower. Compare Appeal File, Exhibit _______ 126, with Walker Affidavit 27. ____ ----------- FOOTNOTE ENDS ----------- If an award is not made within 90 days after bid opening, any modification to a general wage determination, notice of which is published in the FEDERAL REGISTER before award, shall be effective for any resultant contract unless an extension of the 90- day period is obtained from the Administrator, Wage and Hour Division [, Department of Labor]. An agency head or a designee may request such an extension from the Administrator. The request must be supported by a written finding, which shall include a brief statement of factual support, that the extension is necessary and proper in the public interest to prevent injustice, undue hardship, or to avoid serious impairment in the conduct of Government business. The contracting officer shall follow the procedures in 22.404-5(b)(2). 48 CFR 22.404-6(b)(6) (1995). In accordance with this regulation, because award of the contract was not made within ninety days after bid opening and GSA did not obtain (or even request) an extension of the '01 general wage determination (which was in effect at the date of bid opening), the modification of that determination -- the '03 determination -- was as a matter of law effective for the contract. The term "shall" in the regulation (the modification "shall be effective") "denotes the imperative," according to the FAR. 48 CFR 2.101. "Imperative" means "not to be avoided or evaded: urgent, obligatory, binding, compulsory." Webster's Third New International Dictionary 1133 (1986). Thus, whether the contracting officer substituted the later determination for the earlier one (her initial action) or not (her later tack), the '03 determination was a part of the contract from the date of award. Miller's Moving Co., ASBCA 43114, 92-1 BCA 24,707 (citing G. L. Christian & Associates v. United States, 312 F.2d 418 (Ct. Cl.), rehearing denied, 320 F.2d 345, cert. denied, 375 U.S. 954 (1963)); BUI Construction Co. & Building Supply, ASBCA 28707, 84-1 BCA 17,183 (also citing Christian); see also Ace Services, Inc. v. General Services Administration, GSBCA 11331, 92-2 BCA 24,943 (same treatment of FAR clause pertaining to effect of Service Contract Act wage determinations). FAR 22.404-6, as stated, provides that when a new wage determination is effective for a contract, the contracting officer must "follow the procedures in 22.404-5(b)(2)." The latter provision of the FAR requires the contracting officer to "incorporate the new determination to be effective on the date of contract award." It additionally mandates -- and here we come to the matter remaining at issue -- that she "shall equitably adjust the contract price for any increased or decreased cost of performance resulting from any changed wage rates." 48 CFR 22.404-5(b)(2)(i). If there has been one consistency in the contracting officer's actions throughout this matter, it has been an aversion to following this last command. GSA's current justification for this position is that "Walker/Seal is a union contractor that by agreement to the Electrical Union pays the prevailing wage rate regardless of the Davis Bacon wage rate in the government contract. Therefore, its cost of performance is neither increased nor decreased by the modification of the wage rate in the contract." Respondent's Brief at 3. To buttress this conclusion, the agency cites a single contract case, Telesec Library Services, ASBCA 42968, 92-1 BCA 24,650 (1991), and three decisions of the Comptroller General regarding protests against actions taken by agencies in conducting procurements. In Telesec, the Armed Services Board of Contract Appeals held that the Government's liability for the impact of a new wage determination applicable to an option year of a contract does not cover increased costs to the extent that the higher contract price for that year provides for the contingency that such a wage determination will be issued. Walker/Seal's bid did not include any such contingencies; indeed, it was not predicated on paying any wages higher than those prescribed by the wage determination which was in effect when bids were made. Thus, Telesec's holding is not relevant to this case. In two of the cited protest decisions, Brutoco Engineering & Construction, Inc., B-209098, 83-1 CPD 9 (Jan. 4, 1983), and Bilt-Rite Contractors, Inc., B-259106.2, 95-1 CPD 220 (Apr. 25, 1995), the Comptroller General concluded that a bidder's failure to acknowledge a solicitation amendment which substituted one DOL wage determination for another was immaterial and consequently should have been waived as a minor informality. In each case, the new wage determination prescribed payment of higher wages than did its predecessor, but the Comptroller found that the amendment would not have caused the low bidder to increase its bid since that firm was already required to pay wages at least as high as those stated in the new determination. (The requirement was imposed by a collective bargaining agreement in Brutoco and by a minimum wage law in Bilt-Rite.) In the third protest case, ABC Project Management, Inc., B-274796.2, 97-1 CPD 74 (Feb. 14, 1997), the Comptroller held that the low bidder's failure to acknowledge a solicitation amendment containing a revised wage determination could not be waived because the new determination might have had an impact on the bidder's price. In these three cases, the issue was whether a revision in a wage determination prior to the submission of bids would have affected a bid. This is a different question from the one presented here, which involves a wage determination revision after bids were opened. To the extent that these decisions may say anything relevant to the instant case, they seem to support Twigg's position. Walker/Seal's bid was predicated on the wage and benefit rates in the '01 determination, and therefore almost surely would have been different if the joint venture had known that the later '03 determination was going to be in effect during contract performance. The record is clear that Walker/Seal used the wage and benefit rates stated in the wage determination in effect at the time of bidding, the '01 determination, in constructing its cost estimate, and that the joint venture ultimately paid the higher rates specified in the determination which was in the contract, the '03 determination, for contract work performed. None of the cases cited by GSA is particularly useful in helping us to decide whether the higher labor costs should be viewed as "result[ing] from" the '03 determination's changes in wage and benefit rates and consequently must be paid by GSA. The pivotal question before us, implied from the word "change," is: From what were the wage and benefit rates changed? A careful analysis by the Supreme Court of the purposes of wage determinations points the way toward the answer. After an exhaustive review of the legislative history of the bills enacting and amending the Davis-Bacon Act, the Court concluded that Congress required determinations to be placed in solicitations to let prospective contractors know in advance of submitting bids what their approximate labor costs would be, so as to avoid having to include in their prices contingencies for the possibility that later determinations would mandate higher wages than they had anticipated. Universities Research Association, Inc. v. Coutu, 450 U.S. 754, 773-76, 782-83 (1981). Consistent with this intention, Walker/Seal used the rates in the '01 determination for pricing the labor component of its work, and thus it did not include in its price any contingency for having to pay higher wages and benefits pursuant to a later wage determination. In situations where "the Government requires a contractor to pay higher wages than he was obligated to do under his contract," "[i]t is settled that . . . the United States is liable for the additional costs." Black, Raber-Kief & Associates v. United States, 357 F.2d 355, 361 (Ct. Cl. 1966). We can hardly imagine that a different result should occur where a contract itself provides that the Government shall equitably adjust the contract price to compensate the contractor for increased costs which result from the Government's action. The answer to our question as to the baseline from which a new wage determination's changes in wage and benefit rates must be measured, for the purpose of determining Government liability, is the rates that the contractor had envisioned paying when it submitted its bid. It is true, as GSA says, that Walker/Seal would have been obligated to pay higher wages and benefits than it had planned on paying in the absence of the '03 determination, because it had agreed to pay its workers rates contained in collective bargaining agreements. This does not negate a key fact, however: the '03 determination was made, and by operation of law it, not the '01 determination which the joint venture used in preparing its bid, was part of the contract. The new determination thereby changed the wage rates from those originally used for the bid, and this required an equitable adjustment in the contract price. Further, Walker/Seal's independent agreement to pay union wage rates does nothing to change the fact that the joint venture did not base its estimate on the payment of any labor costs at rates in excess of those stated in the '01 determination. The holding in Telesec consequently does not apply to the facts of this case. Finally, we note that GSA's position implicitly amounts to this: A contractor who hires non-union labor, and pays its employees higher wages and benefits solely because the substitution of one wage determination for another forces it to do so, must be paid by the Government the difference in costs imposed by the substitution. A contractor who hires union workers, however, and pays its employees higher wages and benefits because a new collective bargaining agreement forces it to do so, must, even if DOL issues a new wage determination incorporating the terms of that agreement, absorb the increased costs itself. We would be extremely surprised to learn that the authors of the Davis-Bacon Act and the regulatory provisions which implement it intended to disfavor union contractors in this way. GSA does not contest Twigg's calculations of the amount it should be paid in the event we find the contractor entitled to recover on its claim, or the methodology inherent in those calculations. We consequently conclude that the methodology and calculations are appropriate. Decision The appeal is GRANTED. GSA shall pay to Twigg $76,754.72, plus interest in accordance with the Contract Disputes Act, 41 U.S.C. 611 (1994), from the date on which the contracting officer received the claim dated April 28, 1998, until the date of payment. _________________________ STEPHEN M. DANIELS Board Judge We concur: _________________________ _________________________ EDWIN B. NEILL ALLAN H. GOODMAN Board Judge Board Judge