Federal Acquisition Regulation; Application of the Davis-Bacon Act to Construction Contracts With Options To Extend the Term of the Contract

SUMMARY: The Civilian Agency Acquisition Council and the Defense

Acquisition Regulations Council (Councils) are proposing to amend the

Federal Acquisition Regulation (FAR) to implement the requirement of

Department of Labor (DoL) All Agency Memorandum No. 157 (AAM 157), as

clarified in the Federal Register on November 20, 1998. The rule

requires incorporation of the current Davis-Bacon Act wage

determination at the exercise of each option period in construction

contracts.

DATES: Comments should be submitted on or before February 1, 2000 to be

considered in the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to:

General Services Administration, FAR Secretariat (MVRS), 1800 F Street,

NW, Room 4035, ATTN: Laurie Duarte, Washington, DC 20405. Address e-

mail comments submitted via the Internet to: [email protected].

Please submit comments only and cite FAR case 1997-613 in all

correspondence related to this case.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS

Building, Washington, DC 20405, at (202) 501-4755 for information

pertaining to status or publication schedules. For clarification of

content, contact Mr. Jack O'Neill, Procurement Analyst, at (202) 501-

3856. Please cite FAR case 1997-613.

SUPPLEMENTARY INFORMATION:

A. Background

This proposed rule provides for incorporation of the current Davis-

Bacon Act wage determination at the exercise of each option to extend

the term of a contract for construction, or a contract that includes

substantial and segregable construction work. Unlike the Service

Contract Act, the Davis-Bacon Act and its implementing regulations do

not include any provisions to require incorporation of new or revised

wage determinations at the exercise of each contract option period.

On December 9, 1992, DoL issued AAM 157, which required

incorporation of a current Davis-Bacon Act wage determination at the

exercise of each option period in construction contracts containing

options to extend the term of the contract. Following several years of

controversy regarding the authority of DoL to issue AAM 157, DoL

Administrative Review Board confirmed on July 17, 1997, the authority

of the DoL Administrator's ruling that a current Davis-Bacon Act wage

determination must be incorporated at the exercise of an option to

extend the term of the contract. The Review Board also directed DoL to

clarify the language of AAM 157 and to republish the memorandum in the

Federal Register. The Acting Administrator published the clarification

in the Federal Register at 63 FR 64542, November 20, 1998.

This rule was not subject to Office of Management and Budget review

under Section 6(b) of Executive Order 12866, Regulatory Planning and

Review, dated September 30, 1993. This rule is not a major rule under 5

U.S.C. 804.

B. Regulatory Flexibility Act

The changes may have a significant economic impact on a substantial

number of small entities within the meaning of the Regulatory

Flexibility Act, 5 U.S.C. 601 et seq., because the rule will apply to

any contractor, including a small business, that enters into a contract

for construction, or a contract that includes substantial and

segregable construction work, that contains option provisions to extend

the term of the contract. Therefore, the Councils have prepared an

Initial Regulatory Flexibility Analysis. It is summarized as follows:

The proposed rule provides four alternative methods of adjusting

the contract price when exercising the option to extend the term of

the contract.

1. No adjustment in contract price (because the option prices

may include an amount to cover estimated increases);

2. Price adjustment based on a separately specified pricing

method, such as application of a coefficient to an annually

published unit pricing book incorporated at option exercise;

3. A percentage price adjustment, based on a published economic

indicator; and

4. A price adjustment based on a specific calculation to reflect

the actual increase or decrease in wages and fringe benefits as a

result of incorporation of the new wage determination.

The last method, applying calculations similar to the

calculations of price adjustments in contracts subject to the

Service Contract Act, removes the risk to the contractor, but

imposes some reporting requirements, to provide the required

information upon which to base the price adjustment. However, the

contractor is already required to keep payroll records upon which

the calculations are based, so the burden is not significant. Data

for fiscal year 1998 indicates the Government awarded 229

indefinite-delivery construction contracts, of which 121 were

awarded to small businesses. Nearly all construction contracts with

options to extend the term are indefinite-delivery contracts and

most indefinite-delivery contracts have options to extend the term.

Although there is no database to determine the number of contracts

for other than construction that have substantial and segregable

construction requirement, we estimate 225 prime contractors and 675

subcontractors, of which approximately 50 percent are small

businesses.

The FAR Secretariat has submitted a copy of the IRFA to the Chief

Counsel for Advocacy of the Small Business Administration. Interested

parties may obtain a copy from the FAR Secretariat. The Councils will

consider comments from small entities concerning the affected FAR

subparts in accordance with 5 U.S.C. 610. Interested parties must

submit such comments separately and should cite 5 U.S.C 601, et seq.

FAR Case 1997-613, in correspondence.

C. Paperwork Reduction Act

The Paperwork Reduction Act (Pub. L. 104-13) applies because the

proposed rule contains information collection requirements.

Accordingly, the FAR Secretariat submitted a request for approval of a

new information collection requirement concerning application of the

Davis-Bacon Act to construction contracts with options to extend the

term of the contract to the Office of Management and Budget under 44

U.S.C. 3501, et seq.

Annual Reporting Burden

We estimate the public reporting burden for this collection of

information is 90 hours per response, including the time for reviewing

instructions, searching existing data sources, gathering and

maintaining the data needed, and completing and reviewing the

collection of information.

We estimate the annual reporting burden is as follows: Respondents:

900; Responses per respondent: 1; Total annual responses: 900;

Preparation hours per response: 90; and Total response burden hours:

81,000.

[[Page 67987]]

D. Request for Comments Regarding Paperwork Burden

Comments regarding this burden estimate or any other aspect of the

collection of information, including suggestions for reducing this

burden should be submitted to: FAR Desk Officer, OMB, Room 10102, NEOB,

Washington, DC 20503, and a copy to the General Services

Administration, FAR Secretariat (MVR), 1800 F Street, NW, Room 4035,

Washington, DC 20405.

Requester may obtain a copy of the justification from the General

Services Administration, FAR Secretariat (MVR), Room 4035, Washington,

DC 20405, telephone (202) 208-7312. Please cite OMB control number

9000-00XX, FAR Case 1997-613, Application of the Davis-Bacon Act to

Construction Contracts with Options to Extend the Term of the Contract,

in all correspondence.

List of Subjects in 48 CFR Parts 1, 22, and 52

Government procurement.

Dated: November 29, 1999.

Edward C. Loeb,

Director, Federal Acquisition Policy Division.

Therefore, DoD, GSA, and NASA propose that 48 CFR Parts 1, 22, and

52 be amended as set forth below:

1. The authority citation for 48 CFR Parts 1, 22, and 52 continues

to read as follows:

Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42

U.S.C. 2473(c).

PART 1--FEDERAL ACQUISITION REGULATIONS SYSTEM

2. Amend section 1.106 in the table following the introductory

paragraph by adding an entry to read as follows:

1.106 OMB approval under the Paperwork Reduction Act.

* * * * *

------------------------------------------------------------------------

OMB Control

FAR segment No.

------------------------------------------------------------------------

* * * * *

52.222-32.................................................. 9000-0154

* * * * *

------------------------------------------------------------------------

PART 22--APPLICATION OF LABOR LAWS TO GOVERNMENT ACQUISITIONS

3. Amend section 22.404-1(a)(1) by revising the third sentence; and

paragraph (b) by revising the fourth sentence to read as follows:

22.404-1 Types of wage determinations.

(a) General wage determinations. (1) * * * Once incorporated in a

contract, a general wage determination normally remains effective for

the life of the contract, unless the contracting officer exercises an

option to extend the term of the contract (see 22.404-12). * * *

(b) * * * Once incorporated in a contract, a project wage

determination normally remains effective for the life of the contract,

unless the contracting officer exercises an option to extend the term

of the contract (see 22.404-12).

4. Revise section 22.404-2(a) to read as follows:

22.404-2 General requirements.

(a) The contracting officer must incorporate only the appropriate

wage determinations in solicitations and contracts and must designate

the work to which each determination or part thereof applies. The

contracting officer must not include project wage determinations in

contracts or options other than those for which they are issued. When

exercising an option to extend the term of a contract, the contracting

officer must select the most current wage determination from the same

schedule as the wage determination in effect at award, unless the type

of construction in the option period is significantly different from

the type of construction in the preceding contract period.

* * * * *

5. In section 22.404-3, revise the last sentence of paragraph (c);

remove paragraph (d); and redesignate paragraph (e) as (d) to read as

follows:

22.404-3 Procedures for requesting wage determinations.

* * * * *

(c) * * * Accordingly, agencies should submit requests to the

Department of Labor at least 45 days (60 days if possible) before

issuing the solicitation or exercising an option to extend the term of

a contract.

* * * * *

6. In section 22.404-6, revise paragraph (a); and add paragraph (d)

to read as follows:

22.404-6 Modifications of wage determinations.

(a) General. (1) The Department of Labor may modify a wage

determination to make it current by specifying only the items being

changed or by issuing a ``supersedeas decision,'' which is a reissuance

of the entire determination with changes incorporated.

(2) All project wage determination modifications expire on the same

day as the original determination.

(3) The agency must time-date stamp all modifications of wage

determinations immediately upon receipt. (Note the distinction between

receipt by the agency (modification is effective) and receipt by the

contracting officer, which may occur later.)

* * * * *

(d) The following applies when modifying a contract to exercise an

option to extend the term of a contract:

(1) A modified wage determination is effective if, before execution

of the contract modification to exercise the option, the contracting

agency receives a written action from DoL, or DoL publishes notice of

modifications to general wage determinations in the Federal Register.

(2) If the contracting officer receives an effective wage

modification either before or after execution of the contract

modification to exercise the option, the contracting officer must

modify the contract to incorporate the modified wage determination, and

any changed wage rates, effective as of the date of option exercise.

7. Revise section 22.404-7 to read as follows:

22.404-7 Correction of wage determinations containing clerical errors.

Upon the Labor Department's own initiative or at the request of the

contracting agency, the Administrator, Wage and Hour Division, may

correct any wage determination found to contain clerical errors. Such

corrections will be effective immediately, and will apply to any

solicitation or active contract. Before contract award, the contracting

officer must follow the procedures in 22.404-5(b)(1), (b)(2)(i) or (ii)

in sealed bidding, and the procedures in 22.404-5(c)(3) or (4) in

negotiations. After contract award, the contracting officer must follow

the procedures at 22.404-6(b)(5), except that for contract

modifications to exercise an option to extend the term of the contract,

the contracting officer must follow the procedures at 22.404-6(d)(2).

8. In section 22.404-10, revise the first sentence to read as

follows:

22.404-10 Posting wage determinations and notice.

The contractor must keep a copy of the applicable wage

determination (and any approved additional classifications) posted at

the site of the work in a prominent place where the workers can easily

see it. * * *

9. Add section 22.404-12 to read as follows:

[[Page 67988]]

22.404-12 Labor standards for contracts containing construction

requirements and option provisions that extend the term of the

contract.

(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 R.S. Means Cost Estimating System, or the U.S. Army Computer-Aided

Cost Estimating System), 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. The contracting officer

must apply the percentage rate, based on the economic indicator, to the

portion of the contract price designated in the contract clause as

labor costs subject to the provisions of the Davis-Bacon Act. 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 Act 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.

10. In section 22.406-3, add paragraph (e) to read as follows:

22.406-3 Additional classifications.

* * * * *

(e) In each option to extend the term of the contract, if any

laborer or mechanic is to be employed during the option in a

classification that is not listed (or no longer listed) on the wage

determination incorporated in that option, the contracting officer must

require that the contractor submit a request for conformance using the

procedures noted in paragraphs (a) through (d) of this section.

11. Add sections 22.407(e), (f), and (g) to read as follows:

22.407 Contract clauses.

* * * * *

(e) Insert the clause at 52.222-30, Davis-Bacon Act--Price

Adjustment (None or Separately Specified Pricing Method), in

solicitations and contracts if--

(1) The contract is expected to be a fixed-price contract subject

to the Davis-Bacon Act that will contain option provisions by which the

contracting officer may extend the term of the contract, and the

contracting officer determines the most appropriate contract price

adjustment method is the method at 22.404-12(c)(1) or (2); or

(2) The contract is expected to be a cost-reimbursable type

contract subject to the Davis-Bacon Act that will contain option

provisions by which the contracting officer may extend the term of the

contract.

(f) Insert the clause at 52.222-31, Davis-Bacon Act--Price

Adjustment (Percentage Method), in solicitations and contracts if the

contract is expected to be a fixed-price contract subject to the Davis-

Bacon Act that will contain option provisions by which the contracting

officer may extend the term of the contract, and the contracting

officer determines the most appropriate contract price adjustment

method is the method at 22.404-12(c)(3).

(g) Insert the clause at 52.222-32, Davis-Bacon Act--Price

Adjustment (Actual Method), in solicitations and contracts if the

contract is expected to be a fixed-price contract subject to the Davis-

Bacon Act that will contain option provisions by which the contracting

officer may extend the term of the contract, and the contracting

officer determines the most appropriate method to establish contract

price is the method at 22.404-12(c)(4).

[[Page 67989]]

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

12. Add sections 52.222-30, 52.222-31, and 52.222-32 to read as

follows:

52.222-30 Davis-Bacon Act--Price Adjustment (None or Separately

Specified Pricing Method).

As prescribed in 22.407(e), insert the following clause:

Davis-Bacon Act--Price Adjustment (None or Separately Specified Pricing

Method) (Date)

(a) The wage determination issued under the Davis-Bacon Act by

the Administrator, Wage and Hour Division, Employment Standards

Administration, U.S. Department of Labor, that is in effect at the

exercise of an option to extend the term of the contract, will apply

to that option period.

(b) The Contracting Officer will make no adjustment in contract

price, other than provided for elsewhere in this contract, to cover

any increases or decreases in wages and benefits as a result of--

(1) Incorporation of the Department of Labor's wage

determination applicable at the exercise of the option to extend the

term of the contract;

(2) Incorporation of a wage determination otherwise applied to

the contract by operation of law; or

(3) An increase in wages and benefits resulting from any other

requirement applicable to workers subject to the Davis-Bacon Act.

(End of clause)

52.222-31 Davis-Bacon Act--Price Adjustment (Percentage Method).

As prescribed in 22.407(f), insert the following clause:

Davis-Bacon Act--Price Adjustment (Percentage Method) (Date)

(a) The wage determination issued under the Davis-Bacon Act by

the Administrator, Wage and Hour Division, Employment Standards

Administration, U.S. Department of Labor, that is in effect at the

exercise of an option to extend the term of the contract, will apply

to that option period.

(b) The Contracting Officer will adjust the portion of the

contract price or contract unit price containing the labor costs

subject to the Davis-Bacon Act to provide for an increase in wages

and fringe benefits at the exercise of each option to extend the

term of the contract in accordance with the following procedures:

(1) The Contracting Officer has determined that the portion of

the contract price or contract unit price containing labor costs

subject to the Davis-Bacon Act is ______ [Contracting Officer insert

percentage rate] percent.

(2) The Contracting Officer will increase the portion of the

contract price or contract unit price containing the labor costs

subject to the Davis-Bacon Act by the percentage rate published in

______ [Contracting Officer insert publication].

(c) The Contracting Officer will make the price adjustment at

the exercise of each option to extend the term of the contract. This

adjustment is the only adjustment that the Contracting Officer will

make to cover any increases in wages and benefits as a result of--

(1) Incorporation of the Department of Labor's wage

determination applicable at the exercise of the option to extend the

term of the contract;

(2) Incorporation of a wage determination otherwise applied to

the contract by operation of law; or

(3) An increase in wages and benefits resulting from any other

requirement applicable to workers subject to the Davis-Bacon Act.

(End of clause)

52.222-32 Davis-Bacon Act--Price Adjustment (Actual Method).

As prescribed in 22.407(g), insert the following clause:

Davis-Bacon Act--Price Adjustment (Actual Method) (Date)

(a) The wage determination issued under the Davis-Bacon Act by

the Administrator, Wage and Hour Division, Employment Standards

Administration, U.S. Department of Labor, that is in effect at the

exercise of an option to extend the term of the contract, will apply

to that option period.

(b) The Contractor states that the prices in this contract do

not include any allowance for any contingency to cover increased

costs for which adjustment is provided under this clause.

(c) The Contracting Officer will adjust the contract price or

contract unit price labor rates to reflect the Contractor's actual

increase or decrease in wages and fringe benefits to the extent that

the increase is made to comply with, or the decrease is voluntarily

made by the Contractor as a result of--

(1) Incorporation of the Department of Labor's Davis-Bacon Act

wage determination applicable at the exercise of an option to extend

the term of the contract; or

(2) Incorporation of a Davis-Bacon Act wage determination

otherwise applied to the contract by operation of law.

(d) Any adjustment will be limited to increases or decreases in

wages and fringe benefits as described in paragraph (c) of this

clause, and the accompanying increases or decreases in social

security and unemployment taxes and workers' compensation insurance,

but will not otherwise include any amount for general and

administrative costs, overhead, or profit.

(e) The Contractor shall notify the Contracting Officer of any

increase claimed under this clause within 30 days after receiving a

revised wage determination unless this notification period is

extended in writing by the Contracting Officer. The Contractor shall

promptly notify the Contracting Officer of any decrease under this

clause, but nothing in this clause precludes the Government from

asserting a claim within the period permitted by law. The notice

shall contain a statement of the amount claimed and any relevant

supporting data, including payroll records that the Contracting

Officer may reasonably require. Upon agreement of the parties, the

Contracting Officer will modify the contract price or contract unit

price in writing. The Contractor shall continue performance pending

agreement on or determination of any such adjustment and its

effective date.

(f) Contract price adjustment computations shall be computed as

follows:

(1) Computation for contract unit price per single craft hour

for schedule of indefinite-quantity work. For each labor

classification, the difference between the actual wage and benefit

rates (combined) paid and the wage and benefit rates (combined)

required by the new wage determination shall be added to the

original contract unit price if the difference results in a combined

increase. If the difference computed results in a combined decrease,

the contract unit price shall be decreased by that amount if the

Contractor provides notification as provided in paragraph (e) of

this clause.

(2) Computation for contract unit price containing multiple

craft hours for schedule of indefinite-quantity work. For each labor

classification, the difference between the actual wage and benefit

rates (combined) paid and the wage and benefit rates (combined)

required by the new wage determination shall be multiplied by the

actual number of hours expended for each craft involved in

accomplishing the unit-priced work item. The product of this

computation will then be divided by the actual number of units

ordered in the preceding contract period. The total of these

computations for each craft will be added to the current contract

unit price to obtain the new contract unit price. The extended

amount for the contract line item will be obtained by multiplying

the new unit price by the estimated quantity. If actual hours are

not available from the preceding contract period for computation of

the adjustment for a specific contract unit of work, the Contractor,

in agreement with the Contracting Officer, shall estimate the total

hours per craft per contract unit of work.

Example:

[[Page 67990]]

Asphalt Paving

[Current price $3.38 per square yard]

--------------------------------------------------------------------------------------------------------------------------------------------------------

Actual

Hourly Actual units Increase/sq.

DBA craft New WD rate Diff hrs. (sq. yard

paid yard)

--------------------------------------------------------------------------------------------------------------------------------------------------------

Equip Opr...................................................... $18.50 - $18.00 = $.50 x 600 / 3,000 = $.10

Truck Driver................................................... $19.00 - $18.25 = $.75 x 525 / 3,000 = .13

Laborer........................................................ $11.50 - $11.25 = $.25 x 750 / 3,000 = .06

-------------

Total increase per square yard = $.29*

--------------------------------------------------------------------------------------------------------------------------------------------------------

* Note: Adjustment for labor rate increases or decreases may be accompanied by social security and unemployment taxes and workers' compensation

insurance.

Current unit price = $3.38 per square yard

Add DBA price adj. + .29

---------

New unit price = $3.67 per square yard

(End of clause)

[FR Doc. 99-31348 Filed 12-2-99; 8:45 am]

BILLING CODE 6820-EP-P