Overview
This section outlines the procedures for the annual adjustment of the Executive Order (E.O.) minimum wage rate and establishes the specific criteria and formulas for contractors to request price adjustments when those rates increase. It ensures that contractors are compensated for direct labor increases while strictly limiting the types of costs that can be recovered.
Key Rules
- Annual Notification: The Department of Labor Administrator must notify the public of new E.O. minimum wage rates at least 90 days before they take effect (January 30) via the Federal Register and SAM.gov.
- Price Adjustment Timing: Contractors may only request a price adjustment after the effective date of the new annual E.O. minimum wage determination.
- Allowable Costs: Adjustments are limited to increased labor costs and "associated labor costs," which specifically include Social Security, unemployment taxes, and workers’ compensation insurance.
- Excluded Costs: Contractors cannot include any amounts for General and Administrative (G&A) expenses, overhead, or profit in the adjustment request.
- Calculation Formula: The adjustment is calculated by subtracting the highest of the following from the new E.O. rate: the previous E.O. rate, the applicable Service Contract Act/Davis-Bacon Act wage determination rate, or the actual wage currently paid to the worker.
- Anti-Duplication: Contracting officers are prohibited from providing duplicate price adjustments if the contractor has already received an adjustment for the same wages under other labor standard clauses.
Practical Implications
- Contractors must maintain precise payroll records to demonstrate the "actual wage paid" versus the "wage determination rate," as the price adjustment is based on the lowest possible delta between the new mandate and current compensation.
- Because profit and overhead are excluded from the adjustment, contractors may see a slight decrease in overall margin percentage as labor costs rise without a corresponding increase in fee.