[Federal Register: October 22, 2001 (Volume 66, Number 204)]
[Rules and Regulations]
[Page 53479-53483]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22oc01-10]

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

DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONATICS AND SPACE ADMINISTRATION

48 CFR Parts 1, 22, and 52

[FAC 2001-01; FAR Case 1997-613; Item I]
RIN 9000-AI47

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

AGENCIES: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

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

SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council (Councils) have agreed on a final rule
amending 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,
at 63 FR 64542. The rule requires incorporation of the current Davis-
Bacon Act wage determination at the exercise of each option period in
construction contracts.

DATES: Effective Date: December 21, 2001.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS
Building, Washington, DC, 20405, (202) 501-4755, for information
pertaining to status or publication schedules. For clarification of
content, contact Ms. Linda Nelson, Procurement Analyst, at (202) 501-
1900. Please cite FAC 2001-01, FAR case 1997-613.

SUPPLEMENTARY INFORMATION:

A. Background

This final 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 state that new or revised wage determinations must be incorporated
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 the 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 at 63 FR 64542, November 20, 1998.
On December 3, 1999, DoD, GSA, and NASA published a proposed rule
in the Federal Register at 64 FR 67986. Eight respondents submitted
comments on the proposed rule. The comments were considered in the
development of the final rule.
This is not a significant regulatory action and, therefore, was not
subject to 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 Regulatory Flexibility Act, 5 U.S.C. 601, et seq., applies to
this final rule. The Councils prepared a Final Regulatory Flexibility
Analysis (FRFA). The FAR Secretariat has submitted a copy of the FRFA
to the Chief Counsel for Advocacy of the Small Business Administration.
The FRFA is summarized as follows:

The final rule amends FAR Parts 1, 22, and 52 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. The 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 annual 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

[[Page 53480]]

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 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
requirements, we estimate 225 prime contractors and 675
subcontractors, of which approximately 50 percent are small
businesses.

Interested parties may obtain a copy of the FRFA from the FAR
Secretariat.
DoD, GSA, and NASA published a proposed rule in the Federal
Register at 64 FR 67986, December 3, 1999. Eight respondents submitted
comments on the proposed rule. No comments were received on the IRFA.

C. Paperwork Reduction Act

The Paperwork Reduction Act applies. The FAR Secretariat submitted
a request for approval of a revised 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 andBudget (OMB). The burden associated with this rule has
been approved under OMB Control No. 9000-0154.

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

Government procurement.

Dated: October 12, 2001.
Al Matera,
Director, Acquisition Policy Division.

Therefore, DoD, GSA, and NASA amend 48 CFR parts 1, 22, and 52 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; and42 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.

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

------------------------------------------------------------------------
* * * * *
FAR segment............................ OMB Control No.
* * * * *
52.222-32.............................. 9000-0154

* * * * *
------------------------------------------------------------------------

PART 22--APPLICATION OF LABOR LAWS TO GOVERNMENTACQUISITIONS

22.403-4 [Amended]

3. Amend section 22.403-4 in paragraph (b)(5) by removing the words
``Wage Appeals'' and by adding ``Administrative Review'' in its place.

4. 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).

5. Amend section 22.404-2 by revising paragraph (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(s) from the
same schedule(s) as the wage determination(s) incorporated into the
contract.
* * * * *

6. 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.
* * * * *

7. 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 reissuing the entire determination with changes
incorporated.
(2) All project wage determination modifications expire on the same
day as the original determination. The need to include a modification
of a project wage determination in a solicitation is determined by the
time of receipt of the modification by the contracting agency.
Therefore, the contracting agency must annotate the modification of the
project wage determination with the date and time immediately upon
receipt.
(3) The need for inclusion of the modification of a general wage
determination in a solicitation is determined by the publication date
of the notice in the Federal Register, or by the time of receipt of the
modification (annotated with the date and time immediately upon
receipt) by the contracting agency, whichever occurs first. (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--
(i) The contracting agency receives a written action from the
Department of Labor prior to exercise of the option, or within 45 days
after submission of a wage determination request (22.404-3(c)),
whichever is later; or
(ii) The Department of Labor publishes notice of modifications to
general wage determinations in the Federal Register before exercise of
the option.
(2) If the contracting officer receives an effective modified wage
determination 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 that the option to
extend was effective.

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

[[Page 53481]]

22.404-7 Correction of wage determinations containing clerical errors.

Upon the Department of Labor'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) or (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).

9. 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. * * *

22.404-11 [Amended]

10. In section 22.404-11, amend the first sentence by removing ``a
Wage Appeals'' and adding ``an Administrative Review'' in its place.

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

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. 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 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.

12. 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.

22.406-10 [Amended]

13. Amend section 22.406-10 in the last sentence of paragraph (e)
by removing the words ``Wage Appeals'' and by adding ``Administrative
Review'' in its place.

14. In section 22.407, add paragraphs (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 the contract is expected to be--
(1) A fixed-price contract subject to the Davis-Bacon Act that will
contain option provisions by which the

[[Page 53482]]

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) 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).

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

15. 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 Method).

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

Davis-Bacon Act--Price Adjustment (None or Separately Specified Method)
(Dec 2001)

(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) (Dec 2001)

(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) (Dec 2001)

(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 effective for an
option to extend the term of the contract, will apply to that option
period.
(b)(1) The Contractor states that if the prices in this contract
contain an allowance for wage or benefit increases, such allowance
will not be included in any request for contract price adjustment
submitted under this clause.
(2) The Contractor shall provide with each request for contract
price adjustment under this clause a statement that the prices in
the contract do not include any allowance for any increased cost for
which adjustment is being requested.
(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
notify the Contracting Officer promptly 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

[[Page 53483]]

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: Asphalt Paving--Current Price $3.38 per Square Yard
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hourly Increase/
DBA craft New WD rate paid Diff. Actual hrs. Actual units (sq. yard) sq. yard
--------------------------------------------------------------------------------------------------------------------------------------------------------
Equip. Opr.......................... $18.50 - $18.00 = $.50 x 600 hrs./ 3,000 sq. yrd. = $.10

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

Laborer............................. $11.50 - $11.25 = $.25 x 750 hrs./ 3,000 sq. yrd. = $.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 (per square yard) $3.38
Add DBA price adj................... +.29
New unit price (per square yard).... $3.67
--------------------------------------------------------------------------------------------------------------------------------------------------------

(End of clause)
[FR Doc. 01-26296 Filed 10-19-01; 8:45 am]
BILLING CODE 6820-EP-P