FAR 52.222-43(b) states that for SCA covered labor categories on FFP/T&M contracts, no escalation is to be proposed. The reason for this is that when the DoL changes the rates, the specific adjustments are made by the KO on that contract. DCAA audit programs and their CAM make no reference of this - DCAA information allows escalation on all labor. This is very significant. Do you agree that escalation should not be proposed on T&M/FFP proposals that have DoL SCA wage determined categories?
I can find nothing in the FAR/DFARS that prevents a contractor from proposing an escalation under a TM/FFP with DOL SCA wage determinations. It is not an unallowable cost as defined under FAR Part 31. Furthermore, you stated in the question background that "FAR 52.222-43(b) states that for SCA covered labor categories on FFP/T&M contracts, no escalation is to be proposed." That specific FAR clause speaks about contingencies and not about escalation under TM/FFP proposals with DOL wage determinations. Specifically, FAR 52.222-43(b) states that the price in a contract does not include any allowance for any contingency to cover any increased cost. FAR 31.205-7, defines a contingency as a possible future event or condition arising from presently known or unknown causes where the outcome is indeterminable.
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A proposed escalation can definitely increase contract cost, however its impact (increase in cost) can be determined and would only come into play if the Government decided to accept the proposed escalation. Remember: A DOL wage determination is the minimum amount a contractor is required to pay its employees by law under a Government contract. The contractor can always propose a higher wage rate than what is required by DOL under either the Service Contract Act for service contracts or Davis Bacon Act for construction contracts. Just because they are proposing a higher rate doesn't mean the Government has to accept it. The contractor needs to provide support/rationale for the escalation and the contracting officer should research, analyze, document and consult with DOL before making a determination. As we do not have all of the facts particular to your contract, program, and situation, we highly recommend you consult with your Contracting Officer and Legal Office for guidance.