Appealed from: Armed Services Board of Contract Appeals.
Newman, Bissell,*fn* and Michel, Circuit Judges.
Pursuant to the Contract Disputes Act of 1978, 41 U.S.C. §§ 601 et seq., the United States appeals the decision of the Armed Services Board of Contract Appeals ("the Board"), granting a price adjustment to Service Ventures Inc. for increased costs incurred for vacation pay benefits during a contract renewal option period.*fn1 We affirm.
Service Ventures entered into a contract to provide certain guard services to the Department of the Navy for a fixed price over a one-year period ("the base period"). The contract contained an option clause whereby the government could elect to extend the term of the contract, as follows:
The Government may extend this contract for an additional period of one to twelve months at the same price, subject to labor rate adjustments that may be required by the "Fair Labor Standards Act and Service Contract Act -- Price Adjustment (Multi-Year and Option Contracts)" clause of this contract. . . . If the Government exercises this option, the contract as renewed shall be deemed to include this option provision. However, the total duration of this contract, including the exercise of any options under this clause, shall not exceed 36 months.
The Fair Labor Standards Act and Service Contract Act -- Price Adjustment clause ("the FLSA clause") of the contract was as follows:
(a) The Contractor warrants that the prices set forth in this contract do not include any allowance for any contingency to cover increased costs for which adjustment is provided under this clause.
When, as a result of (i) the Department of Labor determination of minimum prevailing wages and fringe benefits applicable at the beginning of the renewal option period, or (ii) an increased or decreased wage determination otherwise applied to the contract by operation of law, or (iii) an amendment to the Fair Labor Standards Act enacted subsequent to award of this contract, affecting the minimum wage, which becomes applicable to this contract under law, the Contractor increases or decreases wages or fringe benefits of employees working on this contract to comply therewith, the contract unit price labor rates will be adjusted to reflect such increases or decreases.
The contract included Department of Labor Wage Rate Determination ("WRD") 73-1239 (Rev. 16) of 19 July 1985, which provided that employees shall receive:
2 weeks paid vacation after 1 year of service with a contractor or successor; 3 weeks after 5 years. Length of service includes the whole span of continuous service with the present (successor) contractor, wherever employed, and with predecessor contractors in the performance of similar work at the same Federal facility.
On January 30, 1987, the government exercised its option to extend the contract for the first option year, and included WRD 73-1239 (Rev. 18) of 8 December 1986 as applicable to the option year. The provisions of WRD 73-1239 (Rev. 16) and (Rev. 18) are identical with respect to vacation pay requirements.
In response to the government's request, Service Ventures supplied a cost proposal for the option year which included an additional amount for vacation pay. Service Ventures states that it had not included in its initial bid any amount for vacation pay because it had planned to hire all new employees, explaining that it sought to hire economically disadvantaged persons in accordance with the Job Training Partnership Act. New employees would not be entitled to vacation pay for the base period, under the WRD. Service Ventures was unable to hire all new employees, and therefore retained fifteen employees of the predecessor contractor. Service Ventures paid these fifteen carry-over employees vacation pay during the base period in ...