MODERNIZATION OF THE JOHN
F. KENNEDY FEDERAL BUILDING, WAB No. 94-09 (WAB Aug. 19, 1994)
CCASE:
MODERNIZATION OF THE JFK FEDERAL BUILDING,
DDATE:
19940819
TTEXT:
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WAGE APPEALS BOARD
UNITED STATES DEPARTMENT OF LABOR
WASHINGTON, D.C.
In the Matter of:
MODERNIZATION OF WAB CASE NO. 94-09
THE JOHN F. KENNEDY
FEDERAL BUILDING,
BOSTON, MASSACHUSETTS
Application of Wage Decision
No. MA93-1, Modification No. 2
BEFORE: David A. O'Brien, Chair
Ruth E. Peters, Member
DATED: August 19, 1994
DECISION OF THE WAGE APPEALS BOARD
This matter is before the Wage Appeals Board on the petition
of the Building and Construction Trades Department, AFL-CIO; the
International Brotherhood of Electrical Workers; and the
International Brotherhood of Electrical Workers, Local No. 103
(collectively referred to as "Petitioners"), for review of a
March 18, 1994 ruling by the Administrator of the Wage and Hour
Division ("DOL"). In the ruling the Administrator denied the
Petitioners' request to require the General Services
Administration ("GSA") to incorporate all modifications to Wage
Decision ("WD") No. MA91-1 that were published by DOL after
exercise of the contract option for Phase II of the Modernization
of the John F. Kennedy Federal Building, Boston, Massachusetts
("JFK project"), but before construction was commenced,
including, but not limited to WD No. MA93-1, Modification No. 2,
published on April 9, 1993. The United States Army has filed a
petition for intervention in opposition to both the Petitioners
and DOL. For all the reasons stated below, the matter is
remanded to the Administrator for action consistent with this
decision.[1]
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I. BACKGROUND
This matter involves the exercise of a contract option by
GSA pursuant to its agreement with the Suffolk Construction
Company ("Suffolk") for Phase II of the JFK project. GSA awarded
a contract to Suffolk on July 20, 1990 for Phase I of the
project. The renovation was divided into three phases. On March
12, 1992, during construction on Phase I, GSA notified Suffolk of
its intent to exercise an option for Suffolk to perform the
renovations called for under Phase II of the project. GSA
informed Suffolk on April 14, 1992 that performance was expected
to commence on Phase II on April 15, 1993. At that time GSA
informed Suffolk that the applicable wage determination for Phase
II of the renovation project would be No. MA91-1 (Modification
Nos. 1-17), dated March 20, 1992 ("MA91-1").
On April 9, 1993 DOL issued WD MA93-1, which reflected the
rate applicable to electricians under a collective bargaining
agreement between Local No. 103 and the Boston Chapter of the
National Electrical Contractors Association, effective September
1, 1991 through August 31, 1993. Construction on Phase II of the
JFK project began on May 17, 1993. On August 9, 1993 Local No.
103 asked DOL to determine that GSA should have incorporated WD
MA93-1, rather than WD MA91-1 in Phase II of the project. In
support of this request Local No. 103 argued that because
construction of Phase II was not to begin for over a year after
exercise of the option, the contract should contain the newest
wage determination in effect at commencement of construction.
Local No. 103 urged, by analogy, that 29 C.F.R.
[sec]1.6(c)(3)(iv) was intended to protect employees from the
adverse impact delays of more than 90 days could have on
prevailing wages.
On March 18, 1994 DOL denied Local 103's request and
rejected the contention that the exercise of an option is
analogous to the grant of a negotiated, non-competitively bid
contract. Instead, DOL likened the case to those situations
where a wage determination is properly incorporated in a contract
at the time of a competitively bid award, but where considerable
lag time exists before actual construction begins. Therefore,
DOL found that WD MA91-1, the wage determination in existence at
the time GSA exercised the option on Phase II, set out the
appropriate wage rate. The DOL cited All Agency Memorandum
("AAM") No. 157), which sets forth an allegedly long-standing
policy that equates the exercise of an option clause in a
contract with the award of the contract. DOL noted that 29
C.F.R. [sec] 1.6(c)(3) provides that modifications to wage
determinations may be effective only if received prior to
contract award. DOL found that none of the exceptions to the
general rule contained in 29 C.F.R. [sec]1.6(c)(3) requires GSA
to use MA93-1 in Phase II of the project pursuant to the
application for a wage decision modification after contract
award.[2]
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[3] The United States Army has intervened to argue that neither
WD MA91-1, nor WD MA93-1 is the appropriate wage determination.
The Army argues that AAM No. 157 is invalid and that the policy
it purports to promulgate is legally erroneous. The invalidity
of AAM No. 157 is allegedly based upon violations of the
Administrative Procedure Act in the adoption of the memorandum.
The Army states that the appropriate wage determination for Phase
II of the project is the same wage determination as incorporated
in Phase I of the project, WD MA90-1. The Army points out that
"unless otherwise expressed in the contract or a particular
statute, the exercise of an option comprises an extension of the
terms of the original contract" and as set out in the Federal
Acquisition Regulations ("FAR") 48 C.F.R. [sec] 22.404-1(a)(1)
"[o]nce incorporated in a contract, a general wage determination
normally remains effective for the life of the contract."
II. DISCUSSION
A. The Petition for Intervention by the United
States Army
The Army concedes that the specific terms of a contract
could treat the exercise of an option under that contract as the
start of a new contract. See Intervenor's Statement in Opposition
to Petitioners, page 13. Paragraph 2.03, OPTION TO EXTEND TERM
OF THE CONTRACT, page 77 of the contract at issue, states that
"[a]t the time of exercise of an option, current wage rates will
be incorporated into the option." Wage determination WD MA 90-1
should not apply because the very language of the contract
dictates that "current wage rates" will apply upon exercise of
the Phase II option. Therefore, despite any potentially favorable
decision with regard to the Army's argument that AAM No. 157 is
invalid and/or legally erroneous, GSA incorporated the correct
current wage determination at the time the Phase II option was
exercised. We therefore, decline to rule on the Army's
allegation that AAM No. 157 is invalid and/or legally
erroneous.<1> The Army's petition to intervene is granted, but
the relief requested therein is denied.[3]
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[4] B. The Administrator's decision
In issuing her decision the Administrator relied primarily
on AAM No. 157 which provides, in pertinent part, that:
[T]he exercise of such an option requires a contractor
to perform work for a period of time for which it would
not have been obligated -- and for which the government
would not have been required to pay -- under the terms
of the original contract if the option had not been
exercised. Thus, once the option on a contract is
exercised, the additional period of performance becomes
a new contract.
As interpreted by the Administrator this language provides that
the exercise of an option is equivalent to the "award" of a
contract. See Statement of the Administrator, page 5.
The Administrator also argues that in an analogous situation
under the McNamara-O'Hara Service Contract Act the exercise of an
option on a multi-year service contract is equivalent to the
"award " of a contract. The Administrator cites 29 C.F.R. [sec]
4.143 which states that:
Also, whenever the term of an existing contract is
extended, pursuant to an option clause or otherwise, so
that the contractor furnishes services over an extended
period of time, rather than being granted extra time to
fulfill his original commitment, the contract extension
is considered to be a new contract for purposes of the
application of the Act's provisions. All such "new"
contracts as discussed above require the insertion of a
new or revised wage determination in the contract as
provided in [sec] 4.5.
The Board notes that neither provision cited by the
Administrator states that the exercise of an option is equivalent
to the "award" of a contract. The cited provisions only state
that the exercise of an option is equivalent to a "new" contract.
The code section cited by the Administrator as controlling, 29
C.F.R. [sec] 1.6(c)(3), states that:
All actions modifying a general wage determination
shall be effective with respect to any project to which
the determination applies, if notice of such action is
published before "contract award" (or the start of
construction where there is no "contract award"). . . .
(emphasis added).
Here the option was exercised on April 14, 1992, but construction
did not begin until May 17, 1993. In the meantime a new wage
decision was issued, WD MA93-1, on April 9, 1993.[4]
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[5] If the Administrator's interpretation of AAM No. 157 is correct the
exercise of an option would be the same as the "award" of a contract and
the appropriate wage determination would be WD MA91-1 because that was
the wage determination in effect at the time of the "award" of the Phase
II contract. On the other hand, if the exercise of an option is not the
equivalent of a "contract award," then WD MA93-1 would apply because, as
far as Phase II is concerned, no contract would have been "awarded" and
wage determination WD MA93-1 was implemented prior to the beginning of
construction.<2>
C. Davis-Bacon and Related Acts policy on
prevailing wages
The Davis-Bacon and Related Acts ("DBRA") were adopted to
protect the laborers and mechanics employed on federally- funded
and assisted contracts. Prevailing wages must be paid to
laborers and mechanics on such construction projects.
Universities Research Assn., Inc. v. Coutu, 450 U.S. 754 (1981).
The very concept of a prevailing wage necessarily encompasses a
current wage. A wage simply cannot be prevailing if it is
outdated.
In proposing 29 C.F.R. [sec] 1.6 the Secretary stated, after
the notice and comment period closed on the second publication,
that "DOL's policy has been that bid solicitations should contain
the most recently issued determination of current prevailing
wages which can be included without causing undue disruption of
the procurement process." 47 Fed. Reg. 23646 (May 28, 1982).
The Secretary's regulations address the problem of outdated
wage rates in, at least, two different ways. First, new or
modified wage determinations are effective if published before
contract award, or the start of construction if there is no
contract award. 29 C.F.R. [sec] 1.6(c)(3). Secondly, projects
that are assisted under the National Housing Act or receive
assistance pursuant to Section 8 of the U.S. Housing Act of 1937,
situations in which competitive bidding does not usually take
place, must include updated wage rates if construction is not
begun within 90 days after initial endorsement of the agreement.
29 C.F.R. [sec] 1.6(c)(3)(iv).
The reason for not including updated wage rates in all
situations right up to the start of construction is based upon
the disproportionate effect that varying wage rates would have on
the bidding process. Changing the wage rate between bid opening
and contract award would create a situation in which competing [5]
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[6] bidders could be treated differently. In order to assure
fairness in the bidding process all contractors must submit their
bids based upon the same wage rates.
29 C.F.R. [sec] 1.6(c)(2)(i)(A) also helps resolve the
outdated wage rate problem by stating that modifications to wage
determinations received less than 10 days before bid opening are
still effective unless the contracting agency finds that it does
not reasonably have enough time to notify bidders of the change.
The priority the Secretary places on the need to have current
wage rates in place is highlighted by this particular code
section. Note that wage modifications received just 11 days
before bid opening must be implemented and that wage
modifications received even 1 day before bid opening can only be
excluded upon a showing that there is not reasonable time still
available to notify bidders.
The Administrator compares the present case to a situation
in which "a wage determination is properly incorporated in a
contract at the time of award, and there may be considerable time
lag before actual start of construction." (emphasis added).
Petitioners compare the present case to a situation in which a
negotiated, non-competitively bid contract is executed. The
analogy presented by the Petitioners is right on point, while the
analogy suggested by the Administrator depends on the assumption
that the "award" of a contract is the equivalent of exercising a
non-competitively bid option contained in a previously "awarded"
contract.
In the present case there was no competition for the new
contract on Phase II of the JFK project. Therefore,
incorporating the most current wage modification does not create
an unfair situation among bidders. The Petitioners position is
clearly supported by the underlying principals of the DBRA. In
fact, DOL has even conceded that "[w]hile the policy urged by the
petitioners may be laudable, they simply have no right to such a
dramatic change in the absence of any clear statutory or
regulatory basis." But, Petitioners do have such a regulatory
basis if the term "contract award" as used in 29 C.F.R. [sec]
1.6(c)(3) is interpreted as not including the exercise of a
non-competitively bid option contained in a previously "awarded"
contract.
D. Interpretation of 29 C.F.R. [sec] 1.6(c)(3)
Petitioners are not arguing that AAM No. 157 is in any way
invalid. In fact, Petitioners state that they "wholeheartedly
agree" with the Administrator that modifications to contracts
should be regarded as "new" contracts for wage determination
purposes. See Petitioners Reply Memorandum, page 21. Therefore,
Petitioners agree that GSA complied with the requirements of 29
C.F.R. [sec] 1.6(c)(3) by incorporating WD MA91-1 into the new
Phase II construction contract. See Petition for Review, page 7.
In the standard situation that decision by GSA would end the
dispute because construction on Phase II [6]
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[7] would normally commence fairly soon after the exercise of the new
contract. Certainly, if construction had begun prior to the issuance of
WD MA93-1 on April 9, 1993 the question presented here would be moot.
Since construction on Phase II of the JFK project did not begin until
after the publication of WD MA93-1, the proper interpretation of
[sec]1.6(c)(3) becomes the focal point of our analysis.
A number of specific exceptions to the general rule stated
in 29 C.F.R. [sec]1.6(c)(3) are set out in subparagraphs (i)
through (vi) of that code section. Petitioners argue that an
additional exception should be read into the subparagraphs of 29
C.F.R. [sec]1.6(c)(3) which would cover the unique situation in
which an option is exercised such a long time prior to the start
of construction. Petitioners point out that the policy of the
DBRA would be better served if such an exception were to be
adopted. The failure of the Secretary's regulations to cover
this unique situation is asserted as a basis for the creation of
an additional exception to [sec] 1.6(c)(3).
We reject this argument for three reasons. First, where a
general rule is followed by specific exceptions, the general rule
must be followed if none of the exceptions apply. Second,
creating such an exception as urged by the Petitioners would
violate subparagraph (iv) of this code section which states that
a modification to a wage determination shall not be effective if
published after contract award, or the start of construction
where there is no contract award. Third, the argument concedes
that the exercise of an option is equivalent to the "award" of a
contract because no exception would need to be applied if a
contract was not "awarded" at the time of exercise of the option.
The real issue, as identified by this Board, is the meaning of
the term "contract award" in 29 C.F.R. [sec]1.6(c)(3).
The Army argued persuasively in its Petition for
Intervention that the exercise of an option is not the equivalent
of the award of a new contract. The Army pointed out many
distinctions between the exercise of an option and the award of a
new contract, as follows:
The initial formation of a new contract requires the
meeting of the minds; it demands consensual acts by
both parties and consideration. By contrast, the
exercise of an option is a unilateral extension of the
contract with the necessary consent of only one party.
The consent of the party who must perform under the
option is not required. . . . Under the control of
federal procurement statutes, certificates of
compliance with environmental laws, equal employment
opportunities regulations, and procurement integrity
requirements are essential only upon initial contract
formation. These initial requirements need not be re-[7]
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[8] executed upon the exercise of an option. Furthermore,
Small Business eligibility continues during options
even if the business has outgrown its eligibility for
other purposes and is no longer qualified for the
program. Lastly, no additional competition is required
before an option is exercised.
In numerous provisions of FAR the term "contract award" is
used in the context of executing a contract with a winning
bidder. The exercise of an option is not referred to as the
"award" of a contract. While these provisions are not
controlling, they are instructive as to the intended meaning of
the term "contract award" in the Secretary's regulations. FAR
(at 48 C.F.R. [sec] 17.207(d)(3), Exercise of Options), refers to
"[t]he time between the award of the contract containing the
option and the exercise of the option. . . ." The Elements of
Sealed Bidding (FAR at 48 C.F.R. [sec] 14.101 notes under the
heading "(e) Contract Award" that "[a]fter bids are publicly
opened, an award will be made with reasonable promptness to that
responsible bidder whose bid, conforming to the invitation for
bids, will be most advantageous to the Government, considering
only price and the price-related factors included in the
invitation."
Webster's New World Dictionary defines award in the context
applicable to this case as "to give as the result of judging the
relative merits of those in competition." Blacks Law Dictionary
notes that "[o]ne awards a contract to a bidder. Jackson v.
State, 194 Ind. 130, 142 N.E. 1, 2, (holding that a finding that
a contract was `awarded to' a bidder meant it was entered into
with all required legal formalities)." (Emphasis in original).
The use of the term "contract award" in 29 C.F.R. [sec]1.6(c)(3)
would seem to include the notion of executing a contract with a
winning bidder.
The interpretation of the term "contract award" as not
including the exercise of a non- competitively bid option
contained in a previously "awarded" contract is further supported
by a Comptroller General's Decision, that while not controlling,
is right on point. When faced with the question of whether or
not the exercise of an option was the equivalent of the award of
a contract, the Comptroller General stated that:
The FAR defines an option as a "unilateral right in a
contract by which for a specified time, the government
may elect to purchase additional supplies or services
called for by the contract, or may elect to extend the
term of the contract." 48 C.F.R. [sec] 17.201. . . .
Thus, while for certain purposes the exercise of an
option is in effect considered a contract award, see,
e.g. 29 C.F.R. [sec] 4.4(a)(1) (1986) (involving the
Service Contract Act), the exercise of an option is
essentially no more than the [8]
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[9] government's taking advantage of a right it
possesses under an existing contract, rather
than the award of a new one."
Matter of Action Manufacturing Company, 66 Comp. Gen. 463, 467
(May 15, 1987).
The reasoning of the Comptroller General, if adopted by the
DOL, would further the policy of the DBRA to incorporate "the
most recently issued determination of prevailing wages which can
be included without causing undue disruption of the procurement
process." 47 Fed. Reg. 23646 (May 28, 1982). Since the
Administrator has not yet had the opportunity to consider the
meaning of the term "contract award" in 29 C.F.R. [sec] 1.6(c)(3)
as set out above and because the Petitioners never made this
precise argument to the Board as a basis for reversing the
Administrator's original ruling<3> , we remand this matter to the
Administrator for consideration of the exact meaning of the term
"contract award" contained in 29 C.F.R. [sec]1.6(c)(3). We
direct the Administrator to give the Petitioners an opportunity
to address this issue prior to entry of her decision after
remand.
E. The timeliness of Petitioners' challenge
Although not raised directly in its brief, at oral argument
DOL raised the issue of Petitioners' timeliness in seeking to
challenge the JFK Phase II wage determination. We address the
issue because, depending on the Administrator's decision as to
the proper interpretation of the term "contract award," the issue
may need to be addressed on remand. A long line of Wage Appeals
Board decisions from Ganada Development Corp., WAB Case Nos.
73-03 and 74-01 (May 14, 1977) through Harper County, Kansas, WAB
Case No. 90-30 (Oct. 23, 1990) have held that:
. . . in order for a challenge to be considered timely,
it is a prerequisite that such action be taken prior to
contract award, or the start of construction where
there is no contract award. In the absence of such a
timeliness rule, one of the basic purposes of the
Davis-Bacon and Related Acts would be rendered
meaningless. Dairy Development, Ltd., WAB Case No.
88-35 (Aug. 24, 1990), slip op. at p. 18.
In stressing the importance of timely challenging wage
determinations, the [9]
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[10] Dairy Development Board went on to state (Id. at pp. 18-19)
the following as a principal reason for the timeliness rule:
It is vital to ensure that contractors competing
for federally-assisted construction contracts know their
required labor costs in advance of bidding. Manifest
injustice to bidders would result if the successful
bidder on a project could challenge [the] contract's
wage determination after all other competitors were
excluded from participation.
In numerous cases since the adoption of 29 C.F.R. [sec]
1.6(c)(3) the Board has cited that provision as "codifying" the
Board's rulings regarding the requirement for timeliness. See
Harper County, Kansas, supra. This Board steadfastly adheres to
the timeliness rule as set out above, but considers that rule to
necessarily follow from the principal set out in 29 C.F.R. [sec]
1.6(c)(3), as opposed to being "codified" by that code section.
With the exception of the provisions for correcting clerical
errors in a wage determination (29 C.F.R. [sec] 1.6(d)) and the
specific situations set out in 29 C.F.R. [sec]1.6(f), the only
time a wage determination can be modified is prior to contract
award, or the start of construction if there is no contract
award.<4> See 29 C.F.R. [sec] 1.6(c)(3)(vi). Therefore, a
challenge to a wage determination must be timely made to DOL
(unless one of the specific exceptions contained in [sec]1.6(d)
or (f) is applicable), or the correct wage determination, if the
challenge is successful, could not be incorporated by DOL.<5>
The wage determination challenge by Petitioners is dated
August 9, 1993 and construction began on Phase II on May 17,
1993. The Petitioners would therefore, be precluded from
asserting their challenge if the Board's timeliness rule is
applied. The application of the Board's timeliness rule to the
facts of this [10]
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[11] case will not further the primary purpose of the rule -- to
prohibit unfair competition in the bidding process. The timeliness rule
has not been enforced in other situations in which the primary purpose
of the rule is not served and the application of the rule is
fundamentally unfair to the party seeking to challenge a wage
determination.
In this situation the critical analysis from a timeliness
perspective focuses on the reasonable notice Petitioners had of
the allegedly incorrect wage determination. In Utility Services,
Inc., WAB Case No. 90-16 (July 31, 1991) the Board held that the
timeliness rule would not apply because the Petitioner "did not
have adequate notice" of the challenged wage rate prior to award
of the contract. The record in this case is insufficient for us
to determine whether or not the Petitioners had adequate notice
to challenge the wage determination prior to the start of
construction. We direct the Administrator to determine, if
appropriate after deciding the "contract award" interpretation
issue, the extent to which the Petitioners had reasonable notice
of the incorporation of the allegedly outdated wage determination
prior to the start of construction. We further direct the
Administrator to consider whether or not the wage determination
incorporated into Phase II of the JFK project "clearly" does not
apply in light of this decision and the provisions of 29 C.F.R.
[sec]1.6(f). The Administrator shall give the Petitioners an
opportunity to address these issues on remand. The Administrator
is further directed to complete reconsideration on remand within
60 days of the date of this decision and provide a copy of the
new ruling to the Board on the date of issuance.
BY ORDER OF THE BOARD:
David A. O'Brien, Chair
Ruth E. Peters, Member
Gerald F. Krizan, Esq.
Executive Secretary [11]
FOOTNOTES
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
/FN1/ The Army has challenged the legality of AAM No. 157 in a
request for a ruling from the Administrator pursuant to 29 C.F.R.
[sec] 5.13. That request for an opinion is pending before the
Administrator.
/FN2/ WD MA 90-1 would not apply, even though that was the
applicable wage rate at the time of the "award" of the original
contract because the very language of that contract dictates that
"current wage rates" will apply upon exercise of the Phase II
option.
/FN3/ The Petitioners did argue that the exercise of an option
was not the equivalent of the award of a contract. See
Memorandum on Behalf of [Petitioners], pp. 8 and 9, but only used
that argument to bolster the assertion that an additional
exception to 29 C.F.R. [sec] 1.6(c)(3) should be adopted by the
Board. Id. at pp. 21 and 22.
/FN4/ The three exceptions set out in 29 C.F.R. [sec] 1.6(f) are,
as follows, if: 1) no wage determination was initially included
in the contract; 2) a wage determination was used that is clearly
wrong; or 3) the wrong wage determination was used due to
inaccuracies in the contracting agency's request for a wage
determination.
/FN5/ By its very terms, 29 C.F.R. [sec]1.6(c)(3) applies
directly only to the government. 29 C.F.R. [sec]1.6(c)(3) states
as follows:
All actions modifying a general wage determination
shall be effective with respect to any project to which
the determination applies, if notice of such actions is
published before contract award (or the start of
construction where there is no contract award). . . .
Only the government can "modify" a wage determination. Only the
government can "publish" a wage determination as set out in 29
C.F.R. [sec]1.6(c)(3)(v).
