## United States Court of Appeals for the Federal Circuit

06-1080

LEAR SIEGLER SERVICES, INC., Appellant,

v.
Donald H. Rumsfeld, SECRETARY OF DEFENSE, Appellee.

Daniel B. Abrhams , Epstein Becker & Green, P.C, of Washington, DC, argued for appellant. With him on the brief was Shlomo D. Katz

. Marla T. Conneely , Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for appellee. With her on the brief were Peter D. Keisler , Assistant Attorney General; David M. Cohen , Director; and James M. Kinsella , Deputy Director. Of counsel on the brief was John T. Lauro , Department of the Air Force, Air Force Legal Services Agency, of Arlington, Virginia. Terry R. Yellig , Sherman, Dunn, Cohen, Leifer & Yellig, P.C., of Washington, DC, for amicus curiae International Association of Machinists and Aerospace Workers, AFLCIO. Mark D. Colley , Holland & Knight LLP, of Washi ngton, DC, for amicus curiae Professional Services Council. With him on the brief were David P. Metzger , Kara L. Daniels , and Eric L. Yeo

. Appealed from: United States Armed Se rvices Board of Contract Appeals

## United States Court of Appeals for the Federal Circuit

06-1080 LEAR SIEGLER SERVICES, INC., Appellant,

v. Donald H. Rumsfeld, SECRETARY OF DEFENSE, Appellee.

________________________ DECIDED: July 28, 2006

________________________ Before, NEWMAN, GAJARSA, and LINN, Circuit Judges

. GAJARSA, Circuit Judge

. Lear Siegler Services, Inc. (“LSI” or “the contractor”) appeals from the decision of the Armed Services Board of Contract Appeals (“Board”), granting summary judgment to the government and denying summary judgment to LSI. Lear Siegler Servs., Inc. , 2005 ASBCA LEXIS 31, 2005- 1 B.C.A. (CCH) P32, 937, ASBCA No. 54449, aff’d on reconsideration , 2005 ASBCA LEXIS 90, 2005-2 B.C. A. (CCH) P33,110. LSI had claimed that the Price Adjustment Clause ( part of the regulatory scheme of the Service Contract Act of 1965) required the government to compensate LSI for increases in the cost of providing its empl oyees with a defined-benef it health plan, as required by the terms of a collective bargai ning agreement (“CBA”). See Service Contract Act of 1965,ch. 286, Pub. L. No. 89-286, 79 Stat. 1034 (codified as amended at 41 U.S.C. § 351- 358); 48 C.F.R. § 52.222-43 (“Price Adjustm ent Clause” ). LSI timel y appealed. The Board had jurisdiction purs uant to the Contract Disputes Act, 41 U.S.C. § 607(d)(2), and we have jurisdic tion pursuant to 28 U.S.C. § 1295(a )(10) and 41 U.S.C. § 607(g)(1)(A). For the reasons discussed bel ow, we hold that the Board erred in granting summary judgment in favor of the government, and it abused its discretion in denying summary judgment to LSI. Accordingly, we reverse. I. BACKGROUND The Air For c e awarded a firm, fixed price contract to LSI, under which LSI was to provide aircraft maintenance s e rvices at S heppard Air Force Base, Texas. The base year of the contract ran from October 2001 to October 2002, with multiple renewa l options thereafter. LS I’s predecesso r contractor was Lockheed Martin. LSI’s contract incorporated the terms of the Service Contract Act (“SCA”), which serves generally to protect the wages and fringe b enefits of service workers. The contract included bot h a SC A wage/benefit determination, which incorporated the wages and fringe benefits set forth in t he CBA between the Ai r F o rce and Lockheed’s predecess o r, and a Price Adjustment Claus e, which required the gov ernment to pay LSI for “increase[s]

. . . in applicable

. . . fri nge benefits

. . . made to comply with

. . . [the] wage deter mination . . . .” 48 C.F.R. § 52.222-43. LSI’s CBA specifically required it to pr ovide its employ ees wi th a defined-benefit health plan. As distinct from a defined -contribution plan, a defined- benefit plan obligates an employ er to s pend whatever is neces sary to continue to provide its employees with an agreed-upon le vel of benefit. A defined- benefit plan thereby ensures

06-1080 2that employees will c ontinue to receive the same level of benefit (here health coverage), even as costs rise. Although the future costs of providing ben efits under a definedbenefit plan are not known wit h certainty at the time of c ontracting, such costs may reasonably be projected on the basis of actuarial determinations. In February, 2003, LSI submitted a reques t for a price adjustment under the SCA Price Adjustment Clause for Option Year 2003, seeking reimbursement for the increased costs of providing it s employees with the defined-ben efit health plan. The Air Force denied the request, and LSI appealed to t he Board. The Bo ard distinguished between increases in an employer’s costs of providing benefit s, which it deemed insufficient to trigger the Price Adju stment Clause, and increases in the benefits themselves. See 48 C.F.R. § 52.222-43(d) (requiring “increase[s]

. . . in applicable . . . fringe benefits . . . ”). Observing that there had be en no “change in the CBA

. . . [or the] scope of benefits to be prov ided,” it co ncluded that the CBA-based wage determination did not require LSI to incur the increas ed cost of maintaining the def ined level of health benefit, and that the Price Adjustment Claus e was theref ore inapplicable. Accordingly, the Board granted summary judgment in favor of the Air Force and denied LSI’s request for the same. The Board also rejected LSI’s course-of-dealing argument, holding that a course of dealing cannot al ter the meaning of an unambiguous contract term. LSI timely appealed to t h is court, and we have jurisdiction pursuant to 28 U.S.C. § 1295(a)(10) and 41 U.S.C. § 607(g)(1)(A).

06-1080 3II. DISCUSSI ON The principal issue on appeal is whether the Board erred in its construction of the Price Adjustment Clause. For the reasons discussed below, we conclude that it did commit legal error in its determination, and we reverse the judgment of the Board without needing to reach the meri ts of LSI’s other arguments.
A. Standard of Review This c a se r equires us to review the Boar d’s construction of the Price Adjust ment Claus e. Our standard of revi ew is gov erned by the Contracts Disputes Act, whic h provides that “the decision of the agency board on any questi on of law shall not be final or conclus i ve

. . . .” 41 U.S.C. § 609(b) . Statutory and regulat ory constructions are questions of law, which we review de novo . The interpretation of a government contract is also question of law, which we review de novo on appeal. Forman v. U n ited States , 329 F.3d 837, 841 (F ed. Cir. 2003) . Nonetheless, we give t he Board’s leg a l conclus i ons “careful consideration due to the board’s co nsiderable experience in construing government contracts.” Wickham Contracting Co. v. Fischer , 12 F.3d 1574, 1577 (Fed. Cir. 1994). See also Titan Corp. v. West , 129 F.3d 1479, 1481 ( F ed. Cir. 1997) (“The Board’s int e rpretation of a contr a ct is not f i nal, and is subject to de novo review on appeal, although due respect is often wa rranted by the Boar d’s experience in interpreting the Federal Acqu isition Regulat i ons (FAR)

. ”); Erickson Air Crane Co. v. United Stat es , 731 F.2d 810, 814 (Fed. Cir. 1984) (“[L] egal interpretations by tribunals having e x p e rtise are helpful to us, even if not compellin g

. ”). Summary judgment is properly granted only when there is no genuine issue of material fact. Fed. R. Civ. P. 56(c); Anders on v. Liberty Lobby, Inc. , 477 U.S. 242, 247-

06-1080 448 (1986). While we review de novo a district court’s grant of summary judgment, we review its denial of summary ju dgment for abuse of discretion. Pickholtz v. Rainbow Techs. , 284 F.3d 1365, 1371 (Fed. Cir. 2002).
B. Service Co ntract Act The SCA requires m o st government servic e contracts to contain claus es that protect workers’ wage s and fringe benefits. See 41 U. S.C. § 351(a). More specifica lly, the SCA directs the S e cretary of Labor (“Sec retary”) to issue special minimum wage orders, called “wage determinations,” for each class of service worker employed in a particular locality, and it forbids contractor s (that is, employers) from paying less than the Secretary’s wage determinations. See 41 U.S.C. § 351(a)(1). A similar SCA provision applies to fri nge benefit s. See 41 U.S.C. § 351(a)(2). In this manner, the SCA prevents cont ractors from underbidd ing each other (and hence being awarded government contracts) by cutting wages or fringe benefits to its service workers: Since labor costs are the predominant fact or in most service contracts, the odds on making a successful low bid for a contract are heavily stacked in favor of the contractor paying the lowe st wag e s. Co ntractors who wish t o maintain an enlightened wage policy may find it almost impossible t o compete for Government service cont racts with those w ho pay wages to their employees at or below the subs istenc e lev e l. When a Gov e rnment contract is awarded to a servic e c ontractor with low wage standards, the Government is in effect subsidizing subminimum wages. Fort Hood Barbers As s’n v. Herm an , 137 F.3d 302, 309 (5th Cir. 1998) (citing H.R. Rep. No. 89-948, at 2-3 (1965); S. Rep. No. 89-798, at 3-4 (1965), reprinted in 196 5 U.S.C.C.A.N. 3737, 3739). Although the SCA, as origi nally enacted, worked well to prevent the depression of wages/benefits (by using wage determinations to set a wage/b enefit “floor”), it did not

06-1080 5provide a mechanism to prevent the eros ion of wage/benefit gains made through collectiv e bargaining, wher ein labor groups had succeeded in negotiating wages/benefits that were hi gher than the Secret ary’s general wage det ermination. As the Fifth Circuit aptly noted: [T]he nature of government contracti ng, calling for frequent rebidding, combined with the SCA's sole emphasis and relianc e on the prevailing wage rate scheme, effectively diminished the bargaining power of unionized workforces. A contractor without a CBA cov e ring its employees, or with a CBA setting comparatively low wage and benefit rates, was able to easily outbid an incumbent contractor bound by a CBA with higher wages and rates that would surviv e the com m encement date of the new contract. Id. Consequently, the SCA was amended to insert the so-called “successor contractor rule,” whic h prohi bits a successor contractor fr om paying its employees less than its predecessor had paid its employees pursuant to the predecessor’s CBA: No contractor or subcontractor under a contract, whic h succeeds a contract subject to this Act and under which substantially the same services are furnished, shall pay any s e rvice em ployee under such contract less than the wages and fri nge benefits, including accrued wages and fringe benefits, and any prospective in creases in wages and fringe benefits pr ovided for in a collect i ve- bargaining agreement as a result of arm’s-length negotiations, to which su ch service employees would have been entitled if they were employed under the predeces sor contract . . . . 41 U.S.C. § 353(c); see also Gracey v. Int’l Bhd. of Elec. Workers , 868 F.2d 671, 6 7 5 (4th Cir. 1989) (“[T]he purpos e of that sect ion was to remedy the practice of underbidding for government cont racts by slashing wages.”); see also 29 C.F.R. § 4.163(k) (“No provision of this section shall be cons trued as permitting a successor contractor to pay its employees less than t he wages and fringe benefits to which such

06-1080 6employees would have been entitled under t he predecessor contractor’s collectiv e bargaining agreement.”). The successor contractor rule is a dire ct statutory obligat io n that is selfexec uting. See Guardian Mov i ng & St orage Co. v. Hayden , 421 F.3d 1268, 1270 (Fed. Cir. 2005) (“[The successor-contractor rule] is a direct statut ory obligation and requirement placed on the succe ssor contractor . . . and is not contingent or dependent upon the is suance or incorporat ion in the contract of a wage deter mination based on the predecess o r contractor’s collective ba rgaining agreement.” (citing 29 C.F.R. § 4.163(b))). Here, LSI is subject to the successor contractor rule because it succeeded Lockheed on the contract and was thus a successor in its base year of the contract. In addition, LSI was als o a “successor contract or” during its first option year (the second year it was providing s e rvices ), because LSI succeeded itself. See 29 C.F.R. § 4.163(e) (stating that a contractor can also become a successor to itself, such as when it, lik e LSI, performs an additional term pursuant to an option exercis ed by the government). C. Price Adjustment Clause LSI’s contract with the government incorpor ated by reference the provisions of 48 C.F.R. § 52.222-43, including the so-c alled “ P rice Adjustment Clause.” (a) This c l ause applies to both contra cts subject to area prevailing wage determinations and contracts subject to collective bargaining agreements.
* * * (d) The contract price or contract uni t price labor rates will be adj u sted to reflect the Contractor’s actual incr ease or decrease in applicable wages and fringe benefits to the extent that the increase is ma de to comply with or the decrease is voluntarily made by the Contractor as a result of:

06-1080 7(1) The Department of Labor wage determination applic able on the anniversar y date of the multiple y ear contract, or at the beginning of the renewal option per iod. 48 C.F.R. § 52.222-43 (emphases added). Regulations make clear that the te rm “wage deter mination” includes a CBAdefined benefit level. See 29 C.F.R. § 4.50 (exp laining that there ar e two types of wage and fringe benefit determinations, namely those t hat are based on prevailing wage data generally and those based on the level of benef its required pur suant to a CBA that a successor contractor is required to maintain); see also 48 C.F.R. § 52. 222-43(a) (“This clause applies to both contract s subject to area prevaili ng wage determinations and contracts subject to collective bargaining agreements.”). In addition, the partie s stipulated that the CBA of LSI’s predecessor listed fringe benefits that included the defined-benefit health insurance at issue in this case.
D. Analys is Here we must determine whether a “wage determination” (i.e., the CBA) required

an “actual increase . . . in . . . fringe bene fits . . . .” 48 C. F.R. § 52.222-43. We conclude that it did, ther eby tri ggering the government’s obligations under the Price Adjustment Claus e. For several reasons, we find no merit in the argument that the Price Adjustment Clause is triggered only by enlarged benefits rather than enlarged costs of providing those benefits. First, the language of the claus e itself is instructive. See 48 C.F.R. § 52.222- 43(d) (“The contract price or contract unit pr ice labor rates will be adjusted to reflect the Contractor’s actual increase or decreas e in applicable wages and fringe benefits . . . .”) (emphasis added). The Clause does not addr ess increases in the nature of the

06-1080 8contract’s requirement s, but ra ther the effect on the Contra ctor, which logically can only refer to changes in cos t. Second, this construction is consistent with other provisions of the regulatory scheme, which prov ide for the “equivalenc y” of fringe benefits t o be meas ured not in terms of value to the employee, but cost to the employ er. See 29 C.F.R. § 4.177(a)(3) (“When a contractor discharges his fringe benefit obligation by furnishing, in lieu o f those benefits specified in the applicable fringe benefit determinat ion, other ‘bona fid e ’ fringe benefits, cash payments, or a combinat ion thereof, the substituted fringe benefits and/or cash payments must be ‘equivalent’ to the ben efits specified in the determination. As used in this subpart, the terms equivalent fringe benefit and cas h equivalent mean equal in te rms of monetary cost to the contractor .”) (emphasis added). Third, this court’s precedent in United Stat es v. Service Ventures, Inc. , leads to this conclusion. See 899 F.2d 1 (Fed. Cir. 1990). In t hat case, the applicable wag e determination required that em ployees be given s p ecified amounts of vacation time, depending on their seniority. Id. at 2 (requiring Service Ventures to pay “2 weeks paid vacation after 1 year of service with a cont ract or or successor; 3 weeks af ter 5 years ”). During the first option year, a greater number of employees were entitled to vacation benefits under the language of the wage determination. A ccordingly, Service Venture s had to pay more in or der to comply with th e mandate of the wage determination, and it therefore sought to rece ive a price adjustment. Id. As in this c a se, the actual language of the wage determination had not changed. Service Venture’s obligations had remained nom inally the “same” in that it was still required to provide a specifi ed level of benefits to each empl oyee in a specified class.

06-1080 9Howev e r, its costs of complianc e had chan ged bec au se of changes in the numbers of employees in each v a cation benefit “class.” Far from adopting a narrow view of what constituted a “change” to a wage determination, in Service Ventures we h e ld that the “benefits were due entirely to the [wage dete rmination] applica b le at the beginning of the renewal option period and were required to be paid in accor dance with the [Price Adjustment] clause.” Id. at 3

. This case is analogous. In Service Ventures , the employer’s costs of compliance changed in a manner not k nown in advance with certainty, by virtue of changes in the composition of the workforc e. N onetheless, the nominally unchanged wage determination required Service Ventures to pay out whatev er total sum of benefits was necessary for it to meet its obligations thereunder. Likewise, in this case, a wage determination (here, from a C BA) required LSI to pay whatev er was neces sary for it to meet its obligations to its employ ees, in light of changes in the costs of providing them with an agreed-upon level of health care benefit. Just as we held such changes in cost to trigger the Price Ad justment Clause in Service Ventures , we hold them to do so her e. In short, the Price Adjustment Clause is triggered by changes in an em ployer’s c o st of complianc e with the terms of a wa ge determination. The f a ct that there has been no nominal change in the mandated benefit—i.e., that there has bee n no change in the level of benefit provided by the defined-benefit plan— is simply irrelevant. Finally, we address the government’s argum ent that the Price Adjustment Claus e does not apply bec ause LSI can somehow sati sfy its fringe-benefit obligations by making equivalent payments di rectly to its employees. See, e.g. , 41 U.S.C. § 351(a)(2)

06-1080 10(stating that “[t]he obligation [to provide fringe benefits]

. . . may be discharged by furnishing any equivalent combinations of fr inge benefits or by ma king equivalent or differential payments in cash under rules and regulations establis hed by the Secretary”)

. We see no merit in this argument. If LS I pays its employees the “equivalent” of the fringe benefit, then applicable re gulations would requ ire it to pay them an amount equal to its own costs of providing the benefit. See 29 C.F.R. § 4.177(a )(3) (“[E]quivalent means equal in terms of monetary cost to t he contractor.”). The extent of LSI’s CBAbased obligations would remain unchanged.
* * * For the reasons stated above, we hold that the Board erred in granting sum m ary judgment in favor of the government, and it abused its discretion in denying summary judgment to LSI. We agree with the Board, however, that th is case involves no genuine issue of material fact, and it is therefore suitable for summary j udgment. Accordingly, we reverse both holdings below and grant su mmary judgment in favor of LSI.
R E VER SED Costs to Appellant.

06-1080 11