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 U.S. Army ComputerAided Cost Estimating System or similar commercial product), 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 Construction Wage Rate Requirements statute. 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 Labor Standards statute

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.

Parent topic: 22.404 Construction Wage Rate Requirements statute wage determinations.