FAR 22.101-2—Contract pricing and administration.
Plain-English Summary
FAR 22.101-2 addresses how labor policies, labor disputes, and strikes affect contract pricing, cost allowability, and contract administration. It covers four main subjects: contractor labor policies and compensation practices; the effect of labor disputes on schedule performance and excusable delay; how strike-related costs are treated in cost-reimbursement and fixed-price pricing; and the continuation of Government inspection activities during a labor dispute when safety permits. In practice, this section prevents contractors from passing unreasonable labor-driven costs to the Government, reminds contractors that they remain responsible for avoidable delays, and instructs contracting officers to evaluate strike impacts carefully rather than automatically excusing performance problems or accepting all strike-related costs. It also protects the Government’s inspection rights by requiring normal inspection functions to continue if inspectors are not endangered. The section works together with the cost principles in FAR 31.205-6(b) and the standard default/excusable delay clauses to ensure labor unrest is handled consistently in both pricing and administration.
Key Rules
Unreasonable labor costs not allowed
A contractor’s labor policies and compensation practices are not acceptable bases for allowing costs in cost-reimbursement contracts or recognizing costs in fixed-price pricing if they produce unreasonable costs to the Government. Even if those practices are part of a labor-management agreement, the Government is not required to absorb costs that are unreasonable.
Contractor remains accountable for delays
Labor disputes can delay performance, but standard default and excusable delay clauses do not excuse delays that are within the contractor’s or subcontractor’s control. Contracting officers must make clear that contractors are responsible for reasonably avoidable delays.
Strike excuses end when diligence could end it
A strike may be excusable if the contractor or subcontractor could not reasonably prevent it, but only up to the point where a reasonably diligent contractor could have acted to end the strike. The section identifies examples of diligence, including filing an NLRB charge, using available Government procedures, and using private dispute-resolution bodies.
Strike costs require close scrutiny
Strikes often change cost patterns, affecting both allowability under cost-reimbursement contracts and recognition in fixed-price pricing. Increased costs such as guards or attorneys’ fees may arise, while fixed costs like rent and depreciation may be spread over fewer units, so all strike-period costs must be examined to ensure only costs necessary for contract performance and the Government’s essential interest are recognized.
Inspection continues if safe
If inspectors’ safety is not endangered, normal Government inspection functions at the contractor’s plant must continue despite a labor dispute, strike, or picket line. The existence of labor unrest alone does not justify stopping inspection.
Responsibilities
Contracting Officer
Evaluate labor-related pricing and cost claims to ensure only reasonable costs are recognized; remind contractors that they are accountable for avoidable delays; assess whether a strike delay is truly excusable and whether the contractor acted diligently to end it; and ensure inspection rights continue when safety permits.
Contractor
Maintain labor policies and compensation practices that do not create unreasonable costs to the Government; manage labor disputes to avoid reasonably preventable delays; take prompt, diligent action to end strikes when possible; and support any strike-related cost claims with evidence that the costs were necessary and allowable.
Subcontractor
Avoid causing reasonably preventable delays within its control; take diligent action to resolve strikes affecting its performance; and cooperate in any analysis of strike-related delay or cost impacts that flow up to the prime contract.
Agency / Government Inspectors
Continue normal inspection functions during a labor dispute when it is safe to do so; not treat a strike or picket line as a reason by itself to suspend inspection; and coordinate with the contracting officer if safety or access issues arise.
Practical Implications
Contractors cannot assume union-negotiated labor costs will automatically be accepted by the Government; reasonableness still matters in both cost-reimbursement and fixed-price contexts.
A strike does not automatically excuse late performance. Contractors should document what they did to prevent or end the dispute, because the excusable-delay period ends when a reasonably diligent contractor could have acted.
Strike-related overhead and indirect costs can distort unit pricing, so contracting officers should review cost buildup carefully instead of accepting inflated allocations at face value.
Government inspection should generally keep going during labor unrest if it can be done safely, so contractors should plan for continued access and coordination rather than expecting a shutdown of inspection activities.
Common pitfalls include treating all strike costs as allowable, overlooking subcontractor-caused delays, and failing to distinguish between unavoidable strike impacts and delays or costs that the contractor could have mitigated.
Official Regulatory Text
(a) Contractor labor policies and compensation practices, whether or not included in labor-management agreements, are not acceptable bases for allowing costs in cost-reimbursement contracts or for recognition of costs in pricing fixed-price contracts if they result in unreasonable costs to the Government. For a discussion of allowable costs resulting from labor-management agreements, see 31.205-6 (b). (b) Labor disputes may cause work stoppages that delay the performance of Government contracts. Contracting officers shall impress upon contractors that each contractor shall be held accountable for reasonably avoidable delays. Standard contract clauses dealing with default, excusable delays, etc., do not relieve contractors or subcontractors from the responsibility for delays that are within the contractors’ or their subcontractors’ control. A delay caused by a strike that the contractor or subcontractor could not reasonably prevent can be excused; however, it cannot be excused beyond the point at which a reasonably diligent contractor or subcontractor could have acted to end the strike by actions such as- (1) Filing a charge with the National Labor Relations Board to permit the Board to seek injunctive relief in court; (2) Using other available Government procedures; and (3) Using private boards or organizations to settle disputes. (c) Strikes normally result in changing patterns of cost incurrence and therefore may have an impact on the allowability of costs for cost-reimbursement contracts or for recognition of costs in pricing fixed-price contracts. Certain costs may increase because of strikes; e.g., guard services and attorney’s fees. Other costs incurred during a strike may not fluctuate ( e.g., "fixed costs" such as rent and depreciation), but because of reduced production, their proportion of the unit cost of items produced increases. All costs incurred during strikes shall be carefully examined to ensure recognition of only those costs necessary for performing the contract in accordance with the Government’s essential interest. (d) If, during a labor dispute, the inspectors’ safety is not endangered, the normal functions of inspection at the plant of a Government contractor shall be continued without regard to the existence of a labor dispute, strike, or picket line.