FAR 52.222-31—Construction Wage Rate Requirements-Price Adjustment (Percentage Method).
Plain-English Summary
FAR 52.222-31 addresses how to price-adjust construction contracts when the Construction Wage Rate Requirements statute (formerly the Davis-Bacon Act) applies and the contract includes options to extend the term. It tells the contracting officer to use the wage determination in effect when an option is exercised, and it provides a percentage-method formula for adjusting only the labor-cost portion of the contract price or unit prices that is subject to prevailing wage requirements. The clause also requires the contracting officer to identify the percentage of the price attributable to covered labor and to use the published percentage rate from the specified source to calculate the increase. Importantly, the clause limits the adjustment to wage and fringe-benefit increases tied to the applicable wage determination or other legal wage requirements, and it states that this is the only adjustment for those increases. In practice, the clause is meant to reduce disputes and provide a predictable mechanism for handling labor-cost escalation on option years in construction contracts covered by prevailing wage laws.
Key Rules
Option-year wage determination applies
For each option to extend the contract term, the wage determination effective at the time the option is exercised applies to that option period. The contractor must therefore comply with the current prevailing wage rates and fringe benefits for the option year, not the rates that applied during the base period.
Only labor-cost portion is adjusted
The price adjustment applies only to the portion of the contract price or unit prices that contains labor costs subject to the Construction Wage Rate Requirements statute. Materials, equipment, overhead, profit, and other noncovered elements are not adjusted under this clause unless they are part of the identified labor-cost portion.
Contracting officer must set labor percentage
The contracting officer must determine and insert the percentage of the contract price or unit price(s) attributable to covered labor. That percentage becomes the basis for calculating the adjustment, so the initial allocation is a critical pricing and administration decision.
Published percentage method controls
The labor-cost portion is increased by the percentage rate published in the identified publication. The clause uses a preset percentage-method approach rather than requiring a full, project-specific wage impact calculation at option exercise.
Adjustment made when option is exercised
The price change is made at the time the option is exercised, not during the base period and not at some later reconciliation point. This ties the adjustment directly to the continuation of performance into the option period.
Exclusive remedy for wage increases
The clause states that this adjustment is the only adjustment for increases in wages and benefits resulting from the new wage determination, a wage determination applied by operation of law, or any other applicable wage-and-benefit requirement. That limits the contractor’s ability to seek additional compensation for those same wage-related increases under other theories.
Responsibilities
Contracting Officer
Insert the clause when prescribed, determine the percentage of the contract price or unit prices that represents labor costs subject to the Construction Wage Rate Requirements statute, identify the publication containing the applicable percentage rate, and apply the price adjustment when exercising each option to extend the term of the contract.
Contractor
Price the contract with awareness that option-year labor costs may be adjusted under the clause, comply with the wage determination effective for each option period, and accept that the clause provides the exclusive adjustment for covered wage and fringe-benefit increases tied to prevailing wage requirements.
Agency
Ensure solicitation and contract structures support proper use of the clause, including accurate wage-determination administration and consistent application of the percentage-method adjustment across covered construction contracts with options.
Department of Labor / Wage and Hour Division
Issue the wage determination that governs the option period and, where applicable under the clause, publish the percentage rate used for the labor-cost adjustment methodology.
Practical Implications
Contractors should expect option-year pricing to change automatically for the covered labor portion, so base-year pricing should not assume the same wage burden will continue unchanged.
The biggest practical risk is an inaccurate labor-percentage determination; if the contracting officer understates or overstates the labor share, the option-year adjustment may be too low or too high.
Because the clause is the exclusive adjustment for wage and benefit increases tied to prevailing wage requirements, contractors should not expect separate equitable adjustments for the same labor-cost escalation.
Contracting officers should document the labor-percentage basis and the source of the published percentage rate to support the option exercise and reduce disputes.
This clause does not eliminate compliance obligations under the Construction Wage Rate Requirements statute; it only provides the pricing mechanism for option-year wage increases.
Official Regulatory Text
As prescribed in 22.407 (f) , insert the following clause: Construction Wage Rate Requirements-Price Adjustment (Percentage Method) (Aug 2018) (a) The wage determination issued under the Construction Wage Rate Requirements statute by the Administrator, Wage and Hour Division, U.S . Department of Labor, that is effective for an option to extend the term of the contract, will apply to that option period. (b) The Contracting Officer will adjust the portion of the contract price or contract unit price(s) containing the labor costs subject to the Construction Wage Rate Requirements statute to provide for an increase in wages and fringe benefits at the exercise of each option to extend the term of the contract in accordance with the following procedures: (1) The Contracting Officer has determined that the portion of the contract price or contract unit price(s) containing labor costs subject to the Construction Wage Rate Requirements statute is __________ [ Contracting Officer insert percentage rate ] percent. (2) The Contracting Officer will increase the portion of the contract price or contract unit price(s) containing the labor costs subject to the Construction Wage Rate Requirements statute by the percentage rate published in _____________ [ Contracting Officer insert publication ] . (c) The Contracting Officer will make the price adjustment at the exercise of each option to extend the term of the contract. This adjustment is the only adjustment that the Contracting Officer will make to cover any increases in wages and benefits as a result of- (1) Incorporation of the Department of Labor’s wage determination applicable at the exercise of the option to extend the term of the contract; (2) Incorporation of a wage determination otherwise applied to the contract by operation of law; or (3) An increase in wages and benefits resulting from any other requirement applicable to workers subject to the Construction Wage Rate Requirements statute. (End of clause)