FAR 52.222-43—Fair Labor Standards Act and Service Contract Labor Standards-Price Adjustment (Multiple Year and Option Contracts).
Plain-English Summary
FAR 52.222-43 is the price-adjustment clause used in multiple-year and option contracts when Service Contract Labor Standards (SCLS) wage determinations or Fair Labor Standards Act (FLSA) minimum wage changes affect labor costs during performance. It tells contractors and contracting officers how to handle annual or option-period wage determination updates, when the federal minimum wage applies if no SCLS wage determination is in place, and how contract prices, unit labor rates, or fixed hourly rates may be adjusted to reflect actual increases or decreases in wages and fringe benefits. The clause also explains the limited pass-through of related payroll burdens such as Social Security, unemployment taxes, and workers’ compensation insurance, while excluding general and administrative costs, overhead, and profit from the adjustment. It requires timely contractor notice, supporting documentation, written modification of the contract, and continued performance while the parties resolve the adjustment. Finally, it gives the Government audit access to relevant records for three years after final payment. In practice, this clause is designed to keep long-term service contracts aligned with legally required labor cost changes without turning the clause into a profit or contingency mechanism.
Key Rules
Applies to SCLS and CBA contracts
This clause applies to contracts subject to area prevailing wage determinations under the Service Contract Labor Standards statute and to contracts subject to collective bargaining agreements. Its purpose is to ensure labor-cost adjustments are handled consistently when wage obligations change during a multiple-year or option period.
No contingency pricing allowed
The contractor warrants that contract prices do not include any contingency allowance for costs covered by this clause. In other words, the contractor cannot build a cushion into the price for future wage increases that are supposed to be addressed through the clause’s adjustment mechanism.
Current wage determination controls
On each anniversary date of a multiple-year contract or at the start of each renewal option period, the applicable DOL wage determination applies. If no SCLS wage determination applies, the FLSA federal minimum wage in effect on that date applies instead.
Adjustments track actual labor cost changes
The contract price, unit labor rates, or fixed hourly rates are adjusted only to reflect the contractor’s actual increase or decrease in applicable wages and fringe benefits needed to comply with the new wage determination, or voluntarily made by the contractor as a result of it. The clause also covers changes caused by operation of law or by later FLSA amendments.
Related payroll burdens are included
Adjustments may also include corresponding increases or decreases in Social Security taxes, unemployment taxes, and workers’ compensation insurance. However, the clause expressly excludes any separate allowance for general and administrative expense, overhead, or profit.
Timely notice and support required
The contractor must notify the contracting officer of an increase claim within 30 days after receiving a new wage determination, unless the contracting officer extends that period in writing. The contractor must promptly notify the contracting officer of any decrease and provide the claimed amount, rate changes for time-and-materials or labor-hour contracts, and supporting data such as payroll records if reasonably requested.
Written modification and continued performance
Any agreed adjustment must be made by written contract modification. The contractor must continue performance while the parties negotiate or determine the adjustment and its effective date, so wage disputes do not interrupt contract performance.
Government audit access
The contracting officer or authorized representative may examine directly pertinent books, documents, papers, and records until three years after final payment. This supports verification of claimed wage and fringe benefit adjustments and related payroll burdens.
Responsibilities
Contracting Officer
Apply the correct wage determination or FLSA minimum wage at each anniversary date or option period; review contractor claims for price adjustments; extend the 30-day notice period in writing if appropriate; negotiate and execute written modifications; and ensure the Government can examine relevant records when needed.
Contractor
Price the contract without contingency allowances for covered wage increases; monitor new wage determinations and FLSA changes; notify the contracting officer of claimed increases within 30 days unless extended; promptly notify the contracting officer of decreases; provide supporting data and payroll records when requested; continue performance pending resolution; and maintain pertinent records for audit access.
Department of Labor / Wage and Hour Division
Issue applicable Service Contract Labor Standards wage determinations that become effective on the anniversary date of a multiple-year contract or at the start of each option period, which then drive the contract’s wage-related adjustment obligations.
Government auditors or authorized representatives
Review directly pertinent books and records to verify the basis for claimed wage, fringe benefit, and related tax or insurance adjustments within the post-payment record-retention period.
Practical Implications
Contractors should track wage determinations well before each option exercise or anniversary date, because the adjustment window is tied to those dates and late notice can complicate recovery.
The clause is not a blank check: only actual wage and fringe benefit changes, plus specified payroll burdens, are recoverable; overhead, G&A, and profit are excluded unless another contract term separately allows them.
For time-and-materials and labor-hour contracts, contractors must pay close attention to fixed hourly rate changes and document how the new wage determination affects each labor category.
If wages go down, the contractor must promptly notify the Government; the clause works both ways and can support downward price adjustments as well as upward ones.
Good recordkeeping matters: payroll records, fringe benefit calculations, and tax/insurance support are often the difference between an approved adjustment and a disputed or reduced claim.
Official Regulatory Text
As prescribed in 22.1006 (c)(1) , insert the following clause: Fair Labor Standards Act and Service Contract Labor Standards-Price Adjustment (Multiple Year and Option Contracts) (Aug 2018) (a) This clause applies to both contracts subject to area prevailing wage determinations and contracts subject to collective bargaining agreements. (b) The Contractor warrants that the prices in this contract do not include any allowance for any contingency to cover increased costs for which adjustment is provided under this clause. (c) The wage determination, issued under the Service Contract Labor Standards statute, ( 41 U.S.C. chapter 67 ), by the Administrator, Wage and Hour Division, U.S. Department of Labor, current on the anniversary date of a multiple year contract or the beginning of each renewal option period, shall apply to this contract. If no such determination has been made applicable to this contract, then the Federal minimum wage as established by section 6(a)(1) of the Fair Labor Standards Act of1938, as amended, ( 29 U.S.C. 206 ) current on the anniversary date of a multiple year contract or the beginning of each renewal option period, shall apply to this contract. (d) The contract price, contract unit price labor rates, or fixed hourly labor rates will be adjusted to reflect the Contractor’s actual increase or decrease in applicable wages and fringe benefits to the extent that the increase is made to comply with or the decrease is voluntarily made by the Contractor as a result of: (1) The Department of Labor wage determination applicable on the anniversary date of the multiple year contract, or at the beginning of the renewal option period. For example, the prior year wage determination required a minimum wage rate of $4.00 per hour. The Contractor chose to pay $4.10. The new wage determination increases the minimum rate to $4.50 per hour. Even if the Contractor voluntarily increases the rate to $4.75 per hour, the allowable price adjustment is $.40 per hour; (2) An increased or decreased wage determination otherwise applied to the contract by operation of law; or (3) An amendment to the Fair Labor Standards Act of1938 that is enacted after award of this contract, affects the minimum wage, and becomes applicable to this contract under law. (e) Any adjustment will be limited to increases or decreases in wages and fringe benefits as described in paragraph (d) of this clause, and the accompanying increases or decreases in social security and unemployment taxes and workers’ compensation insurance, but shall not otherwise include any amount for general and administrative costs, overhead, or profit. (f) The Contractor shall notify the Contracting Officer of any increase claimed under this clause within 30 days after receiving a new wage determination unless this notification period is extended in writing by the Contracting Officer. The Contractor shall promptly notify the Contracting Officer of any decrease under this clause, but nothing in the clause shall preclude the Government from asserting a claim within the period permitted by law. The notice shall contain a statement of the amount claimed and the change in fixed hourly rates (if this is a time-and-materials or labor-hour contract), and any relevant supporting data, including payroll records, that the Contracting Officer may reasonably require. Upon agreement of the parties, the contract price, contract unit price labor rates, or fixed hourly rates shall be modified in writing. The Contractor shall continue performance pending agreement on or determination of any such adjustment and its effective date. (g) The Contracting Officer or an authorized representative shall have access to and the right to examine any directly pertinent books, documents, papers and records of the Contractor until the expiration of 3 years after final payment under the contract. (End of clause)