FAR 52.222-44—Fair Labor Standards Act and Service Contract Labor Standards-Price Adjustment.
Plain-English Summary
FAR 52.222-44 sets the price-adjustment rules for contracts affected by the Fair Labor Standards Act (FLSA) and the Service Contract Labor Standards (SCLS, formerly the Service Contract Act) when wages or fringe benefits change because of a required wage determination or a later statutory minimum-wage change. It applies to both contracts covered by area prevailing wage determinations and contracts covered by contractor collective bargaining agreements, so it reaches both wage-determination-based pricing and labor rates tied to a CBA. The clause also states that the contractor’s price includes no contingency for these covered labor-cost changes, which prevents double counting and shifts only the specified labor-cost risk to the Government. In practice, the clause limits adjustments to the actual wage and fringe-benefit changes required for compliance, plus associated payroll-related costs such as Social Security, unemployment taxes, and workers’ compensation insurance, while excluding overhead, general and administrative expense, and profit. It also establishes notice requirements, requires written modification when the parties agree, obligates continued performance while the adjustment is being resolved, and gives the Government audit access to relevant records for three years after final payment. For contractors and contracting officers, this clause is the mechanism for handling mandatory labor-cost changes fairly and promptly without turning them into open-ended price renegotiations.
Key Rules
Applies to covered labor contracts
This clause applies to contracts subject to area prevailing wage determinations and to contracts subject to contractor collective bargaining agreements. It is intended to address labor-cost changes that arise from legally required wage or fringe-benefit obligations under those regimes.
No contingency pricing allowed
The contractor warrants that the contract price does not include any allowance for contingencies to cover costs that may later be adjusted under this clause. This prevents the contractor from building a separate cushion into the price for the very increases the clause is meant to address.
Adjustments limited to required labor changes
The contract price, unit prices, or fixed hourly labor rates are adjusted only for wage and fringe-benefit increases or decreases needed to comply with an applicable wage determination or a post-award FLSA amendment that changes the minimum wage and applies by law. The clause does not permit broader repricing of the contract.
Related payroll costs may be included
Any adjustment may also include the accompanying increases or decreases in Social Security taxes, unemployment taxes, and workers’ compensation insurance that result from the covered wage change. However, the clause expressly excludes general and administrative costs, overhead, and profit.
Timely notice is required
The contractor must notify the contracting officer of any claimed increase within 30 days after the effective date of the wage change, unless the contracting officer extends that period in writing. The contractor must promptly notify the contracting officer of any decrease, and the Government may assert a claim within the time allowed by law.
Supporting data must be provided
The contractor’s notice must state the amount claimed and, for time-and-materials or labor-hour contracts, the change in fixed hourly rates, along with any relevant supporting data reasonably requested by the contracting officer. This gives the Government a basis to verify the adjustment.
Written modification and continued performance
If the parties agree on the adjustment, the contract price or labor rates must be modified in writing. The contractor must continue performance while the parties work out the adjustment or its effective date, so the dispute does not stop contract performance.
Government audit access
Until three years after final payment, the contracting officer or an authorized representative may examine directly pertinent books, documents, papers, and records of the contractor. This audit right supports verification of claimed wage and fringe-benefit adjustments.
Responsibilities
Contracting Officer
Determine whether the clause applies, evaluate claimed increases or decreases, request and review supporting data, extend the 30-day notice period if appropriate, negotiate and execute written modifications when agreement is reached, and ensure the contractor continues performance while the adjustment is being resolved. The contracting officer also has the right to examine pertinent records through three years after final payment.
Contractor
Price the contract without contingency for covered labor-cost adjustments, comply with applicable wage determinations or FLSA minimum-wage changes, notify the contracting officer of claimed increases within 30 days of the effective date, promptly notify of decreases, provide the amount claimed and supporting data, continue performance pending resolution, and maintain records subject to examination.
Government
Apply the clause where required, recognize and process lawful upward or downward adjustments, and assert claims for decreases within the period allowed by law. The Government may also use its audit and record-examination rights to verify the adjustment.
Authorized Representative / Auditor
Examine directly pertinent contractor records during the three-year post-final-payment period to verify the basis and amount of any claimed adjustment.
Practical Implications
Contractors should track wage determinations, CBAs, and FLSA changes closely, because the 30-day notice clock starts on the effective date of the wage change, not when the contractor finishes calculating the impact.
The adjustment is narrow: only the required wage/fringe change and certain payroll taxes and insurance are recoverable. Contractors often make the mistake of adding overhead, G&A, or profit, which the clause expressly forbids.
For time-and-materials and labor-hour contracts, the fixed hourly rate change must be documented carefully, since the Government will expect a clear link between the wage change and the revised rate.
Contracting officers should insist on supporting data and verify that the claimed adjustment matches the actual compliance-driven labor cost change, especially where multiple labor categories or mixed work are involved.
Both sides should remember that performance continues while the adjustment is being negotiated or determined, so disputes over price do not excuse missed delivery or service obligations.
Official Regulatory Text
As prescribed in 22.1006 (c)(2) , insert the following clause: Fair Labor Standards Act and Service Contract Labor Standards-Price Adjustment (May 2014) (a) This clause applies to both contracts subject to area prevailing wage determinations and contracts subject to Contractor 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 contract price, contract unit price labor rates, or fixed hourly labor rates will be adjusted to reflect increases or decreases by the Contractor in wages and fringe benefits to the extent that these increases or decreases are made to comply with- (1) An increased or decreased wage determination applied to this contract by operation of law; or (2) An amendment to the Fair Labor Standards Act of1938 that is enacted subsequent to award of this contract, affects the minimum wage, and becomes applicable to this contract under law. (d) Any such adjustment will be limited to increases or decreases in wages and fringe benefits as described in paragraph (c) of this clause, and to the accompanying increases or decreases in social security and unemployment taxes and workers’ compensation insurance; it shall not otherwise include any amount for general and administrative costs, overhead, or profit. (e) The Contractor shall notify the Contracting Officer of any increase claimed under this clause within 30 days after the effective date of the wage change, unless this period is extended by the Contracting Officer in writing. 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 and the change in fixed hourly rates (if this is a time-and-materials or labor-hour contract) claimed and any relevant supporting data 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. (f) The Contracting Officer or an authorized representative shall, until the expiration of 3 years after final payment under the contract, have access to and the right to examine any directly pertinent books, documents, papers, and records of the Contractor. (End of clause)