In a recent case, Innovative Technologies, Inc., ASBCA No. 6186, 62185, the Armed Services Board of Contract Appeals (ASBCA or the Board) made it clear that a failure on the part of the federal government to include or incorporate the McNamara-O’Hara Service Contract Act (SCA) FAR Clause 52.222-41 (the SCA Clause) in a contract, does not exempt a contractor from compliance with the SCA. The contractor, in this case, was therefore not entitled to an equitable adjustment for all of the costs that it had incurred from a $1.5 million settlement with the U.S. government.
While there was no inclusion or direct reference to the SCA Clause in the contract, the Board stressed upon the contractor’s obligations. It emphasized that absence of the SCA Clause from the contract “did neither excuse it from compliance with the SCA, nor entitled it to an equitable adjustment for all costs it incurred.”
Essentially, the key takeaway for major corporations and law firms dealing with government contracts is the obligatory nature of the SCA, irrespective of its explicit inclusion in a contract or not. The contractor is obligated to uphold the SCA mandates, and non-compliance could result in legal consequences and financial implications.
The case is a resounding reminder that clauses related to the Service Contract Act (SCA), or any other crucial legal statute for that matter, are implicitly incorporated into contracts, thereby requiring complete compliance from all involved parties.
The case is especially noteworthy for its ruling that not having the SCA Clause in the contract does not allow for equitable adjustment – a concept that paves the way for contract modification when unforeseen costs are incurred. In this particular instance, the appeal for adjustment amounted to all costs the contractor had sustained from a hefty $1.5 million settlement with the U.S. government.
It is well within the best interests of all corporations and law firms to ensure due diligence with respect to legally binding contracting provisions that, despite not being expressly included, are inherent expectations. Compliance to these statutes is a critical aspect of contract management and organizations would benefit from investing necessary resources to guard against non-compliance and its expensive consequences.
Detailed observations and ruling of this case are available at
Morrison & Foerster LLP – Government.