Penn was awarded an Army contract for laundry and dry cleaning services that contained a base and four option years.  The contract was covered by the Service Contract Act which provides the collective bargaining agreement (CBA) covering Penn’s employees during the base year would be the appropriate wage rates.  The CBA allowed employees to accrue unused sick leave but had no provision for paying employees the accrued time.  The government exercised the first year option and Penn entered into a new CBA that required it to pay employees for the accrued sick leave beginning on the first anniversary date of the contract.  Penn paid its employees the accrued sick leave for over $20,000 and like other SCA covered contracts had the Labor Department issue a revised wage determination reflecting the terms of the new CBA, effective as of the first date of the option period.  When Penn sought reimbursement for the $20,000 the CO denied the claim saying the base period of the contract ended before the effective data of the revised wage determination.  Penn appealed.

Penn contended it was entitled to the reimbursement because the revised wage determination incorporated the new CBA which required payment of the accrued sick leave during the option year.  The payment represented an actual increase in wages and fringe benefits in the option year and hence the government was liable.  The government contended their liability applied only to fringe benefits incurred in the option year not those carried over from the base year.  Also, the government argued the modification exercising the option period created a new contract making the anniversary date occur after the first option period expired.  The Board sided with Penn stating that though FAR 52.222-43 (Fair Labor Standards Act and Service Contract Act-Price Adjustment).   limited price adjustments to wage increases during option periods, the modification of the contract incorporating the revised wage determination expressly made the new CBA retroactive to the start of the option period.  Thus, Penn was entitled to a price adjustment for the actual wage and fringe benefit increase during the option period.  As for the government claim a new contract was created, the Board noted though a new contract may have been created for purposes of inserting a revised wage determination “it does not follow a new contract was created for other purposes” and hence the ambiguity about the anniversary date is wrong.  The Army contract was one contract where Penn and the government were obligated to pay the employees for the unused sick leave each anniversary date no matter when the unused sick pay was accrued (Penn Enterprises Inc., ASBCA, No 52234).

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