Subcontractor Claim for Additional Compensation for Wage Escalation Costs

A request for information was made to GAO regarding a subcontractor's claim for additional compensation for wage escalation costs encountered as a subcontractor on a power plant construction project. In 1973, the prime contractor entered into a contract with the Bureau of Reclamation for construction of the power plant, which specified adjustments for changes in labor costs, effective 1 year from the date of award, with the government paying 75 percent of the additional cost. No added wage costs to subcontractors were to be reimbursed without a specific contractual provision with the prime contractor. The claimant's contract did not contain such a provision, although the prime contractor informed the Bureau that oral terms had been agreed to prior to the start of the contract with each of its subcontractors. The Bureau refused for several months to acknowledge such agreements, but finally acceded to the prime contractor's wishes so long as the original bid papers furnished evidence that an allowance for expected wage increases was not included in the original bids. The claimant's bid had contained some wage escalation agreements, however, disqualifying it from relief eligibility. Although the subcontractor had notified the prime contractor that the wage escalation determination was not considered closed, the prime contractor signed a waiver of all claims against the government on its own behalf as well as that of its subcontractors, so that when the claimant sought to pursue its claim further, the Bureau relied on the release of claims as justification for rejecting the claim. GAO reviewed the dispute and could find no legal obligation for the Bureau to pay the claim, because of the waiver signed in its behalf.