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In a recent decision, the Civilian Board of Contract Appeals (CBCA) held that contractors performing loan-servicing work for the Department of Education are entitled to reimbursement for increased labor costs resulting from federal minimum wage and paid sick leave mandates. The ruling clarifies that such adjustments are permissible even under fixed-price contracts when the contract incorporates the relevant Federal Acquisition Regulation (FAR) clauses allowing for price adjustments.

Background

In Great Lakes Educational Loan Services, Inc. & Nelnet Servicing, LLC v. Department of Education, the two contractors — Nelnet and Great Lakes — entered into fixed-price contracts with the Department of Education in 2009 to provide student loan-processing services. The contracts initially ran from 2009 to 2014 and were later extended through 2023 and 2024, respectively. Compensation was based on a per-borrower pricing structure, subject to an Economic Price Adjustment (EPA) mechanism tied to a Bureau of Labor Statistics employment cost index.

The contracts also incorporated several FAR clauses, including:

  • FAR 52.222-41 (Service Contract Act of 1965);
  • FAR 52.222-43 (Fair Labor Standards Act price adjustment clause);
  • FAR 52.222-55 (Executive Order 13658/14026 — Establishing a Federal Contractor Minimum Wage); and
  • FAR 52.222-62 (Executive Order 13706 — Paid Sick Leave for Federal Contractors).

Executive Orders Increasing Labor Costs

The following executive orders drove the dispute:

  • EO 14026 (Apr. 30, 2021) increased the federal contractor minimum wage to $15 per hour, effective January 30, 2022. This requirement applied to existing contracts when options were exercised after that date.
  • EO 13706 (Sept. 7, 2015) required federal contractors to provide employees with paid sick leave (one hour for every 30 hours worked).

In June 2023, the Education Department modified both contracts to incorporate these requirements through FAR 52.222-55 and FAR 52.222-62. The contractors subsequently submitted claims, under the Contract Disputes Act, seeking reimbursement for increased labor costs — Nelnet for $5.1 million and Great Lakes for $197,128. The contracting officer denied both claims, leading to the CBCA appeals.

The CBCA’s Analysis

The Board addressed entitlement only and made several important rulings:

Jurisdiction Properly Lies with the CBCA

Although the FAR clauses delegate enforcement of wage and leave compliance to the Department of Labor, the Board held that it retained jurisdiction because the contractors were not disputing compliance but rather seeking price adjustments under the contract.

Price Adjustments Permitted for Increased Minimum Wage Costs

The Board found that FAR 52.222-55(b)(3)(i) expressly authorizes price adjustments for increased labor costs resulting from new minimum wage determinations. The Education Department’s argument — that the contracts’ EPA clause already accounted for inflationary labor costs — was rejected by the Board. Reading the contract as a whole, the CBCA held that the EPA clause and the wage adjustment clause serve distinct purposes, and the EPA clause does not bar reimbursement.

Warranty Language Does Not Preclude Recovery

The agency also argued that the contractors breached the warranty in FAR 52.222-55(b)(3)(ii), which states that prices do not include contingencies for future cost increases. The Board disagreed, explaining that this warranty simply prevents contractors from “double-counting” anticipated wage increases — not from seeking adjustments when new legal mandates increase costs after award.

Fixed-Price Nature of Contract No Bar to Recovery

While fixed-price contracts generally place the risk of cost increases on contractors, the Board emphasized that FAR 16.201(a) expressly allows price revisions when contract clauses provide for equitable adjustments. Because the contracts included such clauses, the fixed-price structure did not preclude reimbursement, the Board held.

Recovery for Paid Sick Leave Costs

The Board also held that Nelnet may recover the increased costs associated with providing paid sick leave, even though FAR 52.222-62 itself does not provide a reimbursement mechanism. The CBCA concluded that either FAR 52.222-43(d) (wage adjustment) or the Changes clause provides a basis for recovery and granted partial summary judgment on entitlement, deferring the precise mechanism for later determination.

Key Takeaways for Contractors

  • Fixed-price does not mean fixed risk – If the contract includes clauses providing for wage or fringe benefit adjustments, contractors remain entitled to equitable relief for government-mandated labor cost increases.
  • EPA and wage adjustment clauses operate independently – The presence of an EPA clause does not necessarily eliminate entitlement to recovery under separate FAR provisions implementing executive orders or statutory requirements.
  • Be mindful of contract modifications – When agencies incorporate new executive order-based clauses into ongoing contracts, those clauses often include express adjustment rights.
  • Paid leave mandates may also support recovery – Even if the implementing contract clause lacks a reimbursement mechanism, the Changes clause or other price-adjustment provisions may provide an avenue for cost recovery.

Conclusion

The CBCA’s decision in this case reinforces that government contractors performing under fixed-price contracts are not required to absorb the costs of newly imposed federal wage and leave mandates when the contracts include the relevant FAR clauses. The ruling offers important guidance on how agencies and contractors should interpret overlapping price-adjustment and EPA provisions and underscores the value of carefully reviewing all incorporated clauses before and during performance.

If you have any questions about any of the foregoing, please do not hesitate to contact Aron Beezley or Gabby Sprio.