{"id":900036,"date":"2022-06-14T14:36:43","date_gmt":"2022-06-14T20:36:43","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=900036"},"modified":"2022-06-14T14:36:59","modified_gmt":"2022-06-14T20:36:59","slug":"economic-price-adjustments-dod","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/economic-price-adjustments-dod\/","title":{"rendered":"New DoD Guidance on Inflation and Economic Price Adjustments"},"content":{"rendered":"\n

Aron C. Beezley and Sarah Sutton Osborne | Buildsmart<\/a><\/p>\n\n\n\n

In response to industry questions about economic price adjustments for inflation, the Department of Defense (DoD) recently issued\u00a0Guidance on Inflation and Economic Price Adjustments<\/a>. Key takeaways from DoD\u2019s guidance \u2014 which aims to help contracting officers (COs) \u201cunderstand whether it is appropriate to recognize cost increases due to inflation under existing contracts as well as offer considerations for the proper use of EPA when entering into new contracts\u201d \u2014 are discussed below. \u00a0\u00a0<\/p>\n\n\n\n

Background<\/strong><\/h2>\n\n\n\n

Contractors performing under firm-fixed-price (FFP) contracts \u201cgenerally must bear the risk of cost increases, including those due to inflation.\u201d In the absence of a contract clause authorizing a contract price adjustment as a result of inflation, DoD takes the position that \u201cthere is no authority for providing contractual relief for unanticipated inflation under an FFP contract.\u201d<\/p>\n\n\n\n

DoD reports that it is \u201cfielding questions about the possibility of using requests for equitable adjustment (REAs) under FFP contracts to address unanticipated inflation.\u201d However, DoD takes the position that, because \u201ccost impacts due to unanticipated inflation are not a result of a contracting officer-directed change, COs should not agree to contractor REAs submitted in response to changed economic conditions.\u201d<\/p>\n\n\n\n

Nonetheless, DoD acknowledges that, for contracts being developed or negotiated during this period of unusually high inflation, an economic price adjustment (EPA) clause \u201cmay be an appropriate tool to equitably balance the risk of inflation between the Government and the contractor.\u201d As DoD notes, including an EPA clause \u201cmay enable a contractor to accept a fixed-price contract without having to develop pricing based on worst case projections to cover the cost risk attributable to unstable market conditions because of the EPA clause\u2019s built-in mechanism to mitigate such risk.\u201d<\/p>\n\n\n\n

DoD Guidance<\/strong><\/h2>\n\n\n\n

Highlights from DoD\u2019s guidance to COs:<\/p>\n\n\n\n