TAMING THE INFLATION BEAST
Hoping the inflation monster would shrink back to its lair proved a futile strategy as
fiscal 2022 drew to a close with no sign of relief.
By John Krieger
Hoping the inflation monster would shrink back to its lair proved a futile strategy as fiscal 2022 drew to a close with no sign of relief. Federal agencies were forced to strengthen and lengthen measures taken early in the year, offering contracting professionals and contractors more lasting weapons to battle the beast.
On September 9, 2022, the Department of Defense (DoD) announced new measures giving contracting offices more tools to ease inflation’s bite on federal contractors. The General Services Administration (GSA) followed suit on September 12. Both agencies had issued earlier guidance.
The September 9 Defense Pricing and Contracting (DPC) memorandum came in response to the concerns of acquisition executives about inflation’s effects on defense industrial base contractors’ ability to perform under existing firm-fixed-price contracts, according to a DoD press release.1 “The memorandum advises contracting officers about the range of approaches available to them to make potential accommodations, including schedule relief and amending contractual requirements, and in extraordinary circumstances, the use of Extraordinary Contractual Relief,” according to the release.
“I’m worried about the small supplier who signed the firm-fixed-price contract. It’s got 50 employees, and all of a sudden it was dealing with 11% inflation. How do we deal with that company? We don’t want those companies to go out of business,” said Under Secretary of Defense for Acquisition and Sustainment Dr. William A. LaPlante at a Defense News conference on September 7, 2022.2
The General Services Administration extended its temporary suspension of limits on fair price changes by companies with GSA multiple award schedule contracts until March 31, 2023.3
A GSA acquisition letter dated March 17, 2022, had set September 30, 2022, as the end date for suspension of “limits on the frequency, size, and total number of economic price adjustments (EPAs) a contractor could obtain during each contract term,” according to a post on the “Government Contracts Legal Forum” by the law firm Crowell.4 That initial letter lifted a 10% ceiling on price hikes and lowered the EPA approval level from the contracting director to one level above the contracting officer.
The September 12 GSA letter removed the requirement to obtain additional approvals, leaving contract officers free to approve EPAs above or below ceiling percentages set in solicitations.
DoD also had issued a previous memorandum, though not significant relief. On May 25, 2022, John Tenaglia, Principal Director of DPC, issued guidance that existing contracts would be treated based on contract type, an EPA clause could be added to an existing contract with appropriate consideration, and fixed-price contracts with EPA or other types of contracts with EPA clauses would be considered when appropriate.
The September 9 defense memorandum, also issued by Tenaglia, noted that “there may be circumstances where an accommodation can be reached by mutual agreement of the contracting parties, perhaps to address acute impacts on small business and other suppliers.” The memorandum went on to say that in “extraordinary circumstances where contractors have sought or may seek an upward adjustment to the price of an existing firm-fixed-price contract to account for current economic conditions,” the DoD will consider contractor requests to employ extraordinary contractual relief under Part 50 of the Federal Acquisition Regulation (FAR) and the Defense FAR Supplement (DFARS). The memorandum notes that the requirements for relief are stringent and requests depend on available funding.
“Under FAR Part 50, contractors have the burden to show this relief is warranted through facts and evidence. FAR 50.103-4 contains a detailed list that contracting officers can ask contractors to provide to support requests for relief. When responding, contractors must ensure the information they provide is accurate,” the law firm Mayer Brown noted on September 23, 2022.5
Abnormal Inflation
This has been a year of abnormal inflation with pernicious effects for federal contracting. “Inflation and uncertain economic market conditions erode scarce contracting dollars, cause severe hardship on federal partners, and discourage new entrants from pursuing federal acquisition,” GSA noted in its September 12 “Guidance on Addressing Inflation in GSA Contracts.” 6
Over the past couple decades, inflation, as measured by the Bureau of Labor Statistics’ (BLS) Consumer Price Index for All Urban Consumers, has averaged about 2% per year. Since January 2021, it jumped to 9.1% in June 2022, a 40-year high since 1981. The good news is that the August number did not set another 40-year high, with the BLS reporting that the rate was 8.3%.7
The inflation rates we are experiencing now are significantly higher than when the Office of Management and Budget issued its 2022 cost-of-living multiplier of 1.0622, the index number federal agencies were to use for inflation adjustments this year.8 Being unprepared for rocketing prices has cost the U.S. economy dearly. Federal agencies are feeling that pain. “From fiscal years 2021 to 2023, the total loss of buying power to the Department of Defense from this unexpected inflation will exceed $110 billion dollars,” according to a September 2022 report by the National Defense Industrial Association (NDIA).9
In September 2022, government contractor groups – the Professional Services Council, NDIA, and Aerospace Industries Association – had been in discussions with DoD and Congress. They were seeking inflation relief as part of their efforts to influence the continuing resolution that would fund the government through December 16, 2022.10
Law firm Piliero Mazza offered a set of steps contractors should consider in light of the September DoD and GSA guidance:11
1. Review current contracts and determine whether any non-price changes to the contractual terms could offer some relief to the problems caused by inflation. If so, contractors should request adjustments, as suggested by the updated memorandum.
2. Determine whether current circumstances with once-in-a-generation inflationary pressures warrant extraordinary contractual relief in light of the contractor’s specific circumstances and experiences.
3. Contractors experiencing significant cost impacts due to inflation should file some formal request to the contracting officer (e.g., REA [request for equitable adjustment], Extraordinary Contractual Relief request), even if it has little chance of success so that [the] DoD can obtain quantitative data on the scope of the problem.
4. Contractors preparing bids should encourage contracting officers to amend solicitations to include [EPA] clauses, as well as submitting effective Q&As pertaining to the topic of inflation.
Federal contracting professionals have been grappling with EPAs as well. In addition to the DoD and GSA guidance, other resources have become available. For example, on May 31, 2022, the Defense Acquisition University (DAU) added a new course, CON7470 Inflation and Economic Price Adjustments, to its iCatalog.12 It will cover the causes and types of inflation, the use of EPA clauses, the appropriateness of equitable adjustments based on inflation and contract type, and how an EPA clause is constructed.
On June 23, 2022, DAU presented a webinar, “Striking the Balance: Constructing EPA Clauses,” covering the basics regarding the impact of inflation on government and industry, how to carefully consider contract type amid market fluctuation, and how to create EPA clauses based on cost indices of labor or material. A video and the PowerPoint slides are available online.13
See the sidebars to this article. “Warriors’ Shield: The Request for Equitable Adjustment” on page 23 and “Lancing the Monster: Economic Price Adjustments” on page 24 for case studies and guidance on tools for grappling with the inflation beast. CM
John Krieger, CPCM, NCMA Fellow, is an independent acquisition consultant and intermittent professor of contract management at the Center for Contracting and Small Business, Defense Acquisition University. He is a leader/facilitator for The FAR Bootcamp®, The Source Selection Bootcamp℠, and Critical Thinking for Acquisition Professionals. Krieger is Charter President, Old Dominion Chapter, NCMA.
*The views presented in this article are those of the author and do not necessarily represent the views of the Department of Defense or its components.
ENDNOTES
“Updated Guidance on Managing the Effects of Inflation With Existing Contracts,” Department of Defense, Sept. 12, 2022, https://www.defense.gov/News/Releases/Release/Article/3155617/updated-guidance-on-managing-the-effects-of-inflation-with-existing-contracts/
https://www.defensenews.com/pentagon/2022/09/07/pentagons-acquisition-chief-talks-inflation-ukraine-vampires/
“Supplement 1 - Temporary Moratorium on Enforcement of Certain Limitations Contained in Certain GSA Economic Price Adjustment (EPA) Contract Clauses,” GSA Office of Governmentwide Policy, Acquisition Letter MV-22-02 Supplement 1, Sept. 12, 2022, https://www.gsa.gov/cdnstatic/MV-22-02.pdf
“Temporary Moratorium on Enforcement of Certain Limitations Contained in Certain GSA Economic Price Adjustment (EPA) Contract Clauses,” GSA Office of Governmentwide Policy, Acquisition Letter MV-2022-02, March 17, 2022, https://www.gsa.gov/cdnstatic/MV-22-02.pdf)
“Existing Firm Fixed-Price Contracts: US DoD May Provide Inflation Relief,” Mayer Brown, Sept. 23, 2022, https://www.lexology.com/library/detail.aspx?g=c7db51a9-ce93-4dd2-88c2-dfc1a26ca278
“Guidance on Addressing Inflation in GSA Contracts,” GSA Office of Government-wide Policy Acquisition Alert AA-2022-02, September 17, 2022, https://www.gsa.gov/cdnstatic/Acq%20Alert%20AA-2022-02_0.pdf
Latest U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items data as of the date of this writing (i.e., Sept. 23, 2022).
U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items in U.S. City Average [CPIAUCSL], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CPIAUCSL, August 18, 2022.
Implementation of Penalty Inflation Adjustments for 2022, Pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, Office of Management and Budget M-22-07, December 15, 2021, https://www.whitehouse.gov/wp-content/uploads/2021/12/M-22-07.pdf
“How Inflation Hurts America’s National Defense,” National Defense Industrial Association, September 2022, https://www.ndia.org/-/media/sites/ndia/policy/documents/unfunded-inflation/how-inflation-hurts-americas-national-defensev13.pdf?download=1?download=1
“DOD and GSA Inflation Update: Key Takeaways for Government Contractors,” Piliero Mazza, https://www.jdsupra.com/legalnews/dod-and-gsa-inflation-update-key-8500767/Ibid.
https://www.dau.edu/training/career-development/contracting/blog/CON-7470-Inflation-and-Economic-Price-Adjustments
“Striking the Balance: Constructing EPA Clauses,” Defense Acquisition University, June 23, 2022, https://www.dau.edu/event/Striking-the-Balance-Constructing-EPA-Clauses
SIDEBAR 1:
Warriors’ Shield: The Request for Equitable Adjustment
By Joel Dimaapi, CPCM, MSOM
Contracting officers have been receiving requests for equitable adjustment (REAs) from contractors based on cost increases due to inflation as well as other considerations. Typically, an escalation rate is incorporated into pricing offers on federal solicitations in consideration of the year-over-year inflation rate. However, underlying market forces today are entirely different from the considerations factored into the quotes and proposals submitted by contractors in the recent past.
Contracts negotiated under previous conditions have taken on an entirely different set of pricing dynamics under current economic pressures.
A request for equitable adjustment (REA) is “a request by one of the contracting parties for an equitable adjustment under a contract clause providing for such adjustment.”1 The high rate of inflation, its continued upward trajectory, and the overall exponential increase in the cost of goods in the marketplace have prompted many contractors to contemplate and open discussions regarding equitable adjustments for their existing contracts.
REAs seek a change to the contract price under a clause providing for such an adjustment. REAs can be prompted by change orders, differing site conditions, and changes in service contract wages and/or fringe benefits. An REA is appropriate whenever a change in the contract’s terms and conditions increases the contractor’s cost of performance.2 Prime contractors can submit REAs to government contracting officers. Subcontractors also can submit REAs to higher-tier subcontractors, or the prime contractor, for a given contract.3
The two case studies that follow are samples of REAs submitted by contractors to the government as a result of external forces beyond their control.
CASE STUDY 1
The first case involves a firm-fixed-price (FFP) indefinite-delivery, indefinite-quantity (IDIQ) contract to provide support services for the preparation of personal property (commonly known as household goods or HHG) items of Department of Defense (DoD) personnel for shipment, drayage and/or storage and related services for overseas or domestic location movements through the direct procurement method (DPM).
The contract was competitively awarded, has a base year and four option years plus a six-month option through FAR 52.217-8. The contractor requested a fuel surcharge (FSC) adjustment based on the increased cost of diesel fuel during the first half of calendar year 2022. The contractor acknowledged that offerors for DPM/HHG contracts are supposed to incorporate all costs into their proposed rates. The company argued that the increased cost of fuel due to the Russia-Ukraine war was extremely difficult to predict. The contracting officer’s representative (COR) and the contracting officer, along with other program stakeholders, conducted a thorough review of the submitted package and made a determination.
REA APPLICABILITY
The request for FSC adjustment was denied. The contracting officer said the request could not be allowed since the FFP contract had no economic price adjustment (EPA) clauses. In accordance with FAR 16.202-1, “A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractor’s cost experience in performing the contract. This contract type places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss.”4 The increasing cost of diesel fuel was considered risk that fell solely on the contractor.
The contract contained no provisions or clauses for EPAs. FAR 16.203-1 states that there are three types of economic price adjustments: 1. Adjustments based on established prices; 2. Adjustments based on actual costs of labor or material; 3. Adjustments based on cost indexes of labor or material.5 In this case, none applies due to the absence of EPA clauses in the contract. Cost increases due to unanticipated inflation occurrence are not a result of a government directed change.
CASE STUDY 2
The second case is a Sole-Source Firm-Fixed-Price (FFP) negotiated contract that provides mess attendant services in support of a dining facility aboard a military base. The contract has a base year and four option years plus a six-month option through FAR 52.217-8.
The contractor requested an equitable adjustment in accordance with 52.222-43 Fair Labor Standards Act and Service Contract Labor Standards-Price Adjustment (Multiple Year and Option Contracts). The adjustment request was for an increase in the hourly pay plus the health and welfare benefits of the labor wage categories listed in the contract commencing on the effective date of the revised specific area labor-wage determination as published by the Department of Labor.
The contractor submitted the adjustment request within 30 days of an option exercise and the package included the basis for the REA (a government-directed change) and detailed the associated costs. The contractor also provided copies of payroll information to support the request.
After receiving the COR’s concurrence and recommendation, the contracting officer, along with the pricing/cost analyst, performed an in-depth review of the REA package and determined the requested adjustment costs to be fair and reasonable. The REA was referred to the legal department and was found to be legally sufficient.
REA APPLICABILITY
The REA based on the revised labor-wage category was approved. The contracting officer determined the REA had merit. It included FAR clauses 52.212-4 Contract Terms and Conditions—Commercial Products and Commercial Services, 52.222-43 Fair Labor Standards Act and Service Contract Labor Standards-Price Adjustment (Multiple Year and Option Contracts), and DFARS Clause 252.243-7002 Requests for Equitable Adjustment. The contractor submitted the request in a timely manner, and adequate information was provided supporting the REA.
The pricing adjustment request did not include any portion for profit. In addition, the dollar amount requested was aligned with the Department of Labor’s latest labor-wage determination (an independently recognized source for the price change) for the specific area/location of performance. The additional funding from the financial office was received by the contracting officer, and the bilateral modification was released.
This article was written in the author’s personal capacity. The views expressed and presented in this article are those of the author and do not necessarily represent the views of the Department of the Navy or its components.
Joel Dimaapi, CPCM, MSOM is a Branch Manager at the Naval Supply Systems Command’s Fleet Logistics Center (FLC) at the Naval Air Station Jacksonville, Florida. He leads, directs and supervises the team responsible for installation support contracting to various activity customers across the Navy Region Southeast including Guantanamo Bay, Cuba, and Andros Island, Bahamas. Dimaapi provides mentorship, advice, and coaching in areas of leadership, motivation, performance improvement, goal setting, time management as well as Navy Core Values. He is a retired Naval Officer (Information Systems Designator) with more than 23 years of service and has been a member of the Department of the Navy Acquisition Corps since 2012. He has more than 32 years of combined military and civilian service in contracting, information technology, as well as supply and logistics in the Navy.
ENDNOTES
The Government Contracts Reference Book, A Comprehensive Guide to the Language of Procurement (4th Edition, p. 428).
REA Modifications, Virtual Acquisition Office (VAO) Smart Sheet 2021.
Contract Management Body of Knowledge (CMBOK, 6th Edition, p. 132). 4.1.2 Contract Types; 4.1.2.2 Cost-Reimbursement Contracts; 6.1.7 Resolve Requests for Equitable Adjustments (REAs) and Claims.
https://www.acquisition.gov/far/part-16#FAR_16_202_1
FAR 16.202-1 Description.
https://www.acquisition.gov/far/part-16#FAR_16_203_1
16.203-1 Description.
SIDEBAR 2:
Lancing the Monster: The Economic Price Adjustment
“In times of high inflation or strong economic uncertainty, use of an economic price adjustment (EPA) clause is a mechanism to further balance risk between the contract parties. The contracting officer should consider including an EPA clause to hedge against significant fluctuations in labor or material costs. An EPA clause adds additional administrative oversight and monitoring requirements to the post-award tasks of the acquisition team. When considering use of an EPA clause, ensure proper oversight will be available prior to use.”
“Guidance on Addressing Inflation in GSA Contracts,” General Services Administration Acquisition Alert AA-2022-02, GSA Office of Government-wide Policy, September 12, 2022
The GSA’s September 12 guidance came in concert with its second inflation acquisition alert1 issued the same day. The guidance included sample EPA contract clause language (see sidebar, “Sample Economic Price Adjustment (EPA) Clause Language,” on page 26) and examples of upward and downward price adjustments (see sidebar, “Sample of an Upward Economic Price Adjustment,” on page 27).
Because inflation has been relatively stable, running about 2% a year for about 20 years, few contracting professionals are expert at crafting and applying EPAs. However, GSA’s September 12 alert and a September 9 Defense Pricing and Contracting (DPC) memorandum2 open the door to increased EPA use.
According to Federal Acquisition Regulation (FAR) Part 16, “a fixed-price contract with economic price adjustment provides for upward and downward revision of the stated contract price upon the occurrence of specified contingencies. Economic price adjustments are of three general types:
(1) Adjustments based on established prices. These price adjustments are based on increases or decreases from an agreed-upon level in published or otherwise established prices of specific items or the contract end items.
(2) Adjustments based on actual costs of labor or material. These price adjustments are based on increases or decreases in specified costs of labor or material that the contractor actually experiences during contract performance.
(3) Adjustments based on cost indexes of labor or material. These price adjustments are based on increases or decreases in labor or material cost standards or indexes that are specifically identified in the contract.”3
In the current inflation crisis, contracting professionals likely will be most concerned with fixed-price contracts with EPA based on labor or material indexes. The labor or material cost indexes must be identified in the contract. These EPA contracts are appropriate when price volatility extends across an industry, not just a particular company, and it is likely to continue through a contract extending over a relatively long period.
EPA only should be applied to the costs in the contract that are volatile. Doing so is the correct and balanced approach and helps in choosing the right economic index for the parties to agree upon to determine inflation or deflation rates to apply to affected costs.
An economic index measures change in the cost or price of a market basket of goods or services. EPA clauses create an administrative process agreed to by both parties to a contract that they will use to adjust costs using an economic index and actual economic data collected during the contract period of performance (POP).
For example, in GSA’s upward EPA sample (See the sidebar, “Sample of an Upward Economic Price Adjustment,” on page 27), lumber represents 17% of the total contract cost and its price is fluctuating. The chosen EPA index is the Producer Price Index (PPI) Commodity: Lumber/Wood. The parties agreed that a 7.5% change in price in either direction during a six-month period will trigger adjustment. Lumber prices rose 10.18% over the first six months of the POP, triggering an adjustment. The inflation was applied only to the lumber cost (17%) of the total contract price.
GSA recommended other tools contracting professionals can apply to battle inflation, especially streamlining procedures and simplifying acquisitions to shorten contract award time and reducing contract periods of performance. Faster awards reduce the erosion of contract purchasing power caused by high inflation. GSA noted its Multiple Award Schedules and IDIQs are designed to reduce award times.
“Economic uncertainty and unpredictability may result in very high prices in order to accommodate for significant spikes in market pricing, or may result in less competition due to contractors not being willing to take on risk over long contract performance periods,” the guidance observes. Reducing contract length will “help contractors more reasonably predict costs and not take on so much risk.”
The Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS) provide EPA clauses:
• 52.216-2 Economic Price Adjustment-Standard Supplies4
• 52.216-3 Economic Price Adjustment-Semi Standard Supplies5
• 52.216-4 Economic Price Adjustment-Labor and Material6
• 252.216-7000, Economic Price Adjustment-Basic Steel, Aluminum, Brass, Bronze, or Copper Mill Products7
• 252.216-7001, Economic Price Adjustment-Nonstandard Steel Items8
• 252.216-7003, Economic Price Adjustment-Wage Rates or Material Prices Controlled by a Foreign Government9
GSA notes that the FAR allows for agency-prescribed EPA clauses when the FAR clause is deemed inappropriate. “Acquisition teams must consider the appropriate clause based on their requirement and analysis of the market.”
ENDNOTES
“Supplement 1 - Temporary Moratorium on Enforcement of Certain Limitations Contained in Certain GSA Economic Price Adjustment (EPA) Contract Clauses,” GSA Office of Governmentwide Policy, Acquisition Letter MV-22-02 Supplement 1, Sept. 12, 2022, https://www.gsa.gov/cdnstatic/MV-22-02.pdf
“Updated Guidance on Managing the Effects of Inflation With Existing Contracts,” Department of Defense, Sept. 12, 2022, https://www.defense.gov/News/Releases/Release/Article/3155617/updated-guidance-on-managing-the-effects-of-inflation-with-existing-contracts/
https://www.acquisition.gov/far/16.203-1
https://www.acquisition.gov/far/52.216-2
https://www.acquisition.gov/far/52.216-3
https://www.acquisition.gov/far/52.216-4
https://www.acquisition.gov/dfars/252.216-7000-economic-price-adjustment%E2%80%94basic-steel-aluminum-brass-bronze-or-copper-mill-product
https://www.acquisition.gov/dfars/252.216-7001-economic-price-adjustment%E2%80%93nonstandard-steel-items
https://www.acquisition.gov/dfars/252.216-7003-economic-price-adjustment%E2%80%94wage-rates-or-material-prices-controlled-foreign-government
SIDEBAR 3:
Sample Economic Price Adjustment Clause Language
Here is a sample economic price adjustment (EPA) clause from the September 12, 2022, General Services Administration (GSA) “Guidance on Addressing Inflation in GSA Contracts.”1 It is one of many suggestions from a number of agencies and is provided here as an illustration.
The language below may be included in the solicitation for offerors to complete. It also may be pre-completed by GSA and included with the solicitation or resulting contract.
Note that the FAR EPA clauses (i.e., 52.216-2 and 52.216-3) have fill-ins for offerors to complete.
Adding an example of the calculations as part of the solicitation is strongly recommended.
Material eligible for an EPA should be limited and consistent with market conditions.
This language must not be used or modified into any current contract without consulting with your assigned legal counsel.
EPA CLAUSE
The government estimates that, solely for the purposes of any future EPA calculation, the material2 listed at “A” in the chart below represents 17%3 of the total price.
Once the offer is accepted, the index monitor mechanism (or “C” in the chart below) is the reference point for calculating future adjustments (upward or downward).
The aggregate of the increases (or decreases) to the total line item amount under this clause shall not exceed 10% of the original total line item amount.
EPA applies only if the material at “A” changes upward by “D” or downward by “E.” The worksheet must be completed as the means for a future economic price adjustment, if applicable. Only material identified in this worksheet is eligible for an EPA.
A. __________ (Material)
B. __________
(Price per unit of measure at time of award)4
C. __________
(Index monitor mechanism)
D. __________
(Upward adjustment from B trigger percentage)
E. __________
(Downward adjustment from B trigger percentage)
F. __________
(Trigger percentage time measurement)
G. _________
(Contractor notification timing)
Total Line Item Amount: __________(Fixed-Price)
Monthly adjustments submitted by the contractor must include documentation directly from the index monitor mechanism matching the information provided by the contractor.
The six-month measurement period is on a rolling basis.
Any upward adjustment may be invoiced as soon as a modification to add the upward adjustment amount has been completed. In any case, modifications should be completed within 455 days.
Any downward adjustment amount(s) will be removed from the final invoice of the applicable period of performance.
ENDNOTES
“Guidance on Addressing Inflation in GSA Contracts,” General Services Administration, Office of Governmentwide policy Acquisition Alert AA-2022-02, September 12, 2022, https://www.gsa.gov/cdnstatic/Acq%20Alert%20AA-2022-02_0.pdf
This sample language can be modified for use in labor adjustments, as opposed to material adjustments, as applicable. Labor indices that could potentially be used include the Bureau of Labor Statistics (BLS) Producer Price Index, or the Employment Cost Index.
This percentage must be updated by the acquisition team after conducting market research, reviewing historical costs, and preparation of the independent Government estimate. The number listed in the sample language is hypothetical, and used for example purposes only.
In contracts that do not require submission of certified cost or pricing data, the contracting officer shall obtain adequate data to establish the base level from which adjustment will be made and may require verification of data submitted.
The number listed in the sample language is hypothetical and used for example purposes only.
SIDEBAR 4:
Sample of an Upward Economic Price Adjustment
This sample of an upward economic price adjustment is provided in the September 12, 2022, General Services Administration (GSA) “Guidance on Addressing Inflation in GSA Contracts.” It uses the sample economic price adjustment (EPA) clause provided in the GSA guidance (See “Sample Economic Price Adjustment (EPA) Clause Language” on page 26.)
The language must not be used or modified into any current contract without consulting with your assigned legal counsel.
A. Lumber (Material)
B. $1.00/Board Foot (Price per unit of measure at time of award)
C. Producer Price Index (PPI) (Commodity: lumber/wood) (Index monitor mechanism)
D. 7.5% or over (Upward adjustment from B trigger percentage)
E. -7.5% or over (Downward adjustment from B trigger percentage)
F. Every six months (Trigger percentage time measurement)
G. Monthly (Contractor notification timing)
Total Line Item Amount: $100,000 fixed-price
Sample Application
The contract is awarded July 1. On August 1, and monthly thereafter, the contractor submits notification to the contracting officer regarding any change in the index monitor mechanism (“C” in the chart).
From July 1 to August 1, the PPI for the commodity increased .08%.
From August 1 to September 1, the PPI for the commodity increased 1.4%.
From September 1 to October 1, the PPI for the commodity increased 2.5%.
From October 1 to November 1, the PPI for the commodity decreased -1%.
From November 1 to December 1, the PPI for the commodity increased 4.5%.
From December 1 to January 1, the PPI for the commodity increased 2.7%.
Six Month calculation (“F”) = 10.18%.
Therefore, the unit price has increased $0.10 ($1.00 increased by 10.18%).
Increase in material price of 10.18%.
The six-month change is above the upward trigger amount (“D”).
The material represents 17% of the total line item price.
17% x $100,000 = $17,000 (% this material multiplied by the total line item amount)
$17,000 x 10.18% = $1,730.60 (Increase the funded line item by $1,730.60 for the EPA)
ENDNOTES
“Guidance on Addressing Inflation in GSA Contracts,” General Services Administration, Office of Governmentwide policy Acquisition Alert AA-2022-02, September 12, 2022, https://www.gsa.gov/cdnstatic/Acq%20Alert%20AA-2022-02_0.pdf