Economic Price Adjustment Clause
Q. Is there a clause to be used by contractors referred to as a cost escalator, to factor in materials increases during the term of the contract? If so, where could I find the standard verbiage and/or guidelines?
A. You may want to refer to the Federal Acquisition Regulations (FAR), Subpart 16.203 "Fixed-price contracts with economic price adjustment" and the related contract clause language in FAR 52.216-2, 3, 4. These FAR provisions and contract clauses are not required to be followed by FTA grantees but they may prove helpful in structuring contract language for specific contingencies, like steel prices. The FAR may be accessed online at http://www.arnet.gov/far/. (Revised: May 2010)
Q. Is there an FTA policy that allows fixed-price services contracts to be modified to allow for an economic adjustment when an emergency such as an increase in the cost of gasoline has occurred and is placing a hardship on the prime contractor?
A. We are not aware of any policy to provide relief to a vendor under a fixed price contract for unexpected price increases in raw materials/supplies. Inflationary risks such as this need to be anticipated when the IFB is issued so that the contract is advertised and awarded with an appropriate economic price adjustment clause that protects the vendor from unnecessary risk when market conditions become volatile or are at risk of becoming so. We would always recommend that the agency conduct some market research with potential suppliers to determine the possible need for an economic price adjustment clause before the solicitation is issued. This kind of precaution will almost always uncover market risks that the vendors are seeing and which need to be addressed in the contract to protect both parties. (Revised: May 2010)