16.203-1 Description
Source: FAR 16.203-1 on acquisition.gov
FAR 16.203-1 allows fixed-price contracts to include economic price adjustments for specified contingencies, helping manage cost risks due to market fluctuations.
Overview
FAR 16.203-1 describes the structure and use of fixed-price contracts with economic price adjustment (FPEPA). This contract type allows for the contract price to be adjusted upward or downward based on specific contingencies, protecting both the government and contractors from significant fluctuations in market conditions. The regulation outlines three general types of economic price adjustments: those based on established prices, actual costs of labor or material, and cost indexes of labor or material. Additionally, it clarifies that FPEPA contracts can be combined with award-fee or performance/delivery incentives, provided these incentives are not cost-based, and the contract remains classified as fixed-price with economic price adjustment.
Key Rules
- Types of Economic Price Adjustments
- Adjustments may be based on established prices, actual costs, or cost indexes for labor or material, as specified in the contract.
- Combination with Incentives
- FPEPA contracts may include award-fee or performance/delivery incentives, as long as these incentives are not based on cost factors.
Responsibilities
- Contracting Officers: Must specify the type of economic price adjustment and ensure contingencies are clearly defined in the contract; may combine with non-cost-based incentives.
- Contractors: Must track and document relevant price, cost, or index changes as specified in the contract.
- Agencies: Should oversee proper application and justification for using FPEPA contracts.
Practical Implications
- FPEPA contracts help manage risk from market volatility for both parties.
- Contractors must be diligent in tracking and substantiating price or cost changes.
- Misapplication or unclear adjustment terms can lead to disputes or noncompliance.
(a) 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.
(b) The contracting officer may use a fixed-price contract with economic price adjustment in conjunction with an award-fee incentive (see 16.404) and performance or delivery incentives (see 16.402-2 and 16.402-3) when the award fee or incentive is based solely on factors other than cost. The contract type remains fixed-price with economic price adjustment when used with these incentives.