16.203-3
Limitations
EPA clauses in fixed-price contracts should only be used when necessary to protect against significant cost fluctuations or changes in established prices, as determined by the contracting officer.
Overview
FAR 16.203-3 outlines the limitations on the use of fixed-price contracts with economic price adjustment (EPA). It specifies that such contracts should only be used when the contracting officer determines that an EPA clause is necessary to protect both the contractor and the Government from significant fluctuations in labor or material costs, or to allow for price adjustments if the contractor’s established prices change. This ensures that EPA clauses are not used indiscriminately, but only when justified by market volatility or pricing structures.
Key Rules
- Necessity Determination
- The contracting officer must determine that an EPA clause is necessary due to potential significant cost fluctuations or changes in established prices.
- Protection of Parties
- EPA clauses are intended to protect both the contractor and the Government from unpredictable cost changes.
Responsibilities
- Contracting Officers: Must assess and document the necessity for an EPA clause before including it in a contract.
- Contractors: Should provide relevant information to support the need for an EPA clause if requested.
- Agencies: Should ensure oversight and compliance with the proper use of EPA clauses.
Practical Implications
- This section exists to prevent unnecessary or unjustified use of EPA clauses, which could expose the Government to undue risk or administrative burden.
- It impacts daily contracting by requiring careful justification and documentation before using EPA clauses.
- Common pitfalls include failing to document the necessity or using EPA clauses in stable markets where they are not warranted.