16.203-4
Contract clauses
FAR 16.203-4 mandates the use of specific economic price adjustment clauses in fixed-price contracts to address price fluctuations, with strict documentation and approval requirements for deviations.
Overview
FAR 16.203-4 outlines the required and optional contract clauses for fixed-price contracts with economic price adjustment (EPA) provisions. It specifies when to use standard EPA clauses for standard supplies, semistandard supplies, and contracts based on actual labor or material costs, as well as when agency-specific clauses may be substituted. The section also details documentation requirements, approval processes for modifying standard clause limits, and the use of cost index-based EPA clauses for contracts with extended performance periods and unstable economic variables.
Key Rules
- Standard Supplies (52.216-2)
- Use the EPA-Standard Supplies clause when contracting for standard supplies with established catalog or market prices, unless an agency-prescribed clause is justified.
- Semistandard Supplies (52.216-3)
- Use the EPA-Semistandard Supplies clause for semistandard supplies with prices reasonably related to standard supplies, with similar substitution and documentation rules.
- Actual Labor or Material Costs (52.216-4)
- Use the EPA-Labor and Material clause when identifiable labor or material costs are subject to change, with detailed contract schedule requirements and negotiation guidance.
- Cost Index-Based Adjustments
- Consider custom EPA clauses based on cost indexes for contracts with long performance periods and unstable economic variables, subject to agency approval.
Responsibilities
- Contracting Officers: Must select and insert the appropriate EPA clause, document discounts, obtain approvals for clause modifications, and ensure detailed contract schedules where required.
- Contractors: Must agree in writing to standard supply identifications (for semistandard supplies) and comply with EPA clause terms.
- Agencies: Approve modifications to standard clause limits and custom EPA clauses based on cost indexes.
Practical Implications
- This section ensures price fairness and risk sharing in fixed-price contracts subject to market fluctuations. Contractors and contracting officers must carefully select and document the correct EPA clause, maintain proper records, and obtain necessary approvals to remain compliant. Common pitfalls include failing to document discounts, using the wrong clause, or exceeding adjustment limits without approval.