Economic Price Adjustment-Semistandard Supplies
FAR 52.216-3 allows contract prices for semistandard supplies to be adjusted up or down in line with established commercial price changes, with strict notification, documentation, and percentage limits.
Overview
FAR 52.216-3, Economic Price Adjustment-Semistandard Supplies, provides a mechanism for adjusting contract prices for supplies with established commercial prices when those prices change during contract performance. This clause is used when the contract involves semistandard supplies—commercial items with established catalog or market prices sold in substantial quantities to the public. It ensures that contract prices reflect market realities while protecting both the Government and the contractor from significant price fluctuations beyond their control.
Key Rules
- Warranty of Established Price
- Contractors must warrant that the supplies have an established price, defined as a catalog or market price for commercial products sold in substantial quantities, net of standard trade discounts.
- Price Decreases
- Contractors must promptly notify the Contracting Officer of any decrease in established prices, and contract prices must be reduced by the same percentage for affected items delivered after the decrease.
- Price Increases
- Contractors may request a contract price increase if their established price rises, but increases are capped at 10% of the original unit price and require written request and verification by the Contracting Officer.
- Effective Dates and Delivery
- Price increases are effective based on when the request is received, and do not apply to items scheduled for delivery before the effective date unless delays are excusable.
- Government Cancellation Right
- The Contracting Officer may cancel undelivered items affected by a requested price increase within 30 days of the request, without liability.
Responsibilities
- Contracting Officers: Verify price changes, modify contracts accordingly, and may cancel undelivered items after a price increase request.
- Contractors: Notify of price decreases, request increases in writing, warrant established prices, and continue deliveries during review periods.
- Agencies: Oversee compliance and ensure contract modifications are properly executed.
Practical Implications
This clause balances risk between the Government and contractors for semistandard supplies, ensuring fair pricing as market conditions change. Contractors must closely monitor their commercial pricing and maintain timely communication with the Contracting Officer. Failure to comply with notification or documentation requirements can result in payment issues or contract cancellation.