(d) The Customer may inspect the Contractor`s books, records and other data in support of labour costs (including ancillary services) and materials within all reasonable periods up to the end of 3 years after the date of final payment under this Agreement or the periods set out in subsection 4.7 of the Federal Acquisitions Regulations (FAR). depending on what is earlier. (a) The Contractor shall inform the Customer if, at any time during the performance of the Contract, the rate of pay for the work (including ancillary services) or the unit prices of the equipment indicated in the Annex increase or decrease. The Contractor will send such notification within 60 days of the increase or reduction or within an additional period, which the Customer may approve in writing, but at the latest at the time of final payment of this Contract. The notice shall include the contractor`s proposal to adjust the unit prices of the contract to be negotiated in accordance with point (b) of this clause and shall include, in the form required by the contracting entity, supporting data explaining the cause, the date of entry into force and the amount of the increase or decrease, as well as the amount of the contractor`s adjustment proposal. The main reason for using a price adjustment clause is to discourage the bidder from setting its price high enough to compensate for planned or unexpected future increases that are beyond its control. COVID19 raised concerns among one bidder about its ability to predict “unexpected increases.” A best practice for reducing the prices of your PSA offering is to aggregate as much volume as possible through cooperative purchases and use a price adjustment clause when reasonable. For an example of a federal price adjustment clause, see the Reference section below. Why federal are you asking? Now that much of the PPE we buy under COVID19 can be refundable by the federal government, it may be good to see what kind of clause they find acceptable if we find ourselves in a similar situation in the future.
A fixed-price contract with economic price adjustment allows for price changes in certain circumstances. Price adjustments are based on price divergences, i.e. upward or downward price movements of certain positions or services. These price movements can be positive or negative. (a) the contractor makes, for a certain period of time, a certain effort for work which can only be indicated in a general way; and this is covered in Part 16.203-1(a) of the FAR. To establish a bid case or challenge that challenges the Agency`s inappropriate use of contract price adjustment in the tender sections, the underlying contingency must first be articulated. Treatment of the Economic Price Adjustment Clause – FAR Part 16 Sections A fixed price with an economic price adjustment contract allows positive or negative price changes in certain circumstances. Reading time of 3 min (c) Any price adjustment under this clause is subject to the following restrictions: Economic market conditions will change over time. FP-EPA contracts are more common when a project is expected to last a long time, usually several years. Therefore, contingencies must be present in order to adapt to the evolution of the market during the contract. In addition, such contracts should only be used if contingencies that would normally be included in a fixed-price contract cannot be easily identified and covered separately in that contract. Since FP-EPA contracts can be difficult to manage, they are not a typical choice under normal circumstances.
The simplest and most common form of fixed-price contracts are orders. When working with fixed-price contracts, there is a higher risk for the seller. Indeed, in the event of a price increase, the seller is responsible for covering these increased costs and cannot charge the buyer a higher price than the one initially agreed. The three most common types of fixed-price contracts are: In general, there are two types of price adjustments that can be made under an EPA FP contract: (b) The procuring entity may use a fixed-price contract with an economic price adjustment in conjunction with an incentive for the additional fee (see 16,404) and performance or delivery incentives (see 16.402-2 and 16.402-3). if the surcharge or incentive is solely due to factors other than costs. The type of contract remains fixed price with economic adjustment of prices when used with these incentives. FAR Part 16.203-1(a). The economic price adjustment clause may be based either on fixed prices, or on the actual costs of labour or materials, or on labour or material cost indices.
(i) supplies or services for which the cost of production is not affected by those changes; (ii) changes in tariffs or unit prices not included in the list; or (iii) changes in the amounts of work or material used from the quantities displayed in the calendar for each item. Fixed-price contracts that provide for an economic price adjustment based on labour or material CS must include clause 2-28: Economic price adjustment – labour and materials, and fixed-price contracts that provide for an economic price adjustment based on labour or material cost indices must include clause 2-29: Economic price adjustment (index method). Fixed-price contracts with an economic adjustment of prices are appropriate if there are serious doubts as to the stability of the market or working conditions during a longer period of service and if contingent liabilities that would otherwise be included in an FFP contract are recognisable and can be recorded separately in the contract. Their usefulness is limited by administrative difficulties. The buyer and seller must accept these requirements at the beginning of the contract. This is so that there is no confusion as to when price adjustments are allowed. There is a need to address the uncertainty that is common in some markets. 1.
Any adjustment shall be limited to the effects of increases or reductions in labour wage rates (including social benefits) or unit prices of the materials listed in the Annex. Typically, customers and service providers use FP-EPO contracts if orders last longer. Usually, these periods last several years. Therefore, customers and service providers should document contingencies in order to take into account changes in market conditions during the term of the contract in a transparent manner. (a) the initial period should be the longest period for which a fair and reasonable fixed price can be negotiated; Each subsequent pricing period must be at least 12 months. As emergency contracts begin to decline, we need competitive solutions for PSA requirements in the future. Based on the unreliable supply chain during COVID19, a good pricing scaling clause and cooperative purchasing should be the sourcing strategy that allows for the best prices. .