Inflation is impacting everyone, and government contractors are no exception. The Department of Defense (“DoD”) Principal Director, Defense Price and Contracting recently released a memo reiterating that while contractors performing under firm fixed price contracts generally bear the risk of increased costs, FAR Part 50 allows for Extraordinary Contractual Relief if certain stringent criteria are met. The memo states that the Department will consider contractor requests to employ this authority subject to available funding. Many industry professionals believe it will be difficult to obtain relief for inflation under FAR Part 50 (Public Law 85-804), likely due in part to its limited use in the past.
Other potential remedies contractors may want to consider include requesting an economic price adjustment (EPA), when the EPA clause is included in the contract, or submitting Requests for Equitable Adjustment (REA). Contractors that plan to pursue relief using one of these two options should be aware that the process will likely be difficult as well. Many existing fixed price contracts do not include the EPA clause and obtaining relief through a REA in this circumstance is not supported by the DOD. In the Principal Director’s memo dated May 25, 2022, it states that “COs should not agree to contractor REAs submitted in response to changed economic conditions.” Note though, that contractors may want to consider REAs when there are changes to contracts which have been directed because of economic conditions.
Fixed price contractors should consider and assess each of the above-mentioned options and related requirements to obtain reimbursement for inflation related costs, and as appropriate contact their administrative CO to reach accommodation via mutual understanding.
Our team of experienced professionals are ready to explore all avenues of relief with contractors experiencing increased costs due to inflation. Contact us at 703-796-2850 or visit our website at www.chessconsultingllc.com to learn more about our services and how we can help.