December 3, 2023

Each the Normal Products and services Management (“GSA”) and the Division of Protection (“DOD”) are spotting the affect of the 8 p.c price of inflation on federal contractors. On September 9, 2022, DOD launched a memo offering steering to contracting officials “concerning the vary of approaches to be had to them” to control the impact of inflation on present agency constant charge contracts. In a similar fashion, GSA supplied new course to its contracting officials allowing more straightforward get entry to to the industrial charge adjustment clause in GSA contracts. 

Sadly for contractors, this doesn’t imply an automated, or essentially a very simple, trail to recouping the prices misplaced to inflation. Alternatively, it does imply that the federal government is spotting the troubles and taking into consideration avenues of reduction on firm-fixed charge contracts, in all probability offering some wiggle-room at the long-held place that contractors endure the chance of value will increase underneath agency constant charge contracts, even with the onset of extenuating cases.

DOD Caveats

The memo from DOD’s Primary Director, Protection Pricing and Contracting (DPC) states that the place there are “abnormal cases” efficient instantly, DOD will imagine changes to the contract charge in an effort to “cope with acute affects on small companies and different providers.” Significantly, whilst calling out small companies, the Memo leaves the door open to different contractors and does now not prohibit the appliance. DOD instructed that it’s going to ponder those upward changes underneath Phase 50.101 of the Federal Acquisition Legislation (FAR), which governs reduction underneath Public Legislation 85-804. Historically, acquiring reduction underneath Public Legislation 85-804 (a 1958 regulation permitting amendments to contracts to facilitate nationwide protection) is a surprisingly difficult trail. The appropriate sections of FAR Phase 50 allow contracting officials to call for detailed supporting documentation in furtherance of any request for reduction, together with main points at the affects to contractor earnings for approval or denial of the request, corporate monetary statements, research as to how the adjustment was once decided, interviews with group of workers with non-public wisdom, research of any mitigation steps taken by way of the contractor and every other “contemporaneous proof” that helps the request. The hot DOD memo does now not trade the ones necessities, nor does it alleviate the chance of a DCAA audit. Contractors will want to be ready to turn what inflation price was once assumed on the time of bid, and every other underlying bid assumptions as to their pricing, in addition to any documentation they’ve that substantiates the rise of the firm-fixed charge contract. In brief, the DOD’s Memo reminds contracting officials that avenues for reduction do in reality exist for contractors, and that the normal authorities place that contractors endure the entire chance for his or her agency constant charge contracts, don’t need to essentially be the case within the face of the present financial cases.

GSA Coverage

On September 12, 2022, the main procurement executives at GSA knowledgeable their contracting officials, that they now not wanted “further approvals” to invoke the industrial charge adjustment clause (GSAR Clause 552.216-70) contained within the GSA contracts.    

In GSA contracts, a ceiling proportion for upward changes is typically set forth within the solicitation. Alternatively, in March of this yr, GSA issued a memorandum setting up “transient flexibility” and decreased the approval degree to “one degree above the contracting officer” and likewise at ease the time boundaries and constraints at the selection of charge changes {that a} contractor may just request. Now, with the newest memorandum, the authority to imagine the equitable charge adjustment rests immediately with contracting officials, and there’s an emphasis at the fast evaluate and determination of the requests.  

But, regardless of this positive information from GSA, not like DOD contracts, the GSA adjustments don’t seem to be appropriate to agency constant charge contracts, except the contractor can identify government-caused extend. GSA’s senior procurement legit clarified: 

“In a fixed-price contract missing an EPA clause, the contractor is obligated to accomplish on the fixed-price, and will handiest get better for will increase to the constant charge which can be the results of adjustments or different movements/inactions by way of the federal government. As a common rule, since inflation isn’t a government-directed trade, it can not shape the root for an equitable adjustment. Alternatively, if the inflated prices are the direct results of authorities motion (for instance, when authorities delays the paintings right into a duration when upper prices are encountered), reimbursement is acceptable.”

Sensible Results for Contractors

Contractors with GSA provide contracts want to check the presence of the industrial charge adjustment clause of their respective contracts. The inclusion of this clause opens the door to the contracting officer’s talent to offer pricing reduction past the ceiling proportion contained inside the appropriate solicitation. Alternatively, regardless of the transient moratorium on time boundaries, contractors will have to promptly make the requests for adjustment together with detailed analyses explaining the need of the adjustment. 

The ones contractors with firm-fixed charge contracts for DOD will have to additionally promptly make any inflation or provide chain similar requests for equitable adjustment, as DOD warned that such requests have been “matter to to be had investment.” In making those requests contractors will have to define the root for the request, together with the underlying bid assumptions, and supply a transparent and detailed supporting bundle in an effort to reduce the from side to side with the contracting officer. The extra thorough and supported the request, the much more likely the contracting officer will approve and the speedier the contractor will revel in reduction. Contractors will have to meticulously get ready each the bundle for submission, and the related crew contributors for interviews with DOD and DCAA.  


As inflation continues to upward push, and the concern of recession looms, there’s more likely to be extra reduction from different federal businesses and/or up to date steering from DOD and GSA. For the time being, cautious activity value information will have to be maintained to record the desire for any long term requests and contractor groups will have to incessantly be monitoring their bid assumptions in opposition to the present marketplace prices to make sure they don’t seem to be lacking a possibility to recoup misplaced prices.