Feds Addressing Inflationary Impacts, Possible Actions
By Gloria Larkin
Who remembers what the acronym WIN meant back in the 1970s?
Those of you who recall that the letters stood for Whip Inflation Now, a grassroots effort that was supported by President Gerald Ford, can go straight to the trivia bonus round.
While that effort was not embraced by all concerned, everyone in the current environs is working to WIN during this latest inflationary price pinch ― including businesses that operate within the federal marketplace. Given that challenge, on May 25, the Department of Defense issued a memorandum (www.acq.osd.mil/dpap/policy/policyvault/USA000999-22-DPC.pdf) to guide government contractors and contracting officers who need to address the issue via the GSA’s Multiple Award Schedule program.
Against today’s backdrop of rising fuel and materials prices, MAS is closely monitoring inflation rates and assessing its impact on the availability and price of the products and services its customers need.
How? According to the DoD memo, “DoD contractors and contracting officers alike have expressed renewed interest in using economic price adjustment clauses.” The memo also provides guidance on “whether it is appropriate to recognize cost increases due to inflation under existing contracts, as well as offer considerations for the proper use of EPAs when entering into new contracts.”
Noteworthy about the memo is that it addresses considerations for using EPAs when the government solicits new contracts. While citing to the Defense Federal Acquisition Regulation Supplement, the guidance reiterates the basic rules that remain applicable to all Government contracts under the Federal Acquisition Regulation:
- Contracting Officers need to consider including an EPA clause in fixed-price contracts to combat inflation.
- They should also consider requesting that the CO include an EPA clause in new solicitations for fixed-price contracts.
- The memo also states that Requests for Equitable Adjustment solely due to inflation will not be considered for current firm-fixed-price contracts.
- Thus for FFPs, contractors should seek REAs under existing contract clauses that allow for them (and thereby capture inflation in an REA).
The memo goes on to highlight the fundamental rule that treatment of inflationary costs depends on contract type. For instance, for cost-reimbursement contracts, contractors should inform the DoD that the costs incurred are closing in on the specified limits.
Upon notification, the DoD may raise contract funding, but the contractor is not obligated to continue contract performance beyond what can be carried out within the contract’s funded amount. Naturally, these FAR clauses apply to non-DoD cost-type contracts.
On the other hand, for fixed-price incentive contracts, the memo explains that the government may adjust the target profit in the event that the contractor’s costs differ from the target costs.
As noted, the memo does address how EPAs can be used by the CO to balance the risk of inflation under FFP contracts (and know that the government is now considering using REAs under FFP contracts); however, including an EPA clause may enable a contractor to accept a fixed-price contract without having to develop pricing based on worst-case projections to cover the cost risk.
REAs for Firm-Fixed-Price
So unfortunately, the EPA is not an option on existing firm-fixed-price contracts. In those cases, government contractors should seek REAs under existing contract clauses, such as the Changes or Suspension of Work clauses, and thereby include inflation in that REA. Therefore, providing prompt notice to the government that an REA will be sought under the appropriate contract clause, is more important than ever.
GSA will continue to keep an eye on market conditions and make adjustments to ensure fair and reasonable pricing on all MAS price lists. For information about the MAS program and ordering procedures, visit the GSA Schedule Buyers webpage at www.gsa.gov/buying-selling/purchasing-programs/gsa-multiple-award-schedule/schedule-buyers.
Gloria Larkin is President and CEO of TargetGov, and a national expert in business development in the government markets. Email glorialarkinTG@targetgov.com, visit www.targetgov.com or call toll-free 1-866-579-1346 x 325 for more information.