Fixed-Price Contract with Economic Price Adjustment
An FFP contract may not be an appropriate contract type in a volatile marketplace because it can place considerable risk on a supplier. As a safeguard, the government may engage in a fixed-price contract with economic price adjustment (FPEPA). This contract type allows for a price adjustment due to fluctuations in labor or material costs. FAR 16.203-3. As assurance that an adjustment is fair and reasonable to both parties, the price may fluctuate either up or down; an economic price adjustment is negotiated and the contract is modified accordingly.
When price fluctuation is a real possibility over the course of a contract, an FPEPA contract is well-suited. The government and the ...