GSA makes inflation adjustments a bit easier for contractors

With nationwide inflation still at 8%, federal contractors are getting some additional relief from the General Services Administration.

GSA updated its guidance for how quickly contracting officers can raise prices on the schedule.

Jeff Koses, GSA’s senior procurement executive, and Mark Lee, the assistant commissioner in the Office of Policy and Compliance in GSA’s Federal Acquisition Service, told contracting officers on Sept. 12 that they do not need additional approvals to invoke the economic price adjustment (EPA) clause in contracts.

“For EPA increases exceeding the ceiling percentage established in the solicitation, Acquisition Letter MV-22-02 initially lowered the approval level from the contracting director to one level above the contracting officer. This supplement, in recognition of ongoing price volatility and impacts to the global economy, removes the requirement to obtain additional approvals,” the memo stated. “This means that all requests for EPA increases can be approved by the contracting officer, whether above or below the ceiling percentage established in the solicitation. Contracting officers should review all EPA requests consistently and in line with the terms of the underlying contract.”

GSA initially tried to reduce the burden on contractors to raise prices to deal with inflation in March, but industry associations expressed frustration at the delays in getting the modifications through the process.

Koses and Lee’s updated guidance makes it clear that speed without reducing rigor is important.

“This temporary moratorium does not diminish a contracting officer’s responsibility for reviewing EPA requests and asking for additional information, if applicable, within the confines of what is normally necessary for processing EPA requests. Specifically, EPA requests must be evaluated to ensure the request is justified,” the memo stated.

Koses expanded the discussion in an acquisition alert on the memo that GSA sent to contracting officers.

“When the request is based on a previously agreed upon market indicator, the justification should be straightforward, as the contract price and market indicator have already been determined fair and reasonable,” the alert stated. “In a fixed-price contract lacking an EPA clause, the contractor is obligated to perform at the fixed-price, and can only recover for increases to the fixed price that are the result of changes or other actions/inactions by the government. As a general rule, since inflation is not a government-directed change, it cannot form the basis for an equitable adjustment. However, if the inflated costs are the direct result of government action (for example, when government delays the work into a period when higher costs are encountered), compensation is appropriate.”

Impact to be felt broadly

GSA said the new process will remain in place through March 2023.

Roger Waldron, the president of the Coalition for Government Procurement, applauded the updated guidance.

“The impact of memo will be to provide customer agencies with continued choice and access to the commercial market through schedules. Companies will be in position to compete and have sound business opportunity,” said Waldron in an interview. “In many cases, companies were put in position to have to sell at a price that was below their acquisition costs. This also will help small businesses who have been particularly challenged by inflation and supply chain delays. They have fewer resources to absorb the change in prices.”

The CGP wrote a letter to FAS Commissioner Sonny Hashmi on Aug. 29 expressing concerns about the EPA process.

“Unfortunately, five months after the issuance of the memo, Schedule contractors, especially GSA’s small business partners, still are reporting that modifications are not being processed in a timely manner,” Waldron wrote in the letter. “As a result, MAS contractors find themselves in a no-win situation: either they disappoint a GSA MAS customer agency by not fulfilling an order, or they fulfill the order and lose money. It is an untenable position for MAS contractors, especially small businesses.”

Waldron said CGP has been pleased to see GSA training contracting officers on the EPA changes over the last few months ahead of the federal fourth quarter buying season.

“Over the long term, this memo will definitely help companies and buying agencies,” he said. “Over short term, it could help some companies and agencies who are feeling the effects of inflation in a bigger way.”

DoD’s second inflation related memo

As part of the alert, GSA provided sample EPA clause language and what would upward and downward adjustments look like.

“In times of economic uncertainty, contracts extending over a relatively long period, e.g., greater than 5 years (or 60 months) may not be the best decision for either the contractor or GSA. The economic uncertainty and unpredictability may result in very high prices in order to accommodate for significant spikes in market pricing, or may result in less competition due to contractors not being willing to take on risk over such a long contract period,” GSA stated in the alert. “Therefore, acquisition planners are encouraged to consider reducing the total period of performance for acquisitions in order to help contractors more reasonably predict costs and not take on so much risk.”

The Defense Department also released updated guidance on helping contractors deal with increasing prices. Vendors had similar complaints with DoD’s first memo from May as they did with GSA.

DoD said in the new memo that contracting officers can use a range of approaches, including re-looking at firm fixed price contracts.

“For extraordinary circumstances where contractors have sought or may seek an upward adjustment to the price of an existing firm-fixed- price contract to account for current economic conditions, each of the secretaries of Defense, Army, Navy and Air Force has authority under Public Law 85-804, as implemented by Part 50 of the Federal Acquisition Regulation (FAR) and the Defense FAR Supplement (DFARS), to afford Extraordinary Contractual Relief,” the memo stated. “While the law and regulation have established stringent criteria, the department will consider contractor requests to employ this authority, subject, of course, to available funding.”

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