What is fair and reasonable: GSA’s proposed economic price adjustment clause

On November 16, 2023, the General Services Administration issued a proposed rule updating the General Services Acquisition Regulation (GSAR) Federal Supply Schedule Economic Price Adjustment (EPA) clauses. The rule proposes to remove “certain economic price adjustment requirements within these clauses to better align with commercial standards and practices.” The rule eliminates the current EPA clauses being used across the GSA and Department of Veterans Affairs Federal Supply Schedules and replaces those clauses with a standard, streamlined clause: 552.238-118, Economic Price Adjustment, Federal Supply Schedule Contracts.

The new clause essentially adopts the approach and lessons learned from GSA Acquisition Letter MV-22-02, issued in March 2022, which provided a temporary moratorium on the enforcement of certain procedural limits contained in the FSS clauses (e.g., limits on the timing and number of price adjustments). GSA Acquisition Letter MV-22-02 provided increased flexibility in processing EPAs, allowing FSS contractors greater agility in responding to changes in the commercial market. The proposed rule is the next logical step by incorporating this market-driven flexibility into the GSAR.

The proposed rule defines “Economic Price Adjustment (EPA) method” as “the agreed upon procedure by which pricing may be adjusted throughout the contract period to include, but not limited to, the mechanism(s) to be used to adjust pricing (e.g., adjustments based on established pricing), the pricing subject to adjustment, and any other requirements (e.g., timing, frequency, limits on increases).” [Emphasis added.] The proposed clause provides the framework for the contracting officer and the contractor to negotiate the mechanism, timing and frequency of increases, as appropriate. It is a streamlined, flexible approach that can be more responsive to changes in the commercial market.

Regarding the mechanisms for adjusting price, where the FSS contract prices were negotiated based on commercial catalog pricing, changes in the commercial catalog price is sufficient to adjust the price. Similarly, if the contract provides an index as the mechanism for determining the adjustment, changes in the index are sufficient to adjust the price. After all, in both these cases, the mechanisms are part of the contract.

Although the proposed rule embraces a flexible, streamlined EPA, its success is dependent upon implementation across the FSS program. Training the acquisition workforce must be part of implementation. Specifically, training that addresses pricing context will be vitally important. Pricing context is dependent on accurate, relevant data. Too often, pricing comparisons are using irrelevant data (e.g. old, outdated pricing, pricing absent terms and conditions). GSA and VA Contracting officers should be able to recognize/assess the relevancy and validity of pricing data used in determining fair and reasonable pricing. They also should reasonably consider pricing documentation suppliers provide to the distributors/FSS contractors. Sound training and guidance are fundamental to achieving the proposed rule’s goal of better aligning the FSS program with the commercial market.

In this regard, the current Federal Acquisition Service (FAS) Policy and Procedure (PAP) 2021-05, Evaluation of FSS Program Pricing, undercuts the goals of the proposed rule. The PAP includes contradictory guidance that is inconsistent with the Federal Acquisition Regulation, and invariably increases data submission burdens on FSS contractors. A logical first step in improving the EPA process and the modification process generally would be to reform, revise and reissue the PAP consistent with law, regulation and the operational goals of the FSS program.

Reducing regulatory burdens is just one part of streamlining acquisition. Training, guidance, and accountability are ultimately determinative of success. Coalition members, as stakeholders in the process, stand ready to assist the agency in its efforts to operationalize the rule successfully.

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