New game-changing relief from the DoD for contractors with firm-fixed-price contracts suffering price escalations

Federal contractors that have existing firm-fixed-price (FFP) contracts that have suffered due to price escalations received fantastic news this week, when the Department of Defense (DoD) Office of the Under Secretary of Defense issued a game-changing memorandum addressing inflation. 

Inflation's impact on firm-fixed-price contracts

For over two years, countless federal contractors nationwide have been suffering and unable to obtain relief, due to the fact that when they bid on firm-fixed-price contracts, they did not predict that there would be a supply chain crisis, Russia’s war with Ukraine, fuel and material price escalations or material and labor shortages. Contractors have been in crisis mode, facing the fall out including contract terminations, suppliers refusing to honor original pricing, government agencies refusing to modify contracts – and as a result, some contractors have even been forced to shut their doors. In addition, more and more contractors are refusing to propose on FFP contracts because they could not bear the risk of bidding in this volatile market.  

On May 25, 2022, the Office of the Under Secretary of Defense issued a memorandum, “Guidance on Inflation and Economic Price Adjustments,” which provided guidance to contracting officers to insert price escalation clauses into new solicitations and contracts not yet awarded, but did not direct contracting officers to provide relief to any federal contractors with existing FFP contracts. 

"Managing the Effects of Inflation with Existing Contracts" 

However, on Sept. 9, 2022, the DoD Office of the Under Secretary of Defense issued “Managing the Effects of Inflation with Existing Contracts.”  Recognizing that contracting officers were not utilizing the tools available to them on existing contracts, this game-changing memorandum directs contracting officers to take action “to address acute impacts on small business and other suppliers.” The guidance includes that contracting officers can work and mutually agree with federal contractors to amend contract requirements and utilizing FAR part 50 as “Extraordinary Contractual Relief.”

The guidance also provides that to, “ensure the Defense Acquisition Executive is made aware of any such Public Law 85-804, Part 50 requests that are attributed to inflation, DoD Components shall forward any such request within 10 business days of contractor submission to Defense Pricing and Contracting” with a provided email address.

McDonald Hopkins has been providing guidance on FAR Part 50 for several years. We are excited that the DoD is now directing contracting officers to utilize these clauses. It is crucial for federal contractors to understand and utilize this new DoD guidance and to protect your financial position by filing Requests for Equitable Adjustments (REA) and, if needed, filing Claims. 

If you have questions or would like guidance or assistance filing a Request for Equitable Adjustment or Claim, please contact Michelle Kantor at 312-642-6482 or mkantor@mcdonaldhopkins.com.

Michelle will also be speaking on this topic at the SAME Federal Small Business Conference in Nashville. Click here for information on the conference and Michelle's other sessions.