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On September 9, 2022, the Department of Defense
(“DoD”) published updated guidance
to the DoD acquisition community on the “range of
approaches” contracting officers can implement to provide
inflation relief to Defense Industrial Base (“DIB”)
contractors on existing firm fixed-price (“FFP”)
contracts. Feedback from DoD acquisition executives on the effects
of inflation on DIB contractors triggered this guidance.
This updated guidance is a marked change in tone from DoD’s
May
25, 2022 guidance, which explained that contractors
“generally must bear the risk of cost increases, including
those due to inflation.” At that time, DoD noted that in
“the absence of an applicable contract clause, such as an
[Economic Price Adjustment] clause authorizing a contract price
adjustment as a result of inflation, there is no authority for
providing contractual relief for unanticipated inflation under an
FFP contract.”
Given the current extreme market conditions, DoD is now
recognizing its more expansive ability to provide relief to the
contracting community. In its September 9 guidance, DoD recognizes
that, in addition to providing schedule relief or amending
contractual requirements based on mutual agreement of the parties,
“each of the Secretaries of Defense, Army, Navy and Air Force
has authority under Public Law 85-804, as iamplemented by Part 50
of the Federal Acquisition Regulation (FAR) and the Defense FAR
Supplement (DFARS), to afford Extraordinary Contractual
Relief.” Importantly, this relief can include an upward
adjustment to the price of an existing FFP contract based on the
inflation impacting DIB contractors. Under FAR Part 50, contractors
have the burden to show this relief is warranted through facts and
evidence. FAR 50.103-4 contains a detailed list that
contracting officers can ask contractors to provide to support
requests for relief. When responding, contractors must ensure the
information they provide is accurate.
As DoD’s revised guidance explains, the government
“will consider contractor requests to employ this authority,
subject, of course, to available funding.” Moreover, DoD
components must forward any request for extraordinary contract
relief caused by inflation to the Defense Acquisition Executive
within 10 days of contractor submission. The DoD will continually
assess the market conditions and adapt its guidance accordingly to
meet its requirements.
Impact on the DIB: This updated guidance may be
welcome relief for DIB contractors—but it remains to be seen
how often the DoD will use the authority it now recognizes it
possesses under FAR Part 50. DIB contractors should thoroughly
review FAR Part 50 and its procedures prior to submitting requests
and ensure they have the requisite supporting evidence. In
addition, DIB contractors should monitor the DoD website for any
supplemental guidance on this topic.
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