Guidance from the U.S. Department of Defense, impacting Army Corps and Navy construction contractors, largely restricts contracting officers from issuing price adjustments for inflation under firm-fixed price contracts.

On May 25, the Department of Defense (DOD) issued Guidance on Inflation and Economic Price Adjustments (EPAs) on existing and future DOD contracts due to the ongoing inflation. Disappointingly, the DOD specifically excludes EPAs on firm fixed price contracts, representing virtually every military construction and civil works contract for DOD. The relevant text from the guidance states:

Unlike contractors performing under cost-reimbursement, FPIF, or FPEPA contracts, contractors performing under firm-fixed-price (FFP) contracts generally must bear the risk of cost increases, including those due to inflation. In the absence of an applicable contract clause, such as an EPA 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. We are fielding questions about the possibility of using requests for equitable adjustment (REAs) under FFP contracts to address unanticipated inflation.

AGC is disappointed with the guidance and plans to meet with officials from DOD in the coming days to discuss industry’s concerns. In addition, AGC of America continues to share its Construction Inflation Alert, a guide to inform owners, officials, and others about the cost and supply-chain challenges, with DoD and other federal decision makers.

For more information, contact [email protected] or (703) 837-5368.