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Using Market Price to Adjust Pricing under a FFP with Economic Price Adjustment IDIQ Contract


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I am working on a multiple award FFP with EPA IDIQ solicitation. I plan on using a published weighted average for the raw material as the index for the EPA adjustments. My EPA formula is: “(current index/base index) X awarded unit price”.

My agency would like to have their software program accomplish all the EPA adjustments by entering a single variable. However, the software is unable to apply a percentage change to all the unit prices, requiring the entry of all delivery orders manually using the adjusted prices. The software can specify a dollar change to one of the components in the adjustment formula so the same dollar increase can be accomplished to the unit prices under every awarded contract.

Therefore, it has been suggested to me that I should use the formula: “weighted average of raw material + the contractor’s price to process raw material into a finished product and transportation”. By using the weighted average of raw material, the Government would pay the contractor for the cost of the raw material at current market prices with his processing and transportation costs being FFP. The contractor would only propose pricing for the second part of the formula to which the weighted average could be added to determine the awarded price.

I have the following reservations about this approach:

  1. I’m not sure if the suggested method complies with the EPA alternatives listed under FAR 16.203-1.

2. FAR 16.203-1(a)(1) indicates that the adjustment is from an agreed upon level – does this mean that we have to use a percentage or can we use the actual published weighted average to adjust the pricing?

3. A portion of the awarded price will be determined using the published weighted average. Are there any problems associated with this approach?

4. Since the weighted average will increase against a constant representing processing and transportation, the percentage increase (if calculated) will differ from one contract to another (for example one contract could realize a 2% increase and another could realize a 3% increase). Is this OK?

Any thoughts you have on this issue would be greatly appreciated.

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Sorry - I misused the term multiple award. Each line item will be assigned to one contract with the possibility of the items being awarded under several contracts. Therefore, when delivery orders will be placed, they will go to the offeror awarded that item and will not have to be competed with other contractors.

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I am working on a multiple award FFP with EPA IDIQ solicitation. I plan on using a published weighted average for the raw material as the index for the EPA adjustments. My EPA formula is: “(current index/base index) X awarded unit price”.

My agency would like to have their software program accomplish all the EPA adjustments by entering a single variable. However, the software is unable to apply a percentage change to all the unit prices, requiring the entry of all delivery orders manually using the adjusted prices. The software can specify a dollar change to one of the components in the adjustment formula so the same dollar increase can be accomplished to the unit prices under every awarded contract.

Therefore, it has been suggested to me that I should use the formula: “weighted average of raw material + the contractor’s price to process raw material into a finished product and transportation”. By using the weighted average of raw material, the Government would pay the contractor for the cost of the raw material at current market prices with his processing and transportation costs being FFP. The contractor would only propose pricing for the second part of the formula to which the weighted average could be added to determine the awarded price.

I may be missing something here.

In the first formula, the formula you want to use, aren't you increasing the entire unit price, not just the portion related to material costs? Why would you want to do that?

In the agency suggested formula, isn't it assumed that the material cost is the same for each offeror? Is there a valid basis for that assumption? Of course, the way I think it is supposed to work (each offeror sets the amount of material cost subject to adjustment, with the index being used to adjust that element of cost), lends itself to potential unbalanced bidding as offerors shift labor costs into the material cost element.

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My agency wants to use a pricing method similar to the way the Government prices cheese. I believe under the cheese contract the price adjustment is negotiated as a rate above or below the published price for cheese sold according to some cheese index.

My reservations include the issues you have raised and several more. According to my experience the best method would be to use the price index in the following formula: increase in material product used in finished product + the awarded price for the portion that is not represented by the material = [(current index/base index) * X%(price)] + [(1-X%)(price)] where X% represents the portion of the price relevant to the index adjustment.

I've been asked if the method the agency wants to use is prohibited by the FAR and my interpretation of the economic price adjustment clauses is that the FAR requires a % adjustment (FAR 52.216-2© and FAR 52.216-3(B)). FAR 52.216-4 indicates the change is negotiated, but that clause uses actual costs of material to deterimine the increase.

Before I tell my agency that we shouldn't/can't use the formula they are proposing, I need to be able to explain clearly and precisely why we can't do it. I've never had to analyze EPAs to this degree before because I've always used the above formula, so I'm hoping that the responses to this posting will help me in informing my agency as to why the proposed formula shouldn't be used.

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