Determining Base Cost for Economic Price Adjustment in FFP Contract

[Username]

Situation: FFP competitive contract for services including options for demolition services in the 4th and 5th year for of the contract performance period. Small business set aside. Tasked with putting in a last minute Econmic Price Adjustment clause to protect small businesses on three items one of which is fuel. Our team has no experience with FFP EPA clauses. Making progress on the research for being able to use an EPA and what the clause has to include but the question I can't answer is how do we determine the base price for the items we are providing an EPA clause for when we are requiring the contractor's only provide a bottom line FFP dollar value? Right now the option is to have them provide a basic table detailing their unit rates and estimated quanties for these items as part of the technical volume and not the pricing volume. We are only performing price reasonableness and not price realism.

[ji20874]

You can do a little research to determine that approximately __% of the CLIN price is for fuel -- you don't have to be exact -- then you select some market price or index to serve as the initial data point (maybe OPIS No. 2 for ___ location on ___ date) -- and you select some date for the comparison -- and if desired, you select a threshold where the EPA will kick in. Here are all the ingredients for an EPA. With them, you draft a contract clause allowing for either the Government or the contractor to assert a change in the contract price based on the change. You don't really need to care about any single offeror's fuel usage rates, just a general number that everyone can use in their own pricing calculations.

EXAMPLE
The solicitation indicates that, solely for the purpose of the EPA, fuel represents about 15% of a CLIN price. The Your initial reference point is OPIS No. 2 for Anchorage, Alaska, on the date of contract award. EPA applies only if fuel price change is over 10%. And you will allow the EPA to be employed only at the time of option exercise. Everything here is notional, and just for illustration.

OPTION CLIN AMOUNT: $100,000

OLD INFORMATION FROM DATE OF CONTRACT AWARD

price: $4.00/gallon (using OPIS No. 2 for Anchorage, Alaska)

NEW INFORMATION FROM DATE OF OPTION EXERCISE

price: $4.80/gallon (using the same reference)

IS CHANGE IN FUEL PRICE MORE THAN 10%?

let's see...

$4.80 - $4.00 = $0.80

$0.80 / $4.00 = 20%

YES, so the EPA clause applies, allowing the contractor to assert a right to a change in contract price.

Increase in fuel price is 20%. And fuel represents 15% of total CLIN price.

15% x $100,000 = $15,000

$15,000 x 20% = $3,000

End Result = Increase CLIN price by $3,000 for the EPA. In this example, a twenty percent increase in fuel price results in a three percent increase in option CLIN price.

"but the question I can't answer is how do we determine the base price for the items we are providing an EPA clause for when we are requiring the contractor's only provide a bottom line FFP dollar value?"

You select it and include it in your solicitation as a constant for all offerors for an equal comparison -- use a good guess, perhaps based on market research -- you don't have to be exact -- in my example, I used 15%, but if one offeror's own estimate is 20%, that offeror can still propose to your solicitation by accounting for its risk beyond what the EPA covers.

[C Culham]

ji20874 provides an example of how to address your question. You may want to do some further research as well as many agencies have grappled with this for quite some time. Here is another example to consider....

http://www.fhwa.dot.gov/programadmin/contracts/ta50803.cfm