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Material Cost Adjustment


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I am planning on soliciting for a supply that the major cost components are materials like steel, aluminum, etc. These are planned to be effected greatly by tariffs so potential quoters are worried about locking in on a FFP unit price. All of the economic price adjustment clauses have a limit of 10%. How would you suggest handling the potential increase in material costs over a 5 year period?

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Not my area of expertise, but this comes to mind:  FAR 16.205 -- Fixed-Price Contracts with Prospective Price Redetermination.  This can't be used for Commercial Items though, and from what I understand is mostly used for utilities, so not a great fit.

As always the case, do MR about the commercial practices for dealing with this issue (other than relocating to Mexico).

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Good luck due to constant fluctuations in price for steel and aluminum, in particular. Are you talking about goods manufactured from these materials, raw materials or are you referring steel and aluminum sheet, plate or rolled structural shapes? 

Then there is  the question of tariffs...

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I suggest you request that bidders offer include proposed terms and conditions and contract types that include pricing of any increase/decrease in tariffs and that bidders disclose the current tariff structure/amount included in the proposed price. Also, if you are a contracting officer and not a contractor, perhaps there is some process for tariffs to be excluded from the price and either waived or paid for directly by the Government and excluded from pricing.

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If the clause at 52.229-3 provides relief for after imposed tariffs from the price, then are we defeating the purpose of the tariffs in the first place?  Maybe, maybe not. 

I guess a tariff imposed before the purchase would provide some protection for domestic producers. 

But a KO should NOT exclude tariffs that are in effect at the time of the pricing action. That definitely would defeat the purpose of the tariff. 

In thinking about it,  if a contractor selects a domestic source and tariffs are later imposed on imported materials, there may be inflationary price increases available to the domestic sources for future pricing.

But If the contractor selects a foreign source, the clause would seem to protect it from price increases due to after any imposed tariffs/duties.  Hmmm. 

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Guest Vern Edwards
On 8/15/2018 at 12:46 PM, ContractingPeoplesHatred said:

How would you suggest handling the potential increase in material costs over a 5 year period?

Maybe you shouldn't enter into a five-year contract in a time of high price volatility.

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20 hours ago, joel hoffman said:

Good luck due to constant fluctuations in price for steel and aluminum, in particular. Are you talking about goods manufactured from these materials, raw materials or are you referring steel and aluminum sheet, plate or rolled structural shapes? 

To the original poster (“who’s name shall not be mentiioned”): 

Please clarify, thanks. 

In addition, were you referring to potential domestic quoters being reluctant to lock into firm fixed prices? A clearer perspective of whom you are speaking about would make a difference . I thought that you were referring  to importers.  Thx. 

Also, I agree with Vern. Maybe you shouldn't enter into a five-year contract in a time of high price volatility.

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