BLUF: I had a contractor that was hit with a 10% increase in customs fees. I'm on the fence about approving this REA and am requesting input.

I am in a foreign country and have a contract for the delivery of a commodity in May of 2025. In January of 2025, the country's government introduced a 10% increase in customs fees which resulted in a $43K increase for the contractor.

Facts to consider:

• Contract Awarded in Sep 2024 with delivery required in March 2025

• The country's government added the additional fee on 31 Jan

• Request for Equitable Adjustment from the contractor and all documents submitted appropriately

• Contractor is foreign based and the items came from USA

• FAR 52.216-4 and 52.229-6 are included in the contract

My current line of thinking: The contractor did everything correctly, and because the cost increase was not foreseeable, I believe this REA should be approved for the full amount.

*I do recognize that the decision to approve this adjustment and for how much is up to me, but as I have not encountered this situation before and am not bound by a time restriction, I'd like to discuss. There may very well be parts of the FAR or legal precedent I am not aware of. I will also be discussing this with my legal office.

I believe the contractor has encountered an "after-imposed tax" (as defined in 52.229-6) and, therefore, is entitled to an appropriate price adjustment based on additional costs that were unforeseen at the time of contract formation by both parties.

Based on what Jeremy has written I agree with H2H. Note that H2H said that a price adjustment, not an REA, is warranted in this circumstance. That is significant because 52.229-6 only provides for a price adjustment to compensate for the amount of an after imposed tax or duty. It does not provide for an REA which normally includes profit.

Another issue is how does the contractor account for these types of cost? If they are accounted for as indirect costs, I think the increased amount should also be accounted for as an indirect cost and allocated over all applicable contracts, not just one contract.

1 hour ago, Retreadfed said:

Another issue is how does the contractor account for these types of cost? If they are accounted for as indirect costs, I think the increased amount should also be accounted for as an indirect cost and allocated over all applicable contracts, not just one contract.

That is the crux of the problem for many contractors. How does one quantify the impact for an individual contract if the cost is indirect? What if not all contracts are FFP? What if not all contracts contain the clause?

It's a hairball of an issue.

On 7/8/2025 at 5:00 PM, here_2_help said:

I believe the contractor has encountered an "after-imposed tax" (as defined in 52.229-6) and, therefore, is entitled to an appropriate price adjustment based on additional costs that were unforeseen at the time of contract formation by both parties.

Thank you for that!

On 7/8/2025 at 7:34 PM, Retreadfed said:

Based on what Jeremy has written I agree with H2H. Note that H2H said that a price adjustment, not an REA, is warranted in this circumstance. That is significant because 52.229-6 only provides for a price adjustment to compensate for the amount of an after imposed tax or duty. It does not provide for an REA which normally includes profit.

Another issue is how does the contractor account for these types of cost? If they are accounted for as indirect costs, I think the increased amount should also be accounted for as an indirect cost and allocated over all applicable contracts, not just one contract.

Ahhh. The definition of price adjustment vs. REA isn't something I'd given much thought to; this is my first time encountering either.

1 hour ago, Jeremy Spriggs said:

Ahhh. The definition of price adjustment vs. REA isn't something I'd given much thought to; this is my first time encountering either.

Let's be careful with use of terminology.

REA stands for Request for an Equitable Adjustment. The proper distinction is not between "price adjustment" and REA. The proper distinction, if any, is between "price adjustment" and "equitable adjustment".

The FAR does not define either "price adjustment" or "equitable adjustment." However, case law generally provides that an "equitable adjustment" includes an adjustment to both cost and profit. See 2 Government Contract Costs & Pricing § 87:19. The meaning of "price adjustment" depends on the text of the clause that prescribes it.

In this case there should be no confusion, because the contract clause, FAR 52.229-6, Taxes-Foreign Fixed-Price Contracts (FEB 2013), clearly states: "the contract price shall be increased by the amount of any after-imposed tax or any tax or duty specification excluded from the contract price...." Italics added.

To add a bit of closure. Legal concurred with the price increase. The only thing they identified was that "price adjustment" is the wrong terminology, and it would just be a price increase.

The decision was to issue a unilateral modification for an increase in the total amount identified by the contractor.