Frequently Asked Questions
What is a fixed price contract with economic price adjustment and when can price adjustments be made?
A Fixed Price Contract with Economic Price Adjustment (FP-EPA) is a type of fixed price contract that allows for changes in the price, either positive or negative, under specific circumstances. This type of contract is typically used when there is reasonable doubt about the stability of certain conditions over the extended period of a project, such as market stability or labor conditions. Price adjustments under an FP-EPA contract can be made when there are market fluctuations that are beyond the seller's control. However, any price increases cannot exceed the price ceiling, which must be reasonable and agreed to by both parties before work begins. There should also be provisions set in place for price reductions when rates fall below certain thresholds that have been set forth in the contract. There are generally two types of price adjustments that can be made under an FP-EPA contract. The first type is adjustments that are made based on an actual increase or decrease in costs associated with specific labor or materials. The second type is adjustments that are made based on standard costs or indices that are specifically laid out in the service contract.
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