Pentagon Releases Inflation Guidance to Industry.

• Date: 01 August 2022
• Author: Freling, Scott A.,Rowley, Paul,Sherwood, Evan R.,Freling, Scott A.^Rowley, Paul^Sherwood, Evan R.
• Published date: 01 August 2022
• Author: Freling, Scott A.

In response to industry-wide questions about price adjustments for inflation, the Defense Department released guidance May 25 about when and how contracting officers may provide financial relief to defense contractors working on fixed-price contracts.

The department's guidance recognizes that "inflation is impacting several segments of our economy" and has caused increased performance costs for many contractors. Those increases have eroded the profit margin of contractors working under fixed-price contracts, which are generally not subject to any price adjustment based on increased performance costs.

As an exception to that general rule, contracting officers may make an equitable adjustment to a fixed-price contract in cases covered by the standard "Changes" clause under Federal Acquisition Regulation 52.243-1, or similar adjustment clauses. The Defense Department explains that it has been "fielding questions about the possibility of using requests for equitable adjustment" under the standard Changes clause to help contractors "address unanticipated inflation."

Unfortunately for fixed-price contractors, the department has adopted a narrow view of when to grant an inflation-related adjustment. The guidance states that "since...