An In-Depth Examination of Inflation Relief for a Government Contractor

Jay Blindauer

A contractor takes on a Government contract to make money, and inflation is getting in the way.  

Inflation is generally down from 2021, but is still high in too many places, and is expected to persist in 2023.   With inflation eroding value for this long, a Government contractor may need to obtain contract relief.   Below, I discuss in detail possible ways to do that.   First, some data points to animate the discussion.


The U.S. Department of Labor (“DoL”), Bureau of Labor Statistics (“BLS”), September 13 Consumer Price Index (“CPI”) Summary states that “[o]ver the last 12 months, the all items index increased 8.3 percent before seasonal adjustment.”[1]  

Similarly, the BLS September 14 Producer Price Index (“PPI”) Summary states that “[o]n an unadjusted basis, the index for final demand moved up 8.7 percent for the 12 months ended in August.”[2]

Generally, the biggest inflation driver has been energy.   “The energy index increased 23.8 percent for the 12 months ending August, a smaller increase than the 32.9-percent increase for the period ending July.”[3]  

And within the last week, “OPEC and non-OPEC allies, a group often referred to as OPEC+, agreed on Wednesday [October 5] to reduce oil production by 2 million barrels per day from November.   The move is designed to spur a recovery in crude prices, which had fallen to roughly $80 a barrel from more than $120 in early June.”[4]

The cost of construction materials has recently tapered, but some increased pricing and inflation risk remains.   Specifically, in September, reported that “[n]onresidential construction input prices dipped for a second consecutive month in August, providing more evidence that construction material costs peaked in June and supporting newfound optimism in the sector[,] . . . however, the prices for products that go into nonresidential structures and other construction projects are still up 16.7%, [American Builders and Contractors] said.”[5]  

Iron ore prices are down from 2021, but still above 2015-2019 averages.   “In September 2022, iron ore was valued at approximately 99.8 U.S. dollars per dry metric ton unit (dmtu), as compared to 124.52 U.S. dollars per dmtu in the same month of the previous year.”[6]   

Turning to labor costs, BLS’ July 2022 Employment Cost Index (“ECI”) revealed that “[c]ompensation costs for private industry workers increased 5.5 percent from June 2021 to June 2022.   Wages and salaries rose 5.7 percent over this period, while the costs of benefits increased 5.3 percent.”[7]

Therefore, as is often the case, wage growth has not kept pace with inflation.   Nonetheless, from 2013 to 2018, “[y]ear-over-year [wage] growth has mostly ranged between 2% and 3%[.]”[8]   So, with recent wage growth of 5.5%, wage growth has been accelerating.

Altogether, “[u]nless supply disruptions and labor-market pressures subside[ ], the global core inflation rate, excluding energy, could stay at about 5% in 2023, nearly double the five-year average before the pandemic.”[9]  

Consequently, without a major intervening event (or more than one event) that corrects the imbalance between demand and supply across multiple commodities and markets (such as, possibly, an economic downturn), price relief will likely occur gradually.

Now, compare the foregoing to contractor profits.   According to Deltek’s 2022 Government Contracting Industry Study, in 2021, “[m]edian profit margin was higher (15%) compared with what has been observed since 2012 (6-10%).”[10]   Interestingly, based on the data inputs for Deltek’s study, average profits were noticeably different for small, medium, and large contractors—15%, 20%, and 18%, respectively.[11], [12]  

Hence, assuming an average profit of 15-20%, if, in the past year, a contractor’s direct material costs went up by 8.7%, and direct labor costs went up by 5.5%, likely that will significantly diminish profits—maybe even by a third or half.   Unacceptable.   And for a construction contractor, which possibly experienced a 16.7% increase in the cost of building materials, there may be little to no profit.   Disaster.

Obviously, contract type matters.   Fixed-price contracts are the most vulnerable.   Labor-hour and time-and-materials (“T&M”) contractors may experience trouble if pre-determined labor rates prove too low.[13]   Even under a cost-type contract, where the Government carries significant risk for cost increases, a contractor may still have to put in extra diligence to demonstrate the reasonableness of costs.[14]   And for one subset of cost-type contracts, cost-plus-incentive-fee contracts, inflation makes it more difficult for the contractor to achieve the cost reduction goals upon which profit incentives are based.[15]   In turn, profits may be diminished that way.


So, how does a contractor obtain inflation cost relief from the Government?   The core problem—as many contractors experienced with costs incurred responding to COVID-19—is that a FAR Changes clause only permits an upward equitable adjustment premised upon a Contracting Officer’s express or implied change.[16]   However, a Contracting Officer does not cause macroeconomic changes like inflation, at least not in a proximate and imputable way.   Consequently, a Changes clause is not a facially logical contract term for a remedy (but see potential exceptions below).

Nonetheless, there are possibilities for contract relief, discussed point-by-point.

EPA Clauses


If a contractor has a contract with a Federal Acquisition Regulation (“FAR”) Economic Price Adjustment (“EPA”) clause—which was designed to protect the Government and the contractor from cost fluctuations—then at least a partial remedy should be available through that clause.[17]  

However, FAR 16.203-4 limits the use of the FAR EPA clauses to fixed-price contracts.[18]   And, for DoD, Defense Federal Acquisition Regulation Supplement (“DFARS”) 216.203-4 limits the use of the FAR EPA clauses to DoD contracts that exceed the simplified acquisition threshold (presently $250,000 with exceptions), and performance is longer than six months.[19], [20]  

Where present, a FAR EPA clause permits contract inflation/deflation adjustments based upon one of three benchmarks:

(1) a change to the contractor’s established pricing (e.g., a change to the contractor’s Federal Supply Schedule price catalog);[21]

(2) the contractor’s actual cost experience for labor/fringe or materials for the at-issue contract/order (a.k.a., the actual cost method); or

(3) a change to a cost index of labor/fringe or materials (e.g., commodity/industry-specific portions of the PPI or ECI).[22], [23]

In turn, the FAR supplies four options for EPA clauses.   FAR 52.216-2 (Economic Price Adjustment-Standard Supplies (NOV 2021)) and 52.216-3 (Economic Price Adjustment-Semistandard Supplies (NOV 2021)) provide an adjustment based upon a change to a contractor’s established pricing.   FAR 52.216-4 (Economic Price Adjustment-Labor and Material (JAN 2017)) provides an adjustment based upon a contractor’s actual cost experience for labor/fringe and materials.   The fourth option is provided by FAR 16.203-4(c)(2), which states that if “the contracting officer determines that the use of the clause at 52.216-4 is inappropriate, the contracting officer may use an agency-prescribed clause instead of the clause at 52.216-4.”[24]  

Arguably, “agency-prescribed” does not mean that the clause must be promulgated in a FAR Supplement, as long as the clause is prescribed according to Agency procedures, and is not contrary to the FAR, applicable FAR Supplement, or other relevant law.[25]   Hence, a contracting office can create its own EPA clause that adjusts for labor/fringe and/or material fluctuations according to a benchmark of the Agency’s choosing, such as a cost index.  

In fact, FAR 16.203-4(d)(1) states that “[a] clause providing adjustment based on cost indexes of labor or materials may be appropriate when- . . . [t]he contract amount subject to adjustment is substantial[.]”[26]   I take this as an implied acknowledgment that, generally, FAR 52.216-4 is suited to minor, not major, cost fluctuations.  

For significant inflation, especially over a sustained time period where there may be multiple adjustments, the superior approach seems to be an Agency-designed clause which relies upon a cost index.   That way, price adjustments can expediently be made, and contract performance can progress, without the contracting office and the contractor driving themselves mad over constant accounting drills.   Which is not what the parties want to do for a fixed-price contract.          

Now, setting aside an Agency-designed clause, and focusing on the three FAR EPA clauses (52.216-2, 52.216-3, and 52.216-4), some words of warning.

(1) A FAR EPA clause cuts both ways.   It grants both price increases and decreases.   So, if the contractor’s catalog prices drop, or its labor and/or material costs significantly drop, benchmark dependent, the contractor’s prices may be downward adjusted for the Government’s benefit.   

(2) Unless expressly altered in the contract/order, a FAR EPA clause only permits aggregate upward adjustments of no more than 10% of an original contract/order unit price.   On the other hand, that limitation does not apply to downward adjustments.   Hence, under a FAR EPA clause, the Government and the contractor are not treated equally.   However, it is worth noting that the FAR states that “[t]he contracting officer may modify the clause by increasing the 10 percent limit on aggregate increases . . . .”[27]   Accordingly, if inflation becomes too steep, lifting the 10% cap is prudent.

(3) Under FAR 52.216-4 (Economic Price Adjustment-Labor and Material), generally, no adjustment will be granted unless premised on a labor/material fluctuation that is at least 3% of the “then-current” total contract/order price.[28]   Further, the Defense Acquisition University (“DAU”) Contract Pricing Reference Guide (“CPRG”) states for FAR 52.216-4 adjustments to “[n]ot adjust any indirect costs except fringe benefits.”[29]   Furthermore, under FAR 52.216-4, unless the Contracting Officer allows a longer notice period, the contractor must provide notice of the fluctuation within 60 days.[30]

(4) Both FAR 52.216-2 (Economic Price Adjustment-Standard Supplies) and 52.216-3 (Economic Price Adjustment-Semistandard Supplies) state that “[w]ithin 30 days after receipt of the Contractor’s written request, the Contracting Officer may cancel, without liability to either party, any undelivered portion of the contract items affected by the requested increase.”[31]   Consequently, if the contractor invokes a FAR EPA clause, it may just be an invitation for a termination of some or all of the contract/order.

Needless to say, based upon the foregoing, a FAR EPA clause is not the fulsome remedy that it is often perceived to be.   Nonetheless, to reduce the adverse impact of inflation, it is better than nothing.


The DFARS provides additional EPA clauses.   These clauses include DFARS 252.216-7000 (Economic Price Adjustment—Basic Steel, Aluminum, Brass, Bronze, or Copper Mill Products (MAR 2012)), DFARS 252.216-7001 (Economic Price Adjustment—Nonstandard Steel Items (JULY 1997)), and DFARS 252.216-7003 (Economic Price Adjustment—Wage Rates or Material Prices Controlled by a Foreign Government (MAR 2012)).   Like the FAR EPA clauses, the DFARS EPA clauses are intended for fixed-price contracts.[32]  

DFARS 252.216-7000 is similar to FAR 52.216-2 and 52.216-3.   Particularly, like those clauses, DFARS 252.216-7000 provides an adjustment based upon a change to a contractor’s established pricing.[33]   Also, like those FAR clauses, DFARS 252.216-7000 only allows an aggregate upward adjustment of no more than 10% (unless modified) of the original contract/order unit price, with no such limitation to a downward adjustment.[34]   And DFARS 252.216-7000(e) gives the Contracting Officer the option of terminating the cost-increase-impacted portion of the contract/order.[35]

DFARS 252.216-7001 provides adjustments to the part of the contractor’s pricing pertaining to labor and steel.[36]   For labor, the benchmark is a computation of changes to the contractor’s labor costs.[37]   For steel, the benchmark is a change to the contractor’s established pricing.[38]   DFARS 252.216-7001 also only allows an aggregate upward adjustment of no more than 10% (unless modified) of the original contract/order unit price, with no such limitation to a downward adjustment.[39]

On the other hand, DFARS 252.216-7003 permits upward and downward adjustments without a stated limit.   Unfortunately, DFARS 252.216-7003 only applies to a supply or service contract that is at least partially performed in a foreign country, and includes wage/material costs that are controlled by a foreign government.[40]   Obviously, this prescription excludes the majority of contracts.  

In sum, the DFARS EPA clauses, like the FAR EPA clauses, may provide an incomplete inflation remedy.       


DFARS PGI 216.203-4 provides detailed guidance for a contracting office creating its own EPA clause pursuant to FAR 16.203-4(c)(2).  

As Guideline No. 1, DFARS PGI 216.203-4 appropriately states, “Do not make the clause unnecessarily complex.”[41]   Among other things, the PGI also states the following:

(1) “The clause must accurately identify the index(es) upon which adjustments will be based[;]”

(2) “The basis of the index should not be so large and diverse that it is significantly affected by fluctuations not relevant to contract performance[;]”

(3) The PGI suggests usage of a BLS index specific to commodity or industry;

(4) “Normally, the clause should not provide either a ceiling or a floor for adjustment unless adjustment is based on indices below the six-digit level of [a] Bureau of Labor Statistics (BLS) [index (meaning that the index is too broad and imprecise; although, I note that the DAU CPRG suggests not implementing a ceiling or floor unless the index is below the four-digit level);]”

(5) “Normally, do not use more than two indices, i.e., one for labor and one for material[;]”

(6) “The clause should state the percentage of the contract price subject to price adjustment[;]”

(7) “Normally, do not apply adjustments to the profit portion of the contract[;]”

(8) “Examine the labor and material portions of the contract to exclude any areas that do not require adjustment [(e.g., ‘Labor costs for which a definitive union agreement exists’);]”

(9) “Allocate that part of the contract price subject to adjustment to specific periods of time (e.g., quarterly, semiannually, etc.) based on the most probable expenditure or commitment basis (expenditure profile)[;]” and

(10) “The clause should provide for definite times or events that trigger price adjustments.   Adjustments should be frequent enough to afford the contractor appropriate economic protection without creating a burdensome administrative effort.   The adjustment period should normally range from quarterly to annually.”[42]

The above-stated guidance is all eminently sensible.  

Now, consider what the guidance means in practical application.   Take, for example, a DoD supply contractor that is working under a fixed-price contract/order that presumes 70% of the unit price being the cost of materials, and 10% being labor/fringe.   Assume that the contract/order EPA clause employs as a labor benchmark an industry specific part of the ECI (e.g., manufacturing sector (National Compensation Survey Code 300000; NAICS Code Series 31-33)).[43]   And assume the ECI shows a 5.1% increase in that sector over the past year.  

First, the part of the labor/fringe pool not impacted, or otherwise provided for, is pulled out.   For example, remove 1/4 of the labor/fringe cost that is unionized machinists who may have experienced unchanged wages and benefits, and/or, for them, contract adjustments are already being made to keep up with prevailing wages and benefits.   Hence, the portion of the unit price to be adjusted for labor cost inflation is now 7.5% (3/4 of 10%).  

Second, increase 7.5% of the unit price by the 5.1% inflation, and that is the upward adjustment for the go-forward unit price.   

Therefore, if the DFARS PGI 216.203-4 guidance is implemented in a simply drafted EPA clause, it makes for reasonable and uncomplicated price adjustments.   Doing an EPA clause this way may cause the contractor to lose or gain some relative to its actual cost experience, but it significantly lowers the administrative pain for the contracting office and the contractor.

Overall, if a contracting office creates its own EPA clause pursuant to FAR 16.203-4(c)(2), and intelligently implements the DFARS PGI 216.203-4 guidance, it can be an effective way to reduce inflation impact, enable contract performance, and ultimately protect the Government program.

Director John Tenaglia’s May 25, 2022 and September 9, 2022 Guidance

On May 25, 2022,[44] and again on September 9, 2022,[45] Mr. John Tenaglia, who is the Principal Director of Defense Pricing and Contracting in the Office of the Undersecretary of Defense, Acquisition & Sustainment (“OUSD(A&S)”), provided guidance to DoD contracting offices about using EPA clauses to remedy inflation.

Starting with his May 25, 2022 guidance, Mr. Tenaglia wrote the following.

“For contracts being developed or negotiated during this period of unusually high inflation, an EPA clause may be an appropriate tool to equitably balance the risk of inflation between the Government and contractor.   Including an EPA clause may enable a contractor to accept a fixed-price contract without having to develop pricing based on worst case projections to cover the cost risk attributable to unstable market conditions because of the EPA clause’s built-in mechanism to mitigate such risk.   COs should consider contract length as one of the primary considerations when deciding whether to use an EPA clause.”[46]

So, Mr. Tenaglia advocates for the increased use of EPA clauses.   Fair enough.   Interestingly, Mr. Tenaglia does not appear to be a fan of the current FAR and DFARS EPA clauses, or at least recognizes their limitations.   This is because Mr. Tenaglia devotes several paragraphs to how a Contracting Officer should “craft[ ]” an EPA clause.[47]    Hence, the apparent preference expressed by the memo. is to craft an EPA clause pursuant to FAR 16.203-4(c)(2), and Mr. Tenaglia refers to PGI 216.203-4.[48]   Accordingly, Mr. Tenaglia’s May 25 guidance is mostly a reminder of FAR 16.203-4(c)(2) and PGI 216.203-4.  

Yet, the memo. also contains a curveball.   Mr. Tenaglia states that, “[i]n the absence of an applicable contract clause, such as an EPA clause authorizing a contract price adjustment as a result of inflation, there is no authority for providing contractual relief for unanticipated inflation under an FFP contract.”[49]  

The statement is too facile.   A Contracting Officer’s warrant confers the authority to award, administer, modify, and terminate contracts and orders.   That means on any legally sufficient basis, including providing a remedy based on statute or common law.   And even if Mr. Tenaglia is only referring to remedies in the four corners of the contract, there could arise a factual circumstance (albeit an atypical circumstance) in which inflation costs could be recovered under an FFP contract changes or delay clause (more on that below).   Does the phrase “applicable contract clause” include that possibility?[50]   No.   In the same paragraph, Mr. Tenaglia opposes providing inflation relief under the changes clause, or another equitable-adjustment-granting clause.[51]   Therefore, while he says something that is generally true, the statement fails to recognize exceptions.

Turning to his September 9, 2022 guidance, Mr. Tenaglia takes a more flexible stance.   He states, “there may be circumstances where an accommodation can be reached by mutual agreement of the contracting parties, perhaps to address acute impacts on small business and other suppliers[.]”[52]  

Now, he is getting to the heart of the issue, which is what to do about fixed-price contracts already in existence.   And he makes a key point, “provided adequate consideration is obtained for the Government, such an accommodation may take the form of schedule relief or otherwise amending contractual requirements.”[53]   Bingo.

Defense Logistics Acquisition Directive (“DLAD”) 16.203-2 provides an example of amending a contract to add in an EPA clause.   It states, “[i]f it becomes apparent that an EPA clause is clearly justified in a solicitation or contract but was not included, the contracting officer may include a FAR or DFARS EPA clause or DLAD or procuring organization EPA procurement note by solicitation amendment or bilateral contract modification.”[54]  

It is a good thought, but there is more to say.   In many instances, it is not enough to just bilaterally add in an EPA clause, because the pre-existing duty rule requires new consideration.   “Contracts with the Government, like all contracts, require an offer, an acceptance, and consideration.   [ ]   Performance of a pre-existing legal duty is not consideration.”   Allen v. United States, 100 F.3d 133, 134 (Fed. Cir. 1996) (internal citation omitted).[55]  

Stated another way, “[t]he common law rule with respect to the modification of contracts is frequently referred to as the ‘pre-existing duty’ rule, which, simply stated, is that the parties to a contract cannot alter, either to increase or decrease, the burden of performance without a correlative change in the position of the other party.”[56]   In short, new performance requires new consideration.  

So, if an Agency is going to take on the additional performance of potentially paying more due to adding an EPA clause, the contractor must provide something in consideration.   What that may be is up to the creativity of the parties (as long as the proposed consideration is not extraneous to the contract).  

For example, if certain materials are likely to be pain points for inflation, in consideration for adding an EPA clause that focuses inflation relief on those materials, perhaps the contractor could discount contract pricing elsewhere.   It does not have to be a dollar-for-dollar trade-off, given that the extent to which the EPA clause will be relied on is uncertain.   Alternatively, maybe the contractor can speed up delivery, assume risk of loss, make a quality improvement or otherwise perform a value-add, take on additional tasks, provide a better warranty, confer more intellectual property rights, provide free storage, give more transition support in off-ramping the contract, etc.  

Thus, the inflation solution for an already-existing fixed-price contract could be proposing a bilateral modification where a crafted EPA clause is incorporated in exchange for some form of contract consideration.     

Now, the tricky part is to keep a proposed modification sufficiently limited to avoid it becoming an out-of-scope mod.     An out-of-scope mod. violates the Competition in Contracting Act of 1984 (“CICA”) requirement for competing new work.    However, “[CICA sets forth no standard for determining when modification of an existing contract requires a new competition or falls within the scope of the original competitive procurement.”[57]   Rather, determining whether a modification exceeds contract scope is highly fact dependent.   As stated by the U.S. Court of Federal Claims (“CoFC”):

“A modification in required performance may obligate the agency to re-open the competition when the modification materially departs from the scope of the original procurement.   [ ]   In making this determination, CoFC considers: (1) whether the modification is of a nature which potential offerors would reasonably have anticipated; and (2) whether the modification substantially changes the type of work, performance period, and costs as between the original contract and the modified contract.”[58]

A key part of the analysis is the magnitude of the change.[59]   Hence, adding an EPA clause could constitute an out-of-scope mod. if it is crafted in a way that may greatly increase costs relative to contract value.    For example, in Cardinal Maint. Serv., Inc. v. United States, CoFC found that a modification that increased the cost of the contract by 80% was an out-of-scope mod.[60]  

Similarly, what the contractor provides as consideration should, if possible, not be a substantial change to work type or quantity.   Obviously, the bigger and more multi-faceted the contract, the more flexibility is afforded.   Likely, it is also helpful to craft the EPA clause in a way that targets adjustments only on what is critical.   And maybe the clause includes an adjustment cap (even though a cap reduces the usefulness of the clause).   

Now, if the magnitude of the needed change is considerable, and there is no getting around that, then the out-of-scope mod. analysis focuses on whether the mod. was reasonably anticipatable by offerors.   For that analysis, one may consider the solicitation and supporting documents, the larger context of the contract award, the types of changes that would logically attend the work sought, and possibly the representations made by the previous offerors.  

So, if the solicitation had language or terms that contemplated the possibility of cost volatility (notwithstanding seeking a fixed price), arguably, offerors should have anticipated the issue as a significant possibility for contract administration.   Or, if the solicitation required materials or labor categories for which there was widely known cost volatility (e.g., procuring things made from a lot of steel), again, offerors arguably should have anticipated it.  

The goal is for the modification to be more of an issue of the parties responding to a performance dilemma, then it is altering the premise of the contract award.   One factor that helps push the modification more toward permissible contract administration is the exchange of consideration (discussed above).   See, e.g., CESC Plaza Ltd. P’ship v. United States, 52 Fed. Cl. 91, 94 (2002) (price increase is not an out-of-scope mod. because, in part, “the government receives consideration for the increase.”).   Further, there is more leeway with the extent of a mod. if it has a national defense, life preservation, or safety impact.[61]   Furthermore, the U.S. Court of Appeals for the Federal Circuit (“Fed. Circuit”) has stated that “a broad original competition may validate a broader range of later modifications without further bid procedures.”[62]  

Schott Gov’t Servs., LLC v. United States is instructive.[63]   In that case, the Army awarded a supply contract for transparent armor pieces, and afterwards the Army found the contractor’s recipe for transparent armor to be non-conforming.[64]   Eventually, the parties bilaterally modified the contract by the Army accepting the non-conforming pieces already delivered, and extending the delivery schedule — in exchange, the contractor provided cash consideration.[65]   Obviously, relaxing the conformance spec. and extending the delivery schedule was a major change to the contract.    And it could have altered the competition if offerors had known.   Nonetheless, the court found that it was permissible contract administration, stating, “given the passage of time, the security concerns involved, and the agency’s insistence on compensation for non-performance, we are persuaded that [out-of-scope mod.] concerns reflected in other cases are not triggered here.”[66]   So, even with a major contract change, it is not necessarily an out-of-scope mod.  

Moreover, after application of the foregoing, if there is still agita that adding an EPA clause might be an out-of-scope mod., if possible, a sole source justification may be prepared.   And if that is not workable, it is worth remembering that a potential protester would still have to show competitive prejudice to succeed in any challenge.  

Generally, for an out-of-scope challenge to the latent inclusion of an EPA clause, CoFC would require a previous, disappointed offeror to show a substantial chance (“reasonable likelihood”) that it would have received the contract if the EPA clause was in the solicitation.[67]   It would not be enough for the disappointed offeror to merely allege that it would have submitted a better price.   Rather, arguably, the disappointed offeror should have to show what portion of its price was built on inflation risk.   And, in turn, removing that portion from its price would have created a substantial chance of award.   Not easy to do.  

GAO’s competitive prejudice threshold should be similar.   For example, “[t]he protester must establish a reasonable possibility that had it known of the changed requirements (i.e., the alleged out-of-scope work on the [solicitation]), it would have altered its proposal on the [ ] contract to its competitive advantage or done something to enhance its chances for award[.]”[68]   Despite the different permutation of language, what a previous, disappointed offeror must show should be the same.  

Alternatively, if the would-be protester is not a previous offeror, but an alleged prospective offeror, it should have to show that, but for the exclusion of the EPA clause, it likely would have submitted a proposal.   Again, arguably not easy to do.   Presumptively, the inclusion of an EPA clause affects how price-aggressive an offeror is willing to be, not whether the offeror will decide to submit a proposal.

In sum, the inflation solution for an already-existing contract could be a bilateral modification adding an EPA clause.   Or, some other bilateral mod. that provides cost relief in exchange for contract consideration.   Mr. Tenaglia’s September 9 guidance may not have taken the notion as far as I did, but he certainly started the fire.

Ultimately, DoD adding EPA clauses to already-existing fixed-price contracts really should be focused on the preservation of important capabilities and capacity in the defense industrial base.   Arguably, Mr. Tenaglia’s May 25, 2022 memo. says as much— “The challenges presented in this period of economic uncertainty require us to employ appropriate solutions to both protect Government interests and ensure the continued health of the defense industrial base to support our mission.”[69]   

One does not need to be a fortune teller to see that there is a significant possibility that the United States will be involved in a high intensity war at some point in the next 20 years.   So, when addressing inflation to preserve the defense industrial base, DoD should not be pennywise and pound foolish.

Public Law No. 85-804 Extraordinary Relief

Last, Mr. Tenaglia’s September 9, 2022 guidance mentions FAR Subpart 50.1 extraordinary contract relief for contracts that facilitate national defense.[70]  

He says, “each of the Secretaries of Defense, Army, Navy and Air Force has authority under Public Law 85-804, as implemented by Part 50 of the Federal Acquisition Regulation (FAR) and the Defense FAR Supplement (DFARS), to afford Extraordinary Contractual Relief.   While the law and regulation have established stringent criteria, the Department will consider contractor requests to employ this authority, subject, of course, to available funding.”[71]

FAR Subpart 50.1 (which implements Public Law No. 85-804 of 1958 (currently codified at 50 U.S.C. §§ 143135)), applies to many Agencies—not just DoD.[72]   Where applicable, it permits an Agency to “enter into, amend, and modify contracts, without regard to other provisions of law related to making, performing, amending, or modifying contracts, whenever the President considers that such action would facilitate the national defense.”[73]

Technically, per 50 U.S.C. § 1435, the authority can only be exercised when a national emergency is declared by the President or Congress.   However, since President Eisenhower invoked the statute’s emergency authority in 1958, it has never been revoked.[74]  

Importantly, “[t]he fact that losses occur under a contract is not sufficient basis for exercising the authority conferred by Pub. L. 85-804.   Whether appropriate action will facilitate the national defense is a judgment to be made on the basis of all of the facts of the case.”[75]   Generally speaking, extraordinary relief is provided in four instances:

Where the contractor seeks an amendment without consideration, “continued performance . . . or [ ] continued operation . . . is found to be essential to the national defense,” and, the modification is only to the extent needed to remedy the impairment[;]

“When a contractor suffers a loss (not merely a decrease in anticipated profits) under a defense contract because of Government action[;]”

“A contract may be amended or modified to correct or mitigate the effect of a mistake[;]” or

“Under certain circumstances, informal commitments may be formalized to permit payment to persons who have taken action without a formal contract[.]”[76]

Even so, the authority does not “exclude other cases in which the approving authority determines that the circumstances warrant action[,]”[77] and FAR 52.250-1 (Indemnification Under Public Law 85-804 (APR 1984)) provides a broad indemnification for certain contracts that require unusually hazardous performance.[78]  

“Requests for relief under Public Law 85-804 (50 U.S.C. 1431-1435) are not claims within the Contract Disputes Act of 1978 [“CDA”] or the Disputes clause at 52.233-1, Disputes, and shall be processed under Part 50, Extraordinary Contractual Actions.”[79]  

Accordingly, a Contracting Officer’s role in the process is mostly clerical.   “[R]requests . . . in excess of $75,000 may not be delegated below the secretarial level[.]”[80]   That means, for the Agencies that have a Contract Adjustment Board (e.g., the Army, Air Force, and Navy), the request will likely go there (which is considered at the secretarial level).[81]   And for requests valued at $75,000 or below, even if the decision-making authority stays in the contracting office (e.g., with a Head of Contracting Activity),[82] such a decision is not a decision on a CDA claim.[83]   Nonetheless, for applicable Agencies, if the relief requested exceeds the simplified acquisition threshold, 10 U.S.C. § 3862(a) still requires a contractor to certify its request.

Ultimately, “any action or decision by an agency under Public Law No. 85-804 is within the exclusive discretion of the executive branch of the government and is not subject to judicial review.”[84]   Therefore, once a final decision on a relief request is made, there is no appeal available (although the contractor may request re-consideration from the same authority).[85]   However, if the contracting office fails to properly implement a final decision under Public Law No. 85-804, that could be the basis of a CDA claim.[86]

Perhaps most important, “[t]he authority conferred by Pub. L. 85-804 may not- . . . [b]e relied upon when other adequate legal authority exists within the agency[,]”[87] and “[FAR] part 33 [CDA disputes] must be followed in preference to subpart 50.1 for such relief.”[88]  

Public Law No. 85-804 provides a request process for obtaining equitable, not legal, relief.[89]   If a legal remedy is available, generally, the contractor is supposed to pursue that instead of making a relief request under Public Law No. 85-804.  

That said, if a CDA remedy is available, it does not automatically preclude a remedy under Public Law No. 85-804.   This is because the decision-maker may conclude that the interests of national defense require a faster, more fulsome, or more tailored remedy than what the CDA provides.   Still, it is entirely up to the decision-maker.[90]   Alternatively, a decision-maker could decide that, if there is adequate time without impairing national defense, the contractor must first attempt the CDA process.   Again, it is up to the decision-maker.     

Overall, a Public Law No. 85-804 relief request is an unlikely remedy for inflation unless the at-issue contract is deemed essential to national defense.   On the other hand, if a contract is eligible for the extraordinary relief, the Agency has broad discretion to craft a remedy (including reforming the contract, such as by changing the contract type).

The GSAR  

Turning to GSA, the General Services Acquisition Regulation (“GSAR”) provides two EPA clauses, GSAR 552.216-70 (Economic Price Adjustment—FSS Multiple Award Schedule Contracts (SEPT 1999)), and GSAR 552.216-71 (Economic Price Adjustment—Special Order Program Contracts (AUG 2010)).   The Federal Supply Schedule (“FSS”) provides a third EPA clause, I-FSS-969 (Economic Price Adjustment—FSS Multiple Award Schedule (OCT 2014)).

GSAR 552.216-70 permits increases and decreases, but, consistent with other EPA clauses, it permits an aggregate upward adjustment of no more than a percentage stated in the contract (the offset is 10%), and there is no such limitation to downward adjustments.[91]   The clause also allows only (3) adjustments during the performance period, and the adjustments must occur at least 30 days apart.[92]   The benchmark for adjustments is the contractor’s established pricing, so an upward adjustment must first be reflected in the contractor’s commercial pricing.[93]   GSA also reserves the right to “[r]emove the product(s) from [the] contract involved pursuant to the Cancellation Clause of this contract, when the increase requested is not supported.”[94]

GSAR 552.216-71 likewise permits an increase or decrease, but only one adjustment during each 12-month performance period.[95]   The clause fixes each adjustment to the PPI.[96]   The Contracting Officer is supposed to specify a cap for each upward adjustment.[97]   And the clause warns that “[u]nless the Contractor’s written request for a price adjustment . . . is received by the Contracting Officer within 30 calendar days of the release of the updated index, the Contractor shall have waived its right to an upward price adjustment for the balance of the contract.”[98]

I-FSS-969 permits decreases throughout the performance period, but no increases in the first (12) months.[99]   Thereafter, the clause offers increases with three possible methods: (1) upward adjustment based upon pre-negotiated escalation rates; (2) upward adjustment based upon a GSA selected cost index/market indicator; or (3) a request for an upward adjustment premised upon extraordinary market conditions and according to a negotiated benchmark.[100]   If adjustments are to be made on a basis other than pre-negotiated escalation rates, the clause specifies no more than three increases per (12) month period, increases must be at least 30 days apart, and the aggregate of increases in a (12) month period shall not exceed 10% of the contract unit price.[101]   Despite the significant flexibility afforded by the clause, GSA reserves the right to decline a price increase, in which case “[t]he Contractor may remove the item(s) from [the] contract involved pursuant to the Cancellation Clause of this contract.”[102]

The foregoing does not address the alternate terms for any of the clauses.

GSA Senior Procurement Executive Jeffrey Koses’ Guidance

To the credit of GSA Senior Procurement Executive Jeffrey Koses, he was prompt in addressing the inflation problem.   Specifically, on March 17, 2022, he issued a moratorium to the terms (and alternate terms) of the above-mentioned clauses that constrained upward adjustments.[103]   Basically, the moratorium nullified time or frequency limitations, or percentage caps.[104]  

In doing so, Mr. Koses empowered GSA contracting offices to provide upward adjustment relief according to the clauses whenever it could be substantiated by the contractor.   And, although the moratorium was set to expire on September 30, 2022, by memorandum dated September 12, 2022, Mr. Koses extended the moratorium until March 31, 2023.[105]  

In that same memo., he also removed all requirements for adjustment approval above the level of the Contracting Officer.[106]   The core reason for relaxing the EPA clauses—“Contractors are removing items from the Federal Supply Schedules contracts to avoid selling at a loss.”[107]

Also on September 12, 2022, Mr. Koses issued an acquisition alert to, among other things, continue encouraging GSA Contracting Officers to use EPA clauses.[108]   As part of this, Mr. Koses pointed out that “[t]he FAR also allows for agency-prescribed EPA clauses[,]” and then provided sample EPA clause language.[109]  

The alert also posited that shorter acquisition lead times and shorter duration contracts will help GSA better manage inflation.[110]  

Perhaps the most giving statement in the September 12 alert, Mr. Koses stated the following.       

“As a general rule, since inflation is not a government-directed change, it cannot form the basis for an equitable adjustment.   However, if the inflated costs are the direct result of Government action (for example, when Government delays the work into a period when higher costs are encountered), compensation is appropriate.”[111]

Hence, Mr. Koses recognized the possibility that, under certain factual circumstances, inflation costs could be recovered under a contract delay clause (more on that below).

Overall, GSA appears to be taking the inflation seriously, and actively engaging in problem-solving (at least at the policy-maker level).

I spilled a lot of electronic ink on EPA clauses because it is the primary tool for obtaining contract relief from inflation.   So, for many contractors, relief will be best achieved by relying on an already incorporated EPA clause, re-negotiating an EPA clause, or proposing to bilaterally add an EPA clause.   And, for optimal results, a tailored EPA clause created pursuant to FAR 16.203-4(c)(2) is generally going to be better than the EPA clauses present in the FAR or a FAR Supplement.

Other Contract Remedies

Commercial Impracticability

One of the legal doctrines that protects a contracting party from a spoiled bargain is commercial impracticability.   “A contract is commercially impracticable when performance would cause ‘extreme and unreasonable difficulty, expense, injury, or loss to one of the parties.’ ”[112]

However, the general rule is that a firm-fixed-price contract “places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss.”[113]   And the case law on commercial impracticability mostly upholds that principle.  

Specifically, the Fed. Circuit has stated that, to show commercial impracticability, there must be “(i) a supervening event made performance impracticable; (ii) the non-occurrence of the event was a basic assumption upon which the contract was based; (iii) the occurrence of the event was not [the party’s] fault; and (iv) [the party] did not assume the risk of occurrence.”[114]  

Typically, a fixed-price contractor fails on prong (iv) because, as the Fed. Circuit has stated, “[t]he normal risk of a fixed price contract is that the market price will change.”[115]  

That said, if inflation gets stratospherically high (such as reaching hyper-inflation, which is typically measured as an increase of 50% or more per month),[116] then a contractor is dealing with an economic change that is so far beyond expectation and reasoned risk assumption that even a fixed-price contractor should not be responsible for it.

For example, in the old U.S. Army Corps of Engineers Board of Contract Appeals (“ENGBCA”) case of Soletanche Rodio Nicholson (JV), the ENGBCA excused the non-performance of a fixed price contractor on grounds of commercial impracticability because a condition discovered after award changed the burden of performance to “17 years and [a] cost up to $400,000,000 (rather than 760 days and $16,920,000)[.]”[117]   Stated another way, it was an over 2,000% cost increase.   

Thus, under astronomical inflation (e.g., Revolutionary War-level inflation), even a fixed-price contractor may be able to invoke commercial impracticability to escape performance.   And, at that level of inflation, other defenses will likely arise (such as objective impossibility due to severe supply chain dislocation).   Nonetheless, for the levels of inflation currently being seen, commercial impracticability will not save a fixed-price contractor.  

On the other hand, commercial impracticability should be a more accessible remedy for a labor-hour or T&M contractor.   Particularly, under a T&M contract, even though the cost of direct materials may be fully compensated,[118] the labor rates are pre-determined and vulnerable to inflation (same with a labor-hour contract).[119]  

Also, as addressed above, the EPA clauses are intended for fixed-price contracts.   So, one is unlikely to find a T&M/labor-hour contract with that type of clause (although T&M/labor-hour contracts often include an annual labor rate escalation).   Further, FAR Subpart 16.6 makes clear, “[t]ime-and-materials contracts and labor-hour contracts are not fixed-price contracts[,]”[120] “[a] time-and-materials contract may be used only when it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence[,]”[121] and “[a] labor-hour contract is a variation of the time-and-materials contract, differing only in that materials are not supplied by the contractor.”[122]  

Consequently, a T&M/labor-hour contractor does not assume the risk of its cost experience, at least not to the same degree as a fixed-price contractor.   So, generally, commercial impracticability is a potential escape hatch for a T&M/labor-hour contractor.  

At the same time, do not be surprised if the Government argues that the contractor supposedly assumed the risk for any cost increases greater than the pre-determined labor and escalation rates.  

In spite of the argument, the Government cannot eat its cake and have it too.   Which is to say, the FAR prohibits the Government from creating a T&M/labor-hour contract if it is “possible . . . to accurately estimate . . . with any reasonable degree of confidence.”[123]  

And after creating the contract on that premise, the Government should not be able to disaffirm a circumstance of commercial impracticability.   It would be shifting all risk to the contractor for pricing that the contractor could not estimate with “any reasonable degree of confidence.”[124]  

In point of fact, a T&M/labor hour contractor has to construct its loaded rates without the Government providing reasonably complete information on level of effort and possibly labor mix.   And those are two factors which greatly impact the number of workers, required skills and skill levels, utilization, supervision, and how any of that might change during performance.   In turn, it affects the compensation needed to attract and retain, and the indirect rates to be applied.   Hence, providing a loaded labor rate is not the same as a fixed price in response to a fixed scope of work.

Moreover, per FAR 16.601(d)(2) and 12.207(b)(1)(ii)(B), a T&M/labor-hour contract must have a cost ceiling to protect the Government from an undue cost overrun.   So, if severe inflation occurs that accelerates labor costs beyond the cost ceiling, that cuts against the Government arguing that continued performance is still commercially sensible.

Still, for commercial impracticability to be a viable defense for a T&M/labor-hour contractor, labor inflation has to be severe—as in labor inflation significantly higher than 5.5%.   See So. Dredging Co., Inc., ENGBCA No. 5843, 92-2 BCA ¶ 24,886 (Feb. 21, 1992) (increase of 6.62% was not commercially senseless so as to give rise to commercial impracticability, and pointing to other cases where contract losses of 13%, 19%, and 32% also did not amount to commercial impracticability).

One final point on commercial impracticability.

“A finding of impracticability excuses a party from performing unless the party has assumed the risk of the event.   [ ]   In government contracting, impracticability has also been treated as a type of constructive change to the contract; because a commercially impracticable contract imposes substantial unforeseen costs on the contractor, the contractor is entitled to an equitable adjustment.”[125]

Therefore, if a contractor has sufficient basis to invoke commercial impracticability, it can potentially be used for cost recovery, not just escaping performance.

Changes and Delay Clauses

Even though inflation is not caused by a Contracting Officer, that does not completely rule out obtaining an inflation remedy using a changes clause, or through a delay/suspension of work/stop-work clause (all referred to herein as a “delay clause”).   The factual circumstances to do so may be narrow, but there are possibilities.

Agency Inaction and/or Failure to Enable Contractor Performance

Primarily, Government inaction that causes the contractor to experience worse inflation could be a basis of recovery.   This is because the Government has a duty of good faith and fair dealing.   The duty “prevents a party’s acts or omissions that, though not proscribed by the contract expressly, are inconsistent with the contract’s purpose and deprive the other party of the contemplated value.”[126]   “Both the duty not to hinder and the duty to cooperate are aspects of the implied duty of good faith and fair dealing.”[127]  

In turn, “the Government’s implied duty to cooperate [ ] imposes upon the Government an affirmative obligation to do what is reasonably necessary to enable the contractor to perform.”[128]   And where the Government unreasonably delays or hinders, it may be treated as a constructive change under the contract changes clause.[129]   In short, the Government’s unreasonable inaction can constitute an express or implied change.

Accordingly, envision a scenario where an Agency needs to do something to enable contract performance (e.g., issue a notice to proceed, approve a key person, in-process/badge contractor personnel, provide a specification, conduct a test or inspection, approve a first article, review and approve a plan, provide site access, exercise an option quantity, order production, etc.).   Further, it is apparent, and/or the contractor tells the Agency, that timely action is needed to avoid increased costs for labor/materials.   If the Agency’s action is then untimely, that could be the basis for recovering some inflation costs under the changes clause.[130]

A delay clause may also provide recovery for the same type of fact pattern.   For example, consider FAR 52.242-17 (Government Delay of Work (Apr 1984)), which is included in fixed-price supply contracts for non-commercial products.[131]   Paragraph (a) states the following.

“If the performance of all or any part of the work of this contract is delayed or interrupted (1) by an act of the Contracting Officer in the administration of this contract that is not expressly or impliedly authorized by this contract, or (2) by a failure of the Contracting Officer to act within the time specified in this contract, or within a reasonable time if not specified, an adjustment (excluding profit) shall be made for any increase in the cost of performance of this contract caused by the delay or interruption and the contract shall be modified in writing accordingly.”[132]

The passage is ideally written to provide a remedy for Government inaction.   Hence, Government inaction that exacerbates a contractor’s inflation costs is also potentially redressable under a contract delay clause.

Withholding Information — Superior Knowledge or Failure of Good Faith and Fair Dealing

Another way to obtain an inflation remedy through a changes clause may arise when, prior to contract award, the Government has advance knowledge of a particular cost increase, and fails to inform the contractor (a.k.a., a failure to disclose superior knowledge claim, or the superior knowledge doctrine).

“The doctrine of superior knowledge is based upon the premise that, where the government has knowledge of vital information that will affect a contractor’s performance, the government is obligated to share that information.”[133]   Or, as the court stated in J.A. Jones Constr. Co. v. United States—“[W]e need not elaborate the established rule that, while the [Government] had no obligation to prevent (and, indeed, was free to precipitate) the avalanche that buried the contractor, it was not free, if it was aware of the impending avalanche and knew that J. A. Jones was not, to stand aside and let the bidder be overwhelmed without a warning.”[134]  

Importantly, “the theory of superior knowledge requires an allegation of operative facts occurring in the pre-award period.”   Lee’s Ford Dock, Inc., ASBCA No. 59041, 14-1 BCA ¶ 35,679 (July 23, 2014), recon. denied, 15-1 BCA ¶ 35,839 (Dec. 8, 2014).   If the Government is withholding vital information that arises after award, it is treated as a breach of the implied duty of good faith and fair dealing.    See ANHAM FZCO, LLC, ASBCA No. 59283, 17-1 BCA ¶ 36,817 (July 20, 2017) (finding that the Government’s failure to inform the contractor of Iraq withdrawal plans as a basis for asserting breach of the implied duty of good faith and fair dealing).

“In order to recover on a claim based on superior knowledge, the contractor must show: (1) the contractor undertook performance without vital knowledge of a fact that affects performance costs or duration; (2) the government was aware the contractor had no knowledge of the vital information and no reason to obtain such information; (3) the contract specification supplied misled the contractor or did not put it on notice to inquire; and (4) the government failed to provide the relevant information.”[135]

Superior knowledge is typically alleged when the Government fails to share technical information needed to facilitate the contractor’s performance.   A prominent example is the 23-year-long (1991-2014) litigation over the A-12 Avenger II aircraft in which McDonald Douglas (later Boeing) and General Dynamics asserted that the Government failed to share technology supposedly needed to make the project feasible.[136]   Ultimately, the case settled.  

That said, an assertion of superior knowledge does not have to be based on withheld technical information.   For example, in J.A. Jones Constr. Co., the Government had specific knowledge of an upcoming labor shortage which would cause labor costs to significantly increase for the geographical area of contract performance.[137]   The reason the Government had this exclusive insight was because the Government was concurrently running other projects (mostly in secret) which were absorbing much of the available labor pool.[138]   The Government failed to warn the contractor.[139]   In turn, because of this failure to disclose superior knowledge, the court found the Government liable for the contractor’s unanticipated, increased labor costs.[140]  

Of recent vintage, there is an argument called “negligent negotiations,” which, fact dependent, may be asserted as a failure to divulge superior knowledge—or, possibly under a different legal theory (e.g., contract reformation due to mistake, or breach of the implied-in-fact contract to treat a bid/proposal fairly).[141]  

This argument potentially arises when, during source selection, the procuring Agency fails to conduct equal, meaningful, and not misleading discussions/exchanges under FAR 15.306(d), or under similar source selection procedures.[142]  

When used to aver superior knowledge, the awarded contractor is seeking damages for how the Agency’s flawed discussions withheld vital information, in turn adversely impacting the contract.  

Arguably, a negligent negotiations assertion does not alter the elements of a superior knowledge claim.    Hence, the Government failing to comply with FAR 15.306(d) or a similar procedure may just lend support in demonstrating the superior knowledge elements.    But, stay tuned.    The argument has not yet been adequately appraised by CoFC and the Boards.    And the Government violating a regulation that imposes an express duty to disclose proposal weaknesses might be treated differently than the Government merely failing an implied duty to disclose vital information (which is what superior knowledge traditionally rests on).

With the foregoing in mind, to argue superior knowledge to recover some inflation costs, similar to J.A. Jones Constr. Co.,[143] the factual circumstance would likely involve Agency advance knowledge of a particular cost impacter.   It will directly and/or predictably affect labor, material, or other direct costs.   Further, the particular cost impacter cannot be something the contractor knows, has reason to know, or otherwise should know (e.g., because the information is readily available).   Furthermore, the Agency’s failure to disclose must be material, meaning that the at-issue cost driver (and not something else) must be the primary or proximate cause of the contractor’s increased costs.

Alternatively, if the Agency’s unique knowledge of a particular cost driver occurs after award, the failure to disclose should be treated as a lapse of the Government’s duty of good faith and fair dealing (a duty that only kicks in after there is a contract), and a remedy obtained under the changes clause that way.   

Plainly, arguing Government nondisclosure (whether as superior knowledge or as a lack of good faith and fair dealing) is not a way to redress macroeconomic inflation.   It is an argument for more specific cost increases—which may or may not be part of a larger field of inflation.   Even so, either argument may be viable for recovery of some inflation costs.

Improper Exercise of an Option

The Government fails to effectively exercise contract options more than infrequently.   For example, FAR 52.217-9 (Option to Extend the Term of the Contract (MAR 2000)) requires the Contracting Officer to provide written notice of the intent to exercise an option period no later than some blank-to-be-filled-in days before performance expiration.[144]   Since many Contracting Officers do not fill in the blank, the blank is automatically filled in with 60 days.[145]

And 60 days advance notice is a deadline a lot of Contracting Officers miss.   See White Sands Constr., Inc., ASBCA Nos. 51875 and 54029, 04-1 BCA ¶ 32,598 (April 16, 2004) (Contracting Officer failing to provide notice of intent until 52 days before performance expiration (eight days late) was an improper exercise of the option).[146]   And once the option is improperly exercised, it opens the door for the contractor to obtain an upward pricing adjustment for the option period (assuming the contractor still wants to perform it).

Specifically, “[w]hen exercising an option, the contracting officer shall provide written notice to the contractor within the time period specified in the contract.”[147]   “An option is an offer couched in specific terms, the acceptance of which must be unconditional and in exact accord with the terms offered. . . . Even substantial compliance with the terms of an option is insufficient.”[148]   

Further, “where the Government’s exercise of an option is invalid, further performance by a contractor in compliance with the orders issued by the Government, absent circumstances raising the bar of waiver or estoppel against the contractor, entitles the latter to an equitable adjustment for a constructive change under the applicable changes clause.”[149]    

Moreover, “[t]he ineffective attempt to exercise an option gives the contractor the right to recover the costs it incurred in performing that work, plus a reasonable profit thereon.”[150]  

Consequently, if the contractor is taking a bath under the contract because of inflation, the Government’s improper exercise of an option provides a legal basis for the contractor to assert an upward adjustment and fix it.   Importantly, the contractor should immediately make clear that it is not excusing the Government’s improper exercise of the option, and in turn will seek an upward adjustment for performing the option.     

In sum, as elaborated on above, under distinct circumstances, a changes or delay clause may provide an inflation remedy.

Fixed Price Contract with Prospective Price Redetermination

One option for redressing inflation is to seek and obtain a fixed price contract with prospective price redetermination (“FP-PPR”).[151], [152]   Basically, under FP-PPR, the contractor provides a fixed price for the initial pricing period (which, ideally, is at least a year, and hopefully longer).[153]   And shortly before the end of that time period, the Government and the contractor negotiate the pricing for the next pricing period (also, ideally, at least a year, and hopefully longer).[154]   And the same occurs for each subsequent pricing period.[155]   The CPRG says “[i]t can probably be best described as a series of firm fixed-price contracts negotiated at stated times during performance.”[156]  

Key point, the pricing periods do not have to be the same as any option periods.   Indeed, the Government’s agreement to pricing does not have to be the same as actually ordering performance.   And since most procurements run on annual appropriations, and the goal is to make the pricing periods as long as is practicable, the pricing periods and the appropriation obligation events may not align.       

Additionally, depending on the level of uncertainty, the Government may (but is not required to) place a ceiling on the total contract price, and/or on each performance period.[157]  

Overall, “[a] fixed-price contract with prospective price redetermination may be used in acquisitions of quantity production or services for which it is possible to negotiate a fair and reasonable firm fixed price for an initial period, but not for subsequent periods of contract performance.”[158]

Accordingly, it is a contract type intended for long-duration contracts where a contractor cannot provide reliable up-front pricing for the later years, or for a contract likely to experience serious cost fluctuation which the contractor cannot adequately control.   Therefore, it is one way to handle inflation.

Now, the downside.   The subsequent price negotiations are a major administrative headache for the contracting office and the contractor.  

Specifically, the data submission requirements of FAR 52.216-5 (Price Redetermination-Prospective (JAN 2022)) basically turn each negotiation into an audit of the contractor’s previous cost experience, and of the contractor’s basis for estimating its future costs.[159]   And because those negotiations are occurring without price competition, FAR 15.304 makes clear that certified cost or pricing data (“CCPD”) will be required if the contemplated price modification is over the CCPD threshold ($2 Million generally), and if no exception applies.[160]

Therefore, in comparing an FP-PPR contract to an EPA clause (especially an EPA clause tailored pursuant to FAR 16.203-4(c)(2)), generally, an FP-PPR contract imposes a higher administrative burden, and the inflation adjustments are unlikely to be as frequent and precise as an EPA clause.  

On the other hand, if the contract is big enough that it makes it worthwhile to endure the administrative headaches, or, alternatively, is small enough that the subsequent price negotiations are straightforward, an FP-PPR contract could be a tolerable way to counter inflation.   And, in any event, it provides more inflation insulation than a plain fixed-price contract.

Arguments Unlikely to Garner Relief

It is worth expending a few paragraphs to discuss the rabbit holes that, in all likelihood, are not worth going down.

Force Majeure

Force majeure (major force) is not a basis for inflation cost recovery.   Customarily, inflation is not considered a force majeure.   And, in any case, force majeure is an argument for excusing non-performance, not obtaining compensation.

“A force majeure is defined as a ‘superior or irresistible force’ which is ‘outside the control of the parties’ and cannot be avoided by the ‘exercise of due care.’ ”[161]  

The FAR clauses that expressly list causes of force majeure are as follows:

FAR 52.212-4(f) (Contract Terms and Conditions—Commercial Products and Commercial Services (NOV 2021));

FAR 52.213-4(e) (Terms and Conditions—Simplified Acquisitions (Other Than Commercial Products and Commercial Services) (JAN 2022));

FAR 52.241-6(d) ([Utility] Service Provisions (FEB 1995));

FAR 52.249-8(c) (Default (Fixed-Price Supply and Service) (APR 1984));

FAR 52.249-9(c) (Default (Fixed-Price Research and Development) (APR 1984));

FAR 52.249-10(b) (Default (Fixed-Price Construction) (APR 1984)); and

FAR 52.249-14(a) (Excusable Delays (APR 1984)).

This list does not include any alternate terms for the clauses.  

Looking at FAR 52.249-14(a) as a typical example of what the FAR clauses say regarding force majeure, the clause states the following.

“Except for defaults of subcontractors at any tier, the Contractor shall not be in default because of any failure to perform this contract under its terms if the failure arises from causes beyond the control and without the fault or negligence of the Contractor.   Examples of these causes are (1) acts of God or of the public enemy, (2) acts of the Government in either its sovereign or contractual capacity, (3) fires, (4) floods, (5) epidemics, (6) quarantine restrictions, (7) strikes, (8) freight embargoes, and (9) unusually severe weather.   In each instance, the failure to perform must be beyond the control and without the fault or negligence of the Contractor.”

FAR 52.249-14(a).   Noticeably, the paragraph does not make the Government liable to the contractor for a performance failure beyond the contractor’s fault or control.   Instead, the remedy provided is that the contractor’s failure to perform is merely excused.  

So, generally, force majeure is a basis for excusable, not compensable, delay.   For a contractor to be able to assert a compensable delay, the cause of the delay must be a Government act or omission, but not one that constitutes a sovereign act.[162]    And yes, the above list does mention an act of the Government in its contractual capacity, so that one item could be the basis of a compensable delay.[163]  

Moreover, the above paragraph does not mention inflation.   Generally speaking, “[a] force majeure clause is not intended to buffer a party against the normal risks of a contract.”[164]   And market fluctuation is usually regarded as a normal risk.[165]   Further, if the inflation is due to Government monetary policy, that still does make it a force majeure (even though the above clause lists an act of Government as a force majeure).[166]  

Now, to be clear, if a fire, flood, epidemic, etc. hinders performance, and that force majeure also happens to trigger inflation which the contractor must deal with in resuming performance, those increased costs may be recoverable under a different legal basis.   Nonetheless, asserting a force majeure is not the way.  

Alternatively, if severe inflation is accompanied by supply chain dislocation, the unavailability of materials could be the basis of an excusable delay.   But again, the proximate issue is not inflation.

In sum, force majeure is not an appropriate argument for inflation cost recovery.

Bilateral/Mutual Mistake

Mutual mistake also is unlikely to provide an inflation remedy.  

Specifically, “[t]o support its claim of mutual mistake, [a contractor] must show that (1) the parties to the contract were mistaken in their belief regarding a fact; (2) the mistaken belief constituted a basic assumption underlying the contract; (3) the mistake had a material effect on the bargain; and (4) the contract did not put the risk of the mistake on the party seeking reformation.”[167]  

Without solicitation/contract language to the contrary, generally, a fixed-price contractor bears the risk of its pricing, even where that pricing is based on a mistaken assumption of economic conditions.[168]     

More importantly, under mutual mistake, “a plaintiff must allege that he held an erroneous belief as to an existing fact.”[169]   A fact not in existence at the time of contract formation, such as a future economic condition, does not apply.   See, e.g., Elias Bros., Inc., ENGBCA No. 5321, 88-3 BCA ¶ 21,091 (Aug. 25, 1988) (“[A] party’s estimate or judgment as to future events, even if erroneous, is not a ‘mistake’ susceptible to relief through reformation.”).[170]  

Further, even if a fact exists at the time of contract formation, “[i]f the existence of a fact is not known to the contracting parties, they cannot have a belief concerning that fact; therefore, there can be no ‘mistake.’ ”[171]   Furthermore, in most instances, ignorance of the law is not a mistake of fact.[172]  

Yet, ignorance of the law or not, mutual mistake may be possible where the Contracting Officer is violating the law.  

In Beta Systems, Inc., a contractor asserted mutual mistake and sought reformation of a contract to change the EPA benchmark selected by the Contracting Officer.[173]   This was because the Contracting Officer’s chosen index failed to adequately account for price fluctuations in aluminum, which was the primary material for performance.[174]   In response, the Government argued, and CoFC agreed, that the contractor waived the issue by acquiescing and agreeing to the contract.  

However, the Fed. Circuit had a different view.[175]   At the time, the pertinent Defense Acquisition Regulation (“DAR”) provision required the Contracting Officer to use an index that largely encompassed the materials to be bought under the contract.[176]   If the Contracting Officer’s chosen index did not adequately account for aluminum—as evidenced by the fact that the index showed the contractor’s costs going down; in actuality, costs were greatly increasing because of aluminum price hikes—the Contracting Officer violated the DAR.[177]   To which, the Fed. Circuit stated, “If the BLS index violated the DAR, the government can not [sic], by law, benefit from it.”[178]   In turn, the Fed. Circuit found a potential mutual mistake that might warrant reformation, stating the following.

“The government does not challenge that Beta did not intend to use an index that would effectively eliminate its principal construction material from fair weight in the inflation adjustment.   And there is a legal presumption that the government did not intend to use an index that would violate the law as embodied in the DAR.”[179]

So, where the Contracting Officer violates a procurement regulation by refusing to include a required EPA clause, or using a benchmark that is not permitted, etc., contract reformation may be possible a la Beta Systems, Inc.   That said, currently, FAR 16.203-4 leaves a lot to the Contracting Officer’s discretion when it comes to EPA clauses.   And, even if that were not the case, Beta Systems, Inc. still presents an uncommon fact pattern.

Setting aside instances analogous to Beta Systems, Inc., asserting mutual mistake is unlikely to furnish an inflation remedy.

Unilateral Mistake

Unilateral mistake is even more unsuitable for obtaining an inflation remedy.   The legal standard for a unilateral mistake is as follows.

“A contractor seeking post-award reformation of its contract on grounds of unilateral mistake has the burden of proving by clear and convincing evidence the following five elements: ‘(1) a mistake in fact occurred prior to contract award; (2) the mistake was a clear-cut, clerical or mathematical error or a misreading of the specifications and not a judgmental error; (3) prior to award the Government knew, or should have known, that a mistake had been made and, therefore, should have requested bid verification; (4) the Government did not request bid verification or its request for bid verification was inadequate; and (5) proof of the intended bid is established.’ . . . A contractor is not precluded from recovery for unilateral mistake even though the contractor itself may have been negligent in preparing its bid or proposal.”[180]

Plainly, it would be difficult to show, by clear and convincing evidence, that a failure to account for inflation was a clear-cut clerical or mathematical error in a bid/proposal, as opposed to a judgmental error.

Unjust Enrichment, Quantum Meruit, and Quantum Valebant

Unjust enrichment, quantum meruit (as much as one has earned), and quantum valebant (as much as it is worth) are related terms often thrown around when a contractor is being significantly underpaid, or not paid at all.   In the case of inflation, the risk is that the contractor is being significantly underpaid.  

Despite the close relationship of the terms, at common law (depending on the jurisdiction), unjust enrichment is the term typically used when a benefit is conferred (sometimes accidentally) at the plaintiff’s expense, there is no agreement (and maybe no relationship), and the recipient refuses to give up the benefit or pay for it.[181]  

On the other hand, quantum meruit implies that the parties have an agreement (or at least tried to), and for some reason it fails as a legally enforceable contract, or at least fails on the issue of compensation.[182]   Nonetheless, a benefit is conferred for which the value of the benefit is not fully paid.[183]  

And, technically, quantum meruit is the precise term when the benefit is a service, and quantum valebant is the precise term when it is a good/material.[184]

So, for example, if a seller accidentally provides its product/service to the wrong person, that may give rise to unjust enrichment.   And if a seller provides its product/service to the right person, but the supposed agreement is not a proper contract, that may give rise to quantum meruit/valebant.

In Government contracts, an argument styled as unjust enrichment is ineffective.   This is because “[a] claim for unjust enrichment essentially states a claim for breach of an implied-in-law contract[,]”[185] “the Tucker Act does not give [CoFC] jurisdiction over actions for breach of an implied-in-law contract[,]”[186] “the [Contract Disputes Act] does not apply to ‘quasi-contracts’ which are implied in law to permit recovery of [ ] unjust enrichment[,]”[187] and “there can be no implied-in-law contract and, thus, no claim for unjust enrichment, when an express contract covering the same subject exists.”[188]  

Therefore, unjust enrichment is an argument which falls outside the Contract Disputes Act and the jurisdiction of CoFC and the Boards of Contract Appeals.[189]  

At the same time, a contractor can recover on a quantum meruit/valebant basis, but only in an exceptional circumstance.  

“[Q]uantum meruit permits the contractor to be ‘compensated under an implied-in-fact contract when the contractor confers a benefit to the government in the course of performing a government contract that is subsequently declared invalid.’ ”[190]   “[T]o recover on a quantum meruit or quantum valebant basis, however, the circumstances must permit the court to conclude that all the basic elements of an implied-in-fact contract were present between plaintiff and the government at the time of the alleged contract creation, including mutual intent, offer, acceptance, consideration, and authority on behalf of the government party to contract[.]”[191]  

So, for quantum meruit/valebant to serve as an inflation remedy, the contractor would have to be performing a contract that is later determined to be invalid (but it cannot be the type of invalidity that undermines the contract still being considered implied-in-fact).   Assuming that the invalid contract still meets the basic elements of being implied-in-fact, the contractor may recover the “reasonable value” of what was provided to the Government.[192]  

Now, where it gets hairy is the Government is likely to argue that the “reasonable value” of what was provided should be based upon the pricing stated in the invalidated contract.[193]   Yet, with inflation in the background, that pricing arguably does not reflect the reasonable value of the construction/goods/services when those things were actually provided.   Moreover, scoping the remedy based on the Government’s cost experience (as contemplated by the invalid contract) is arguably the remedy for unjust enrichment, not quantum meruit.  

As the Supreme Court of Virginia stated in 2020—“The measure of recovery for quantum meruit for a contract implied in fact is the reasonable value of the services provided.   [ ]   The measure of recovery for unjust enrichment is limited to the benefit realized and retained by the defendant.   [ ]   The measure of damages is thus not necessarily the same.”[194]  

Granted, for this issue, the Supreme Court of Virginia provides only persuasive authority, but the point is still a good one.   Reasonable value is not constrained by the defendant’s benefit, including not being limited to the benefit of the bargain that the Government struck in the ill-fated contract.  

Finally, fair or reasonable value usually means fair market value, which is a concept connected to what the market is doing.[195]   So, if the contractor has a tenable argument to assert quantum meruit, the contractor also should be able to recover the actual value of what was provided to the Government, as adjusted by inflation.

In any event, except for the limited scenario just discussed, an argument styled as unjust enrichment, quantum meruit, or quantum valebant is unlikely to remedy inflation.

Read the Contract

One of the old chestnuts of Government contracts (old enough to have been started by Nash, Cibinic, or Commodore Thomas Tingey) is, “When all else fails, read the contract.”   If one does so, who knows?   There may be found an unexpected remedy-granting term.


Inflation is here, and it is unlikely to go away anytime soon.   And even though inflation is not caused by a Contracting Officer’s express or implied contract change, there are still multiple ways that a contractor can potentially obtain an inflation remedy.    

[1] Consumer Price Index Summary, USDL-22-1834, (Sept. 13, 2022), available at

[2] Producer Price Index Summary, USDL-22-1836, (Sept. 14, 2022), available at

[3] Id.

[4] Sam Meredith, Natasha Turak, U.S. delivers angry rebuke of massive OPEC+ production cut — and it could backfire for Saudi Arabia, (Oct. 6, 2022), available at

[5] Joe Bousquin, Senior Reporter, Construction input prices fall for second straight month, (Sept. 15, 2022), available at

[6] Statista Research Dep’t, Iron ore price worldwide from September 2016 to September 2022, (Oct. 5, 2022), available at,month%20of%20the%20previous%20year.

[7] BLS, The Economics Daily, Compensation costs for private industry workers up 5.5 percent from June 2021 to June 2022, (Aug. 2, 2022), available at; see also Employment Cost Index Summary, USDL-22-1553, (July 29, 2022), available at

[8] Drew Desilver, For most U.S. workers, real wages have barely budged in decades, Pew Research Center, (Aug. 7, 2018), available at

[9] Reuters, World Bank sees rising risk of global recession in 2023, (Sept. 15, 2022), available at

[10] Deltek, Clarity 2022: Government Contracting Industry Study, at 3 and 30,, available at

[11] Id. at 36.

[12] As a sidenote, occasionally, prior to award, a Contracting Officer is required to negotiate a contractor’s profit.   Unless a waiver is granted, this occurs where the contemplated contract is: (1) not for a commercial product/service; (2) pricing is not set by law (e.g., some utilities); (3) the value exceeds the certified cost or pricing data threshold ($2 Million generally); and (4) there is not adequate price competition (e.g., a sole source, a broad agency announcement solicitation where price proposals are not sought, only one offer was received in response to a competitive solicitation from DoD, NASA, or the Coast Guard, or, for other Agencies, only one offer was received in response to an ostensibly competitive solicitation, but there was no real expectation of competition).   See FAR 15.403-1(b) and (c)(1)(ii), 15.403-4(a), 15.404-1(a)(3), and 15.404-4(c)(2).   When a Contracting Officer is required to negotiate profit, the FAR does not permit an award where the contractor’s proposed profit/fee exceeds 15% for a cost-plus-fixed-fee R&D contract, and 10% for other cost-plus-fixed-fee contracts.   See FAR 15.404-4(c)(4)(i).   Further, various Agency FAR Supplements put forth a structured approach for evaluating profit.   See, e.g., DFARS 215.404-71-3(c).

[13] FAR 16.601(b) (“A time-and-materials contract provides for acquiring supplies or services on the basis of- (1) Direct labor hours at specified fixed hourly rates that include wages, overhead, general and administrative expenses, and profit; and (2) Actual cost for materials[.]”).

[14] FAR 31.201-3(a) (“No presumption of reasonableness shall be attached to the incurrence of costs by a contractor.   If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer’s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable.”).

[15] FAR 16.304 (“A cost-plus-incentive-fee contract is a cost-reimbursement contract that provides for an initially negotiated fee to be adjusted later by a formula based on the relationship of total allowable costs to total target costs”).

[16] See FAR 52.243-1(a) (Changes-Fixed-Price (AUG 1987)) (“The Contracting Officer may at any time, by written order, and without notice to the sureties, if any, make changes within the general scope of this contract . . . .”); FAR 52.243-2(a) (Changes-Cost-Reimbursement (AUG 1987)) (“The Contracting Officer may at any time, by written order, and without notice to the sureties, if any, make changes within the general scope of this contract . . . .”); FAR 52.243-3(a) (Changes-Time-and-Materials or Labor-Hours (SEPT 2000)) (“The Contracting Officer may at any time, by written order, and without notice to the sureties, if any, make changes within the general scope of this contract . . . .”); FAR 52.243-4(a) (Changes (JUN 2007)) (“The Contracting Officer may, at any time, without notice to the sureties, if any, by written order designated or indicated to be a change order, make changes in the work within the general scope of the contract . . . .”).

[17] See FAR 52.216-2 (Economic Price Adjustment-Standard Supplies (NOV 2021)); FAR 52.216-3 (Economic Price Adjustment-Semistandard Supplies (NOV 2021)); FAR 52.216-4 (Economic Price Adjustment-Labor and Material (JAN 2017)).

[18] See FAR 16.203-4(a)(i), (b)(i), and (c)(i).

[19] See DFARS 216.203-4; FAR 2.101 (definition of simplified acquisition threshold).

[20] See also FAR 16.203-3 (“A fixed-price contract with economic price adjustment shall not be used unless the contracting officer determines that it is necessary either to protect the contractor and the Government against significant fluctuations in labor or material costs or to provide for contract price adjustment in the event of changes in the contractor’s established prices.”).

[21] FAR 52.216-2 and 52.216-3 were updated in 2021, and include that “[t]he term ‘established price’ means a price that- (1) Is an established catalog or market price for a commercial product sold in substantial quantities to the general public; and (2) Is the net price after applying any standard trade discounts offered by the Contractor.”   FAR 52.216-2(a) and 52.216-3(a).   This was done following the 2005 Federal Circuit decision for Tesoro Hawaii Corp. v. United States, which stated that “[a]lthough the term ‘established price’ is not expressly defined in FAR § 16.203, the definition of the term in FAR § 15.804-3 is incorporated by reference.   FAR § 15.804-3 defines ‘established prices’ to include contractor-specific prices, namely ‘established catalog prices,’ and industry-based prices, namely ‘established market prices.’   As indicated by FAR § 16.203-2 and FAR § 15.804-3, the policy behind requiring use of ‘established prices’ is to avoid contracts subject to the operational whims of individual contractors.”).   405 F.3d 1339, 1347 (Fed. Cir. 2005).

[22] See FAR 16.203-1(a).

[23] See also Tesoro Hawaii Corp. v. United States, 405 F.3d 1339, 1343 (Fed. Cir. 2005) (“The regulation authorizes the use of three types of EPAs[.]”).

[24] FAR 16.203-4(c)(2).

[25] See FAR 1.401(a) (Deviation means “[t]he issuance or use of a policy, procedure, solicitation provision (see definition in 2.101), contract clause (see definition in 2.101), method, or practice of conducting acquisition actions of any kind at any stage of the acquisition process that is inconsistent with the FAR.”) (note that “contract clause” is stated in addition to “policy” and “procedure[,]” meaning that the terms are not synonymous); see also FAR 1.403 (even where creating a new contract clause might be considered a FAR deviation, “[i]ndividual deviations affect only one contract action, and, unless 1.405(e) is applicable, may be authorized by the agency head.”); FAR 1.404 (class deviations).

[26] FAR 16.203-4(d)(1)(ii).

[27] FAR 16.203-4(a)(4), (b)(6), and (c)(5).

[28] See FAR 52.216-4(c)(3).   However, the sub-paragraph of the clause states that “[t]his limitation shall not apply, however, if, after final delivery of all line items, either party requests an adjustment under paragraph (b) of this clause.”   Id.

[29] Defense Acquisition University (“DAU”) Contract Pricing Reference Guide (“CPRG”), Vol. 4, Advanced Issues, at 14 (Jan. 2021), available at

[30] See FAR 52.216-4(a).

[31] FAR 52.216-2(c)(5); FAR 52.216-3(c)(5).

[32] See DFARS 216.203-4-70(a)(1), (b)(1), and (c)(1).

[33] DFARS 252.216-7000(d).

[34] See DFARS 252.216-7000(d)(1); DFARS 252.216-7001(e)(4).

[35] See DFARS 252.216-7000(e).

[36] See DFARS 252.216-7001(a)-(e).

[37] See id.

[38] See id.

[39] See DFARS 252.216-7001(e)(4).

[40] See DFARS 216.203-4-70(c)(1).

[41] DFARS PGI 216.203-4(1).

[42] DFARS PGI 216.203-4(2)-(13); see also DAU CPRG, Vol. 4, Advanced Issues, at 17 (Jan. 2021), available at; Classification systems used by the National Compensation Survey, (May 11, 2021), available at

[43] See id.

[44] John M. Tenaglia, Director, Defense Pricing and Contracting, Office of the Secretary of Defense, Guidance on Inflation and Economic Price Adjustments (May 25, 2022), available at

[45] John M. Tenaglia, Director, Defense Pricing and Contracting, Office of the Secretary of Defense, Managing the Effects of Inflation with Existing Contracts (Sept. 9, 2022), available at

[46] John M. Tenaglia, Guidance on Inflation and Economic Price Adjustments (May 25, 2022), supra.

[47] Id.

[48] Id.

[49] Id.

[50] Id.

[51] Id.

[52] John M. Tenaglia, Director, Defense Pricing and Contracting, Office of the Secretary of Defense, Managing the Effects of Inflation with Existing Contracts (Sept. 9, 2022), available at

[53] Id.

[54] DLAD 16.203-2.

[55] See also Freedom NY, Inc., ASBCA No. 43965, 04-2 BCA ¶ 32,775 (Oct. 14, 2004) (“Performance of a pre-existing duty is not sufficient consideration for a supplemental agreement.”).

[56] Zebra Corp., GSBCA No. 4723, 80-2 BCA ¶ 14,484 (May 3, 1980).

[57] AT&T Commc’ns, Inc. v. Wiltel, Inc., 1 F.3d 1201, 1205 (Fed. Cir. 1993).

[58] Portfolio Disposition Mgmt. Grp. LLC v. United States, 64 Fed. Cl. 1, 12 (2005) (internal citation omitted); AT&T Commc’ns, Inc., 1 F.3d at 1205 (“A modification generally falls within the scope of the original procurement if potential bidders would have expected it to fall within the contract’s changes clause.”).

[59] See, e.g., Saratoga Indus., Inc., B-247141, 92-1 CPD ¶ 397, at 2 (Apr. 27, 1992) (“The materiality of a modification is determined by examining factors such as the magnitude of the changes in relation to the overall effort, CAD Language Sys., Inc., supra, whether the nature and purpose of the contract has been altered by the modification, Clean Giant, Inc., supra, and whether the field of competition would be materially changed by the contract modification.”).

[60] 63 Fed. Cl. 98, 109 (2004) (“Indeed, the government has increased the cost of the original contract by nearly eighty percent.   Where, as here, the amount of additional work nearly doubles the price of the contract that was awarded, and the nature of the work was so substantially increased that the change provision of the contract had to be deleted to accomplish the modifications, the originally awarded contract has been materially changed.”); see also Ian, Evan & Alexander Corp. v. United States, 136 Fed. Cl. 390, 423-24 (2018) (finding the % of the price increase to be an important fact in determining an out-of-scope modification).

[61] See Schott Gov’t Servs., LLC v. United States, 123 Fed. Cl. 160, 165 (2015) (“We note, moreover, that in exercising jurisdiction over a bid protest, ‘the courts shall give due regard to the interests of national defense and national security and the need for expeditious resolution of the action.’   28 U.S.C. § 1491(b)(3).   The [ ] affidavit makes clear the agency’s concern that the military not be delayed in getting armored windows for its vehicle for use in a combat zone.   Returning the parties to the position they were in prior to contracting would require pulling the M-ATV fleet out of service until replacement transparent armor windows could be obtained through a new procurement.”).

[62] AT&T Commc’ns, Inc. v. Wiltel, Inc., 1 F.3d 1201, 1205 (Fed. Cir. 1993).

[63] 123 Fed. Cl. 160 at 165.

[64] See id. at 162-63.

[65] See id. at 163.

[66] See id. at 165; see also Leupold Stevens, Inc., B-417796, 2019 CPD ¶ 397 (Oct. 30, 2019) (“Even if a contract modification arguably is significant, absent a showing that the modification is beyond the scope of the original contract, we view the modification as matter of contract administration.”).

[67] Global Comp. Enters., Inc., 88 Fed. Cl. 350, 399-400 and 418-19 (2009).

[68] Am. Sys. Grp., B-418469, 2020 CPD ¶ 140, at 2 (Apr. 7, 2020); Datastream Sys., Inc., B-291653, 2003 CPD ¶ 30, at 5 (Jan. 24, 2003) (“Establishing prejudice generally requires more than a mere statement by the protester that it could have lowered its price had it known of the relaxed requirements, particularly where, as here, the protester presumably has access to more specific information bearing on the issue of prejudice.”); Emergent BioSolutions, Inc., B-402576, 2010 CPD ¶ 136, at 11 (June 8, 2010) (“While Emergent argues that the alleged relaxation of schedule requirements would have affected other offerors in the field of competition, the protester has not demonstrated how this alleged relaxation caused it any harm.”); Falcon Carriers, Inc., B-232562, 68 Comp. Gen. 206, 209-10 (Jan. 30, 1989) (“We therefore find prejudice to Falcon because the competition for the contract as modified could have been materially different than the competition originally obtained. . . . Specifically, based on this record, we conclude that Falcon’s potential offer of the Falcon Champion, on a one-ship basis, properly evaluated, could have been in line for the second award as the low offeror.”).

[69] John M. Tenaglia, Guidance on Inflation and Economic Price Adjustments (May 25, 2022), supra.

[70] John M. Tenaglia, Managing the Effects of Inflation with Existing Contracts (Sept. 9, 2022), supra.

[71] Id.

[72] See, e.g., FAR 50.101-1(b).

[73] FAR 50.101-1(a).

[74] On November 14, 1958, President Eisenhower issued Executive Order No. 10,789 authorizing specific agencies to use the authority.   See Exec. Order No. 10,789.   The supposed emergency he was responding to was President Truman’s Proclamation 2194 of December 16, 1950, which declared an emergency for the Korean War.   See id.   Obviously, the Korean War was resolved by an armistice in 1953.   So, really, President Eisenhower was asserting an emergency based on the general demands of the Cold War.   Congress finally imposed a 1978 cancellation of most Executive Branch-declared emergencies with the National Emergencies Act of 1976 (Public Law No. 94-412, codified at 50 U.S.C. §§ 1601-51).   Nonetheless, the National Emergencies Act of 1976 made clear that the general cancellation of declared emergencies did not apply to any invocation of Public Law No. 85-804.   See 50 U.S.C. § 1651(a)(4).   Since that time, the authority has been delegated to many Agencies.

[75] FAR 50.103-1.

[76] FAR 50.103-2.

[77] FAR 50.103-1.

[78] See FAR 50.104-3 to 50.104-4.

[79] FAR 33.205(a).

[80] FAR 50.101-2(b).

[81] See, e.g., DFARS PGI 250.103-5; DFARS 250.100; FAR 50.102-2.

[82] See, e.g., DFARS 250.102-1(b).

[83] Recall, one of the elements of a CDA claim is that it must be asserted “as a matter of right[.]”   FAR 52.233-1(c) (Disputes (MAY 2014)).   A contractor is not legally entitled to a remedy under Public Law No. 85-804.

[84] Coastal Corp. v. United States, 713 F.2d 728, 731 (Fed. Cir. 1983).

[85] See FAR 50.102-2.

[86] See Murdock Mach. & Eng’g. Co. of Utah v. United States, 873 F.2d 1410, 1413 n. at asterisk (Fed. Cir. 1989) (“[Neither Public Law 85-804 nor its implementing regulations give a contracting officer the right to repudiate the terms of an NCAB decision once final.   The authority to reconsider, modify, correct, and reverse its decisions resides in the NCAB alone.   See ASPR 17-202.2.   Because the Board here did not reconsider, modify, correct[,] or reverse its final decision, this court and the ASBCA have jurisdiction under the Contract Disputes Act, 41 U.S.C. §§ 605–10 (1982), to review the contracting officer’s default termination of Murdock’s modified contract.”).

[87] FAR 50.101-2(a).

[88] FAR 50.101-2(c) (emphasis added).

[89] See, e.g., Automated Power Sys., Inc., 1993 WL 765651, at 4 (T.C.A.B. Nov. 22, 1993) (“Relief is given, not because the recipient is legally entitled to it[ ]; but because the United States will receive some benefit.   Actions under 50 U.S.C. §§ 1431-1435 are not subject to the Contract Disputes Act, and Contract Disputes Act procedures are not followed; there is no legal right to a trial, to discovery, or to relief.”).

[90] See, e.g., Sw Marine, Inc., 1993 WL 765650, at 3 (T.C.A.B. Dec. 1, 1993) (“The Board therefore determines that, notwithstanding the existence of relief under the Contract Disputes Act, relief may be granted under 50 U.S.C. §§ 1431-1435.   However, it is yet to be demonstrated in this case that relief cannot be obtained through the Contract Disputes Act in a sufficiently timely manner to avoid harm to the national defense, notwithstanding diligent prosecution of such claims by Southwest Marine.”).

[91] See GSAR 552.216-70(c).

[92] See GSAR 552.216-70(b)(2).

[93] See GSAR 552.216-70(b)(1).

[94] See GSAR 552.216-70(e)(3).

[95] GSAR 552.216-71(b).

[96] See id.

[97] See id.

[98] GSAR 552.216-71(e).

[99] I-FSS-969(a)-(b).

[100] I-FSS-969(b)-(c).

[101] I-FSS-969(b) and (d).

[102] I-FSS-969(f).

[103] See SPE Jeffrey Koses, Ass’t Commissioner Mark Lee, Temporary Moratorium on Enforcement of Certain Limitations Contained in Certain GSA Economic Price Adjustment (EPA) Contract Clauses, Acquisition Letter MV-22-02 (March 17, 2022), available at

[104] See id.

[105] See SPE Jeffrey Koses, Ass’t Commissioner Mark Lee, Supp. 1 – Temporary Moratorium on Enforcement of Certain Limitations Contained in Certain GSA Economic Price Adjustment (EPA) Contract Clauses, Acquisition Letter MV-22-02 Supplement 1 (Sept. 12, 2022), available at

[106] See id.

[107] Id.

[108] See SPE Jeffrey Koses, Guidance on Addressing Inflation in GSA Contracts, Acquisition Alert MV-22-02 (Sept. 12, 2022), available at

[109] Id.

[110] See id.

[111] Id.

[112] Raytheon Co. v. White, 305 F.3d 1354, 1367 (Fed. Cir. 2002) (quoting Restatement (Second) of Contracts § 261, cmt. d (1981)).

[113] FAR 16.202-1.

[114] Seaboard Lumber Co. v. United States, 308 F.3d 1283, 1294 (Fed. Cir. 2002).

[115] See U.S. Aeroteam, Inc. v. United States, 2022 WL 2431626, at 5 (Fed. Cir. July 5, 2022) (quoting Seaboard Lumber Co., 308 F.3d at 1295).

[116] Coryanne Hicks, edited and fact-checked by Benjamin Curry, Hyperinflation: When Inflation Goes Wild, (July 19, 2022), available at

[117] ENGBCA Nos. 5796 and 5891, 94-1 BCA ¶ 26,472 (Oct. 29, 1993).

[118] See FAR Clause 52.232-7(b)(2)-(4) (Payments under Time-and-Materials and Labor-Hour Contracts (NOV 2011)) (cost of commercial products/services recoverable according to the contractor’s established pricing (as modified), and the cost of other materials recoverable in accordance with FAR Clause 52.216-7 (Allowable Cost and Payment (AUG 2018)) and FAR Subpart 31.2 cost principles).

[119] See FAR 16.601(c)(2) (“The contract shall specify separate fixed hourly rates that include wages, overhead, general and administrative expenses, and profit for each category of labor[.]”).

[120] FAR 16.201(b) and 16.600.

[121] FAR 16.601(c).

[122] FAR 16.602.

[123] FAR 16.601(c) and 12.207(b)(2)(ii); see also DFARS 216.601(d)(i)(B(2) (to create a T&M/labor-hour contract, a D&F must first be created that “[e]stablish[es] that it is not possible at the time of placing the contract or order to accurately estimate the extent or duration of the work or to anticipate costs with any reasonable degree of certainty[.]”).

[124] FAR 16.601(c).

[125] Raytheon Co., supra.

[126] Metcalf Constr. Co., Inc. v. United States, 742 F.3d 984, 991 (Fed. Cir. 2014).

[127] Precision Pine & Timber, Inc. v. United States, 596 F.3d 817, 820 n.1 (Fed. Cir. 2010).

[128] SEB Eng’g, Inc., ASBCA No. 39728, 94-2 BCA ¶ 26,810 (Mar. 24, 1994).

[129] See, e.g., CRF, a Joint Venture of CEMCO, Inc., ASBCA No. 18748, 76-2 BCA ¶ 12,129 (Mar. 31, 1981) (“The Government’s lack of cooperation with appellant not only delayed performance of the prime contract by appellant for three months but had the additional effect of compelling appellant to complete the modulator-synthesizer work through a subcontractor of the Government’s selection.   The Government’s action constituted a constructive change order entitling appellant to an equitable adjustment in the contract price.”).

[130] See, e.g., Linda Newman Constr. Co., Inc., VABCA No. 6307, 00-2 BCA ¶ 31,027 (July 26, 2000) (VA construction contractor appealed a claim of $109,740.92 based on labor and material costs that increased while the Government delayed over a year between obtaining the contractor’s bid and awarding the contract and issuing a notice to proceed).

[131] FAR 42.1305(c).

[132] FAR 52.242-17(a).

[133] Am. Ordnance LLC, ASBCA No. 54718, 10-1 BCA ¶ 34,386 (Feb. 17, 2010).

[134] 182 Ct. Cl. 615, 619 (1968).

[135] Id.

[136] Andrea Shala-Esa, Boeing, General Dynamics reach $400 million A-12 settlement with U.S. Navy, (Jan. 23, 2014), available at

[137] 182 Ct. Cl. at 617-18.

[138] See id. at 622.

[139] See id. at 617-18.

[140] See id. at 628-29.

[141] See Chugach Fed. Solutions, Inc., ASBCA No. 61320, 20-1 BCA ¶ 37,617 (May 27, 2020); see also id. at 19-1 BCA ¶ 37,380 (May 16, 2019) (“Chugach’s negligent negotiations claim is actually, for all intents and purposes, really just an element of its superior knowledge claims that is not subject to the Navy’s motion to dismiss.”); LaBarge Products v. West, 46 F.3d 1547, 1552 (Fed. Cir. 1995) (“In cases in which a breach of law is inherent in the writing of the contract, reformation is available despite the contractor’s initial adherence to the contract provision later shown to be illegal.”); Defense Sys. Co., Inc., ASBCA No. 50918, 01-1 ¶ BCA 31,152 (Oct. 30, 2000) (“Where the Government has failed to follow or violated regulations prescribed for the benefit of the contractor, as in this case, the Federal Circuit and the Court of Claims have authorized reformation as a remedy in some circumstances. . . . Reformation, however, cannot supply an agreement that the parties never struck or would have struck. The contract can only be reformed to conform to the parties’ agreement or intention.”); Safeguard Base Ops., LLC v. United States, 989 F.3d 1326, 1332 (Fed. Cir. 2021) (“[W]e also address a question of first impression—whether the Claims Court has jurisdiction over a claim that the Government breached an implied-in-fact contract to fairly and honestly consider an offeror’s proposal in the procurement context. That question has received conflicting answers from different Claims Court judges. We address it and conclude that the Claims Court has such jurisdiction under 28 U.S.C. § 1491(b)(1), making the issue reviewable under the Administrative Procedure Act (‘APA’).”).

[142] See, e.g., Onsite Health, Inc., B-408032 et al., 2013 CPD ¶ 138, at 6 (May 30, 2013) (“When an agency engages in discussions with an offeror, the discussions must be ‘meaningful,’ that is, sufficiently detailed so as to lead an offeror into the areas of its proposal requiring amplification or revision in a manner to materially enhance the offeror’s potential for receiving award.”).

[143] 182 Ct. Cl. at 617-18.

[144] See FAR 52.217-9(a).

[145] See id.

[146] See also Space-Age Eng’g, Inc., ASBCA No. 22901, 78-2 BCA ¶ 13,543 (Oct. 26, 1978).

[147] FAR 17.207(a).

[148] Chemical Tech., Inc., ASBCA No. 21863, 80-2 BCA ¶ 14,728 (Sept. 25, 1980) (quoting General Dynamics Corp., ASBCA No. 20882, 77-1 BCA ¶ 12,504 (Apr. 13, 1977)).

[149] Id.

[150] Lockheed Martin Corp., ASBCA No. 45719, 00-2 BCA ¶ 31,025 (July 12, 200).

[151] See FAR 16.205.

[152] The FAR also includes a contract type called a “fixed-ceiling-price contract with retroactive price redetermination.”   FAR 16.206.   However, the FAR makes clear that “[a] fixed-ceiling-price contract with retroactive price redetermination is appropriate for research and development contracts estimated at the simplified acquisition threshold or less when it is established at the outset that a fair and reasonable firm fixed price cannot be negotiated and that the amount involved and short performance period make the use of any other fixed-price contract type impracticable.”   Id.

[153] See FAR 16.205-1.

[154] Id.

[155] Id.

[156] Defense Acquisition University (“DAU”) Contract Pricing Reference Guide (“CPRG”), Vol. 4, Advanced Issues, at 39 (Jan. 2021), available at

[157] FAR 16.205-2(b); see also FAR 52.216-5(a)(2) (Price Redetermination-Prospective (JAN 2022)).

[158] FAR 16.205-2 (emphasis added).

[159] FAR 52.216-5(d).

[160] FAR 15.304(a)(1)(iii).

[161] Tasei Rotec Corp., ASBCA No. 50669, 02-1 BCA ¶ 31.739 (Jan. 30, 2002) (quoting Black’s Law Dictinary 33 (6th ed. 1990)).

[162] Generally speaking, a Sovereign Act means that the Government is performing a public and general act not designed to modify or impair a particular contract or contracts (e.g., the Government acting as a lawmaker or regulator).   When the Government acts in its public and general sovereign capacity, and that happens to incidentally impact contract performance, the Government is protected from liability under the Sovereign Acts Doctrine.   See, e.g., Yankee Atomic Electr. Co. v. United States, 112 F.3d 1569, 1574 (Fed. Cir. 1997).

[163] See Craft Machine Works, Inc., ASBCA No. 47227, 97-1 BCA ¶ 28,651 (Nov. 26, 1996) (“[Contractor] has the burden of proving that the claimed compensable delay was solely due to Government-responsible causes, was not concurrent with contractor-responsible or excusable delay, and delayed the overall completion of the contract.”).

[164] Seaboard Lumber Co. v. United States, 308 F.3d 1283, 1293 (Fed. Cir. 2002) (quoting N. Ind. Pub. Serv. Co. v. Carbon Cnty. Coal Co., 799 F.2d 265, 275 (7th Cir. 1986)).

[165] See Manke Lumber Co. v. United States, 44 Fed. Cl. 219, 226 (1999) (“Plaintiff reasons that the government’s own actions during the early 80’s caused interest rates to rise, reversing the upward trend of inflation, and thereby disrupted the market for timber.   Plaintiff regards this government action as a force majeure as contemplated by clause B8.21(a).   Accordingly, plaintiff believes it was entitled to an extension of time in which to perform the contract, essentially until the market was restored to its earlier vigor.   The court has already rejected this argument . . .”); see also B.F. Goodrich Co. v. Vinyltech Corp., 711 F. Supp. 1513, 1529 (D. Ariz. 1989) (“[T]he Court is satisfied that other federal courts have interpreted substantially the same force majeure clause at issue in this case as not extending to severe price fluctuations and/or changes in market conditions.”); United Sugars Corp. v. U.S. Sugar Co., Inc., 2015 WL 1529861, at 4 (D. Minn. Apr. 2, 2015) (“The contracts at issue do not expressly include market fluctuations as a basis for avoiding performance.   As a result, the force majeure clause does not excuse U.S. Sugar from performing.”).

[166] Seaboard Lumber Co., 308 F.3d at 1293 (“We find no case in this court or its predecessor holding that the phrase ‘acts of Government’ in a force majeure clause is so broad as to include government fiscal or monetary policy decisions.”).

[167] Lakeshore Eng’g Servs., Inc. v. United States, 748 F.3d 1341, 1350 (Fed. Cir. 2014) (fixed-price contractor bore the risk for relying on Army-provided pricing book because the Army did not warrant that the price book was accurate, and the contractor had freedom to develop its own pricing coefficients).

[168] See id; but see Nat’l Presto Indus., Inc. v. United States, 167 Ct. Cl. 749 (1964), cert. denied., 380 U.S. 962 (1965) (fixed price contractor did not bear the risk of a mutual mistake of a new production method suggested by the Government).

[169] See Atlas Corp. v. United States, 895 F.2d 745, 750 (Fed. Cir. 1990), cert. denied, 498 U.S. 811 (1990) (emphasis added).

[170] See also So. Dredging Co., Inc., ENGBCA No. 5843, 92-2 BCA ¶ 24,886 (Feb. 21, 1992) (“[A] mistake supporting contract reformation does not occur based on the parties’ inability to predict the future, or their errors in judgment in this regard, as distinguished from a mistake regarding existing facts on which their bargain is based.   Mistake in the context of contract reformation does not encompass the parties’ predictions or judgments concerning future events.”).

[171] Id.

[172] See William Cramp & Sons Ship & Eng. Bldg. Co. v. United States, 46 Ct. Cl. 521, 536 (1911) (“[N]or can the contract be reformed on the ground of mistake arising from ignorance of the law[.]”).

[173] Beta Sys., Inc. v. United States, 838 F.2d 1179, 1184 (Fed. Cir. 1988).

[174] See id. at 184-86

[175] See id.

[176] See id.

[177] See id. at 180 and 184-86.

[178] Id. at 185.

[179] Id. at 186.

[180] Holmes & Narver Constrs., Inc., ASBCA No. 52429, 02-1 BCA ¶ 31,849 (May 15, 2002).

[181] See T. Musgrove Constr. Co, Inc. v. Young, 298 Va. 480, 485-86 (2020) (quoting Mongold v. Woods, 278 Va. 196, 203 (2009) and Rea’s Adm’x v. Trotter, 67 Va. 585, 592 (1875)) (Under quantum meruit, “service is performed by one, at the instance and request of another, and . . . nothing is said between the parties as to compensation for such service, the law implies a contract, that the party who performs the service shall be paid a reasonable compensation therefor.’ . . . The measure of recovery for quantum meruit for a contract implied in fact is the reasonable value of the services provided.   [ ]   The measure of recovery for unjust enrichment is limited to the benefit realized and retained by the defendant.   [ ]   The measure of damages is thus not necessarily the same. . . . When the defendant has not requested the plaintiff’s services, a plaintiff’s claim is for unjust enrichment.” (internal citations omitted)); Morris v. Taylor Commc’ns Secure & Customer Solutions, Inc., 513 F. Supp. 3d 694, 703 (W.D. Va. 2021) (“Supreme Court of Virginia has enumerated four scenarios that give rise to a colorable quantum meruit claim: (1) the parties contract for work to be done, but the parties did not agree on a price, (2) the compensation mentioned is too indefinite, (3) there is a misunderstanding as to the price to be paid, or, (4) in some instances, the contract is void and of no effect.”); Lindquist Ford, Inc. v. Middleton Motors, Inc., 557 F.3d 469, 480 (7th Cir. 2009) (“Wisconsin Supreme Court distinguishes quantum meruit/contracts implied by law from unjust enrichment, where there is no implied contract at all. . . . This distinction makes sense because there need not be any prior relationship between the plaintiff and defendant for recovery under an unjust-enrichment claim.   (Suppose, for example, the plaintiff mistakenly builds a house on the wrong plot of land resulting in a windfall for the defendant, who advantageously happens to own that plot of land.)”); Figueroa v. Point Park Univ., 553 F. Supp. 3d 259, 275 (W.D. Pa. 2021) (“A right of recovery under the doctrine of unjust enrichment is essentially equitable, its basis being that in a given situation it is contrary to equity for one to retain a benefit which has come to him at the expense of another.”).

[182] See T. Musgrove Constr. Co, Inc., supra.

[183] See id.

[184] See Urban Data Sys., Inc. v. United States, 699 F.2d 1147, 1154 n.8 (Fed. Cir. 1983).

[185] Nematollahi v. United States, 38 Fed. Cl. 224, 235 (1997).

[186] Id.

[187] Energroup, Inc., EBCA No. 413-5-88, 89-1 BCA ¶ 21,233 (Aug. 15, 1998).

[188] Nematollahi, 38 Fed. Cl. at 235.

[189] But see 31 U.S.C. § 1342 (“safety of human life or the protection of property” exceptions to the Anti-Deficiency Act prohibition on the Government accepting voluntary services).

[190] See Tribal Emp’t Rights v. United States, 112 Fed. Cl. at 252-53 (quoting Gould, Inc. v. United States, 67 F.3d 925, 930 (Fed. Cir. 1995) (emphasis in original)).

[191] N.H. Flight Procurement, LLC v. United States, 118 Fed. Cl. 203, 236 (2014) (emphasis in original).

[192] United Pac. Ins. Co. v. United States, 464 F.3d 1325, 1329 (Fed. Cir. 2006) (quoting Black’s Law Dictionary 1276 (8th ed. 2004)) (“Quantum meruit is ‘[a] claim or right of action for the reasonable value of services rendered.’ ”).

[193] See, e.g., Mohawk Data Sci. Corp., B-232357, 1989 WL 237578, at 3 (Oct. 10, 1989) (“The principles of quantum meruit and quantum valebant exist to provide an equitable basis upon which to make a payment where, through administrative error, no express contract was created.   In keeping with the equitable basis for such payments, the amount to be paid is usually determined by reference to the fair or reasonable value of the benefits received.   We can think of no more appropriate method by which to determine the reasonable value of a particular good or service than to refer to the prices which emerge from a competitive procurement for the same item or type of items[.]”).

[194] T. Musgrove Constr. Co, Inc., supra (internal citations omitted); Nematollahi, 38 Fed. Cl. at 235 (“To establish a claim for unjust enrichment, a plaintiff must demonstrate that a benefit was conferred upon, and appreciated by, the adverse party[,] and that it would be inequitable for the adverse party to retain the benefit without payment of its value to the plaintiff.”).

[195] See Indus. Tectonics Bearings Corp. v. United States, 44 Fed. Cl. 115, 120 (1999) (the proper valuation of inventory was fair value, which meant fair market value).