Amendment 0009 - Seventh Answered Questions from Vendors.docx

More Answered Questions (seventh group) from Vendors – 12/12/2022

1. Paragraph (a): “The Contractor shall notify the Contracting Officer if, at any time during contract performance, the rate of pay for labor (including fringe benefits) or the unit prices for material shown in the Schedule either increase or decrease.”

Manufacturing and production costs in general are not static. Our labor rates change annually as part of standard costing updates. Our material pricing is updated quarterly, and prices for raw materials such as resin fluctuate daily. The way paragraph (a) is worded indicates the Government requires the Contractor to send notification for all changes in labor rates and pricing of materials, regardless of whether it impacts the Contractor’s product pricing or desire to seek a pricing adjustment. Could you please clarify the intent of this paragraph and its requirements?

Contractors should notify the Contracting Officer if the change in material costs to the Contractor are substantial enough that a change in contract price is requested, not otherwise (see 3% rule below).

2. Paragraph (c)(3): “There shall be no adjustment for any change in rates of pay for labor (including fringe benefits) or unit prices for material which would not result in a net change of at least 3 percent of the then-current total contract price.”

Is the 3% in aggregate for both labor rates and material prices, or are these independent of each other? For example, if labor increases 2.9%, and material prices increase 2.9%, the aggregate increase would be 5.8%, and from the Contractor’s perspective, could possibly warrant a discussion on product pricing.

The 3% change rule refers to a potential change in the total price of the contract established between the Government and the Contractor. This means that a material price change to the Contractor, for example, must be substantial enough that the total resultant cost change of the contract (or the base year or current option year of the contract) would be at least 3% in order to consider a change to the prices. Smaller price changes would not be considered substantial enough to change the prices initially set out in the contract.

3. Paragraph (c)(4): “The aggregate of the increases in any contract unit price made under this clause shall not exceed 10 percent of the original unit price.”

Is the original unit price referred to in this paragraph based on the then-current contract year, or the base contract year?

Per the Federal Reserve Bank of St. Louis, the annual PPI increase as of 11/1/2022 was 4.2%. Should this trend continue through all four option years of the contract, the total increase would be 16.8%. If the 10% cap is calculated using the base contract year as the basis, would the Government consider issuing amendments to address the percentage gap?

This means that the any future price adjustments to the contract unit prices under FAR 52.216-4, Economic Price Adjustment-Labor and Material cannot exceed 10% of the prices set out originally for each of the four option years and the base year. This does not pertain to the prices originally established by the contract. Those can increase from the base year to option year four, for example, by as much as the Contractor lays out in his/her quotation.

4. Should I still quote option years? Is the 10% increase per year or for the life of the contract?

Please submit a quotation if you would like. The Contractor can establish any unit price he/she sees fit for each of the five years. The 10% rule does not apply to these increases across option years, as originally established by the contract. The 10% rule means that any one unit price as established either by the base year or by option years cannot be increased by more than 10% afterwards, as specified by FAR 52.216-4, Economic Price Adjustment-Labor and Material.