Understanding Economic Price Adjustments.docx

WHAT IS AN ECONOMIC PRICE ADJUSTEMENT (EPA)

Per section B.4 of the solicitation either party (the contractor or the Embassy) can request an economic price adjustment. There are two types of adjustments:

· It can be made based on an enacted law during the term of the contract;

· Or claims paid out vs anticipated claims paid out

The result of the EPA is that the premium price can go either up or down.

The “retention amount,” stated as a fixed bi-weekly rate in B.3 and not as a percentage or a yearly amount, includes the contractor’s cost of doing/conducting business, for example labor costs, rent, utilities, supplies and profit. The retention amounts proposed by the contractor are fixed for the duration of the contract, but they do not have to be constant from contract term to contract term (base year and option years). The retention amount does not include the anticipated claims to be paid out.

The bi-weekly rates/premiums in the pricing tables include both the retention amount and the anticipated claims to be paid out and can be adjusted (either upward or downward) based on either claims paid out or a change in the local law in accordance with B.4.

EXAMPLE OF AN ECONOMIC PRICE ADJUSTEMENT (EPA) CALCULATION

Contractor is requesting an EPA based on claims paid out of S11, 450. The Contractor must provide documentation supporting the claims paid out amount.

1 – The Contracting Officer will confirm that the claims paid out amount is correct based on the monthly reports required by the contractor in H.5.

2 – Confirm premiums paid – using the following hypothetical quantities and premiums:

15 single employees x 5 bi-weekly premium x 26 pay periods = 1,950 45 Family plans x 15 bi-weekly premium x 26 pay periods = 17,550 Total premiums paid during one term of the contract = 19,500

3 – Retention amount calculation:

15 single employees x 2 retention amount x 26 pay periods = 780 45 Family plans x 8 retention amount x 26 pay periods = 9,360 Total retention amount = 10,140 Amount available for claims = FCFA 9,360 (19,500 total premiums paid – 10,140 total retention amount)

Based on the above example the following would be the adjustment:

11,450 claims paid out

– 9,360 amount available for claims 2,090 2,090/60 total number of insurance plans (15 singles + 45 families) = 34 34/26 pay periods = 1.34 per pay period New justifiable premium rates = Employee/Self Only

– Offered bi-weekly premium price – 5 + 1.34 = 6.34 Family Plan

– Offered bi-weekly premium price – 15 + 1.34 = 16.34