B08 EPA Clause for Section H.docx

This clause is in place to account for contract price adjustments in the event of changes in the contractor’s established prices.

a. Given the current unstable rates of inflation and this contract’s long potential ordering period, this contract provides for a prospective Economic Price Adjustment (EPA). The applicable index for this contract’s EPA is Producer Price Index (PPI) Group Code 11, Item 73 (motors, generators, motor generator sets), published by U.S. Department of Labor Bureau of Labor Statistics in its publication, PPI Detailed Report. The EPA will utilize the most recently published PPI index (even if preliminary or interim) as of the date of the adjustment request. The EPA shall apply only to direct material costs on supply CLINs and will not apply to changes in labor rates, travel costs, training expenses, data deliverable CLINs or any other indirect or direct cost. The below CLINS are applicable to any newly agreed-upon EPA Clause prices: all supply CLINS in the One 4-Year Optional Ordering Period (Years 2-5). Adjustable CLINS include only: CLINS 1001 through 1007; 1009 through 1024; 2001 through 2007; 2009 through 2024; 3001 through 3007; 3009 through 3024; 4001 through 4007; 4009 through 4024.

b. Either party may invoke an EPA sixty (60) calendar days prior to the date the 1-year base period expires. Any adjustments shall be placed on a bilateral agreed-upon modification and will be applied to the one 4-Year optional ordering period that may be exercised. Either party may initiate an EPA, but neither party is obligated to do so. Failure to initiate an EPA within the applicable 60-day period shall constitute waiver of the right to an EPA.

c. To initiate an EPA, the requesting party must provide written notice to the other party. This notice shall include the requesting party’s proposed adjustments to the contract’s unit range prices for the applicable ordering period, and shall include supporting data explaining the calculations used to calculate the increase or decrease to which the requesting party asserts it is entitled. The Contracting Officer may require the Contractor to provide this data in a certain format. The request and supporting documents are, together, referred to as the adjustment proposal.

d. The requesting party must provide the written notice within the applicable 60-day period. The party receiving the adjustment proposal has thirty (30) calendar days to respond, in writing, with its concurrence or non-concurrence. In the case of non-concurrence (which may only be based on a miscalculation or other mathematical error or the use of the wrong index, or a combination of thereof), the non-concurring party shall promptly provide its detailed explanation for non-concurrence and any alternative calculations the non-concurring party proposes should be used. The parties shall work expeditiously to resolve any disagreements. Failure to resolve any disagreements will be treated as a dispute under the Disputes clause. The Contractor shall continue performance pending agreement on, or determination of, any adjustment and its effective date.

e. Subject to the limitations discussed below, the upward or downward EPA will be calculated by the dividing the unadjusted index value which corresponds with the month most closely associated with the price adjustment by the unadjusted index value for the PPI report closest in time to contract award date. For example, if an award were made in December of 2025, and the nearest PPI report release is for January 2024, that PPI report would be used to establish the base unadjusted index pricing at the start of the contract using the December base unadjusted index listed in that PPI Report. As the request is required sixty (60) days before the end of the base period, (October 2030 if award is December 2025), then the most recent PPI report to that date would be used to be as close to the option period start date as possible. The unadjusted index pricing will be used.

If initiated, the percentage change shall be calculated for the optional ordering period (Year One) that may be exercised by the Government, then the remaining option year pricing (Year two through five) are then escalated by the simple contract escalation of 2%.

If initiated, the percentage change shall be calculated for the optional ordering period (Year One) that may be exercised by the Government, then the remaining option year pricing (Year two through five) are then escalated by the simple contract escalation of 2%.

f. The EPA under this contract is subject to the following limitations, regardless of which party requests it:

(1) The EPA shall only apply to supplies that are ordered on or after the effective date of the EPA bilateral modification as per Paragraph b. above. The prices for supplies ordered prior to the effective date of the EPA bilateral modification shall remain fixed at the established prices at award. The Contractor shall continue to perform, at the awarded and established prices during any discussions or disputes relating to any outstanding EPAs.

(2) The contract contains an escalation rate of 2% for each year of any exercised optional ordering period. Neither party may request an EPA unless the EPA calculation would result in an increase or decrease of more than 2% in the contract prices in use for the applicable optional ordering period. The initiation of an EPA does not obligate the Government to order any items beyond the minimum guarantee and the Government may forgo exercising the optional ordering period or ordering additional items within the optional ordering period if the EPA results in an escalation of prices beyond the availability of contract funds. NOTE: the aggregate of any increase shall not exceed a 9% change from the awarded total contract pricing; the percentage of decrease that may be made has no limitation for the percentage of change.

(3) Examples: If the contract pricing includes a 3% escalation and the selected Producer Price Index (PPI) reflects only 1.5% inflation between the contract awarded prices in the last base production ordering year and the time of the EPA, there would be no change to the contract prices (because the PPI does not reflect a change of 2% or higher magnitude over the contract escalation rate). If the contract pricing includes a 3% escalation and the PPI index reflects 7% inflation between the last base production ordering year awarded and the time of the EPA, the contractor would be entitled to a 4% increase in contract prices (because inflation is 4% higher than the contracts escalation rate). Any approved escalation would be applied to the one 5-Year optional ordering period.

(4) For a calculation example – a contract awarded December 2018 would use PPI report for December 2018 (December 2018 PPI Detailed Report (bls.gov), unadjusted December 2018 index pricing of 219.7 (page 23, commodity code 11-73)) as the base index, and either the October or September 2023 PPI unadjusted index depending on if it is published prior to the 60 day notice (October 2023 PPI Detailed Report (bls.gov) October index of 291.956 (page 164, group code 11, item code 73)).

The formula would then be:(291.956/219.7)=132.88% or a total price increase of 32.88%. In comparison to a contract escalation of 3% per year over a 5 year base, an $1800 base year 1 item would be $2,086.63 in the option year, reflecting a 15.9% increase. We then upwards adjust option year pricing, but not higher than the maximum 9% percentage increase (24.9%) or 274.40 for year one of the optional ordering period.

As stated above, after the first Year option is adjusted, the remaining option year pricing (Years two through five) are then escalated by the simple contract escalation of 2%.

(5) The EPA-adjusted prices shall be evidenced by a bilateral modification to this contract, signed by the Contractor and the Contracting Officer, stating the prices that apply after the EPA for all remaining optional ordering periods.

(6) In the event the selected index is discontinued or substantially altered, the parties will proceed to mutually agree on a replacement index. If mutual agreement cannot be reached prior to the commencement of the one EPA initiation period above, the Contracting Officer may unilaterally select a replacement index and determine the aforementioned EPA using that index.

g. The Government reserves the right to initiate a bilateral adjustment to the contract’s overall ordering ceiling, either upwards or downwards one additional time, for the one 5-Year optional ordering period utilizing an EPA in order to maintain the same purchasing power. For example, if the contract’s ceiling (expressed in dollar amounts) allows for the purchase of (ten) 10 Prime Power Distribution Systems (PPDS) units, but then there is a 9% upward price adjustment, the Government may unilaterally (and noncompetitively) increase the ordering ceiling to account for the EPA so that the contract’s ordering ceiling would still allow for the purchase of 10 PPDS units even after the EPA.