A.02.10d Example Alternate Clause Rev1.docx

ECONOMIC PRICE ADJUSTMENT CLAUSE (Example)

(a) The prices of the option CLINs listed in paragraph (b) will be adjusted for abnormal changes in the national economy prior to option exercise. Adjustments will be accomplished using the formulas specified in paragraph (e) of this clause. Adjustments may be downward or upward.

(b) The price adjustment as a result of operation of this clause applies only to specified portions of the cost of the option CLINs listed below. The costs subject to adjustment for each option CLIN, by year in which the costs are expected to be incurred, are shown below:

Table 10: Example EPA Clause: CLIN 1001

Table 11: Example EPA Clause: CLIN 2001

Table 12: Example EPA Clause: CLIN 3001

Table 13: Example EPA Clause: CLIN 4001

(c) For the purposes of this Economic Price Adjustment clause, no adjustments shall be made to the following components of CLIN price. These costs have been excluded from the amounts shown in paragraph (b).

(1) Depreciation of fixed capital equipment and buildings

(2) Royalties

(3) Leases

(4) Fixed Price subcontracts which do not include Economic Price Adjustment clauses

(5) Cost of Money

(6) Profit

(d) For the purpose of calculating the price adjustments as required under this clause, the base index values are as shown in tables (d)(1) and (d)(2), below. These annual forecast values are as published by IHS Markit in 1Q2021. The contractor adopted these forecast values for the contract price.

(1) CEU3133641108: Applicable to labor and related overheads Table 14: Index CEU3133641108

(2) PPI336411: Applicable to material and related overheads Table 15: Index PPI336411 Year

(e) The economic price adjustment will be calculated as follows, using the most current annual IHS Markit's projections for the indices cited in paragraph (d) as of 30 days prior to the latest option exercise date for the applicable CLIN as specified in FAR 52.217-7 in this contract.

This clause incorporates a 2.0% (.02) “trigger band”. If the percentage change between the baseline forecast index value for a given year and the most current annual IHS Markit projections for the indices cited in paragraph (d) as of 30 days prior to the latest option exercise date for the applicable CLIN as specified in FAR 52.217-7 (calculated as described in paragraphs (e)(1)(i) and (e)(1)(ii), below) is between -2.0 and +2.0, no price adjustment will be made.

For purposes of the calculations described in this paragraph (e), round to 4 decimal places, rounding up numbers ≥5 and rounding down numbers ≤4. Round dollars to the nearest whole dollar.

(1) Step 1: Establish whether the percentage change exceeds the trigger band.

(i) Labor and related overheads. Subtract the baseline forecast CEU3133641108 index value shown in paragraph (d)(1) from the most current IHS Markit projection for the CEU3133641108 index as of 30 days prior to the CLIN’s option exercise date specified in 52.217-7, using the same calendar year for both. Divide the difference by the baseline forecast CEU3133641108 index value shown in paragraph (d)(1). If the percentage change is greater than or equal to ± 2.0% (±.02), calculate the adjustment as described in the following paragraphs. If the percentage change is between -2.0% (-.02) and +2.0% (.02), no price adjustment will be accomplished for labor for that year. This same calculation and comparison of the percent change to the trigger band will be accomplished for each year for which costs are shown for the CLIN in the table in paragraph (b).

(ii) Material and related overheads. Subtract the baseline forecast PPI336411 index value shown in paragraph (d)(2) from the most current IHS Markit projection for the PPI336411 index as of 30 days prior to the CLIN’s option exercise date specified in 52.217-7, using the same calendar year for both. Divide the difference by the baseline forecast PPI336411 index value shown in paragraph (d)(2). If the percentage change is greater than or equal to ± 2.0% (±.02), calculate the adjustment as described in the following paragraphs. If the percentage change is between -2.0% (-.02) and +2.0% (.02), no price adjustment will be accomplished for material for that year. This same calculation and comparison of the percent change to the trigger band will be accomplished for each year for which costs are shown for the CLIN in the table in paragraph (b).

Step 2. If the percentage change for the calendar year in question exceeds the 2.0% trigger band for either of the indices listed in paragraph (b) of this clause, the resulting price adjustment related to that index shall be calculated as follows. Accomplish a separate calculation for each year for which paragraph (b) shows costs subject to adjustment for the option CLIN in question, and for which the trigger band is exceeded.

(i) Calculate the difference between the most current IHS Markit projection for the index and the baseline forecast index rate from paragraph (d)(1) (Labor and related overheads).

(ii) Calculate the quotient of the result of paragraph (e)(2)(i) divided by the baseline forecast index rate from paragraph (d)(1).

(iii) Multiply the quotient from paragraph (e)(2)(ii) by the labor and related overheads costs subject to adjustment for the given year as shown in paragraph (b). This result is the adjustment to the Labor and related overheads for the CLIN for that year.

(iv) Calculate the difference between the most current IHS Markit projection for the index and the baseline forecast index rate from paragraph (d)(2) (Material and related overheads).

(v) Calculate the quotient of the result of paragraph (e)(2)(iv) divided by the baseline forecast index rate from paragraph (d)(2).

(vi) Multiply the quotient from paragraph (e)(2)(v) by the material and related overheads costs subject to adjustment for the given year as shown in paragraph (b). This result is the adjustment to the Material and related overheads for the CLIN for that year.

(vii) The total price adjustment for the option CLIN in question will be the sum of the individual adjustments by year for each of the two indices listed in paragraph (d).

Step 3: Propose required economic price adjustments. Not later than 14 days before the CLIN’s option exercise date as specified in 52.217-7, the contractor shall provide the contracting officer with a copy of the most current IHS Markit projections for each of the two indices as of 30 days prior to the option exercise date. The contractor shall calculate the percentage change for each index, using the methodology described in paragraph (e)(1), and shall advise the contracting officer whether the 2.0% trigger band was exceeded for the labor or material indices for any year for which the table in paragraph (b) shows costs for the CLIN. If the trigger band was exceeded for either of the two indices, for any covered year, the contractor shall request a price adjustment (increase or decrease) calculated as described in paragraph (e)(2), above. Upon validation of the contractor’s calculations, if the Government elects to exercise the option, the contracting officer shall issue a modification incorporating the CLIN price adjustment, and the commensurate adjustment to the total contract price, as a result of this Economic Price Adjustment clause, in conjunction with the option exercise.

(f) If IHS Markit discontinues or suspends publication of either of the two indices cited in paragraph (d) of this clause, the parties shall agree upon an appropriate substitute for the discontinued index for purposes of the price adjustment under this clause. In the event that IHS Markit significantly alters the method of calculating one or both of the indices, appropriate adjustment shall be made by the parties to put the contract on a comparable basis with the indices calculated before the change via an agreed to appropriate substitute index. If the parties cannot agree to a substitute or comparable index, the contracting officer shall unilaterally determine an appropriate index within 120 days after an index has been discontinued or altered in method of calculation.

(g) For the purpose of computing adjustments required by this EPA clause, there will be no changes to the CLIN amounts shown in paragraph (b) as a result of modifications to the contract. If this contract is terminated in whole, prior to termination, the contracting officer shall make a price adjustment under this clause for any partial computation period. If the contract is terminated in part, the parties shall agree to equitable adjustments to the costs specified in paragraph (b).

(h) Any dispute arising under this clause shall be resolved subject to the “Disputes” clause of this contract.

(i) Example calculation of the price adjustment described in paragraph (e):

Assume option CLIN 1001’s option exercise date is 30 days in the future. Further assume that the most current IHS Markit annual projections for the two indices cited in paragraph (d) as of 30 days prior to the option exercise date for CLIN 1001 are as follows:

Table 16: Retrospective Example 2 IHS Markit Projections

Step 1: Establish whether the percentage change exceeds the trigger band.

Note that per paragraph (b), CLIN 1001 has costs subject to adjustment in CYs 2023 and 2024.

CEU3133641108, year 2023:

Baseline forecast index = 42.86 Most current IHS annual projection = 43.94 Difference is 43.94 – 42.86 = 1.08 Quotient (rounded to 4 decimal places) is 1.08 (difference) ÷ 42.86 (baseline forecast index) = .0252, or 2.52%

Step 2: Propose required economic price adjustments.

Since the percentage change is greater than 2.0, a price adjustment will be made to the CLIN 1001 labor and related costs subject to adjustment in Year 1 (2023) shown in paragraph (b) of the clause.

Step 3: Calculate the price adjustment.

CEU3133641108, year 2023:

CLIN 1001, CY2023 Labor and related overheads

(i) Most current IHS Global Insight projected index value minus the baseline forecast index value from paragraph (d)(1) is 43.94 – 42.86 = 1.08

(ii) Quotient of the difference divided by the baseline forecast index value from paragraph (d)(1) is 1.08 / 42.86 = .025198, rounded to .0252

(iii) Quotient times CLIN 1001 CY2023 Labor and related overhead dollars (rounded to the nearest whole dollar) is .0252 x $17,341,990 = $437,018

The calculation of the total price adjustment for option CLIN 1001, under the two covered calendar years shown in paragraph (b), for each of the two indices shown in paragraph (d), is presented in the following table.

The trigger band assessment for both indices, for both covered years applicable to option CLIN 1001, as well as the calculation of the total price adjustment for CLIN 1001, is shown in the following table.

CEU3133641108

STEP 1:

STEP 2:

PPI336411

STEP 1:

STEP 2:

Since the percentage change did not exceed the ± 2.0% trigger band for index PPI336411 in CY2024, no adjustment will be made to CLIN 1001 material and related overhead dollars for Year 2024.

In the context of this example calculation, the total adjustment to CLIN 1001 price at option exercise is ($262,734), derived as shown in the below table.