An Economic Price Adjustment (EPA) clause in a contract allows for adjustment of contract price if certain conditions are met.

The Department of Defense (DoD) often uses an EPA clause in contracts where there is an increased risk that the costs of inputs used by the contractor will diverge from the forecasts used in the original pricing of the contract.

EPA clauses transfer risk from the contractor to the government; thus, they are of economic value to the contractor.

This article reviews EPA clauses, analyzes the value of risk transfer, and discusses how DoD could account for this value in negotiating fees for contracts that contain EPA clauses.  Other government costs and risks associated with EPA clauses are also discussed.

This excerpt is from an article published in the July 2013 edition of the Defense Acquisition Research Journal.  Keep reading this article at: http://www.dau.mil/publications/DefenseARJ/ARJ/ARJ66/ARJ_66-Arnold.pdf