Fixed-Price with Economic Price Adjustment (FP-EPA)
What It Is
A fixed-price contract with economic price adjustment (FP-EPA) is a firm-fixed-price contract with a built-in, defined mechanism to revise the price when certain costs change. The adjustment is not open-ended bargaining: it follows a stated contingency — published commodity indices, the contractor's actual labor or material cost, or established prices — and can move the price both up and down. It is used when there is serious doubt about the stability of labor or material costs over the performance period but the rest of the requirement is firm.
Who Carries the Risk
Mostly on the contractor, but the named cost contingency (e.g. a steel index or labor escalation) is shared via the adjustment formula rather than absorbed entirely.
When the Government Uses It
- Multi-year efforts where labor or commodity prices could swing significantly over the period of performance.
- Buys exposed to volatile material costs (fuel, metals, lumber) where a pure FFP would force contractors to pad bids for risk.
- When the contracting officer wants firm pricing but a controlled way to handle a specific, identifiable cost uncertainty.
Key Features
| Feature | What It Means |
|---|---|
| Adjustment trigger | A defined contingency — adjustments based on established prices, actual cost of labor/material, or cost indices of labor/material (the three FAR 16.203 forms). |
| Direction | The price can go up or down. EPA is a two-way street, not just an escalation clause in the contractor's favor. |
| Ceiling | Adjustments are typically capped, and the clause states what triggers them, so neither side is exposed to unlimited movement. |
| Documentation | You must substantiate the cost movement (indices, invoices) to claim an adjustment — keep clean records of the covered costs. |
What It Means for an SDVOSB
For a small business, an EPA clause is a hedge: it lets you bid a tighter price on a long contract without padding for commodity risk you cannot control. The trade-off is administrative — you have to track and substantiate the covered costs to claim an upward adjustment, and the government can adjust downward too. The contract amount used for the limitations on subcontracting is still the price you are paid, so EPA does not change your self-performance math under 13 CFR 125.6.
Common Pitfalls
- Assuming EPA covers all your cost growth — it only covers the specific labor or material contingency named in the clause.
- Failing to keep the documentation (indices, invoices) needed to substantiate an upward adjustment and missing the window to claim it.
- Forgetting the adjustment runs both ways — a falling index can lower your price.
Run the Numbers
Frequently Asked
When would a set-aside use FP-EPA instead of firm-fixed-price?
When the requirement is firm but there is real doubt about the stability of labor or material costs over the performance period — for example, a multi-year supply contract exposed to volatile commodity prices. FAR 16.203 lets the contracting officer add a defined adjustment so contractors do not have to pad their fixed price for risk they cannot control.
Does an economic price adjustment only increase the price?
No. EPA adjustments move in both directions. If the covered index or cost falls, the contract price can be adjusted downward. The clause defines the trigger, the formula, and any ceiling, and you must substantiate the cost movement to claim an upward adjustment.
Primary Sources
Plain-English reference, not legal advice. Contract-type selection is a contracting-officer judgment and the FAR is periodically amended — always confirm the contract type, clauses, and how the limitations on subcontracting are measured against the solicitation and your contracting officer before relying on this.
Change log (1)
- LaunchedPublished the federal contract types reference covering the pricing and delivery arrangements an SDVOSB encounters on set-asides — firm-fixed-price (FFP), fixed-price with economic price adjustment (FP-EPA), fixed-price incentive (FPIF), the cost-reimbursement family (CPFF, CPIF, CPAF), time-and-materials and labor-hour, the indefinite-delivery vehicles (IDIQ, requirements, definite-quantity), and letter contracts — each with a who-carries-the-risk callout, a key-features table, an SDVOSB-specific angle tying the type to the limitations on subcontracting, common pitfalls, FAQPage, Article, Dataset, and BreadcrumbList structured data, primary-source FAR Part 16 citations, and cross-links into the glossary, regulation explainers, how-to guides, FAQ, and the limitations-on-subcontracting and price-to-win calculators.