Glossary
Economic price adjustment (EPA)
Economic price adjustment is the US federal government's term for a price escalation clause in a fixed-price contract. The Federal Acquisition Regulation defines three standard EPA clauses at FAR 52.216-2, -3, and -4.
Also called: EPA clause, FAR 52.216, economic price adjustment clause.
An EPA clause lets a fixed-price government contract move with labor or
material cost changes without being converted to a cost-reimbursement
contract. FAR 52.216-2 covers standard commercial supplies and caps the
aggregate increase on any unit price at 10 percent. FAR 52.216-3 covers
semistandard supplies. FAR 52.216-4 covers labor and material and
requires the contractor to notify the contracting officer of a rate or
price change, up or down, within 60 days.
EPA clauses are generally used only when the contract exceeds the
simplified acquisition threshold and performance runs beyond six months.
Commercial contracts are not bound by FAR wording, but the same building
blocks apply: a named index, a base period, a
cap, and a notice rule.
See the retroactive vs prospective explainer.
Related terms
The Employment Cost Index measures the change in employer labor cost, wages plus benefits, holding the mix of jobs fixed. Labor-heavy service and construction contracts use it to escalate the workforce portion of a price without re-pricing the whole contract.
An escalation clause (also called a price escalation clause or price adjustment mechanism) is contract language that adjusts a price up or down over time using a named index, a formula, and a schedule, so neither party carries the full risk of cost changes between signing and delivery.
The escalation factor is the multiplier a clause produces by dividing the current index value by the base index value. A factor of 1.10 means a 10 percent increase; it is applied to the covered portion of the price, not always the whole contract.
A not-seasonally-adjusted index reports the actual measured price change, including regular seasonal swings. Price escalation clauses use NSA data because the seasonally adjusted version is a modelled estimate that agencies revise and that two parties cannot independently reproduce.
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