DOD’s Updated Guidance Suggests Ways to Manage Inflation-Related Cost Increases Under FFP Contracts

The Department of Defense has released a memorandum to provide updated guidance on approaches that contracting officers can consider to manage cost increases as a result of inflation under existing firm-fixed-price contracts.

The memo states that contracting officials could consider taking schedule relief or amending contract requirements in circumstances where there is a need to address potential impacts on small businesses and other suppliers, DOD said Monday.

Heads of service branches may also take accommodation in the form of Extraordinary Contractual Relief in situations “where contractors have sought or may seek an upward adjustment to the price of an existing firm-fixed-price contract to account for current economic conditions,” the document reads.

The updated guidance signed by John Tenaglia, principal director of defense pricing and contracting at DOD, was issued based on comments from Pentagon’s acquisition officials about the impact of inflation on contractors and their capability to carry out work under FFP contracts.

In May, the department issued a memo to guide contracting officers and companies on how to manage cost increases due to inflation under existing contracts and offer considerations on the use of economic price adjustments when entering into new contracts.

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