Authors: Scot Arnold, Bruce Harmon, Susan Rose, and John Whitley
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.
Authors: Ginny Wydler, Su Chang, and Erin M. Schultz
Research shows that continuing competitive pressure applied during development and production leads to better industry performance, often at reduced cost. However, the entrenched practice of one-time competition for an entire program life cycle often endows the winner with a very strong monopolistic power that lasts for decades. This article describes continuous competition as leverage to acquire more effective results. It offers an alternative method for continuous competition—Competitive Multisourcing with Distributed Awards—under an applicable set of conditions and an appropriate business case.