Over the past year, the U.S. Government has taken numerous steps to provide relief to Department of Defense (DoD) contractors impacted by significant inflation, with each measure more beneficial than the last. Now, with the passage of the National Defense Authorization Act (NDAA), there is a $12.6 billion pool of money specifically earmarked for defense contractors who have or will suffer losses on contracts due solely to inflation.
In May 2022, the DoD issued guidance encouraging contracting officers to incorporate economic price adjustment (EPA) clauses into contracts to equitably balance the risk of inflation between the contractor and the Government. However, for contracts that did not include an EPA clause, the DoD stated that "there is no authority for providing contractual relief for unanticipated inflation under an [firm fixed price] contract." Thus, the guidance provided no relief on contracts that did not include an EPA clause.
In September 2022, the DoD issued further guidance advising contracting officers that the DoD will consider contractor requests for upward price adjustments due to extraordinary economic conditions pursuant to Public Law 85-504. However, relief under Public Law 85-504 is only available "to the extent necessary to avoid such impairment to the contractor's productive ability," and where "other legal authority . . . is deemed to be lacking or inadequate," setting a high bar for relief.
Finally, the hope of true, less restrictive relief was granted to DoD contractors with the passage of the NDAA. Section 822 of the NDAA amended Public Law 85-504 to permit the DoD to "make an amendment or modification to an eligible contract when, due solely to economic inflation, the cost to a prime contractor of performing such eligible contract is greater than the price of such eligible contract." This would appear to grant significant discretion to the DoD in determining when to grant contractors relief. Guidance on eligibility requirements and additional detail for requesting adjustments pursuant to Section 822 is expected but has yet to be issued by the DoD.
Note that DoD contractors must act quickly to take advantage of the relief being offered through the NDAA, as it is set to expire at the end of 2023.
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