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Can Order Prices Be Escalated by the Task Order?

Question: For multiyear task orders, can order prices be escalated even though there is just one column of prices shown on the contractor’s GSA Advantage!®-posted pricelist, as long as the future (but currently not specified) Schedule contract price is never exceeded?

Answer: Yes.  While this is certainly not something an Ordering Officer is required to do by the FAR or the Schedule contract terms, there is nothing to prevent an Ordering Officer from adding a task order price adjustment provision/clause specifying the method, rate, and timing of any task order price escalation just as long as the Schedule contract rate is never exceeded.

The second part of that typical question usually relates to pricing those orders where the rate and/or timing of contract price escalations is not known in advance.  There could be many reasons why the future contract rate is unknown: it could relate to an unexercised 5-year Schedule contract option or it could depend on how the Schedule contract price is escalated.

There are three principal ways a Schedule contract can be escalated based on two Economic Price Adjustment (EPA) contract clauses: GSAR 552.216-70 (for Commercial Price List escalation, where just one column of pricing is shown at the GSA Advantage!®-posted pricelist) and I-FSS-969 (for (a) fixed annual escalation with five years shown or (b) escalation based upon an external economic indicator with just a single pricing column -- but a method and timing defined with a future indicator-based rate unknown. When you see a pricelist at GSA Advantage!®, you will want to know just how that contract price is escalated.  If you cannot tell from the pricelist (e.g., for a pricelist with multiple columns each for a range of dates, the EPA method is a fixed-annual escalation rate where no Schedule contract modification is required to simply move to the next column), ask the GSA Contracting Officer for that particular Schedule contract.

In CPL-based or external indicator-based escalation, the ordering activity cannot foresee the particular rate and timing of Schedule contract price escalations because those adjustments are based on unknown future events: What will a future wage-driven economic indicator (rate) be?  When will the contractor's CPL change and by how much?  Both require a Schedule contractor to request a Schedule contract modification - - another unknown that cannot be predicted by anybody in GSA or at the ordering activity. Those EPA contract price modification requests are completely driven by the Schedule contractor. The new Schedule contract (ceiling) prices aren't effective until the GSA PCO and contractor sign that modification.  The GSA PCO doesn't initiate that pricing mod on his/her own initiative. Some Schedule contractors decide not to request contract pricing modifications when they could.  Some contractors end up sleeping on their EPA modification request rights. That’s a business decision.

Ordering agencies electing to escalate order prices need to know which contract EPA clause applies and what that clause says, noting that the Schedule EPA contract clauses (only one of which applies to a given Schedule contract) impose some limitations on rate and timing of Schedule contract EPAs. Some Schedules cap the annual aggregate EPA increase at 4%, some at 5%, and some at 10%.  In any order-based escalation - - something not required, since the ordering activity and contractor could agree on the same fixed rates for the entire (even multi-year) period of performance - - ordering activities should know the specific contract's escalation cap in order not to exceed that rate of price increase in their order's escalation clause.

A task order EPA clause is a good example of a non-conflicting clause.  Some ordering officers even include language capping the order-price escalation at the contract rate (as escalated).  Just because the Schedule contract EPA has a particular defined method, rate, and timing does not mean that the task order cannot have a different method, rate, and timing for its own EPA clause.  The Schedule contract EPA clause only applies to the Schedule contract price and not the price on the task orders.  The quoted, evaluated, negotiated, and awarded task order price remains unchanged for the entire period of the task order unless the contracting and the ordering activity specifically agree otherwise.  There is no authority for the price on a task order to ever exceed the Schedule contract price.

When a contractor receives a contract-level EPA (which requires a signed SF30 modification if other than a fixed-annual EPA), that contract-level EPA does not modify the prices on any task order nor does it create an “entitlement” to a task order modification.  Considering such a task order modification request is purely discretionary on the part of the ordering officer.  Ordering officers and contractors should achieve a clear meeting of the minds before the task order is issued as to the following important questions: Will the task order rate remain constant throughout its period of performance regardless of any intervening contract price escalation? (If not, just how will the task order price be escalated [method, rate, and timing] in such a way that the Schedule price is never exceeded on any task order?)  As it can become an issue for disputes, I recommend that ordering activities never remain silent in their RFQs on the issue of escalated order prices or even explicitly state that the task order prices remain fixed for the order’s entire period of performance regardless of what happens to the Schedule contract price - - a price that could change without notice during the order’s performance even if the order is not multi-year.

The original question posed was for a multi-year task order. But it doesn't even have to be a multi-year order to get a similar question. Let's say that an ordering activity awards a ten-month task order to a contractor with a CPL-escalated contract price.  Halfway through performance, the contractor requests and receives a Schedule contract modification to increase the Schedule price.  The contractor then starts waving that GSA-signed SF30 under the nose of the Ordering Officer ("...the Schedule contract takes precedence over your order...we didn't agree on a fixed price but only to a discount relationship to the Schedule price...I want a task order modification now...").  Some Ordering Officers get bullied into issuing such a task order modification. Sometimes contractors only bring it up at time of task order option - - but act like there is an entitlement to a task order modification because the issue wasn't previously addressed.  It isn't an entitlement, of course.  But ordering activities could save themselves a lot of conflict if they just address the issue fully in every RFQ - - not just on the multi-year orders but especially on those orders with option periods.

[Issues relating to the Service Contract Act are beyond the scope of this particular blog post.  Contact your GSA Contracting Officer if you have SCA pricing issues.]

[NOTE:  Original content created by Dave Clemens.  Edited by Dan Briest on 1/6/11.] 
 

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Dan Briest
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Brad deMers