FAR 14.408-4—Economic price adjustment.
Plain-English Summary
FAR 14.408-4 explains how sealed bidding handles economic price adjustment (EPA) when the solicitation either does not include an EPA clause or does include one. It covers four main situations: a bidder proposes its own EPA clause with a ceiling; a bidder proposes an EPA with no ceiling; the Government includes an EPA clause and bidders accept it as written; and bidders take exception by increasing, decreasing, limiting, or deleting the EPA terms. The section also addresses how bids must be evaluated, when a contracting officer may seek agreement to add an approved EPA clause after bid opening, and when a bid must be rejected as nonresponsive. In practice, this rule is about preserving fair, equal evaluation in sealed bidding while allowing limited price adjustment protection against future cost changes. It matters because EPA terms can materially change the real price the Government will pay, so the contracting officer must evaluate bids on a consistent basis and ensure any post-opening award terms do not give a bidder an unfair advantage or alter responsiveness rules.
Key Rules
Bidder-proposed EPA with ceiling
If the solicitation does not include an EPA clause but a bidder offers one with a stated ceiling, the bid must be evaluated using the maximum possible adjustment to the quoted base price. This prevents the bidder from appearing artificially low when the Government could ultimately pay more under the adjustment formula.
Post-opening clause request
If the bid is otherwise eligible for award, the contracting officer may ask the bidder to agree to include an approved EPA clause in the award, but only if the clause is subject to the same ceiling. If the bidder refuses, the award may still be made on the bid as originally submitted.
No-ceiling EPA is generally unacceptable
A bid that includes an EPA with no ceiling must be rejected unless there is a clear basis for evaluation. Without a ceiling, the Government cannot reliably determine the maximum price exposure for fair comparison of bids.
Government EPA clause, no exceptions
When the solicitation includes an EPA clause and bidders do not take exception, bids are evaluated on the quoted base prices only. The allowable EPA is not added during evaluation because all bids are being compared on the same stated terms.
Increasing the ceiling is nonresponsive
If a bidder raises the maximum EPA percentage above what the solicitation allows, or limits the downward adjustment provisions, the bid must be rejected as nonresponsive. Either change alters the Government’s bargain and creates an unequal bid.
Deleting the EPA clause is nonresponsive
A bid that deletes the EPA clause must be rejected as nonresponsive because deletion also limits the Government’s ability to obtain downward price adjustments. The bidder cannot unilaterally remove a material term from the invitation.
Lower ceiling may be accepted after evaluation
If a bidder decreases the maximum EPA percentage below the solicitation ceiling, the bid is evaluated at the base price on an equal footing with other bids. If that bidder is otherwise in line for award, the award must reflect the lower ceiling.
Responsibilities
Contracting Officer
Evaluate bids involving EPA terms on the correct basis, using the maximum possible adjustment when required and base prices when the solicitation EPA is accepted as written. Determine responsiveness, reject bids that take prohibited exceptions, and, when appropriate, request post-opening agreement to include an approved EPA clause subject to the same ceiling.
Bidder/Contractor
Submit EPA terms only in a way that allows fair evaluation and complies with the solicitation. If proposing an EPA, state a ceiling unless a clear basis for evaluation exists; if the Government includes an EPA clause, do not increase the ceiling, delete the clause, or otherwise limit downward adjustment provisions if you want the bid to remain responsive.
Agency/Procuring Activity
Draft solicitations with clear EPA provisions when needed and ensure the clause used is an approved economic price adjustment clause under FAR 16.203. Provide terms that allow equal competition and avoid ambiguous or unbounded adjustment structures that cannot be evaluated fairly.
Practical Implications
EPA terms can change the real price the Government pays, so the evaluation price may differ from the quoted base price when a bidder proposes its own adjustment clause.
A bidder cannot improve its competitive position by adding an open-ended or one-sided EPA; lack of a ceiling or limiting downward adjustments can make the bid nonresponsive.
When the solicitation already contains an EPA clause, bidders generally must accept it as written or risk rejection if they alter material terms.
Contracting officers must be careful after bid opening: they may seek agreement to add an approved clause only in the limited circumstances allowed, but they cannot use that process to cure a nonresponsive bid.
The most common pitfall is treating an EPA change as a minor pricing detail when it is actually a material term affecting responsiveness and price comparability.
Official Regulatory Text
(a) Bidder proposes economic price adjustment. (1) When a solicitation does not contain an economic price adjustment clause but a bidder proposes one with a ceiling that the price will not exceed, the bid shall be evaluated on the basis of the maximum possible economic price adjustment of the quoted base price. (2) If the bid is eligible for award, the contracting officer shall request the bidder to agree to the inclusion in the award of an approved economic price adjustment clause (see 16.203 ) that is subject to the same ceiling. If the bidder will not agree to an approved clause, the award may be made on the basis of the bid as originally submitted. (3) Bids that contain economic price adjustments with no ceiling shall be rejected unless a clear basis for evaluation exists. (b) Government proposes economic price adjustment. (1) When an invitation contains an economic price adjustment clause and no bidder takes exception to the provisions, bids shall be evaluated on the basis of the quoted prices without the allowable economic price adjustment being added. (2) When a bidder increases the maximum percentage of economic price adjustment stipulated in the invitation or limits the downward economic price adjustment provisions of the invitation, the bid shall be rejected as nonresponsive. (3) When a bid indicates deletion of the economic price adjustment clause, the bid shall be rejected as nonresponsive since the downward economic price adjustment provisions are thereby limited. (4) When a bidder decreases the maximum percentage of economic price adjustment stipulated in the invitation, the bid shall be evaluated at the base price on an equal basis with bids that do not reduce the stipulated ceiling. However, after evaluation, if the bidder offering the lower ceiling is in a position to receive the award, the award shall reflect the lower ceiling.