FAR 16.205-4—Contract clause.
Plain-English Summary
FAR 16.205-4 tells contracting officers when they must include the Price Redetermination-Prospective clause at FAR 52.216-5 in negotiated solicitations and contracts. It applies only when the Government is contemplating a fixed-price contract and the conditions in FAR 16.205-2 and 16.205-3(a) through (d) are present, meaning the contract is being used in a situation where future price redetermination is appropriate because of uncertainty in costs or other specified circumstances. In practice, this section is a clause-insertion rule: it does not itself create the pricing method, but it requires the contracting officer to put the correct clause in the solicitation and resulting contract so the parties know how the price will later be adjusted. The section matters because it protects both the Government and the contractor by making the pricing mechanism explicit up front, reducing disputes over whether and how the fixed price may be redetermined. It also signals that the contracting officer must confirm the underlying conditions in the related sections before using this clause. For contractors, this means the solicitation and contract will include a prospective redetermination process that can affect pricing strategy, risk allocation, and recordkeeping.
Key Rules
Insert the required clause
When the conditions are met, the contracting officer must include FAR 52.216-5, Price Redetermination-Prospective, in both the solicitation and the contract. This is mandatory, not optional, when negotiating a fixed-price contract under the specified circumstances.
Applies only to negotiated contracts
This rule applies when the contracting officer is contracting by negotiation. It does not govern sealed bidding or other procurement methods outside negotiated contracting.
Fixed-price contract must be contemplated
The clause is used only when the Government is planning to award a fixed-price contract. If the contemplated contract type is not fixed-price, this section does not apply.
Underlying conditions must exist
The contracting officer may use this clause only when the conditions in FAR 16.205-2 and 16.205-3(a) through (d) are present. Those referenced provisions control when prospective price redetermination is appropriate and must be satisfied before the clause is inserted.
Clause must appear in solicitation and contract
The rule requires insertion in both the solicitation and the final contract. This ensures offerors know the pricing terms before award and that the awarded contract contains the same governing language.
Responsibilities
Contracting Officer
Determine whether the procurement is being conducted by negotiation, whether a fixed-price contract is contemplated, and whether the conditions in FAR 16.205-2 and 16.205-3(a) through (d) are satisfied. If so, insert FAR 52.216-5 in the solicitation and contract.
Contractor/Offeror
Review the solicitation for the price redetermination clause, understand that the contract price may be adjusted prospectively under the clause, and account for that pricing mechanism in the proposal, pricing assumptions, and contract administration records.
Agency
Ensure acquisition personnel apply the correct contract type and clause structure, and support contracting officers with policy and review processes that confirm the clause is used only when the referenced conditions are met.
Practical Implications
This section is a mandatory clause-selection rule, so missing the clause can create contract administration problems and potential disputes over pricing terms.
Contractors should treat the clause as a material pricing term and evaluate how prospective redetermination affects risk, margins, and future price adjustment procedures.
Contracting officers must verify the cross-referenced conditions before award; simply wanting a fixed-price arrangement is not enough.
Because the clause must be in the solicitation, offerors get notice before bidding or proposing, which affects competition and pricing strategy.
A common pitfall is overlooking the cross-references in FAR 16.205-2 and 16.205-3(a) through (d), which can lead to improper use of the clause.
Official Regulatory Text
The contracting officer shall, when contracting by negotiation, insert the clause at 52.216-5 , Price Redetermination-Prospective, in solicitations and contracts when a fixed-price contract is contemplated and the conditions specified in 16.205-2 and 16.205-3 (a) through (d) apply.