FAR 17.109—Contract clauses.
Plain-English Summary
FAR 17.109 tells contracting officers which contract clauses to use when a multi-year contract is contemplated and how to handle price-adjustment protections in those contracts. It covers two main subjects: the cancellation clause for multi-year contracts at 52.217-2, and economic price adjustment clauses, including when they are appropriate for labor and material cost contingencies. It also gives specific rules for service contracts, requiring the Service Contract Labor Standards price-adjustment clause at 52.222-43 when 52.222-41 applies, and allowing limited modification of that clause for overseas contracts where foreign law, regulation, or international agreements require higher wages. In addition, it permits use of another economic price adjustment clause authorized by FAR 16.203 when the built-in cost contingencies in 52.222-43 do not adequately cover potential fluctuations. In practice, this section is about making sure the contract has the right pricing and cancellation protections up front so the Government and contractor can manage long-term risk, comply with labor requirements, and avoid disputes over unexpected cost changes.
Key Rules
Insert multi-year cancellation clause
When a multi-year contract is contemplated, the contracting officer must include the clause at 52.217-2, Cancellation Under Multi-year Contracts, in both the solicitation and the contract. This clause addresses the Government’s ability to cancel future years and the related rights and obligations of the parties.
Use price adjustment when costs may vary
Economic price adjustment clauses are suitable for multi-year contracting needs, especially when the production period is long enough that labor or material cost changes are likely to affect the contract price. The contracting officer should normally use an EPA clause when those contingencies need to be addressed in the pricing structure.
Mandatory labor standards adjustment clause
For service contracts that include 52.222-41, Service Contract Labor Standards, the contracting officer must also add 52.222-43, Fair Labor Standards Act and Service Contract Labor Standards-Price Adjustment (Multiple Year and Option Contracts). This ensures the contract price can be adjusted to reflect required wage and fringe benefit changes under the labor standards regime.
Overseas modification allowed
In overseas service contracts, the contracting officer may modify 52.222-43 when foreign laws, regulations, or international agreements require contractors to pay higher wage rates. Any modification must be tied to those external legal requirements and should be drafted carefully to preserve the clause’s purpose.
Alternative EPA clause when needed
If potential price fluctuations are not fully covered by the cost contingencies built into 52.222-43, the contracting officer may use another economic price adjustment clause authorized by FAR 16.203. This provides flexibility to address risks not otherwise handled by the labor standards adjustment clause.
Responsibilities
Contracting Officer
Determine whether a multi-year contract is contemplated and insert 52.217-2 in the solicitation and contract. Decide whether an economic price adjustment clause is appropriate based on expected labor and material cost volatility, and for service contracts ensure 52.222-43 is included when 52.222-41 applies. For overseas contracts, assess whether local law or international agreements justify modifying 52.222-43, and use another FAR 16.203-authorized EPA clause when needed to cover unaddressed fluctuations.
Contractor
Review the solicitation and contract for the cancellation clause and any economic price adjustment provisions, understand how price changes may be calculated, and price the offer accordingly. For service contracts, comply with the labor standards clause and any wage/fringe benefit adjustment mechanism, including overseas requirements if applicable.
Agency
Support acquisition planning for multi-year buys by identifying whether long-term pricing risk, labor standards coverage, or overseas legal requirements affect clause selection. Ensure internal review and policy guidance align with the required use or modification of these clauses.
Practical Implications
This section matters because clause selection drives how risk is allocated over the life of a multi-year contract; missing the cancellation clause or the right price-adjustment clause can create compliance problems and pricing disputes.
Contracting officers should not treat economic price adjustment as optional boilerplate in long-duration buys; they need to match the clause to the actual risk of labor and material cost changes.
A common pitfall is forgetting that service contracts with 52.222-41 require 52.222-43 automatically, even if the contract is multi-year or includes options.
Overseas service contracts require extra care: if local law or international agreements increase wage obligations, the standard clause may need modification, but only to the extent necessary to reflect those requirements.
Contractors should examine the adjustment mechanism closely before bidding, because the clause can materially affect future pricing, cash flow, and the ability to recover increased labor costs.
Official Regulatory Text
(a) The contracting officer shall insert the clause at 52.217-2 , Cancellation Under Multi-year Contracts, in solicitations and contracts when a multi-year contract is contemplated. (b) Economic price adjustment clauses . Economic price adjustment clauses are adaptable to multi-year contracting needs. When the period of production is likely to warrant a labor and material costs contingency in the contract price, the contracting officer should normally use an economic price adjustment clause (see 16.203 ). When contracting for services, the contracting officer- (1) Shall add the clause at 52.222-43 , Fair Labor Standards Act and Service Contract Labor Standards- Price Adjustment (Multiple Year and Option Contracts), when the contract includes the clause at 52.222-41 , Service Contract Labor Standards; (2) May modify the clause at 52.222-43 in overseas contracts when laws, regulations, or international agreements require contractors to pay higher wage rates; or (3) May use an economic price adjustment clause authorized by 16.203 , when potential fluctuations require coverage and are not included in cost contingencies provided for by the clause at 52.222-43 .