FAR 52.216-2—Economic Price Adjustment-Standard Supplies.
Plain-English Summary
FAR 52.216-2, Economic Price Adjustment—Standard Supplies, sets a price-adjustment mechanism for supply contracts when the contractor’s price is tied to an established catalog or market price. It covers the contractor’s warranty that the contract unit price does not exceed the contractor’s established price on the contract date, the definition of “unit price” and “established price,” mandatory downward adjustments when the established price decreases, upward adjustments when the established price increases, the 10 percent cap on total increases, timing rules for when an increase becomes effective, limits on applying increases to already-scheduled deliveries, the requirement for the contracting officer to verify any increase before modifying the contract, and the government’s right to cancel undelivered items affected by a requested increase within 30 days. In practice, the clause protects the Government from paying more than the contractor’s commercial price structure justifies, while also giving the contractor a limited path to recover increases in its market price. It is designed for standard commercial supplies where prices move with the market, but it is not a blank check for repricing; the contractor must prove the increase, act promptly, and accept the risk that the Government may cancel affected undelivered quantities. For contracting officers, the clause requires active monitoring of price changes and careful documentation before any upward modification. For contractors, it creates both an obligation to pass along decreases and a right to request increases, subject to strict limits and verification.
Key Rules
Price must match established price
The contractor warrants that the schedule unit price is not higher than the contractor’s applicable established price on the contract date for like quantities of the same item. The clause excludes extra costs for preservation, packaging, or packing beyond standard commercial practice from the unit price comparison.
Established price has a narrow meaning
An established price must be an established catalog or market price for a commercial product sold in substantial quantities to the general public, and it must be the net price after standard trade discounts. This means the clause is intended for genuinely commercial, publicly sold items with recognizable market pricing.
Price decreases flow automatically downward
If the contractor’s established price decreases, the contractor must promptly notify the contracting officer of the amount and effective date of the decrease. The corresponding contract unit price must be reduced by the same percentage, and the contract must be modified to reflect the lower price for deliveries on and after the effective date.
Price increases require contractor request
If the established price increases after contract award, the contractor may request a corresponding increase in the contract unit price. The increase is limited to the same percentage as the established price increase, and the contract must be modified accordingly only after the request is made and the increase is verified.
Total increase is capped at 10 percent
The aggregate of all increases to any contract unit price under this clause may not exceed 10 percent of the original contract unit price. This cap limits the Government’s exposure even if the contractor’s market price rises more sharply over time.
Timing controls when increase applies
An increased unit price is effective on the established-price increase date only if the contracting officer receives the contractor’s written request within 10 days after that date; otherwise, it is effective only when the request is received. This timing rule encourages prompt notice and prevents retroactive pricing beyond the clause’s limits.
No retroactive relief for late deliveries
The increased unit price does not apply to quantities already scheduled for delivery before the effective date of the increase, unless the contractor’s failure to deliver earlier was beyond its control and without its fault or negligence under the Default clause. This protects the Government from paying more for items that should already have been delivered.
Verification and cancellation rights
Before executing any upward modification, the contracting officer must verify the increase in the applicable established price. Within 30 days after receiving the contractor’s written request, the contracting officer may cancel any undelivered affected portion of the contract without liability to either party.
Deliveries continue during review
During the 30-day cancellation period, and afterward if the Government does not cancel, the contractor must keep delivering under the contract schedule. The Government must pay for those deliveries at the contract unit price as adjusted under the clause, if applicable.
Responsibilities
Contracting Officer
Monitor contractor notices of price decreases and requests for price increases, verify any claimed increase in the applicable established price before approving a modification, decide whether to cancel undelivered affected quantities within 30 days after receiving a written increase request, and modify the contract to reflect required price reductions or approved price increases.
Contractor
Warrant that the initial unit price does not exceed the applicable established price on the contract date, promptly notify the contracting officer of any decrease in the established price, request any increase in writing when the established price rises, support the claimed increase with appropriate evidence, continue performance while the request is reviewed, and accept the clause’s limits on timing, retroactivity, and the 10 percent cap.
Government
Pay the adjusted contract unit price for deliveries made after an effective price change when the clause conditions are met, and exercise the cancellation right only within the stated 30-day period and without liability if it chooses to cancel undelivered affected items.
Contract Administration/Buying Activity
Track price-adjustment events, maintain documentation of established-price changes and contract modifications, and ensure delivery and payment records align with the effective dates of any approved adjustments.
Practical Implications
This clause is most useful for commercial supplies with published or market-based pricing that can move up or down during performance; it is not intended for items without a real established price.
Contractors should build internal controls to detect price decreases quickly, because downward adjustments are mandatory and failure to notify promptly can create compliance and audit issues.
For upward adjustments, timing matters: a written request sent within 10 days preserves the earlier effective date, while a late request delays the increase until receipt by the contracting officer.
Contracting officers should not approve an increase based on assertion alone; the clause requires verification of the underlying established-price increase before modification.
The 10 percent cap and the Government’s 30-day cancellation right are important negotiation and risk-allocation features, so both sides should watch cumulative increases and the impact on undelivered quantities.
Official Regulatory Text
As prescribed in 16.203-4 (a) , insert the following clause: Economic Price Adjustment-Standard Supplies (Nov 2021) (a) The Contractor warrants that the unit price stated in the Schedule for ____________ [ offeror insert Schedule line item number ] is not in excess of the Contractor’s applicable established price in effect on the contract date for like quantities of the same item. The term "unit price" excludes any part of the price directly resulting from requirements for preservation, packaging, or packing beyond standard commercial practice. The term "established price" means a price that- (1) Is an established catalog or market price for a commercial product sold in substantial quantities to the general public; and (2) Is the net price after applying any standard trade discounts offered by the Contractor. (b) The Contractor shall promptly notify the Contracting Officer of the amount and effective date of each decrease in any applicable established price. Each corresponding contract unit price shall be decreased by the same percentage that the established price is decreased. The decrease shall apply to those items delivered on and after the effective date of the decrease in the Contractor’s established price, and this contract shall be modified accordingly. (c) If the Contractor’s applicable established price is increased after the contract date, the corresponding contract unit price shall be increased, upon the Contractor’s written request to the Contracting Officer, by the same percentage that the established price is increased, and the contract shall be modified accordingly, subject to the following limitations: (1) The aggregate of the increases in any contract unit price under this clause shall not exceed 10 percent of the original contract unit price. (2) The increased contract unit price shall be effective- (i) On the effective date of the increase in the applicable established price if the Contracting Officer receives the Contractor’s written request within 10 days thereafter; or (ii) If the written request is received later, on the date the Contracting Officer receives the request. (3) The increased contract unit price shall not apply to quantities scheduled under the contract for delivery before the effective date of the increased contract unit price, unless failure to deliver before that date results from causes beyond the control and without the fault or negligence of the Contractor, within the meaning of the Default clause. (4) No modification increasing a contract unit price shall be executed under this paragraph (c) until the Contracting Officer verifies the increase in the applicable established price. (5) Within 30 days after receipt of the Contractor’s written request, the Contracting Officer may cancel, without liability to either party, any undelivered portion of the contract items affected by the requested increase. (d) During the time allowed for the cancellation provided for in paragraph (c)(5) of this clause, and thereafter if there is no cancellation, the Contractor shall continue deliveries according to the contract delivery schedule, and the Government shall pay for such deliveries at the contract unit price, increased to the extent provided by paragraph (c) of this clause. (End of clause)