FAR 52.216-5—Price Redetermination-Prospective.
Plain-English Summary
FAR 52.216-5, Price Redetermination-Prospective, is a pricing clause used in certain negotiated contracts when the parties need a mechanism to set prices periodically after contract award rather than fixing them for the entire term. This clause covers the general rule that unit prices and total price are subject to periodic redetermination, the definition of allowable costs by reference to FAR part 31, the structure of redetermination periods, required contractor data submissions, the consequences of late or missing data, the negotiation process for fair and reasonable future prices, contract modifications documenting the new prices, billing-price adjustments while negotiations are pending, and a quarterly limitation-on-payments statement requirement during periods when firm prices have not yet been established. In practice, the clause is designed to balance contractor protection against unknown future costs with Government protection against overpayment by requiring timely cost data, negotiated price updates, and payment controls. It is especially important where performance spans multiple periods and costs may change materially over time. The clause also creates administrative duties for both parties, including periodic reporting, negotiation, invoicing adjustments, and reconciliation of amounts paid. For contractors, the clause means they must maintain strong cost records and be ready to justify estimates and actuals; for contracting officers, it means active oversight of pricing, billing, and payment exposure throughout performance.
Key Rules
Prices Are Periodically Reset
The contract’s unit prices and total price are not permanently fixed; they must be redetermined at stated intervals. However, prices for work delivered or performed before the first effective redetermination date remain fixed, and total payments may never exceed any contract ceiling price.
Allowable Costs Govern Estimates
For purposes of this clause, “costs” means allowable costs under FAR part 31 in effect on the contract date. This ties the pricing process to Government cost principles and limits what may be used to support proposed prices and actual cost statements.
Redetermination Periods Must Be Defined
The contract must specify successive redetermination periods, including the first period end date and the length of later periods. The first day of each later period becomes the effective date for the new prices, and the parties may agree to vary the final period length.
Contractor Must Submit Pricing Data
Before each redetermination period ends, the contractor must submit proposed prices, cost estimates and breakdowns, supporting data, explanations of differences from prior estimates, and a statement of incurred costs through a specified month. The contractor must also provide supplemental cost data and other relevant information if it becomes available before negotiations conclude.
Late Data Can Stop Payments
If the contractor does not submit required data on time, the contracting officer may suspend payments until the data are received. If the Government has overpaid, the contractor must repay the excess immediately, and unpaid amounts after 30 days accrue interest under the contract’s Interest clause.
Prices Must Be Negotiated Promptly
Once the contracting officer receives the required data, the parties must promptly negotiate fair and reasonable prices for the next period. The clause is intended to produce a negotiated forward price, not a unilateral Government determination.
Modifications Document New Prices
Each redetermination must be put into a signed contract modification stating the prices that apply during the new period. The modification is the controlling document for the redetermined prices.
Billing Prices May Be Adjusted
Until the modification is executed, the contractor bills at the contract’s current billing prices. If those billing prices appear materially too high or too low compared with the expected redetermined prices, the parties must negotiate an adjustment, and that adjustment must be documented by modification without changing the underlying redetermination process.
Quarterly Payment Limits Apply
During periods when firm prices have not been established, the contractor must submit a quarterly limitation-on-payments statement showing cumulative contract pricing and related payment information. This requirement helps the Government monitor exposure and ensure payments do not exceed allowable limits.
Responsibilities
Contracting Officer
Establish the redetermination structure in the contract, receive and review the contractor’s pricing and cost data, negotiate fair and reasonable forward prices, execute contract modifications reflecting redetermined prices, monitor billing prices and payment exposure, and suspend payments if required data are not submitted on time.
Contractor
Submit timely proposed prices, cost estimates, supporting data, explanations of estimate changes, incurred-cost statements, supplemental data, and any other reasonably required information; bill at the current billing prices until modified; cooperate in negotiations; and repay any overpayment promptly, including interest if repayment is late.
Contract Administration Office
Receive the quarterly limitation-on-payments statement, monitor contract performance and payment status, and support administration of the pricing and billing controls during periods without firm prices.
Cognizant Contract Auditor
Receive copies of the quarterly limitation-on-payments statement and use the information to support audit or review of costs, pricing data, and payment exposure as appropriate.
Government
Limit total payments to the contract ceiling, ensure payments are supported by required data, and reconcile any overpayments or billing adjustments after price redetermination.
Practical Implications
This clause requires disciplined cost accounting and forecasting; contractors that cannot produce reliable cost data on time risk suspended payments and cash-flow disruption.
The Government should treat billing prices as provisional, not final, and actively compare them to emerging cost data to avoid large true-ups later.
The clause can create significant reconciliation work at each period end, so both sides should track incurred costs, work-in-process, and undelivered inventory continuously rather than waiting until the submission deadline.
A common pitfall is confusing billing prices with redetermined prices; billing prices are interim amounts and may need adjustment before the final modification is signed.
Another frequent issue is missing the required submission dates or the quarterly limitation-on-payments statement, which can trigger payment suspension, interest, and administrative delays.
Official Regulatory Text
As prescribed in 16.205-4 , insert the following clause: Price Redetermination-Prospective (Jan 2022) (a) General . The unit prices and the total price stated in this contract shall be periodically redetermined in accordance with this clause, except that- (1) The prices for supplies delivered and services performed before the first effective date of price redetermination (see paragraph (c) of this clause) shall remain fixed; and (2) In no event shall the total amount paid under this contract exceed any ceiling price included in the contract. (b) Definition . "Costs," as used in this clause, means allowable costs in accordance with part 31 of the Federal Acquisition Regulation (FAR) in effect on the date of this contract. (c) Price redetermination periods . For the purpose of price redetermination, performance of this contract is divided into successive periods. The first period shall extend from the date of the contract to ________ , (see Note(1)) and the second and each succeeding period shall extend for ________ [ insert appropriate number ] months from the end of the last preceding period, except that the parties may agree to vary the length of the final period. The first day of the second and each succeeding period shall be the effective date of price redetermination for that period. (d) Data submission. (1) Not more than _______ nor less than ______ (see Note (2)) days before the end of each redetermination period, except the last, the Contractor shall submit- (i) Proposed prices for supplies that may be delivered or services that may be performed in the next succeeding period, and- (A) An estimate and breakdown of the costs of these supplies or services in the format of Table 15-1 , FAR 15.408 , or in any other form on which the parties may agree; (B) Sufficient data to support the accuracy and reliability of this estimate; and (C) An explanation of the differences between this estimate and the original (or last preceding) estimate for the same supplies or services; and (ii) A statement of all costs incurred in performing this contract through the end of the _______________ month (see Note (3)) before the submission of proposed prices in the format of Table 15-1 , FAR 15.408 (or in any other form on which the parties may agree), with sufficient supporting data to disclose unit costs and cost trends for- (A) Supplies delivered and services performed; and (B) Inventories of work in process and undelivered contract supplies on hand (estimated to the extent necessary). (2) The Contractor shall also submit, to the extent that it becomes available before negotiations on redetermined prices are concluded- (i) Supplemental statements of costs incurred after the date stated in subdivision (d)(1)(ii) of this section for- (A) Supplies delivered and services performed; and (B) Inventories of work in process and undelivered contract supplies on hand (estimated to the extent necessary); and (ii) Any other relevant data that the Contracting Officer may reasonably require. (3) If the Contractor fails to submit the data required by paragraphs (d)(1) and (2) of this section, within the time specified, the Contracting Officer may suspend payments under this contract until the data are furnished. If it is later determined that the Government has overpaid the Contractor, the Contractor shall repay the excess to the Government immediately. Unless repaid within 30 days after the end of the data submittal period, the amount of the excess shall bear interest, computed from the date the data were due to the date of repayment, at the rate established in accordance with the Interest clause. (e) Price redetermination . Upon the Contracting Officer’s receipt of the data required by paragraph (d) of this section, the Contracting Officer and the Contractor shall promptly negotiate to redetermine fair and reasonable prices for supplies that may be delivered or services that may be performed in the period following the effective date of price redetermination. (f) Contract modifications . Each negotiated redetermination of prices shall be evidenced by a modification to this contract, signed by the Contractor and the Contracting Officer, stating the redetermined prices that apply during the redetermination period. (g) Adjusting billing prices . Pending execution of the contract modification (see paragraph (f) of this section), the Contractor shall submit invoices or vouchers in accordance with the billing prices stated in this contract. If at any time it appears that the then-current billing prices will be substantially greater than the estimated final prices, or if the Contractor submits data showing that the redetermined price will be substantially greater than the current billing prices, the parties shall negotiate an appropriate decrease or increase in billing prices. Any billing price adjustment shall be reflected in a contract modification and shall not affect the redetermination of prices under this clause. After the contract modification for price redetermination is executed, the total amount paid or to be paid on all invoices or vouchers shall be adjusted to reflect the agreed-upon prices, and any requested additional payments, refunds, or credits shall be made promptly. (h) Quarterly limitation on payments statement . This paragraph (h) applies only during periods for which firm prices have not been established. (1) Within 45 days after the end of the quarter of the Contractor’s fiscal year in which a delivery is first made (or services are first performed) and accepted by the Government under this contract, and for each quarter thereafter, the Contractor shall submit to the contract administration office (with a copy to the contracting office and the cognizant contract auditor) a statement, cumulative from the beginning of the contract, showing- (i) The total contract price of all supplies delivered (or services performed) and accepted by the Government and for which final prices have been established; (ii) The total costs (estimated to the extent necessary) reasonably incurred for, and properly allocable solely to, the supplies delivered (or services performed) and accepted by the Government and for which final prices have not been established; (iii) The portion of the total interim profit (used in establishing the initial contract price or agreed to for the purpose of this paragraph (h)) that is in direct proportion to the supplies delivered (or services performed) and accepted by the Government and for which final prices have not been established; and (iv) The total amount of all invoices or vouchers for supplies delivered (or services performed) and accepted by the Government (including amounts applied or to be applied to liquidate progress payments). (2) The statement required by paragraph (h)(1) of this section need not be submitted for any quarter for which either no costs are to be reported under subdivision (h)(1)(ii) of this section, or revised billing prices have been established in accordance with paragraph (g) of this section, and do not exceed the existing contract price, the Contractor’s price-redetermination proposal, or a price based on the most recent quarterly statement, whichever is least. (3) Notwithstanding any provision of this contract authorizing greater payments, if on any quarterly statement the amount under subdivision (h)(1)(iv) of this section exceeds the sum due the Contractor, as computed in accordance with subdivisions (h)(1)(i), (ii), and (iii) of this section, the Contractor shall immediately refund or credit to the Government the amount of this excess. The Contractor may, when appropriate, reduce this refund or credit by the amount of previous refunds or credits affected under this clause. If any portion of the excess has been applied to the liquidation of progress payments, then that portion may, instead of being refunded, be added to the unliquidated progress payment account, consistent with the Progress Payments clause. The Contractor shall provide complete details to support any claimed reductions in refunds. (4) If the Contractor fails to submit the quarterly statement within 45 days after the end of each quarter and it is later determined that the Government has overpaid the Contractor, the Contractor shall repay the excess to the Government immediately. Unless repaid within 30 days after the end of the statement submittal period, the amount of the excess shall bear interest, computed from the date the quarterly statement was due to the date of repayment, at the rate established in accordance with the Interest clause. (i) Subcontracts . No subcontract placed under this contract may provide for payment on a cost-plus-a-percentage-of-cost- basis. (j) Disagreements . If the Contractor and the Contracting Officer fail to agree upon redetermined prices for any price redetermination period within 60 days (or within such other period as the parties agree) after the date on which the data required by paragraph (d) of this section are to be submitted, the Contracting Officer shall promptly issue a decision in accordance with the Disputes clause. For the purpose of paragraphs (f), (g), and (h) of this section, and pending final settlement of the disagreement on appeal, by failure to appeal, or by agreement, this decision shall be treated as an executed contract modification. Pending final settlement, price redetermination for subsequent periods, if any, shall continue to be negotiated as provided in this clause. (k) Termination . If this contract is terminated, prices shall continue to be established in accordance with this clause for (1) completed supplies and services accepted by the Government and (2) those supplies and services not terminated under a partial termination. All other elements of the termination shall be resolved in accordance with other applicable clauses of this contract. Notes: (1) Express in terms of units delivered, or as a date; but in either case the period should end on the last day of a month. (2) Insert the number of days chosen so that the Contractor’s submission will be late enough to reflect recent cost experience (taking into account the Contractor’s accounting system), but early enough to permit review, audit (if necessary), and negotiation before the start of the prospective period. (3) Insert "first," except that "second" may be inserted if necessary to achieve compatibility with the Contractor’s accounting system. (End of clause)