On July 5, 2022, Venable attorney Diz Locaria was featured in a Bloomberg Law Q&A about inflation concerns for government contractors. According to the article, federal contractors are struggling to find relief from rising costs, with soaring inflation and ongoing supply chain issues complicated by government buyers' limited flexibility to modify existing contracts. The following is an excerpt from the Q&A:
What will the long-term impacts be on government contracting?
We've been advising a lot of companies on any firm fixed contract or any contract that is not cost reimbursable, try to include language in your proposals that it's contingent on the inclusion of some kind of inflation adjustment provision. I know clients that are firm fixed price are hedging by adding a couple points to their bid. They're not comfortable bidding what it might cost today because they don't know how that's going to look when it's awarded in three months, five months, six months, and then performed over the course of a year, a few years.
If there's any silver lining in the DOD guidance, it kind of recognizes that going forward they should consider appropriate terms and contracts to accommodate the inflationary pressures the contractors are feeling. It doesn't give you a whole lot of relief for the existing contracts, but it does indicate that clauses in the future would be acceptable. Absent a guidance like this, a contracting office is probably very reluctant to go out on a limb and give you an inflationary clause, so the guidance is helpful in that way.
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