SPECIAL NOTICE
99 -- EPA Clause Industry Research
- Notice Date
- 4/12/2024 7:31:13 AM
- Notice Type
- Special Notice
- Contracting Office
- USACE
- ZIP Code
- 00000
- Solicitation Number
- W74RDV-EPA-CLAUSE
- Response Due
- 5/3/2024 11:00:00 AM
- Archive Date
- 05/18/2024
- Point of Contact
- Morgan Strong
- E-Mail Address
-
celrd-contracting@usace.army.mil
(celrd-contracting@usace.army.mil)
- Description
- Introduction� The US Army Corps of Engineers is seeking feedback from our industry partners regarding Economic Price Adjustment (EPA) Clauses, specifically when utilizing Price Indices and custom clause language. Our intent with this Request for Information (RFI) is to better understand our partners� perspectives on this topic. We are keenly interested to hear industry perspectives from across the entire USACE Enterprise mission. Your input will be foundational to our approach as we consider when it makes sense to incorporate EPA Clauses on our projects, and how to best structure the clause to address market risk in a fair & reasonable way.�� Please review and compare the following EPA Clause versions and provide thorough responses to the fourteen (14) questions following these clauses. Please note there are two (2) attachments that accompany the DRAFT EPA Clause.�� Current Version of EPA Clause:�� On an annual basis (starting on the first pay application after 12 months from Notice to Proceed and then on the first pay application every 12 months thereafter), the Producer Price Index (PPI) will be reviewed by the Government to determine whether an adjustment to the contract price shall be made based on the price of the identified commodities. The price for these commodities may be adjusted up or down based on the annual change in the PPI. This will not extend to time periods beyond original contract completion date (inclusive of any exercised options). � � For each commodity listed below, the estimated quantities and unit price for the commodity itself � exclusive of direct or indirect costs or profit � shall be listed in the appropriate section of the table below. All unit costs must be completed as part of the price proposal. The estimated quantities are used solely for the purpose of apportioning price adjustments and are not for the purpose of allowing variation in the quantities for the line item. � The determination will be based on the annual difference in the designated index for each commodity listed below to the quantities purchased in the preceding calendar year. No adjustment will be made unless the price adjustments would result in a change of at least 3% in the unit price for that commodity in the included table. All unit prices identified for the year under consideration will be compared to the base year price to determine projected and actual escalation. If the indicated market fluctuation would result in a change to the unit price of more than 3%, the unit price will be increased for the remaining contract duration. CLIN prices will be adjusted based on an application of the unit price increase or decrease applied to the estimated quantities less all quantities already invoiced or identified for purchase through a forward pricing agreement.� For example, if the initial proposed price for commodity (a) is $100 and the PPI at the point of the first review indicates a 3% increase in pricing for that commodity, the unit price for the remainder of the contract (or until the next annual increase/decrease) would be $103. If the initial estimated quantity for commodity (a) on CLIN 1 is 15 tons and 4 tons were procured during the first year, there would be 11 tons remaining, so the price of CLIN 1 would increase by $3 per ton applied to the 11 remaining tons, or $33.� Subsequent modifications resulting in a price adjustment pursuant to the Changes clause or other provisions unrelated to EPA adjustments should be priced as though no provisions for EPA are included. Additional EPA language and conditions may be included in future modifications if that modification would significantly impact the period performance or unit prices of commodities identified in this clause. �� Producer Price Index ? https://beta.bls.gov/dataQuery/search� This is where the government will list commodities/materials and the index number� EX: Steel (Structural, Piling, and Rebar): WPU1017� In the unlikely event that publication of the designated index is discontinued, substitution of another index will be made if the time remaining on the contract would justify doing so and an appropriate index is reasonably available. This determination will be made at the sole discretion of the Procuring Contracting Officer.� The designated index is subject to revisions. Any economic price adjustment made under this contract will be based on the revised index in effect at the time specified for adjustment. Each request for economic price adjustment must identify which revision to the index will be used.� If the review referenced in (1)?(3) indicates an increase in the contract price is warranted, the Government will inform the Contractor of the assumed adjustment. The Contractor must submit a formal request for adjustment, with any supporting data required for the Government to initiate the associated contract action. If the contractor either does not timely provide any requested data to support its adjustment by the date and time specified by the Contracting Officer, or its data does not support an adjustment in the Contracting Officer�s view, no increase shall be made for that period. � � The Contractor must include all forward pricing agreements or scheduled prices for the materials under consideration. This includes purchases of any materials procured prior to the annual review that would not be invoiced until after the annual review. Materials subject to a forward pricing agreement or scheduled price will not be considered for adjustment (up or down). � EACH INVOICE must include the quantities of eligible materials purchased as part of that invoice, segregated by CLIN. The Contractor must be able to support the claimed quantities through supplier invoices upon request. If invoices indicate quantities should have been included in the data required under paragraph (7), the subsequent adjustment will reflect the appropriate correction. If materials are purchased as part of a component (gates, large structures, etc...) the materials are only eligible for consideration if the subcontractor/supplier invoice individually identifies commodities quantities. � Only quantities procured in the calendar year immediately preceding adjustment will be considered for adjustment. Adjustments will be applied to the entire actual quantity of ELIGIBLE commodities procured in that calendar year. � � If the review referenced in (1) indicates a decrease in the contract price is warranted, the Government will provide notice to the Contractor regarding the calculated credit due the Government price decrease, to include supporting data.� The aggregate of the increases in any contract unit price made under this clause shall not exceed 25 percent of the original unit price. The aggregate of the decreases in any contract unit price made under this clause shall not exceed 25 percent of the original unit price. The aggregate of all changes made under this clause shall not exceed 10% of the total contract price.� The Contracting Officer may examine the Contractor's books, records, and other supporting data relevant to the cost of material during all reasonable times until the end of 3 years after the date of final payment under this contract or the time periods specified in Subpart 4.7 of the Federal Acquisition Regulation (FAR), whichever is earlier.� Draft EPA Clause for Consideration:� The Economic Price Adjustment Clause is included in this contract to provide a method for contract price adjustment, upwards or downwards, due to changes in material prices over the life of the contract. At the end of each contract year (including the first year), a single 1 JOB line item will be added to the contract to reflect the calculated adjustment of the previous year using the template provided. The total Price Adjustment (PA) will be the summation of all price adjustments for each line item identified for that year. These price adjustments will utilize the formula and template provided. The price adjustment will be based on the previous year�s earnings (En) on that line item, the percentage that material represents of that line item (Material Factor, MF), the Actual Index (AIn) of the designated Produce Price Index (PPI) at the midpoint of that year�s earnings, and the Projected Index (PIn) identified in Attachment 1 � Economic Price Adjustment Form. The product of earnings (En) and the material factor (MF) is intended to approximate the total earnings on that line item tied to that specific commodity. The material factor (MF) is to be proposed by the Contractor with their price proposal, using Attachment 2 - EPA Calculation Form and will remain unchanged for the duration of the project. The projected Index (PIn) is defined by the Government in Attachment 2 - EPA Calculation Form and will remain unchanged for the duration of the project. � On an annual basis (starting on the first pay application after 12 months from Notice to Proceed and then on the first pay application every 12 months thereafter), the Producer Price Index (PPI) for the midpoint of the prior 12?month period will be reviewed by the Government and an adjustment to the contract price shall be made based on the identified price index for each line item. The price may be adjusted up or down based on the change in the PPI as of the midpoint date. This will not extend to time periods beyond original contract completion date (inclusive of any exercised options). The final adjustment will be made at the end of the original contract completion date and will be based on the earnings and indices for the applicable months, rather than the entire year. � On an annual basis, a price adjustment (PAn) will be calculated for all line items identified to be subject to this clause. A single cumulative total price adjustment will then be made based on the summation of each of the line items� price adjustment. This total adjustment will be a single new 1 JOB line item added to the contract each year. � The price adjustment (PAn) will utilize the total actual earnings (En) paid on that line item in the preceding year and a material factor (MF) proposed by the Contractor of the assumed percentage that material represents for that line item. For the purposes of this clause, the term �earnings� will mean progress payments. Overhead and profit are not included in the material factor (MF). The product of these two factors (En x MF) is intended to approximate the amount of earnings for that material/commodity for that year. The adjustment will be based on the difference between the actual index (AIn) and projected index (PIn) in the designated Producer Price Index for each commodity listed. The projected index (PIn) for each commodity is considered a �base index� for each year defined by the Government in the table provided. The projected index is established at solicitation and is calculated using a constant rate shown. The projected index shown will apply for the entire contract year. The actual index and projected index shall utilize three decimal places. All adjustments will be retroactive. No adjustments will be made to the awarded line item prices.� �FORMULA & DEFINITIONS: � PAn = (En)(MF)(AIn/PIn ? 1)� PAn = Price Adjustment for contract year �n�� AIn = Actual Index published by the BLS for the month that represents the midpoint of that year�s adjustment.� PIn = Projected Index defined by the Government at solicitation.� En = Total earnings on the specified line item during year �n�.� MF = Material Factor. A factor defined by the Contractor that represents the assumed percentage that material cost represents for that line item.� For example, assume the Contractor Earnings (En) on line item 1 was $1,000 in the previous 12 months, and the Contractor has defined that a Material Factor (MF) for line item 1 was 50% (0.5). If the Actual Index (AI) at the midpoint of that period is 106.00, and the Projected Index defined by the Government was 100.00, AI/PI = 106% indicates a 6% increase above the Projected Index (PI). The Price Adjustment (PA) for line item 1 would be (En)(MF)(AI/PI ? 1) = $1,000 x (50%) x (6%) = $30. This Price Adjustment would be added to the Price Adjustments for the other line items indicated in this clause to create a single, cumulative price adjustment that will be paid as a single Job Sum item for that year�s adjustment. � Subsequent modifications resulting in a price adjustment pursuant to the Changes clause or other provisions unrelated to EPA adjustments should be priced as though no provisions for EPA are included. Subsequent adjustments pursuant to FAR 52.211?18 Variation in Estimated Quantity clause should be priced as though no provisions for EPA are included. Additional EPA language and conditions may be included in future modifications if that modification would significantly impact the period performance or prices of commodities identified in this clause.� Producer Price Index ? https://beta.bls.gov/dataQuery/search� -�This is where the government will list commodities/materials and the index number� EX: Steel (Structural, Piling, and Rebar): WPU1017� Aggregate (construction sand, gravel, and crushed stone): WPU1321� Other Concrete (Concrete ingredients and related products): WPU132� Electrical (Switchgear, switchboard, industrial controls equipment): WPU1175� Mechanical (Fluid power cylinders, actuators, accumulators): WPU114303� In the unlikely event that publication of the designated index is discontinued, substitution of another index will be made if the time remaining on the contract would justify doing so and an appropriate index is reasonably available. This determination will be made at the sole discretion of the Contracting Officer. The designated index is subject to revisions. Any economic price adjustment made under this contract will be based on the revised index in effect at the time specified for adjustment. Each request for economic price adjustment must identify which revision to the index will be used. � If the review referenced in (1)?(4) indicates an adjustment in the contract price is warranted, the Government will inform the Contractor of the assumed adjustment. The Contractor must submit a formal request for adjustment, with any supporting data required for the Government to substantiate the associated contract action. If the contractor either does not timely provide any requested data to support its adjustment by the date and time specified by the Contracting Officer, or its data does not support an adjustment in the Contracting Officer�s view, no increase shall be made for that period. If the review referenced in (2) indicates a decrease in the contract price is warranted, the Government will provide notice to the Contractor regarding the calculated credit due the Government price decrease, to include supporting data. The Contractor shall provide a refund within 60 days of receipt of this notice. The refund shall include a check payable to �[GOVERNMENT LOCATION FILL-IN]�, accompanied by a letter identifying it as a voluntary refund and stating the contract number involved. The refund shall be mailed to the address: � �U.S. Army Corps of Engineers, [DISTRICT NAME]� ADDRESS LINE 1� ADDRESS LINE 2 � ROOM NUMBER� ATTN: [RESPONSIBLE OFFICE]� The aggregate of the changes, upwards or downwards, made under this clause shall not exceed 10% of the total contract price at award (inclusive of options). If the aggregate of all changes exceeds 10%, the aggregate will continue to be tracked without adjustments to the contract price unless the aggregate drops below the 10% cap, at which point adjustments will be reconciled. � The Contracting Officer may examine the Contractor�s books, records, and other supporting data relevant to the cost of material during all reasonable times until the end of 3 years after the date of final payment under this contract or the time periods specified in Subpart 4.7 of the Federal Acquisition Regulation (FAR), whichever is earlier.� Questions:� Based on your comparison of the two clauses, what do you see as Pros and Cons of each version?� Is either version of the clause unnecessarily complex? If yes, how so?� How often should the EPA clause be operated (e.g. quarterly, annually, etc.)?�� Is either version more burdensome for your firm, and why?�� Which version of the clause allows your company to better mitigate market risk, and why?� Is a retrospective (i.e. backward-looking) or prospective (i.e. forward-looking) adjustment mechanism more preferential, and why?� Is the �Material Factor� in the Draft version clear? Should the material factor be proposed by the contractor or defined by the Government?��� Would either version require significantly more time to submit your proposal? If so, which one and why?� Would either version of these clauses impact your decision to pursue a project/solicitation?� Are the adjustment mechanics & schedule of each version clearly understood?� How should credits be accounted for?� In the context of typical construction projects, we reasonably anticipate material indices could include: Steel (WPU1017); Aggregate (WPU1321); Other Concrete (WPU132); Electrical (WPU1175); Mechanical (WPU114303). Are there other material indices that we should consider including? If so, which ones and what are the driving factors behind this market volatility?� Are there any example EPA clauses utilized by other Federal or State Agencies that you would recommend be used as an example for drafting USACE clauses?��� How would you propose payment for materials delivered offsite be handled for either of the clause alternatives?� Would industry support SubCLINs broken out as (1) materials and (2) labor and markups for the items we allow price adjustments on?��� Any additional comments/feedback not previously addressed?�
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