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Your objective should be to select a contract type that will result in reasonable contractor risk with the greatest incentive for efficient and economical contract performance.Selecting the proper contract type will make the work more attractive to more potential offerors, thereby increasing competition.However, requiring contractors to accept unknown or uncontrollable cost risk can endanger contract performance, substantially reduce competition, and/or substantially increase contract price.To realistically choose the proper contract type to meet a specific contract situation, you must consider the proper allocation of cost risk.Most of those arrangements fit into two general categories fixed-price and cost-reimbursement, but labor-hour and time-and-materials contracts have characteristics of both: The market prices at risk are severable and significant.The risk stems from industry-wide contingencies beyond the contractor's control.The Government assumes the risks inherent in the contract -benefiting if the actual cost is lower than the expected cost-losing if the work cannot be completed within the expected cost of performance.

When you prepare the invitation for bids (IFB), the contract clause must be established in a way that is compatible with the requirements of the sealed bidding process.. Where: I1 = Index for Base Period I2 = Index for Adjustment Period S = Percentage of Price Subject to Adjustment P = Base Unit Contract Price Example of an Economic Price Adjustment.In developing an FPEPA contract, you can choose from the FAR EPA clauses, use an agency-prescribed clause, or develop your own unique clause following agency guidelines.For commercial items, consider market research and commercial practice in clause development.).When establishing a base for adjustment, ensure that contingency allowances are not duplicated by inclusion in both the base price and the adjustment requested by the contractor under the EPA provision.If you do not require cost or pricing data, obtain adequate information to establish the base level from which adjustment will be made.

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