Feeling the pinch? Inflation relief for government contractors.

As I opened my browser this morning, I was greeted with some unfortunate news: inflation is higher than it has been in 40 years. 

Government contractors have felt the pinch from higher prices. Thankfully, the federal government has heard their concerns and is offering a path for help.

The impact of high inflation on government contractors isn’t new. But until recently, the government’s response (especially under fixed-price contracts) was along the lines of Too bad, so sad. Now get back to work.

As an advocate for small business government contractors—most of whom operate under fixed-price contracts—I found this response galling. And when I testified before Congress in July, I urged them to mitigate inflation on small businesses—including by requiring agencies to adjust fixed-price contracts relative to inflation.

Though Congress hasn’t acted, agencies are starting to explore relief for small business contractors.

Most prominently, the Department of Defense has softened its reluctance to adjust fixed-price contracts. In a September 9, 2022 memorandum, DoD wrote:

Contractors performing under firm-fixed-price contracts that were priced and negotiated before the onset of the current economic conditions generally bear the risk of cost increases. However, there may be circumstances where an accommodation can be reached by mutual agreement of the contracting parties, perhaps to address acute impacts on small businesses and other suppliers.

Such an “accommodation” might be to adjust the performance schedule or amend contractual requirements. In “extraordinary cases,” a contractor might get an upward price adjustment.

DoD is not alone. A few days after that memo was published, GSA issued its own guidance to contracting officials relating to inflation. Though GSA stressed that its “acquisition workforce has both the authority and the tools to take action to mitigate the impact of inflation in federal contracts,” it also acknowledged that, generally, under fixed-price contracts, a contractor may not be entitled to an upward price adjustment simply because its prices are higher. But, “if the inflated costs are the direct result of Government action (for example, when Government delays the work into a period when higher costs are encountered),” GSA wrote that “compensation is appropriate.”

What does this mean? Small businesses might get inflation relief under their government contracts. The circumstances of that relief will largely depend on your contract and situation, but hope isn’t lost.

If you have questions about addressing inflation under your government contract, please give us a call.