What is a fixed price contract with economic price adjustment used for?

A fixed price contract with economic price adjustment is specifically designed to accommodate fluctuations in costs due to economic factors, particularly market conditions. The primary function of this contract type is to allow for price revisions that reflect changes in the market, enabling both the contractor and the government to manage unpredictable economic circumstances effectively, such as inflation or changes in material costs.

This type of contract is beneficial in long-term agreements where the risk of cost changes is significant but the government wants to maintain a fixed price structure overall. The adjustment mechanisms included in the contract provide a system for re-evaluating prices based on predefined economic indicators or market benchmarks, ensuring that the contractor can remain viable in light of changing economic conditions.

While there are other elements associated with contracts—like ensuring prices remain constant or adjusting based on performance—these are not the primary purpose of a fixed price contract with economic price adjustment. The focus here is squarely on allowing revisions due to external market forces.