§1503 Contract price adjustment

Summary

If the federal government and a contractor or subcontractor cannot agree on a change in contract price or on whether the contractor followed cost-accounting rules, the disagreement becomes a formal federal dispute. When the government makes a price adjustment to avoid paying extra costs, it may only recover the total increased costs as defined by the Cost Accounting Standards Board. The government can recover more only if the contractor changed its accounting methods, knew or should have known about the change during price talks, and failed to tell the government. Recovered costs must exclude any fixed-price work (where the price does not change) or any part that cannot be reset based on actual costs. For work that is not fixed-price, recovery in a fiscal year cannot be more than the net increased costs actually paid that year for all accounting changes. Interest is charged at the annual rate set in the Internal Revenue Code and runs from when the extra payments were made until the government is fully repaid.