§1503 Contract Price Adjustment

Summary

If the Federal Government and a contractor or subcontractor cannot agree on a contract price change, including whether the contractor followed the cost accounting rules, the disagreement becomes a formal dispute under chapter 71 of this title. When the government makes a price adjustment under section 1502(f)(2), it must apply it to contracts that follow the cost accounting standards to prevent the government from paying more overall for increased costs, as defined by the Cost Accounting Standards Board. The government cannot recover more than the total increased cost to the government unless the contractor changed its accounting methods, knew or should have known about the change when prices were set, and did not tell the government. Recoveries do not include any firm fixed-price work or any work that cannot be re-priced based on costs. For non–firm-fixed-price work in a fiscal year, the government’s recovery for all accounting changes in that year cannot exceed the net increased costs actually paid to the contractor. Interest on a price adjustment uses the annual rate in section 6621 of the Internal Revenue Code of 1986 (26 U.S.C. 6621) and runs from when the extra payments were made until the government is fully repaid.