§1503 Contract Price Adjustment

Summary

When the federal government and a contractor or subcontractor cannot agree on changing a contract price, or on whether cost accounting rules were followed, the disagreement counts as a formal dispute under chapter 71. Any price adjustment must protect the government from paying extra costs overall, as defined by the Cost Accounting Standards Board. The government cannot recover more than the total increased cost unless the contractor changed its cost accounting methods, knew or should have known about the change during price talks, and did not tell the government. Recoveries cannot include costs from firm fixed‑price contracts or parts that cannot have their price reset based on actual costs. For non‑fixed‑price work, in a fiscal year the government may only recover up to the net increased costs paid for all accounting changes that year. Interest uses the annual rate in section 6621 of the Internal Revenue Code (26 U.S.C. 6621) and runs from when the extra payments were made until the government is fully repaid.