Tuesday Insight – November 15th, 2022: Government, You Have the Authority to Deal with Inflation

Dec 6, 2022

Inflation seems to be held in a category all to itself recently in terms of intractable factors that impact the cost or price of federal procurement. Why is this? What makes it uniquely vexing when compared to other factors driving cost and price? In reality, nothing.

We are currently experiencing a steep rise in prices that has impacted the government and industrial base across large segments of the economy. However, this is not new. The U.S. economy has experienced inflation several times before. Moreover, the regulations for writing and administering contracts have for decades included mechanisms to account for instability in pricing, such as economic price adjustment clauses.

Despite years of experience dealing with past inflationary periods, there does not seem to be an accepted path forward for dealing with the latest round of inflation. Industry has great concerns executing existing contracts and negotiating new ones. The executive branch has responded with an array of feedback ranging from making it easier to utilize economic price adjustment clauses to utilizing a special authority. Congress is exploring the merits of authorizing new flexibility or additional funding.

While beneficial, these actions overlook one fundamental truth; inflation does not suspend existing authorities or available options for acquisition professionals to solicit, award, and administer contracts. What makes inflation different from other acquisition challenges is that it impacts programs across the board. However, this macroeconomic phenomenon does not limit the microeconomic options of the acquisition team. Contracting officers retain all existing authority and program managers must still balance requirements, cost, and schedule.

Despite its rigidity, federal acquisition law and regulation offers immense discretion to satisfy the underlying requirement. The ability to exercise this discretion is the path forward to deal with inflation. For example, prior to contract award, acquisition professionals must be given the freedom to scope a requirement based on relevant market trends to make realistic economic assumptions and determine the length a contract. During contract performance, contracting officers—with the advice of the program office and legal counsel— should consider what constitutes an in- or out-of-scope change when considering modifications, and whether a contract should be maintained if it significantly hurts the viability of the contractor.

Like all other challenges in federal procurement, the acquisition workforce is our most effective tool to dealing with inflation. Its strength lies in its ability to think critically and determine what steps to take in a variety of circumstances. Government acquisition executives need to provide the acquisition workforce room to use their skills, accept risk, and make the best out of the existing available tools within existing authority.

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