HKSM

A fixed-price agreement that includes a clause allowing pre-established, formula-based adjustments to the final price when specified economic conditions change, such as inflation or documented increases or decreases in the cost of certain commodities.

Key Points

• Begins with a fixed base price but permits limited adjustments for defined economic factors only.
• The adjustment method, indices, thresholds, and timing are agreed upfront and stated in the contract.
• Helps manage inflation or commodity price volatility without converting to a cost-reimbursable contract.
• Best for longer-term buys with exposure to volatile inputs (e.g., fuel, metals, asphalt).

Example

A city awards a pipeline installation contract at a fixed price, with an EPA clause tied to a published steel index. If the index moves more than 3% at the annual review, the contract price is adjusted up or down by the agreed formula for the steel portion only; scope and quality remain unchanged.

PMP Example Question

A seller proposes a 3-year road project at a fixed price with a clause referencing a public asphalt index. If the index shifts beyond 5%, the price for the asphalt component will be adjusted annually per a preset formula. What contract type is this?

1. Firm-Fixed-Price (FFP)
2. Fixed Price with Economic Price Adjustment (FPEPA)
3. Cost Plus Incentive Fee (CPIF)
4. Time and Materials (T&M)

Correct Answer: B — Fixed Price with Economic Price Adjustment

Explanation: The contract is fixed-price but includes a predefined, index-based mechanism to adjust for economic changes, which is the hallmark of FPEPA.