What does an Economic Price Adjustment (EPA) clause address in contracts?

• A. Inflation, currency fluctuations, or other market changes
• B. Project scope changes
• C. Late deliveries
• D. Insurance costs

Answer: (C)

An Economic Price Adjustment clause addresses how contract prices can change in response to shifts in the economic environment, typically to protect both parties from cost volatility. The main idea is to tie the price to objective indicators—such as inflation or changes in material costs and currency exchange rates—so the price remains fair over the life of a contract, especially for long-term or large procurements. The clause usually specifies which indices to use, how adjustments are calculated, the base period for comparison, and when adjustments take effect. This mechanism helps prevent one side from bearing all the risk of rising costs while also avoiding overpayment if costs fall. It’s not about changing the project scope or delivery schedule, which are handled through change orders or schedule/penalty provisions, nor is it primarily about insurance costs, which are addressed through risk allocation and separate pricing terms.