Fixed Price Economic Price Adjustment (Fpepa) Definition
An FPEPA is a type of price adjustment that is calculated to cover the costs associated with changes in economic conditions. The main purpose of an FPEPA is to ensure that the prices of goods and services remain stable, even when there are fluctuations in the economy. This type of price adjustment is often used by businesses that sell products or services on a fixed-price basis.
There are two main types of economic conditions that can cause prices to fluctuate: inflation and deflation. Inflation occurs when the overall price level of goods and services rises. This can be caused by factors such as an increase in the cost of raw materials, or a decrease in the value of the currency. Deflation occurs when the overall price level of goods and services falls. This can be caused by factors such as a decrease in demand for goods and services, or an increase in the supply of goods and services.
Fixed-price contracts typically have clauses that allow for price adjustments based on changes in economic conditions. These clauses typically give businesses the right to adjust prices upward to account for inflation, or downward to account for deflation. The amount of the adjustment is typically specified in the contract, and is usually a percentage of the original purchase price.
For example, consider a contract for the purchase of 100 widgets at a price of $10 per widget. The contract includes a clause specifying that prices will be adjusted upward or downward based on changes in the Consumer Price Index (CPI
