There are different types of contract agreements in project management that both the project owner and seller can agree on. The fixed price with economic price adjustment contract (FP-EPA) is a type of contract wherein the buyer pays the reseller a fixed price that has already been decided on and is stipulated in the contract.
This particular contract allows pre-defined adjustment to the price or rate of the contract. The nature of this contract is similar with that of the fixed price contract. However, the former provides a special provision to allow the price adjustments while the latter is non-negotiable.
With this particular contract, both buyer and seller agree on pre-defined criteria for the price adjustment. This is possible because of the uncertainties present in the market. It is important to take note that the dynamics in the market changes over time and this is the reason why this particular contract is beneficial for long-term projects or those that span multiple years.
So what are the common characteristics of the fixed price with economic price adjustment contract (FP-EPA) aside from it spanning for multiple years? First, the buyer and seller have to agree on a fixed price during the signing of the contract. Both will also agree on the criteria for adjusting the final price. The criteria to adjust the final price are often based on the market conditions that are beyond the control of both the buyer and seller. These include the changes in the cost of labor and material, general inflation and fluctuations in the currency market.
Moreover, it is important to have a well-defined scope of the contract to make sure that both the seller and buyer understand the changes in the price of the project management contract.
This term is defined in the 5th edition of the PMBOK.