REA for Customs Fees Increase

I believe the contractor has encountered an "after-imposed tax" (as defined in 52.229-6) and, therefore, is entitled to an appropriate price adjustment based on additional costs that were unforeseen at the time of contract formation by both parties.

Based on what Jeremy has written I agree with H2H. Note that H2H said that a price adjustment, not an REA, is warranted in this circumstance. That is significant because 52.229-6 only provides for a price adjustment to compensate for the amount of an after imposed tax or duty. It does not provide for an REA which normally includes profit.

Another issue is how does the contractor account for these types of cost? If they are accounted for as indirect costs, I think the increased amount should also be accounted for as an indirect cost and allocated over all applicable contracts, not just one contract.

Retreadfed said:

Another issue is how does the contractor account for these types of cost? If they are accounted for as indirect costs, I think the increased amount should also be accounted for as an indirect cost and allocated over all applicable contracts, not just one contract.

That is the crux of the problem for many contractors. How does one quantify the impact for an individual contract if the cost is indirect? What if not all contracts are FFP? What if not all contracts contain the clause?

It's a hairball of an issue.

On 7/8/2025 at 5:00 PM, here_2_help said:

I believe the contractor has encountered an "after-imposed tax" (as defined in 52.229-6) and, therefore, is entitled to an appropriate price adjustment based on additional costs that were unforeseen at the time of contract formation by both parties.

Thank you for that!

On 7/8/2025 at 7:34 PM, Retreadfed said:

Based on what Jeremy has written I agree with H2H. Note that H2H said that a price adjustment, not an REA, is warranted in this circumstance. That is significant because 52.229-6 only provides for a price adjustment to compensate for the amount of an after imposed tax or duty. It does not provide for an REA which normally includes profit.

Another issue is how does the contractor account for these types of cost? If they are accounted for as indirect costs, I think the increased amount should also be accounted for as an indirect cost and allocated over all applicable contracts, not just one contract.

Ahhh. The definition of price adjustment vs. REA isn't something I'd given much thought to; this is my first time encountering either.

Jeremy Spriggs said:

Ahhh. The definition of price adjustment vs. REA isn't something I'd given much thought to; this is my first time encountering either.

Let's be careful with use of terminology.

REA stands for Request for an Equitable Adjustment. The proper distinction is not between "price adjustment" and REA. The proper distinction, if any, is between "price adjustment" and "equitable adjustment".

The FAR does not define either "price adjustment" or "equitable adjustment." However, case law generally provides that an "equitable adjustment" includes an adjustment to both cost and profit. See 2 Government Contract Costs & Pricing § 87:19. The meaning of "price adjustment" depends on the text of the clause that prescribes it.

In this case there should be no confusion, because the contract clause, FAR 52.229-6, Taxes-Foreign Fixed-Price Contracts (FEB 2013), clearly states: "the contract price shall be increased by the amount of any after-imposed tax or any tax or duty specification excluded from the contract price...." Italics added.

To add a bit of closure. Legal concurred with the price increase. The only thing they identified was that "price adjustment" is the wrong terminology, and it would just be a price increase.

The decision was to issue a unilateral modification for an increase in the total amount identified by the contractor.