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  • Question

    Is it allowed to change the currency on the same contract? If it is allowed, should we do manual payment? Please advise.


    Answer

    When a foreign contractor is awarded a contract in U.S. dollars, but has to purchase material and pay employees in a different currency, that contractor's profit is subject to currency fluctuations. This financial risk can lead to performance risk if contractors don't have adequate cash reserves to absorb the effects of the fluctuations. However, many foreign contractors inflate their initial offers, particularly if the contract exceeds one year, to cushion themselves against a possible loss in value of the currency that the contract is written in (dollars in your case).

    The type of currency can be changed on a contract. I don't know what contract writing software your office uses, but PD2 (for example) has such a function. However, changing the currency from dollars to yen in the face of the declining dollar will result in a greater cost to the U.S. Government. This was not agreed to when both parties signed the contract. In order to change the currency, the Government will need to receive some type of "consideration" from the contractor in exchange for the conversion. In other words, the Government cannot and should not provide a significant benefit to the contractor without receiving something in return (e.g., expedited delivery, better warranty terms, etc.).

    I recommend you consult with your organization's legal counsel to find out more about the role of "consideration," should you decide to pursue changing the currency.

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