Does the KO have to modify the contract to reflect the change in currency rates? (Essential increase the contract only to show the increase of US dollars obligated to the contract).
No the KO should not modify the contract to reflect the change in currency rates based on what was paid out by the payment office. If the amount paid is more than what was obligated on the contract (due to exchange rate fluctuations) then the difference will be paid out using the Foreign Currency Fluctuations Defense (FCF,D) account.
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From NSIAD-86-173, Aug 5, 1986, FCF,D
The purpose of each year the DoD establishes the exchange rate to be used on contracts awarded in foreign currencies. Your comptroller should have additional information on the FCF,D account.
FCF,D account is to provide a mechanism for stabilizing that portion of the O&M appropriation used for purchasing foreign goods and services by providing funds to the O&M account when foreign exchange rates are unfavorable (when losses occur), and by receiving funds from the O&M account when the rates are favorable (when gains occur). The basic intent is to ensure that any given O&M appropriation for the purchase of foreign goods and services will purchase the budgeted amount of goods and services, regardless of the gains and losses of the dollar caused by currency fluctuations. funds differ from O&M funds in two ways First, while O&M funds are used to purchase goods and services, FCF,D funds can be used only to pay for the increased cost of those purchases caused by unfavorable foreign currency exchange rates. Second, FCF,D funds are no-year funds (available until used), while O&M funds are 1-year funds.