Foreign Currency Translation Costs

Exchange Rate Fluctuations

A contract that is to be performed outside the United States will incur costs in a currency other than the US Dollar. Since currency rates throughout the world fluctuate, the estimated financial impact (costs) needs to be captured in the estimate to perform the work, or the contract should have a clause that allows for the compensation or fluctuation in the contract price, base on foreign currency translation rates.

ASBCA Case

Elter S.A, ASBCA No. 52441

• The case relates to a firm, fixed-price contract for construction of multiple facilities at the Naval Support Activity (NSA), Souda Bay, Crete, Greece.

• Etler decided to protect against the risk of currency translation costs, and included a 2% contingency amount in the offered price. The contingency amount of 2% was applied to the total estimated costs of the contract.

• The 2% was not enough to cover the cover the translation losses Elter experienced, and should sought a claim in the Armed Board of Contract Appeals.

• She lost, there was no Economic Price Adjustment clause in the contract. Additionally, she had estimated 2% for exchange rate costs.