FIXED-PRICE CONTRACT
Fixed-price contracts are used by all federal agencies and generally provide a set, firm price. An adjustable price level may sometimes be used for a ceiling price, a target price (including target cost), or both, depending on how it is specified in the contract. Fixed-price contracts are typically used when the contract risk is relatively low, or defined within acceptable limits, and the contractor and the government can come to an agreement on a ceiling price.
COMMON TYPES OF FIXED-PRICE CONTRACTS
Firm Fixed-Price Contract: This contract provides a price that is not subject to any adjustment.
Firm Fixed-Price, Level-Of-Effort Contract: This requires the contractor to provide a specified level of effort, over a stated period of time, for a dollar amount fixed by the government.
Firm-Fixed-Price Materials Reimbursement Type Contract: This contract sets a predetermined price for service and labor; the government will reimburse for the cost of materials.
Fixed-Price Incentive Contracts: A fixed-price incentive (FPI) contract is a fixed-price type contract with provisions for adjustment of profit.
COST-REIMBURSEMENT CONTRACT?
Cost-reimbursement, sometimes referred to as cost-plus contracts, is a type of contract where a contractor is paid for all of its allowed expenses up to a set limit, plus an amount of additional payment to allow the company to make a profit.
TYPES OF COST-REIMBURSEMENT CONTRACTS
Cost Contracts: Only the actual costs of completing the contract are covered; the contractor receives no additional fee. Cost contracts are typically used for research and nonprofit work.
Cost-Sharing Contracts: The contractor agrees to assume part of the contract expenses, and the agency will reimburse the contractor for an agreed-upon portion of those expenses.
Cost-Plus-Fixed-Fee (CPFF) Contracts: The contractor receives reimbursement plus a predetermined fee that is negotiated when the contract is finalized and will not change based on the actual contract cost. However, the fee may be revised if the work required changes.
Cost-Plus-Incentive-Fee (CPIF) Contracts: The contractor receives reimbursement plus an adjustable fee. The initial contract will establish targets for cost and fee, as well as a minimum and maximum fee and a formula for fee adjustment. Once the contract is completed, the contractor will be paid based on this formula.
Cost-Plus-Award-Fee (CPAF) Contracts: The contractor receives reimbursement and a fixed fee, with the potential to earn all or part of an additional fee depending on performance.
Cost Plus Percentage of Cost (CPPC) Contracts: In these contracts, the seller is paid for all costs incurred, in addition to a percentage of these costs. This type of contract is preferred when it is desirable to shift some of the contract performance’s risk from the contractor to the buyer.
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