After our primer on the “Contract Action Types” used by the Federal government, EZGovOpps is now describing another contract attribute searchable as an advanced option in the EZGovOpps software: the actual type of contract used. Take a look below at descriptions of fourteen of the Federal contract types, based on their definitions in the Federal Acquisition Regulation (FAR):

Firm Fixed Price

A firm fixed price contract, as the name implies, applies a cost to contractor performance at the outset of the contract, which cannot be subjected to adjustment after the performance due to any added costs which may arise. This is useful for the procurement of commercial goods or other services where specifications are detailed, and pricing competition allows for the determination of a reasonable price for those items or services. This type of contract puts maximum responsibility and risk on the contractor, as there are no safety-nets for the provider if their performance costs run over the originally determined number.

Fixed Price Redetermination

This allows for an original performance period at a fixed price from the outset, but then provides for future price negotiations in further pricing periods. These subsequent pricing periods must be at least 12 months long. While further pricing can be negotiated, FAR also allows for an original contract ceiling to be estimated and applied at the start of the contract.

Fixed Price Level of Effort

Instead of procuring a more concrete item, this type of procurement is used for a “specified level of effort, over a stated period of time, on work that can be stated only in general terms.” A fixed price is negotiated for a level of effort that will be applied to a project which typically involves research and development, and the final product will usually be a report illustrating that the negotiated level of effort was applied in the project. This is used only when the work to be procured is not clearly defined, and is limited to $150,000, unless permission for a higher value is obtained from the chief of the contracting office.

Fixed Price Incentive

A fixed price incentive contract has a fixed price ceiling, which is then divided into separate pricing “targets.” These include the target cost: the cost of the actual services/supplies; and the target profit: additional dollars that go to the contractor. If the contractor exceeds the target cost, dollars are first drawn from the target profit, reducing the contractor award. This contract also includes a profit adjustment formula, which determines how cost over/under runs are shared between the contractor and the agency.

Fixed Price Award Fee

This contract type is utilized when contractor performance cannot be objectively measured or specific performance goals cannot be set, but the awarding agency still wishes to offer an incentive to the contractor. After the original fixed price contract is completed, the agency may provide a separate award fee.

Fixed Price with Economic Price Adjustment

This a fixed price contract allows for future upward or downward revision of prices, usually based on actual costs of labor and materials, or changes in material and labor costs tracked in standard publications.

Cost No Fee

This reimburses the contractor only for the cost of performance, with no further fees or awards added. FAR recommends this contract type for research and development work, particularly with non-profit institutions.

Cost Sharing

Cost sharing is an agreement between the government and the contractor in which the contractor is reimbursed for only a portion of the work performed, and is not provided any other additional fees or awards. This can be applied to research which may benefit the national interest, and which could result in further opportunities/compensation to the contractor in the future.

Cost Plus Fixed Fee

This is a cost-reimbursement contract in which a fixed-fee is also applied at the completion of the contract, if certain objectives are met. If it appears that the specified work will exceed the originally estimated cost, which can occur in the context of research and development, the awarding agency can raise the cos to match the work, but the added fixed-fee will not change.

Cost Plus Award Fee

While reimbursing cost, this contract may also provide a fixed amount at the beginning of the contract, as well as another award fee at the end of performance period if it is useful in providing “motivation for excellence in the areas of cost, schedule, and technical performance.”

Cost Plus Incentive Fee

This contract type specifies a target cost, a target fee, minimum and maximum fees, and a fee adjustment formula, after an original fee is negotiated at the start of the contract. If total costs exceed the target cost, then the fee is lowered, and vice-versa, in a formula that effectively motivates the contractor to manage the program effectively.

Time and Materials

When the extent or the cost of contracted work cannot be estimated accurately at the time of contract placement, a Time and Materials contract can be awarded. Because the contractor does not have the usual incentive to control costs and limit labor, FAR requires extensive government oversight of contractor performance to ensure efficient control and methods are used.  

Labor-hour contracts

This is similar to a Time and Materials contract and its stipulations, but does not include any provisions for the supply of materials by the contractor. For a full description of the requirements for Time and Materials and Labor-hour contracts, see the appropriate section of FAR.

Interested in learning how to put all of this information together for a complete picture of Federal market trends, forecasts, and business development focus? Sign up for a free trial with EZGovOpps. As the premiere market intelligence platform, EZGovOpps can provide the information needed to follow procurement trends, produce personalized opportunity forecasts, and provide custom analyst-updates for a complete understanding of the Federal contracting market today.

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