16.101
General
FAR 16.101 establishes the foundational principles for selecting contract types, emphasizing the balance of risk and incentives between the government and contractors.
Overview
FAR 16.101 provides a foundational overview of the types of contracts available for government procurement, emphasizing the flexibility needed to acquire a wide range of supplies and services. The section explains that contract types differ based on the degree and timing of cost responsibility assumed by the contractor and the nature of profit incentives. It categorizes contracts into two main groups: fixed-price contracts, where the contractor bears more cost risk, and cost-reimbursement contracts, where the government assumes more risk. The section also introduces incentive contracts, which balance risk and reward based on performance and uncertainties.
Key Rules
- Contract Type Flexibility
- The government can choose from a variety of contract types to best fit the procurement's needs and risk profile.
- Risk and Incentive Structure
- Contract types are defined by how much cost risk the contractor assumes and the profit incentives tied to performance.
- Main Contract Categories
- Contracts are grouped into fixed-price, cost-reimbursement, and incentive contracts, each with different risk and reward structures.
Responsibilities
- Contracting Officers: Must select the contract type that best aligns with the procurement's requirements, risk, and performance goals.
- Contractors: Should understand the implications of each contract type on their cost responsibility and profit potential.
- Agencies: Ensure appropriate contract type selection to achieve program objectives and manage risk.
Practical Implications
- This section guides the selection of contract types, impacting risk allocation and profit potential for contractors.
- Understanding contract types is critical for compliance, negotiation, and performance management.
- Misunderstanding contract type implications can lead to disputes, cost overruns, or missed incentives.