16.104
Factors in selecting contract types
Contracting officers must holistically evaluate multiple factors—including price, risk, contractor capability, and requirement complexity—when selecting the most appropriate contract type to balance risk and ensure effective contract performance.
Overview
FAR 16.104 outlines the key factors that contracting officers must consider when selecting and negotiating contract types. The regulation emphasizes that no single factor is determinative; rather, a holistic assessment is required to ensure the contract type aligns with the Government’s interests and the specific procurement situation. Factors include price competition, price and cost analysis, requirement complexity, urgency, period of performance, contractor capability, accounting system adequacy, concurrent contracts, subcontracting, and acquisition history. The goal is to balance risk between the Government and contractor, promote realistic pricing, and ensure effective contract performance.
Key Rules
- Price Competition and Analysis
- Effective price competition and thorough price analysis support the use of fixed-price contracts and realistic pricing.
- Cost Analysis and Risk Assessment
- In the absence of competition, cost analysis and identification of performance uncertainties are essential for selecting an appropriate contract type.
- Requirement Complexity and Recurrence
- Complex or unique requirements may warrant greater Government risk, but as requirements become routine, risk should shift to the contractor.
- Combining Contract Types
- Consider firm-fixed-price for portions of the contract when possible.
- Urgency and Performance Period
- Urgent requirements or long performance periods may require special contract provisions or incentives.
- Contractor Capability and Accounting System
- Ensure the contractor’s technical, financial, and accounting systems are adequate for the proposed contract type.
- Subcontracting and Acquisition History
- Extensive subcontracting and repetitive acquisitions affect contract type selection and risk allocation.
Responsibilities
- Contracting Officers: Must evaluate all listed factors, document rationale for contract type selection, and ensure contractor systems are adequate for the chosen contract type.
- Contractors: Should be prepared to demonstrate technical capability, financial responsibility, and adequacy of accounting systems.
- Agencies: Oversee compliance with contract type selection procedures and ensure risk is appropriately allocated.
Practical Implications
- This section ensures contract types are chosen based on a comprehensive risk and capability assessment, not just price.
- It impacts daily contracting by requiring thorough documentation and justification for contract type decisions.
- Common pitfalls include inadequate analysis of contractor systems, failure to consider acquisition history, or overlooking the impact of subcontracting.