Subpart 16.2
Fixed-Price Contracts
FAR Subpart 16.2 provides comprehensive guidance on selecting and administering fixed-price contract types, ensuring appropriate risk allocation and contract performance incentives.
Overview
FAR Subpart 16.2 covers the various types of fixed-price contracts available for federal procurement. It outlines the general principles, appropriate uses, and specific forms of fixed-price contracts, including firm-fixed-price, fixed-price with economic price adjustment, fixed-price incentive, and others. This subpart provides guidance on when and how each contract type should be used, the allocation of risk between the government and contractors, and the mechanisms for price adjustment or redetermination. The subpart is organized into sections that detail the characteristics, advantages, and limitations of each contract type, helping contracting professionals select the most suitable fixed-price arrangement for their acquisition needs.
Key Rules
- General Principles (16.201)
- Explains the foundational concepts and risk allocation of fixed-price contracts.
- Firm-Fixed-Price Contracts (16.202)
- Describes contracts with a set price not subject to adjustment, placing maximum risk on the contractor.
- Fixed-Price with Economic Price Adjustment (16.203)
- Allows for price adjustments based on specific contingencies, such as cost changes in labor or materials.
- Fixed-Price Incentive Contracts (16.204)
- Provides incentives for cost savings and performance, sharing risk between the government and contractor.
- Fixed-Price with Prospective Price Redetermination (16.205)
- Permits future price adjustments at specified times based on actual costs.
- Fixed-Ceiling-Price with Retroactive Price Redetermination (16.206)
- Sets a ceiling price with final price determined after contract performance.
- Firm-Fixed-Price, Level-of-Effort Term Contracts (16.207)
- Used for research or study contracts where level of effort is specified, but not a defined end product.
Responsibilities
- Contracting Officers: Must select the appropriate fixed-price contract type, justify its use, and ensure compliance with FAR requirements.
- Contractors: Must understand the risk allocation and comply with the terms and conditions of the selected contract type.
- Agencies: Oversee contract selection, ensure proper documentation, and monitor contract performance and price adjustments.
Practical Implications
- This subpart exists to guide the selection and administration of fixed-price contracts, balancing risk and incentives.
- It impacts daily contracting by defining how prices are set, adjusted, and incentivized, affecting both government and contractor risk.
- Common pitfalls include misapplying contract types, inadequate price adjustment clauses, and misunderstanding risk allocation.