General
Fixed-price contracts provide price certainty and must be used for commercial acquisitions unless an exception applies, with adjustments allowed only as specified in the contract.
Overview
FAR 16.201 outlines the general principles of fixed-price contract types, which are foundational in federal procurement. It distinguishes between firm-fixed-price contracts and those with adjustable prices, such as those with ceiling or target prices. The section clarifies that price adjustments are only permitted as specified in the contract, typically through clauses for equitable adjustment or other defined circumstances. Importantly, it mandates the use of firm-fixed-price or fixed-price with economic price adjustment contracts for acquiring commercial products and services, except where FAR 12.207(b) provides otherwise. The section also explicitly states that time-and-materials and labor-hour contracts are not considered fixed-price contracts.
Key Rules
- Fixed-Price Contract Types
- Fixed-price contracts may be firm or adjustable, with possible ceiling or target prices, and adjustments are only allowed as specified in the contract.
- Use for Commercial Acquisitions
- Firm-fixed-price or fixed-price with economic price adjustment contracts must be used for commercial products and services, unless an exception applies.
- Exclusion of T&M and Labor-Hour Contracts
- Time-and-materials and labor-hour contracts are not classified as fixed-price contracts.
Responsibilities
- Contracting Officers: Must select the appropriate fixed-price contract type and ensure price adjustments are only made per contract terms; must use fixed-price types for commercial acquisitions unless an exception applies.
- Contractors: Must understand the pricing structure and adjustment mechanisms in their contracts.
- Agencies: Should ensure oversight of contract type selection and compliance with FAR requirements.
Practical Implications
- This section ensures price certainty and risk allocation in federal contracts, especially for commercial items.
- Contractors must be aware of the limited circumstances under which prices can be adjusted.
- Misclassification of contract types or improper use of price adjustments can lead to compliance issues or disputes.