16.202
Firm-fixed-price contracts
Firm-fixed-price contracts lock in a set price, placing full cost risk on the contractor and requiring clear, well-defined requirements for successful use.
Overview
FAR 16.202 covers Firm-Fixed-Price (FFP) contracts, the most commonly used contract type in federal procurement. FFP contracts provide for a price that is not subject to any adjustment based on the contractor’s cost experience in performing the contract. This section outlines the characteristics of FFP contracts, their appropriate application, and the circumstances under which they should be used. The primary purpose is to allocate maximum risk and full responsibility for all costs and resulting profit or loss to the contractor, making them suitable when contract requirements are well-defined and cost uncertainties are minimal.
Key Rules
- Firm-Fixed-Price Contract Description
- FFP contracts establish a set price for goods or services, regardless of the contractor’s actual costs.
- Application of FFP Contracts
- FFP contracts are appropriate when the government can clearly describe the requirements and reasonable price competition exists, or when costs can be estimated with confidence.
Responsibilities
- Contracting Officers: Must ensure requirements are well-defined and cost risks are understood before selecting FFP contracts.
- Contractors: Must deliver the specified goods or services at the agreed price, absorbing any cost overruns.
- Agencies: Should monitor contract performance but have limited price adjustment authority under FFP terms.
Practical Implications
- FFP contracts are favored for their simplicity and predictability but place significant risk on contractors.
- Contractors must carefully estimate costs and manage performance to avoid losses.
- Common pitfalls include underestimating costs or unclear requirements, which can lead to disputes or financial loss for the contractor.