Application
Firm-fixed-price contracts should only be used when fair and reasonable pricing can be established up front, supported by competition, price comparisons, or reliable cost data.
Overview
FAR 16.202-2 outlines when a firm-fixed-price (FFP) contract is appropriate for use in federal acquisitions. This subsection specifies that FFP contracts are suitable for acquiring commercial products or services, as well as other supplies or services with clear specifications, provided that fair and reasonable pricing can be established at the outset. The regulation details several conditions under which FFP contracts are advisable, including the presence of adequate price competition, valid price comparisons with previous purchases, availability of reliable cost or pricing information, and the ability to reasonably estimate the impact of performance uncertainties. The contractor must also be willing to accept the risks associated with a fixed price arrangement.
Key Rules
- Use of FFP Contracts
- FFP contracts are suitable for commercial items or when specifications are clear and pricing can be determined fairly and reasonably at the start.
- Conditions for Application
- Adequate price competition, valid price comparisons, reliable cost/pricing data, or manageable performance uncertainties must be present.
Responsibilities
- Contracting Officers: Must ensure that one or more of the listed conditions are met before selecting an FFP contract and that fair and reasonable pricing is established.
- Contractors: Should be prepared to accept the risks of a fixed price and provide necessary pricing or cost data if requested.
- Agencies: Should provide oversight to ensure FFP contracts are used appropriately and in compliance with FAR requirements.
Practical Implications
- This section helps ensure that FFP contracts are only used when pricing can be reliably determined, reducing the risk of cost overruns or disputes.
- It impacts daily contracting by guiding the selection of contract type based on market conditions and available data.
- Common pitfalls include using FFP contracts without sufficient price data or in situations with high performance uncertainty, which can lead to disputes or financial losses.