36.207
Pricing fixed-price construction contracts
Firm-fixed-price contracts for construction should use lump-sum pricing unless specific conditions justify unit or combination pricing, and economic price adjustments are allowed when customary or necessary for competition.
Overview
FAR 36.207 outlines the acceptable methods for pricing fixed-price construction contracts, emphasizing the use of firm-fixed-price arrangements. The regulation allows contracts to be priced on a lump-sum basis, a unit-price basis, or a combination of both. Lump-sum pricing is preferred unless specific conditions justify unit pricing, such as when work quantities are large, uncertain, or likely to change significantly. The section also permits the use of fixed-price contracts with economic price adjustment clauses if such provisions are standard in the industry or necessary to encourage competition and avoid inflated pricing due to risk contingencies.
Key Rules
- Preferred Pricing Methods
- Firm-fixed-price contracts should be used for construction, with pricing on a lump-sum, unit-price, or combined basis.
- Lump-Sum Preference
- Lump-sum pricing is preferred unless work quantities are large, uncertain, variable, or difficult to estimate.
- Economic Price Adjustment
- Fixed-price contracts with economic price adjustment are allowed if customary or needed to ensure competitive offers and realistic pricing.
Responsibilities
- Contracting Officers: Must select the appropriate pricing method, justify deviations from lump-sum pricing, and include economic price adjustment clauses when warranted.
- Contractors: Must understand the pricing method used and prepare bids accordingly, considering the risk allocation and estimation requirements.
- Agencies: Should ensure pricing methods align with project characteristics and promote fair competition.
Practical Implications
- This section ensures construction contracts are priced in a way that balances risk, competition, and administrative efficiency. Contractors must be prepared to justify their pricing approach and understand when unit pricing or economic price adjustments are appropriate. Common pitfalls include misestimating quantities or failing to justify the use of non-lump-sum pricing.