36.207 Pricing fixed-price construction contracts
Source: FAR 36.207 on acquisition.gov
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.
(a) Generally, firm-fixed-price contracts shall be used to acquire construction. They may be priced-
(1) On a lump-sum basis (when a lump sum is paid for the total work or defined parts of the work),
(2) On a unit-price basis (when a unit price is paid for a specified quantity of work units), or
(3) Using a combination of the two methods.
(b) Lump-sum pricing shall be used in preference to unit pricing except when-
(1) Large quantities of work such as grading, paving, building outside utilities, or site preparation are involved;
(2) Quantities of work, such as excavation, cannot be estimated with sufficient confidence to permit a lump-sum offer without a substantial contingency;
(3) Estimated quantities of work required may change significantly during construction; or
(4) Offerors would have to expend unusual effort to develop adequate estimates.
(c) Fixed-price contracts with economic price adjustment may be used if such a provision is customary in contracts for the type of work being acquired, or when omission of an adjustment provision would preclude a significant number of firms from submitting offers or would result in offerors including unwarranted contingencies in proposed prices.