Fixed price, cost reimbursement, and time and materials federal contract types and when each is used.
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- What is a Fixed Price contract (FFP)?
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A contract where the contractor agrees to supply products or services for a fixed, negotiated price regardless of actual costs incurred.- What is a Cost Plus Fixed Fee (CPFF) contract?
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A contract where the government reimburses the contractor's allowable costs plus a fixed fee, regardless of actual cost amounts.- What is a Time and Materials (T&M) contract?
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A contract that reimburses the contractor for labor hours at specified rates and for materials at cost, plus a fee or markup.- When is a Fixed Price contract preferred?
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When the scope of work is well-defined, requirements are clear, and the contractor can accurately estimate costs.- When is a Cost Reimbursement contract preferred?
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When the scope is uncertain, requirements are evolving, or technical risks are high and cannot be accurately predicted.- When is a Time and Materials contract preferred?
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When the work cannot be defined in detail in advance, such as staff augmentation, repairs, or emergency response.- Who bears the cost risk in a Fixed Price contract?
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The contractor bears the risk. If actual costs exceed the fixed price, the contractor absorbs the loss.- Who bears the cost risk in a Cost Reimbursement contract?
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The government bears the risk. The government reimburses all allowable costs regardless of how high they go.- Who bears the cost risk in a Time and Materials contract?
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Shared between contractor and government. Risk increases with longer duration or greater material usage.- What is a Fixed Price Incentive Fee (FPIF) contract?
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A fixed price contract with fee or price adjustments based on contractor performance against negotiated targets for cost, schedule, or technical metrics.- What is a Cost Plus Incentive Fee (CPIF) contract?
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A cost reimbursement contract where the fee amount is adjusted based on contractor performance against negotiated targets.- What is a Cost Plus Award Fee (CPAF) contract?
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A contract where the contractor receives reimbursement for allowable costs plus a base fee plus an award fee earned through excellent performance or meeting specific objectives.- What does EPA stand for in FFP-EPA?
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Economic Price Adjustment. An FFP contract that allows price adjustments based on changes in labor rates, material costs, or other economic indices.- What does EPA stand for in CR-EPA?
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Economic Price Adjustment. A cost reimbursement contract clause allowing adjustments based on changes in specified economic indices.- In a Fixed Price contract, how is the contractor incentivized to control costs?
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The contractor keeps any profit if actual costs are below the fixed price, but loses profit if actual costs exceed the fixed price.
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