CONTRACT TYPE SCENARIOS

CONTRACT TYPES

Contract Types

FIXED-PRICE FAMILY

FIRM

FIXED-PRICE

(FFP)

FIXED-PRICE

WITH ECONOMIC

PRICE ADJUSTMENT

(FP-EPA)

FIXED-PRICE

INCENTIVE

(FPI)

PRICE

REDETERMINATION

Government pays price which is not subject to any adjustment

regardless of

contractor’s cost experience.

Place maximum risk on con-tractor.

Contractor has greatest incentive to control costs.

Minimum administrative bur-den on parties.

Preferred contract type.

Level of Effort: Payment is based on effort expended rather

than results achieved. Contractor provides specified effort

over a stated period for fixed price.

The price paid by the

government may be

revised upward or downward

if certain contingencies exist.

Provides for price

adjustment to protect

parties against

significant economic

fluctuation or changes in

contractor’s established

prices.

EPA provisions can be based

on established

(published) prices, actual

costs, or cost index.

Adjustments based on

established prices restricted

to Industry-wide contingencies.

Adjustment based on labor or

material costs limited to

contingencies beyond the

contractor’s control.

Firm Target:

Government pays price that is the sum of final

negotiated cost and final profit. Final profit determined by

comparing final negotiated cost to target cost and

adjusting target profit IAW formula (share-ratio).

Final price cannot exceed ceiling price.

Successive Targets:

At predetermined production point, firm target cost

is negotiated and firm target profit is determined

IAW adjustment formula; either an FFP or FPI(F)

can be negotiated.

Prospective: Government pays fixed price for goods or services for a given period, but price is subject to revision at stated times during performance of contract.

Retroactive: Government pays price (subject to ceiling), that is negotiated after contract

performance.

Price

EPA Clause

Firm Target:

Target Cost

Target Profit

Ceiling Price

Sharing Formula

Successive Targets:

Initial Target Cost

Initial Target Profit

Ceiling Price

Target Profit Adjustment

Formula

Prospective:

Price

Ceiling (Optional)

Retroactive:

Ceiling Price

When fair and reasonable prices can be established at outset.

Particularly suitable for standard or modified commercial items

or military items for which sound prices can be developed.

Level of effort: R&D investigation or study.

When contingencies

resulting from unstable

market or labor conditions

can be identified and covered

by a separate price

adjustment clause.

Where assumption of a degree of cost responsibility by

con-tractors will provide incentive for effective

cost control.

Can combine with incentives on performance and schedule.

Prospective: Quantity production or services when a fair and reasonable price can be negotiated for initial period but not entire contract period.

Retroactive: When fair and reasonable FFP cannot be negotiated and low value or short period of performance renders other types impracticable.

Level of effort: Used only when work cannot be clearly defined but effort desired can be agreed upon.

Sole purpose cannot be to shift

cost responsibility to

government; requires

simultaneous agreement on all elements of pricing structure.

Prospective: FFP not feasible; pricing periods conform to

contractor’saccounting system;

assurance that price

predetermina-tion will be taken promptly.

Retroactive:Reasonable assurance that price

Redetermination will be taken promptly; requires HCA

Approval

Not for use with sealed bid method

Adequate Contractor Cost Accounting System

Contract Types

COST-REIMBURSEMENT FAMILY

COST-PLUS-

INCENTIVE-FEE

(CPIF)

COST-PLUS

AWARD-FEE

(CPAF)

COST-PLUS-

FIXED-FEE

(CPFF)

COST

AND COST

SHARING

Government pays allowable cost and incentive fee.

Incentive fee determined by comparing actual cost to

target cost and adjusting target fee IAW fee

adjustment formula (share ratio).

Performance incentives should be incorporated if development is feasible and government

performance objectives have been determined.

Government pays

allowable cost, base fee,

and award fee.

Contractor earns a base

fee which does not vary

with performance and all

or part of an award fee based

on subjective evaluation

by government of

contractor’s performance.

Amount of the award fee

is unilaterally determined by

the government and generally

is not subject to

Disputes Clause.

Evaluation of performance

and corresponding

partial payment of fee made

at stated intervals.

Government pays allowable cost and

fixed fee.

Fixed fee does not vary with actual costs.

Fixed fee may be adjusted for changes

in work to be performed.

Minimum incentive for contractors

to control costs.

Completion Form: Requires

contractor to deliver end

product (preferred form).

Term Form: Requires specified level

of effort over stated period of time.

Cost: Government pays allowable cost, no fee.

Cost Sharing: Government pays only a portion of allowable cost as agreed to by both parties. Contractor absorbs portion of the cost with expectation of gaining other benefits from the effort.

Target Cost

Target Fee

Sharing Formula

Minimum Fee

Maximum Fee

Estimated Cost

Base Fee

Award Fee

Estimated Cost

Fixed Fee

Estimated Cost

Development and test where a profit incentive is likely

to provide motivation for more effective management.

Level of effort (R&D

or Production)

Method of proving fee

which motivates excellence

in such areas as

quality, timelines,

technical ingenuity, and

cost-effective management.

Award fee may be used

in conjunction with

other types of contracts.

Research

Preliminary exploration or study.

Development and test where CPIF

not practical.

Cost: Non-profit institutions/ organizations and facilities contracts.

Cost Sharing: R&D efforts with either profit or non-profit contractors.

Adjustment in fee is limited by minimum and maximum

fees negotiated.

Base Fee shall not

exceed 3 percent of

estimated cost.

Weighted guidelines

(for determining

profit objective) shall not

be applied.

Shall not be used in lieu

of CPFF or CPIF

when objective measurement

is feasible.

Fee shall not exceed 15 percent

of estimated cost for R&D or 10

percent of estimated cost for other

contracts.

Price of A/E contract shall not exceed

6 percent of estimated cost of the

public work or utility project.

Cost Sharing: Not applicable for effort specified by government or that has only minor relevance to commercial activities of the contractor.

Not for use with sealed bid method

Adequate Contractor Cost Accounting System

Not for use with sealed bid method

Adequate Contractor Cost Accounting System

Contract Types

OTHER TYPES

SPECIAL USES

Time and

Materials

Labor Hours

Letter

CONTRACT

INDEFINITE

DELIVERY

Government pays fixed hourly rate for supplies or services.

With contractor furnished material. Provided at cost.

Labor Hours differs only in that no material is supplied

by contractor.

Preliminary contractual instrument

that authorizes

immediate commencement of effort.

Method of payment corresponds to

type of contract contemplated

when definitized

Definite Quantity:

Provides for definite quantity of specified supplies

or services for a fixed period with deliveries at designated locations upon order

Requirements: Provides for furnishing all

actual requirements of specified supplies or services during a specified period as ordered by designated activities

Indefinite Quantity: Provides for furnishing indefinite quantifies of specified supplies or services during a specified time but government must order a stated minimum quantity.