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Comparison of Major Contract Types

 Cost Plus Types

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Firm Fixed-Price (FFP)

Fixed-Price Economic Price Adjustment (FPEPA)

Fixed-Price Incentive Firm
(FPIF)

Fixed-Price Award-fee
(FPAF)

Fixed-Price
Prospective Redetermination (FPRP)

Principal Risk to be Mitigated

None. Thus, the contractor assumes all cost risk.

Unstable market prices for labor or material over the life of the contract.

Moderately uncertain

contract labor or material requirements.

Risk that the user will not be fully satisfied because of judgmental acceptance criteria.

Costs of performance after the first year because they cannot be estimated with
confidence.

Use When..

· The requirement is well-defined.

· Contractors are experienced in meeting it.

· Market conditions are stable.

· Financial risks are otherwise insignificant.

The market prices at risk are severable and significant. The risk stems from industry-wide contingencies beyond the contractor's control. The dollars at risk outweigh the administrative burdens of an FPEPA.

A ceiling price can be established that covers the most probable risks inherent in the nature of the work. The proposed profit sharing formula would motivate the contractor to control costs to and meet other objectives.

Judgmental standards can be fairly applied by an Award-fee panel. The potential fee is large enough to both:

· Provide a meaningful incentive.

· Justify related administrative burdens.

The Government needs a firm commitment from the contractor to deliver the supplies or services during subsequent years. The dollars at risk outweigh the administrative burdens of an FPRP.

Elements

A firm fixed-price for each line item or one or more groupings of line items.

A fixed-price, ceiling on upward
adjustment, and a formula for adjusting the price up or down based on:

· Established prices.

· Actual labor or material costs.

· Labor or material indices.

· A ceiling price

· Target cost

· Target profit

· Delivery, quality, and/or other performance targets (optional)

· Profit sharing formula

· A firm fixed-price.

· Standards for evaluating performance.

· Procedures for calculating a fee based on performance against the standards

· Fixed-price for the first period.

· Proposed subsequent periods (at least 12 months apart).

· Timetable for pricing the next period(s).

Contractor is Obliged to:

Provide an acceptable deliverable at the time, place and price specified in the contract.

Provide an acceptable deliverable at the time and place specified in the contract at the adjusted price.

Provide an acceptable deliverable at the time and place specified in the contract at or below the ceiling price.

Perform at the time, place, and the price fixed in the contract.

Provide acceptable deliverables at the time and place specified in the contract at the price established for each period.

Contractor Incentive (other than maximizing goodwill) ¹

Generally realizes an additional dollar of profit for every dollar that costs are reduced.

Generally realizes an additional dollar of profit for every dollar that costs are reduced.

Realizes a higher profit by completing the work below the ceiling price and/or by meeting objective performance targets.

Generally realizes an additional dollar of profit for every dollar that costs are reduced; earns an additional fee for satisfying the performance standards.

For the period of performance, realizes an additional dollar of profit for every dollar that costs are reduced.

Typical Application

Commercial supplies and services.

Long-term contracts for commercial supplies during a period of high
inflation

Production of a major system based on a prototype

Perfromance-based service contracts.

Long-term production of spare parts for a major system.