A Firm-Fixed-Price (FFP) (FAR Subpart 16.2) contract provides for a price that is not subject to any adjustment based on the contractor’s cost experience in performing the contract. This contract type places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss. It provides maximum incentive for the contractor to control costs and perform effectively and imposes a minimum administrative burden upon the contracting parties. An FFP contract is not subject to any adjustment, whereas a Fixed Price Contract might have a provision for economic price adjustments.
Definition: A firm-fixed-price (FFP) contract provides for a price that is not subject to any adjustment on the basis of the contractor’s cost experience in performing the contract.
The main regulations that govern FFP contracts within the defense acquisition system.
The main benefit of using a firm-fixed-price contract is that the price agreement is guaranteed. The contractor takes on all the risk to deliver within the price agreed in the contract. Any overages or deviations will have to be absorbed by the contractor. As a result, these contracts are very specific, what is being delivered and when.
The contracting officer may use a firm-fixed-price contract in conjunction with an Award-Fee Incentive (see FAR Subpart 16.404) and performance or delivery incentives (see 16.402-2 and 16.402-3) when the award fee or incentive is based solely on factors other than cost. The contract type remains firm-fixed-price when used with these incentives.
With this type of contract, the contractor is responsible for controlling costs. However, a contractor can’t do this well without overseeing inputs, outputs, and processes. Regarding government contracts, these factors are usually controlled by outside government agencies. There may be delays, false starts, changes in goals, or long approval processes that make a cost-plus or labor-hour contract a better choice. When funding is cut, offices are reorganized, or project objectives change, it can greatly affect how well cost control is done for contracted services. The FFP contract doesn’t have the freedom to deal with these kinds of changes. Changing or ending a contract may make managing this type of contract harder.
In the dynamic world of construction, contractors often find themselves grappling with various contract types, each carrying its unique set of risks and challenges. One such contract that has become increasingly prevalent is the firm-fixed-price contract. While this agreement offers stability and predictability, it is not without its share of potential pitfalls that can significantly impact contractors. In this blog post, we’ll explore the risks and challenges associated with firm-fixed-price contracts in the construction industry.
Entering the realm of government contracting can be a lucrative venture for small businesses, but it comes with its own set of complexities. One of the first challenges entrepreneurs face is understanding the various types of government contracts available and determining which ones best suit their needs. In this guide, we’ll explore three common types of government contracts — (1) fixed-price contracts, (2) cost-reimbursement contracts, and (3) indefinite delivery/indefinite quantity (IDIQ) contracts—and discuss the pros and cons of each.