A Firm-Fixed-Price (FFP) (FAR Subpart 16.2) 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. 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.
Website: DFARS 216.2 “Fixed-Price Contract”
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.
A FFP contract is suitable for acquiring commercial items or for acquiring other supplies or services on the basis of reasonably definite functional or detailed specifications when the contracting officer can establish fair and reasonable prices at the outset, such as when: (FAR Subpart 16.202-2)
- There is adequate price competition;
- There are reasonable price comparisons with prior purchases of the same or similar supplies or services made on a competitive basis or supported by valid cost or pricing data;
- Available cost or pricing information permits realistic estimates of the probable costs of performance; or
- Performance uncertainties can be identified and reasonable estimates of their cost impact can be made, and the contractor is willing to accept a firm fixed price representing the assumption of the risks involved.
AcqLinks and References:
- Fixed Price Contract Overview FFP-Contract Template
- Best Business Practices Fixed Price Contracting
- DAU “Comparison of Major Contract Types” – Jan 2014
- Frank Kendall “Use of Fixed-Price Incentive Firm Contracts” – Mar 2012
- Website: FAR Subpart 16.2 – Fixed-Price Contracts
- Website: FAR Subpart 16.3 – cost-reimbursement Contracts
- Website: FAR Subpart 16.4 – Incentive Contracts
- Website: FAR Subpart 16.5 – Indefinite-Delivery Contracts
- Website: FAR Subpart 16.6 – Time-and-Materials, Labor-Hour, and Letter Contracts