The contract type (e.g., fixed-price, cost-reimbursement) is a key consideration in any decision-making because the type of contract may determine the financial impact of the decision. For example, the financial effect of schedule changes varies widely, depending on the type of contract.
This article focuses on how the type and attributes of government contracts must be considered to support successful financial performance for both the government and the contractor. Such information will be helpful to new project managers and others responsible for contract performance, as well as to more experienced managers who may benefit from a review of the basics of government contracting. The Federal Acquisition Regulation (FAR) allows a wide variety of contract types, based on the financial arrangement.
Broadly speaking, these include fixed-price, cost-reimbursement, time-and-materials (T&M), and letter contracts. The various forms of fixed-price contracts and cost-reimbursement contracts are shown in the sidebars on page 45.
According to FAR 16.104, the federal government professes a preference for firm-fixed-price type contracts.
Contracts also may be distinguished on the basis of their ordering or execution. Under a traditional contract, the contractor performs a specific statement of work for a specified price or cost. More common today are indefinite delivery types, which may be for definite or indefinite quantities or the requirements of the acquiring activity.
Indefinite-delivery contracts are frequently awarded on a multiple-award basis, leading to continued competition at the task-order or delivery-order level. In addition, the government issues basic agreements and basic ordering agreements. These types of “contracts” or their orders are similar to fixed-price and cost-reimbursement types.
A comparison of the outcomes in firm-fixed