Types of Federal Government Contracts range from firm-fixed price to cost-plus-fixed-fee.
Using a wide selection of contract types provides a needed flexibility in acquiring the large variety and volume of supplies and services needed by the Military Services.
The Armed Services Procurement Act (ASPA),
Federal Property and Administrative Services Act (FPASA), and Competition in Contracting Act (CICA)
represent the three statutory foundations of government contract law and the federal acquisition process.
They have established two basic methods of obtaining "full and open competition"
(a) sealed bidding and
(b) competitive negotiation.
Contract types are grouped into categories:
Fixed-price types of contracts
provide for a firm price, or, in appropriate cases, an
adjustable price. Fixed-price contracts providing for an
adjustable price may include a ceiling price, a target price
(including target cost), or both. Unless otherwise specified in
the contract, the ceiling price or target price is subject to
adjustment or the revision of the contract price under stated
circumstances. The contracting officer shall use
firm-fixed-price or fixed-price with economic price adjustment
contracts when acquiring commercial items.
A firm-fixed-priced 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 contracting parties.
Firm - Fixed-Price, Level - Of -
Effort Term Contract
The contractor is required to devote a specified level of effort over
a stated period of time for a fixed dollar amount.
Usually found in the contracts for investigation or
study in s specific research and development area.
Firm - Fixed-Price,
Materials Reimbursement Type Contract
Used in purchase of
repair and overhaul services to provide a firm
fixed-price for services with reimbursement for cost
of materials used.
Fixed - Price Contract With
Economic Price Adjustment
Use is appropriate to
protect both the Government and the contractor when
there is serious doubt about the stability of labor
or material prices during the life of the contract.
Price adjustment provisions can provide for both
upward and downward adjustments.
Fixed - Price Contracts
There are several types
designed to facilitate proper pricing under varying
conditions. Provides for a firm price, or under
appropriate circumstances may provide for an
adjustable price. Places relatively more cost
responsibility on the contractor than on the
Government, and makes profit a function of the
contractor's ability to manage.
Fixed - Price Incentive
A fixed-price incentive
contract is a fixed-price type contract with
provisions for adjustment of profit. The final
contract price is based on a comparison between the
final negotiated total costs and the total target
Fixed - Price Redetermination
If prospective, provides
for a firm fixed-price for an initial period of
contract performance, and for prospective
redetermination, upward or downward, at stated times
during the performance of the contract. If
retroactive; provides for a ceiling price and
retroactive price re-determination after completion
of the contract.
Cost-reimbursement type of contracts
provide for payment of allowable incurred costs, to the extent
prescribed in the contract. The contracts establish an estimate
of total cost for the purpose of obligating funds and
establishing a ceiling that the contractor may not exceed
(except at own risk) without the approval of the contracting
Cost-reimbursement contracts are
suitable for use only when uncertainties involved in contract
performance do not permit costs to be estimated with sufficient
accuracy to use any type of fixed price contract.
Cost-Plus-A-Fixed-Fee (CPFF) Contract
Contractor's costs responsibility is
minimized, Government's cost responsibility is maximized. The
contractor is reimbursed for allowable, allocable costs.
Contractor's profit is fixed. Price of the contract (total
amount paid to the contractor) is not fixed.
Cost-Plus-Award-Fee (CPAF) Contract
A cost reimbursement type contract
with special fee provisions. It provides a means of applying
incentives in contracts which are not susceptible to finite
measurements of performance necessary for structuring incentive
contracts. The fee is in two parts: a fixed amount unrelated to
performance, and an award amount related to a subjective
judgment of the quality of the contractor's performance.
Cost-Reimbursement Type Contract
There are several types. They
provide for the payment to the contractor of allowable costs
incurred in the performance of the contract to the extent
prescribed in the contract.
Incentive contracts are appropriate
when a firm-fixed-price contract is not appropriate and the
required supplies or services can be acquired at lower costs,
and in certain instances, with improved delivery or technical
performance, by relating the amount of profit or fee payable
under the contract to the contractor's performance. Incentive
contracts are designed to obtain specific acquisition objectives
establishing reasonable and
attainable targets that are clearly communicated to the
incentive arrangements designed to
motivate contractor efforts that might not otherwise be emphasized,
inefficiency and waste.
Cost - Plus - Incentive-Fee (CPIF) Contract
This is a cost-reimbursement type contract with provision for a fee that is adjusted by formula in
accordance with the relationship which total allowable costs
bear to target cost.
There are three types of indefinite - delivery contracts: definite-quantity contracts,
requirements contracts, and indefinite-quantity contracts. The
appropriate type of indefinite-delivery contract may be used to
acquire supplies and/or services when the exact times and/or
exact quantities of future deliveries are not known at the time
of contract award. These are also called delivery order
contracts or task order contracts.
Indefinite - Delivery Type
There are several
types designed for use when the exact time of delivery
is not known.
Indefinite - Quantity Contract
Provides for furnishing of an
indefinite quantity, within stated limits, of specified supplies
or services, during a specified contract period, with deliveries
to be scheduled by the timely placement of orders upon the
An indefinite-delivery type contract
that provides for filling all actual purchase requirements of
specific supplies or services of designated activities during a
specified contract period with deliveries to be scheduled by the
timely placement of orders upon the contractor.
A time-and-materials contract may be
used only when it is not possible at the time of placing the
contract to estimate accurately the extent or duration of the
work or to anticipate costs with any reasonable degree of
This type of contract provides no
positive profit incentive to the contractor for the cost control
or labor efficiency.
Therefore, appropriate Government
surveillance of contractor performance is required to give
reasonable assurance that efficient methods and effective cost
controls are being used.
A labor-hour contract is a variation
of the time-and-materials contract, differing only in that
materials are not supplied by the contractor.
By definition, a negotiated procurement is any not sealed
bidding procurement that is above the simplified acquisition threshold.
Negotiated procurement policies and procedures are found at FAR Part 15.
If one of the four conditions for use of sealed bidding is not
present, the Contracting Officer will award the contract using competitive negotiation.
Contracting by negotiation allows more flexibility in awarding the contract.
Unlike sealed bidding, the
Officer (CO) may engage in discussions with offerors and, in
evaluating proposals, he or she may also consider non-cost factors (such as
managerial experience, technical approach, and/or past performance).
The negotiating process begins when the Contracting Officer issues a Request for Proposals (RFP).
As in sealed bidding, if the procurement is over $25,000, the
Contracting Officer will synopsize
a notice of the proposed contract action in the CBD.
A Request for Proposal must, at a minimum,
state the agency's need, anticipated terms and conditions of the contract,
information the contractor must include in the proposal, and factors and
significant sub-factors that the agency will consider in evaluating the
proposals and awarding the contract. All interested parties may then submit
Evaluation of the proposals includes an assessment of the proposals' relative
qualities, based upon the factors and sub-factors specified in the solicitation.
Contracting Officer (CO) will evaluate
(a) the offeror's cost or price proposal;
(b) the offeror's past performance on government and
(c) the offeror's technical approach; and (d) any other
identified factors for award. FAR 15.305. During the evaluation period, the
CO and source selection team may communicate with the offerors to clarify
ambiguous proposed terms. FAR 15.306.
The Contracting Officer may award a negotiated contract without any further
negotiations, called "discussions.
However, if the Contracting Officer intends to conduct
discussions, he or she will preliminarily identify the offerors that fall within
the "competitive range."
The competitive range is comprised of all the most
highly rated proposals. FAR 15.306 (c).
To assist in determining the competitive range, the
Officer may engage in limited
communications with all offerors.
After establishing the competitive range, the
Officer will notify each excluded offeror and proceed to conduct "discussions" with
the remaining offerors.
According to the FAR, the "primary objective" of discussions is to maximize the
agency's ability "to obtain best value, based on the requirement and the
evaluation factors set forth in the evaluation." FAR 15.306(d)(2).
Officer must indicate to each offeror the significant weaknesses,
deficiencies or other aspects of the proposal that could be altered to enhance
the proposal's potential for award. FAR 15.306(d)(3).
Officer must not
(1) engage in conduct that favors one offeror over another;
(2) reveal an offeror's technical solution;
(3) reveal an offeror's price without permission;
(4) disclose the names of persons providing information
about the offeror's past performance; or
(5) furnish sensitive source selection information. FAR
After discussions begin, the
Officer may eliminate from consideration any offeror
originally in the competitive range but no longer considered among the most
highly rated offerors.
Officer may request that offerors revise their
proposals to clarify any compromises reached during negotiation.
conclusion of the discussions, the
Officer will request a final proposal revision
from each offeror still in the competitive range.
Officer will undertake a comparative analysis of the final offers in
accordance with the evaluation procedures set forth in the RFP, and select the offeror whose proposal is most advantageous to the Government.
award decision should contain an analysis of the trade-offs accomplished by
negotiations and the reasons why the awardee's proposal represents the best
value to the agency.
Officer always has the discretion not to award any contract
if he or she deems that course to be in the Government's best interests.
requested by an unsuccessful offeror, the
Officer will conduct a post-award
debriefing during which the bases for the selection decision will be explained.
Sealed bidding is characterized by a rigid adherence to formal procedures. Those procedures aim to provide all bidders an opportunity to
compete for the contract on an equal footing. In a sealed bidding acquisition, the agency must award to the responsible bidder who submits the lowest
responsive bid (price).
In contrast, competitive negotiation is a more flexible process that enables the agency to conduct discussions, evaluate offers, and
award the contract using price and other factors.
Once a federal agency identifies a need, and decides to proceed with an
acquisition, it must solicit sealed bids if:
(1) time permits the solicitation, submission and evaluation
of sealed bids;
(2) the award will be made on the basis of price and other
(3) it is not necessary to conduct discussions with the
responding offerors about their bids;
(4) and there is a reasonable expectation of receiving more
than one sealed bid. FAR 6.401
The agency's Contracting Officer (CO) initiates a sealed bidding
acquisition by issuance of an Invitation for Bids (IFB). The IFB must describe
the Government's requirements clearly, accurately and completely. The FAR and
case law prohibit the use of unnecessarily restrictive specifications that might
unduly limit the number of bidders.
The agency publicizes the IFB through display in a public place, announcement in
newspapers or trade journals, publication in the federal government's Commerce
Business Daily (CBD), and by mailing the IFB to those commercial organizations
(contractors) on the agency's solicitation mailing list. FAR 14.204; FAR 14.205.
It is critical that contractors submit their bids by the deadline stated in the
IFB. A late bid will not be considered for award except where:
(1) the bid was sent to the CO by registered or certified
mail at least five days before the bid receipt date;
(2) the Government mishandled the bid after receipt;
(3) the bid was sent to the CO by "Postal Service Next Day
Service" two days prior to the bid receipt date; or
(4) the bid was transmitted electronically and received by
5:00 p.m. one working day prior to the bid receipt date. FAR 14.304-1 (a).
All bids received by the time and at the place set for opening
are publicly opened and read aloud by the CO. The bids are then recorded on an
"Abstract of Offers" (Standard Form 1049) and examined for mistakes. If no
mistakes are found, after certain other administrative steps, the CO awards the
contract to that responsible bidder who submitted the lowest responsive bid.
A responsive bid is one that contains a definite,
unqualified offer to meet the material terms of the IFB. FAR 14.301(a).
Conditions, informalities, or defects in the bid that affect the price,
quantity, quality, or delivery of the items being acquired by the agency
will result in rejection of the bid.
The FAR also requires an affirmative finding of responsibility
prior to awarding the contract to the lowest bidder. FAR 14.408-2. To be
determined responsible, the prospective awardee must have the ability and
capacity to perform the contract. More specifically, the FAR requires a
prospective contractor to (1) have adequate financial resources to perform the
contract; (2) be able to comply with the required or proposed delivery or
performance schedule; (3) have a satisfactory performance record; (4) have a
satisfactory record of integrity and business ethics; (5) have the necessary
organization, experience, accounting and operational controls, and technical
skills; (6) have the necessary production, construction and technical equipment
and facilities; and (7) be otherwise qualified and eligible to receive an award
under applicable laws and regulations. FAR 9.104-1.
Beyond responsiveness and responsibility, the CO may only consider price
and price related factors during evaluation of the bids. FAR 14.201-8;
Price-related factors include costs or delays to the
Government resulting from differences in inspection, locations of supplies,
and transportation; taxes; and changes made or requested by a bidder in any
provision of the IFB.
After evaluating price and price-related factors, the CO
awards the contract to the responsible bidder whose bid is most advantageous
to the Government -- i.e ., lowest price. FAR 14.408-1. Award is made by
furnishing a properly executed award document to the successful bidder.
Under sealed bidding procedures, only two types of contract
price methods may be used:
(a) firm-fixed-price or
(b) fixed price with economic price adjustment.