Fixed Price / Cost Reimbursement Contracts

Contract types are grouped into two broad categories: fixed price and cost reimbursement.

Fixed-price contracts entrust the contractor with full responsibility for costs and risk of loss and generally do not permit any adjustment based on the contractor’s costs during contract performance.

It provides the maximum incentive for the contractor to control costs and perform effectively and imposes a minimum administrative burden upon the contracting parties. This type of contract is used in all sealed bids and some negotiated procurements.

Cost reimbursement contracts provide for the payment of allowable costs incurred by the contractor plus a reasonable profit to the extent stated in the contract. The agreement establishes a ceiling price above, which a contractor may not exceed without the contracting officer's approval. Cost reimbursement contracts are commonly used in research and development contracts.

Contracting officers' normal trend is to negotiate the contract type and prices, which are closely related and considered together. The objective is to negotiate a contract type and price (or estimated cost and fee) that will result in reasonable contractor risk and provide the contractor with the greatest incentive for efficient and economical performance.

The contracting officer considers price competition, price analysis, cost analysis, the type and complexity of the requirement, and its urgency when selecting a contract type.

Different types of contracts are as follows:

Fixed Price Contracts:
Fixed Price Incentive Contract
Fixed Price with Economic Price Adjustment
Fixed Price with Prospective Price Re-determination
Fixed Price with Retroactive Price Re-determination
Firm Fixed Price Level of Effort Term Contract

Cost Reimbursement Contracts:
Cost Contract
Cost Plus Award Fee Contract
Cost Plus Fixed Fee Contract

Incentive Contracts:
Fixed Price Incentive Contract
Fixed Price Contract with Award Fee
Cost Plus Incentive Fee
Cost Plus Award Fee

Indefinite Delivery Contracts:
Definite Quantity Contract
Requirement Contract
Indefinite Quantity Contract

Time and Material Contracts
Labor Hour Contracts
Letter Contracts
Basic Agreement (not a contract)
Basic Ordering Agreement (not a contract)