Contract Types

Contract types define the pricing arrangement and risk allocation between the government and the contractor. The Federal Acquisition Regulation defines a spectrum of contract types ranging from firm fixed-price (lowest risk to government) to cost-plus-fixed-fee (highest risk to government).

Major contract types include Firm Fixed-Price (FFP), where the contractor bears all cost risk; Fixed-Price Incentive (FPI), which shares cost savings or overruns; Time and Materials (T&M), which pays an hourly rate plus materials; and Cost-Plus-Fixed-Fee (CPFF), where the government reimburses all allowable costs plus a fixed fee.

The contract type affects every aspect of your proposal strategy, from pricing methodology to risk management. Fixed-price contracts require precise cost estimation and risk reserves, while cost-reimbursement contracts require robust accounting systems and cost controls. Understanding which contract type is appropriate for different situations is fundamental to successful government contracting.