Types of Government Contracts
Our consulting division at Malyszek & Malyszek consults on all aspects of federal government contracting short of having to litigate. As consultants we help navigate our clients through contract performance to avoid potential problems that would lead to litigation, default, or even suspension and debarment. If performance problems do arise we help you address the problems early.
There are several types of government contracts. Each requires a unique approach to bidding and a unique approach to performing the work. Understanding the distinct tasks and prospects of each contract is crucial if your business is to flourish as a government contractor.
Most government contracts over $150,000 are sent through a competitive bidding process managed by a contracting officer. This process can be conducted through negotiated procurement or sealed bidding.
Government contracts belong to two common categories: fixed-price (sealed bidding or negotiated) and cost-reimbursement (negotiated only). The contract type outlines the obligations, expectations, incentives, and rewards for both the government and the contractor during an acquisition. The contract type also dictates:
• The nature and amount of the profit incentive offered to the contractor for reaching specified goals
• The timing and degree of the duty assumed by the contractor for the costs of performance
Understanding the sub-types within these categories is a challenging prospect for any proposal team.
Various types range from firm-fixed-price with the contractor bearing the most responsibility or risks for costs and profit, to cost-plus-fixed-fee with the contractor bearing less responsibility or risks for costs and profit is fixed.
• Cost Plus Award Fee (CPAF) – A cost reimbursement contract is one where the intentions of the contract are determined to be completed by particular means. The contractor receives reimbursement for their costs plus the award fee.
• Cost Plus Incentive Fee (CPIF) – A cost plus incentive fee contract is one where the vendor is refunded for costs incurred plus fee based on a formula tied to costs. The fee formula can vary and is designed to encourage the contractor to keep the costs down.
• Firm Fixed Price (FFP) – Firm Fixed Price contracts have thorough requirements and price for the work. The price is negotiated before the contract is finalized and doesn’t vary. Firm fixed price contracts require the contractor to manage the costs of the work in order to make a profit.
• Cost Plus Fixed Fee (CPFF) – A cost plus fixed fee contract refunds the contractor for the cost incurred to complete the work plus a negotiated fixed fee. The fee doesn’t change based on cost of the work. Cost is calculated based on definite amounts paid for materials, labor, overhead, fringes, and general and administrative rates. Many government contracts are cost reimbursable.
• Fixed Price with Economic Price Adjustment (FPEPA) – Fixed price with economic price adjustment contracts are fixed price contracts. They contain a provision to account for incidents and changing costs.
• Fixed Price Contract with Incentive Fee Target (FPIF) – The fixed price contract with incentive fee is a firm fixed price type contract. The fee can vary depending on whether the contract comes in below or above planned cost. These contracts contain a ceiling price to limit the government’s exposure to overrun costs.
Contact Malyszek & Malyszek today if you are in need of more information regarding the various types of government contracts.
