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Tip Tuesday: Contract Types

This article was originally published in a monthly KYPTAC newsletter. If you do not receive this newsletter, please sign up as a client here.

In contracting for goods and services, the Federal Government and other government entities use many different types of contract vehicles. The contracts may be awarded as purchase orders, contracts, and agreements such as Blanket Purchase Agreements. The Federal Government has definitions of the different types of contracts allowed for acquisitions in Part 16 of the Federal Acquisition Regulations. Other governmental entities may use similar contract types or as specified in their respective procurement regulations or codes.

One of the more common contract types is the Firm-fixed-price contract which provides for a price that isn’t subject to any change or adjustment based on the contractor’s cost of performing the contract. This type of contract minimizes the risk to the Government and places maximum risk of performance on the contractor. Depending upon the circumstances, fixed-price contracts may include a variety of other terms such as economic price adjustments, incentives, and redeterminations.

Another common contract type is the cost-reimbursement contract. Cost type contracts allow for the reimbursement of all allowable costs incurred for the performance of a given effort including overheads and profit. This type of contract imposes maximum risk on the Government and minimizes the risk of performance on the contractor. Like fixed-price contracts, there are a variety of cost-reimbursement type contracts including, cost-sharing, incentive-fee, award-fee, and fixed-fee which may be used depending upon the specific circumstances of the individual acquisition.

Another common contract type is the indefinite-delivery contract. There are three main types of indefinite-delivery contracts – definite-quantity, requirements, and indefinite-quantity. Agreements are not technically a “contract”, but rather establish an understanding of the clauses and other terms and conditions that will apply to any future orders under the agreement. There are a wide variety of contract types available to Government Contracting Officers, so it is important to be aware of the different types and what that means to contractors when they receive an award.

Part 16 of the FAR contains the definitions and prescribes policies for the use and application of the various contract types. As we have stated on many occasions . . . “Read your contract” and know what the terms and conditions are before you sign on the dotted line!


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