The Federal Acquisition Regulations (FARs) guide procurement officers and the U.S.
government in the process of contracting and procurement. The FARs outline the rules and
regulations that must be followed to ensure a fair and transparent procurement process. One
important aspect of procurement planning is understanding the different types of contracts and
being able to determine which type is appropriate for a given situation.
There are five basic types of contracts described in the FARs:
Firm-Fixed-Price Contracts
These contracts establish a fixed price for the goods or services being provided. The contractor is
responsible for any costs that exceed the agreed-upon price, which means that there is no
incentive for the contractor to keep costs low.
Fixed-Price with Economic Price Adjustment Contracts
These contracts are similar to firm-fixed-price contracts, but they include provisions for
price adjustments based on changes in the market or other economic factors.
Cost-Reimbursement Contracts
These contracts reimburse the contractor for the costs incurred in providing the goods or
services, plus a profit margin. This type of contract is appropriate when the scope of work is
uncertain, and it is difficult to estimate the total cost upfront.
Time-and-Materials Contracts
These contracts pay the contractor for the time and materials used to provide the goods or
services, plus a profit margin. This type of contract is appropriate when the scope of work is
well-defined, but the exact amount of work required is unknown.
Indefinite Delivery/Indefinite Quantity Contracts
These contracts provide for an indefinite quantity of goods or services over a fixed period
of time. The exact quantity and delivery schedule are not known upfront, but the contractor is
required to provide the goods or services as requested.
When selecting the type of contract to use, there are several key factors to consider:
Complexity of the Project
The more complex the project, the more flexibility the contractor will need. Cost-
reimbursement or time-and-materials contracts may be more appropriate for complex projects
where the scope of work is uncertain.
Level of Risk
The level of risk associated with the project should also be considered. Firm-fixed-price
contracts may be appropriate for low-risk projects, while cost-reimbursement or time-and-
materials contracts may be better suited for high-risk projects.
Availability of Funding
The availability of funding should also be considered when selecting the type of contract.
Firm-fixed-price contracts may be appropriate when funding is limited, while cost-
reimbursement or time-and-materials contracts may be better suited when funding is more
readily available.
Timeframe
The timeframe for completing the project should also be considered. Indefinite
delivery/quantity contracts may be appropriate when the timeframe is flexible, while firm-fixed-
price contracts may be better suited when the timeframe is fixed.
By carefully considering these factors and selecting the appropriate type of contract,
procurement officers and the U.S. government can ensure a successful procurement process that
delivers the goods or services needed on time and within budget.
References
Federal Acquisition Regulation. (2020). Federal Acquisition Regulations (FARs). Retrieved from
https://www.acquisition.gov/far
U.S. General Services Administration. (2017). Selecting the Type of Contract. Retrieved from
https://www.gsa.gov/acquisition/purchasing-programs/contracting-acquisition/selecting-
type-contract
Defense Acquisition University. (2019). Types of Contracts. Retrieved from
https://www.dau.edu/tools/t/Types-of-Contracts
