Types of Federal Government Contracts range from firm-fixed price to cost-plus-fixed-fee. Using a wide selection of contract
types provides a needed flexibility in acquiring the large variety and volume of supplies and services needed by the Military Services.
Contract types are grouped into categories:
(1) Fixed-price contracts:
(2) Cost-reimbursement contracts
(3) Incentive Contracts
(4) Indefinite - Delivery Contracts
(5) Time - And-Materials Contracts
(6) Labor - Hour Contracts
(7) Sealed Bidding
Defense Logistics Agency (DLA)
The Armed Services Procurement Act (ASPA),
Federal Property and Administrative Services Act (FPASA), and Competition in Contracting Act (CICA)
represent the three statutory foundations of government contract law and the federal acquisition process.
They have established two basic methods of obtaining "full and open competition"
(a) sealed bidding and
(b) competitive negotiation.
Fixed-price types of contracts provide for a firm price, or, in appropriate cases, an adjustable price. Fixed-price contracts providing
for an adjustable price may include a ceiling price, a target price (including target cost), or both.
Unless otherwise specified in the contract, the ceiling price or target price is subject to adjustment or the revision of the contract price under stated
circumstances. The contracting officer shall use firm-fixed-price or fixed-price with economic price adjustment contracts when acquiring commercial items.
A firm-fixed-priced contract provides for a price that is not subject to any adjustment on the basis of the
contractor's cost experience in performing the contract. This contract type places upon the contractor maximum risk and
full responsibility for all costs and resulting profit or loss. It provides maximum incentive for the contractor to control
costs and perform effectively and imposes a minimum
administrative burden upon contracting parties.
Firm - Fixed-Price, Level - Of - Effort Term Contract
The contractor is required to devote a specified
level of effort over a stated period of time for a
fixed dollar amount. Usually found in the contracts
for investigation or study in s specific research
and development area.
Firm - Fixed-Price, Materials Reimbursement
Used in purchase of repair and overhaul services to
provide a firm fixed-price for services with
reimbursement for cost of materials used.
Fixed - Price Contract With Economic Price
Use is appropriate to protect both the Government
and the contractor when there is serious doubt about
the stability of labor or material prices during the
life of the contract. Price adjustment provisions
can provide for both upward and downward
Fixed - Price Contracts
There are several types designed to facilitate
proper pricing under varying conditions. Provides
for a firm price, or under appropriate circumstances
may provide for an adjustable price. Places
relatively more cost responsibility on the
contractor than on the Government, and makes profit
a function of the contractor's ability to manage.
Fixed - Price Incentive Contracts
A fixed-price incentive contract is a fixed-price
type contract with provisions for adjustment of
profit. The final contract price is based on a
comparison between the final negotiated total costs
and the total target costs.
Fixed - Price Redetermination
If prospective, provides for a firm fixed-price for
an initial period of contract performance, and for
prospective redetermination, upward or downward, at
stated times during the performance of the contract.
If retroactive; provides for a ceiling price and
retroactive price re-determination after completion
of the contract.
Cost-reimbursement type of contracts provide
for payment of allowable incurred costs, to the extent
prescribed in the contract. The contracts establish an
estimate of total cost for the purpose of obligating funds
and establishing a ceiling that the contractor may not
exceed (except at own risk) without the approval of the
Cost-reimbursement contracts are suitable
for use only when uncertainties involved in contract
performance do not permit costs to be estimated with
sufficient accuracy to use any type of fixed price contract.
Cost-Plus-A-Fixed-Fee (CPFF) Contract
Contractor's costs responsibility is minimized,
Government's cost responsibility is maximized. The
contractor is reimbursed for allowable, allocable costs.
Contractor's profit is fixed. Price of the contract
(total amount paid to the contractor) is not fixed.
Cost-Plus-Award-Fee (CPAF) Contract
A cost reimbursement type contract with special fee
provisions. It provides a means of applying incentives
in contracts which are not susceptible to finite
measurements of performance necessary for structuring
incentive contracts. The fee is in two parts: a fixed
amount unrelated to performance, and an award amount
related to a subjective judgment of the quality of the
Cost-Reimbursement Type Contract
There are several types. They provide for the payment to
the contractor of allowable costs incurred in the
performance of the contract to the extent prescribed in
Incentive contracts are appropriate when a firm-fixed-price contract is not appropriate and the required supplies or services can be
acquired at lower costs, and in certain instances, with improved delivery or technical performance, by relating the amount of profit or fee payable under
the contract to the contractor's performance. Incentive contracts are designed to obtain specific acquisition objectives by
establishing reasonable and attainable targets that are clearly
communicated to the contractor, and
including appropriate incentive arrangements
motivate contractor efforts that might not otherwise be
discourage contractor inefficiency and waste.
Cost - Plus - Incentive-Fee (CPIF) Contract
This is a cost-reimbursement type contract with provision for a fee that
is adjusted by formula in accordance with the relationship which total allowable costs bear to target cost.
There are three types of indefinite - delivery contracts:
definite-quantity contracts, requirements contracts, and indefinite-quantity contracts. The appropriate type of
indefinite-delivery contract may be used to acquire supplies and/or services when the exact times and/or exact quantities of
future deliveries are not known at the time of contract award. These are also called delivery order contracts or task order contracts.
Indefinite - Delivery Type Contract
There are several types designed for use when the exact
time of delivery is not known.
Indefinite - Quantity Contract
Provides for furnishing of an indefinite quantity,
within stated limits, of specified supplies or services, during a specified contract period, with deliveries to
be scheduled by the timely placement of orders upon the contractor.
An indefinite-delivery type contract that provides for filling all actual purchase requirements of specific
supplies or services of designated activities during a specified contract period with deliveries to be
scheduled by the timely placement of orders upon the contractor.
A time-and-materials contract may be used only when it is not
possible at the time of placing the contract to estimate
accurately the extent or duration of the work or to anticipate
costs with any reasonable degree of confidence.
This type of contract provides no positive profit incentive to
the contractor for the cost control or labor efficiency.
Therefore, appropriate Government surveillance of contractor
performance is required to give reasonable assurance that
efficient methods and effective cost controls are being used.
A labor-hour contract is a variation of the time-and-materials
contract, differing only in that materials are not supplied by the contractor.
By definition, a negotiated procurement is any not sealed
bidding procurement that is above the simplified acquisition threshold.
Negotiated procurement policies and procedures are found at FAR Part 15.
If one of the four conditions for use of sealed bidding is not present, the Contracting Officer will award the contract using competitive
negotiation. Contracting by negotiation allows more flexibility in awarding the contract. Unlike sealed bidding, the
Contracting Officer (CO) may engage in discussions with offerors and, in evaluating proposals, he or she may also consider non-cost factors (such as
managerial experience, technical approach, and/or past performance).
The negotiating process begins when the Contracting Officer issues a Request for Proposals (RFP).
As in sealed bidding, if the procurement is over $25,000, the
Contracting Officer will synopsize a notice of the proposed contract action in
A Request for Proposal must, at a minimum, state
the agency's need, anticipated terms and conditions of the contract, information
the contractor must include in the proposal, and factors and significant
sub-factors that the agency will consider in evaluating the proposals and
awarding the contract. All interested parties may then submit proposals.
Evaluation of the proposals includes an assessment of the proposals' relative
qualities, based upon the factors and sub-factors specified in the solicitation.
Typically, the Contracting Officer (CO) will evaluate
(a) the offeror's cost or price proposal;
(b) the offeror's past performance on government and commercial contracts;
(c) the offeror's technical approach; and (d) any other identified factors for award. FAR 15.305. During the evaluation period, the
CO and source selection team may communicate with the offerors to clarify ambiguous proposed terms. FAR 15.306.
The Contracting Officer may award a negotiated contract without
any further negotiations, called "discussions.
However, if the Contracting Officer intends to conduct
discussions, he or she will preliminarily identify the offerors that fall within
the "competitive range."
The competitive range is comprised of all the most highly rated proposals. FAR 15.306 (c).
To assist in determining the competitive range, the
Contracting Officer may engage in limited communications with all offerors.
After establishing the competitive range, the Contracting Officer will notify each excluded offeror and proceed to conduct
"discussions" with the remaining offerors.
According to the FAR, the "primary objective" of discussions is to maximize the
agency's ability "to obtain best value, based on the requirement and the
evaluation factors set forth in the evaluation." FAR 15.306(d)(2).
During the discussions, theContractingOfficer must indicate to each offeror the significant weaknesses,
deficiencies or other aspects of the proposal that could be altered to enhance the proposal's potential for award. FAR 15.306(d)(3).
TheContracting Officer must not
(1) engage in conduct that favors one offeror over another;
(2) reveal an offeror's technical solution;
(3) reveal an offeror's price without permission;
(4) disclose the names of persons providing information about the offeror's past performance; or
(5) furnish sensitive source selection information. FAR 15.306(e)
After discussions begin, theContracting
Officer may eliminate from consideration any offeror originally in the competitive range but no longer considered among the most highly rated
Further, the Contracting Officer may request that offerors revise their proposals to clarify
any compromises reached during negotiation.
At the conclusion of the discussions, the Contracting
Officer will request a final proposal revision from each offeror still in the competitive range.
Contracting Officer will undertake a comparative analysis of the final offers in accordance with the evaluation procedures set forth in the RFP, and select the
offeror whose proposal is most advantageous to the Government.
The documented award decision should contain an analysis of the trade-offs accomplished by negotiations and the reasons why the awardee's
proposal represents the best value to the agency.
Officer always has the discretion not to award any contract if he or she deems that course to be in the Government's best interests.
If requested by an unsuccessful offeror, the
Contracting Officer will conduct a post-award debriefing during which the bases
for the selection decision will be explained.
Sealed bidding is characterized by a rigid adherence to formal procedures. Those procedures aim to provide all bidders an opportunity to
compete for the contract on an equal footing. In a sealed bidding acquisition, the agency must award to the responsible bidder who submits the lowest
responsive bid (price).
In contrast, competitive negotiation is a more flexible process that enables the agency to conduct discussions, evaluate offers, and award the
contract using price and other factors.
Once a federal agency identifies a need, and decides to proceed with an acquisition, it must solicit sealed bids if:
(1) time permits the solicitation, submission and evaluation of sealed bids;
(2) the award will be made on the basis of price and other price-related factors;
(3) it is not necessary to conduct discussions with the responding offerors about their bids;
(4) and there is a reasonable expectation of receiving more than one sealed bid. FAR 6.401
The agency's Contracting Officer (CO) initiates a sealed bidding
acquisition by issuance of an Invitation for Bids (IFB). The IFB must describe
the Government's requirements clearly, accurately and completely. The FAR and
case law prohibit the use of unnecessarily restrictive specifications that might
unduly limit the number of bidders.
The agency publicizes the IFB through display in a public place, announcement in
newspapers or trade journals, publication in the federal government's Commerce
Business Daily (CBD), and by mailing the IFB to those commercial organizations
(contractors) on the agency's solicitation mailing list. FAR 14.204; FAR 14.205.
It is critical that contractors submit their bids by the deadline stated in the
IFB. A late bid will not be considered for award except where:
(1) the bid was sent to the CO by registered or certified mail at least five days before the bid receipt date;
(2) the Government mishandled the bid after receipt;
(3) the bid was sent to the CO by "Postal Service Next Day Service" two days prior to the bid receipt date; or
(4) the bid was transmitted electronically and received by
5:00 p.m. one working day prior to the bid receipt date. FAR 14.304-1 (a).
All bids received by the time and at the place set for opening are publicly opened and read aloud by the CO. The bids are then recorded on an
"Abstract of Offers" (Standard Form 1049) and examined for mistakes. If no mistakes are found, after certain other administrative steps, the CO awards the
contract to that responsible bidder who submitted the lowest responsive bid.
A responsive bid is one that contains a definite, unqualified offer to meet the material terms of the IFB. FAR 14.301(a).
Conditions, informalities, or defects in the bid that affect the price, quantity, quality, or delivery of the items being acquired by the agency
will result in rejection of the bid.
The FAR also requires an affirmative finding of responsibility prior to awarding the contract to the lowest bidder. FAR 14.408-2. To be
determined responsible, the prospective awardee must have the ability and capacity to perform the contract. More specifically, the FAR requires a
prospective contractor to (1) have adequate financial resources to perform the contract; (2) be able to comply with the required or proposed delivery or and facilities; and (7) be otherwise qualified and eligible to receive an award
under applicable laws and regulations. FAR 9.104-1.
Beyond responsiveness and responsibility, the CO may only consider price and price related factors during evaluation of the bids. FAR 14.201-8;
Price-related factors include costs or delays to the Government resulting from differences in inspection, locations of supplies,
and transportation; taxes; and changes made or requested by a bidder in any provision of the IFB.
After evaluating price and price-related factors, the CO awards the contract to the responsible bidder whose bid is most advantageous
to the Government -- i.e ., lowest price. FAR 14.408-1. Award is made by furnishing a properly executed award document to the successful bidder.
Under sealed bidding procedures, only two types of contract price methods may be used:
(a) firm-fixed-price or
(b) fixed price with economic price adjustment.