1. Contract Types and Recurring Requirements

2. Categories of Contract Types
Fixed-Price contracts
Cost-Reimbursement contracts
Government
FFP
CPFF
Low
Risk
High
Risk
Contractor
CPFF
FFP

3. Transition of Contract Types Through the Maturity of a Program
Cost
CPFF
CPIF
CPIF/FPIF
Studies/
Research/ Concept Refinement
FPIF/FFP
LRIP
Production
Deployment
Technology Development
Sys
Dev
Follow -On
Production
SYS Demo
VERY BROAD REQUIREMENT…………WELL DEFINED REQUIREMENT

4. The Contracting Officer shall insert FAR 52
The Contracting Officer shall insert FAR , Type of Contract, into the solicitation unless it is for:
a fixed-price acquisition made under simplified acquisition procedure
information or planning purposes
"The Government contemplates award of a ___________________ (Contracting Officer insert specific type of contract) contract resulting from this solicitation." (Provision)

5. The Contracting Process, FFP
Vs. Cost Reimbursement
FIXED PRICE
Ktr req’d to deliver product/perform service
Provides for a firm price or in some cases an adjustable price
Contract represents full payment for the work; kr exceeds at own risk
COST REIMBURSEMENT
Ktr req’d to deliver “best effort”
Reasonable, allowable, allocable costs will be reimbursed
Contract amount represents an estimate of total cost; cannot be exceeded without CO approval

6. The Contracting Process, Firm Fixed Price
Vs. Cost Reimbursement Contract Types
COST REIMBURSEMENT
Use when technical/cost uncertainties involved in contract performance do not permit costs to be estimated with sufficient accuracy
Use only when:
FIXED PRICE
Use when technical and cost uncertainties involved in contract performance can be estimated with sufficient accuracy
Use when work can be clearly defined

7. The Contracting Process, Firm Fixed Price
Vs. Cost Reimbursement Contract Types
FIXED PRICE
Kr bears more responsibility for performance costs and resulting profit (or loss)
Use FFP or FP/EPA when
acquiring commercial items
using sealed bidding, and
negotiated procurements
COST REIMBURSEMENT
Kr has adequate accounting system
Govt monitoring ensures efficient methods and effective cost controls
Kr bears less responsibility
Prohibited for commercial items
Use with negotiated procedures

8. Contract Types - Characteristics
Cost
Fixed Price
Promise Best Effort Deliverable
Risk to Contractor Low High
Risk to Government High ?
Cash Flow Cost Incurred On Delivery
Progress Payments Yes
Performance Based Payments Preferred
Administration High Low
Fee/Profit Periodic On Delivery

9. Types of Firm Fixed PRICE Contracts
Firm Fixed Price (FFP)
Fixed Price with Economic Price Adjustment (FPEPA)
Firm Fixed Price Incentive Fee (FPIF)
Firm Fixed Price Award Fee (FPAF)
Firm Fixed Price Level of Effort (FPLOE)
Firm Fixed Price Redeterminable (FPR) - Prospective or Retroactive

10. Features of the FFP Contract
Price not subject to adjustment regardless of contract performance
100% of financial risk is on the contractor
Least amount of administrative burden on the contracting officer
Preferred over all other contract types
Used with FAR Parts 13, 14 and 15
Used in acquiring commercial items

11. Features of the FP/EPA Contract
Preferred over cost-reimbursement type contracts
Reduces contract’s fixed-price risk for government & contractor
More administrative burden for the contracting officer
Used with sealed bidding or negotiated procurements
Used in acquiring commercial items

12. FIXED-PRICE INCENTIVE (FIRM TARGET)
Incentivizes Contractor to Control Costs
Greater Profit when Final Cost is less than Target
Less Profit when Final Cost is more than Target
Retains the characteristics of the fixed-price contract in that there is a Ceiling Price
Mitigates Contractor Risk in that the government assumes a share of the cost risk
Benefits Government as the Government also shares in cost savings

13. When final cost exceeds KC; Final price is KC
When final cost is $800;
Final price is $950 Y X
PTA
PT 100
PP 50
1000 CT
1500 CP
PO 150
800 CO
1550 KC
When final cost exceeds KC;
Final price is KC
Optimistic Profit
75/25 - Under Target Share Ratio
90/10 - Over Target Share Ratio
Target Profit
Either the Optimistic and Pessimistic Costs are negotiated or the share ratios are negotiated and the Co and Cp are computed using the share ratio formula.
Pessimistic Profit
COSTS:
OPTIMISTIC
TARGET
PESSIMISTIC
CEILING
FIXED PRICE INCENTIVE (FIRM TARGET)

14. FPPR - Fixed Price w/ Prospective Price Redetermination
Should be used for acquisitions of quantity production or services where it is possible to negotiate a fair and reasonable FFP for an initial period, but not for subsequent periods of performance
Contracting officer must determine that a FFP or FPI contract will not satisfy the requirement
Contractor must have an adequate accounting system
Price must be redetermined promptly at time(s) specified for subsequent periods of performance
Fixed Price with Prospective Price Redermination is appropriate for acquisitions of quantity production or services for which it is possible to negotiate a fair and reasonable firm fixed price for an initial period, but not for subsequent periods of contract performance.
Provides for firm fixed price for an initial period of the contract deliveries or performance and prospective redetermination at a stated time or times during performance, of the price of subsequent periods of performance.
The initial period should be the longest period for which it is possible to negotiate a fair and reasonable firm fixed price. Each subsequent pricing period should be at least 12 months.
The contract may provide for a ceiling price based on evaluation of the uncertainties involved in performance and their possible cost impact. The ceiling price should provide for assumption of a reasonable proportion of the risk by the contractor, and once established may be adjusted only by operation of contract clauses providing for equitable adjustment or other revision of the contract price under stated circumstances.

15. FPRR - Fixed Price Retroactive Price Redetermination
Appropriate for research and development contracts estimated at $100,000 or less when established at outset that a fair and reasonable FFP cannot be negotiated
Amount involved and short performance period make the use of any other Fixed Price contract impracticable
Ceiling price negotiated w/shared risk
Not used unless:
Ktr's accounting system is adequate
There is reasonable assurance that the price redetermination will take place promptly at the specified time
The head of contracting activity (or higher official) approves its use in writing.

16. FPLOE - Fixed Price Level of Effort
Suitable for investigation or study in a specific research and development arena
Has a contract product that is usually a report showing the result(s) achieved by application of the required level of effort
Payment is based on the negotiated level of effort expended and not on results achieved
Ktr required specified level of effort, over a stated period of time, on work that can be stated only in general terms

17. Features of FPLOE Contract
The work required cannot be clearly defined, otherwise, a FFP contract would be more practical
The required level of effort is identified and agreed upon in advance of contract award
There is a reasonable assurance that the intended result cannot be achieved by expending less than the stipulated effort
Contract Price is $100,000 or less, unless approved by the Chief of the Contracting Office

18. FPAF - Fixed Price Award Fee
Can evaluate a contractor’s performance in:
cost (effective needs)
timeliness
quality of work
cooperation

19. Cost Contract
Cost reimbursement contract in which the contractor receives no fee
Normally applies only to nonprofit institutions and organizations willing to perform research for which there is no fee or other tangible benefits
Most suitable for research and development
Used only in negotiated procurements

20. CPFF -Cost Plus Fixed Fee
Cost reimbursement contract that provides for payment of allowable, allocable, reasonable costs & a negotiated fee that is fixed at inception of the contract. The fixed fee does not vary with actual cost, but may be adjusted as a result of changes to the work to be performed.
Contractor has minimum incentive to control costs
It is costly to administer
Contractor must have an adequate accounting system
Least preferred type of contract because the contractor assumes no financial risk for the performance of the contract
Used only with negotiated procurements

21. COST PLUS FIXED FEE (CONT)
SUITABLE FOR:
Research or preliminary exploration or study and the LOE required is unknown
Development and test & using CPIF is not practical
Normally should not be used
Development of major systems once preliminary exploration, studies & risk reduction have indicated development is achievable and Government has established reasonably firm performance objectives and schedules

22. COST-PLUS-INCENTIVE-FEE
Appropriate for services or development and test programs when:
Cost-reimbursement contract is necessary
Target cost and fee adjustment formula can be negotiated that are likely to motivate the contractor to manage effectively
Excellent to "wean" contractor from Cost Plus Fixed Fee Contract

23. Cost-Plus-Incentive-Fee (CPIF)
$70
800
900
1,000
1,100
1,400
Target Fee at Target Cost
COST ($)
Min
Max $0
Min Fee at
Pessimistic Cost
Max Fee at Optimistic Cost
Range of Incentive Effectiveness (RIE)
$120
$20
75/25
87.5/12.5 •
FEE •
Range of Incentive Effectiveness. •
Optimistic Cost
Target Cost
Pessimistic Cost
COST

24. Indefinite Delivery Contracts
Ordering Vehicles
Flexibility
Quantity
Times
Places
Benefits
Types
Definite Quantity
Requirements
Indefinite Delivery

25. Benefits of Indefinite-delivery Contracts
Government stocks can be maintained at minimum levels
Direct shipment to users
Flexibility in both quantities and delivery scheduling
Allows ordering of supplies or services after minimum quantity specified in the contract
Faster deliveries

26. Indefinite Delivery Contract
Indefinite Quantity Contract
Exact quantity unknown above the minimum
Times/places unknown
Guaranteed minimum
Funds for min obligated on contract; above min obligated on delivery order
Multiple award preference
Multiple award contracts

27. Requirements Contract
Exact quantity unknown/realistic estimate
Exact times/places unknown
No guarantee/but promises to buy from awardee
Funds obligated by each delivery order

28. Definite Delivery Contracts
Definite Quantity Contract
Exact quantity known
Exact times/places unknown
Funds obligated on contract at time of award

29. Time and Materials Contracts
Provide for contracting for supplies or services on the basis of:
direct labor hours at specified fixed hourly rates
material at cost, which may include a material handling cost as part of the material cost

30. Types of Agreements NOT A CONTRACT
Basic Agreement
Basic Ordering Agreement
Blanket Purchase Agreement

31. Basic Ordering Agreement
The agreement contains:
terms and clauses applying to future contracts between the parties during its term
a description, as specific as practicable, of supplies or services to be provided
methods for pricing, issuing, and delivering future orders under the basic ordering agreement

32. Blanket Purchase Agreements
Simplified method of filling anticipated repetitive needs for supplies or services by establishing "charge accounts" with qualified sources of supply. (FAR )
Establishing BPAs
Usually a local supplier
Place calls for supplies
Pay monthly
Establish more than one BPA to maintain competitive prices unless:
7-21/22

33. Multiple Awards should not be made when:
Only one contractor is capable of providing performance at the level of quality required
Based on the contracting officer’s knowledge of the market, more favorable terms and conditions, including pricing, will be provided if a single award is made
Administrative costs outweigh any potential benefits

34. Multiple Awards should not be made when (Cont’d):
Tasks are so integrally related that only a single contractor can reasonably perform the work
The total estimated value of the contract is less than the simplified acquisition threshold
The contracting officer determines that multiple awards would not be in the best interest of the Government

35. Market Conditions for Using Options
likely to be stable enough to preclude putting the contractor at undue risk
not likely to change substantially during the option period

36. Use of Multiyear Contracts
No-year or multiyear funds are available
Funds are likely to be available throughout the contract period at levels above the cancellation ceiling
You expect no substantial change in the minimum need during the contemplated contract period
You plan to award a FFP, FP/EPA or FPIF contract
A multiyear contract would probably cost less than a string of 1-year contracts

37. SUMMARY
There are two major categories of contract types: Fixed-Price and Cost Reimbursement
To choose the appropriate contract type, the contracting officer must consider:
performance risk
market risk