Fixed-Price Contracts

These are the types of contracts that small businesses will, for the most part, be dealing with. Under the fixed-price arrangement, the final price is basically determined before the work is performed. There are various types of fixed-price contracts:

• Firm fixed-price: The price is not subject to adjustment. The contractor is obligated to perform the contract at the awarded price and accepts 100 percent of the profit or loss of performing the contract within that price. (See FAR 16.202)
• Fixed-price with economic price adjustment: The price may be adjusted upward or downward based upon the occurrence of contractually specified economic contingencies that are clearly outside the contractor's control. (See FAR 16.203)
• Fixed-price incentive: The profit is adjusted and the final price is established by a formula based on the relationship of the final negotiated cost to the target cost. (See FAR 16.204)
• Firm fixed-price, level-of-effort: A fixed price is established for a specified level of effort over a stated time frame. If the level varies beyond specified thresholds, the price may be adjusted. (See FAR 16.207)