When it comes to government contracting, there are several contract types available to choose from. Two of the most common types of contracts are Fixed Price (FFP) and Cost Plus Fixed Fee (CPFF). Understanding the differences between these two types of contracts can help contractors and agencies alike to make informed decisions when it comes to awarding and managing government contracts.
Fixed Price Contracts (FFP)
Fixed Price contracts (FFPs) are, as the name suggests, contracts that have a fixed price attached to them. This means that the contractor agrees to complete a specific scope of work for a predetermined amount of money. FFPs are typically used when the scope of work is well-defined and the risk associated with the project is relatively low. In an FFP contract, the contractor bears the risk of any cost overruns or delays, and therefore must carefully manage the project to ensure that it is completed on time and within budget.
Cost Plus Fixed Fee Contracts (CPFF)
Cost Plus Fixed Fee contracts (CPFFs) are contracts where the contractor is reimbursed for all allowable expenses incurred in the course of the project, plus a fixed fee. This fixed fee is typically negotiated at the beginning of the project and is intended to cover the contractor`s overhead costs and profit. CPFF contracts are typically used when the scope of work is less well-defined, and the risk associated with the project is higher. In a CPFF contract, the government agency bears the risk of any cost overruns or delays.
Which Contract Type is Right for You?
Deciding which contract type is right for your project depends on several factors, including the scope of work, the level of risk associated with the project, and the contracting agency`s preferences. FFP contracts are typically preferred by government agencies when the scope of work is well-defined and the risk associated with the project is relatively low. Contractors, on the other hand, may prefer CPFF contracts when the scope of work is less well-defined and the risk associated with the project is higher.
In conclusion, understanding the differences between FFP and CPFF contracts is essential when it comes to government contracting. FFP contracts are contracts that have a fixed price attached to them while CPFF contracts reimburse contractors for all allowable expenses incurred in the course of the project, plus a fixed fee. It is crucial to carefully consider your project`s scope of work and level of risk before deciding which contract type is right for you.