14 FAH-2 H-230
CONTRACT TYPES
(CT:COR-27; 01-28-2015)
(Office of Origin: A/OPE)
14 FAH-2 H-231 GENERAL
(CT:COR-27; 01-28-2015)
a. At the same time that the contracting officer determines
the method of acquisition, he or she will determine the contract type. The
phrase "contract type" refers primarily to the arrangement that will
govern the compensation for the work to be done. Arriving at that arrangement
is normally a matter of allocating, between the U.S. Government and the
contractor, the risks involved in contract performance. It also involves
consideration of contractor incentives to perform.
b. There are two fundamental types of contracts:
Fixed-price and cost-reimbursement. Performance
risk is higher for the U.S. Government under a firm fixed-price contract, while
cost-reimbursable contracts place a higher cost risk on the U.S. Government.
The inverse is true for contractors on these two broad contract types. Within
these two broad contract types, there are specific types designed to meet
specialized requirements. In addition, there are other contract types such as indefinite-delivery, labor-hour, or time-and-materials. which will be discussed
as they are widely used. The decision to use any type of contract other than a
fixed-price contract must be documented by the contracting officer. Each contract file must include documentation to show
why the particular contract type was selected. (Reference 48 CFR 16.103(d)(1)).
14 FAH-2 H-232 FIXED-PRICE CONTRACTS
(CT:COR-27; 01-28-2015)
Fixed price means that
the buyer and seller will agree in advance on a price that will represent full
payment for the supplies or services to be
provided under the contract. Fixed-price contracts are used when
specifications are clearly defined and the contractor is required to deliver a
product that conforms to the specifications or the completion of specific tasks
before payment is made. This type of contract places maximum responsibility on
the contractor to accomplish the work stipulated in the contract. Payment for
satisfactory completion is fixed and the contractor receives that fixed amount
regardless of actual costs incurred. (Reference 48
CFR 16.202.)
14 FAH-2 H-233 COST-REIMBURSEMENT
CONTRACTS
(CT:COR-27; 01-28-2015)
Cost-reimbursement contracts are used when the work cannot
be definitely described or its costs estimated with any reasonable degree of
certainty. The U.S. Government is obligated to reimburse the contractor costs incurred for best efforts, up to the cost
limitation set forth in the contract, in meeting the contract's performance
objectives and delivery dates. This type of contract places maximum
responsibility on the U.S. Government to monitor performance to ensure that the
contractor stays within budget and time constraints. (Reference 48 CFR 16.301.)
14 FAH-2 H-234 TYPES OF
INDEFINITE-DELIVERY CONTRACTS
(CT:COR-27; 01-28-2015)
If the exact delivery date is unknown when a contract is
written, one of three types of indefinite-delivery contracts may be used:
(1) Definite-quantity contract:
Provides for delivery of a specific amount of supplies or performance of
services within a given period, at designated locations, on the order of the
U.S. Government. The quantity needed is known, but the time of delivery is not
(48 CFR 16.502); or
(2) Indefinite-quantity contract:
Does not state the specific quantity of supplies but establishes minimum and
maximum limits on the amount that can be ordered at one time, and on total
quantity during a fixed period. The contract
requires the U.S. Government to order and the contractor to furnish at least a
stated minimum quantity. To ensure the contract is binding, the minimum
quantity must be more than a nominal quantity, but it should not exceed the
amount the U.S. Government is fairly certain to order. This type
provides flexibility as to both quantity and time of delivery (48 CFR 16.504); or
(3) Requirements contract: An
agreement by designated U.S. Government activities to buy all actual purchase requirements of its needs from
the contractor for a certain stated period of time with no specified amount or
time of delivery. The contract does state a
realistic estimated total quantity. However, this estimated quantity is not a
representation to the contractor that any quantity will actually be required
nor ordered by the U.S. Government during the contract period. It
differs from an indefinite-quantity contract only to the extent that no minimum
or maximum quantities must be actually ordered.
(Reference 48 CFR 16.503.)
14 FAH-2 H-235 TIME-AND-MATERIALS AND
LABOR-HOUR CONTRACTS
(CT:COR-27; 01-28-2015)
a. The time-and-materials (T&M) contract provides for the payment of:
(1) Direct labor hours at specified fixed hourly rates
(which include wages, overhead, general and administrative expenses, and
profit);
(2) Material at cost; and
(3) When appropriate, material handling costs as a
part of material cost.
b. Thus, the contractor is paid for time delivered
rather than a measurable product with measurable quality attributes. Unless
the contractor has underestimated the costs in the fixed hourly rate, the
time-and-materials contract does not provide the contractor any incentive to
control cost including labor efficiency;
therefore, close U.S. Government surveillance
is essential. This contract type is the least
preferred. (Reference 48 CFR 16.601.)
c. The labor-hour contract is a variant of the
time-and-materials contract, differing only in that the contractor does not
supply materials. (Reference 48 CFR
16.602.)
14 FAH-2 H-236 THROUGH H-239 UNASSIGNED