FAR 16 offers adequate information on different types of contracts and terms used in contracts. Types of contracts are categorized as firm-fixed-price contracts and cost-reimbursement contracts. Firm fixed-price offers an adjustable price for the firm by establishing a contract's final price (Acquisition.gov, 2020). In a firm-fixed process contract, the contractor assumes the maximum risk. The contracting officer can adjust the stated price of a contract to accommodate economic price adjustment; The contractor is expected to issue a specified level of effort for the stipulated period at a fixed amount of dollars. A firm-fixed-price contract is best applicable for a contract that entails the acquisition of commercial items or other supplies since it is easy to establish just and reasonable prices (Manuel, 2014). On the other hand, cost-reimbursement contracts provide for payment of permissible incurred cost extent to the degree agreed in the contract (Acquisition.gov, 2020). There is an estimated total cost in this contract that ensures the contractor does not exceed without getting approval from the contracting officer. The contract uncertainties do not permit the estimation of cost.
Cost-reimbursements contracts are grouped as cost contracts and cost-sharing contracts. The contractor does not receive any fee in a cost contract and is mainly applied in research and development projects. The other type is a cost-sharing contract where the contractor does not receive any fee, and the reimbursement is done only for the portion agreed-upon of the allowable cost (Acquisition.gov, 2020). A cost-sharing contract mainly occurs where the contractor agrees to absorb some portion of the cost as they expect substantial compensation benefits. Another type of contract discussed in FAR 16 is two types of specified contracts. First is the from-fixed price, whereby the contractor assumes total accountability for the cost of performance and loss. The second is profit and cost-plus-fixed-fee, whereby the contractor has limited responsibility since the negotiation fee is fixed (Manuel, 2014). According to FAR 16, the indefinite-delivery contract is applicable when the contracting parties are unaware of the exact time and future deliveries during the awarding of the contract.
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There are several factors that officers handling contract considers, including price competition, whereby effective price competition leads to realistic pricing. Price analysis factor and cost analysis are important factors of consideration when handling a contract (Acquisition.gov, 2020). The other factor is the type and complexity of requirements, especially those requirements set by the government. Contractors also need to consider combining a type of contract, the urgency of the requirement, and the contractor's accounting system's adequacy.
References
Manuel, K. M. (2014). Contract Types: Legal Overview . Congressional Research Service.
Part 16 - Types of Contracts | Acquisition.GOV . Acquisition.gov. (2020). Retrieved 18 January 2021, from https://www.acquisition.gov/far/part-16.
