The government offers billions of dollars in contracts every year to civilian contractors, and while these contracts can be quite lucrative, getting started in the world of contracting can be confusing. To help ease the confusion a bit, we’ve compiled some helpful information about the types of government contracts you might see.
1. The Fixed-Price Contract
The fixed-price contract is a bit like those fancy prix-fixe dinners at upscale eateries. You pay a set rate and you get a specific menu of food. With a fixed-priced contract, a government agency asks for a specific item, and this agency sets the price they will pay for this service. There are several different types of fixed-price contracts, including firm-fixed-price (FFP) and fixed-price economic price adjustment (FPEPA) and several more.
Here’s a quick look at these types of government contracts. Let’s say you will be a paper supplier to a government agency. The agency’s contracting officer will create a contract for a specific amount of paper needed and set a price based upon a reasonable price comparison of that good’s current market value.
For the sake of argument, let’s say the agency needs 200 cartons of multipurpose printing paper. The contracting officer might set a price for this paper at $32 per carton. If a contractor is willing to provide the cartons for set firm-fixed-price, then they might bid on the contract.
Keep in mind, this can be profitable or not. If the contractor usually charges $35 per carton, this is less than what the contractor usually makes for the items. However, if the contractor usually charges $30, then it’s a profitable option. Obviously, this is a relatively simple example, but it illustrates the pros and cons of this type of fixed contract as there is some risk to the contractor if their costs exceed what the government is willing to pay.
In some cases, a government agency will offer a fixed-price contract with an economic price adjustment. This means that the price the agency will pay could go up or down depending on several factors. For instance, if the established prices of goods or services changes, this could affect how much the contractor will be paid.
If labor or material costs change, this also could affect how much a contractor could be paid. For instance, perhaps you have bid on a job and the labor needed for that job suddenly increases. While the government set a fixed-price for the contract, they might be willing to cover the expenses of extra labor and you can negotiate that with the contracting officer.
This is just a basic look at fixed-price contracts, there also are fixed-price incentive firm (FPIF), fixed-price award-fee (FPAF) and fixed-price prospective redetermination (FPRP) contracts under this category.
2. Cost-Reimbursement Contracts
While the fixed-priced contracts tend to balance more risk on contractors, the risk in cost-reimbursement contracts tends to fall on the government agency. These types of government contracts tend to involve research and development contracts rather than contracts for actual goods or services.
Obviously, research and development is a service, but it’s a bit more ambiguous cost-wise than a service such as janitorial services or perhaps painting or repair services. For instance, development a comprehensive IT plan for an agency or completing large-scale medical research might be projects that fall under this category.
There are several subcategories of cost-reimbursement contracts, including cost/cost-sharing, cost-plus fixed fee, cost-plus award-fee and cost-plus incentive-fee contracts. For some of these, there is a minimum and maximum payment range, while others are a bit more flexible.
3. Time & Materials Contracts
This one is pretty cut and dried. For these types of contracts, the government sets a per-hour labor rate and calculates materials costs and sets a price ceiling. If you can provide the services within the price ceiling this can be a good option.
These types of contracts often are very short-term, such as for emergency services. You might be called in to clean up after a flood, hurricane or other natural disaster. In some cases, known as labor-hour contracts, the contractor will only provide labor and not materials.
4. Incentive Contracts
Sometimes we wonder if the government is deliberately obtuse when it creates various documents. For instance, if you look up the government’s definition of Incentive Contracts, it states, “Incentive contracts … are appropriate when a firm-fixed-price contract is not appropriate and the required supplies or services can be acquired at lower costs and, in certain instances, with improved delivery or technical performance, by relating the amount of profit or fee payable under the contract to the contractor’s performance.”
Let your head spin around that one for a moment. What this really means is that the government is offering a contract with an incentive or reward based upon agreed upon specifications. An incentive contract will be a contract based upon either a cost-reimbursement contract or fixed-price contract with added incentives.
For instance, in Los Angeles, contractors were hired to provide retrofitting for several bridges that crossed over major interstate highways. These roads had to be shut down for the duration of these bridge repairs, which, in a large metro area can be quite a hassle. In fact, local residents call these repair days, “Carmageddon.”
Because the government fully understands the traffic nightmares that can ensue, they might offer an incentive contract to a company that can complete the project within the course of a weekend. Let’s say, the government asks for work to be started at midnight on Saturday and completed by 3 a.m. on Sunday. If the company completes this project early, there may be an incentive or bonus paid if the contract is completed on time or early.
5. Indefinite Delivery & Quantity Contracts
Sometimes a government agency doesn’t know precisely what they need. For instance, they might not know the exact quantities of a supply they might need or for how long they need a contractor to provide a service.
As an example, let’s think about snow. While snow can be lovely, it also can cause many logistical problems. A government agency might need to hire a snow removal company to ensure that roads or parking lots are kept clear so that drivers can utilize them. Of course, the government agency won’t be able to predict how often or for how long they will need to use this service.
After all, we have no control over the weather. There might be an early spring and no need for snow plowing or it might be a tumultuous season filled with blizzard after blizzard and the snow plow company will be in great demand. This is one simple example of an indefinite delivery contract.
To learn more about all of the different types of government contracts in more detail that you probably ever cared to read, head to https://www.acquisition.gov/content/part-16-types-contracts#i1104846.
If you need help with SAM registration, which is your first step in government contracting, give the team at Federal Contractor Registry a call. We can handle this complicated process for you and provide you with more time to read about the many types of government contracts.