FFP

What is a firm fixed-price contract? Under an FFP contract, the government pays a single agreed-upon price for the deliverable or service. If the contractor's actual costs come in lower than expected, the contractor keeps the savings as profit. If costs exceed the fixed price, the contractor absorbs the loss. There is no mechanism for the government to increase the price due to cost overruns — the only way to change the price is through a formal contract modification that changes the scope of work.

FFP contracts are authorized under FAR Part 16.202 and are the government's default contract type. The FAR explicitly states a preference for firm fixed-price contracts over any other type. When the government has well-defined requirements, stable specifications, and can estimate cost with confidence, FFP is almost always selected.

When agencies use firm fixed-price contracts:

• Requirements are clearly defined with a detailed SOW, PWS, or specifications
• Commercial products and services (FAR Part 12 — almost always FFP)
• Commodity purchases, equipment, and supply contracts
• Construction projects with firm drawings and specifications
• IT products and standard IT services
• Any acquisition where costs can be reasonably estimated in advance

FFP vs. other contract types — risk comparison:

• FFP — All cost risk on contractor. Government pays fixed price regardless of actual costs.
• T&M (Time & Materials) — Risk shared. Government pays fixed hourly rates × actual hours, with a ceiling. Used when scope is uncertain.
• CPFF (Cost-Plus-Fixed-Fee) — Most cost risk on government. Government reimburses all allowable costs plus a fixed fee. Used for R&D and high-risk work.
• FPI (Fixed-Price Incentive) — Risk shared via formula. Fixed ceiling price with cost-sharing mechanism. Used for complex production work.

How to price an FFP proposal competitively:

• Research comparable awards — Use USASpending.gov and SAM.gov's contract data to find similar past contracts and their awarded values
• Benchmark labor rates — Compare your rates against published GSA Schedule prices and Bureau of Labor Statistics data
• Build realistic cost estimates — Account for every cost element: direct labor, materials, subcontractors, travel, overhead, G&A, and profit
• Include management reserve — Build a contingency buffer (typically 5-10%) into your price to protect against unforeseen issues
• Avoid "buying in" — Bidding below cost to win, hoping to recover through modifications, is a common contractor mistake that destroys profitability and can trigger government scrutiny under FAR 3.501

CLINs in FFP contracts: Work is broken into Contract Line Item Numbers (CLINs), each with its own fixed price. This allows the government to separately fund, track, and modify individual deliverables without affecting the entire contract price. A single FFP contract may have dozens of CLINs covering different deliverables across base and option periods.

For new contractors, FFP contracts are the best starting point — they're the most common type, the simplest to administer, and don't require a DCAA-compliant accounting system (unlike cost-reimbursement contracts).