Contract types and vehicles
What is a firm-fixed-price contract?
Firm-Fixed-Price contract (FFP)
A firm-fixed-price contract sets a price that is not subject to adjustment on the basis of the contractor's cost experience, which places the full cost risk — and the full benefit of efficiency — on the contractor.
Also written as: FFP, fixed price contract, firm fixed price meaning.
FAR 16.202-1 describes it exactly that way: the price is not adjustable based on what performance actually costs. If you deliver for less, you keep the difference. If your estimate was wrong, the loss is yours. There is no cost reporting to the government because the government is not paying costs; it is paying a price for a result.
FAR 16.202-2 says this type is suitable when the requirement is well defined and fair and reasonable prices can be established at the outset — commercial items, construction with complete drawings, recurring services with a stable scope. Most of what a small trade or services business will bid federally is firm-fixed-price.
The estimating discipline it demands is the real subject. A federal fixed-price job carries obligations a commercial job of the same description does not: prevailing wage, bonding, specified insurance, inspection regimes, invoicing systems. Every one of those is a cost, and a fixed price that omitted them cannot be repaired later.
What this means when you bid
Price the compliance, not just the work. Wage determinations, bonds and inspection requirements are contract costs, and under FFP nobody reimburses you for having missed them.
Firm-fixed-price compared with the terms it gets confused with
Firm-fixed-price vs CPFF
Under FFP the contractor bears the cost risk and the government pays a set price; under CPFF the government reimburses allowable costs and the contractor's profit is a fixed fee that does not vary with cost.
What CPFFmeans →Firm-fixed-price vs Time-and-materials
T&M pays fixed hourly rates for hours actually worked, so the government carries quantity risk; FFP fixes the total for the delivered result.
What Time-and-materialsmeans →Where this definition comes from
Federal contracting is one of the few fields where the authoritative answer is free, public and one click away. These are the sources this page is built from — go and read them.
- FAR 16.202-1→
Firm-fixed-price contracts — description.
- FAR 16.202-2→
Application.
- FAR Part 16→
Types of contracts.
This page explains a term in plain English and cites the authority it comes from. It is not legal advice, and the regulation governs where this page and the regulation differ.
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Firm-fixed-price— common questions
- What is a firm-fixed-price contract?
- A firm-fixed-price contract sets a price that is not subject to adjustment on the basis of the contractor's cost experience, which places the full cost risk — and the full benefit of efficiency — on the contractor.
- What is the difference between Firm-fixed-price and CPFF?
- Under FFP the contractor bears the cost risk and the government pays a set price; under CPFF the government reimburses allowable costs and the contractor's profit is a fixed fee that does not vary with cost.
- What is the difference between Firm-fixed-price and Time-and-materials?
- T&M pays fixed hourly rates for hours actually worked, so the government carries quantity risk; FFP fixes the total for the delivered result.
- Why does a firm-fixed-price contract matter when you are bidding?
- Price the compliance, not just the work. Wage determinations, bonds and inspection requirements are contract costs, and under FFP nobody reimburses you for having missed them.
Related terms
- CPFF — Cost-Plus-Fixed-Fee contract
- Time-and-materials — Time-and-Materials contract (T&M)
- Davis-Bacon Act — Wage Rate Requirements (Construction)
- Wage determination
- Performance bond