Types of Contracts

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Types of Contracts

There are many types of government contracts.  Today we will discuss the most common types of contracts that the federal government uses.

Throughout today’s article, we will be discussing the different types of federal contracts.  We will also be referencing the Federal Acquisition Regulation (FAR) that is the Acquisition Bible for federal contracts.  If you did not read the article on the “Federal Acquisition Regulation for Businesses,” you can find that article here.   You will need to determine which contract types are going to go into your business strategy.  Start with one or two, and as you win contracts, you can add the other contract types.

Fixed-Price Contracts

FAR Part 16.2 covers a Firm-Fixed Price. (FFP) Contract.  A Firm-Fixed-Price contract provides a price that is not subject to any cost adjustment during the contract period.  All Federal agencies use this contract type, especially for low-risk deals.  The majority of contracts are firm-fixed price.

Cost-Reimbursement and Cost-Plus contracts

On Cost-Reimbursement and Cost-Plus Contracts, the contractor receives payment for all allowed expenses up to the limit specified in the contract, plus profit.  The government uses cost-reimbursement and Cost-plus contracts when they cannot estimate with any accuracy the costs associated with the contract performance.

  Refer to FAR Part 16.3 more information

Time and Materials Contracts

Time and Materials Contracts are a mix of fixed-price and cost-reimbursement contracts.  These contracts are rare because they shift a lot of the risk onto the side of the government.  Time and Materials Contracts allow government officials to buy supplies or services by 1) direct labor hours at a specified hourly rate that includes wages, overhead, profit and general and administrative expenses 2) actual material costs.  Time and Materials Contracts come into play when the government cannot accurately estimate the extent or duration of work. Refer to FAR Part 16.6 for more information.

Indefinite Delivery/Indefinite Quantity Contracts

Indefinite Delivery/Indefinite Quantity Contracts (IDIQ) contracts contain both a fixed-price and cost reimbursement.  Since the government is unsure of the exact quantity of a product or service, they state limits and only have a fixed contract period.  This contract requires the government to order at least a minimum amount of supplies or services.  The contracting officer decides a maximum reasonable amount for the total agreement.  These contracts are often multiple award contracts.  The Contracting Officer will select a limited group of vendors for these contracts.  The limited group is then asked to bid against each other to complete for each separate task, giving the government the competitive price for each job without initiating a new contract competition for each one.  Refer to FAR Part 16.5 for more information.

Sealed Bidding Contract

Sealed Bidding is a rigid adherence to formal procedures in the bidding and selection process.  These provide all bidders an opportunity to compete for the contract on equal footing.  In a sealed bidding acquisition, the agency must award to the responsible bidder who submits the lowest responsive bid. Refer to FAR Part 14 for more information.

Negotiated Contracts

Negotiated contracts are any not sealed bidding procurement that is above the simplified acquisition threshold, which is currently $250,000.  This type of arrangement allows more flexibility in awarding the contract.  The Contracting Officer (CO) may engage in discussions with offerors and, in evaluating proposals.  They may also consider non-cost factors such as managerial experience, technical approach and or past performance. Refer to FAR Part 15 for more information.

Simplified Acquisition Contracts Threshold. 

Simplified Acquisition Thresholds are for purchases over $3,000 and under $250,000.  The lower priced contracts require less approval and documentation than contracts above these thresholds. Contracts within these thresholds is an excellent way for beginning federal contractors to get their foot in the door.  Refer to FAR Part 13 for more information.  The National Defense Authorization Act (NDAA) for Fiscal Year 2018 raises the simplified acquisition threshold for Federal acquisitions.  The Civilian Agency Acquisition Council (CAAC) has requested a class deviation to the FAR to increase this threshold.

Conclusion

The market research that you performed earlier will play an essential role in determining which types of contracts meet your specific business strategy.   Click here for the article on “Where Federal Opportunities Are Listed.”  As you can see, there are quite a few different types of federal contracts.   USA Spending is going to come into play as you select the various agencies to market too. Besides that, capitalize on the procurement forecasts and put your plan into action. Most importantly, you need to be ready to bid on these opportunities when they are announced.  

Until next week.

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