Defense acquisition management: Responses should be a minimum of 100 words and include direct questions. Replies are directly to each individual, they should contribute to the discussion, show a different point of view and ask releavent questions.
There are many different types of government contracts, they all have their own unique processes and challenges. They have their own way of bidding and distinct types of work that they are best suited for. Each type that I will write about today have different types of contracts within themselves but I will focus mainly on the larger idea of the different types of contracts.
Fixed-Price Contracts are a general type of contract used in most government or private companies. It is used when there is a fixed or maximum price for the services rendered or end-product. Though there may be some adjustment to the maximum or ceiling price but that will be written into the contract in the beginning. When the contract risk is low this is the type of “go-to” contract for most situations. An example of bad time to use fixed-price contracts is for research.
Cost-Reimbursement and Cost-Plus Contracts are quite similar when you break down the two contract types. Cost-plus or cost-reimbursement contracts are when a contractor is reimbursed for the expenses that they incur plus a pre-negotiated price to allow the company to make some money on the contract. The Department of Defense has used the type of contract quite often in deployed locations.
Time-and-Materials Contracts are the type of contracts that are rarely seen due to the high risk to the contracting agency. These contracts can be very detrimental to the contracting agency since the cost and scope of the full cost can change over time due to the actual costs of materials and the shifting of risk from the contractor to the contracting agency. The Department of Defense and the Federal Traffic Authority are two agencies known for using this type of contract.
Indefinite Delivery/Indefinite Quantity Contracts is a hybrid type of contract utilizing both Cost-reimbursement and fixed-price contracts. Government agencies that utilize this type of contract use it when the actual quantity or the services rendered or supplies involved is available or known. Though they do have minimums and maximums written within the contract there is some wiggle room within the contract.
Types of Government Contracts [Abstract]. (2012). GovWin, 1-12. Retrieved June 12, 2017, from https://iq.govwin.com/corp/downloads/GW-Types-Govt-Contracts-2012.pdf.
I have learned the basis of the different types of contracts studying the FAR part 16. The two broad types of contracts are Firm Fixed Price and Cost Reimbursement. They are very different in nature, mostly due to whom will assume risk, and the needs of the government verses the needs of the contractor.
In a Firm Fixed Price type, the contractor will always assume the most risk. This type of contract is also suitable for commercial items or acquiring supplies with detailed specifications. Within fixed price contracts there also exists a few other categories. Fixed-price with economic price adjustment, Fixed-price incentive, Fixed-price with prospective price redetermination, fixed-ceiling price with retroactive price redetermination, and Firm-fixed-price, level-of-effort term contracts.
A Cost Reimbursement type contract is used primarily when circumstances don’t allow for defined requirements to allow for a fixed-price contract. This broad category is of course a more flexible type contract to allow for unforeseen changes. The other categories in the broad type are Cost contracts, Cost-sharing contracts, Cost-plus-incentive-fee contracts, Cost-plus-award-fee contracts, and Cost-plus-fixed-fee contracts.
I chose to use the flashcards because I seem to do better with that style learning. I didn’t realize there were so many types of contracts, and especially didn’t understand the reasoning for using the different types. In my line of work we mainly use a Cost-Reimbursement since we are also a government entity. It is definitely appropriate due to the overhauling of major end items. Many times the vehicles come in several scenarios of damage. The Reimbursement type allows us to extend the amount of cost for the battle damaged vehicles or severely corroded/deteriorated. I have only had one experience with a Firm Fixed Price, and we were actually sub-contracted by a contractor. It was cheaper for them to pay us a large quantity cost then to open up their plant and pay their labor fees and overhead.