Overview
FAR 16.103 outlines the policies and procedures for selecting the appropriate contract type, emphasizing that the choice is a matter of negotiation and sound judgment linked closely to price. The primary objective is to balance contractor risk with performance incentives while maintaining a preference for firm-fixed-price contracts whenever requirements are stable.
Key Rules
- Integration with Pricing: Negotiating contract type and negotiating price are inseparable activities; the goal is to achieve a combination that ensures reasonable risk and encourages economical performance.
- Firm-Fixed-Price (FFP) Preference: FFP must be used when risks are minimal or predictable. If FFP is not used, the selected type must effectively tie profit to contractor performance.
- Transition Requirement: Contracting officers must avoid the long-term use of cost-reimbursement or time-and-materials (T&M) contracts once enough experience is gained to establish firm pricing.
- Mandatory Documentation: The contract file must justify the selected contract type. For non-FFP contracts, documentation must specifically include:
- Analysis of why FFP is inappropriate.
- Evidence of the contractor’s technical and financial capability (e.g., adequacy of accounting systems).
- An assessment of Government resources available to manage the higher-risk contract type.
- A plan to transition to FFP for future requirements of the same nature.
- Exceptions to Documentation: Detailed justifications are generally not required for simplified acquisitions, standard FFP contracts (excluding major systems/R&D), or specific sealed bid partial set-asides.
Practical Implications
- Higher Administrative Burden for Non-FFP: Agencies choosing cost-reimbursement or T&M contracts face a significant "onus of justification," requiring them to prove they have the staff and oversight capabilities to manage the increased risk.
- Contractor System Scrutiny: To qualify for other-than-fixed-price contracts, contractors must demonstrate robust accounting and internal control systems, as the Government must document these factors to justify the contract type selection.