Overview
FAR 16.201 establishes the fundamental characteristics of fixed-price contracts, including those with adjustable price mechanisms, and mandates their use for commercial product and service acquisitions.
Key Rules
- Price Structure: Fixed-price contracts provide for either a firm price or an adjustable price (which may include ceiling prices, target prices, or both).
- Adjustment Limits: Ceiling or target prices in adjustable fixed-price contracts can only be modified through specific contract clauses, such as those providing for equitable adjustments.
- Commercial Acquisitions: Contracting officers are required to use firm-fixed-price or fixed-price with economic price adjustment contracts for commercial products and services, subject to limited exceptions in FAR 12.207(b).
- Exclusions: Time-and-materials (T&M) and labor-hour contracts are explicitly classified as non-fixed-price contracts.
Practical Implications
- In fixed-price arrangements, the contractor assumes maximum risk and responsibility for all costs and resulting profit or loss, as the price remains static unless specific regulatory "triggers" occur.
- The regulation limits the government's flexibility when procuring commercial items, forcing a preference for price certainty over cost-reimbursement or hourly-rate models.