Overview
This section describes a contract type that establishes a firm fixed price for an initial period of performance while allowing for prospective price adjustments for subsequent periods. It is designed for long-term acquisitions where a fair price can be determined for the near term, but future costs remain too uncertain for a single fixed price.
Key Rules
- Structure: Must provide a firm fixed price for the initial period and a scheduled redetermination of prices for later periods.
- Timing: The initial period must be the longest possible duration for which a firm fixed price can be negotiated; subsequent periods must be at least 12 months each.
- Ceiling Price: An optional ceiling price may be established to limit government risk, adjustable only through specific clauses like equitable adjustments.
- Mandatory Prerequisites:
- Standard firm-fixed-price and fixed-price incentive contracts must be determined inappropriate.
- The contractor must maintain an adequate accounting system that aligns with the redetermination periods.
- There must be reasonable assurance that price redeterminations will be conducted promptly at the scheduled times.
- Required Clause: The contracting officer must insert FAR clause 52.216-5 in negotiated solicitations and contracts when these conditions are met.
Practical Implications
- This contract type is typically utilized in long-term quantity production or service contracts where market fluctuations or evolving requirements make multi-year fixed pricing high-risk for the contractor.
- It requires significant administrative oversight, as both the government and the contractor must engage in recurring price negotiations and audits throughout the life of the contract.