Overview
FAR 36.207 establishes firm-fixed-price contracts as the standard for construction acquisitions and outlines the specific conditions under which lump-sum pricing, unit pricing, or economic price adjustments should be utilized.
Key Rules
- Standard Contract Type: Firm-fixed-price is the mandatory general standard for construction.
- Pricing Methods: Contracts may be structured as lump-sum (total price for work), unit-price (price per work unit), or a combination of both.
- Preference for Lump-Sum: Agencies must use lump-sum pricing as the default unless specific exceptions apply.
- Exceptions for Unit Pricing: Unit pricing is authorized when quantities (such as grading, paving, or excavation) are large, difficult to estimate accurately, or likely to change significantly during performance.
- Economic Price Adjustment (EPA): Fixed-price contracts with EPA are permitted if customary in the industry or necessary to prevent offerors from including high "contingency" costs to cover market volatility.
Practical Implications
- Risk Allocation: Lump-sum pricing places the risk of quantity accuracy on the contractor, while unit pricing protects the contractor from quantity fluctuations by shifting the risk of volume changes to the government.
- Administrative Burden: Contracting Officers must ensure that unit pricing is only used for specific high-risk variables (like site preparation or utilities) to avoid the increased administrative effort of measuring and verifying work units for standard construction tasks.