UNCLASSIFIED (U)
14 FAH-2 H-230
CONTRACT TYPES
(CT:COR-27; 01-28-2015)
(Office of Origin: A/OPE)
14 FAH-2 H-231 GENERAL
(CT:COR-27; 01-28-2015)
a. At the same time that the contracting officer determinesthe method of acquisition, he or she will determine the contract type. Thephrase "contract type" refers primarily to the arrangement that willgovern the compensation for the work to be done. Arriving at that arrangementis normally a matter of allocating, between the U.S. Government and thecontractor, the risks involved in contract performance. It also involvesconsideration of contractor incentives to perform.
b. There are two fundamental types of contracts:Fixed-price and cost-reimbursem*nt. Performancerisk is higher for the U.S. Government under a firm fixed-price contract, whilecost-reimbursable contracts place a higher cost risk on the U.S. Government.The inverse is true for contractors on these two broad contract types. Withinthese two broad contract types, there are specific types designed to meetspecialized requirements. In addition, there are other contract types such as indefinite-delivery, labor-hour, or time-and-materials. which will be discussedas they are widely used. The decision to use any type of contract other than afixed-price contract must be documented by the contracting officer. Each contract file must include documentation to showwhy the particular contract type was selected. (Reference 48 CFR 16.103(d)(1)).
14 FAH-2 H-232 FIXED-PRICE CONTRACTS
(CT:COR-27; 01-28-2015)
Fixed price means thatthe buyer and seller will agree in advance on a price that will represent fullpayment for the supplies or services to beprovided under the contract. Fixed-price contracts are used whenspecifications are clearly defined and the contractor is required to deliver aproduct that conforms to the specifications or the completion of specific tasksbefore payment is made. This type of contract places maximum responsibility onthe contractor to accomplish the work stipulated in the contract. Payment forsatisfactory completion is fixed and the contractor receives that fixed amountregardless of actual costs incurred. (Reference 48CFR 16.202.)
14 FAH-2 H-233 COST-REIMBURsem*nTCONTRACTS
(CT:COR-27; 01-28-2015)
Cost-reimbursem*nt contracts are used when the work cannotbe definitely described or its costs estimated with any reasonable degree ofcertainty. The U.S. Government is obligated to reimburse the contractor costs incurred for best efforts, up to the costlimitation set forth in the contract, in meeting the contract's performanceobjectives and delivery dates. This type of contract places maximumresponsibility on the U.S. Government to monitor performance to ensure that thecontractor stays within budget and time constraints. (Reference 48 CFR 16.301.)
14 FAH-2 H-234 TYPES OFINDEFINITE-DELIVERY CONTRACTS
(CT:COR-27; 01-28-2015)
If the exact delivery date is unknown when a contract iswritten, one of three types of indefinite-delivery contracts may be used:
(1) Definite-quantity contract:Provides for delivery of a specific amount of supplies or performance ofservices within a given period, at designated locations, on the order of theU.S. Government. The quantity needed is known, but the time of delivery is not(48 CFR 16.502); or
(2) Indefinite-quantity contract:Does not state the specific quantity of supplies but establishes minimum andmaximum limits on the amount that can be ordered at one time, and on totalquantity during a fixed period. The contractrequires the U.S. Government to order and the contractor to furnish at least astated minimum quantity. To ensure the contract is binding, the minimumquantity must be more than a nominal quantity, but it should not exceed theamount the U.S. Government is fairly certain to order. This typeprovides flexibility as to both quantity and time of delivery (48 CFR 16.504); or
(3) Requirements contract: Anagreement by designated U.S. Government activities to buy all actual purchase requirements of its needs fromthe contractor for a certain stated period of time with no specified amount ortime of delivery. The contract does state arealistic estimated total quantity. However, this estimated quantity is not arepresentation to the contractor that any quantity will actually be requirednor ordered by the U.S. Government during the contract period. Itdiffers from an indefinite-quantity contract only to the extent that no minimumor maximum quantities must be actually ordered.(Reference 48 CFR 16.503.)
14 FAH-2 H-235 TIME-AND-MATERIALS ANDLABOR-HOUR CONTRACTS
(CT:COR-27; 01-28-2015)
a. The time-and-materials (T&M) contract provides for the payment of:
(1) Direct labor hours at specified fixed hourly rates(which include wages, overhead, general and administrative expenses, andprofit);
(2) Material at cost; and
(3) When appropriate, material handling costs as apart of material cost.
b. Thus, the contractor is paid for time deliveredrather than a measurable product with measurable quality attributes. Unlessthe contractor has underestimated the costs in the fixed hourly rate, thetime-and-materials contract does not provide the contractor any incentive tocontrol cost including labor efficiency;therefore, close U.S. Government surveillanceis essential. This contract type is the leastpreferred. (Reference 48 CFR 16.601.)
c. The labor-hour contract is a variant of thetime-and-materials contract, differing only in that the contractor does notsupply materials. (Reference 48 CFR16.602.)
14 FAH-2 H-236 THROUGH H-239 UNASSIGNED
UNCLASSIFIED (U)
