Different types of contracts allow flexibility in acquiring a wide variety of supplies and services. You may be able to identify a specific product that has a fixed market price. You may need to be able to acquire different types of services that can’t yet be defined. The FAR Part 16 discusses the different types of contracts and when they should be used.

The main types of contracts are:

• Fixed price
• Cost reimbursement
• Incentive contracts
• Indefinite Quantity-Indefinite Delivery (IDIQ)
• Time and Materials, Labor-Hour

The two broad categories of contracts are fixed price contracts and cost-reimbursement contracts. Fixed price contracts allow for no consideration of the contractor’s actual costs in performing the contract. The contractor agrees to perform defined work for a firm fixed price.  The maximum risk is on the contractor, with little risk on the purchaser. Cost reimbursement contracts are the opposite. The contractor is paid costs incurred in performing the work. There is little risk on the contractor.

Incentive contracts are a combination of the fixed price and cost reimbursement. For example, there are cost plus fixed fee and cost plus award fee contracts. The contractor gets paid costs, but is also guaranteed a fee.

There are many contract types that can be used. You may also see many variations and combinations of the contract types within the same contract. For instance, a single contract may allow for tasks to be ordered as fixed price, time and material, or cost reimbursement.

Either fixed price or cost reimbursement with no fee. However, the prime contractors may accept time and material contracts from the government and want to have the same type subcontract with the university (see Direct Productive Labor Hours (DPLH).

You should become familiar with the different types of contracts. Before accepting or awarding a fixed price contract, you should make sure there is a defined statement of work with a defined deliverable. You have to be able to define the work to be performed before you can price it. If you have a fixed price contract, never include the budget as a part of the contract. The budget can be used to determine if the price is reasonable, but should never become a part of the contract.

Remember that the risk is on the contractor in performing a fixed price contract. If not priced properly, the university could lose money on the contract.