What is a Firm-Fixed-Price vs. Cost-Plus?
Also known as: FFP vs cost-reimbursement, Contract types
Firm-fixed-price (FFP) and cost-plus are two families of contract types that determine who bears cost risk. Under FFP, the contractor is paid a set price regardless of actual cost. Under cost-plus (cost-reimbursement), the government reimburses allowable costs plus a fee, taking on more risk.
Firm-fixed-price
The price is fixed at award. If the contractor spends more than expected, it absorbs the loss; if it spends less, it keeps the difference. FFP suits well-defined requirements where cost can be estimated reliably.
Cost-plus (cost-reimbursement)
- Cost-Plus-Fixed-Fee (CPFF) — reimburses costs plus a negotiated fixed fee.
- Cost-Plus-Incentive-Fee (CPIF) — fee varies with cost performance.
- Cost-Plus-Award-Fee (CPAF) — fee based on subjective performance evaluation.
- Used when requirements are uncertain and a fixed price would carry too much risk.
Frequently asked questions
Which contract type is riskier for the contractor?
Firm-fixed-price puts cost risk on the contractor, since the price won't change. Cost-plus shifts cost risk to the government, but it requires an approved accounting system to track allowable costs.
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