16.104 Factors in selecting contract types.

There are many factors that the contracting officer should consider in selecting and negotiating the

contract type. They include the following:

(a) Price competition. Normally, effective price competition results in realistic pricing, and a fixedprice contract is ordinarily in the Government’s interest.

(b) Price analysis. Price analysis, with or without competition, may provide a basis for selecting the

contract type. The degree to which price analysis can provide a realistic pricing standard should be

carefully considered. (See 15.404-1(b).)

(c) Cost analysis. In the absence of effective price competition and if price analysis is not sufficient,

the cost estimates of the offeror and the Government provide the bases for negotiating contract

pricing arrangements. It is essential that the uncertainties involved in performance and their

possible impact upon costs be identified and evaluated, so that a contract type that places a

reasonable degree of cost responsibility upon the contractor can be negotiated.

(d) Type and complexity of the requirement. Complex requirements, particularly those unique to the

Government, usually result in greater risk assumption by the Government. This is especially true for

complex research and development contracts, when performance uncertainties or the likelihood of

changes makes it difficult to estimate performance costs in advance. As a requirement recurs or as

quantity production begins, the cost risk should shift to the contractor, and a fixed-price contract

should be considered.

(e) Combining contract types. If the entire contract cannot be firm-fixed-price, the contracting

officer shall consider whether or not a portion of the contract can be established on a firm-fixedprice basis.

(f) Urgency of the requirement. If urgency is a primary factor, the Government may choose to

assume a greater proportion of risk or it may offer incentives tailored to performance outcomes to

ensure timely contract performance.

(g) Period of performance or length of production run. In times of economic uncertainty, contracts

extending over a relatively long period may require economic price adjustment or price

redetermination clauses.

(h) Contractor’s technical capability and financial responsibility.

(i) Adequacy of the contractor's accounting system. Before agreeing on a contract type other than

firm-fixed-price, the contracting officer shall ensure that the contractor’s accounting system will

permit timely development of all necessary cost data in the form required by the proposed contract

type. This factor may be critical–

(1) When the contract type requires price revision while performance is in progress; or

(2) When a cost-reimbursement contract is being considered and all current or past experience with

the contractor has been on a fixed-price basis. See 42.302(a)(12).

(j) Concurrent contracts. If performance under the proposed contract involves concurrent operations

under other contracts, the impact of those contracts, including their pricing arrangements, should
be considered.

(k) Extent and nature of proposed subcontracting. If the contractor proposes extensive

subcontracting, a contract type reflecting the actual risks to the prime contractor should be

selected.

(l) Acquisition history. Contractor risk usually decreases as the requirement is repetitively acquired.

Also, product descriptions or descriptions of services to be performed can be defined more clearly.

Parent topic: Subpart 16.1 - Selecting Contract Types