Learn about different types of contracts, and why they matter

1. Contracting Officer Podcast
Slides
Knowledge & Insights From Contracting Officers
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2. Episode 040
Why Contract Type Matters
Original Air Date: August 17, 2015 Hosts: Kevin Jans & Paul Schauer
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3. Formatting notes
• Hyperlinks: Blue font indicates hyperlinks – presentation must be in
‘Slide Show’ mode to activate the link
• Red bold font indicates a point of emphasis
• Green bold font indicates CO’s personal comment or perspective
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4. Introduction
• Purpose of this podcast: “Why contract type matters?”
• There are many different ‘types’ of contracts
• Each has advantages and disadvantages, for specific purposes
• Combined, they provide a wide range of flexible, effective contracting tools for
US Government contracting officers
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5. When does the Contract Type happen?
• Acquisition Time Zones
(from Podcast Episode 003)
• Requirements Zone
• Market Research Zone
• RFP Zone (proposal zone)
• Source Selection Zone
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• Execution Time Zones
(from Podcast Episode 084)
• Kick Off Zone
• Performance Zone
• Re-compete Zone
• Wrap-up Zone

6. Contract Types That Deal with RISK
• See Episode 009 for more on Cost vs. Fixed-Price contracts
• Fixed-Price Contracts
• Low risk to Government
• The extreme example is Firm, Fixed-Price (FFP)
• Contractor fully responsible for performance costs, and resulting profit or
loss
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7. Contract Types That Deal with RISK
• Cost-Reimbursement
• High risk to Government
• The extreme example is Cost-Plus Fixed Fee (CPFF)
• Contractor has minimal responsibility for performance costs, and the
negotiated fee (aka profit) is fixed
• Features payments of “allowable costs” per the contract and FAR
• Must establish an estimate of Total Cost and a Ceiling
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8. Fixed-Price vs. Cost Contracts
• Firm, Fixed-Price Contract
• Best use of ‘basic profit motive’
• “Shall” be used when risk is minimal or predictable
• Cost-type Contract (Government shares risk in order to invite and sustain
contractor interest)
• When firm pricing does not exit
• When there are many “unknowns”
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9. Use Fixed-Price Contracts
• When acquiring Commercial Items (FAR Part 12)
• When the requirement is ‘defined’
• When the need, or the industry, are mature
• As often as practicable
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10. Use Cost-Reimbursable Contracts
• When acquiring Commercial Items (FAR Part 12)
• When the requirement is not ‘clear enough’ to allow for FFP
• Contract performance uncertainties do not allow enough accuracy in cost
estimates to use FFP
• At certain levels, the CO must document the rationale for the type used (FAR
7.1 – Acquisition Planning)
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11. Some Factors in Deciding Contract Type
• The job of Contracting Officer requires CRITICAL THINKING
• FAR 16.103(a) – Negotiating Contract Type
• Selecting the contract type is generally a matter for negotiation and requires
the exercise of sound judgment
• Negotiating contract type and contract prices are closely related
• Looking for reasonable risk and greatest incentive for efficient and
economical performance
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12. Why is Contract Type important?
• Contract Type is
• how risk is distributed
• how execution is managed
• Improper (or less than optimal) assignment of contract type can endanger
program performance regardless of technical risks
• Basically, Contract Type provides flexibility for the Government to procure
what it needs
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13. Why Should Government Care?
• Contract type is the structure on which results are built
• If done poorly, the “shadow of the past” sucks… a LOT
• Contract closeout takes MUCH longer
• The best COs examine the options, then craft the perfect fit among the contract
types available
• This is the “thinking” part of the job
• And get feedback from industry – they can “discuss”
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14. Why Should Industry Care?
• It’s how you know the risks and rewards
• Defines how you execute
• Tracking, delivering, billing, etc.
• Remember that different CLINs can be different contract types! (See Episode
035 - What is a CLIN?)
• If you don’t understand the contract type, you aren’t going to understand the job
• It impacts how (and if) you win the contract
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15. Why Should Industry Care?
• It’s how you perform
• It’s how you factor risk into your price
• When the @#$% hits the fan, “I didn’t know the contract type” is NOT an
answer
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16. Summary
• This should be mutual (Government and industry)
• Know the available contract types
• Know why Government chose the contract type (and influence it if you can)
• If you don’t spend some time picking the right contract type, it will haunt you…
• It’s how Government and Industry get the best solution
• It drives the execution process
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17. Contact us
• We are on LinkedIn, Twitter and Facebook
• We also started the Government Contracting Network Group on
Facebook. Join us there!
• Send your topics to paul@Contractingofficerpodcast.com
• For Community support, contact Shelley Hall at
shelley.hall@skywayacquisition.com
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