Types of federal contracts

Why the type matters more than the number

Two contracts for the same work at the same dollar value can be completely different deals. The contract type determines what happens when reality differs from the estimate: who absorbs the overrun, how you get paid, what records you must keep, and how much of your own money is tied up while you wait.

A small shop can be ruined by a fixed price contract on work it does not fully understand, and can be buried in accounting requirements by a cost reimbursement contract it was not set up for. Knowing which is which, before you bid, is basic protection.

The two families are fixed price and cost reimbursement. Everything else is a variation or a vehicle for ordering.

Fixed price: you carry the risk

You agree a price, you deliver, you get paid that price. If it costs you more than you expected, that is your problem. If you find a way to do it cheaper, that is your profit.

Firm fixed price is the most common type for supplies and straightforward services, and it is what most small shops will meet first. The government likes it because the cost is known. It suits work where the requirement is clear: a part to a drawing, a known quantity, a defined service.

There are variations. Fixed price with economic price adjustment allows the price to move with a named index, which matters on long contracts when material costs swing. Fixed price incentive shares savings or overruns between you and the government according to a formula agreed up front.

What this means for you: your estimate has to be right. Read the specification completely, including packaging, marking, inspection and any first article requirement, because those are costs and they are not optional. If there is anything in the requirement you do not fully understand, a fixed price bid is where that ignorance becomes expensive.

Cost reimbursement: the government carries more of the risk

The government pays your allowable costs plus a fee. These are used where the work genuinely cannot be estimated up front, typically research, development, or studies.

The catch is what you must have in place. Cost reimbursement contracts require an accounting system capable of tracking and reporting costs to the government satisfaction, and they come with audit exposure. Most small shops starting out do not have this, and building it is a real investment.

Common forms are cost plus fixed fee, where the fee is set regardless of final cost; cost plus incentive fee, where the fee moves with performance against targets; and cost plus award fee, where a portion is awarded based on the government evaluation of how you did.

What this means for you: unless you are in research or development work, you are unlikely to meet these early, and you should not chase them until your accounting can support them.

Time and materials, and labor hour

You are paid an agreed hourly rate for labor plus the cost of materials. Used where the scope cannot be pinned down enough for a fixed price but the work is not research.

These carry a ceiling price you cannot exceed without approval, and the government watches them closely because there is little built-in incentive for you to be efficient. Labor hour contracts are the same thing without the materials.

What this means for you: the rates you agree are the deal. Build them properly, because you will live with them for the life of the contract.

Ordering vehicles: IDIQ, BPA and schedules

These are not really contract types, they are ways of making ordering easier. They matter enormously to a small shop because a large share of federal buying flows through them, and if you are not on the vehicle you never see the work.

An indefinite delivery, indefinite quantity contract sets terms and rates up front, then the government issues task or delivery orders against it as needs arise. There is a guaranteed minimum and a ceiling. Multiple companies usually hold the same IDIQ and compete for the individual orders, which is a much smaller field than an open competition.

A blanket purchase agreement is a simplified arrangement for repeat purchases of similar items, so the office does not run a fresh procurement every time it needs the same thing.

GSA schedules, formally the Multiple Award Schedule, are long term government-wide contracts with pre-negotiated prices and terms. Agencies buy from schedule holders directly. Getting on a schedule is an effort and it is not right for everyone, but for some categories it is where the buying happens.

What this means for you: when you read award history and see the same vendors winning repeatedly at one office, check whether they hold a vehicle. If most of that office spending runs through an IDIQ you are not on, competing for the occasional open solicitation is the wrong strategy. The right one is to get on the vehicle next time it is recompeted, which is exactly the kind of thing worth tracking years ahead.

Simplified acquisitions and micro-purchases

Below certain dollar thresholds the government uses streamlined procedures with far less paperwork. Micro-purchases, the smallest band, can often be made with a government purchase card and minimal competition. Simplified acquisition procedures cover a larger band and are still much lighter than a full competitive procurement.

The specific threshold amounts are set in regulation and change over time, so check the current figures rather than relying on a number you read somewhere. What does not change is the strategic point.

What this means for you: this is where most small shops get their first award, and it is where you should be looking first. Purchases in this range are frequent, decided quickly, often set aside for small business, and they build the past performance record that makes larger awards possible. Chasing a large competitive procurement as your first federal contract is a much longer road than most people expect.

How to tell which one you are looking at

The solicitation says so. The type is stated in the contract form and reinforced by the clauses incorporated into it, and the notice type on SAM.gov tells you where in the process you are. If you are looking at award history, the record carries the pricing type and the competition information for past actions, so you can see what an office normally uses for work like yours before you ever respond to a notice.

Read it before you price, not after. The same scope at the same value is a different commercial decision depending on which family it sits in.

See reading a solicitation, pricing a government bid, and how to win federal contracts.