The Short Answer
The four primary types of government contracts are:
**Fixed-Price (FFP)** -- You agree on a price upfront. You keep profit if you finish under budget; you absorb loss if you go over.**Cost-Reimbursement (CPFF/CPIF)** -- The government reimburses your actual costs plus a fee. Lower risk for you, more oversight from the government.**Time-and-Materials (T&M)** -- You bill hourly labor rates plus materials at cost. Used when scope is uncertain.**Indefinite-Delivery/Indefinite-Quantity (IDIQ)** -- An umbrella contract with a range of quantities. Work is ordered through individual task orders.Each type allocates risk differently. Understanding which type applies to a solicitation changes how you price, staff, and manage the work.
1. Fixed-Price Contracts (FFP)
Risk allocation: Contractor bears cost risk. Government bears minimal risk.
| Variant | How It Works |
|---------|-------------|
| **Firm-Fixed-Price (FFP)** | Set price. No adjustments. You absorb overruns. |
| **Fixed-Price Incentive (FPI)** | Target price with sharing formula for over/under performance |
| **Fixed-Price with Economic Price Adjustment (FP-EPA)** | Price adjusts based on labor/material indices |
When the government uses FFP:
Requirements are well-definedCommercial or near-commercial itemsSufficient pricing history existsFFP by the numbers:
66% of all federal contract dollars are fixed-priceAverage FFP contract value: $1.2MFFP contracts have the fastest award timelinesKey risk: If you underbid, you eat the loss. The government will not reimburse overruns on an FFP contract.
2. Cost-Reimbursement Contracts (CPFF/CPIF/CPAF)
Risk allocation: Government bears cost risk. Contractor has lower risk but more oversight.
| Variant | Fee Structure |
|---------|-------------|
| **Cost-Plus-Fixed-Fee (CPFF)** | Fixed fee regardless of final cost |
| **Cost-Plus-Incentive-Fee (CPIF)** | Fee varies based on cost performance |
| **Cost-Plus-Award-Fee (CPAF)** | Fee based on government evaluation of performance |
| **Cost (no fee)** | Cost reimbursement only (rare, usually R&D) |
When the government uses cost-reimbursement:
R&D with uncertain outcomesComplex services where scope may changeFirst-time efforts with no pricing historyCost-reimbursement by the numbers:
25% of federal contract dollarsRequires an adequate accounting system (DCAA-approved)Higher audit burden than FFPKey requirement: You must have a DCAA-compliant accounting system. Without it, you cannot perform cost-reimbursement contracts.
3. Time-and-Materials (T&M) Contracts
Risk allocation: Shared. Government pays actual hours at fixed rates; materials at cost.
Structure:
Fixed hourly labor rates (by labor category)Materials reimbursed at actual cost (or with a material handling fee)Ceiling price that the contractor cannot exceedWhen the government uses T&M:
Scope is uncertain but labor categories are knownEmergency or surge requirementsIT services, maintenance, advisory workT&M by the numbers:
6% of federal contract dollarsAverage T&M contract includes 8-12 labor categoriesGovernment prefers FFP but uses T&M when scope cannot be definedKey risk: The ceiling price is real. If you hit the ceiling, you stop work unless the government modifies the contract.
4. Indefinite-Delivery/Indefinite-Quantity (IDIQ)
Risk allocation: Varies by task order type. IDIQ is a vehicle, not a pricing mechanism.
| Variant | How It Works |
|---------|-------------|
| **Indefinite-Delivery/Indefinite-Quantity (IDIQ)** | Range of quantities, task orders issued as needed |
| **Indefinite-Delivery/Definite-Quantity (IDDQ)** | Fixed total quantity, flexible delivery schedule |
| **Requirements** | Government orders all actual needs from one contractor |
Major IDIQ vehicles:
OASIS+ ($60B ceiling, professional services)GSA Schedule (MAS) ($40B+ annually)SeaPort-NxG (Navy engineering/technical)Alliant 3 (IT services)CIO-SP4 (IT/health IT)IDIQ by the numbers:
50%+ of all federal contract dollars flow through IDIQ vehiclesIndividual task orders can be FFP, T&M, or cost-reimbursementWinning the IDIQ vehicle is step one; winning task orders is the ongoing competition
Contract Type Comparison
| Factor | FFP | Cost-Plus | T&M | IDIQ |
|--------|-----|-----------|-----|------|
| **Price certainty** | High | Low | Medium | Varies |
| **Contractor risk** | High | Low | Medium | Varies |
| **Government oversight** | Low | High | Medium | Varies |
| **Accounting requirements** | Standard | DCAA-compliant | Standard | Varies |
| **Proposal complexity** | Medium | High | Low | High (vehicle), Low (task orders) |
| **% of federal dollars** | 66% | 25% | 6% | 50%+ (overlapping) |
FAQ
What are the four types of government contracts?
The four primary types are Fixed-Price (FFP), Cost-Reimbursement (CPFF/CPIF), Time-and-Materials (T&M), and Indefinite-Delivery/Indefinite-Quantity (IDIQ). Fixed-Price accounts for 66% of federal dollars and places cost risk on the contractor. Cost-Reimbursement accounts for 25% and places risk on the government. T&M uses fixed labor rates with cost materials. IDIQ is a vehicle that uses task orders priced under any of the other types.
What is a fixed-price government contract?
A Firm-Fixed-Price (FFP) contract sets the price at award. The contractor delivers the work at that price regardless of actual costs. If costs come in under the price, the contractor keeps the profit. If costs exceed the price, the contractor absorbs the loss. FFP is the most common federal contract type at 66% of all contract dollars.
What is a cost-type contract?
A cost-reimbursement contract reimburses the contractor for allowable, allocable, and reasonable costs incurred in performing the work, plus a fee. The fee structure varies: CPFF (fixed fee), CPIF (incentive fee), or CPAF (award fee). Cost-type contracts require a DCAA-compliant accounting system and are used when scope is uncertain or for R&D.
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