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Week 8 Assignment – Types of Contracts and Their Use

Jason Griffith

LEG440 – Procurement and Contract Law

Francis (Frank) Hatstat, JD, MBA

November 30, 2025

Introduction

In order to be successful in the federal contracting environment, the contractor must

understand the different types of contracts that are offered in accordance with the Federal

Acquisition Regulation (FAR). Without this basic understanding of the type of contract being

bid on, the contractor is at a precarious disadvantage and may not be able to meet the

requirements set forth in the request for proposal. The contractor must understand that what

determines a contract type is dependent upon what is being purchased. The contractor must also

understand that each contract has its own set of advantages and disadvantages.

Federal government contracting most often revolves around two (2) broad categories of

contract types; however, these two categories are not inclusive to the full scope and types of

contracts that are available. The two most common broad categories of contract types are fix-

price contracts and cost-reimbursement contracts. According to the FAR, the other types of

contracts are incentive contracts, indefinite-delivery contracts (IDIQ), time-and-materials, labor-

hour, and letter contracts, and agreements. For the purpose of this writing requirement the fix-

price contracts and cost-reimbursement contracts shall be discussed.

Types of Federal Contracts

Federal government contracting most often revolves around two (2) broad categories of

contract types; however, these two categories are not inclusive to the full scope and types of

contracts that are available. The two most common broad categories of contract types are fix-

price contracts and cost-reimbursement contracts. According to the FAR, the other types of

contracts are incentive contracts, indefinite-delivery contracts (IDIQ), time-and-materials, labor-

hour, and letter contracts, and agreements.

The fixed-price contract may be defined as a contract where “the contractor agrees to

perform all work specified in the contract at a fixed price” (Anyanwu, 2012). Fixed price

contracts are utilized in federal contracting when “the risk involved is minimal or can be

predicted with an acceptable degree of certainty” (FAR 16.103(b)). This type of contract

provides the most risk to the contractor. As a result of the lack of market stabilization and supply

versus demand, contractors must forecast material pricing correctly while ensuring that the

pricing is fair and reasonable. “In fixed-price contracts, contractors must estimate and agree on

prices in advance by considering any possible fluctuation during the project. During the actual

implementation of construction works, the contractor will absorb any unforeseen cost

fluctuations” (Gibbens, Wanigarathna, King, and Tree, 2024). Should a contract miscalculate

these prices, the economic loss to the contract could be quite high.

The second type of contract in the federal contracting environment is the cost-

reimbursement contract. According to the FAR Subpart 16.3 – Cost-Reimbursement Contracts,

“cost-reimbursement types of contracts provide for payment of allowable incurred costs, to the

extent prescribed in the contract.” These types of contracts are utilized when the cost may

fluctuate due to rapid changes in existing market conditions or project requirements set forth by

the government (Nkuah, 2006). This type of contract offers more flexibility when compared to

the fix-price contract.

It should be noted that there are additional government contracts, such as incentive

contracts which also include fixed-price incentive contracts and cost-reimbursement incentive

contracts. Additionally, indefinite-delivery contracts, often referred to as IDIQ contracts, are

available, which provide definite-quantity contracts, requirements contracts, and indefinite-

quantity contracts through an established time period. These types of contracts are often found
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in service of base operation and sustainment contracts. The time-and-materials, labor-hour, and

letter contracts are utilized for the purchase of required supplies and services for the proper

operation, cleanliness, and organization structure of an agency. The final type of contract is the

basic ordering agreement or basic task order (BTO) that is utilized when a contracting action is

required; however, a lack of time perpetuates that a minor project or repair must be concluded as

quickly as possible.

Contracting Officer’s Responsibilities

The responsibilities of the contracting officer are vast; however, outline in the Federal

Acquisition Regulation. The contracting officer is provided with the authority to solicit

proposals, negotiate contracts, award contracts, administer awarded contracts, issue contract

modifications and terminate existing contracts. During the contract negotiation phase the

contracting officer should openly and clearly communicate with the contractor while providing

the contractor with the ample opportunity to allow the contractor to be an active participant in the

negotiation process. The contracting officer should also ensure the fairness of the negotiation

process while protecting the interest of the federal government. “Negotiations are complex

interpersonal decision-making processes, and their out-come depends on a plurality of factors

that range from individual differences to the setting in which a negotiation takes place, be it face-

to-face or through computer-mediated communication” (Lipp, Smolinski, and Kesting, 2023).

This complex formula is a territorial discussion that often results in disagreements due to lack of

technical knowledge versus perception.

Works Cited

Anyanwu, C. (2012). Fixed price and cost-plus contract arrangements for the administration of

public building projects delivery. 3027-3035.

[Link]

PRICE_AND_COST_PLUS_CONTRACT_ARRANGEMENTS_FOR_THE_ADMINIS

TRATION_OF_PUBLIC_BUILDING_PROJECTS_DELIVERY

Federal Acquisition Regulation (2025), Types of Contracts, Part 16,

[Link]

Gibbens, T., Wanigarathna, N., King, D., and Tree, M. (2024). Investigating the contractor’s

financial risk under a fixed-price contract during crisis time: The case of the COVID-

19 pandemic. Journal of Legal Affairs and Dispute Resolution in Engineering and

Construction. Volume 16, Issue 3. [Link]

Lipp, W., Smolinski, R., and Kesting, P. (2023). Beyond the first offer: Decoding negotiation

openings and their impact on economic and subjective outcomes. Group Decision and

Negotiation. 32. 10.1007/s10726-023-09813-5.

Nkuah, M. Y. (2006). Progress and performance control of a cost reimbursable construction

contract: A publication of the American association of cost engineers. Cost Engineering,

48(5), 13-18. Retrieved from [Link]

performance-control-cost-reimbursable/docview/220445862/se-2