Government Contract Types | Argy, Wiltse & Robinson, P.C.

03.02.10

Government Contract Types – Practical Implications of the Government’s Use of Different Contract Vehicles to Acquire Goods, Services & Construction

by Brian A. Darst and Mark K. Roberts

Federal agencies acquiring services, supplies, or construction may choose from a variety of contract types. Selecting the most appropriate contract vehicle for the procurement is determined through an allocation of risks assumed by both the contractor and government for the costs and performance of the work, as well as the financial incentives that the contractor can achieve by performing the services or delivering the end item(s). As the Federal Acquisition Regulation (“FAR”) states, the objective of any negotiation of contract type is to choose a contact vehicle and price or estimated cost and fee that “will result in a reasonable contractor risk and provide the contractor with the greatest incentive for efficient and economical performance.” ¹

The FAR provides for many different possible contracts types, and the success of any procurement depends on the negotiation of the most appropriate contract. However, remember that agreement by both parties on the contract vehicle is only a means to an end, and the ultimate goal of any acquisition must be to achieve the desired result and ensure that a useful item or service is delivered in a timely manner. Failure to allocate these risks and benefits fairly or to provide for adequate payment/financing arrangements could result in a contractor’s inability to complete performance without significant losses, a contractor’s failure to deliver a useful end item or service without an adequate remedy, or an unwarranted windfall profit. Contract vehicles that impose too much risk on one party or that do not offer sufficient incentives to a contractor to complete the project have the potential to thwart this underlying goal.

Understanding the different contract types available, the flexibilities and limitations that the regulations, statutes and case law provide, and the resulting implications to both parties is critical to successful execution of a project. This article attempts to provide an overview of these topics.

Factors Affecting Choice of Contract Type

Many different factors must be considered when negotiating the contract type. Some of these factors are dependent upon the procuring agency’s needs and abilities; some factors are dependent upon the prime contractor’s capabilities; and some factors are dependent upon the extent to which one or more third parties (including Congress, other government officials, or private entities) may impact the agency’s or contractor’s performance. These factors include:

The degree of price competition;
The degree to which price analysis can be used to provide realistic pricing, in the alternative;
The ability of the government to place a reasonable degree of contract responsibility upon the contractor for cost estimates associated with performance;
The type and complexity of the government’s requirements;
The urgency of the government’s need to fulfill these requirements;
The contract’s stated period of performance and economic uncertainties associated with longer production runs or periods of performance;
The contractor’s technical and financial capabilities;
The adequacy of the contractor’s accounting system;
The existence of concurrent contracts and their impact on pricing and performance;
The extent and nature of the prime contractor’s use of subcontractors, including the degree of risk assumed by each; and
The acquisition history of the product or service.²

No single factor is determinative. Instead, selecting the most appropriate contract type requires the exercise of sound business judgment on the part of both parties.

FAR Part 16 provides government officials with flexibility to acquire a large variety and volume of supplies and services, while providing some degree of consistency among different federal agencies. FAR Subparts 16.2 through 16.6³ describe eleven different permissible contract vehicles. These vehicles can be subdivided into three different families – (1) fixed price contracts, (2) cost-reimbursement contracts, and (3) other contract vehicles that can be used when the quantity of supplies or services cannot be determined at the time of award (i.e., indefinite-delivery, time-and materials (“T&M”), and labor-hour (“L-H”), and level-of-effort (“LOE”) contracts) or where it is necessary for the contractor to begin performance before the terms and conditions of the contract can be negotiated (i.e., letter contracts).

Contract types discussed in FAR Part 16 range from firm-fixed-price contracts, under which the contractor bears full responsibility for the performance costs and resulting profit (or loss), to cost-plus-fixed-fee contracts, in which the contractor has minimal risk for performance costs and the negotiated fee is fixed. Between these two extremes are various price/cost re-determinable, economic price adjustment (“EPA”), and incentive fee/award fee contract types, in which the contractor’s risks and responsibility for performance costs and any profit or fee incentives offered by the government are tailored to the uncertainties involved in contract performance.

Although FAR Part 16 gives the parties much needed flexibility in choosing which types of contracts to rely upon during the acquisition, it is not without limitations. Certain types of contracts are prohibited by statue and/or regulation. For example, since 1940, Congress has prohibited the use of cost-plus-a-percentage-of-cost contracts at both the prime contract and subcontract levels.⁴ FAR Part 12 also prohibits the use of any cost-reimbursement contract when acquiring commercial items under FAR Part 12.⁵ In addition, the FAR imposes other limits or preferences on the use of different contract vehicles, depending on the nature of the product or service being acquired or the maturity of the system/product being acquired. Some of these limitations and preferences appear in FAR Part 16. Other preferences and limitations can be found in other Parts and Subparts of the FAR and Department of Defense FAR Supplement (“DFARS”) including: FAR Part 12 (Commercial Item Acquisitions),⁶ FAR Part 34 (Major System Acquisitions),⁷ FAR Part 35 and DFARS Part 235 (Research and Development Contracting)⁸; FAR Part 36 (Construction)⁹; and FAR Subpart 37.6 (Performance Based Acquisitions).¹⁰

The Fixed-Price Contract Family

The most common type of contract utilized by the government is the firm fixed-price contract, which provides for a firm price that is not subject to adjustment based on the contractor’s cost experience in performing the work.¹¹ The FAR also permits the parties to agree to price re-determination provisions (either upward or downward) where it is not possible to provide a firm-fixed-price for the entire period of performance. These fixed-price redetermination contracts may be either prospective or retroactive after completion of the contract, based on actual, audited performance costs at the time of price revision.¹² In addition, FAR Part 16 allows the use of EPA provisions in fixed-price contracts, allowing for an upward or downward adjustment to the stated contract price upon the occurrence of specified contingencies.¹³ However, there are limitations on the use of any such provisions and procurement agencies rarely rely on them to acquire goods or services.¹⁴

Firm-fixed-price contracts place the maximum amount of risk and full responsibility for all cost and profit upon the contractor and, thus, provide maximum incentives for the contractor to control its costs and perform efficiently.¹⁵ This requires the contractor to be able to project future costs of performance accurately when establishing the fixed price. The contractor’s trade-off for assumption of this risk is that firm fixed-price contracts impose a minimum administrative burden upon the contractor and restrict the government’s ability to direct performance by the contractor. Any additional costs or schedule delays caused by such actions could result in a claim for an equitable adjustment under the applicable Changes clause, or other remedy-granting provisions in the contract.

The Cost Reimbursement Contract Family

By contrast, a cost-reimbursement contract provides for reimbursement to the contractor of its allowable costs incurred in performance of the contract through the payment of cost vouchers. The allowability of the contractor’s costs is governed by the contract Cost Principles set forth in FAR Part 31. These contract Cost Principles are applicable to:

The pricing of contracts, subcontracts and modifications to contracts and subcontracts whenever cost analysis (as defined in FAR Part 15) is performed
The determination, negotiation, or allowance of costs when required by a contract clause.
All cost reimbursement contracts.
Contracts terminated for the convenience of the government.¹⁶

Also, a cost is considered allowable only when the cost complies with all of the following requirements:

Reasonableness;
Allocability;
The Cost Accounting Standards, as promulgated by the Cost Accounting Standards Board, if applicable, otherwise, generally accepted accounting principles and practices appropriate to the circumstances;
The terms of the contract; and
In the case of contracts with commercial (for profit) organizations, any limitations set forth in FAR Part 31.2¹⁷

To be considered allowable, and thus, reimbursable, the contractor must be able to demonstrate that its costs meets all five of these requirements.

The Cost Accounting Standards (“CAS”) referenced above are an appendix to the FAR and are set forth in Title 48 of the Code of Federal Regulations at Chapter 99.¹⁸ The CAS can be particularly important to cost reimbursement contracts and subcontracts, although some cost reimbursement contracts are exempted. The CAS provide guidance around:

The definition of cost
The measurement of cost
The assignment of cost to cost accounting periods
The allocation of cost to final cost objectives (normally contracts)

The CAS may be applicable to other types of contracts as well. However, generally they are only applicable to negotiated contracts in excess of $650,000, in which the affected business unit of the contractor or subcontractor is currently performing a CAS-covered contracts or subcontracts valued at $7.5 million or more (sometimes referred to as the “trigger contract”).¹⁹ In addition, the regulations set forth a number of exemptions from CAS coverage altogether or limit the number of those CAS to which the contractor’s accounting system must adhere.

Unlike fixed-price contracts, cost-reimbursement contracts only establish estimates of the total cost for performance, the purpose of which is for obligating funds and establishing a ceiling that the contractor may not exceed without the approval of the contracting officer, except at its own risk.²⁰ Cost-reimbursement contracts are particularly useful when uncertainties involved in performance are so great that they preclude the parties from accurately estimating future costs of successful performance. As such, they are used frequently when acquiring research and development, the principal purpose of which is to advance scientific and technical knowledge and apply that knowledge to achieve agency and/or national goals.²¹ Much like fixed-price contracts, there are different types of cost-reimbursement contracts, including cost-sharing contracts, under which the contractor is reimbursed only for an agreed upon portion of its allowable costs.

Because the cost estimate or “ceiling” set forth in the contract is only an estimate and the government is obligated to reimburse the contractor its actual, allowable, allocable costs in accordance with the FAR Cost Principles and the CAS, cost-reimbursement contracts allow for maximum government direction and surveillance during contract performance. Any contractor performing work under a cost-reimbursement contract must have an adequate cost accounting system to record both direct and indirect costs associated with the contract and segregate allowable from unallowable costs.²²

The trade-off for a contractor performing work under a cost-reimbursement contract is that unless otherwise specified, cost-reimbursement contract vehicles are only “best efforts” contracts. Specifically, the Limitations of Cost clause (used in fully-funded cost-reimbursement contracts) and Limitations of Funds clause (used in incrementally-funded cost-reimbursement contracts) state that the contractor is not obligated to continue performance, including any actions under the contract’s termination clause, or otherwise incur any costs in excess of the estimated costs specified unless and until the contracting officer notifies it that the total estimated cost has been increased.²³ In other words, unless the government continues to fund the effort, the government bears the risk that it will receive nothing for the costs expended to date, except the contractor’s best efforts.

The most common type of cost-reimbursement contract is the cost-plus-fixed-fee contract, which provides for the payment of a fixed fee to the contractor, regardless of the allowable or allocable costs incurred by the contractor. The fee is fixed through negotiation at the inception of the contract. It includes an allowance for profit, as well as other “unallowable,” albeit legitimate business costs that otherwise cannot be recovered from the government as an allowable cost. This fee may only be changed when the scope of work under the contract changes or there is a government termination.

Incentive Type Contracts

To encourage innovation and efficient effective performance, FAR Subpart 16.4 allows federal agencies to enter into contracts, which give contractors the opportunity to earn monetary or other incentives if the contractor meets or exceeds certain performance criteria established at the outset of the contract. These incentives can be based on cost savings, early deliveries, or enhanced performance capabilities. There are two basic categories of incentive contracts – fixed price incentive type contracts and cost-reimbursement incentive type contracts. Within these two categories, the FAR recognizes four types of incentive contracts: fixed-price incentive contracts (“FPI”), cost-plus-incentive-fee contracts (“CPIF”), fixed-price contracts with award fees (“FPAF”) and cost-plus-award-fee contracts (“CPAF”).²⁴

The principal difference between these contracts is that, under incentive-fee contracts, the contractor’s profit or fee is adjusted upward or downward by application of a formula, based on the relationship of the total final negotiated cost to the total target cost. That formula is incorporated into the contract itself. Application of the formula under both the FPI and CPIF contract types is, for the most part, a mathematical exercise. These contracts are commonly referred to as “objective” incentive type contracts. By contrast, the amount of profit or fee that the contractor can earn under FPAF and CPAF contracts is established by a fee determination official within the agency based on by an assessment of how well an agency award fee board (which meets at periodic intervals) believes that the contractor has achieved or exceeded performance criteria established in an Award Fee Plan. Based on how well or how poorly a contractor has met or exceeded the stated goals, the contractor is awarded all, a portion, or none of an award fee pool for the performance period in question. Because this award fee is not based on a contractual formula, CPAF and FPAF contracts are commonly referred to as “subjective” incentive type contracts. The contractor has only limited ability to challenge a fee determination official’s decision as to what portion of the award fee the contractor will receive.

Another important distinction between fixed-price and cost-reimbursement incentive contracts is that, because a FPI and FPAF contract is based on a fixed price, it incorporates a ceiling amount known as the “Point of Total Assumption” (“PTA.”). Like any other fixed-price type contract, once the PTA is reached, the contractor is not entitled to any additional compensation. Even if the contractor’s costs of performance exceed the PTA, the contractor must still complete performance and deliver those end item(s) required by the contract. By contrast, the cost-ceilings set forth in a CPIF and CPAF contract are only estimates and are subject to the same the Limitations of Cost and Limitations of Funds clauses previously discussed. CPIF and CPAF contracts, like other cost-reimbursement contract vehicle, are only “best efforts” contracts, and the government must continue to fund the contractor’s effort if it wants to complete performance.

Many incentive type contracts are based on the degree of cost savings a contractor is able to achieve from those estimated at the time of award. However, it is not uncommon for the government to mix and match cost, delivery and performance criteria against which a contractor’s performance will be judged. This is particularly true in the case of FPAF and CPAF contracts. The more complex the formula or award fee plan is, the more careful consideration an agency must make of the trade-offs among the different incentive factors, consistent with the procuring agency’s overall objectives.²⁵

There has been a steady increase in the use of FPAF and CPAF contracts since 1997, but recently these contracts have come under criticism by Congress and the Government Accountability Office (“GAO”).²⁶ In response, the OMB’s Office of Federal Procurement Policy (“OFPP”) and the Department of Defense have issued guidance on structuring and using award fee contracts and award fee plans. This guidance is designed to minimize the use of rollovers of unused award fee pools to the next award fee period, to achieve more uniform determinations of the portion of award fee to which a contractor should be entitled for achieving or exceeding stated criteria, and to require agencies to establish more objective/measurable criteria that demonstrate some real benefit to the government.²⁷

Additional Contract Types & Agreements

In some cases, it may not be possible for a procuring agency to describe its requirements except in general terms. In these cases, the contracting parties have the ability to agree to indefinite-delivery type contracts that do not procure or specify a firm quantity of goods or services other than a minimum or maximum quantity, and that provide for the issuance of orders for delivery of needed supplies or services during the period of the contract.²⁸ Supplies or services are purchased through the issuance of delivery orders or task orders as the end user’s needs arise²⁹. Most, although not all indefinite-delivery contracts are based on fixed-unit prices.

There are three different types of indefinite-delivery type contracts: definite-quantity contracts, indefinite-quantity contracts (“IDIQ”), and requirements contracts. All three types are designed to allow the government to maintain its stock of supplies or services at minimum levels and permit direct shipment to the end-users. They generally promote faster deliveries by avoiding delays and unnecessary administrative costs associated with the negotiation of individual purchase orders or contracts.³⁰ A requirements contract obligates the government to fill all of its actual requirements for supplies or services that are specified in the contract, during the contract period, by purchases from the contract awardee.³¹ Conversely, while an IDIQ contract provides that the government will purchase an indefinite quantity of supplies or services from a contractor during a fixed period of time, it requires the government to order only a stated minimum quantity of supplies or services.³² That is -- under an IDIQ contract, the government is obligated to purchase the minimum.

It is common for government officials to provide estimates of the agency’s total requirements under an IDIQ or requirements contract during the solicitation process to allow offerors to develop unit prices for the goods or services. One potential pitfall of which contractors must be aware is that typically, the government is only obligated to order the stated guaranteed minimum set forth in the contract. Indeed, in requirements contracts, there is no need to specify a minimum quantity since those contract vehicles presume that the government will order all of its requirements for a product or service at stated installations from a single contractor. Because fixed unit prices are based upon a combination of direct and indirect costs, including overhead, general and administrative expenses, contractors should not simply rely on the government’s estimated quantity to develop their prices.³³ It may be necessary to attempt to negotiate “stepladder” quantities or multiple estimated quantities, in which the unit prices for each item of supply or hour of service is reduced the more the government orders under the contract. Such negotiations may be easier in sole-source settings than competitive procurements. Nonetheless, vendors must be aware that, failure to order any quantity beyond a stated minimum guarantee could result in erosion of the contractor’s profit margin and even result in a loss since indirect costs tend not to fluctuate and must be absorbed by the total quantity of items or services actually ordered by the procuring agency.

T&M and L-H contracts are a variety of indefinite-delivery contract and provide procuring agencies with the flexibility to acquire recurring services or when the amount of effort required to deliver an end-item is uncertain. T&M and L-H contracts typically cover a broad range of services, including administrative support, maintenance and repair, and intelligence analysis. Under these contracts, payments to contractors are based on the number of labor hours or days expended. The unit prices or fixed hourly/daily rates include wages, overhead, general and administrative expenses and profits. As such, like any other indefinite-delivery contract, T&M and L-H contracts resemble both fixed-price and cost-reimbursement type procurement vehicles. T&M contracts also include a reimbursable line item for costs of materials, where applicable.

Despite the flexibility afforded by T&M and L-H contracts, these vehicles are considered high-risk contracts for the government. This is because there is little positive incentive for the contractor to control its costs or promote labor efficiency. The more hours expended in support of a project, the more the contractor can bill the government. While the FAR requires that all T&M and L-H contracts include ceilings over which the contractor may not expend effort, like a cost-reimbursement type contract, almost all T&M and L-H contracts are only “best efforts” contracts. The FAR’s Payment under Time-and-Materials and Labor-Hour Contract clause clearly states that, “the Contractor shall not be obligated to continue performance if to do so would exceed the ceiling price . . . unless and until the price has been increased . . . .”³⁴

Because of this, T&M and L-H contracts are among the least favored types of contract from the government’s perspective.³⁵ Both the FAR and DFARS place limitations on the use of these contract vehicles and sometimes require approvals before they can be used in both the Commercial Item Acquisition and other more-traditional procurement approaches.³⁶ Indeed, the FAR provides that T&M contracts may only be used “when it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence.”³⁷

In addition to the foregoing, FAR Subpart 16.7³⁸ sets forth policies and procedures for using Basic Agreements (“BA”), Basic Ordering Agreements (“BOA”), and Basic Purchasing Agreements (“BPA”). These “agreements” are not contracts themselves.³⁹ Instead, each order or contract issued under the agreement is a stand-alone contract that incorporates the agreement by reference. The benefit of such agreements is that they allow the parties to finalize a number of clauses, prices, and other terms and conditions in advance of execution of a contract – streamlining the negotiation process and reducing the time needed for recurring purchases.

Additional Flexibilities & Innovations

FAR Part 16’s contract types and agreements are not the only permissible types of procurement vehicles available to the United States government and its prime contractors. FAR 1.102(d) encourages the use of innovating contracting methods by providing that, when exercising initiative, members of the government’s acquisition team may assume that, if a specific strategy, practice, policy, or procedure is in the best interests of the government and is not addressed in the FAR or prohibited by statute or case law, Executive Order, or other regulation, that the acquisition strategy is a permissible exercise of the acquisition team’s authority.⁴⁰

In recent years, there has been a growing trend to develop new contract vehicles, such as new contract vehicles that are not identified in the FAR, DFARS, or other agency FAR supplement. One of the most significant innovations is the “award term” contract. Award term contracts are a form of incentive contracts, but instead of providing direct monetary rewards to the contractor through additional profit or fee, contractors that meet or exceed specified performance criteria are rewarded through an extension of the contract’s period of performance. Contractors that fail to achieve desired goals may have their contracts cut short.⁴¹ Another innovative contract vehicle is the “no-cost” or concession type contract. Under a typical no-cost type contract, a vendor provides a service that a federal agency would otherwise perform, but instead of receiving compensation from the procuring agency, the vendor charges third parties or end users all or a portion of the fees for the services or end products.⁴²

In addition, procuring agencies and contractors frequently rely on the use of “hybrid” contracts, which mix and match different contract types into a single instrument. For example, under a hybrid contract, certain line items may be priced on a fixed-price basis, other line items may be allow the contractor to invoice the government on a cost-reimbursement basis, and other line items for provisioning, spare parts, or services may be based on an indefinite-delivery type basis. Combing these different contract types into a single instrument can avoid unnecessarily delays and costs associated with issuing separate contracts, while taking to account for varying degrees of risk and incentives for different phases of the program.

Conclusion

Over time, refinements and sophistication of the government’s procurement system has led to the development of many different types of fixed-price and cost-reimbursement contracts. Selecting the most appropriate vehicle to acquire goods and services is a matter of negotiation and requires the exercise of sound business judgment. As stated in American Tel. & Tel. Co, v. Untied States,⁴³ “the regulations entrust the contracting officer with especially great discretion, extending even to [his or her] application of procurement regulations.” The key to negotiating the most appropriate contract type must take into account schedule, cost, and performance risks that the contractor or government bears, the incentives that can be achieved by efficient and economical performance, and the degree of oversight needed by the procuring agency to ensure delivery of a useful product, service, or building to the end user. A thorough understanding of the uses of these vehicles and limitations set forth in FAR and DFARS is essential to accomplish this objective. It is not only important for government officials to understand the requirements and flexibilities available to them, but it is equally important for contractors to understand the risks and benefits that they can achieve under each contract type to better ensure that they can complete the project successfully and make a reasonable profit.

Brian A. Darst and Mark K. Roberts are co-instructors of Federal Publications Seminars’ “Types of Government Contracts,” a comprehensive two-day course on the practical, legal, accounting, and management systems implications in the use of various contract vehicles.

Mr. Darst is of counsel to the Fairfax, Virginia, law firm of Odin, Feldman & Pittleman, P.C. where he specializes in Government Contracts law.

Mr. Roberts is a partner with the accounting firm of Argy, Wiltse and Robinson, P.C. where he specializes in Government Contracts.

48 C.F.R. § 16.103(a) (2008).
Id., at § 16.104.
Id., at §§ 16.201 through 16.603-4.
Id., at § 16.103(c) (citing 10 U.S.C. § 2306(a) and 41 U.S.C. § 254(b)).
Id., at §§ 12.207 and 16.301-3(b).
Id., at § 12.207 (encouraging the use of firm-fixed price contracts or fixed price contracts with economic price adjustments when acquiring commercial items and requiring certain determinations and findings before using indefinite-delivery, T&M or L-H contracts).
Id., at §§ 34.005-3 through 34.005-6 (setting forth policies on the use of different contract types and pricing approaches during concept exploration, demonstration, full-scale development, and full production phases of major systems).
Id., at §§ 35.006 and 235.006 (discussing the use of cost-reimbursement and fixed price contracts in research and development efforts, as well as determination and approval requirements for each). See also Id., at § 35.015)(b) (encouraging the use of basic agreements with educational institutions and nonprofit organizations conducting research and development on behalf of the government).
Id., at § 36.207 (establishing a preference for “lump-sum” or fixed-price contracts when acquiring construction) and 36.208 (requiring prior approval when using cost-plus-fixed-fee, price-incentive, or other contract types with cost variation or adjustment feature when other contractors are performing at the same work site on a firm-fixed price, lump sum, or unit price basis); see also Id., at § 216.306 (which restricts the use of cost-plus-fixed-fee contracts by the Department of Defense for construction funded by annual military construction appropriations acts).
Id., at § 37.601(b)(2) (encouraging the use of incentive type contracts where appropriate).
Statistics showing the amount of federal dollars obligated under different types of contracts can be found at USASpending.gov, http://www.usaspending.gov/fpds/tables.php?tabtype=t1&rowtype=g&subtype=p&sorttype=2009
Id., at §§ 16.205 and 16.206.
Id., at § 16.203.
Id., at §§ 16.203-3, 16.205-3, and 16.206-3. see also Id, at § 216.203 (prohibiting the use of EPA provisions in Department of Defense contracts unless the total contract price exceeds the Simplified Acquisition threshold and will not be completed within six months after contract award).
Id., at § 16.203-1(a); Southern Dredging Co., Inc., ENG BCA No. 5843, 92-2 BCA § 24,886 (denying a request for equitable adjustment due to a 50% increase in the price of oil following the invasion of Kuwait, on the basis that the contractor assumed the risk of fluctuations in the cost of necessary materials and supplies).
See generally FAR §§ 31.100 through 31.108.
Id., at § 31.201-2(a). Office of Management and Budget (“OMB”) Circular No. A-87,entitled “Cost Principles for State and Local Governments, Revised,” sets forth the principles for determining the allowable costs of contracts and subcontracts with State, local, and federally recognized Indian tribal governments. OMB Circular No. A-21, entitled “Cost Principles for Educational Institutions, Revised,” provides principles for determining the costs applicable to research and development, training, and other work performed by educational institutions under contracts with the government. Finally, OMB Circular No. A-122, entitled “Cost Principles for Nonprofit Organizations,” sets forth principles for determining the costs applicable to work performed by nonprofit organizations under contracts, as well as grants and other agreements, with the government. In many respects, the cost allowability provisions of these OMB Circulars are similar to the requirements in FAR Subpart 31.2, but differ somewhat due to the unique nature of these contracting parties’ accounting systems.
48 C.F.R. §§ 9903.101 through 9903.307.
Id., at § 9903.201-1.
Tital Corp. v. West, 129 F.3d 1479 (Fed. Cir. 1997); 48 C.F.R. § 16.301-1. There are some exceptions to this rule, including cases where the cost overrun is unforeseeable (RMI, Inc. v. United States, 800 F.2d 246 (Fed. Cir. 1986), the government induces the contractor to continue working even though funding was not available (American Elec. Labs., Inc. v. United States, 774 F.2d 1110 (Fed. Cir. 1985), and the government orders out-of-scope work causing the contractor to overrun its ceiling (DSS Serv., Inc. v. General Serv. Admin., CBCA No. 1093 (Apr. 16, 2009)). Nevertheless, the general rule is that the contractor may not recover costs above the ceiling unless and until the contracting officer authorizes the contractor to exceed that amount. Advanced Materials, Inc., ASBCA No. 47014, 96-1 BCA ¶ 28, 002.
48 C.F.R. §§ 35.003 and 35.005.
CrystaComm, Inc., ASBCA No. 37177, 90-2 BCA ¶ 22,692; see also 48 C.F.R. § 16.301-3.
Id., at §§ 52.232-20(d)(2) and 52.232-22(d)(2).
Id., at §§ 16.403, 16.404, 16.405-2, and 16.405-2. The FAR also recognizes two different types of FPI contracts – fixed-price incentive (firm target) contracts and fixed-price incentive (successive targets) contracts.
Id., at § 16.402-4.
See, e.g., GAO, Guidance on Award Fees Has Led To Better Practices but Is Not Consistently Applied (Washington, D.C. 2009); GAO, Use of Award Fees for Achieving Program Outcomes Should Be Improved (Washington, D.C. 2007); GAO, Minimal Compliance with New Safeguards for Time-and-Materials Contracts for Commercial Services and Safeguards Have Not Been Applied to GSA Schedules Program. (Washington, D.C. 2009).
See OMB Memorandum For Chief Acquisition Officers, Senior Procurement Executives re: Appropriate Use of Incentive Contracts (Dec. 4, 2007); Memorandum for Secretaries of the Military Departments (Attn: Acquisition Executives) Directors of Defense Agencies re: Proper Use of Award Fee Contracts and Award Fee Provisions (Apr. 24, 2007); Memorandum for Secretaries of the Military Departments (Attn: Acquisition Executives) Directors of Defense Agencies re: Award Fee Contracts (FAR 16, DFARS 215, DFARS 216) (Mar. 29, 2006).
Id., at § 16.501-1.
See Stratos Mobile Networks U.S.A. v. United States, 213 F.3d 1375, 1380 (Fed. Cir. 2000). All General Services Administration (“GSA”) Federal Supply Schedule (“FSS”) contracts, as well as many agency-issued multiple award contracts are indefinite-delivery contracts. Another more limited type of contract that can be used to deal with uncertainties associated with the quantity of effort required are the fixed-price and cost-reimbursement LOE term contracts. See 48 C.F.R. § 16.207.
48 C.F.R. § 16.501-2.
Id., at § 16.503(a); see also Medart, Inc. v. Austin, 967 F.2d 579, 581 (Fed. Cir. 1992).
48 C.F.R. § 16.504(a); see also Dot Sys., Inc. v. United States, 231 Ct. Cl. 765 (1982).
See, e.g., Travel Centre v. Barram, 236 F.3d 1316 (Fed. Cir. 2001) (finding no fault in government’s “less than ideal contracting tactics” when solicitation for IDIQ contract with minimum purchase threshold of $100, had figures estimating $2.5 million per year profit from contract, and government stopped using contractor after $500,000.00 of gross sales); IMS Eng’rs-Architects, P.C .v. United States, No. 07-292C, slip. op. (Fed. Cl. June 26, 2009).
Id., at §52.232-7(d).
GAO, Improved Insight and Controls Needed over Time-and-Materials Contracts (Washington, D.C. 2007).
48 C.F.R. §§ 12.207(b) and 216.601; see also Memorandum for Commander, United States Special Operations Command, et al. re: Proper Use of Time-and-Materials Contract Types (Mar. 20, 2008).
48 C.F.R. § 16.6901(c).
Id., at §16.701-703.
Id., at § 16.702(a).
Id., at §1.102(d).
See generally HQ AFMC Directorate of Contracting, AFMC Award-Fee & Award –Term Guide (Dec. 2002), available at http://www.daytonaero.com/Files/resource/62.pdf; NASA Procurement Information Circular No 06-02 (Jan. 25, 2006), entitled “Use of Award Term Incentive,” available at http://www.hq.nasa.gov/office/procurement/regs/pic06-02.html.
See, e.g., GAO, No-Cost Contracts for Event Planning Services, B-308968 (Nov. 27, 2007), Public Comm’s Servs., Inc., B-400058; B-400058.3 (July 18, 2009).
307 F.3d 1374, 1379 (Fed. Cir. 2002).

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