Firm-Fixed-Price (FFP)
What It Is
A firm-fixed-price (FFP) contract fixes a single price for the work and does not adjust it based on what the work actually costs the contractor to perform. The government pays the agreed price on delivery and acceptance; if the job costs less than expected, the contractor keeps the difference, and if it costs more, the contractor absorbs the overrun. Because it places full cost responsibility on the contractor and demands the least government oversight, FFP is the government's preferred type and the one behind the overwhelming majority of small-business set-asides for commercial products and services.
Who Carries the Risk
Maximum risk on the contractor and minimum administrative burden on the government — the contractor bears 100% of any cost overrun.
When the Government Uses It
- Commercial products and services and other buys where the requirement is well-defined and the cost can be estimated with reasonable confidence.
- Most competitive small-business and SDVOSB set-asides under FAR Part 12 (commercial) and simplified acquisitions.
- Where the government wants the least administrative oversight and no need to audit the contractor's incurred costs.
Key Features
| Feature | What It Means |
|---|---|
| Price | One not-to-be-adjusted price (or unit price per CLIN). The price is the price — there is no cost reconciliation at the end. |
| Cost risk | Entirely on the contractor. Your profit is whatever is left after costs, so estimating accurately is the whole game. |
| Accounting requirements | No government-approved cost-accounting system is required. You are not billing incurred costs, so there is no DCAA cost audit of performance. |
| Payment | On delivery and acceptance (or against fixed-price milestones). Progress payments may be available on longer efforts. |
What It Means for an SDVOSB
FFP is the simplest type to perform and bid, which is why most SDVOSB set-asides use it — there is no incurred-cost audit and no approved accounting system required to win. The flip side is that all estimating risk is yours: under-price the work and the overrun comes out of profit. Because the limitations on subcontracting (13 CFR 125.6) are measured as a percentage of the contract amount the prime pays to firms that are not similarly situated, an FFP services award means you must self-perform at least 50% of the contract price — model it with the limitations-on-subcontracting calculator before you team.
Common Pitfalls
- Treating the fixed price as a budget — there is no true-up. If your costs exceed the price, the loss is yours.
- Under-scoping labor or materials in the estimate; an aggressive price-to-win that ignores realistic cost is how firms lose money on a 'won' contract.
- Assuming changes will be paid for automatically — added scope generally requires a contract modification (SF 30) before you perform it.
Run the Numbers
Frequently Asked
Why are most SDVOSB set-asides firm-fixed-price?
Because the FAR directs contracting officers to use firm-fixed-price whenever the requirement is well-defined enough to price with confidence (FAR 16.103), and most set-asides are commercial buys under FAR Part 12 where that is the case. FFP also needs the least government oversight — no incurred-cost audit and no approved accounting system — which makes it the simplest type for a small business to compete for and perform.
Can a firm-fixed-price contract price ever change?
Only through a contract modification — for example, when the government changes the scope under the Changes clause, exercises a priced option, or issues an equitable adjustment. The price does not change just because your costs came in higher or lower than you estimated. If you expect the price of materials or labor to move with the market, that is a fixed-price-with-economic-price-adjustment (FP-EPA) contract, not FFP.
Primary Sources
Plain-English reference, not legal advice. Contract-type selection is a contracting-officer judgment and the FAR is periodically amended — always confirm the contract type, clauses, and how the limitations on subcontracting are measured against the solicitation and your contracting officer before relying on this.
Change log (1)
- LaunchedPublished the federal contract types reference covering the pricing and delivery arrangements an SDVOSB encounters on set-asides — firm-fixed-price (FFP), fixed-price with economic price adjustment (FP-EPA), fixed-price incentive (FPIF), the cost-reimbursement family (CPFF, CPIF, CPAF), time-and-materials and labor-hour, the indefinite-delivery vehicles (IDIQ, requirements, definite-quantity), and letter contracts — each with a who-carries-the-risk callout, a key-features table, an SDVOSB-specific angle tying the type to the limitations on subcontracting, common pitfalls, FAQPage, Article, Dataset, and BreadcrumbList structured data, primary-source FAR Part 16 citations, and cross-links into the glossary, regulation explainers, how-to guides, FAQ, and the limitations-on-subcontracting and price-to-win calculators.