FAR Part 16: Types of Contracts

In plain English

FAR Part 16 describes the types of contracts that may be used in federal acquisitions and provides policies and procedures for selecting the appropriate contract type. It matters to contractors because the contract type determines how risk, cost responsibility, and profit are allocated between the Government and the contractor.

Key rules

• Contracts resulting from sealed bidding must be firm-fixed-price or fixed-price with economic price adjustment. (16.102)
• Negotiated contracts may be of any type or combination that promotes the Government's interest. (16.102)
• Selecting the contract type is generally a matter for negotiation and requires sound judgment. (16.103)
• The contracting officer must consider factors such as price competition, cost analysis, and the type and complexity of the requirement when selecting a contract type. (16.104)
• A firm-fixed-price contract places maximum risk and full responsibility for costs on the contractor. (16.202-1)
• Cost-reimbursement contracts may be used only when circumstances do not allow a fixed-price contract or when uncertainties involved in performance do not permit a fixed-price contract. (16.301-2)
• A cost-reimbursement contract may be used only when the contractor's accounting system is adequate for determining costs and a written acquisition plan has been approved. (16.301-3)
• Indefinite-delivery contracts include definite-quantity, requirements, and indefinite-quantity contracts, and there is a preference for multiple awards of indefinite-quantity contracts. (16.500, 16.501-2)

Who does what

In practice

• When bidding, understand that a firm-fixed-price contract puts cost risk on you, while a cost-reimbursement contract pays allowable costs but may have a fee limitation.
• For indefinite-delivery contracts, be prepared for orders that may vary in quantity and timing, and note that multiple awards may be made.
• If you are in a cost-reimbursement contract, ensure your accounting system is adequate to track allowable costs.

Common pitfalls

• Assuming a cost-reimbursement contract guarantees payment of all costs; it only pays allowable incurred costs up to the contract ceiling.
• Overlooking that sealed bidding requires a firm-fixed-price or fixed-price with economic price adjustment contract, so you cannot propose other types.
• Failing to recognize that a letter contract is only a preliminary instrument and must be definitized later.

Written by AI from this part's codified text (2026-10-04); cited sections are checked against the part. A guide, not legal advice: the regulation text, the solicitation and your contract rule.