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FAR and DFARS › FAR Part 16: Types of Contracts › Subpart 16.2

FAR 16.205-2 Application.

The codified text (eCFR, as of 2026-10-02). Under the Revolutionary FAR Overhaul ↗, agencies follow class deviations with new text for many parts while the formal rules go through the Federal Register: check the solicitation and your contract's clauses, which rule.

In plain English

This section explains when a fixed-price contract with prospective price redetermination may be used: when a fair and reasonable firm fixed price can be negotiated for an initial period but not for later periods of performance. It matters because it limits this contract type to those situations and sets expectations for the initial period, subsequent pricing periods, and any ceiling price.

Applies to: Acquisitions of quantity production or services using a fixed-price contract with prospective price redetermination

What it requires

  • Make the initial period the longest period for which a fair and reasonable firm fixed price can be negotiated
  • Make each subsequent pricing period at least 12 months

Key terms: fixed-price contract with prospective price redetermination · initial period · subsequent pricing period · ceiling price · equitable adjustment

Written by AI from this section's text. A guide, not legal advice: the text below rules.

The text

A fixed-price contract with prospective price redetermination may be used in acquisitions of quantity production or services for which it is possible to negotiate a fair and reasonable firm fixed price for an initial period, but not for subsequent periods of contract performance.

(a) The initial period should be the longest period for which it is possible to negotiate a fair and reasonable firm fixed price. Each subsequent pricing period should be at least 12 months.

(b) The contract may provide for a ceiling price based on evaluation of the uncertainties involved in performance and their possible cost impact. This ceiling price should provide for assumption of a reasonable proportion of the risk by the contractor and, once established, may be adjusted only by operation of contract clauses providing for equitable adjustment or other revision of the contract price under stated circumstances.

Sections that refer to it

← 16.205-1 Description. · 16.205-3 Limitations. →

Rule changes for FAR Part 16

Source: eCFR, 48 CFR chapters 1 and 2 (GPO GovInfo bulk data) ↗. Plain words for the terms: glossary.

FAR 16.205-2 Application · SpendQuery